The accompanying notes are an integral part of these condensed
consolidated financial statements.
CHINA HEALTH INDUSTRIES HOLDINGS, INC. AND
SUBSIDIARIES
|
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND
|
COMPREHENSIVE INCOME (LOSS)
|
(UNAUDITED)
|
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
|
|
|
|
|
|
December
|
|
|
December
|
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
31, 2016
|
|
|
31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUE
|
$
|
1,891,496
|
|
$
|
2,725,651
|
|
$
|
3,071,664
|
|
$
|
4,681,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST OF GOODS SOLD
|
|
1,179,037
|
|
|
2,000,198
|
|
|
1,934,322
|
|
|
3,419,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT
|
|
712,459
|
|
|
725,453
|
|
|
1,137,342
|
|
|
1,262,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
expenses
|
|
327,091
|
|
|
651,141
|
|
|
757,355
|
|
|
1,000,020
|
|
Depreciation and
amortization expenses
|
|
243,459
|
|
|
150,069
|
|
|
392,334
|
|
|
332,030
|
|
Total operating
expenses
|
|
570,550
|
|
|
801,210
|
|
|
1,149,689
|
|
|
1,332,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) FROM OPERATIONS
|
|
141,909
|
|
|
(75,757
|
)
|
|
(12,347
|
)
|
|
(69,493
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME/(EXPENSES)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
17,579
|
|
|
17,417
|
|
|
37,488
|
|
|
35,524
|
|
Interest expense
|
|
(21,051
|
)
|
|
(26,855
|
)
|
|
(42,737
|
)
|
|
(58,479
|
)
|
Investment income
|
|
219,635
|
|
|
-
|
|
|
444,728
|
|
|
-
|
|
Other income/(expenses), net
|
|
194,369
|
|
|
11,856
|
|
|
203,362
|
|
|
21,375
|
|
Bank charges
|
|
(702
|
)
|
|
-
|
|
|
(702
|
)
|
|
-
|
|
Gain on disposal of subsidiary
|
|
1,157,590
|
|
|
-
|
|
|
1,157,590
|
|
|
-
|
|
Total other income (expenses), net
|
|
1,567,420
|
|
|
2,418
|
|
|
1,799,729
|
|
|
(1,580
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME/(LOSS) BEFORE INCOME TAXES
|
|
1,709,329
|
|
|
(73,339
|
)
|
|
1,787,382
|
|
|
(71,073
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
439,620
|
|
|
38,477
|
|
|
493,650
|
|
|
70,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) FROM
CONTINUING OPERATIONS
|
|
1,269,709
|
|
|
(111,816
|
)
|
|
1,293,732
|
|
|
(141,956
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS FROM DISCONTINUED
OPERATIONS
|
|
-
|
|
|
(193
|
)
|
|
-
|
|
|
(389
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
1,269,709
|
|
|
(112,009
|
)
|
|
1,293,732
|
|
|
(142,345
|
)
|
Less: net loss attributable to non-controlling interests
|
|
-
|
|
|
(2
|
)
|
|
-
|
|
|
(4
|
)
|
NET INCOME (LOSS) ATTRIBUTABLE TO
CHINA HEALTH INDUSTRIES HOLDINGS
|
|
1,269,709
|
|
|
(112,007
|
)
|
|
1,293,732
|
|
|
(142,341
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) FROM
CONTINUING OPERATIONS
|
|
1,269,709
|
|
|
(111,816
|
)
|
|
1,293,732
|
|
|
(141,956
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS FROM DISCONTINUED
OPERATIONS
|
|
-
|
|
|
(193
|
)
|
|
-
|
|
|
(389
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER COMPREHENSIVE LOSS
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation loss
|
|
(803,510
|
)
|
|
(675,918
|
)
|
|
(921,221
|
)
|
|
(1,575,396
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE INCOME (LOSS)
|
|
466,199
|
|
|
(787,927
|
)
|
|
372,511
|
|
|
(1,717,741
|
)
|
Less: comprehensive loss attributable to
non-controlling interests
|
|
8
|
|
|
6
|
|
|
8
|
|
|
13
|
|
COMPREHENSIVE LOSS ATTRIBUTABLE TO
CHINA HEALTH
INDUSTRIES HOLDINGS
|
$
|
466,207
|
|
$
|
(787,921
|
)
|
$
|
372,519
|
|
$
|
(1,717,728
|
)
|
Net income (loss) attributable to China
Health Industries Holdings' shareholders per share are:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic & diluted income (loss) per
share
|
$
|
0.0193
|
|
$
|
(0.0017
|
)
|
$
|
0.0197
|
|
$
|
(0.0022
|
)
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic & diluted weighted average
shares outstanding
|
|
65,784,302
|
|
|
65,539,737
|
|
|
65,812,020
|
|
|
65,539,737
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
CHINA HEALTH INDUSTRIES HOLDINGS, INC. AND
SUBSIDIARIES
|
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
(UNAUDITED)
|
|
|
For the Six Months Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
Net income (loss) available to China
Health Industries Holdings
|
$
|
1,293,732
|
|
$
|
(142,341
|
)
|
Net loss from
discontinued operations
|
|
-
|
|
|
389
|
|
Net income (loss) from continuing
operations
|
|
1,293,732
|
|
|
(141,952
|
)
|
Adjustments to
reconcile net income (loss) to net cash provided by operating activities:
|
|
|
|
|
|
|
Depreciation and amortization expenses
|
|
520,038
|
|
|
432,571
|
|
Provision for doubtful accounts
|
|
-
|
|
|
761
|
|
Non-controlling interests
|
|
-
|
|
|
(4
|
)
|
Short term investment income
|
|
(444,728
|
)
|
|
-
|
|
Share-based
compensation
|
|
-
|
|
|
112,500
|
|
Gain on disposal of subsidiaries
|
|
(1,157,590
|
)
|
|
-
|
|
Changes in operating assets and
liabilities,
|
|
|
|
|
|
|
Accounts receivable
|
|
(528,536
|
)
|
|
(555,145
|
)
|
Other
receivables
|
|
221,024
|
|
|
(2,125
|
)
|
Inventory
|
|
(76,086
|
)
|
|
109,962
|
|
Advance to
suppliers and prepaid expenses
|
|
(236,268
|
)
|
|
(20,858
|
)
|
Interest receivable
|
|
(432,090
|
)
|
|
-
|
|
Accounts
payables and accrued expenses
|
|
(45,131
|
)
|
|
17,696
|
|
Advance from customers and other payables
|
|
(457,388
|
)
|
|
(5,222
|
)
|
Amounts due
to related parties
|
|
194,096
|
|
|
-
|
|
Wages payable
|
|
64,928
|
|
|
45,376
|
|
Taxes
payable
|
|
281,726
|
|
|
121,903
|
|
Net cash (used
in)/provided by operating activities from continuing operations
|
|
(802,273
|
)
|
|
115,463
|
|
Net cash (used in)/provided by
operating activities from discontinued operations
|
|
17,254
|
|
|
-
|
|
Net cash provided by
operating activities
|
|
(785,019
|
)
|
|
115,463
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
Expenditure
in short term investment
|
|
(8,197,069
|
)
|
|
-
|
|
Notes receivable
|
|
-
|
|
|
(14,284
|
)
|
Purchases
of property, plant and equipment
|
|
-
|
|
|
(4,997
|
)
|
Expenditure in construction in progress
|
|
(13,399
|
)
|
|
(49,971
|
)
|
Proceeds
from disposal of subsidiaries
|
|
921,792
|
|
|
-
|
|
Net cash used in
investing activities from continuing operations
|
|
(7,288,676
|
)
|
|
(69,252
|
)
|
Net cash used in investing activities
from discontinued operations
|
|
-
|
|
|
-
|
|
Net cash used in
investing activities
|
|
(7,288,676
|
)
|
|
(69,252
|
)
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
Proceeds
from related party debts
|
|
85,085
|
|
|
55,155
|
|
Payment of short term loans
|
|
(64,387
|
)
|
|
(45,700
|
)
|
Net cash provided by financing
activities from continuing operations
|
|
20,698
|
|
|
9,455
|
|
Net cash provided
by financing activities from discontinued operations
|
|
-
|
|
|
-
|
|
Net cash provided by financing
activities
|
|
20,698
|
|
|
9,455
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash
equivalents
from continuing operations
|
|
(1,436,907
|
)
|
|
(906,514
|
)
|
Effect of exchange rate changes on cash
and cash equivalents
from discontinued operations
|
|
(25,832
|
)
|
|
(395
|
)
|
|
|
|
|
|
|
|
Net decrease in cash and cash
equivalents from continuing
operations
|
|
(9,507,158
|
)
|
|
(850,848
|
)
|
Net decrease in cash and cash equivalents from
discontinued
operations
|
|
(8,578
|
)
|
|
(395
|
)
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning balance from
continuing
operations
|
|
29,783,152
|
|
|
21,113,832
|
|
Cash and cash equivalents, beginning
balance from discontinued
operations
|
|
8,578
|
|
|
9,195
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, ending
balance from continuing
operations
|
$
|
20,275,994
|
|
$
|
20,262,984
|
|
Cash and cash equivalents, ending balance from
discontinued
operations
|
$
|
-
|
|
$
|
8,800
|
|
|
|
|
|
|
|
|
Supplemental cash flow information
|
|
|
|
|
|
|
Cash paid for income
taxes
|
$
|
42,999
|
|
$
|
58,479
|
|
Cash paid for interest expense
|
$
|
650,264
|
|
$
|
346,183
|
|
|
|
|
|
|
|
|
Non-cash activities:
|
|
|
|
|
|
|
Loan from related party
for the construction of a facility
|
$
|
452,141
|
|
$
|
480,633
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
6
CHINA HEALTH INDUSTRIES HOLDINGS, INC. AND
SUBSIDIARIES
|
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 Financial Accounting Standards Board (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 equity interests 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. 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 and
the Share Purchase was accounted for as a 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.
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 majority owner of
China Health US, owned 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 was 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.
7
On December 24, 2014, Humankind entered into a Stock Transfer
Agreement (the Original Agreement) with Xiuzheng Pharmaceutical Group Co.,
Ltd. a company incorporated under the laws of the PRC and located in Jilin
province (Xiuzheng Pharmacy or the Buyer), Mr. Xin Sun, the CEO of the
Company, and Huimeijia, a 99% owned subsidiary of Humankind and 1% owned by Mr.
Xin Sun, pursuant to which, Humankind and Mr. Xin Sun (the Equity Holders),
would sell their respective equity interests in Huimeijia, to Xiuzheng Pharmacy.
On February 9, 2015, the four parties entered into a supplementary agreement
(the Supplementary Agreement) to modify the terms of the Original Agreement,
pursuant to which, the Equity Holders and Huimeijia (collectively the Assets
Transferors) would only sell the 19 drug approval numbers (the Assets) to
Xiuzheng Pharmacy. The Equity Holders would have retained their equity interests
in Huimeijia, but would have pledged such equity interests to Xiuzheng Pharmacy
until the Assets were transferred. On October 12, 2016, the four parties agreed
to rescind the Supplementary Agreement and entered into a new supplementary
agreement, pursuant to which, the four parties agreed to execute the transfer of
the equity interests based on the Original Agreement, and according to which the
Equity Holders sold their respective equity interests in Huimeijia to Xiuzheng
Pharmacy for a total cash consideration of RMB 8,000,000 (approximately
$1,306,186, the Purchase Price) to the Equity Holders. As of the date of this
report, 80% of the Purchase Price was paid,Huimeijia has completed the changes
in business registration, and Xiuzheng Pharmacy obtained a newly issued document
business license issued by the local State Administration of Industry and
Commerce in Harbin (Harbin SAIC) to Huimeijia in which the ownership of
Huimeijia has now been recorded as being held by Xiuzheng Pharmacy with Harbin
SAIC, and the legal representative (a person that is authorized to take most of
the corporate actions on behalf of a company under the corporate laws in China)
of Huimeijia has now been appointed by the Buyer. The transfer of all the Assets to
the Buyer and the remainder of the Purchase Price to the Equity Holders are
pending (See Note 3). The gain on the disposal of Huimeijia was $1,157,590.
China Health US, China Health HK, Humankind, Huimeijia and HLJ
Huimeijia are collectively referred herein to as the Company.
As of December 31, 2016, the Companys corporate structure was
as follows:
8
Note 2 - SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
This summary of significant accounting policies of the Company is presented to assist in understanding the Company’s financial statements. The financial statements and notes are representations of the Company’s 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 unaudited condensed
consolidated financial statements.
The accompanying unaudited condensed consolidated financial statements have been prepared by Company without audit pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Certain information and
disclosures normally included in financial statements prepared in accordance with US GAAP have been condensed or omitted as allowed by such rules and regulations, and management believes that the disclosures are adequate to make the information
presented not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended
June 30, 2016. These unaudited condensed consolidated financial statements include all adjustments, which in the opinion of management are necessary to a fair presentation of financial position and results of operations. All such adjustments are of
a normal and recurring nature. The results of operations for the six months ended December 31, 2016 may not be indicative of results that may be expected for the year ended June 30, 2017.
Principles of Consolidation
The accompanying unaudited condensed 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 China Health US, before and after
the date of transfer. Humankind’s 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.
Reclassifications
Certain prior year balances were reclassified to conform to the current period's presentation with consideration of reflecting Huimeijia business as discontinued operations. None of these reclassifications had an impact on reported financial position
or cash flows for any of the periods presented.
9
Segment Reporting
FASB Accounting Standard Codification (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.
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 sheets, 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.
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.
10
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.
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 December 31, 2016 and June 30, 2016, the Companys
uninsured bank balance was mainly maintained at financial institutions located
in the PRC and Hong Kong. The uninsured bank balances of continuing operations
were $20,275,994 and $29,783,152 as of December 31, 2016 and June 30, 2016,
respectively. The uninsured bank balances of discontinued operations were $0 and
$8,578 as of December 31, 2016 and June 30, 2016, respectively. The Company has
no insured bank balance as of December 31, 2016 and June 30, 2016,
respectively.
Short-term investments, held-to-maturity investments
The Companys held-to-maturity investments consist of financial
products purchased from investment guarantee corporations. The Companys short
term held-to-maturity investments are classified as short-term investments on the consolidated balance sheets based on
their contractual maturity dates which are less than one year and are stated at
their amortized costs.
11
The Company reviews its investments for other-than-temporary
impairment (OTTI) based on the specific identification method. The Company
considers available quantitative and qualitative evidence in evaluating
potential impairment of its investments. If the cost of an investment exceeds
the investments fair value, the Company considers, among other factors, general
market conditions, expected future performance of the investees, the duration
and the extent to which the fair value of the investment is less than the cost,
and the Companys intent and ability to hold the investment. OTTI is recognized
as a loss in the income statement.
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
December 31, 2016 and June 30, 2016, the balances of accounts receivable from
the continuing operations of the Company, were $1,673,667 and $1,145,131,
respectively. As of December 31, 2016 and June 30, 2016, the balances of
accounts receivable from discontinued operations, were both nil. 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.
The Company has determined that an allowance of $48,705 and $52,129 from the
continuing operations of the Company was appropriate as of December 31, 2016 and
June 30, 2016, respectively. The Company has determined that an allowance of nil
from discontinued operations was appropriate as of December 31, 2016 and June
30, 2016.
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 its plant, equipment and production lines for the GMP
upgrading, and records these payments as advance to suppliers. As of December
31, 2016 and June 30, 2016, advance to suppliers, held for continuing
operations, amounted to $390,698 and $154,430, respectively. As of December 31,
2016 and June 30, 2016, advance to suppliers, held for discontinued operations,
amounted to $0 and $558, 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. There was no inventory allowance, held for
continuing operations and discontinued operations, provided for the six months
ended December 31, 2016 and 2015, respectively.
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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 December 31, 2016 and June 30, 2016, the Company
had not experienced impairment losses on its long-lived assets for both the
continuing and discontinued operations. 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.
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
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20 to 30 years
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Office Equipment
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3 to 7 years
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Vehicles
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5 to15 years
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Machinery and Equipment
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7 to 15 years
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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, held for both the continuing and discontinued operations, for the six
months ended December 31, 2016 and 2015, respectively.
13
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, held
for both the continuing and discontinued operations, for the six months ended
December 31, 2016 and 2015, respectively.
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 exists 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, held for both the continuing and discontinued
operations, for the six months ended December 31, 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.
14
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 Company’s 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 Company’s 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 December 31, 2016 and June 30, 2016, VAT payables from the continuing operations of the Company were $211,782 and $183,813, respectively. As of December 31, 2016 and June 30, 2016, VAT payables were both nil
for the discontinued operations.
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 aggregate VAT paid by the Company as taxes for the purposes of maintaining and building cities and educational facilities, which fees are
included as sales-related taxes. Sales-related taxes are recorded when sales revenue is recognized. Sales-related taxes from the continuing operations of the Company were $26,805 and $33,901 for the six months ended December 31, 2016 and
2015, respectively. Sales-related taxes from the discontinued operations were both nil for the six months ended December 31, 2016 and 2015.
Concentrations of Business and Credit Risks
All of the Company’s 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
Company’s financial position, results of operations and cash flows. Also, the success of the Company’s operations is subject to numerous contingencies, some of which are beyond management’s control. These contingencies include
general economic conditions, prices of raw materials, competition, governmental and political conditions, and changes in regulations.
15
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 Company’s 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 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 are 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 six
months ended December 31, 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.
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 May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers: Topic 606” (ASU 2014-09), to supersede nearly all existing revenue recognition guidance under U.S. GAAP.
The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. ASU 2014-09 defines a
five step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP, including identifying performance
obligations in a contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. ASU 2014-09 is effective for us beginning July 1, 2018 using
either of two methods: (i) retrospective to each prior reporting period presented with the option to elect certain practical expedients as defined within ASU 2014-09; or (ii) retrospective with the cumulative effect of initially applying ASU 2014-09
recognized at the date of initial application and providing certain additional disclosures as defined per ASU 2014-09. We are continuing to evaluate the impacts of our pending adoption of Topic 606.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): “Classification of Certain Cash Receipts and Cash Payments”, to address diversity in how certain cash receipts and cash payments are presented and
classified in the statement of cash flows. The amendments provide guidance on the following nine specific cash flow issues: (1) Debt Prepayment or Debt Extinguishment Costs; (2) Settlement of Zero-Coupon Debt Instruments or Other Debt Instruments
with Coupon Interest Rates That Are Insignificant in Relation to the Effective Interest Rate of the Borrowing; (3) Contingent Consideration Payments Made after a Business Combination; (4)Proceeds from the Settlement of Insurance Claims; (5) Proceeds
from the Settlement of Corporate-Owned Life Insurance Policies, including Bank-Owned; (6) Life Insurance Policies; (7) Distributions Received from Equity Method Investees; (8) Beneficial Interests in Securitization Transactions; and (9) Separately
Identifiable Cash Flows and Application of the Predominance Principle. The amendments are effective for public business entities for fiscal years beginning after December 15, 2017, and
interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is
permitted, including adoption in an interim period. The amendments should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the
amendments for those issues would be applied prospectively as of the earliest date practicable. The Company is currently evaluating the impact of this new standard on its consolidated financial statements and related disclosures.
16
In October 2016, the FASB has issued ASU No. 2016-16, Income Taxes (Topic 740): “Intra-Entity Transfers of Assets Other Than Inventory”. The amendments require an entity to recognize income tax consequences of an intra-entity transfer of
an asset other than inventory when the transfer occurs and remove the exception to postpone recognition until the asset has been sold to an outside party. The amendments are effective for public business entities for annual reporting periods
beginning after December 15, 2017, including interim reporting periods within those annual reporting periods. For all other entities, the amendments are effective for annual reporting periods beginning after December 15, 2018, and interim reporting
periods within annual reporting periods beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the impact of this new standard on its consolidated financial statements and related disclosures.
In October 2016, the FASB has issued ASU No. 2016-17, Consolidation (Topic 810): “Interest Held through Related Parties That Are under Common Control”, to provide guidance on the evaluation of whether a reporting entity is the primary
beneficiary of a variable interest entity, or VIE by amending how a reporting entity, that is a single decision maker of a VIE, treats indirect interests in that entity held through related parties that are under common control. The amendments are
effective for public business entities for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2016,
and interim periods within fiscal years beginning after December 15, 2017. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impact of this new standard on its consolidated financial
statements and related disclosures.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): “Restricted Cash”(“ASU 2016-18”). ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total
of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. ASU 2016-18 will become effective for us beginning April 1, 2018, or fiscal 2019. ASU 2016-18 is required to be applied retrospectively.
Upon the adoption, amounts described as restricted cash will be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period amounts shown on the statements of cash flows.
NOTE 3 - ASSETS SALE
On December 24, 2014, Humankind entered into a stock transfer agreement (the “Original Agreement”) with Xiuzheng Pharmaceutical Group Co., Ltd. a company incorporated under the laws of the PRC and located in Jilin province
(“XiuzhengPharmacy”or the “Buyer”), Mr. Xin Sun, the CEO of Humankind, and Huimeijia, pursuant to which, Humankind and Mr. Xin Sun (the “Equity Holders”), would 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.
On February 9, 2015, the four parties entered into a supplementary agreement (the “Supplementary Agreement”) to modify the terms of the Original Agreement, pursuant to which, the Equity Holders and Huimeijia (collectively the
“Assets Transferors”) would 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 would have retained their equity interests in Huimeijia, but would have pledged such equity intereststo Xiuzheng Pharmacy until the Assets were transferred, at which time all the cash consideration shall be paid by the
Buyer. The total cash consideration would
have been the same as under the Original Agreement, i.e., RMB 8,000,000 (approximately $1,306,186) to the Assets Transferors. In the event that the Assets had failed to be transferred to the Buyer due to the fault of the Assets Transferors, the
paid consideration would have been returned to the Buyer with interest accrued. If the failure of the transfer of the Assets were a result of changes in government policy or force majeure, the paid cash consideration would have been returned to the
Buyer but without any interest.
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On October 12, 2016, the four parties agreed to rescind the Supplementary Agreement and entered into a new supplementary agreement (the “Agreement”), pursuant to which, the four parties agreed to execute the transfer of the equity
interests based on the Original Agreement, and according to which the Equity Holders sold their respective equity interests in Huimeijia to Xiuzheng Pharmacy. The transfer of 100% of the equity interests of Huimeijia to the Buyer was for a total
cash consideration of RMB 8,000,000 (approximately $1,306,186) (the “Purchase Price”) to the Equity Holders. 40% of the Purchase Price was due within 10 business days after the signing of the Agreement; 40% of the Purchase Price was
due within 10 business days after the completion of the changes in business registration described in the Original Agreement and Xiuzheng Pharmacy obtaining documents evidencing its ownership on Huimeijia; 15% of the Purchase Price is due within 10
business days after the transfer of all of the Drugs is approved by Heilongjiang FDA; and 5% of the Purchase Price is due within 10 business days after all of the Drugs have been transferred to Xiuzheng Pharmacy or its designee and Humankind and Mr.
Xin Sun instruct Xiuzheng Pharmacy to complete three-batches production of all forms of the drugs included in the Drugs. As of the date of this report, 80% of the Purchase Price was paid and the Company has completed the changes in business
registration and Xiuzheng Pharmacy obtained the newly issued business license issued by the local State Administration of Industry and Commerce in Harbin (“Harbin SAIC”) to Huimeijia,in which the ownership of Huimeijia has now been
recorded as being held by Xiuzheng Pharmacy, with Harbin SAIC and the legal representative (a person that is authorized to take most of the corporate actions on behalf of a company under the corporate laws in China) of Huimeijia now
persons appointed by the Buyer. The transfer of all the drug licenses to the Buyer and the remainder of the Purchase Price to the Equity Holders are pending.
The gain on the disposal of Huimeijia was $1,157,590.
NOTE 4 – SHORT TERM INVESTMENTS
Short term investments consist of held-to-maturity investments.
Held to maturity investments
Held-to-maturity investments consist of various financial products purchased from Harbin Hongxiang Investment Guarantee Co., Ltd., which are classified as held-to-maturity investments as the Company has the positive intent and ability to hold the
investments to maturity. The maturity of these financial products is one year, with contractual maturity dates of July 19, 2017 and estimated annual interest rates ranging of 10%. They are classified as short term investments on the consolidated
balance sheets as its contractual maturity dates are less than one year. The repayments of principal of the financial products are not guaranteed by the Hongxiang Investment Guarantee Co., Ltd. from which the financial products were purchased.
Historically, the Company has received the principal and the interest in full upon maturity of these investments. Harbin Hongxiang Investment Guarantee Co., Ltd., the financial institution that handled the Company’s short term investment with
is the related party of the Company.
While these financial products are not publicly traded, the Company estimated that their fair value approximate their amortized costs considering their short term maturities and high credit quality. No OTTI loss was recognized for the period ended
December 31, 2016 and June 30, 2016.
NOTE 5 - ACCOUNTS RECEIVABLE
The Company’s accounts receivable, held for continuing operations, were $1,673,667 and $1,145,131, respectively, net of allowance for doubtful accounts amounting to $48,705 and $52,129 as of December 31, 2016 and June 30, 2016,
respectively. The Company’s accounts receivable, held for discontinued operations, were both nil, net of allowance for doubtful
accounts amounting to nil as of December 31, 2016 and June 30, 2016,
respectively.
18
NOTE 6 - INVENTORY
Inventory from the continuing operations of the Company
consisted of following:
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2016
|
|
Raw Materials
|
$
|
160,204
|
|
$
|
122,569
|
|
Supplies and Packing Materials
|
|
132,782
|
|
|
130,472
|
|
Work-in-Progress
|
|
136,653
|
|
|
118,233
|
|
Finished Goods
|
|
61,231
|
|
|
48,713
|
|
Total
|
|
490,870
|
|
|
419,987
|
|
Less: Inventory, Held for Discontinued Operations
|
|
-
|
|
|
5,203
|
|
Inventory, Held for Continuing Operations
|
$
|
490,870
|
|
$
|
414,784
|
|
For the six months ended December 31, 2016 and 2015, the
Company has not made provision for inventory from the continued and discontinued
operations in regards to excessive, slow moving or obsolete items.
NOTE 7 - CONSTRUCTION IN PROGRESS
Construction in progress from the continuing operations of the
Company consisted of the following:
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2016
|
|
Plant - HLJ Huimeijia
|
$
|
654,778
|
|
$
|
670,051
|
|
Plant and Production Lines - Huimeijia
|
|
-
|
|
|
1,806
|
|
Total
|
|
654,778
|
|
|
671,857
|
|
Less: Construction in Progress, Held for Discontinued
Operations
|
|
-
|
|
|
1,806
|
|
Construction in Progress, Held for
Continuing Operations
|
$
|
654,778
|
|
$
|
670,051
|
|
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 December 31, 2016, 36% of construction had been completed
and $654,778 (RMB 4,546,121) had been recorded as a cost of construction in
progress.
NOTE 8 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment from the continuing operations of
the Company consisted of the following:
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2016
|
|
Building, Warehouses and Improvements
|
$
|
4,152,006
|
|
$
|
4,360,191
|
|
Machinery and Equipment
|
|
1,172,993
|
|
|
1,232,861
|
|
Office Equipment
|
|
60,922
|
|
|
69,330
|
|
Vehicles
|
|
195,708
|
|
|
204,457
|
|
Others
|
|
21,604
|
|
|
-
|
|
Less: Accumulated Depreciation
|
|
(2,057,628
|
)
|
|
(1,998,278
|
)
|
Total
|
|
3,545,606
|
|
|
3,868,561
|
|
Less: Property and Equipment, net, Held for Discontinued
Operations
|
|
-
|
|
|
1,796
|
|
Property and Equipment, net, held for
continuing operations
|
$
|
3,545,606
|
|
$
|
3,866,765
|
|
19
Depreciation expense from the continuing operations of the
Company was $361,117 and $173,033 for the six months ended December 31, 2016 and
2015, respectively. Depreciation expense from the discontinued operations was
nil and $389 for the six months ended December 31, 2016 and 2015, respectively.
Depreciation expense charged to operations from the continuing operations of the
Company was $274,847 and $68,303 for the six months ended December 31, 2016 and
2015, respectively. Depreciation expense charged to cost of goods sold from the
continuing operations of the Company was $86,270 and $104,730 for the six months
ended December 31, 2016 and 2015, respectively. Depreciation expense charged to
operations from the discontinued operations was nil and $389 for the six months
ended December 31, 2016 and 2015, respectively. Depreciation expense charged to
cost of goods sold from the discontinued operations was both nil for the six
months ended December 31, 2016 and 2015, respectively.
As of December 31, 2016, the building of HLJ Huimeijia with the
book value of $1,604,882 has been mortgaged for the working capital loan in the
principal amount of $1,440,300 (RMB 10,000,000). 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).
NOTE 9 - INTANGIBLE ASSETS
The following is a summary of intangible assets from the
continuing operations of the Company:
|
|
December 31, 2016
|
|
|
June 30, 2016
|
|
Land Use Rights Humankind
|
$
|
912,860
|
|
$
|
953,670
|
|
Health Supplement Product Patents Humankind
|
|
4,320,899
|
|
|
4,514,061
|
|
Pharmaceutical Patents - HLJ Huimeijia
|
|
129,048
|
|
|
134,817
|
|
Land Use Rights - HLJ Huimeijia
|
|
624,382
|
|
|
652,295
|
|
Less: Accumulated Amortization
|
|
(2,198,432
|
)
|
|
(2,063,784
|
)
|
Total
|
|
3,788,757
|
|
|
4,191,059
|
|
Less: Intangible Assets, net, Held for
Discontinued Operations
|
|
-
|
|
|
-
|
|
Intangible Assets, net, Held for Continuing Operations
|
$
|
3,788,757
|
|
$
|
4,191,059
|
|
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 from the continuing operations of the
Company was $117,487 and $264,117 for the six months ended December 31, 2016 and
2015, respectively. Amortization expense from the discontinued operations was
both nil for the six months ended December 31, 2016 and 2015.
As of December 31, 2016, land use rights of HLJ Huimeijia with
the book value of $624,382 have been mortgaged for a working capital loan in the
principal amount of $1,440,300 (RMB 10,000,000). 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).
NOTE 10 - 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.
On November 17, 2016, the agreement was renewed with an
interest rate of 6.09%, with a maturity date of November 16, 2017.
20
As of December 31, 2016 and June 30, 2016, the Companys
short-term loan from its continuing operations was $1,440,300 and $1,504,687,
respectively. As of December 31, 2016 and June 30, 2016, the Companys
short-term loan from the discontinued operations was both nil.
Interest expenses from the continuing operations of the Company
were $42,737 and $58,479 for the six months ended December 31, 2016 and 2015,
respectively. Interest expenses from the discontinued operations were both nil
for the six months ended December 31, 2016 and 2015, respectively.
NOTE 11 - RELATED PARTY DEBTS
Related party debts, which represent temporary short-term loans
from Mr. Xin Sun and Mr. Kai Sun, consisted of the following:
|
|
December 31, 2016
|
|
|
June 30, 2016
|
|
Mr. Xin Sun
|
$
|
2,970,429
|
|
$
|
2,678,220
|
|
Mr. Kai Sun
|
|
33,680
|
|
|
35,186
|
|
Total
|
|
3,004,109
|
|
|
2,713,406
|
|
Less: Related Party Debts, Held for Discontinued Operations
|
|
-
|
|
|
-
|
|
Related Party Debts, Held for Continuing
Operations
|
$
|
3,004,109
|
|
$
|
2,713,406
|
|
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 12 - 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 six months
ended December 31, 2016 and 2015, respectively. As of December 31, 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 six months ended December 31,
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.
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 from the continuing operations
of the Company consisted of the following for the three and six months ended
December 31, 2016 and 2015:
21
|
|
For the Three Months
Ended
|
|
|
For the Six Months
Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Current provision:
|
|
|
|
|
|
|
|
|
|
|
|
|
USA
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
China
|
|
439,620
|
|
|
38,477
|
|
|
493,650
|
|
|
70,883
|
|
Total current provision
|
|
439,620
|
|
|
38,477
|
|
|
493,650
|
|
|
70,883
|
|
Deferred provision:
|
|
|
|
|
|
|
|
|
|
|
|
|
USA
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
China
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Total deferred provision
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Total provision for income taxes
|
|
439,620
|
|
|
38,477
|
|
|
493,650
|
|
|
70,883
|
|
Less: Provision for income taxes, held for discontinued
operations
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Provision for income taxes, held for
continuing operations
|
$
|
439,620
|
|
$
|
38,477
|
|
$
|
493,650
|
|
$
|
70,883
|
|
Significant components of deferred tax assets from the
continuing operations of the Company were as follows:
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2016
|
|
Deferred tax assets
|
|
|
|
|
|
|
Net operating loss carry forward
|
$
|
-
|
|
$
|
118,259
|
|
Allowance for doubtful accounts
|
|
-
|
|
|
-
|
|
Valuation allowance
|
|
-
|
|
|
(118,259
|
)
|
Deferred tax assets, net
|
|
-
|
|
|
-
|
|
Less: Deferred tax assets, net, held for discontinued
operations
|
|
-
|
|
|
-
|
|
Deferred tax assets, net, held for
continuing operations
|
$
|
-
|
|
$
|
-
|
|
As of December 31, 2016 and June 30, 2016, 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 December 31, 2016
and June 30, 2016, 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 six months ended December 31, 2016 and
2015, the Company did not incur any interest and penalties arising from its tax
payments.
NOTE 13 - COMMITMENTS AND CONTINGENCIES
The Companys assets are located in the PRC and revenues are
derived from operations in the PRC.
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 or 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.
22
Since the Company terminated its rental agreement on January 9,
2013, it had no rental commitment as of December 31, 2016.
NOTE 14 - MAJOR SUPPLIERS AND CUSTOMERS
For the six months ended December 31, 2016, the Company had two
suppliers that in the aggregate accounted for 88% of the Companys purchases for
the continuing operations, with each supplier accounting for 78% and 10%,
respectively.
For the six months ended December 31, 2015, the Company had one
supplier that in the aggregate accounted for 78% of the Companys purchases for
the continuing operations.
For the six months ended December 31, 2016, the Company had six
customers that in the aggregate accounted for 68% of the Companys total sales
for the continuing operations, with each customer accounting for 13%, 13%, 11%,
11%, 10% and 9%, respectively.
For the six months ended December 31, 2015, the Company had
four customers that in the aggregate accounted for 42% of the Companys total
sales for the continuing operations, with each customer accounting for 11%, 11%,
10% and 10%, 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 discontinued Huimeijia business was included in
others segment.
The following tables present summary information by segment for
the three and six months ended December 31, 2016 and 2015, respectively:
23
|
|
For the Three Months Ended December 31, 2016
|
|
|
For the Three Months Ended December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
from
|
|
|
|
|
|
|
|
|
|
|
|
from
|
|
|
|
HLJ
|
|
|
|
|
|
|
|
|
continuing
|
|
|
HLJ
|
|
|
|
|
|
|
|
|
continuing
|
|
|
|
Huimeijia
|
|
|
Humankind
|
|
|
Others
|
|
|
operations
|
|
|
Huimeijia
|
|
|
Humankind
|
|
|
Others
|
|
|
operations
|
|
Revenues
|
$
|
64
|
|
$
|
1,891,432
|
|
$
|
-
|
|
$
|
1,891,596
|
|
$
|
349,963
|
|
$
|
2,375,688
|
|
$
|
-
|
|
$
|
2,725,651
|
|
Cost of revenues
|
|
10
|
|
|
1,179,027
|
|
|
-
|
|
|
1,179,037
|
|
|
337,758
|
|
|
1,662,440
|
|
|
-
|
|
|
2,000,198
|
|
Gross profit
|
|
54
|
|
|
712,405
|
|
|
-
|
|
|
712,459
|
|
|
12,205
|
|
|
713,248
|
|
|
-
|
|
|
725,453
|
|
Interest expense
|
|
21,051
|
|
|
-
|
|
|
-
|
|
|
21,051
|
|
|
26,855
|
|
|
-
|
|
|
-
|
|
|
26,855
|
|
Depreciation and amortization
|
|
49,935
|
|
|
193,524
|
|
|
-
|
|
|
243,459
|
|
|
9,433
|
|
|
140,636
|
|
|
193
|
|
|
150,262
|
|
Income tax
|
|
-
|
|
|
439,620
|
|
|
-
|
|
|
439,620
|
|
|
-
|
|
|
38,477
|
|
|
-
|
|
|
38,477
|
|
Net income (loss)
|
|
(179,316
|
)
|
|
1,318,859
|
|
|
130,166
|
|
|
1,269,709
|
|
|
(114,636
|
)
|
|
115,433
|
|
|
(112,806
|
)
|
|
(112,009
|
)
|
Total capital expenditures
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4,543
|
|
|
-
|
|
|
-
|
|
|
4,543
|
|
Total assets
|
$
|
2,948,063
|
|
$
|
36,996,900
|
|
$
|
(5,798
|
)
|
$
|
39,939,165
|
|
$
|
3,043,481
|
|
$
|
36,799,287
|
|
$
|
61,125
|
|
$
|
39,903,893
|
|
|
|
For the Six Months Ended December 31, 2016
|
|
|
For the Six Months Ended December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
from
|
|
|
|
|
|
|
|
|
|
|
|
from
|
|
|
|
HLJ
|
|
|
|
|
|
|
|
|
continuing
|
|
|
HLJ
|
|
|
|
|
|
|
|
|
continuing
|
|
|
|
Huimeijia
|
|
|
Humankind
|
|
|
Others
|
|
|
operations
|
|
|
Huimeijia
|
|
|
Humankind
|
|
|
Others
|
|
|
operations
|
|
Revenues
|
$
|
164
|
|
$
|
3,071,500
|
|
$
|
-
|
|
$
|
3,071,664
|
|
$
|
643,719
|
|
$
|
4,038,000
|
|
$
|
-
|
|
$
|
4,681,719
|
|
Cost of revenues
|
|
68
|
|
|
1,934,254
|
|
|
-
|
|
|
1,934,322
|
|
|
588,104
|
|
|
2,831,058
|
|
|
-
|
|
|
3,419,162
|
|
Gross profit
|
|
96
|
|
|
1,137,246
|
|
|
-
|
|
|
1,137,342
|
|
|
55,615
|
|
|
1,206,942
|
|
|
-
|
|
|
1,262,557
|
|
Interest expense
|
|
42,737
|
|
|
-
|
|
|
-
|
|
|
42,737
|
|
|
58,479
|
|
|
-
|
|
|
-
|
|
|
58,479
|
|
Depreciation and amortization
|
|
64,165
|
|
|
328,169
|
|
|
-
|
|
|
392,334
|
|
|
28,225
|
|
|
303,805
|
|
|
389
|
|
|
332,419
|
|
Income tax
|
|
-
|
|
|
493,650
|
|
|
-
|
|
|
493,650
|
|
|
-
|
|
|
70,883
|
|
|
-
|
|
|
70,883
|
|
Net income (loss)
|
|
(317,189
|
)
|
|
1,480,950
|
|
|
129,971
|
|
|
1,293,732
|
|
|
(241,918
|
)
|
|
212,649
|
|
|
(113,076
|
)
|
|
(142,345
|
)
|
Total capital expenditures
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4,543
|
|
|
454
|
|
|
-
|
|
|
4,997
|
|
Total assets
|
$
|
2,948,063
|
|
$
|
36,996,900
|
|
$
|
(5,798
|
)
|
$
|
39,939,165
|
|
$
|
3,043,481
|
|
$
|
36,799,287
|
|
$
|
61,125
|
|
$
|
39,903,693
|
|
24
|
|
For the Three Months Ended
|
|
|
For the Three Months Ended
|
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated from
|
|
|
|
|
|
Consolidated from
|
|
|
|
|
|
|
discontinued
|
|
|
|
|
|
discontinued
|
|
|
|
Huimeijia
|
|
|
operations
|
|
|
Huimeijia
|
|
|
operations
|
|
Revenues
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
Cost of revenues
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Gross profit
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Interest expense
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Depreciation and amortization
|
|
-
|
|
|
-
|
|
|
193
|
|
|
193
|
|
Income tax
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Net loss
|
|
(50
|
)
|
|
-
|
|
|
(193
|
)
|
|
(193
|
)
|
Total capital expenditures
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Total assets
|
$
|
17,124
|
|
$
|
-
|
|
$
|
18,785
|
|
$
|
18,785
|
|
|
|
For the Six Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated from
|
|
|
|
|
|
Consolidated from
|
|
|
|
|
|
|
discontinued
|
|
|
|
|
|
discontinued
|
|
|
|
Huimeijia
|
|
|
operations
|
|
|
Huimeijia
|
|
|
operations
|
|
Revenues
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
Cost of revenues
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Gross profit
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Interest expense
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Depreciation and amortization
|
|
-
|
|
|
-
|
|
|
389
|
|
|
389
|
|
Income tax
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Net loss
|
|
(50
|
)
|
|
-
|
|
|
(389
|
)
|
|
(389
|
)
|
Total capital expenditures
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Total assets
|
$
|
17,124
|
|
$
|
-
|
|
$
|
18,785
|
|
$
|
18,785
|
|
NOTE 16 - DISCONTINUED OPERATIONS
In accordance with ASU No. 2014-08, Reporting Discontinued
Operations and Disclosures of Disposals of Components of an Entity, a disposal
of a component of an entity or a group of components of an entity is required to
be reported as discontinued operations if the disposal represents a strategic
shift that has (or will have) a major effect on an entitys operations and
financial results when the components of an entity meets the criteria in
paragraph 205-20-45-1E to be classified as held for sale. When all of the
criteria to be classified as held for sale are met, including management, having
the authority to approve the action, committing to a plan to sell the entity,
the major current assets, other assets, current liabilities, and noncurrent
liabilities shall be reported as components of total assets and liabilities
separate from those balances of the continuing operations. At the same time, the
results of all discontinued operations, less applicable income taxes (benefit),
shall be reported as a component of net income (loss) separate from the net
income (loss) of continued operations in accordance with ASC 205-20-45.
Reconciliation of the carrying amounts of major classes of
assets and liabilities of discontinued operations classified as discontinued
operations in the unaudited condensed consolidated balance sheets.
25
|
|
December 31, 2016
|
|
|
June 30, 2016
|
|
ASSETS
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
8,162
|
|
$
|
8,578
|
|
Inventory
|
|
4,981
|
|
|
5,203
|
|
Advance to suppliers
|
|
534
|
|
|
558
|
|
Total Current Assets
|
|
13,677
|
|
|
14,339
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
1,719
|
|
|
1,796
|
|
Construction in progress
|
|
1,728
|
|
|
1,806
|
|
Total Assets
|
$
|
17,124
|
|
$
|
17,941
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
Current Liabilities:
|
$
|
|
|
$
|
|
|
Accounts payable and accrued expenses
|
|
534
|
|
|
558
|
|
Other payables
|
|
15
|
|
|
16
|
|
Advance from customers
|
|
-
|
|
|
481,500
|
|
Taxes payable
|
|
(58
|
)
|
|
(61
|
)
|
Total Current Liabilities
|
|
491
|
|
|
482,013
|
|
|
|
|
|
|
|
|
Total Liabilities
|
$
|
491
|
|
$
|
482,013
|
|
Reconciliation of the carrying amounts of major classes of net
income (loss) from operations to be disposed classified as discontinued
operations in the unaudited condensed consolidated statements of operations and
comprehensive income (loss).
|
|
For the Three Months Ended
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Operating Expenses
|
|
|
|
|
|
|
Depreciation and amortization expenses
|
$
|
-
|
|
$
|
(196
|
)
|
Total Operating Expenses
|
|
-
|
|
|
(196
|
)
|
|
|
|
|
|
|
|
Loss from Operations
|
|
-
|
|
|
(196
|
)
|
Other expenses, net
|
|
50
|
|
|
|
|
Loss before Income Taxes
|
|
(50
|
)
|
|
(196
|
)
|
|
|
|
|
|
|
|
Net Loss from Discontinued
Operations
|
$
|
(50
|
)
|
$
|
(196
|
)
|
|
|
For the Six Months Ended
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Operating Expenses
|
|
|
|
|
|
|
Depreciation and amortization expenses
|
$
|
-
|
|
$
|
(389
|
)
|
Total Operating Expenses
|
|
-
|
|
|
(389
|
)
|
|
|
|
|
|
|
|
Loss from Operations
|
|
-
|
|
|
(389
|
)
|
Other expenses, net
|
|
50
|
|
|
|
|
Loss before Income Taxes
|
|
(50
|
)
|
|
(389
|
)
|
|
|
|
|
|
|
|
Net Loss from Discontinued
Operations
|
$
|
(50
|
)
|
$
|
(389
|
)
|
26
NOTE 17 - SUBSEQUENT EVENTS
The Company has evaluated subsequent events from the balance
sheet date through the date the financial statements were issued and determined
that there are no additional items to disclose except the above mentioned
matters.