The financial statements required by this
item are set forth beginning on page F-1.
The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated 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 People’s 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 HK’s common stock immediately following the execution of the Share
Purchase Agreement, it was deemed to be the accounting 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 HK’s
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 Company’s 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 Huimeijia’s 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.
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, 99% owned by Humankind and 1% owned by Mr. Xin Sun. Pursuant to the Original Agreement,
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 “Asset Transferors”) would sell only 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 interests to Xiuzheng Pharmacy until the Assets were transferred, at which time the cash consideration
would have been paid by the Buyer. 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 Asset Transferors. In the event that the Assets had failed to be transferred to the
Buyer due to the fault of the Asset 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.
On October 12, 2016, the four parties agreed
to rescind the Supplementary Agreement and entered into a new supplementary agreement (the “New Supplementary Agreement”),
pursuant to which the four parties agreed to execute the transfer of the equity interests based on the Original Agreement and the
Equity Holders agreed to sell their respective equity interests in Huimeijia to Xiuzheng Pharmacy. The transfer of 100% of the
equity interests of Huimeijia to the Buyer was for 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 New Supplementary
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 Assets is approved by Heilongjiang FDA; and 5% of
the Purchase Price is due within 10 business days after all of the Assets have been transferred to Xiuzheng Pharmacy or its designee
and Humankind and Mr. Xin Sun have instructed Xiuzheng Pharmacy complete three-batches production of all forms of the drugs included
in the Assets. As of the date of this report, 80% of the Purchase Price has been paid, the Company has completed changes in its
business registration, and Xiuzheng Pharmacy has obtained a 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 been recorded as 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 been appointed by the Buyer. The transfer of
all the drug licenses to the Buyer and the payments of the remainder of the Purchase Price to the Equity Holders are pending.
China Health US, China Health HK, Humankind
and HLJ Huimeijia are collectively referred herein to as the “Company.”
As of June 30, 2019, the Company’s
corporate structure was as follows:
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 consolidated 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 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 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. 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.
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.
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 Company’s 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 Company’s 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.
Foreign Currency Translation and Transaction
Humankind, Huimeijia and HLJ Huimeijia
maintain their books and accounting records in PRC currency “Renminbi” (“RMB”), which has been determined
as the functional currency. The functional currency of China Health HK is the Hong Kong Dollar (“HKD”).
Transactions denominated in currencies
other than the functional currencies are recorded 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, HLJ Huimeijia and
China Health Hong Kong’s 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.
For the purpose of presenting these financial
statements, the Company’s assets and liabilities with functional currency of HKD are expressed in USD at the exchange rate
on the balance sheet date, which was 7.8129 and 7.8463 as of June 30, 2019 and June 30, 2018, respectively; stockholder’s
equity accounts are translated at historical rates, and income and expense items are translated at the weighted average exchange
rates during the year, which was 7.8401 and 7.8245 for the years ended June 30, 2019 and 2018, respectively. For Renminbi currency,
the Company’s assets and liabilities are expressed in USD at the exchange rate on the balance sheet date, which was 6.8668
and 6.6198 as of June 30, 2019 and June 30, 2018, respectively; stockholder’s equity accounts are translated at historical
rates, and income and expense items are translated at the weighted average exchange rates during the year, which was 6.8234 and
6.5064 for the years ended June 30, 2019 and 2018, respectively.
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 U.S. 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 Company’s 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 June 30, 2019, and 2018, the Company’s
uninsured bank balance was mainly maintained at financial institutions located in the PRC and Hong Kong, totaled $35,507,535 and
$32,614,910, respectively. The Company has no insured bank balance as of June 30, 2019 and 2018, 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 management’s assessment of known requirements, aging of receivables, payment
and bad debt history, the customer’s 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, 2019, and 2018, the balances of
accounts receivable were $1,987,505 and $1,455,433, 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, 2019, and 2018, the balances of
allowance for doubtful accounts were $71,713 and $57,245 respectively.
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. The change of the structure
of products sold by HLJ Huimeijia for the year ended 2019 was the main reason which led to a decrease of advances to suppliers.
As a result, as of June 30, 2019, and 2018, advance to suppliers amounted to $8,619 and $94,749, 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 Company’s 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 $nil and $160,394 were provided
for the years ended June 30, 2019, and 2018, respectively.
Impairment of Long-Lived Assets
The Company’s 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 management’s 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 Company’s 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, 2019, and 2018, the Company has not
experienced impairment losses on its long-lived assets. However, there can be no assurances that demand for the Company’s
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 stated
at cost less accumulated depreciation and impairment losses. 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 Company’s intangible assets could be impacted by future adverse changes such as: (i) any future
declines in the Company’s operating results, (ii) a decline in the valuation of technology, including the valuation of the
Company’s common stock, (iii) a significant slowdown in the worldwide economy, or (iv) any failure to meet the performance
projections included in the Company’s 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 judgment by management
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 Company’s 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 were no impairments recorded for intangible assets for the years ended
June 30, 2019, and 2018, respectively.
Revenue Recognition
The Company recognizes revenue at the amount
to which it expects to be entitled when control of the products or services is transferred to its customers. Control is generally
transferred when the Company has a present right to payment and title and the significant risks and rewards of ownership of products
or services are transferred to its customers. For most of the Company’s products net sales, control transfers when products
are shipped. The majority of the Company’s revenue relates to the sale of inventory to customers, and revenue is recognized
when control of the products or services is transferred to its customers. Given the nature of the Company’s business and
the applicable rules guiding revenue recognition, the Company’s 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, 2019
and 2018, 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. A valuation allowance is established for deferred tax assets if it is more likely than not
that these items will either expire before the Company is able to realize the benefits or that future deductibility is uncertain.
Under ASC 740, a tax position is recognized
as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with
a tax examination being presumed to occur. The evaluation of a tax position is a two-step process. The first step is to determine
whether it is more-likely-than-not that a tax position will be sustained upon examination, including the resolution of any related
appeals or litigations based on the technical merits of that position. The second step is to measure a tax position that meets
the more-likely-than-not threshold to determine the amount of benefit to be recognized in the financial statements. A tax position
is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement.
Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent
period in which the threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not criteria
should be de-recognized in the first subsequent financial reporting period in which the threshold is no longer met. Penalties and
interest incurred related to underpayment of income tax are classified as income tax expense in the year incurred. GAAP also provides
guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosures and transition.
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 16% (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 16% 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, 2019,
and 2018, VAT payables were $120,114 and $132,439, respectively.
Sales-Related and Payroll 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.
Additionally, the Company is required to pay payroll taxes on its employee’s salary and wages. Total sales-related and payroll
taxes for the years ended June 30, 2019 and 2018 were $161,353.36 and $76,679 respectively.
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. Moreover, 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. 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 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, 2019 and 2018, 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
Revenue Recognition: In May
2014, the FASB issued Accounting Standards Update 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 the 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 the Company as of its first quarter of fiscal 2018 and the Company had the choice of 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 (full
retrospective method); 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 (modified retrospective method).
In April 2016, the FASB issued ASU 2016-10,
Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. The objective is to clarify
the two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the
related principles for these areas. The ASU affects the guidance in ASU 2014-09, Revenue from Contracts with Customers (Topic 606),
which is not yet effective. The effective date and transition requirements for this ASU are the same as the effective date and
transition requirements in Topic 606 (and any other Topic amended by ASU 2014-09). ASU 2015-14, Revenue from Contracts with Customers
(Topic 606): Deferral of the Effective Date, defers the effective date of ASU 2014-09 by one year. The Company adopted the new
standard from July 1, 2018, using the modified retrospective transition method allowed pursuant to ASU 2014-09. The Company finalized
its analysis and the adoption of this guidance did not have a material impact on the Company’s consolidated financial statements
and its internal controls over financial reporting.
Except for the ASU above, in the period
from January 1, 2019 to March 31, 2019, the FASB has issued ASU No. 2019-01 and ASU 2019-02, which are not expected to have a material
impact on the Company’s consolidated financial statements upon adoption.
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 People’s 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 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 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.
On October 12, 2016, the four parties agreed
to rescind the Supplementary Agreement and entered into a new supplementary agreement (the “New Supplementary Agreement”),
pursuant to which the four parties agreed to execute the transfer of the equity interests based on the Original Agreement and the
Equity Holders agreed to sell their respective equity interests in Huimeijia to Xiuzheng Pharmacy. The transfer of 100% of the
equity interests of Huimeijia to the Buyer was for 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 New Supplementary
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 Assets is approved by Heilongjiang FDA; and 5% of
the Purchase Price is due within 10 business days after all of the Assets have been transferred to Xiuzheng Pharmacy or its designee
and Humankind and Mr. Xin Sun have instructed Xiuzheng Pharmacy to complete three-batches production of all forms of the drugs
included in the Assets. As of the date of this report, 80% of the Purchase Price has been paid, the Company has completed changes
in its business registration, and Xiuzheng Pharmacy has obtained a 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 been recorded
as 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 been appointed by the Buyer. The transfer of
all the drug licenses to the Buyer and the payments of the remainder of the Purchase Price to the Equity Holders are pending.
NOTE 4 - ACCOUNTS RECEIVABLE
The Company’s accounts receivable
amounted to $1,987,505 and $1,455,433 net of allowance for doubtful accounts amounting to $71,713 and $57,245 as of June 30, 2019
and 2018, respectively.
NOTE 5 - INVENTORIES
Inventory consists of following:
|
|
June 30,
2019
|
|
|
June 30,
2018
|
|
Raw Materials
|
|
$
|
320,334
|
|
|
$
|
219,735
|
|
Supplies and Packing Materials
|
|
|
91,110
|
|
|
|
132,329
|
|
Work-in-Progress
|
|
|
85,191
|
|
|
|
22,083
|
|
Finished Goods
|
|
|
360,604
|
|
|
|
78,250
|
|
Total
|
|
$
|
857,239
|
|
|
$
|
452,397
|
|
The inventory allowance with an amount
of $nil and $160,394 were provided for the years ended June 30, 2019 and 2018, respectively.
NOTE 6 - CONSTRUCTION IN PROGRESS
Construction in progress consisted of the
following:
|
|
June 30,
2019
|
|
|
June 30,
2018
|
|
Plant - HLJ Huimeijia
|
|
$
|
806,612
|
|
|
$
|
1,116,652
|
|
Factory Maintenance - HMK
|
|
|
28,840
|
|
|
|
18,182
|
|
Total
|
|
$
|
835,452
|
|
|
$
|
1,134,834
|
|
On April 6, 2012, HLJ Huimeijia entered
into an agreement with a contractor for construction of the HLJ Huimeijia plant. The estimated total cost of construction was approximately
$1.86 million (RMB 12,800,000) and construction was anticipated to be completed by December 2016. As of June 30, 2019, 70% of construction
has been completed, $1,296,274 (RMB 8,901,255)
has been recorded as costs of construction in progress and construction in progress at an amount of $489,662
(RMB 3,362,409) has been completed and converted into property, plant and equipment.
NOTE 7 - PROPERTY, PLANTS AND EQUIPMENT
Property, plants and equipment consisted
of the following
|
|
June 30,
2019
|
|
|
June 30,
2018
|
|
Building, Warehouses and Improvements
|
|
$
|
3,474,056
|
|
|
$
|
3,487,904
|
|
Machinery and Equipment
|
|
|
1,876,174
|
|
|
|
1,589,195
|
|
Office Equipment
|
|
|
76,435
|
|
|
|
71,927
|
|
Vehicles
|
|
|
212,456
|
|
|
|
209,760
|
|
Others
|
|
|
910,178
|
|
|
|
944,138
|
|
Less Accumulated Depreciation
|
|
|
(2,829,875
|
)
|
|
|
(2,578,434
|
)
|
Total
|
|
$
|
3,719,424
|
|
|
$
|
3,724,490
|
|
Depreciation expense was $346,377 and
$304,704 for the years ended June 30, 2019 and 2018, respectively. Depreciation expense charged to operations was $139,519 and
$131,791 for the years ended June 30, 2019 and 2018, respectively. Depreciation expense charged to cost of goods sold was $206,858
and $172,913 for the years ended June 30, 2019 and 2018, respectively.
NOTE 8 - INTANGIBLE ASSETS
The following is a summary of intangible
assets:
|
|
June 30,
2019
|
|
|
June 30,
2018
|
|
Land Use Rights – Humankind
|
|
$
|
922,990
|
|
|
$
|
957,428
|
|
Health Supplement Product Patents – Humankind
|
|
|
4,368,847
|
|
|
|
4,531,858
|
|
Pharmaceutical Patents - HLJ Huimeijia
|
|
|
380,697
|
|
|
|
394,902
|
|
Land Use Rights - HLJ Huimeijia
|
|
|
631,311
|
|
|
|
654,867
|
|
Less: Accumulated Amortization
|
|
|
(3,520,976
|
)
|
|
|
(3,166,554
|
)
|
Intangible Assets, net, Held for Continuing Operations
|
|
$
|
2,782,869
|
|
|
$
|
3,372,501
|
|
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 $471,302 and $364,044 for the years ended June 30, 2019 and 2018, respectively.
NOTE 9 - 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,
2019
|
|
|
June 30,
2018
|
|
Mr. Xin Sun
|
|
$
|
6,928,467
|
|
|
$
|
6,358,406
|
|
Mr. Kai Sun
|
|
|
34,053
|
|
|
|
35,324
|
|
Related Party Debts, Held for Continuing Operations
|
|
$
|
6,962,520
|
|
|
$
|
6,393,730
|
|
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, a director of Humankind,
is a PRC citizen and a family member of Mr. Xin Sun, the CEO of the Company.
NOTE 10 - INCOME TAXES
(a) Corporate income taxes
China Health US was incorporated in the
State of Arizona on July 11, 1996. After the Company had acquired the business of China Health HK through the acquisition of all
the share capital of China Health HK under a share exchange agreement dated December 31, 2008, it became a holding company and
do not conduct any substantial operations or business of its own in the State of Delaware and in the U.S.
The Company also does not provide for U.S.
taxes or foreign withholding taxes on undistributed earnings from its non-U.S. subsidiaries, either owned directly or indirectly,
because it was elected to indefinitely reinvest such earnings outside the U.S to support non-U.S. liquidity needs to fund operations
and growth of its foreign subsidiaries and acquisitions.
United States
China Health US had no taxable income for
U.S. corporate income tax purposes for the years ended June 30, 2019 and 2018, respectively. As of June 30, 2019 and 2018, China
Health US had $1,077,484 and $787,362in net operating loss carry forwards available to offset future taxable income, respectively.
The federal corporate net operating loss carryover is expired in 20 taxable years following the taxable year of the loss. If not
utilized, the federal net operating loss for the fiscal years 2019 and 2018 in an amount of $290,122 and $239,328, respectively,
will begin to expire in the years 2039 and 2038, respectively. Management believes that it is more likely than not that the benefits
from these accumulated net operating losses will not be realized in the future due to the Company’s operating history and
the continued losses of its U.S. operation. Accordingly, the Company has provided a full valuation allowance on the deferred tax
assets under its U.S. entity.
Hong Kong
China Health Industries Holdings Limited
(“China Health HK”) was incorporated in Hong Kong on July 20, 2007 and is subject to Hong Kong profits taxation on
its business activities conducted in Hong Kong and income sourced in Hong Kong. As of June 30, 2019, and 2018, China Health Hong
Kong had $9,702 and $9,104 in net operating loss carry forwards available to offset future taxable income, respectively. Net operating
losses of Hong Kong can generally be carried forward indefinitely. The Company believes that it is more likely than not that these
accumulated net operating losses will not be utilized in the future. Therefore, the Company had provided full valuation allowance
for the deferred tax assets arising from the losses in Hong Kong during the years ended June 30, 2019, and 2018, amounting $598
and $639, respectively. Accordingly, there is no net deferred tax assets under this entity.
People’s Republic of China
Harbin Humankind Biology Technology Co.
Limited (“Humankind”), Heilongjiang Huimeijia Pharmaceutical Co., Ltd (“HLJ Huimeijia”) and Harbin Huimeijia
Medicine Company (“Huimeijia”) were incorporated in PRC and are governed by the income tax laws of the PRC. The income
tax provision with respect to operations in the PRC is calculated at the applicable tax rates on the taxable income for the periods
based on existing legislation, interpretations and practices in respect thereof. Under the Enterprise Income Tax Laws of the PRC
(the “EIT Laws”), Chinese enterprises are subject to income tax at a rate of 25% after appropriate tax adjustments.
The net operating losses carried forward
incurred by the Company’s PRC subsidiaries were approximately $618,168 and $866,056 as of June 30, 2019 and 2018, respectively.
The net operating loss carry forwards gradually expire over time, the last of which expires in 2023. The related deferred tax assets
were calculated based on the respective net operating losses incurred by each of the PRC subsidiaries and the respective corresponding
enacted tax rate that will be in effect in the period in which the losses are expected to be utilized. The Company recorded approximately
$154,542 and $217,639 net valuation allowance as of June 30, 2019 and 2018, respectively, because it is considered more likely
than not that this portion of the deferred tax assets will not be realized through sufficient future earnings of the entities to
which the operating losses relate.
As of June 30, 2019, and 2018, taxes payable
consists of:
|
|
June 30,
2019
|
|
|
June 30,
2018
|
|
Income tax payable
|
|
$
|
422,519
|
|
|
$
|
219,305
|
|
Value-added tax payable
|
|
|
120,114
|
|
|
|
132,439
|
|
Other taxes payable
|
|
|
76,770
|
|
|
|
76,679
|
|
Total
|
|
$
|
619,403
|
|
|
$
|
428,423
|
|
A reconciliation between the Company’s
actual provision for income taxes and the provision at the statutory rate is as follows:
|
|
June 30,
2019
|
|
|
June 30,
2018
|
|
Pre-tax book income
|
|
$
|
4,690,702
|
|
|
$
|
(53,762
|
)
|
Federal statutory rate
|
|
|
21
|
%
|
|
|
21
|
%
|
Income tax computed at U.S. federal statutory rate
|
|
|
985,047
|
|
|
|
(11,290
|
)
|
Non-deductible staff welfare
|
|
|
37,955
|
|
|
|
2,645
|
|
Foreign rate differential
|
|
|
141,394
|
|
|
|
2,645
|
|
Change in valuation allowance
|
|
|
219,267
|
|
|
|
269,065
|
|
Total provision for income taxes
|
|
$
|
1,383,663
|
|
|
$
|
263,065
|
|
The Company’s effective tax rate
was 29.5% and -489.3% for the years ended June 30, 2019 and 2018, respectively.
The provision for income taxes on income
consists of the following for the years ended June 30, 2019 and 2018:
Provision for income taxes consisted of:
|
|
For the Years Ended
|
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Current provision:
|
|
|
|
|
|
|
Domestic
|
|
$
|
-
|
|
|
$
|
-
|
|
Foreign
|
|
|
1,383,702
|
|
|
|
263,111
|
|
Total current provision
|
|
|
1,383,702
|
|
|
|
263,111
|
|
Deferred provision:
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
-
|
|
|
|
-
|
|
Foreign
|
|
|
(39
|
)
|
|
|
(46
|
)
|
Total deferred provision
|
|
|
(39
|
)
|
|
|
(46
|
)
|
Total provision for income taxes
|
|
$
|
1,383,663
|
|
|
$
|
263,065
|
|
Significant components of deferred tax
assets were as follows:
|
|
June 30,
2019
|
|
|
June 30,
2018
|
|
Deferred tax assets
|
|
|
|
|
|
|
Net operating loss carry forward
|
|
$
|
869,502
|
|
|
$
|
653,936
|
|
Allowance for doubtful accounts
|
|
|
17,928
|
|
|
|
13,962
|
|
Valuation allowance
|
|
|
(885,195
|
)
|
|
|
(665,928
|
)
|
Deferred tax assets, net
|
|
$
|
2,235
|
|
|
$
|
1,970
|
|
(b) Uncertain tax positions
There were no unrecognized tax benefits
as of June 30, 2019, and 2018, 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. There was no interests and penalties arising from its tax
payments for the years ended June 30, 2017.
NOTE 11 - 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, 2019, and
2018, 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,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Net income/(loss)
|
|
$
|
3,307,039
|
|
|
$
|
(316,827
|
)
|
|
|
|
|
|
|
|
|
|
Net income/(loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
per share Basic & diluted
|
|
$
|
0.0505
|
|
|
$
|
(0.0048
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
Basic & diluted
|
|
|
65,539,737
|
|
|
|
65,539,737
|
|
NOTE 12 - COMMITMENTS AND CONTINGENCIES
The Company’s 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 government’s 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 Company’s future manufacturing
expansions. The Chinese government also exercises significant control over the PRC’s 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 Company’s performance.
The Company had no rental commitment as
of June 30, 2019.
NOTE 13 - MAJOR SUPPLIERS AND CUSTOMERS
For the year ended June 30, 2019, the Company
had three suppliers that in the aggregate accounted for approximately 75% of the Company’s purchases, with each supplier
accounting for 48%, 16% and 11%, respectively. For the year ended June 30, 2018, the Company had two suppliers that in the aggregate
accounted for approximately 88% of the Company’s purchases, with each supplier accounting for 78% and 10%, respectively.
For the year ended June 30, 2019, the Company
had six customers that in the aggregate accounted for 81% of the Company’s total sales, with each customer accounting for
20%, 16%, 15%, 11%, 11% and 8%, respectively.
For the year ended June 30, 2018, the Company
had six customers that in the aggregate accounted for 84% of the Company’s total sales, with each customer accounting for
21%, 17%, 15%, 12%, 11% and 8%, respectively.
NOTE 14 - 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 income or loss by segment.
The following tables present summary information
by segment for the years ended June 30, 2019 and 2018, respectively:
|
|
|
|
|
For the Year Ended
June 30, 2019
|
|
|
|
|
|
|
|
|
For the Year Ended
June 30, 2018
|
|
|
|
HLJ
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
HLJ
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
Huimeijia
|
|
|
Humankind
|
|
|
Others
|
|
|
operations
|
|
|
Huimeijia
|
|
|
Humankind
|
|
|
Others
|
|
|
operations
|
|
Revenues
|
|
$
|
72,299
|
|
|
$
|
9,203,087
|
|
|
$
|
-
|
|
|
$
|
9,275,386
|
|
|
$
|
78,686
|
|
|
$
|
6,476,253
|
|
|
$
|
-
|
|
|
$
|
6,554,939
|
|
Cost of revenues
|
|
|
119,772
|
|
|
|
2,118,239
|
|
|
|
-
|
|
|
|
2,238,011
|
|
|
|
267,084
|
|
|
|
4,012,551
|
|
|
|
-
|
|
|
|
4,279,635
|
|
Gross profit (loss)
|
|
|
(47,473
|
)
|
|
|
7,084,848
|
|
|
|
-
|
|
|
|
7,037,375
|
|
|
|
(188,398
|
)
|
|
|
2,463,702
|
|
|
|
-
|
|
|
|
2,275,304
|
|
Interest income
|
|
|
39
|
|
|
|
114,189
|
|
|
|
-
|
|
|
|
114,228
|
|
|
|
181
|
|
|
|
110,410
|
|
|
|
-
|
|
|
|
110,591
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
6
|
|
|
|
49,403
|
|
|
|
-
|
|
|
|
5
|
|
|
|
49,408
|
|
Depreciation and amortization
|
|
|
77,413
|
|
|
|
533,408
|
|
|
|
-
|
|
|
|
610,821
|
|
|
|
35,899
|
|
|
|
459,936
|
|
|
|
-
|
|
|
|
495,835
|
|
Income tax
|
|
|
|
|
|
|
1,383,663
|
|
|
|
-
|
|
|
|
1,383,663
|
|
|
|
-
|
|
|
|
263,065
|
|
|
|
-
|
|
|
|
263,065
|
|
Net income (loss)
|
|
|
(618,168
|
)
|
|
|
4,152,346
|
|
|
|
(227,139
|
)
|
|
|
3,307,039
|
|
|
|
(866,056
|
)
|
|
|
789,196
|
|
|
|
(239,967
|
)
|
|
|
(316,827
|
)
|
Total capital expenditures
|
|
|
114,769
|
|
|
|
38,807
|
|
|
|
-
|
|
|
|
153,576
|
|
|
|
18,692
|
|
|
|
50,912
|
|
|
|
-
|
|
|
|
69,604
|
|
Total assets
|
|
$
|
3,527,147
|
|
|
$
|
42,227,720
|
|
|
$
|
23
|
|
|
$
|
45,754,890
|
|
|
$
|
3,469,831
|
|
|
$
|
39,462,373
|
|
|
$
|
365
|
|
|
$
|
42,932,569
|
|
NOTE 15 - 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.