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 Nine Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
|
March 31, 2016
|
|
|
March 31, 2017
|
|
|
March 31,
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUE
|
$
|
1,338,886
|
|
$
|
1,677,273
|
|
$
|
4,410,550
|
|
$
|
6,358,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST OF GOODS SOLD
|
|
866,806
|
|
|
1,175,123
|
|
|
2,801,128
|
|
|
4,594,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT
|
|
472,080
|
|
|
502,150
|
|
|
1,609,422
|
|
|
1,764,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and
administrative expenses
|
|
486,427
|
|
|
439,203
|
|
|
1,243,782
|
|
|
1,439,223
|
|
Depreciation and
amortization expenses
|
|
64,317
|
|
|
147,790
|
|
|
456,651
|
|
|
480,209
|
|
Total operating
expenses
|
|
550,744
|
|
|
586,993
|
|
|
1,700,433
|
|
|
1,919,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) FROM OPERATIONS
|
|
(78,664
|
)
|
|
(84,843
|
)
|
|
(91,011
|
)
|
|
(154,725
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME/(EXPENSES)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
17,626
|
|
|
17,667
|
|
|
55,114
|
|
|
53,191
|
|
Interest expenses
|
|
(22,130
|
)
|
|
(21,720
|
)
|
|
(64,867
|
)
|
|
80,199
|
)
|
Investment
income
|
|
217,867
|
|
|
-
|
|
|
662,595
|
|
|
-
|
|
Other income/(expenses), net
|
|
7,454
|
|
|
9,148
|
|
|
210,816
|
|
|
30,523
|
|
Bank charges
|
|
(315
|
)
|
|
-
|
|
|
(1,017
|
)
|
|
-
|
|
Gain on disposal of subsidiaries
|
|
(6,927
|
)
|
|
-
|
|
|
1,150,663
|
|
|
-
|
|
Total other
income (expenses), net
|
|
213,575
|
|
|
5,095
|
|
|
2,013,304
|
|
|
3,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME/(LOSS) BEFORE
INCOME
TAXES
|
|
134,911
|
|
|
(79,748
|
)
|
|
1,922,293
|
|
|
(151,210
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
189,876
|
|
|
35,077
|
|
|
683,526
|
|
|
105,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) FROM
CONTINUING OPERATIONS
|
|
(54,965
|
)
|
|
(114,825
|
)
|
|
1,238,767
|
|
|
(257,170
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS FROM
DISCONTINUED
OPERATIONS
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
(54,965
|
)
|
|
(114,825
|
)
|
|
1,238,767
|
|
|
(257,170
|
)
|
Less: net loss attributable to
non-controlling interests
|
|
-
|
|
|
(2
|
)
|
|
-
|
|
|
(6
|
)
|
NET INCOME (LOSS)
ATTRIBUTABLE TO CHINA HEALTH
INDUSTRIES HOLDINGS
|
|
(54,965
|
)
|
|
(114,823
|
)
|
|
1,238,767
|
|
|
(257,164
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) FROM
CONTINUING OPERATIONS
|
|
(54,965
|
)
|
|
(114,823
|
)
|
|
1,238,767
|
|
|
(257,164
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS FROM
DISCONTINUED
OPERATIONS
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER COMPREHENSIVE LOSS
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation income (loss)
|
|
306,716
|
|
|
162,205
|
|
|
(614,505
|
)
|
|
(1,413,191
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE INCOME
(LOSS)
|
|
251,751
|
|
|
47,380
|
|
|
624,262
|
|
|
(1,670,361
|
)
|
Less: comprehensive loss attributable to
non-controlling interests
|
|
2
|
|
|
(1
|
)
|
|
(6
|
)
|
|
(14
|
)
|
COMPREHENSIVE LOSS
ATTRIBUTABLE TO CHINA HEALTH
INDUSTRIES HOLDINGS
|
$
|
251,749
|
|
$
|
47,381
|
|
$
|
624,268
|
|
$
|
(1,670,347
|
)
|
Net income (loss) attributable to China
Health Industries Holdings' shareholders per share are:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic &
diluted income (loss) per share
|
$
|
0.0008
|
|
$
|
(0.002
|
)
|
$
|
0.0188
|
|
$
|
(0.004
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic &
diluted weighted average shares outstanding
|
|
65,539,737
|
|
|
65,559,092
|
|
|
65,722,584
|
|
|
65,546,330
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
CHINA HEALTH INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
For the Nine Months
Ended
|
|
|
|
March
31,
|
|
|
March
31,
|
|
|
|
2017
|
|
|
2016
|
|
Cash Flows from Operating
Activities
|
|
|
|
|
|
|
Net
income (loss) available to China Health Industries Holdings
|
$
|
1,238,767
|
|
$
|
(257,164
|
)
|
Net loss
from discontinued operations
|
|
-
|
|
|
-
|
|
Net
income (loss) from continuing operations
|
|
1,238,767
|
|
|
(257,164
|
)
|
Adjustments to reconcile net
income (loss) to net cash provided by operating activities:
|
|
|
|
|
|
|
Depreciation and amortization expenses
|
|
487,913
|
|
|
608,903
|
|
Provisions for doubtful accounts
|
|
-
|
|
|
754
|
|
Non-controlling interests
|
|
-
|
|
|
(6
|
)
|
Short term investment income
|
|
(662,595
|
)
|
|
-
|
|
Share-based compensation
|
|
-
|
|
|
225,000
|
|
Gain on disposal of subsidiaries
|
|
(1,150,663
|
)
|
|
-
|
|
Changes
in operating assets and liabilities,
|
|
|
|
|
|
|
Accounts receivable
|
|
6,244
|
|
|
20,290
|
|
Other receivables
|
|
1,704
|
|
|
(181
|
)
|
Inventory
|
|
(48,916
|
)
|
|
187,148
|
|
Advances to suppliers and prepaid expenses
|
|
(454,794
|
)
|
|
(134,560
|
)
|
Interest receivable
|
|
(653,766
|
)
|
|
-
|
|
Accounts payables and accrued expenses
|
|
(46,299
|
)
|
|
(1,572
|
)
|
Advances from customers and other payables
|
|
(462,497
|
)
|
|
(59,389
|
)
|
Amounts due to related parties
|
|
610,392
|
|
|
-
|
|
Wages payable
|
|
19,455
|
|
|
25,782
|
|
Taxes payable
|
|
356,311
|
|
|
86,850
|
|
Net
cash (used in) provided by operating activities from continuing operations
|
|
(758,744
|
)
|
|
701,855
|
|
Net
cash (used in) provided by operating activities from discontinued
operations
|
|
17,254
|
|
|
-
|
|
Net
cash provided by operating activities
|
|
(741,490
|
)
|
|
701,855
|
|
|
|
|
|
|
|
|
Cash Flows from Investing
Activities
|
|
|
|
|
|
|
Expenditures in short term investments
|
|
(8,054,281
|
)
|
|
-
|
|
Notes receivable
|
|
-
|
|
|
1,460
|
|
Purchases of property, plants and equipment
|
|
(39,968
|
)
|
|
(83,093
|
)
|
Expenditures in construction in progress
|
|
(47,896
|
)
|
|
(60,059
|
)
|
Proceeds from disposal of subsidiaries
|
|
929,800
|
|
|
-
|
|
Net
cash provided by (used in) investing activities from continuing operations
|
|
(7,212,345
|
)
|
|
(141,692
|
)
|
Net
cash provided by (used in) investing activities from discontinued
operations
|
|
-
|
|
|
-
|
|
Net
cash used in investing activities
|
|
(7,212,345
|
)
|
|
(141,692
|
)
|
|
|
|
|
|
|
|
Cash Flows from Financing
Activities
|
|
|
|
|
|
|
Proceeds from related party debts
|
|
85,085
|
|
|
357,277
|
|
Payment of short term loans
|
|
(51,874
|
)
|
|
(45,245
|
)
|
Net cash
provided by financing activities from continuing operations
|
|
33,211
|
|
|
312,032
|
|
Net cash
provided by financing activities from discontinued operations
|
|
-
|
|
|
-
|
|
Net
cash provided by financing activities
|
|
33,211
|
|
|
312,032
|
|
|
|
|
|
|
|
|
Effect of exchange rate
changes on cash and cash equivalents from
continuing operations
|
|
(1,046,039
|
)
|
|
(817,182
|
)
|
Effect of exchange rate
changes on cash and cash equivalents from
discontinued
operations
|
|
(25,832
|
)
|
|
(354
|
)
|
|
|
|
|
|
|
|
Net increase/(decrease) in
cash and cash equivalents from continuing
operations
|
|
(8,983,917
|
)
|
|
55,013
|
|
Net increase/(decrease) in
cash and cash equivalents from discontinued
operations
|
|
(8,578
|
)
|
|
(354
|
)
|
|
|
|
|
|
|
|
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
|
$
|
20,799,235
|
|
$
|
21,168,845
|
|
Cash and cash equivalents, ending balance
from discontinued
operations
|
$
|
-
|
|
$
|
8,841
|
|
|
|
|
|
|
|
|
Supplemental cash flow information
|
|
|
|
|
|
|
Cash paid
for income taxes
|
$
|
945,796
|
|
$
|
346,183
|
|
Cash paid for interest
expenses
|
$
|
64,866
|
|
$
|
80,199
|
|
|
|
|
|
|
|
|
Non-cash activities:
|
|
|
|
|
|
|
Loan from
related party for the construction of a facility
|
$
|
449,092
|
|
$
|
475,849
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
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 is the successor to
the business known as Arizona Mist, Inc., which was incorporated in 1989. On May
9, 2005, China Health US entered into a stock purchase agreement and share
exchange (effecting a reverse merger) with Edmonds 6, Inc., a Delaware
corporation (Edmonds 6), 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.
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 PRC Company Law. 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 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. Because
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 were reflected in the
financial statements for periods prior to the Share Purchase are those of
Humankind and have been recorded at historical cost basis. After the 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 formed a 99% owned subsidiary,
Harbin Huimeijia Medicine Company (Huimeijia) in the PRC. Huimeijias primary
business is the manufacture and distribution of pharmaceuticals. Mr. Xin Sun,
the majority owner of China Health US, 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. (the Transaction). China Health HK was the
acquirer in the Transaction, and the Transaction has been treated as a
recapitalization of China Health US. Following the Transaction and a subsequent
20:1 reverse stock split, Mr. Xin Sun owned 61,203,088 shares of common stock of
China Health US, representing 98.3% of the 62,234,737 total outstanding shares
of common stock. 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 formed on
October 30, 2003, in the PRC, and is engaged in the manufacturing and
distribution of tinctures, ointments, rub-in therapeutic pastes, topical
solutions, suppositories, liniments (including traditional Chinese medicine
extractions), enemas and orally-administered liquids. HLJ Huimeijias predecessor is
Heilongjiang Xue Du Pharmaceutical Co., Ltd., which established its brand by
supplying high quality medical products. HLJ Huimeijia is categorized as a high
and new technology enterprise by the Science Technology Department of
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 a utility model, five patents for external design and three
trademarks in the PRC, including the Chinese brand name Xue Du, which has an
established reputation among customers in the northeastern PRC.
6
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 only sell 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 parties agreed to execute the transfer of the
equity interests based on the Original Agreement and the Equity Holders sold
their respective equity interests in Huimeijia to Xiuzheng Pharmacy for 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 has been paid, Huimeijia has completed changes in its business
registration, and Xiuzheng Pharmacy has obtained a new business license issued
by the local State Administration of Industry and Commerce in Harbin (Harbin
SAIC) for Huimeijia, in which Huimeijias ownership is recorded as held by
Xiuzheng Pharmacy with Harbin SAIC, and the legal representative (a person that
is authorized to take most of corporate actions on behalf of a company under PRC
corporate laws) of Huimeijia has been appointed by the Buyer. The transfers of 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 March 31, 2017, the Companys corporate structure was as
follows:
7
Note 2 - SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
This summary of the Companys significant accounting policies
is presented to assist in understanding the Companys financial statements. The
financial statements and notes are representations of the Companys management,
which is responsible for their integrity and objectivity. These accounting
policies conform to generally accepted accounting principles in the United
States ("US GAAP") and have been consistently applied in the preparation of the
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
sufficient so that the information presented is not misleading. These unaudited
condensed consolidated financial statements should be read in conjunction with
the audited financial statements and notes thereto included in the Companys
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 for 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 nine months ended March 31,
2017, 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 were and are under the common control of Mr. Xin Sun, the CEO of
China Health US, before and after the date of transfer. Humankinds accounting
policy adopted the guidance in ASC 805-50-05-5 for the transfer of net assets
between entities under common control to apply an accounting 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 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 shall also be
retrospectively adjusted to furnish comparative information.
Reclassifications
Certain prior year balances were reclassified to conform to the
current period's presentation in order to reflect Huimeijias business as
discontinued operations. None of these reclassifications had an impact on
reported financial position or cash flows for any of the periods presented.
8
Segment Reporting
FASB Accounting Standard Codification (ASC) Topic 280,
Segment Reporting, established standards for reporting information about
operating segments on a basis consistent with a 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 FASB ASC Topic 820 accounting guidance that
apply to the Company require all entities to disclose the fair value of
financial instruments, both assets and liabilities recognized and not recognized
on balance sheets, for which it is practicable to estimate fair value, and
defines the 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.
Translation of Foreign Currencies
Humankind, Huimeijia and HLJ Huimeijia maintain their books and
accounting records in the PRC currency Renminbi (RMB), which has been
determined to be the Companys functional currency. Transactions denominated in
currencies other than RMB are translated into RMB at the exchange rates
prevailing on the dates of the transactions, as quoted by the Federal Reserve
Board. Foreign currency exchange gains and losses resulting from these
transactions are included in operations.
9
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 March 31, 2017 and June 30, 2016, the Companys uninsured
bank balances were mainly maintained at financial institutions located in the
PRC and Hong Kong. The uninsured bank balances of continuing operations were
$20,799,235 and $29,783,152 as of March 31, 2017 and June 30, 2016,
respectively. The uninsured bank balances of discontinued operations were $0 and
$8,578 as of March 31, 2017 and June 30, 2016, respectively. The Company had no
insured bank balances as of March 31, 2017 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.
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.
10
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) days. As of
March 31, 2017 and June 30, 2016, the balances of accounts receivable from the
continuing operations of the Company were $1,420,465 and $1,197,260,
respectively. As of March 31, 2017 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 $49,128 and $52,129 from the
continuing operations of the Company was appropriate as of March 31, 2017 and
June 30, 2016, respectively. The Company has determined that an allowance of nil
from discontinued operations was appropriate as of March 31, 2017 and June 30,
2016.
Advances to Suppliers
The Company periodically makes advances to certain vendors for
purchases of raw materials, or to service providers for services relating to
construction plans for its plants, equipment and production lines for GMP
upgrading, and records these payments as advances to suppliers. As of March 31,
2017 and June 30, 2016, advances to suppliers held for continuing operations
amounted to $484,194 and $154,430, respectively. As of March 31, 2017 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 or 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 subsidiaries of the Company use the first-in,
first-out (FIFO) method for inventory valuation. Overhead costs included in
finished goods include direct labor costs 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 nine months
ended March 31, 2017 and 2016, respectively.
Impairment of Long-Lived Assets
The Companys long-lived assets and other assets are reviewed
for impairment in accordance with the guidance of the FASB ASC Topic 360-10,
Property, Plant, and Equipment, and FASB ASC Topic 205, Presentation of
Financial Statements. The Company tests for impairment losses on long-lived
assets used in operations whenever events or changes in circumstances indicate
that the carrying amount of the asset may not be recoverable. Recoverability of
an asset to be held and used is measured by a comparison of the carrying amount of the asset to the
future undiscounted cash flows expected to be generated by the asset. If such
asset is considered to be impaired, the impairment to be recognized is measured
by the amount by which the carrying amount of the asset exceeds its fair value.
Impairment evaluations involve managements estimates on asset useful lives and
future cash flows. Actual useful lives and cash flows could be different from
those estimated by management which could have a material effect on the
Companys reporting results and financial position. Fair value is determined
through various valuation techniques including discounted cash flow models,
quoted market values and third-party independent appraisals, as considered
necessary. As of March 31, 2017 and June 30, 2016, the Company had not
experienced impairment losses on its long-lived assets for either continuing or
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.
11
Property, Plants and Equipment
Property, plants and equipment are carried at the lower of cost
or fair value. Maintenance, repairs and minor renewals are expensed as incurred,
and 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:
|
Buildings, Warehouses and
Improvements
|
|
20 to 30 years
|
|
|
Office Equipment
|
|
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 nine months ended March 31, 2017
and 2016, respectively.
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.
12
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 impairments recorded for construction in progress, for
both continuing and discontinued operations, for the nine months ended March 31,
2017 and 2016, 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, for both continuing and discontinued operations, for
the nine months ended March 31, 2017 and 2016, 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 has adopted 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.
As a result of the implementation of FIN 48 (ASC 740-10), the
Company undertook a comprehensive review of its portfolio of tax positions in
accordance with recognition standards established by FIN 48 (ASC 740-10). The
Company recognized no material adjustments to liabilities or stockholders
equity as a result of the implementation. The adoption of FIN 48 did
not have a material impact on the Companys financial statements.
13
The application of tax laws and regulations is subject to legal
and factual interpretation, judgment and uncertainty. Tax laws and regulations
themselves are subject to change as a result of changes in fiscal policy,
changes in legislation, the evolution of regulations and court rulings.
Therefore, the actual liability may be materially different from the Companys
estimates, which could result in the need to record additional tax liabilities
or potentially reverse previously recorded tax liabilities or deferred tax asset
valuation allowance.
Enterprise Income Tax
Under the Provisional Regulations of the 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 the 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
March 31, 2017 and June 30, 2016, VAT payables from continuing operations of the
Company were $201,088 and $183,813, respectively. As of March 31, 2017 and June
30, 2016, VAT payables were both nil for 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 $117,839 and $116,259 for the nine
months ended March 31, 2017 and 2016, respectively. Sales-related taxes from the
discontinued operations were both nil for the nine months ended March 31, 2017
and 2016.
Concentrations of Business and Credit Risks
All of the Companys manufacturing takes place in the PRC.
There can be no assurance that the Company will be able to successfully continue
to manufacture its products and failure to do so would have a material adverse
effect on the Companys financial position, results of operations and cash
flows. Also, the success of the Companys operations is subject to numerous
contingencies, some of which are beyond managements control. These
contingencies include general economic conditions, prices of raw materials,
competition, governmental and political conditions, and changes in regulations.
Since the Company is dependent on trade in the PRC, the Company is subject to
various additional political, economic and other uncertainties. Among other
risks, the Companys operations will be subject to the risks of restrictions on
transfer of funds, domestic customs, changing taxation policies, foreign
exchange restrictions, and political and governmental regulations.
The Company operates in the PRC, 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.
14
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 nine months ended March 31, 2017 and
2016, 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 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 us in our first quarter of fiscal 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 (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). We are currently assessing the materiality of the impact
to our consolidated financial statements, and have not yet selected a transition
approach.
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.
15
In October 2016, the FASB issued ASU No. 2016-16, Income Taxes
(Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. The
amendments require an entity to recognize the 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.
Also in October 2016, the FASB 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 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.
In January 2017, the FASB issued Accounting Standards Update
No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a
Business (ASU 2017-01), which revises the definition of a business and provides
new guidance in evaluating when a set of transferred assets and activities is a
business. This guidance will be effective for us in the first quarter of 2018 on
a prospective basis, and early adoption is permitted. We do not expect the
standard to have a material impact on our consolidated financial statements.
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 (Xiuzheng Pharmacy or the Buyer), Mr. Xin Sun, the CEO of
Humankind, and Huimeijia. Pursuant to the Original Agreement, Humankind and Mr.
Xin Sun (the Equity Holders) would sell their respective equity interests in
Huimeijia to Xiuzheng Pharmacy. The transfer of 100% of the equity interests of
Huimeijia to the Buyer was in exchange 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 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.
16
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 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 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 Drugs 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
Drugs. 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 now persons 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.
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 because the Company has the
intent and ability to hold the investments to maturity. The maturity of these
financial products is one year, with contractual maturity date of July 19, 2017,
and estimated annual interest rates of approximately 10%. They are classified as
short term investments on the consolidated balance sheets because their
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 principal and interest in full upon
maturity of these investments. Harbin Hongxiang Investment Guarantee Co., Ltd.,
the financial institution that handled the Companys short term investment with
is a related party of the Company.
While these financial products are not publicly traded, the
Company estimated that their fair value approximates their amortized costs
considering their short term maturities and high credit quality. No OTTI loss
was recognized for the periods ended March 31, 2017 and June 30, 2016.
NOTE 5 - ACCOUNTS RECEIVABLE
The Companys accounts receivable held for continuing
operations, were $1,371,337 and $1,145,131, net of allowances for doubtful
accounts amounting to $49,128 and $52,129, as of March 31, 2017 and June 30,
2016, respectively. The Companys accounts receivable held for discontinued
operations were both nil, net of allowances for doubtful accounts amounting to
nil as of March 31, 2017 and June 30, 2016, respectively.
17
NOTE 6 - INVENTORY
Inventory from the continuing operations of the Company
consisted of following:
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Raw Materials
|
$
|
150,124
|
|
$
|
122,569
|
|
Supplies and Packing Materials
|
|
140,002
|
|
|
130,472
|
|
Work-in-Progress
|
|
133,597
|
|
|
118,233
|
|
Finished Goods
|
|
39,977
|
|
|
48,713
|
|
Total
|
|
463,700
|
|
|
419,987
|
|
Less: Inventory Held for Discontinued
Operations
|
|
-
|
|
|
5,203
|
|
Inventory Held for Continuing
Operations
|
$
|
463,700
|
|
$
|
414,784
|
|
For the nine months ended March 31, 2017 and 2016, the Company
has not made provision for inventory from 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:
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Plant - HLJ Huimeijia
|
$
|
697,717
|
|
$
|
670,051
|
|
Plant and Production Lines - Huimeijia
|
|
-
|
|
|
1,806
|
|
Total
|
|
697,717
|
|
|
671,857
|
|
Less: Construction in Progress for
Discontinued Operations
|
|
-
|
|
|
1,806
|
|
Construction in Progress for
Continuing Operations
|
$
|
697,717
|
|
$
|
670,051
|
|
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 March 31,
2017, 38% of construction had been completed and $697,717 (RMB 4,802,522) has
been recorded as costs of construction in progress.
NOTE 8 - PROPERTY, PLANTS AND EQUIPMENT
Property, plants and equipment from the continuing operations
of the Company consisted of the following:
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Building, Warehouses and
Improvements
|
$
|
3,301,863
|
|
$
|
4,360,191
|
|
Machinery and Equipment
|
|
1,210,803
|
|
|
1,232,861
|
|
Office Equipment
|
|
61,451
|
|
|
69,330
|
|
Vehicles
|
|
209,757
|
|
|
204,457
|
|
Others
|
|
908,008
|
|
|
-
|
|
Less: Accumulated Depreciation
|
|
(2,149,873
|
)
|
|
(1,998,278
|
)
|
Total
|
|
3,542,009
|
|
|
3,868,561
|
|
Less: Property and Equipment, net, Held for
Discontinued Operations
|
|
-
|
|
|
1,796
|
|
Property and Equipment, net,
held for continuing operations
|
$
|
3,542,009
|
|
$
|
3,866,765
|
|
18
Depreciation expenses from the continuing operations of the
Company was $1,375,864 and $173,033 for the nine months ended March 31, 2017 and
2016, respectively. Depreciation expenses from discontinued operations was nil
and $389 for the nine months ended March 31, 2017 and 2016, respectively.
Depreciation expenses charged to operations from the continuing operations of
the Company was $332,558 and $68,303 for the nine months ended March 31, 2017
and 2016, respectively. Depreciation expenses charged to cost of goods sold from
the continuing operations of the Company was $1,043,307 and $104,730 for the
nine months ended March 31, 2017 and 2016, respectively. Depreciation expenses
charged to operations from discontinued operations was nil and $389 for the nine
months ended March 31, 2017 and 2016, respectively. Depreciation expenses
charged to cost of goods sold from discontinued operations was nil for each of
the nine month periods ended March 31, 2017 and 2016, respectively.
As of March 31, 2017, a building owned by HLJ Huimeijia with a
book value of $1,587,589 has been mortgaged in connection with a working capital
loan in the principal amount of $1,452,813 (RMB 10,000,000). As of June 30,
2016, a building owned by HLJ Huimeijia with a book value of $1,676,627 has been
mortgaged in connection with a 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:
|
|
March 31, 2017
|
|
|
June 30, 2016
|
|
Land Use Rights Humankind
|
$
|
920,790
|
|
$
|
953,670
|
|
Health Supplement Product Patents Humankind
|
|
4,358,438
|
|
|
4,514,061
|
|
Pharmaceutical Patents - HLJ
Huimeijia
|
|
130,170
|
|
|
134,817
|
|
Land Use Rights - HLJ Huimeijia
|
|
629,807
|
|
|
652,295
|
|
Less: Accumulated
Amortization
|
|
(2,334,588
|
)
|
|
(2,063,784
|
)
|
Total
|
|
3,704,617
|
|
|
4,191,059
|
|
Less: Intangible Assets, net,
Held for Discontinued Operations
|
|
-
|
|
|
-
|
|
Intangible Assets, net, Held for Continuing
Operations
|
$
|
3,704,617
|
|
$
|
4,191,059
|
|
All land in the PRC belongs to the government of the PRC.
Enterprises and individuals can pay the PRC government 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. These land use rights 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 expenses from continuing operations of the Company
was $124,093 and $264,117 for the nine months ended March 31, 2017 and 2016,
respectively. Amortization expenses from discontinued operations was nil for
each of the nine month periods ended March 31, 2017 and 2016.
As of March 31, 2017, HLJ Huimeijias land use rights with a
book value of $629,807 have been mortgaged in connection with a working capital
loan in the principal amount of $1,452,813 (RMB 10,000,000). As of June 30,
2016, HLJ Huimeijias land use rights with a book value of $652,295 have been
mortgaged in connection with 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 land use rights and a building owned by HLJ
Huimeijia, with a maturity date of November 10, 2016.
19
On November 17, 2016, the agreement was renewed with an
interest rate of 6.09% with a maturity date of November 16, 2017.
As of March 31, 2017 and June 30, 2016, the Companys
short-term loans from its continuing operations was $1,452,813 and $1,504,687,
respectively. As of March 31, 2017 and June 30, 2016, the Companys short-term
loans from the discontinued operations was both nil.
Interest expenses from the continuing operations of the Company
were $64,867 and $58,479 for the nine months ended March 31, 2017 and 2016,
respectively. Interest expenses from discontinued operations were nil for each
of the nine month periods ended March 31, 2017 and 2016, 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:
|
|
March 31, 2017
|
|
|
June 30, 2016
|
|
Mr. Xin Sun
|
$
|
3,386,534
|
|
$
|
2,678,220
|
|
Mr. Kai Sun
|
|
33,973
|
|
|
35,186
|
|
Total
|
|
3,420,506
|
|
|
2,713,406
|
|
Less: Related Party Debts, Held for
Discontinued Operations
|
|
-
|
|
|
-
|
|
Related Party Debts, Held for
Continuing Operations
|
$
|
3,420,506
|
|
$
|
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 nine months
ended March 31, 2017 and 2016, respectively. As of March 31, 2017, China Health
US had 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 its 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 nine months ended March 31,
2017 and 2016. 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
because China Health HK had 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 nine months ended
March 31, 2017 and 2016:
20
|
|
For the
Three Months
|
|
|
For the
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
March 31
|
|
|
March 31
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Current provision:
|
|
|
|
|
|
|
|
|
|
|
|
|
USA
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
PRC
|
|
189,876
|
|
|
35,077
|
|
|
683,526
|
|
|
105,960
|
|
Total current provision
|
|
189,876
|
|
|
35,077
|
|
|
683,526
|
|
|
105,960
|
|
Deferred provision:
|
|
|
|
|
|
|
|
|
|
|
|
|
USA
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
PRC
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Total deferred provision
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Total provision for income
taxes
|
|
189,876
|
|
|
35,077
|
|
|
683,526
|
|
|
105,960
|
|
Less: Provision for income taxes, held for
discontinued operations
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Provision for income taxes,
held for continuing operations
|
$
|
189,876
|
|
$
|
35,077
|
|
$
|
683,526
|
|
$
|
105,960
|
|
Significant components of deferred tax assets from the
continuing operations of the Company were as follows:
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Deferred tax assets
|
|
|
|
|
|
|
Net operating loss carry forward
|
$
|
131,773
|
|
$
|
118,259
|
|
Allowances for doubtful
accounts
|
|
-
|
|
|
-
|
|
Valuation allowance
|
|
(131,773
|
)
|
|
(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 March 31, 2017 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 March 31, 2017
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 nine months ended March 31, 2017 and 2016,
the Company did not incur any interest or 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 PRC 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 PRC government. For example, all land is state
owned and leased to business entities or individuals through the PRC
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 PRC 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.
21
The Company faces a number of risks and challenges not
typically associated with companies in North America or Western Europe, because
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.
The Company had no rental commitments as of March 31, 2017.
NOTE 14 - MAJOR SUPPLIERS AND CUSTOMERS
For the nine months ended March 31, 2017, the Company had two
suppliers that in the aggregate accounted for 88% of the Companys purchases for
continuing operations, with each supplier accounting for 78% and 10%,
respectively.
For the nine months ended March 31, 2016, the Company had one
supplier that accounted for 79% of the Companys purchases.
For the nine months ended March 31, 2017, the Company had six
customers that in the aggregate accounted for 69% of the Companys total sales
for continuing operations, with each customer accounting for 15%, 13%, 12%, 11%,
10% and 8%, respectively.
For the nine months ended March 31, 2016, the Company had four
customers that in the aggregate accounted for 43% of the Companys total sales,
with each customer accounting for 12%, 11%, 10% and 10%, respectively.
NOTE 15 - SEGMENT REPORTING
The Company is 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 information regarding
revenue, gross margin, operating income, and net income 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 the Others segment.
The following tables present summary information by segment for
the three and nine months ended March 31, 2017 and 2016, respectively:
22
|
|
For the Three Months Ended March
31, 2017
|
|
|
For the Three Months Ended March
31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
from
|
|
|
|
|
|
|
|
|
|
|
|
from
|
|
|
|
HLJ
|
|
|
|
|
|
|
|
|
continuing
|
|
|
HLJ
|
|
|
|
|
|
|
|
|
continuing
|
|
|
|
Huimeijia
|
|
|
Humankind
|
|
|
Others
|
|
|
operations
|
|
|
Huimeijia
|
|
|
Humankind
|
|
|
Others
|
|
|
operations
|
|
Revenues
|
$
|
-
|
|
$
|
1,338,886
|
|
$
|
-
|
|
$
|
1,338,886
|
|
$
|
61,370
|
|
$
|
1,615,903
|
|
$
|
-
|
|
$
|
1,677,273
|
|
Cost of revenues
|
|
-
|
|
|
866,806
|
|
|
-
|
|
|
866,806
|
|
|
45,300
|
|
|
1,129,823
|
|
|
-
|
|
|
1,175,123
|
|
Gross profit
|
|
-
|
|
|
472,080
|
|
|
-
|
|
|
472,080
|
|
|
16,070
|
|
|
486,080
|
|
|
-
|
|
|
502,150
|
|
Interest expense
|
|
22,129
|
|
|
-
|
|
|
1
|
|
|
22,130
|
|
|
21,720
|
|
|
-
|
|
|
-
|
|
|
21,720
|
|
Depreciation and amortization
|
|
(22,357
|
)
|
|
86,674
|
|
|
-
|
|
|
64,317
|
|
|
15,454
|
|
|
132,147
|
|
|
189
|
|
|
147,790
|
|
Income tax
|
|
-
|
|
|
189,876
|
|
|
-
|
|
|
189,876
|
|
|
-
|
|
|
35,077
|
|
|
-
|
|
|
35,077
|
|
Net income (loss)
|
|
(209,632
|
)
|
|
285,052
|
|
|
(130,385
|
)
|
|
(54,965
|
)
|
|
(107,278
|
)
|
|
105,233
|
|
|
(112,780
|
)
|
|
(114,825
|
)
|
Total capital expenditures
|
|
-
|
|
|
39,968
|
|
|
-
|
|
|
39,968
|
|
|
78,096
|
|
|
-
|
|
|
-
|
|
|
78,096
|
|
Total assets
|
$
|
3,158,361
|
|
$
|
37,483,078
|
|
$
|
1,222
|
|
$
|
40,642,661
|
|
$
|
3,186,625
|
|
$
|
37,013,289
|
|
$
|
136,115
|
|
$
|
40,336,029
|
|
|
|
For the Nine Months Ended March 31,
2017
|
|
|
For the Nine Months Ended March 31,
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
from
|
|
|
|
|
|
|
|
|
|
|
|
from
|
|
|
|
HLJ
|
|
|
|
|
|
|
|
|
continuing
|
|
|
HLJ
|
|
|
|
|
|
|
|
|
continuing
|
|
|
|
Huimeijia
|
|
|
Humankind
|
|
|
Others
|
|
|
operations
|
|
|
Huimeijia
|
|
|
Humankind
|
|
|
Others
|
|
|
operations
|
|
Revenues
|
$
|
162
|
|
$
|
4,410,388
|
|
$
|
-
|
|
$
|
4,410,550
|
|
$
|
705,089
|
|
$
|
5,653,903
|
|
$
|
-
|
|
$
|
6,358,992
|
|
Cost of revenues
|
|
67
|
|
|
2,801,061
|
|
|
-
|
|
|
2,801,128
|
|
|
633,404
|
|
|
3,960,881
|
|
|
-
|
|
|
4,594,285
|
|
Gross profit
|
|
95
|
|
|
1,609,327
|
|
|
-
|
|
|
1,609,422
|
|
|
71,685
|
|
|
1,693,022
|
|
|
-
|
|
|
1,764,707
|
|
Interest expense
|
|
64,866
|
|
|
-
|
|
|
1
|
|
|
64,867
|
|
|
80,199
|
|
|
-
|
|
|
-
|
|
|
80,199
|
|
Depreciation
and amortization
|
|
41,808
|
|
|
414,843
|
|
|
-
|
|
|
456,651
|
|
|
43,679
|
|
|
435,952
|
|
|
578
|
|
|
480,209
|
|
Income tax
|
|
-
|
|
|
683,526
|
|
|
-
|
|
|
683,526
|
|
|
-
|
|
|
105,960
|
|
|
-
|
|
|
105,960
|
|
Net income
(loss)
|
|
(526,821
|
)
|
|
1,766,002
|
|
|
(414
|
)
|
|
1,238,767
|
|
|
(349,196
|
)
|
|
317,882
|
|
|
(225,856
|
)
|
|
(257,170
|
)
|
Total capital expenditures
|
|
-
|
|
|
39,968
|
|
|
-
|
|
|
39,968
|
|
|
82,639
|
|
|
454
|
|
|
-
|
|
|
83,093
|
|
Total assets
|
$
|
3,158,361
|
|
$
|
37,483,078
|
|
$
|
1,222
|
|
$
|
40,642,661
|
|
$
|
3,186,625
|
|
$
|
37,013,289
|
|
$
|
136,115
|
|
$
|
40,336,029
|
|
23
|
|
For the
Three Months Ended
|
|
|
For the
Three Months Ended
|
|
|
|
March 31, 2017
|
|
|
March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated from
|
|
|
|
|
|
Consolidated from
|
|
|
|
|
|
|
discontinued
|
|
|
|
|
|
discontinued
|
|
|
|
Huimeijia
|
|
|
operations
|
|
|
Huimeijia
|
|
|
operations
|
|
Revenues
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
Cost of revenues
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Gross profit
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Interest expenses
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Depreciation and amortization
|
|
-
|
|
|
-
|
|
|
189
|
|
|
189
|
|
Income tax
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Net loss
|
|
22
|
|
|
-
|
|
|
(189
|
)
|
|
(189
|
)
|
Total capital expenditures
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Total assets
|
$
|
17,293
|
|
$
|
-
|
|
$
|
514,960
|
|
$
|
514,960
|
|
|
|
For the
Nine Months Ended
|
|
|
For the
Nine Months Ended
|
|
|
|
March 31, 2017
|
|
|
March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated from
|
|
|
|
|
|
Consolidated from
|
|
|
|
|
|
|
discontinued
|
|
|
|
|
|
discontinued
|
|
|
|
Huimeijia
|
|
|
operations
|
|
|
Huimeijia
|
|
|
operations
|
|
Revenues
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
Cost of revenues
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Gross profit
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Interest expenses
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Depreciation and amortization
|
|
-
|
|
|
-
|
|
|
578
|
|
|
578
|
|
Income tax
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Net loss
|
|
(28
|
)
|
|
-
|
|
|
(578
|
)
|
|
(578
|
)
|
Total capital expenditures
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Total assets
|
$
|
17,293
|
|
$
|
-
|
|
$
|
514,960
|
|
$
|
514,960
|
|
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 and committing to a plan to sell the entity,
the major current assets, other assets, current liabilities, and noncurrent
liabilities are to 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:
24
|
|
March 31, 2017
|
|
|
June 30, 2016
|
|
ASSETS
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
Cash and cash
equivalents
|
$
|
8,254
|
|
$
|
8,578
|
|
Inventory
|
|
5,024
|
|
|
5,203
|
|
Advances to
suppliers
|
|
538
|
|
|
558
|
|
Total Current Assets
|
|
13,816
|
|
|
14,339
|
|
|
|
|
|
|
|
|
Property, plants and equipment,
net
|
|
1,734
|
|
|
1,796
|
|
Construction in
progress
|
|
1,743
|
|
|
1,806
|
|
Total Assets
|
$
|
3,477
|
|
$
|
17,941
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
Current Liabilities:
|
$
|
|
|
$
|
|
|
Accounts payable and accrued
expenses
|
|
538
|
|
|
558
|
|
Other payables
|
|
15
|
|
|
16
|
|
Advances from customers
|
|
-
|
|
|
481,500
|
|
Taxes payable
|
|
(59
|
)
|
|
(61
|
)
|
Total Current Liabilities
|
|
494
|
|
|
482,013
|
|
|
|
|
|
|
|
|
Total Liabilities
|
$
|
494
|
|
$
|
482,013
|
|
Reconciliation of the carrying amounts of major classes of net
income (loss) from operations to be disposed of classified as discontinued
operations in the unaudited condensed consolidated statements of operations and
comprehensive income (loss):
|
|
For the
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Operating Expenses
|
|
|
|
|
|
|
Depreciation and amortization expenses
|
$
|
-
|
|
$
|
189
|
|
Total Operating
Expenses
|
|
-
|
|
|
189
|
|
|
|
|
|
|
|
|
Income/(loss) from
Operations
|
|
-
|
|
|
(189
|
)
|
Other income/(expenses), net
|
|
22
|
|
|
-
|
|
Income/(loss) before
Income Taxes
|
|
22
|
|
|
(189
|
)
|
|
|
|
|
|
|
|
Net Loss from Discontinued
Operations
|
$
|
22
|
|
$
|
(189
|
)
|
|
|
For the
Nine Months Ended
|
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Operating Expenses
|
|
|
|
|
|
|
Depreciation and amortization expenses
|
$
|
-
|
|
$
|
578
|
|
Total Operating
Expenses
|
|
-
|
|
|
578
|
|
|
|
|
|
|
|
|
Loss from Operations
|
|
-
|
|
|
(578
|
)
|
Other expenses, net
|
|
(28
|
)
|
|
|
|
Loss before Income
Taxes
|
|
(28
|
)
|
|
(578
|
)
|
|
|
|
|
|
|
|
Net Loss from Discontinued
Operations
|
$
|
(28
|
)
|
$
|
(578
|
)
|
25
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.
Item 2.
|
Managements Discussion and Analysis of
Financial Condition and Results of
Operations.
|
FORWARD LOOKING STATEMENTS
We make certain forward-looking statements in this report.
Statements concerning our future operations, prospects, strategies, financial
condition, future economic performance (including growth and earnings), demand
for our services, and other statements of our plans, beliefs, or expectations,
including the statements contained under this caption as well as under captions
elsewhere in this document, are forward-looking statements. In some cases, these
statements are identifiable through the use of words such as anticipate,
believe, estimate, expect, intend, plan, project, target, can,
could, may, should, will, would, and similar expressions. The
forward-looking statements we make are not guarantees of future performance and
are subject to various assumptions, risks, and other factors that could cause
actual results to differ materially from those suggested by these
forward-looking statements. These risks and uncertainties, together with the
other risks described from time to time in reports and documents that we file
with the SEC should be considered in evaluating forward-looking statements.
Because such statements are subject to risks and uncertainties, actual results
may differ materially from those expressed or implied by the forward-looking
statements. Indeed, it is likely that some of our assumptions will prove to be
incorrect. Our actual results and financial position will vary from those
projected or implied in the forward-looking statements and the variances may be
material. You are cautioned not to place undue reliance on such forward-looking
statements, which reflect our view only as of the date of this report.
Important factors that could cause actual results to differ
from those in the forward-looking statements include, without limitation, the
following:
|
|
the effect of political, economic, and market
conditions and geopolitical events;
|
|
|
|
|
|
legislative and regulatory changes that affect
our business;
|
|
|
|
|
|
the availability of funds and working capital;
and
|
|
|
|
|
|
the actions and initiatives of current and
potential competitors.
|
Except as required by applicable laws, regulations or rules, we
do not undertake any responsibility to publicly release any revisions to these
forward-looking statements to take into account events or circumstances that
occur after the date of this report. Additionally, we do not undertake any
responsibility to update you on the occurrence of any unanticipated events which
may cause actual results to differ from those expressed or implied by any
forward-looking statements.
The following discussion and analysis should be read in
conjunction with our unaudited condensed consolidated financial statements and
the related notes thereto as filed with the SEC and other financial information
contained elsewhere in this report.
Except as otherwise indicated by the context, references in
this report to we, us, our, the Registrant, our Company, or the
Company are to China Health Industries Holdings, Inc., a Delaware corporation,
China Health Industries Holdings Limited, a limited liability company
incorporated under the laws of Hong Kong, its wholly owned subsidiary in China,
Harbin Humankind Biology Technology Co. Limited (Humankind) and its indirect
99% owned subsidiary Harbin Huimeijia Medicine Company (Huimeijia), and
indirect wholly owned subsidiary, Heilongjiang Huimeijia Pharmaceutical Co.,
Ltd. (HLJ Huimeijia). Unless the context otherwise requires, all references to (i) the PRC and China are to the Peoples
Republic of China; (ii) U.S. dollar, $ and US$ are to United States
dollars; (iii) RMB are to Renminbi Yuan of China; (iv) Securities Act are to
the Securities Act of 1933, as amended; and (v) Exchange Act are to the
Securities Exchange Act of 1934, as amended.
26
Business Overview
Our principal business operations are conducted through our
wholly-owned subsidiaries, Humankind and HLJ Huimeijia.
The Company owns a GMP-certified plant and production
facilities and has the capacity to produce 21 different CFDA-approved medicines
and 14 CFDA-approved health supplement products in soft capsule, hard capsule,
tablet, granule and oral liquid forms. These products address the needs of some
key sectors in China, including the feminine, geriatric and childrens
markets.
HLJ Huimeijia's current GMP certificate expired at the end of
December 2015. HLJ Huimeijia has applied for a new GMP certificate, which is
expected to be obtained in July 2017. However, there is no assurance that we
will obtain the new GMP certificate by such time. According to PRC law, HLJ
Huimeijia must cease all production activities before receiving the new GMP
certificate. The equipment and production line will begin reconstruction in the
third quarter of the fiscal year 2016 and will continue through the third
quarter of the fiscal year 2017 for the purpose of applying for the new GMP
certificate. HLJ Huimeijia is currently in the final stages of reconstruction,
which is expected to be completed in June 2017. Although HLJ Huimeijia could
sell inventory produced prior to obtaining the new GMP certificate, management
anticipates there will be no or very little revenue generated by HLJ Huimeijia
after the expiration of the old GMP certificate.
On December 24, 2014, Humankind, Xiuzheng Pharmacy (the
Buyer), Mr. Xin Sun and Huimeijia entered into a stock transfer agreement (the
Original Agreement) pursuant to which Humankind and Mr. Xin Sun (the Equity
Holders) were to 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 would
sell only 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 the Equity Holders agreed to sell their
respective equity interests in Huimeijia to Xiuzheng Pharmacy for 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
has been paid, the Company has completed changes to its business registration,
and Xiuzheng Pharmacy obtained a business license issued by the local State
Administration of Industry and Commerce in Harbin (Harbin SAIC) for 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 now become a person appointed by
the Buyer. The transfer of the Assets to the Buyer and the payment of the
remainder of the Purchase Price to the Equity Holders are pending. As of March
31, 2017, the results of operations of Huimeijias business are reflected in the
Companys unaudited condensed consolidated financial statements as discontinued
operations.
Our business is conducted through our sales agents and sales
personnel. We sell our products directly to end customers through our own sales
personnel as well as our sales agents, operating primarily in Anhui, Zhejiang,
Shanghai, Beijing, Jiangsu, and Gansu, where most of our revenues are generated.
Sales by agents in Anhui, Zhejiang, Shanghai, Beijing, Jiangsu, and Gansu
provinces accounted for 15%, 13%, 12%, 11%, 10% and 8% of our total sales,
respectively, for the nine months ended March 31, 2017. Although we do not
currently sell our products online, we expect to do so in the future.
27
Results of Operations
Three months ended March 31, 2017 compared to the three
months ended March 31, 2016
The following table summarizes the top lines of the results of
our operations for the three months ended March 31, 2017 and 2016,
respectively:
|
|
March 31,
|
|
|
March 31,
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Variance
|
|
|
%
|
|
Revenues
|
$
|
1,338,886
|
|
$
|
1,677,273
|
|
$
|
(338,387
|
)
|
|
-20.17%
|
|
Humankind
|
|
1,338,886
|
|
|
1,615,903
|
|
|
(277,017
|
)
|
|
-17.14%
|
|
HLJ Huimeijia
|
|
-
|
|
|
61,370
|
|
|
(61,370
|
)
|
|
-100.00%
|
|
Cost of Goods Sold
|
$
|
866,806
|
|
$
|
1,175,123
|
|
$
|
(308,317
|
)
|
|
-26.24%
|
|
Humankind
|
|
866,806
|
|
|
1,129,823
|
|
|
(263,017
|
)
|
|
-23.28%
|
|
HLJ Huimeijia
|
|
-
|
|
|
45,300
|
|
|
(45,300
|
)
|
|
-100.00%
|
|
Gross Profit
|
$
|
472,080
|
|
$
|
502,150
|
|
$
|
(30,070
|
)
|
|
-5.99%
|
|
Humankind
|
|
472,080
|
|
|
486,080
|
|
|
(14,000
|
)
|
|
-2.88%
|
|
HLJ Huimeijia
|
|
-
|
|
|
16,070
|
|
|
(16,070
|
)
|
|
-100.00%
|
|
Revenue
Total revenues from the Companys continuing operations
decreased by $338,387 or 20.17% for the three months ended March 31, 2017, as
compared to the same period in 2016. The fall in revenues was primarily due to a
decrease of $277,017 or 17.14% in Humankinds revenues and a decrease of $61,370
or 100.00% in HLJ Huimeijias revenues for the three months ended March 31, 2017
as compared to the same period in 2016. The drop in Humankinds sales revenues
was primarily due to a reduction in the sales volume of Waterlilies Soft
Capsules, which was caused by a decline in demand and our shift of marketing
focus to Propolis and Black Ant Capsules. The significant decrease in HLJ
Huimeijias the sales revenue was primarily due to the expiration of its GMP
certificate on December 31, 2015. During the three months prior to such
expiration, HLJ Huimeijia reduced its production and marketing operations as
more attention was paid to the preparation of manufacturing and technical
improvements in order to meet the requirements for obtaining a new GMP
certificate. Since the third quarter of fiscal year 2016, HLJ Huimeijia has
ceased all production activities, reconstructed its equipment and production
line for the purpose of applying for the new GMP certificate, and continued to
sell inventory produced before the expiration of the old GMP certificate.
Our total cost of sales from continuing operations of the
Company decreased by $308,317 or 26.24% for the three months ended March 31,
2017 as compared to the same period in 2016. The plunge in the overall cost of
sales was attributed to the drop of $263,017 or 23.28% in Humankinds cost of
sales and a decrease of $45,300 or 100.00% in HLJ Huimeijias cost of sales for
the three months ended March 31, 2017 as compared to the same period in 2016.
This decrease aligned with the decrease in sales volume of products sold by
Humankind and HLJ Huimeijia.
Our gross margin from continuing operations of the Company
decreased by $30,070 from $502,150 for the three months ended March 31, 2016 to
$472,080 for the three months ended March 31, 2017. This change was consistent
with the decrease in sales volume of products sold by Humankind and HLJ
Huimeijia as discussed above.
Sales by Product Line
The following table summarizes a breakdown of our sales by
major product line for the three months ended March 31, 2017 and 2016,
respectively:
|
|
March 31, 2017
|
|
|
March 31, 2016
|
|
|
|
Quantity
|
|
|
|
|
|
% of
|
|
|
Quantity
|
|
|
|
|
|
% of
|
|
|
|
(Unit)
|
|
|
Sales US$
|
|
|
Sales
|
|
|
(Unit)
|
|
|
Sales US$
|
|
|
Sales
|
|
Humankind
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Waterlilies Soft Capsules (Sailuozhi)
|
|
4,433
|
|
$
|
261,406
|
|
|
19.52%
|
|
|
15,076
|
|
$
|
938,286
|
|
|
55.94%
|
|
Propolis and Black Ant
Capsules
|
|
40,669
|
|
|
1,077,480
|
|
|
80.48%
|
|
|
24,145
|
|
|
677,613
|
|
|
40.40%
|
|
HLJ Huimeijia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Musk Bone Strengthener Paste
|
|
-
|
|
|
-
|
|
|
0.00%
|
|
|
74,232
|
|
|
16,901
|
|
|
1.01%
|
|
Musk Pain Relieving Paste
|
|
-
|
|
|
-
|
|
|
0.00%
|
|
|
9,036
|
|
|
1,186
|
|
|
0.07%
|
|
Injury and Rheumatism
relieving Paste
|
|
-
|
|
|
-
|
|
|
0.00%
|
|
|
90,635
|
|
|
23,344
|
|
|
1.39%
|
|
Refining GouPi Cream
|
|
-
|
|
|
-
|
|
|
0.00%
|
|
|
26,195
|
|
|
5,416
|
|
|
0.32%
|
|
Enema Glycerini
|
|
-
|
|
|
-
|
|
|
0.00%
|
|
|
133,140
|
|
|
11,336
|
|
|
0.68%
|
|
UmguentumAcidiBoriciCamphoratum
|
|
-
|
|
|
-
|
|
|
0.00%
|
|
|
22,680
|
|
|
2,904
|
|
|
0.17%
|
|
Indometacin and Furazolidone
Suppositories
|
|
-
|
|
|
-
|
|
|
0.00%
|
|
|
-
|
|
|
-
|
|
|
0.00%
|
|
Ge Hong Beriberi Water
|
|
-
|
|
|
-
|
|
|
0.00%
|
|
|
1,130
|
|
|
287
|
|
|
0.02%
|
|
Total
|
|
|
|
$
|
1,338,886
|
|
|
100.00%
|
|
|
|
|
$
|
1,677,273
|
|
|
100.00%
|
|
28
Operating Expenses
The following table summarizes our operating expenses for the
three months ended March 31, 2017 and 2016, respectively:
|
|
March 31, 2017
|
|
|
March 31, 2016
|
|
|
Variance
|
|
|
%
|
|
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
$
|
486,427
|
|
$
|
439,203
|
|
$
|
47,224
|
|
|
10.75%
|
|
Depreciation and amortization
|
|
64,317
|
|
|
147,790
|
|
|
(83,473
|
)
|
|
-56.48%
|
|
Total Operating Expenses
|
$
|
550,744
|
|
$
|
586,993
|
|
$
|
(36,249
|
)
|
|
-6.18%
|
|
Total operating expenses for the three months ended March 31,
2017 were $36,249 or 6.18% lower than in the corresponding period in 2016. The
decline in operating expenses was primarily attributable to a decrease of
$83,473 or 56.48% in depreciation and amortization expenses, offset by an
increase of $47,224 or 10.75% in selling, general and administrative expenses.
The increase in selling, general and administrative expenses was mainly due to
the disposal of expired raw materials and products for the three months ended
March 31, 2017 as compared to the same period in 2016. The decrease in
depreciation and amortization expenses was primarily attributed to an
unfavorable foreign exchange rate for the three months ended March 31, 2017, as
compared to the same period in 2016.
Total operating expenses from discontinued operations decreased
from $189 for the three months ended March 31, 2016 to nil for the corresponding
period in 2017.
Interest Income and Interest Expense
Interest income from the Companys continuing operations was
$17,626 for the three months ended March 31, 2017, as compared to $17,667 for
the three months ended March 31, 2016. This decrease of $41, or 0.23%, was
mainly due to the decreased average balance of bank deposits compared with the
same period of 2016.
Interest expense from the Companys continuing operations was
$22,130 for the three months ended March 31, 2017, an increase of $410 or 1.89%,
as compared to $21,720 for the three months ended March 31, 2016. The increase
of interest expense was mainly due to the increase in short-term loan interest
rates from 5.66% to 6.09% in November 2016.
Investment Income
During the three months ended March 31, 2017, investment income
from the Companys continuing operations was $217,867, as compared to nil for
the same period in 2016. On July 5, 2016, our Company entered into a one-year
financial management agreement with the principal in the amount of $8,716,876
(RMB 60,000,000) at the expected annual rate of return of 10%. The financial
institution that handled the Companys short term investment with is the related
party of the Company.
30
Income Taxes
Income taxes from the Companys continuing operations
significantly increased by $154,799, or 441.31%, from $35,077 for the three
months ended March 31, 2016 to $189,876 for the three months ended March 31,
2017. The increase in income taxes was due to an increase in income before
income taxes of one of the Companys subsidiaries, Humankind, with an increase
from $140,310 for the three months ended March 31, 2016 to $560,782 for the same
period of 2017.
Net Income (Loss) from Continuing Operations and Income
(Loss) Per Share
Net loss from the Companys continuing operations was $54,965
for the three months ended March 31, 2017, as compared to $114,636 for the three
months ended March 31, 2016. This decrease of $59,671, or 52.05% in net loss was
primarily attributable to an increase in investment income of $217,867,
partially offset by a decrease in gross profit of $30,070, an increase in
depreciation and amortization expense in the amount of $83,284 and an increase
in selling, general and administrative expenses of $47,224 for the three months
ended March 31, 2017 as compared to the same period of 2016.
Loss per share was $0.0008 for the three months ended March 31,
2017 and $0.0018 for the three months ended March 31, 2016, respectively. This
decrease was primarily a result of the above-described decrease in net loss.
Net Loss from Discontinued Operations
Net loss from discontinued operations was nil for the three
months ended March 31, 2017, as compared to $189 for the three months ended
March 31, 2016.
Net Income (Loss)
As a result of the foregoing, we had net loss of $54,965 for
the three months ended March 31, 2017, compared to $114,825 for the same period
in 2016. After deduction of non-controlling interest in loss, net loss
attributable to the China Health Industries Holdings was $54,965 for the three
months March 31, 2017, and $114,823 for the same period in 2016.
31
Nine months ended March 31, 2017 compared to the nine
months ended March 31, 2016
The following table summarizes the top lines of the results of
our operations for the nine months ended March 31, 2017 and 2016,
respectively:
|
|
March 31,
|
|
|
March 31
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Variance
|
|
|
%
|
|
Revenues
|
$
|
4,410,550
|
|
$
|
6,358,992
|
|
$
|
(1,948,442
|
)
|
|
-30.64%
|
|
Humankind
|
|
4,410,388
|
|
|
5,653,903
|
|
|
(1,243,515
|
)
|
|
-21.99%
|
|
HLJ Huimeijia
|
|
162
|
|
|
705,089
|
|
|
(704,927
|
)
|
|
-99.98%
|
|
Cost of Goods Sold
|
$
|
2,801,128
|
|
$
|
4,594,285
|
|
$
|
(1,793,157
|
)
|
|
-39.03%
|
|
Humankind
|
|
2,801,061
|
|
|
3,960,881
|
|
|
(1,159,820
|
)
|
|
-29.28%
|
|
HLJ Huimeijia
|
|
67
|
|
|
633,404
|
|
|
(633,337
|
)
|
|
-99.99%
|
|
Gross Profit
|
$
|
1,609,422
|
|
$
|
1,764,707
|
|
$
|
(155,285
|
)
|
|
-8.80%
|
|
Humankind
|
|
1,609,327
|
|
|
1,693,022
|
|
|
(83,695
|
)
|
|
-4.94%
|
|
HLJ Huimeijia
|
|
95
|
|
|
71,685
|
|
|
(71,590
|
)
|
|
-99.87%
|
|
Revenue
Total revenues from the Companys continuing operations
decreased by $1,948,442 or 30.64% for the nine months ended March 31, 2017 as
compared to the same period in 2016. The fall in revenues was primarily due to a
decrease of $1,243,515 or 21.99% in Humankinds revenues and a decrease of
$704,927 or 99.98% in HLJ Huimeijias revenues for the nine months ended March
31, 2017 as compared to the same period in 2016. The drop in the sales revenue
in Humankind was primarily due to a reduction in the sales volume of Waterlilies
Soft Capsules, which was caused by a decline in demand and our shift of
marketing focus to Propolis and Black Ant Capsules. The significant decrease in
HLJ Huimeijias sales revenue was primary due to the expiration of its GMP
certificate on December 31, 2015. During the three months prior to such
expiration, HLJ Huimeijia reduced its production and marketing operations as
more attention was paid to the preparation of manufacturing and technical
improvements in order to meet the requirements for obtaining a new GMP
certificate. Since the third quarter of fiscal year 2016, HLJ Huimeijia has
ceased all production activities, reconstructed its equipment and production
lines for the purpose of applying for a new GMP certificate, and continued to
sell inventory produced before the expiration of the old GMP certificate.
Our total cost of sales from the Companys continuing
operations dropped by $1,793,157 or 39.03% for the nine months ended March 31,
2017 as compared to the same period in 2016. The plunge in the overall cost of
sales was attributed to the drop of $1,159,820 or 29.28% in Humankinds cost of
sales and a decrease of $633,337 or 99.99% in HLJ Huimeijias cost of sales for
the nine months ended March 31, 2017 as compared to the same period in 2016.
This decrease aligned with the decrease in the sales volume of products sold by
Humankind and HLJ Huimeijia.
Our gross margin from the Companys continuing operations
declined by $155,285 from $1,764,707 for the nine months ended March 31, 2017 to
$1,609,422 for the nine months ended March 31, 2016. This change was consistent
with the decrease in the sales volume of products sold by Humankind and HLJ
Huimeijia as discussed above.
Sales by Product Line
The following table summarizes a breakdown of our sales by
major product line for the nine months ended March 31, 2017 and 2016,
respectively:
32
|
|
March 31,
2017
|
|
|
March 31,
2016
|
|
|
|
Quantity
|
|
|
|
|
|
% of
|
|
|
Quantity
|
|
|
|
|
|
% of
|
|
|
|
(Unit)
|
|
|
Sales US$
|
|
|
Sales
|
|
|
(Unit)
|
|
|
Sales US$
|
|
|
Sales
|
|
Humankind
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Waterlilies Soft Capsules (Sailuozhi)
|
|
15,057
|
|
$
|
909,143
|
|
|
20.61%
|
|
|
54,929
|
|
$
|
3,506,062
|
|
|
55.13%
|
|
Propolis and Black Ant
Capsules
|
|
128,933
|
|
|
3,501,245
|
|
|
79.39%
|
|
|
74,553
|
|
|
2,147,834
|
|
|
33.78%
|
|
HLJ Huimeijia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Musk Bone Strengthener Paste
|
|
59
|
|
|
24
|
|
|
0.00%
|
|
|
985,399
|
|
|
260,282
|
|
|
4.09%
|
|
Musk Pain Relieving Paste
|
|
21
|
|
|
8
|
|
|
0.00%
|
|
|
379,746
|
|
|
102,282
|
|
|
1.61%
|
|
Injury and Rheumatism
relieving Paste
|
|
118
|
|
|
92
|
|
|
0.00%
|
|
|
330,168
|
|
|
92,283
|
|
|
1.45%
|
|
Refining GouPi Cream
|
|
15
|
|
|
6
|
|
|
0.00%
|
|
|
445,021
|
|
|
118,001
|
|
|
1.86%
|
|
Enema Glycerini
|
|
-
|
|
|
-
|
|
|
0.00%
|
|
|
932,166
|
|
|
92,413
|
|
|
1.45%
|
|
UmguentumAcidiBoriciCamphoratum
|
|
10
|
|
|
3
|
|
|
0.00%
|
|
|
133,090
|
|
|
37,498
|
|
|
0.59%
|
|
Indometacin and Furazolidone
Suppositories
|
|
-
|
|
|
-
|
|
|
0.00%
|
|
|
1,100
|
|
|
450
|
|
|
0.01%
|
|
Ge Hong Beriberi Water
|
|
92
|
|
|
29
|
|
|
0.00%
|
|
|
6,480
|
|
|
1,887
|
|
|
0.03%
|
|
Total
|
|
|
|
$
|
4,410,550
|
|
|
100.00%
|
|
|
|
|
$
|
6,358,992
|
|
|
100.00%
|
|
Operating Expenses
The following table summarizes our operating expenses for the
nine months ended March 31, 2017 and 2016, respectively:
|
|
March 31, 2017
|
|
|
March 31,2016
|
|
|
Variance
|
|
|
%
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
$
|
1,243,782
|
|
$
|
1,439,223
|
|
$
|
(195,441
|
)
|
|
-13.58%
|
|
Depreciation and amortization
|
|
456,651
|
|
|
480,209
|
|
|
(23,558
|
)
|
|
-4.91%
|
|
Total Operating Expenses
|
$
|
1,700,433
|
|
$
|
1,919,432
|
|
$
|
(218,999
|
)
|
|
-11.41%
|
|
Total operating expenses for the nine months ended March 31,
2017 were $218,999 or 11.41% lower than in the corresponding period in 2016. The
decline in operating expenses was primarily attributable to a decrease of
$195,441 or 13.58% in selling, general and administrative expenses and a fall of
$23,558 or 4.91% in depreciation and amortization expenses. The decrease in
selling, general and administrative expenses was mainly due to decreased
expenses for the development of marketing and operations in order to focus on
the construction of CIP for the nine months ended March 31, 2017, as compared to
the same period in 2016. The decrease in depreciation and amortization expenses
was primarily attributed to a more unfavorable foreign exchange rate for the
nine months ended March 31, 2017 than the one in the same period in 2016.
Total operating expenses from the discontinued operations
decreased from $578 for the nine months ended March 31, 2016 to nil for the
corresponding period in 2017.
Interest Income and Interest Expenses
Interest income from the Companys continuing operations was
$55,114 for the nine months ended March 31, 2017, as compared to $53,191 for the
nine months ended March 31, 2016. This increase of $1,923, or 3.62%, was mainly
due to the increased average balance of bank deposits compared with the same
period of 2016.
Interest expenses from the Companys continuing operations was
$64,867 for the nine months ended March 31, 2017, a decrease of $15,332 or
19.12%, as compared to $80,199 for the nine months ended March 31, 2016. The
decrease in interest expenses was mainly due to fluctuations in exchange rates,
despite the increase in short-term loan interest rates in November 2016.
33
Investment Income
During the nine months ended March 31, 2017, investment income
from the Companys continuing operations was $662,595, as compared to nil for
the same period in 2016. On July 5, 2016, our Company entered into a one-year
financial management agreement with the principal in the amount of $8,716,876
(RMB 60,000,000) with an expected annual rate of return of 10%. The financial
institution that handled this short term investment is a related party of the
Company.
Income Taxes
Income taxes from the Companys continuing operations increased
by $577,566, or 545.08%, from $105,960 for the nine months ended March 31, 2016
to $683,526 for the nine months ended March 31, 2017. This increase was
primarily due to the increase in net book income before income taxes of one of
the Companys subsidiaries, Humankind, with an increase from $423,842 for the
nine months ended March 31, 2016 to $2,319,261 for the same period of 2017.
Net Income (Loss) from Continuing Operations and Income
(Loss) Per Share
Net income from the Companys continuing operations was
$1,238,767 for the nine months ended March 31, 2017, as compared to net loss of
$256,592 for the nine months ended March 31, 2016. This increase of $1,495,359,
or 582.78% in net income was primarily attributable to an increase in gain on
disposal of subsidiaries in the amount of $1,150,663, an increase in investment
income in the amount of $662,595, a decrease in selling, general and
administrative expenses of $195,441, partially offset by a fall in gross profit
of $155,285 and an increase in depreciation and amortization expenses in the
amount of $22,980 for the nine months ended March 31, 2017 as compared to the
same period of 2016.
Income per share was $0.0188 for the nine months ended March
31, 2017 and loss per share was $0.0039 for the nine months ended March 31,
2016, respectively. This increase was primarily a result of the above-described
increase in net income.
Net Loss from Discontinued Operations
Net loss from discontinued operations was nil for the nine
months ended March 31, 2017, as compared to $578 for the nine months ended March
31, 2016.
Net Income (Loss)
As a result of the foregoing, we had net income of $1,238,767
for the nine months ended March 31, 2017, compared to net loss of $257,170 for
the same period in 2016. After deducting non-controlling interest in loss, net
income attributable to the China Health Industries Holdings was $1,238,767 for
the nine months March 31, 2017, and net loss attributable to the China Health
Industries Holdings was $257,164 for the same period in 2016.
Liquidity and Capital Resources
We believe our current working capital position, together with
our expected future cash flows from operations and loans from our major
shareholder, will be adequate to fund our operations in the ordinary course of
business, anticipated capital expenditures, debt payment requirements and other
contractual obligations for at least the next twelve months. However, this
belief is based upon many assumptions and is subject to numerous risks, and
there can be no assurance that we will not require additional funding in the
future.
The following table summarizes our cash and cash equivalents
positions, our working capital, and our cash flow activities as of March 31,
2017 and June 30, 2016 and for the nine months ended March 31, 2017 and
2016:
|
|
March 31, 2017
|
|
|
June 30, 2016
|
|
Cash and cash equivalents
|
$
|
20,799,235
|
|
$
|
29,783,152
|
|
Working capital
|
$
|
26,097,121
|
|
$
|
25,518,206
|
|
Inventories
|
$
|
463,700
|
|
$
|
414,784
|
|
34
|
|
2017
|
|
|
2016
|
|
For the nine months
ended March 31:
|
|
|
|
|
|
|
Cash provided by (used in):
|
|
|
|
|
|
|
Operating activities
|
$
|
(758,744
|
)
|
$
|
701,855
|
|
Investing activities
|
$
|
(7,212,345
|
)
|
$
|
(141,692
|
)
|
Financing activities
|
$
|
33,211
|
|
$
|
312,032
|
|
For the nine months ended March 31, 2017, our net decrease in
cash and cash equivalents from continuing operations totaled $8,983,917, which
total was comprised of net cash used in operating activities in the amount of
$758,744, net cash used in investing activities in the amount of $7,212,345 and
the negative effect of prevailing exchange rates on our cash position of
$1,046,039, offset by net cash provided by financing activities in the amount of
$33,211.
For the nine months ended March 31, 2016, our net increase in
cash and cash equivalents from continuing operations totaled $55,013, which
total was comprised of net cash provided by operating activities in the amount
of $701,855 and net cash provided by financing activities in the amount of
$312,032, offset by the negative effect of prevailing exchange rates on our cash
position of $817,182 and net cash used in investing activities in the amount of
$141,692.
Our working capital from continuing operations at March 31,
2017 was $26,097,121, compared to working capital of $25,518,206 at June 30,
2016. This increase of $578,915 or 2.27% was primarily attributable to the
increase in interest receivable in the amount of $653,766, the increase in
advance to suppliers in the amount of $329,764, and the decrease in other
payables in the amount of $464,513, offset by the increase in related party
debts in the amount of $707,100 and the increase in taxes payable in the amount
of $356,311.
Net cash used in operating activities was $758,744 for the nine
months ended March 31, 2017, primarily attributable to an increase in interest
receivable in the amount of $653,766, an increase in advances to suppliers in
the amount of $329,764 and a decrease in other payables in the amount of
$464,513. Net cash used in investing activities was $7,212,345 for the nine
months ended March 31, 2017, primarily due to expenditures in short-term
investments of $8,054,281. Net cash provided by financing activities from
continuing operations was $33,211 for the nine months ended March 31, 2017,
attributable to proceeds from related party debts in the amount of $85,085,
partially offset by payment of short term loans in the amount of $51,874. The
negative effect of exchange rate changes on cash and cash equivalents in the
amount of $1,046,039 for the nine months ended March 31, 2017 was mainly a
result of the effect of the devaluation of the RMB against the USD on the
significant amount of cash and cash equivalents held by the Company in RMB. The
exchange rates from USD to RMB were 6.8832 to 1 and 6.6459 to 1 as of March 31,
2017 and June 30, 2016, respectively, and the average exchange rate from USD to
RMB was 6.7915 for the nine months ended March 31, 2017.
Net cash provided by operating activities was $701,855 for the
nine months ended March 31, 2016, primarily attributable to the net loss
available to the Company in the amount of $257,164, depreciation and
amortization expenses of $608,903 and share based compensation of $225,000 as
reconciled, and a decrease in inventory of $187,148, partially offset by an
increase in advances to suppliers and prepaid expenses of $134,560. Net cash
used in investing activities was $141,692 for the nine months ended March 31,
2016, primarily due to the cash used in the purchases of property, plants and
equipment of $83,093 and the cash paid for construction in progress of $60,059
for the construction of a new plant for HLJ Huimeijia to expand and enhance its
production capacity. Net cash provided by financing activities was $312,032 for
the nine months ended March 31, 2016, attributable to the collections of related
party debts in the amount of $357,277, offset by the repayment of related party
debts in the amount of $45,245. The negative effect of exchange rate changes on
cash and cash equivalents in the amount of $817,182 for the nine months ended
March 31, 2016 was mainly a result of the effect of the devaluation of the RMB
to the USD on the significant amount of cash and cash equivalents held by the
Company in RMB. The exchange rates from USD to RMB were 6.4480 to 1 and 6.2000
to 1 as of March 31, 2016 and June 30, 2015, respectively, and the average
exchange rate from USD to RMB was 6.4096 for the nine months ended March 31,
2016.
35
Other than as described in this report, we have no present
agreements or commitments with respect to any material acquisitions of
businesses, products, product rights or technologies or any other material
capital expenditures. However, we will continue to evaluate acquisitions of,
and/or investments in, products, technologies, capital equipment or improvements
or companies that complement our business and may make such acquisitions and/or
investments in the future. Accordingly, we may need to obtain additional sources
of capital in the future to finance any such acquisitions and/or investments. We
may not be able to obtain such financing on commercially reasonable terms, if at
all. Even if we are able to obtain additional financing, it may contain undue
restrictions on our operations, in the case of debt financing, or cause
substantial dilution for our stockholders, in the case of equity financing.
Related Party Debts
We had related party debts from continuing operations in the
amount of $3,420,506 as of March 31, 2017, as compared to $2,713,406 as of June
30, 2016, an increase of $707,100 or 26.06% . Our related party debts mainly
consist of a loan from Mr. Xin Sun, the CEO of the Company. The loan is
unsecured and non-interest bearing and has no fixed terms of repayment. There
was no written agreement for the loan. See Note 11.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that are
currently material or reasonably likely to be material to our financial position
or results of operations.
Critical Accounting Policies and Estimates
We prepare the unaudited condensed consolidated financial
statements in accordance with US GAAP. These accounting principles require us to
make judgments, estimates and assumptions on the reported amounts of assets and
liabilities at the end of each fiscal period, and the reported amounts of
revenues and expenses during each fiscal period. We continually evaluate these
judgments and estimates based on our own historical experience, knowledge and
assessment of current business and other conditions, our expectations regarding
the future based on available information, and assumptions that we believe to be
reasonable.
There have been no material changes during the nine months
ended March 31, 2017 in the Companys significant accounting policies to those
previously disclosed in the annual report on Form 10-K for the fiscal year ended
June 30, 2016.
Item 3.
|
Quantitative and Qualitative Disclosures
About Market Risk
|
Not applicable.
Item 4.
|
Controls and Procedures
|
Evaluation of Disclosure Controls and Procedures
We maintain a set of disclosure controls and procedures
designed to ensure that information required to be disclosed by us in our
reports filed under the Securities Exchange Act of 1934, as amended (the
Exchange Act), is recorded, processed, summarized and reported within the time
periods specified by the SECs rules and forms. Disclosure controls are also
designed with the objective of ensuring that this information is accumulated and
communicated to our management, including our chief executive and chief
financial officer, as appropriate, to allow timely decisions regarding required
disclosure.
At the conclusion of the period ended March 31, 2017, we
carried out an evaluation, under the supervision and with the participation of
our management, including our principal executive and principal financial
officer, of the effectiveness of the design and operation of our disclosure
controls and procedures (as such term is defined in Rules 13a-15(e) and
15d-15(e) under the Exchange Act). Based upon that evaluation, our principal
executive and principal financial officer concluded that, due to the material weakness in our internal controls over
financial reporting as discussed in our annual report on Form 10-K for the
fiscal year ended June 30, 2016, as of the end of the period covered by this
Quarterly Report on Form 10-Q, our disclosure controls and procedures were not
effective to satisfy the objectives for which they are intended.
36
Despite the material weakness reported above, our management
believes that our unaudited condensed consolidated financial statements included
in this report fairly present in all material respects our financial condition,
results of operations and cash flows for the periods presented because we have
retained a consultant who has U.S. GAAP experience to assist us in the
preparation of our unaudited condensed consolidated financial statements.
Changes in Internal Controls over Financial
Reporting
No changes in our internal controls over financial reporting
have come to managements attention during the quarter ended March 31, 2017 that
have materially affected, or are likely to materially affect, our internal
control over financial reporting.
Limitations on Controls
Management does not expect that our disclosure controls and
procedures or our internal control over financial reporting will prevent or
detect all error and fraud. Any control system, no matter how well designed and
operated, is based upon certain assumptions and can provide only reasonable, not
absolute, assurance that its objectives will be met. Further, no evaluation of
controls can provide absolute assurance that misstatements due to error or fraud
will not occur or that all control issues and instances of fraud, if any, within
the Company have been detected.
37
PART II - OTHER INFORMATION
The exhibits required by this item are set forth in the Exhibit
Index attached hereto.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly authorized.
CHINA HEALTH INDUSTRIES HOLDINGS,
INC.
|
|
|
|
|
|
|
/s/ Xin
Sun
|
By:
|
Xin Sun
|
Title:
|
Chief Executive Officer and Chief Financial
|
|
Officer
|
|
(Principal Executive Officer, Principal
|
|
Financial Officer
|
|
and Principal Accounting Officer)
|
|
|
Date: May 15, 2017
|
38