Item 1. Financial Statements.
In the opinion
of management, the accompanying unaudited condensed consolidated financial statements included in this Form 10-Q reflect all adjustments
(consisting only of normal recurring accruals) necessary for a fair presentation of the results of operations for the periods presented.
The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year.
INDEX TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
|
Page
|
|
|
Condensed Consolidated Balance Sheets as of September 30, 2017 (Unaudited) and December 31, 2016
|
2
|
|
|
Condensed
Consolidated Statements of Operations and Comprehensive (Loss) Income for the Three and the Nine Months Ended September 30, 2017
and 2016 (Unaudited)
|
3
|
|
|
Condensed
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2017 and 2016 (Unaudited)
|
4
|
|
|
|
Notes to Unaudited Condensed Consolidated Financial Statements
|
5-19
|
JOWAY HEALTH INDUSTRIES GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
Cash
|
|
$
|
784,215
|
|
|
$
|
919,390
|
|
Accounts receivable
|
|
|
2,716
|
|
|
|
-
|
|
Other receivables
|
|
|
50,618
|
|
|
|
56,146
|
|
Inventories
|
|
|
567,740
|
|
|
|
591,308
|
|
Advances to suppliers
|
|
|
189,433
|
|
|
|
190,779
|
|
Prepaid taxes
|
|
|
41,484
|
|
|
|
42,257
|
|
Prepaid expense
|
|
|
3,329
|
|
|
|
2,304
|
|
Total current assets
|
|
|
1,639,535
|
|
|
|
1,802,184
|
|
|
|
|
|
|
|
|
|
|
PROPERTY, PLANT AND EQUIPMENT, net
|
|
|
4,425,621
|
|
|
|
4,383,593
|
|
|
|
|
|
|
|
|
|
|
OTHER ASSETS:
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
|
515,416
|
|
|
|
510,104
|
|
Total other assets
|
|
|
515,416
|
|
|
|
510,104
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
6,580,572
|
|
|
$
|
6,695,881
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
63,656
|
|
|
$
|
78,591
|
|
Advances from customers
|
|
|
130,886
|
|
|
|
31,487
|
|
Other payables
|
|
|
65,461
|
|
|
|
66,288
|
|
Due to related parties
|
|
|
127,483
|
|
|
|
124,808
|
|
Total current liabilities
|
|
|
387,486
|
|
|
|
301,174
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY:
|
|
|
|
|
|
|
|
|
Preferred stock - par value $0.001; 1,000,000 shares authorized; no shares issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
Common stock - par value $0.001; 200,000,000 shares authorized; 20,054,000 shares issued and outstanding at September 30, 2017 and December 31, 2016
|
|
|
20,054
|
|
|
|
20,054
|
|
Additional paid-in-capital
|
|
|
7,361,665
|
|
|
|
7,361,665
|
|
Statutory reserves
|
|
|
354,052
|
|
|
|
354,052
|
|
Accumulated deficits
|
|
|
(2,213,486
|
)
|
|
|
(1,741,458
|
)
|
Accumulated other comprehensive income
|
|
|
670,801
|
|
|
|
400,394
|
|
Total stockholders' equity
|
|
|
6,193,086
|
|
|
|
6,394,707
|
|
Total liabilities and stockholders' equity
|
|
$
|
6,580,572
|
|
|
$
|
6,695,881
|
|
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements
JOWAY HEALTH INDUSTRIES GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
(UNAUDITED)
|
|
Three months ended
September 30,
|
|
|
Nine months ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES
|
|
$
|
734,938
|
|
|
$
|
894,194
|
|
|
$
|
2,608,746
|
|
|
$
|
2,519,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST OF REVENUES
|
|
|
312,613
|
|
|
|
375,874
|
|
|
|
918,760
|
|
|
|
959,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT
|
|
|
422,325
|
|
|
|
518,320
|
|
|
|
1,689,986
|
|
|
|
1,559,560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling expenses
|
|
|
235,005
|
|
|
|
245,199
|
|
|
|
733,799
|
|
|
|
891,726
|
|
General and administrative expenses
|
|
|
447,777
|
|
|
|
396,433
|
|
|
|
1,333,063
|
|
|
|
1,234,684
|
|
OPERATING EXPENSES
|
|
|
682,782
|
|
|
|
641,632
|
|
|
|
2,066,862
|
|
|
|
2,126,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS
|
|
|
(260,457
|
)
|
|
|
(123,312
|
)
|
|
|
(376,876
|
)
|
|
|
(566,850
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
147
|
|
|
|
121
|
|
|
|
566
|
|
|
|
282
|
|
Other income
|
|
|
9,880
|
|
|
|
180
|
|
|
|
15,091
|
|
|
|
1,551
|
|
Other expenses
|
|
|
(42,240
|
)
|
|
|
(497
|
)
|
|
|
(110,841
|
)
|
|
|
(7,649
|
)
|
OTHER EXPENSE, NET
|
|
|
(32,213
|
)
|
|
|
(196
|
)
|
|
|
(95,184
|
)
|
|
|
(5,816
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS BEFORE INCOME TAXES
|
|
|
(292,670
|
)
|
|
|
(123,508
|
)
|
|
|
(472,060
|
)
|
|
|
(572,666
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME TAXES (BENEFITS)
|
|
|
-
|
|
|
|
(8
|
)
|
|
|
(32
|
)
|
|
|
925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
|
(292,670
|
)
|
|
|
(123,500
|
)
|
|
|
(472,028
|
)
|
|
|
(573,591
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER COMPREHENSIVE INCOME (LOSS):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
113,690
|
|
|
|
(25,644
|
)
|
|
|
270,407
|
|
|
|
(173,906
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE LOSS
|
|
$
|
(178,980
|
)
|
|
$
|
(149,144
|
)
|
|
$
|
(201,621
|
)
|
|
$
|
(747,497
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS PER COMMON SHARE, BASIC AND DILUTED
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING, BASIC AND DILUTED
|
|
|
20,054,000
|
|
|
|
20,054,000
|
|
|
|
20,054,000
|
|
|
|
20,054,000
|
|
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements
JOWAY HEALTH INDUSTRIES GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS
(UNAUDITED)
|
|
Nine months ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net loss
|
|
$
|
(472,028
|
)
|
|
$
|
(573,591
|
)
|
Adjustments to reconcile net loss to net cash provided by (used in) operating activities
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
326,896
|
|
|
|
355,083
|
|
Amortization
|
|
|
16,561
|
|
|
|
17,132
|
|
Loss on sale of assets
|
|
|
110,841
|
|
|
|
5,243
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable, trade
|
|
|
(2,716
|
)
|
|
|
(2,381
|
)
|
Other receivables
|
|
|
5,528
|
|
|
|
5,458
|
|
Inventories
|
|
|
19,384
|
|
|
|
151,418
|
|
Advances to suppliers
|
|
|
1,346
|
|
|
|
(15,746
|
)
|
Prepaid expense
|
|
|
(1,025
|
)
|
|
|
(1,135
|
)
|
Accounts payable
|
|
|
(14,935
|
)
|
|
|
(40,502
|
)
|
Advances from customers
|
|
|
99,399
|
|
|
|
160,013
|
|
Other payable
|
|
|
(5,896
|
)
|
|
|
3,745
|
|
Salary and welfare payable
|
|
|
5,069
|
|
|
|
6,184
|
|
Taxes payable
|
|
|
773
|
|
|
|
44,520
|
|
Net cash provided by operating activities
|
|
|
89,197
|
|
|
|
115,441
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchase of property plant and equipment
|
|
|
(355,765
|
)
|
|
|
(46,335
|
)
|
Proceeds from sale of equipment
|
|
|
74,538
|
|
|
|
152
|
|
Net cash used in investing activities
|
|
|
(281,227
|
)
|
|
|
(46,183
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Repayment of due to related parties
|
|
|
(2,707
|
)
|
|
|
(2,463
|
)
|
Net cash used in financing activities
|
|
|
(2,707
|
)
|
|
|
(2,463
|
)
|
|
|
|
|
|
|
|
|
|
EFFECT OF EXCHANGE RATE CHANGES ON CASH
|
|
|
59,562
|
|
|
|
(31,246
|
)
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH
|
|
|
(135,175
|
)
|
|
|
35,549
|
|
|
|
|
|
|
|
|
|
|
CASH, beginning of period
|
|
|
919,390
|
|
|
|
369,249
|
|
|
|
|
|
|
|
|
|
|
CASH, end of period
|
|
$
|
784,215
|
|
|
$
|
404,798
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
2,848
|
|
|
$
|
2,848
|
|
Interest paid
|
|
$
|
-
|
|
|
$
|
-
|
|
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements
JOWAY HEALTH INDUSTRIES GROUP INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 1 – ORGANIZATION
The unaudited condensed consolidated
financial statements include the financial statements of Joway Health Industries Group Inc. (referred to herein as “Joway
Health”), its subsidiaries, and variable interest entities (“VIEs”) where Joway Health is deemed the primary
beneficiary. Joway Health, its subsidiaries and VIEs are collectively referred to herein as the “Company”, “we”
and “us”.
Joway Health (formerly G2 Ventures, Inc.)
was originally incorporated under the laws of the State of Texas on March 21, 2003. On September 21, 2010, Joway Health entered
into a Share Exchange Agreement (the “Share Exchange”) with the sole stockholder of Dynamic Elite International Limited.
As a result of the Share Exchange, Dynamic Elite became a wholly-owned subsidiary of Joway Health and the stockholders of Dynamic
Elite acquired approximately 76.08% of the issued and outstanding stock of Joway Health. The share exchange transaction resulted
in the shareholders of Dynamic Elite acquiring a majority voting interest in Joway Health. Generally accepted accounting principles
in the United States of America require that the company whose shareholders retain the majority interest in the combined business
be treated as the acquirer for accounting purposes. The reverse acquisition process utilizes the capital structure of Joway Health
and the assets and liabilities of Dynamic Elite recorded at historical cost. On December 22, 2010, Joway Health changed its jurisdiction
of incorporation from the State of Texas to the State of Nevada.
Dynamic Elite International Limited (referred
to herein as “Dynamic Elite”) was incorporated under the laws of the British Virgin Islands on June 2, 2010 as a limited
liability company (a BVI company). Dynamic Elite engages in manufacturing and distributing tourmaline products in China. Its wholly
owned subsidiary, Tianjin Junhe Management Consulting Co., Ltd. was incorporated on September 15, 2010 in Tianjin, People’s
Republic of China (“PRC”). Other than the equity interest in Junhe Consulting, Dynamic Elite does not own any assets
or conduct any operations.
Tianjin Junhe Management Consulting Co.,
Ltd. (referred to herein as “Junhe Consulting”) conducts its business through Tianjin Joway Shengshi Group Co., Ltd.
that is consolidated as a variable interest entity.
Tianjin Joway Shengshi Group Co., Ltd.
(referred to herein as “Joway Shengshi”) was incorporated in PRC on May 17, 2007. Joway Shengshi is currently owned
99% by Jinghe Zhang, the Company’s current CEO and President and 1% by Song Baogang. Joway Shengshi engages in manufacturing
and distributing tourmaline products in China. Shenyang Joway Electronic Technology Co., Ltd., Tianjin Joway Decoration Engineering
Co., Ltd. and Tianjin Oriental Shengtang Trading Import & Export Trading Co., Ltd are subsidiaries of Joway Shengshi.
Shenyang Joway Electronic Technology Co.,
Ltd. (referred to herein as “Joway Technology”) was originally named Liaoning Joway Technology Engineering Co., Ltd.
which was incorporated on March 28, 2007 in PRC. The name was changed on June 22, 2011. It engages in the distribution of Tourmaline
Activated Water Machines and Tourmaline Wellness Houses. Prior to July 25, 2010, Joway Shengshi owned 90.91% of Joway Technology.
Joway Shengshi entered into a share acquisition agreement with Jingyun Chen, another stockholder of Joway Technology on July 25,
2010 to acquire the remaining 9.09% of the share of Joway Technology. As a result of the share acquisition, Joway Technology became
a wholly-owned subsidiary of Joway Shengshi.
Tianjin Joway Decoration Engineering Co.,
Ltd. (referred to herein as “Joway Decoration”) was incorporated on April 22, 2009 in PRC. It engages in the distribution
of Tourmaline Activated Water Machines, Tourmaline Wellness House for family use and Tourmaline Wellness House materials. Prior
to July 9, 2010, Joway Shengshi owned 90% of Joway Decoration. Joway Shengshi entered into a share acquisition agreement with Jingyun
Chen, another stockholder of Joway Decoration on July 9, 2010 to acquire the remaining 10% of the shares of Joway Decoration. As
a result of the share acquisition, Joway Decoration became a wholly-owned subsidiary of Joway Shengshi. Jingyun Chen is currently
the General Manager of Joway Decoration.
Tianjin Oriental Shengtang Import &
Export Trading Co., Ltd (referred to herein as “Shengtang Trading”) was incorporated on September 18, 2009 in the PRC.
It engages in purchasing raw materials which it sells to other companies of the group. Prior to July 28, 2010, Joway Shengshi owned
95% of Shengtang Trading. Joway Shengshi entered into a share acquisition agreement with Wang Aiying, another stockholder of Shengtang
Trading on July 28, 2010 to acquire the remaining 5% of the shares of Shengtang Trading. As a result of the share acquisition,
Shengtang Trading became a wholly-owned subsidiary of Joway Shengshi.
The following table lists the Company and
its subsidiaries:
Name
|
|
Domicile and Date of Incorporation
|
|
Paid in Capital
|
|
Percentage of Effective Ownership
|
|
Principal Activities
|
Joway Health Industries
Group Inc.
|
|
March 21, 2003,
Nevada
|
|
USD 20,054
|
|
86.8% owned by Crystal Globe Limited
13.2%owned by other institutional and individual investors
|
|
Investment Holding
|
|
|
|
|
|
|
|
|
|
Dynamic Elite
International Limited
|
|
June 2, 2010,
British Virgin
Islands
|
|
USD 10,000
|
|
100% owned by Joway Health Industries Group Inc.
|
|
Investment Holding
|
|
|
|
|
|
|
|
|
|
Tianjin Junhe Management Consulting Co., Ltd.
|
|
September 15,
2010, PRC
|
|
USD 20,000
|
|
100% owned by Dynamic Elite International Limited
|
|
Advisory
|
|
|
|
|
|
|
|
|
|
Tianjin Joway Shengshi
Group Co., Ltd.
|
|
May 17, 2007,
PRC
|
|
USD 7,216,140.72
|
|
99% owned by Jinghe Zhang, and 1% owned by Baogang Song
|
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Production and distribution of
Healthcare Knit Goods and Daily Healthcare and Personal Care products
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Shenyang Joway Electronic Technology Co., Ltd.
|
|
March 28, 2007,
PRC
|
|
USD 142,072.97
|
|
100% owned by Tianjin Joway Shengshi Group Co., Ltd
|
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Distribution of Tourmaline Activated Water Machine and construction of Tourmaline Wellness House
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Tianjin Joway Decoration Engineering Co., Ltd.
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|
April 22, 2009, PRC
|
|
USD 292,367.74
|
|
100% owned by Tianjin Joway Shengshi Group Co., Ltd
|
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Distribution of Wellness House for family use and Activated Water Machine and construction of Tourmaline Wellness House
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Tianjin Oriental Shengtang Import & Export Trading Co., Ltd.
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|
September 18, 2009, PRC
|
|
USD 292,463.75
|
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100% owned by Tianjin Joway Shengshi Group Co., Ltd
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Distribution of tourmaline products
|
On September 16, 2010, prior to the share
exchange, Junhe Consulting entered into a series of contractual agreements (the “Contractual Agreements”) with Joway
Shengshi and Joway Shengshi’s owners. The following is a brief description of the Contractual Agreements entered into between
Junhe Consulting and Joway Shengshi or Joway Shengshi’s owners:
1.
Consulting Services Agreement.
Pursuant to the consulting services agreement between Junhe Consulting and Joway Shengshi, Junhe Consulting has the right to advise,
consult, manage and operate Joway Shengshi, and collect and own all of the net profits of the Operating Entities.
2.
Operating Agreement.
Under the
operating agreement between Junhe Consulting and Joway Shengshi, Junhe Consulting has the right to recommend director candidates
and appoint the senior executives of Joway Shengshi, approve any transactions that may materially affect the assets, liabilities,
rights or operations of Joway Shengshi, and guarantee the contractual performance by Joway Shengshi of any agreements with third
parties, in exchange for a pledge by Joway Shengshi of its accounts receivable and assets.
3.
Voting Rights Proxy Agreement.
Under the voting rights proxy agreement between Joway Shengshi’s owners and Junhe Consulting, the owners of Joway Shengshi
have vested their collective voting control over Joway Shengshi to Junhe Consulting and will only transfer their respective equity
interests in Joway Shengshi to Junhe Consulting or its designee.
4.
Option Agreement.
Under the option
agreement between Joway Shengshi’s owners and Junhe Consulting, the owners of Joway Shengshi have granted Junhe Consulting
the irrevocable right and option to acquire all of their equity interests in Joway Shengshi.
5.
Equity Pledge Agreement.
Under
the equity pledge agreement between Joway Shengshi’s owners and Junhe Consulting, the owners of Joway Shengshi have pledged
all of their rights, titles and interests in Joway Shengshi to Junhe Consulting to guarantee Joway Shengshi’s performance
of its obligations under the Consulting Services Agreement.
As a result of the Contractual Agreements,
Joway Shengshi is effectively a variable interest entity of Junhe Consulting. Accordingly, the Company through its wholly-owned
subsidiary Junhe Consulting, consolidates Joway Shengshi’s results of operation, assets and liabilities in its financial
statements.
In connection with the Share Exchange and
as consideration for entering into the VIE Agreements, Jingshe Zhang and Baogang Song, the shareholders of Joway Shengshi (the
“Grantees”), entered into a Call Option Agreement, dated July 20,2010 with Lionel Evan Liu (the “Grantor”),
the sole shareholder of Crystal Globe Limited (the controlling shareholder of Dynamic Elite), a British Virgin Islands company
(“CGL”) (the “Call Option Agreement”), pursuant to which the Grantees had the right to purchase up to 100%
of the shares of CGL (the “Call Option”) at an exercise price of $2.00 per share (the “Exercise Price”)
for a period of five years. The Call Option vested as to 34% of the shares of CGL on April 2, 2011 and as to 33% on each of April
2, 2012 and 2013(the respective “Call Option Effective Date”). On March 28, 2015, the Grantor and Grantees amended
the Call Option Agreement, to (i) reduce the Exercise Price to $0.00 per share and (ii) extend the Grantees’ rights to exercise
their call option within ten years from the respective Option Effective Date.
On November 13, 2016, Jinghe Zhang exercised
his Call Option as to 99% of the shares of CGL and Baogang Song exercised his Call Option as to 1% of the shares of CGL. As a result
of exercising his Call Option, Jinghe Zhang became the controlling shareholder of CGL and in turn, the controlling shareholder
of the Company. Jinghe Zhang now controls 17,233,920 shares, or 85.9%, of the issued and outstanding shares of the Company’s
common stock.
NOTE 2 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated
financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America
(“US GAAP”). Accordingly, they do not include all of the information and the footnotes required by generally accepted
accounting principles for complete financial statements. The Company’s functional currency is the Chinese Renminbi (“RMB”);
however, the accompanying unaudited condensed consolidated financial statements have been translated and presented in United States
Dollars (“USD”). All significant inter-company transactions and balances have been eliminated. The consolidated financial
statements include all adjustments that, in the opinion of management, are necessary to make the financial statements not misleading.
Operating results for the nine month period
ended September 30, 2017 are not necessarily indicative of the results that may be expected for the fiscal year ending December
31, 2017. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company’s
form 10-K for the fiscal year ended December 31, 2016 which was filed on March 31, 2017.
Use of Estimates
The preparation of the consolidated
financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the reporting periods. Management makes these estimates using
the best information available at the time the estimates are made. Actual results could differ from those estimates.
Basis of Consolidation
The accompanying consolidated financial
statements include the Company and its wholly owned subsidiaries and controlled VIEs. All significant inter-company accounts and
transactions have been eliminated in the consolidation.
Pursuant to Accounting Standards Codification
Topic 810 “Consolidation” (“ASC 810”), the Company is required to include in its consolidated financial
statements the financial statements of its variable interest entities (“VIEs”). ASC 810 requires a VIE to be consolidated
by a company if that company is subject to a majority of the risk of loss for the VIE or is entitled to receive a majority of the
VIE’s residual returns. VIEs are those entities in which a company, through contractual arrangements, bears the risk of,
and enjoys the rewards normally associated with ownership of the entity, and therefore the company is the primary beneficiary of
the entity.
Based on the various Contractual Agreements,
the Company is able to exercise control over the VIEs, and to obtain the full economic benefits. The terms of the exclusive option
agreement are currently exercisable and legally enforceable under PRC laws and regulations. The minimum amount of consideration
permitted by the applicable PRC law to exercise the option does not represent a financial barrier or disincentive for the Company
to exercise its rights under the exclusive option agreement. A simple majority vote of the Company’s board of directors is
required to pass a resolution to exercise its rights under the exclusive option agreement, for which consent of the shareholder
of VIEs is not required. Therefore, this gives the Company the power to direct the activities that most significantly impact VIEs’
economic performance. The Company’s ability to exercise effective control, together with the consulting service agreements
and the equity pledge agreements, give the Company the rights to receive substantially all of the economic benefits from VIEs in
consideration for the services provided by its wholly owned subsidiaries in China. Accordingly, as the primary beneficiary of VIEs
and in accordance with U.S. GAAP, Joway Shengshi, Joway Technology, Joway Decoration, and Shengtang Trading, as VIEs of Junhe Consulting,
has been consolidated in the Company’s financial statements. Sales from Joway Shengshi, Joway Technology, Joway Decoration,
and Shengtang Trading are included in the Company’s total sales, their incomes or losses from operations are consolidated
with the Company’s, and the Company’s net income or loss includes net income or loss from Joway Shengshi, Joway Technology,
Joway Decoration, and Shengtang Trading.
Foreign Currency Translation
The accompanying consolidated financial
statements are presented in USD. The functional currency of the Company is RMB. The consolidated financial statements are translated
into United States dollars from RMB at period-end exchange rates as to assets and liabilities and average exchange rates as to
revenues and expenses. Equity accounts are translated at their historical exchange rates when the equity transactions occurred.
The resulting transaction adjustments are recorded as a component of stockholders’ equity. Gains and losses from foreign
currency transactions are included in net income.
|
|
For the nine months ended
September 30,
|
|
|
For the year ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2016
|
|
Period ended RMB: USD Exchange rate
|
|
|
6.8063
|
|
|
|
6.66938
|
|
|
|
6.94477
|
|
Average RMB: USD Exchange rate
|
|
|
6.6545
|
|
|
|
6.57924
|
|
|
|
6.6441
|
|
The RMB is not freely convertible into
foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made
that the RMB amounts could have been, or could be, converted into USD at the rates used in translation.
Foreign currency translation adjustments
have been reported as comprehensive income (loss) in the consolidated financial statements and totaled $113,690 and $(25,644) for
the three months ended September 30, 2017 and 2016, respectively, and $270,407 and $(173,906) for the nine months ended September
30, 2017 and 2016, respectively.
Other Comprehensive Income
Other comprehensive income is defined as
the change in equity during the period from transactions and other events, excluding the changes resulting from investments by
owners and distributions to owners, and is not included in the computation of income tax expense or benefit. Accumulated other
comprehensive income represents the accumulated balance of foreign currency translation adjustments.
Concentrations of Credit Risk
The Company's operations are carried out
in the PRC. Accordingly, the Company's business, financial condition and results of operations may be influenced by the political,
economic and legal environment in the PRC, and by the general state of the PRC's economy. The Company's operations in the PRC are
subject to specific considerations and significant risks not typically associated with companies in North America. The Company's
results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures,
currency conversion and remittance abroad, and rates and methods of taxation, among other things. Financial instruments which potentially
subject the Company to concentrations of credit risk consist principally of cash. Substantially all of the Company’s cash
is maintained with state-owned banks within the PRC, and no deposits are covered by insurance. The Company has not experienced
any losses in such accounts and believes it is not exposed to any risks on its cash in bank accounts.
Fair Value of Financial Instruments
Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) 820 establishes a three-tier fair value hierarchy, which prioritizes the
inputs used in measuring fair value as follows:
● Level 1—defined
as observable inputs such as quoted prices in active markets for identical assets or liabilities;
● Level 2—defined
as inputs other than quoted prices in active markets that are either directly or indirectly observable; and
● Level 3—defined
as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
The carrying amounts reported in the balance
sheets for cash, accounts receivable, other receivable, accounts payable, other payable, and amounts due from related parties generally
approximate their fair market values based on the short-term maturity of these instruments. ASC 825-10 “Financial Instruments”
allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The
fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If
the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings
at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding instruments.
Cash
For financial reporting purposes, the Company
considers all highly liquid financial instruments with an original maturity of three months or less to be cash equivalents. The
Company had no cash equivalents at any point during the period of the financial statements presented. Balances at financial institutions
or state-owned banks within the PRC are not covered by insurance. The Company has not experienced any losses in such accounts and
believes it is not exposed to any significant risks on its cash in bank accounts.
Accounts Receivable
Accounts receivable are presented net of
an allowance for doubtful accounts. The Company maintains allowances for doubtful accounts for estimated losses. On a periodic
basis, the Company reviews the composition of the accounts receivable and analyzes historical bad debts, customer concentrations,
customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these
allowances. Accounts are written off after exhaustive efforts at collection. As of September 30, 2017 and December 31, 2016, based
on a review of its outstanding balances, the Company allowance for doubtful accounts had a zero balance, respectively.
Inventories
Inventories are stated at the lower of
cost, as determined by the specific identification method on contract level (for each individual contract, inventories cost flow
are determined by weighted-average method), or the net realizable value, which is determined on selling prices less any further
costs expected to be incurred for completion and disposal. The Company regularly evaluates the composition of its inventories to
identify slow-moving and obsolete inventories to determine whether a valuation allowance is required. As of September 30, 2017
and December 31, 2016, the Company recorded $100,104 and $95,920 for inventory valuation allowance, respectively.
Advances to Suppliers
Advances to suppliers represent the cash
paid in advance for inventory items or construction in progress. The advance payments are meant to ensure preferential pricing
and delivery. The amounts advanced under such arrangements totaled $189,433 and $190,779 as of September 30, 2017 and December 31, 2016,
respectively.
Property, Plant, and Equipment
Property, plant and equipment are stated
at cost less accumulated depreciation, and include expenditures that substantially increase the useful lives of existing assets.
Depreciation is computed using the straight-line
method over the estimated useful lives of the assets. Estimated useful lives are as follows:
Building
|
|
20 years
|
|
Operating Equipment
|
|
10 years
|
|
Office furniture and equipment
|
|
3 or 5 years
|
|
Vehicles
|
|
10 years
|
|
The cost and related accumulated depreciation
of assets sold or otherwise retired are eliminated from the accounts, and any gain or loss is included in the consolidated statements
of operations. Maintenance, repairs and minor renewals are charged directly to expenses as incurred. Significant renewals and betterment
to buildings and equipment are capitalized. Leasehold improvements are depreciated over the lesser of the useful life or the life
of the lease.
Intangible Assets
Intangible assets mainly consist of land
use rights. All land located in the PRC is owned by the government and cannot be sold to any individual or company. The land use
rights granted to the Company are being amortized using the straight-line method over the lease term of 50 years. Other intangible
assets are software programs that are amortized over their estimated useful life of 10 years.
Impairment of Long-lived Assets
Long-lived assets of the Company are reviewed
annually as to whether their carrying value has become impaired, pursuant to the guidelines established in FASB ASC 360. The Company
considers assets to be impaired if the carrying value exceeds the future projected cash flows from the related operations. The
Company also re-evaluates the periods of depreciation and amortization to determine whether subsequent events and circumstances
warrant revised estimates of useful lives. The Company did not record any impairment loss for the nine months ended September 30,
2017 and 2016.
Revenue Recognition
The Company recognizes revenue when persuasive
evidence of an arrangement exists, delivery has occurred or services have been rendered, the purchase price is fixed or determinable
and collectability is reasonably assured.
With respect to sales of product to both
franchisee and non-franchisee customers, the Company prepares product shipments upon the receipt of a customer’s purchase
order. Sales prices are based on fixed price lists that are different depending on whether the price list is for a franchisee customer
or for non-franchisee customers. The Company recognizes revenue when the product is shipped. The Company does not sell product
to any customers with a right of return as defined in ASC 605-15-25-4. Sales are presented net of value added tax (VAT).
For Tourmaline Wellness House sales, the
Company recognizes revenue under the completed contract method. Customers contact the Company with requests to construct a Wellness
House. The Company and the customer enter into a contract, at which time the customer pays a deposit of at least one-half of the
sales price. A contract is considered completed when all significant costs have been incurred and the project has been accepted
by the customer. The contracts have a place for the customer to sign indicating their acceptance of the completed Wellness House.
At this time the customer will also pay any remaining balance on the contract. The Company recognizes the full contract revenue
at this point. Contract costs consist primarily of materials and labor costs. The construction period of a Wellness House generally
does not exceed five days.
Shipping Costs
Shipping costs are included in selling
expenses and totaled $42,283 and $41,060 for the three months ended September 30, 2017 and 2016, respectively, and $110,116 and
$125,915 for the nine months ended September 30, 2017 and 2016, respectively.
Income Taxes
The Company is governed by the Income Tax
Law and associated legislations of the PRC. The Company accounts for income taxes in accordance with FASB ASC 740 “Income
Taxes”, which is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for
the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns.
ASC 740 additionally requires the establishment of a valuation allowance to reflect the likelihood of realization of deferred tax
assets. Realization of deferred tax assets is dependent upon future earnings, if any, of which the timing and amount are uncertain.
According to ASC 740, the evaluation of
a tax position is a two-step process. The first step is to determine whether it is more likely than not that a tax position will
be sustained upon examination, including the resolution of any related appeals or litigation based on the technical merits of that
position. The second step is to measure a tax position that meets the more-likely-than-not threshold to determine the amount of
benefit to be recognized in the financial statements. A tax position is measured at the largest amount of benefit that is greater
than 50% likelihood of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not
recognition threshold should be recognized in the first subsequent period in which the threshold is met. Previously recognized
tax positions that no longer meet the more-likely-than-not criteria should be de-recognized in the first subsequent financial reporting
period in which the threshold is no longer met. ASC 740 also provides guidance on de-recognition, classification, interest and
penalties, accounting in interim periods, disclosures, and transition.
Basic and Diluted Earnings per Share
The Company reports earnings per share
in accordance with FASB ASC 260 “Earnings per share”. The Company’s basic earnings per share are computed using
the weighted average number of shares outstanding for the periods presented. Diluted earnings per share are computed based on the
assumption that any dilutive options or warrants were converted or exercised. Dilution is computed by applying the treasury stock
method. Under this method, the Company’s outstanding stock warrants are assumed to be exercised, and funds thus obtained
were assumed to be used to purchase common stock at the average market price during the period. There were no dilutive instruments
outstanding during the nine months periods ended September 30, 2017 and 2016.
Segment Information
The Company follows FASB ASC 280-Segment
Reporting, which requires that companies disclose segment data based on how management makes decision about allocating resources
to segments and evaluating their performance.
For the nine months ended September 30,
2017 and the year ended December 31, 2016, management has determined that the Company is operating in three reportable business
segments, (1) Healthcare Knit Goods Series, (2) Daily Healthcare and Personal Care Series, and (3) Wellness House and Activated
Water Machine Series. The Company's reportable segments are strategic business units that offer different products. They are managed
separately based on the fundamental differences in their operations.
Recently Issued Accounting Pronouncements
In August
2017, the FASB issued new guidance related to accounting for hedging activities. This guidance expands strategies that qualify
for hedge accounting, changes how many hedging relationships are presented in the financial statements, and simplifies the application
of hedge accounting in certain situations. The standard will be effective for us beginning July 1, 2019, with early adoption permitted
for any interim or annual period before the effective date. Adoption of the standard will be applied using a modified retrospective
approach through a cumulative-effect adjustment to retained earnings as of the effective date. We are currently evaluating the
impact of this standard on our consolidated financial statements, including accounting policies, processes, and systems.
In October 2016, the Financial Accounting
Standards Board (“FASB”) issued new guidance requiring an entity to recognize the income tax consequences of an intra-entity
transfer of an asset other than inventory when the transfer occurs, rather than when the asset has been sold to an outside party.
This guidance is effective for us beginning July 1, 2018, with early adoption permitted beginning July 1, 2017. We plan to adopt
the guidance effective July 1, 2018. Adoption of the guidance will be applied using a modified retrospective approach through a
cumulative-effect adjustment to retained earnings as of the effective date. A cumulative-effect adjustment will capture the write-off
of income tax consequences deferred from past intra-entity transfers involving assets other than inventory and new deferred tax
assets for amounts not recognized under current U.S. GAAP. The Company is currently evaluating the impact of the guidance on our
consolidated financial statements, including accounting policies, processes, and systems.
In May 2014, the Financial Accounting Standards
Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with
Customers” (“ASU 2014-09”). ASU 2014-09 provides for a single comprehensive principles-based standard for the
recognition of revenue across all industries through the application of the following five-step process:
Step 1: Identify the contract(s) with a
customer.
Step 2: Identify the performance obligations
in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price
to the performance obligations in the contract.
Step 5: Recognize revenue when (or as)
the entity satisfies a performance obligation.
The updated guidance related to revenue
recognition affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts
for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. The guidance requires that
an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration
to which the entity expects to be entitled in exchange for those goods or services. The guidance is effective for the Company starting
on January 1, 2017. The Company is currently evaluating the impact this guidance will have on its combined financial position,
results of operations and cash flows.
In January 2016, the FASB issued ASU No.
2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.
The standard requires several targeted changes including that equity investments (except those accounted for under the equity method
of accounting, or those that result in consolidation of the investee) be measured at fair value with changes in fair value recognized
in net income. The new guidance also changes certain disclosure requirements and other aspects of current US GAAP. Amendments are
to be applied as a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. This standard
is effective for fiscal years starting after December 15, 2017, including interim periods within those fiscal years. The standard
does not permit early adoption with the exception of certain targeted provisions. The Company is currently assessing the impact
and timing of adopting this guidance on its consolidated financial statements.
In February 2016, the FASB issued a new
standard related to leases to increase transparency and comparability among organizations by requiring the recognition of lease
assets and lease liabilities on the balance sheet. Most prominent among the amendments is the recognition of assets and liabilities
by lessees for those leases classified as operating leases under previous U.S. GAAP. Under the new standard, disclosures are required
to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising
from leases. The Company anticipates this standard will have a material impact on its consolidated balance sheets, and the Company
is currently evaluating its impact.
In March 2016, the Financial Accounting
Standards Board (“FASB”) issued a new standard that changes the accounting for certain aspects of share-based payments
to employees. The new guidance requires excess tax benefits and tax deficiencies to be recorded in the income statement when the
awards vest or are settled. In addition, cash flows related to excess tax benefits will no longer be separately classified as a
financing activity apart from other income tax cash flows. The standard also allows us to repurchase more of an employee’s
shares for tax withholding purposes without triggering liability accounting, clarifies that all cash payments made on an employee’s
behalf for withheld shares should be presented as a financing activity on our cash flows statement, and provides an accounting
policy election to account for forfeitures as they occur. The Company is currently assessing the impact and timing of adopting
this guidance on its consolidated financial statements.
In April 2016, the FASB issued ASU 2016-10,
“Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing”. The amendments
add further guidance on identifying performance obligations and also to improve the operability and understandability of the licensing
implementation guidance. The amendments do not change the core principle of the guidance in Topic 606. Public entities should apply
the amendments for annual reporting periods beginning after December 15, 2017, including interim reporting periods therein. Early
application for public entities is permitted only as of annual reporting periods beginning after December 15, 2016, including interim
reporting periods within that reporting period. The Company is currently in the process of evaluating the impact of the adoption
on its consolidated financial statements.
In May 2016, the FASB issued ASU 2016-11,
“Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting
Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting”, The amendments
rescinds SEC paragraphs pursuant to two SEC Staff Announcements at the March 3, 2016 Emerging Issues Task Force (EITF) meeting.
Specifically, registrants should not rely on the following SEC Staff Observer comments upon adoption of Topic 606: 1) Revenue and
Expense Recognition for Freight Services in Process, which is codified in paragraph 605-20-S99-2; 2) Accounting for Shipping and
Handling Fees and Costs, which is codified in paragraph 605-45-S99-1; 3) Accounting for Consideration Given by a Vendor to a Customer
(including Reseller of the Vendor's Products), which is codified in paragraph 605-50-S99-1; 4) Accounting for Gas-Balancing Arrangements
(i.e., use of the "entitlements method"), which is codified in paragraph 932-10-S99-5, which is effective upon adoption
of ASU 2014-09. The Company is currently in the process of evaluating the impact of the adoption on its consolidated financial
statements.
In May 2016, the FASB issued ASU 2016-12,
"Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients". The amendments,
among other things: (1) clarify the objective of the collectability criterion for applying paragraph 606-10-25-7; (2) permit an
entity to exclude amounts collected from customers for all sales (and other similar) taxes from the transaction price; (3) specify
that the measurement date for noncash consideration is contract inception; (4) provide a practical expedient that permits an entity
to reflect the aggregate effect of all modifications that occur before the beginning of the earliest period presented when identifying
the satisfied and unsatisfied performance obligations, determining the transaction price, and allocating the transaction price
to the satisfied and unsatisfied performance obligations; (5) clarify that a completed contract for purposes of transition is a
contract for which all (or substantially all) of the revenue was recognized under legacy GAAP before the date of initial application,
and (6) clarify that an entity that retrospectively applies the guidance in Topic 606 to each prior reporting period is not required
to disclose the effect of the accounting change for the period of adoption. The effective date of these amendments is at the same
date that Topic 606 is effective. The Company is currently in the process of evaluating the impact of the adoption on its consolidated
financial statements.
In June 2016, the FASB issued a new standard
to replace the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses
and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. For trade
and other receivables, loans, and other financial instruments, we will be required to use a forward-looking expected loss model
rather than the incurred loss model for recognizing credit losses which reflects losses that are probable. Credit losses relating
to available-for-sale debt securities will also be recorded through an allowance for credit losses rather than as a reduction in
the amortized cost basis of the securities. The new standard will be effective for us beginning July 1, 2020, with early adoption
permitted beginning July 1, 2019. Application of the amendments is through a cumulative-effect adjustment to retained earnings
as of the effective date. The Company is currently evaluating the impact of this standard on its consolidated financial statements.
NOTE 3
– ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Accounts receivable
|
|
$
|
2,716
|
|
|
$
|
-
|
|
Less: allowance for bad debt
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
2,716
|
|
|
$
|
-
|
|
As of the periods presented, the Company
has no allowance for bad debts, because the management, based on their analysis, considers all the accounts receivable to be collectible.
NOTE
4 – INVENTORIES
Inventories consisted of the following:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Raw materials
|
|
$
|
243,953
|
|
|
$
|
267,241
|
|
Finished goods
|
|
|
385,597
|
|
|
|
383,293
|
|
Low value consumables
|
|
|
38,294
|
|
|
|
36,694
|
|
Total
|
|
|
667,844
|
|
|
|
687,228
|
|
Less: impairment loss
|
|
|
(100,104
|
)
|
|
|
(95,920
|
)
|
Inventory, net
|
|
$
|
567,740
|
|
|
$
|
591,308
|
|
Low value consumables represent low priced
and easily worn articles and are amortized on equal-split amortization method. Pursuant to this method, half value of the low value
consumable should be amortized once used and the remaining half value should be amortized when disposed of.
As of September 30, 2017 and December
31, 2016, the Company recognized $100,104 and $95,920, respectively, as a reserve for impairment loss from inventory.
NOTE 5 – PROPERTY, PLANT
AND EQUIPMENT
Property, plant and equipment consisted of the following:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Building
|
|
$
|
5,983,422
|
|
|
$
|
5,715,700
|
|
Operating Equipment
|
|
|
364,738
|
|
|
|
343,761
|
|
Office furniture and equipment
|
|
|
358,615
|
|
|
|
336,394
|
|
Vehicles
|
|
|
1,091,338
|
|
|
|
1,059,627
|
|
Total
|
|
|
7,798,113
|
|
|
|
7,455,482
|
|
Less: accumulated depreciation
|
|
|
(3,372,492
|
)
|
|
|
(3,071,889
|
)
|
Property, plant and equipment, net
|
|
$
|
4,425,621
|
|
|
$
|
4,383,593
|
|
Depreciation expense for the three
months ended September 30, 2017 and 2016 amounted to $115,282 and $128,343, respectively, and for the nine months ended September
30, 2017 and 2016 amounted to $326,896 and $355,083, respectively.
NOTE 6 – INTANGIBLE ASSETS
Intangible assets consisted of the following:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Land use rights
|
|
$
|
620,341
|
|
|
$
|
594,413
|
|
Other intangible assets
|
|
|
79,370
|
|
|
|
76,052
|
|
Total
|
|
|
699,711
|
|
|
|
670,465
|
|
Less: accumulated amortization
|
|
|
(184,295
|
)
|
|
|
(160,361
|
)
|
Intangible assets, net
|
|
$
|
515,416
|
|
|
$
|
510,104
|
|
Amortization expense of intangible
assets for the three months ended September 30, 2017 and 2016 was $5,631 and $5,634, respectively, and for the nine months ended
September 30, 2017 and 2016 amounted to $16,561 and $17,132, respectively.
The estimated amortization expense for
the next five years is as follows:
Estimated amortization expense for
|
|
|
|
the year ending December 31,
|
|
Amount
|
|
2017
|
|
$
|
22,619
|
|
2018
|
|
$
|
22,619
|
|
2019
|
|
$
|
22,619
|
|
2020
|
|
$
|
22,619
|
|
2021
|
|
$
|
22,619
|
|
Thereafter
|
|
$
|
397,009
|
|
NOTE 7 – RELATED PARTY
TRANSACTIONS
Payables due to related parties
consist of the following:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Shenyang Joway Industrial Development Co., Ltd.
|
|
$
|
2,189
|
|
|
$
|
2,098
|
|
Jinghe Zhang
|
|
|
125,294
|
|
|
|
122,710
|
|
Total
|
|
$
|
127,483
|
|
|
$
|
124,808
|
|
Transactions with Shenyang Joway
Shenyang Joway Industrial Development Co.,
Ltd. (“Shenyang Joway”) was formed in 2005 in Shenyang, China by Mr. Jinghe Zhang and three other individuals. Mr.
Zhang holds more than 50% of the equity in Shenyang Joway. Shenyang Joway was in the business of marketing and distributing clothing
and related products to other companies. In 2009, Mr. Zhang decided to shut down the operations of Shenyang Joway in order to focus
his attention on Joway Shengshi’s business. Shenyang Joway has ceased operations, although it still exists as a legal entity,
and Joway Shengshi was able to find new suppliers with no material adverse impact to the Company.
|
●
|
On May 7, 2007, the Company’s subsidiary
Joway Shengshi entered into an agreement with Shenyang Joway pursuant to which Joway Shengshi and Shenyang Joway agreed to provide
each other with interest-free, unsecured advances for working capital. On May 10, 2007, the Company’s subsidiary Joway Technology
and Shenyang Joway entered into an agreement pursuant to which Joway Technology and Shenyang Joway agreed to provide each other
with interest-free, unsecured advances for working capital.
|
|
●
|
Through December 31, 2010, Shenyang Joway
advanced an aggregate of $791,701 to Joway Shengshi and Joway Technology of which $789,512 has been repaid. For the nine months ended
September 30, 2017 and 2016, the Company repaid $0 and $60 of these advances, respectively. As of September 30, 2017, the total
unpaid principal balance due Shenyang Joway for advances was $2,189.
|
|
●
|
Shenyang Joway ceased operations at the
end of 2009.
|
Transactions with Jinghe Zhang
|
●
|
On December 1, 2009, the Company, through
its subsidiary Joway Shengshi, entered into a royalty-free license agreement with Jinghe Zhang, our President, Chief Executive
Officer and director. Pursuant to the license agreement, we are authorized to use the trademark “Joway” for a term
of nine years and five patents from December 1, 2009 till the expiration dates of the patents.
|
|
●
|
On May 10, 2007, Joway Shengshi entered
into a cash advance agreement with Jinghe Zhang, the Company’s President, Chief Executive Officer and director. Pursuant
to the agreement, Jinghe Zhang agreed to advance operating capital to Joway Shengshi. The advances are interest free, unsecured,
and have no specified repayment terms. The agreement is valid throughout Joway Shengshi’s term of operation.
|
|
●
|
During the period beginning May 17, 2007
(inception of Joway Shengshi) through March 31, 2016, Joway Shengshi received cash advances in the aggregate principal amount of
$4,736,754 from Jinghe Zhang of which $4,611,460 has been repaid. The Company repaid $2,707 and $2,403 of advances to Jinghe Zhang
for the nine months ended September 30, 2017 and 2016, respectively. As of September 30, 2017, the total unpaid principal balance
due Jinghe Zhang for advances was $125,294.
|
The amounts owed to related parties are
non-interest bearing and have no specified repayment terms.
NOTE 8 – INCOME TAXES
The Company operations in the People’s
Republic of China are subject to the Income Tax Law of the People’s Republic of China. Pursuant to the PRC Income Tax Laws,
the Company is subject to the Enterprise Income Tax (“EIT”) which is generally a statutory rate of 25% beginning January
2008, on income as reported in its statutory financial statements after appropriate tax adjustments.
The table below summarizes the differences
between the PRC statutory federal rate and the Company’s effective tax rate:
|
|
For the nine months ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Tax computed at China statutory rates
|
|
|
25
|
%
|
|
|
25
|
%
|
Effect of losses
|
|
|
(25
|
)%
|
|
|
(25
|
)%
|
Effective rate
|
|
|
0
|
%
|
|
|
0
|
%
|
NOTE 9 – STATUTORY RESERVES
Pursuant to the laws and regulations of
the PRC, annual income of the Company’s subsidiaries is required to be partly allocated to the statutory reserves funds after
the payment of the PRC income taxes. The allocation to the statutory reserves funds should be at least 10% of income after tax
until the reserves reaches 50% of the entities’ registered capital or members’ equity. The reserve funds are not transferable
to the Company in the form of cash dividends, loans or advances. Thus the reserve funds are not available for distribution except
in liquidation. As of September 30, 2017, the Company had allocated $354,052 to statutory reserves.
NOTE 10
– SEGMENTS
In 2017 and 2016, the Company operated
in three reportable business segments: (1) Healthcare Knit Goods Series, (2) Daily Healthcare and Personal Care Series and (3)
Wellness House and Activated Water Machine Series. The Company's reportable segments are strategic business units that offer different
products. They are managed separately based on the fundamental differences in their operations. Information with respect to these
reportable business segments is as follows:
For the three months ended September 30,
2017
|
|
Sales
|
|
|
COGS
|
|
|
Gross profit
|
|
|
Loss from operations
|
|
|
Depreciation and amortization
|
|
|
Assets
|
|
Healthcare Knit Goods Series
|
|
$
|
162,297
|
|
|
$
|
55,115
|
|
|
$
|
107,182
|
|
|
$
|
(44,882
|
)
|
|
$
|
26,705
|
|
|
$
|
165,363
|
|
Daily Healthcare and
Personal Care Series
|
|
|
225,437
|
|
|
|
82,004
|
|
|
|
143,433
|
|
|
|
(62,034
|
)
|
|
|
37,095
|
|
|
|
216,318
|
|
Wellness House and Activated Water Machine Series
|
|
|
347,204
|
|
|
|
175,494
|
|
|
|
171,710
|
|
|
|
(153,541
|
)
|
|
|
57,131
|
|
|
|
260,605
|
|
Segment Totals
|
|
$
|
734,938
|
|
|
$
|
312,613
|
|
|
$
|
422,325
|
|
|
|
(260,457
|
)
|
|
$
|
120,931
|
|
|
|
642,286
|
|
Other Expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(32,213
|
)
|
|
|
|
|
|
|
|
|
Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Unallocated Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,938,286
|
|
Net Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(292,670
|
)
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,580,572
|
|
For the three months ended September 30,
2016
|
|
Sales
|
|
|
COGS
|
|
|
Gross profit
|
|
|
Income (Loss) from operations
|
|
|
Depreciation and amortization
|
|
|
Assets
|
|
Healthcare Knit Goods Series
|
|
$
|
149,220
|
|
|
$
|
37,915
|
|
|
$
|
111,305
|
|
|
$
|
16,293
|
|
|
$
|
22,358
|
|
|
$
|
176,775
|
|
Daily Healthcare and Personal Care Series
|
|
|
242,402
|
|
|
|
117,278
|
|
|
|
125,124
|
|
|
|
(57,775
|
)
|
|
|
36,319
|
|
|
|
202,485
|
|
Wellness House and Activated
Water Machine Series
|
|
|
502,572
|
|
|
|
220,681
|
|
|
|
281,891
|
|
|
|
(81,830
|
)
|
|
|
75,300
|
|
|
|
361,356
|
|
Segment Totals
|
|
$
|
894,194
|
|
|
$
|
375,874
|
|
|
$
|
518,320
|
|
|
|
(123,312
|
)
|
|
$
|
133,977
|
|
|
|
740,616
|
|
Other Expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(196
|
)
|
|
|
|
|
|
|
|
|
Income Benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
Unallocated Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,779,441
|
|
Net Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(123,500
|
)
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,520,057
|
|
For the nine months ended September 30,
2017
|
|
Sales
|
|
|
COGS
|
|
|
Gross profit
|
|
|
Loss from operations
|
|
|
Depreciation and amortization
|
|
|
Assets
|
|
Healthcare Knit Goods Series
|
|
$
|
600,136
|
|
|
$
|
156,481
|
|
|
$
|
443,655
|
|
|
$
|
(31,817
|
)
|
|
$
|
79,012
|
|
|
$
|
165,363
|
|
Daily Healthcare and
Personal Care Series
|
|
|
726,099
|
|
|
|
206,892
|
|
|
|
519,207
|
|
|
|
(56,071
|
)
|
|
|
95,595
|
|
|
|
216,318
|
|
Wellness House and Activated Water Machine Series
|
|
|
1,282,511
|
|
|
|
555,387
|
|
|
|
727,124
|
|
|
|
(288,988
|
)
|
|
|
168,850
|
|
|
|
260,605
|
|
Segment Totals
|
|
$
|
2,608,746
|
|
|
$
|
918,760
|
|
|
$
|
1,689,986
|
|
|
|
(376,876
|
)
|
|
$
|
343,457
|
|
|
|
642,286
|
|
Other Expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(95,184
|
)
|
|
|
|
|
|
|
|
|
Income Benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(32
|
)
|
|
|
|
|
|
|
|
|
Unallocated Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,938,286
|
|
Net Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(472,028
|
)
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,580,572
|
|
For the nine months ended September 30,
2016
|
|
Sales
|
|
|
COGS
|
|
|
Gross profit
|
|
|
Loss from operations
|
|
|
Depreciation and amortization
|
|
|
Assets
|
|
Healthcare Knit Goods Series
|
|
$
|
593,718
|
|
|
$
|
175,603
|
|
|
$
|
418,115
|
|
|
$
|
(83,021
|
)
|
|
$
|
87,720
|
|
|
$
|
176,775
|
|
Daily Healthcare and
Personal Care Series
|
|
|
554,188
|
|
|
|
229,879
|
|
|
|
324,309
|
|
|
|
(143,461
|
)
|
|
|
81,880
|
|
|
|
202,485
|
|
Wellness House and Activated Water Machine Series
|
|
|
1,371,354
|
|
|
|
554,218
|
|
|
|
817,136
|
|
|
|
(340,368
|
)
|
|
|
202,615
|
|
|
|
361,356
|
|
Segment Totals
|
|
$
|
2,519,260
|
|
|
$
|
959,700
|
|
|
$
|
1,559,560
|
|
|
|
(566,850
|
)
|
|
$
|
372,215
|
|
|
|
740,616
|
|
Other Expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,816
|
)
|
|
|
|
|
|
|
|
|
Income Tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
925
|
|
|
|
|
|
|
|
|
|
Unallocated Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,779,441
|
|
Net Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(573,591
|
)
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,520,057
|
|
NOTE 11 - FRANCHISE REVENUES
The Company enters into franchising agreements
to develop retail outlets for the Company's products. The agreements provide that franchisees will sell Company products exclusively
at a predetermined retail price. In exchange the Company provides them with geographic exclusivity, discounted products, training
and support. The agreements also require franchisees to adhere to certain standards of product merchandising, promotion and presentment.
The agreements also prohibit franchisees from selling competitor’s products. The agreements do not require any initial franchise
fees from the franchisees, nor do they require the franchisees to pay continuing royalties. The agreements do not require the franchisees
to purchase any minimum levels of product, but do require that they make at least one purchase during each year. The Company does
not act to manage the franchisees’ levels of product. Franchisees hold periodic conferences, assisted by the Company’s
marketing department, to promote product awareness and the introduction of new products. The franchising agreements are generally
for terms of three years and are renewable at the mutual agreement of both parties. The franchising agreements are cancelable at
the Company’s discretion if franchisees violate the terms of the agreements.
The following is a breakdown of revenue
between franchise and non-franchise customers:
|
|
For the three months ended
September 30,
|
|
|
For the nine months ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to franchise customers
|
|
$
|
585,722
|
|
|
$
|
570,189
|
|
|
$
|
1,901,033
|
|
|
$
|
1,664,536
|
|
Sales to non-franchise customers
|
|
|
149,216
|
|
|
|
324,005
|
|
|
|
707,713
|
|
|
|
854,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sales
|
|
$
|
734,938
|
|
|
$
|
894,194
|
|
|
$
|
2,608,746
|
|
|
$
|
2,519,260
|
|
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operation.
The
following discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto included
in Item 1 of this Quarterly Report on Form 10-Q and with Management’s Discussion and Analysis of Financial Condition and
Results of Operations contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31,
2017.
FORWARD-LOOKING
STATEMENTS:
Certain
statements made in this report may constitute “forward-looking statements on our current expectations and projections about
future events.” These forward-looking statements involve known or unknown risks, uncertainties, and other factors that may
cause our actual results, performance, or achievements to be materially different from any future results, performance or achievements
expressed or implied by the forward-looking statements. In some cases you can identify forward-looking statements by some words
such as “may,” “should,” “potential,” “continue,” “expects,” “anticipates,”
“intends,” “plans,” “believes,” “estimates,” and similar expressions. These statements
are based on our current beliefs, expectations, and assumptions, and are subject to a number of risks and uncertainties. Although
we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. These forward-looking statements are made as of the date of this report, and
we assume no obligation to update these forward-looking statements whether as a result of new information, future events, or otherwise,
other than as required by law. In light of these assumptions, risks, and uncertainties, the forward-looking events discussed in
this report might not occur and actual results and events may vary significantly from those discussed in the forward-looking statements.
Overview
General
We
develop, manufacture, market, distribute, and sell products, including knit goods, daily healthcare and personal care products,
and wellness house and activated water machine products, that are coated, embedded or filled with tourmaline. Most of our products,
such as clothing, bedding, and mattresses are purchased as finished products which we then coat and/or infuse with liquid or granular
tourmaline using one or more of our manufacturing techniques. We conduct all of our operations in Tianjin City, China and distribute
most of our products to more than 100 franchisees in China. Our franchisees, in turn, sell the products to their customers. All
of our revenues to date have been generated by sales to customers located in the PRC.
Beginning
in 2009, we began to develop a franchise network to distribute our healthcare knit goods, daily healthcare products and personal
care products. Through these franchisees, we were able to significantly increase sales of our healthcare knit goods segment and
daily healthcare and personal care segment. In 2010, we began distributing our wellness house and activated water machine products
through our franchise network.
We
are a holding company with no material operations of our own. All of our operations are conducted through Joway Shengshi and its
three subsidiaries, Joway Technology, Joway Decoration and Shengtang Trading. Joway Shengshi engages in the manufacture and distribution
of tourmaline health-related products such as knit goods, and daily healthcare and personal care products. Joway Technology and
Joway Decoration engage in the manufacture and distribution of activated water machines and wellness houses. We utilize our Shengtang
Trading subsidiary to purchase raw materials, which are then sold to Joway Shengshi and Joway Decoration.
As
a holding company, our ability to pay dividends and other cash distributions to our shareholders depends in part upon dividends
and other distributions paid to us by our PRC subsidiaries. The amount of dividends paid by our PRC subsidiaries to us primarily
depends on the service fees paid to our PRC subsidiaries from Joway Shengshi and its subsidiaries, and, to a lesser degree, our
PRC subsidiaries’ retained earnings. Conducting our operations through contractual arrangements with Joway Shengshi and
its subsidiaries has a risk that we may lose the power to direct the activities that most significantly affect the economic performance
of Joway Shengshi and its subsidiaries, which may result in our being unable to consolidate their financial results with our results
and may impair our access to their cash flow from operations and thereby reduce our liquidity.
Description
of Selected Income Statement Items
Revenues.
We generate revenue from sales of our Healthcare Knit goods Series, Daily Healthcare and Personal Care Series and Wellness
House and Activated Water Machine Series.
Cost
of goods sold.
Cost of goods sold consists of costs directly attributable to production, including the cost of raw materials,
salaries for staff engaged in production activity, electricity, depreciation, packing materials, and related expenses.
Operating
expenses.
Our total operating expenses consist of sales and marketing expenses and general and administrative expenses. Sales
and marketing expenses consist primarily of salaries and traveling expenses of our marketing department employees, transportation
expenses, and advertising expenses. General and administrative expenses consist primarily of salaries of our administrative department
employees, payroll taxes and benefits, general office expenses and depreciation.
Other
expense.
Our other expense consists primarily of interest income, investment income and bank service fee.
Income
taxes.
According to the revised Enterprise Income Tax Law effective as of January 1, 2008, the income tax rate of our PRC
subsidiaries is generally 25%. Joway Health Industries Group Inc. was established under the laws of the State of Nevada and is
subject to U.S. federal income tax and Nevada annual reporting requirements.
Results
of Operations
The
following table sets forth certain information regarding our results of operations.
|
|
For the three months ended September 30,
|
|
|
For the nine months ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
REVENUES
|
|
$
|
734,938
|
|
|
$
|
894,194
|
|
|
$
|
2,608,746
|
|
|
$
|
2,519,260
|
|
COST OF REVENUES
|
|
|
312,613
|
|
|
|
375,874
|
|
|
|
918,760
|
|
|
|
959,700
|
|
GROSS PROFIT
|
|
|
422,325
|
|
|
|
518,320
|
|
|
|
1,689,986
|
|
|
|
1,559,560
|
|
OPERATING EXPENSES
|
|
|
682,782
|
|
|
|
641,632
|
|
|
|
2,066,862
|
|
|
|
2,126,410
|
|
LOSS FROM OPERATIONS
|
|
|
(260,457
|
)
|
|
|
(123,312
|
)
|
|
|
(376,876
|
)
|
|
|
(566,850
|
)
|
OTHER EXPENSE, NET
|
|
|
(32,213
|
)
|
|
|
(196
|
)
|
|
|
(95,184
|
)
|
|
|
(5,816
|
)
|
LOSS BEFORE INCOME TAXES
|
|
|
(292,670
|
)
|
|
|
(123,508
|
)
|
|
|
(472,060
|
)
|
|
|
(572,666
|
)
|
INCOME TAXES (BENEFITS)
|
|
|
-
|
|
|
|
(8
|
)
|
|
|
(32
|
)
|
|
|
925
|
|
NET LOSS
|
|
$
|
(292,670
|
)
|
|
$
|
(123,500
|
)
|
|
$
|
(472,028
|
)
|
|
$
|
(573,591
|
)
|
Business
Segments
In
2017 and 2016, we operated in three reportable business segments: (1) Healthcare Knit Goods, (2) Daily Healthcare and Personal
Care Products and (3) Wellness House and Activated Water Machine Products. The following table sets forth the contributions of
each reportable business segment in dollars and as a percent of revenue:
For
the three months ended September 30, 2017
|
|
Healthcare Knitgoods Series
|
|
|
% of Total
|
|
|
Daily Healthcare and Personal Care Series
|
|
|
% of Total
|
|
|
Wellness House and Activated Water Machine Series
|
|
|
% of Total
|
|
|
Total
|
|
REVENUES
|
|
$
|
162,297
|
|
|
|
22.1
|
%
|
|
$
|
225,437
|
|
|
|
30.7
|
%
|
|
$
|
347,204
|
|
|
|
47.2
|
%
|
|
$
|
734,938
|
|
COST OF REVENUES
|
|
|
55,115
|
|
|
|
17.6
|
%
|
|
|
82,004
|
|
|
|
26.2
|
%
|
|
|
175,494
|
|
|
|
56.1
|
%
|
|
|
312,613
|
|
GROSS PROFIT
|
|
|
107,182
|
|
|
|
25.4
|
%
|
|
|
143,433
|
|
|
|
34.0
|
%
|
|
|
171,710
|
|
|
|
40.7
|
%
|
|
|
422,325
|
|
GROSS MARGIN
|
|
|
66.0
|
%
|
|
|
|
|
|
|
63.6
|
%
|
|
|
|
|
|
|
49.5
|
%
|
|
|
|
|
|
|
57.5
|
%
|
OPERATING EXPENSES
|
|
|
152,064
|
|
|
|
22.3
|
%
|
|
|
205,467
|
|
|
|
30.1
|
%
|
|
|
325,251
|
|
|
|
47.6
|
%
|
|
|
682,782
|
|
LOSS FROM OPERATIONS
|
|
$
|
(44,882
|
)
|
|
|
17.2
|
%
|
|
$
|
(62,034
|
)
|
|
|
23.8
|
%
|
|
$
|
(153,541
|
)
|
|
|
59.0
|
%
|
|
$
|
(260,457
|
)
|
For
the three months ended September 30, 2016
|
|
Healthcare Knitgoods Series
|
|
|
% of Total
|
|
|
Daily Healthcare and Personal Care Series
|
|
|
% of Total
|
|
|
Wellness House and Activated Water Machine Series
|
|
|
% of Total
|
|
|
Total
|
|
REVENUES
|
|
$
|
149,220
|
|
|
|
16.7
|
%
|
|
$
|
242,402
|
|
|
|
27.1
|
%
|
|
$
|
502,572
|
|
|
|
56.2
|
%
|
|
$
|
894,194
|
|
COST OF REVENUES
|
|
|
37,915
|
|
|
|
10.1
|
%
|
|
|
117,278
|
|
|
|
31.2
|
%
|
|
|
220,681
|
|
|
|
58.7
|
%
|
|
|
375,874
|
|
GROSS PROFIT
|
|
|
111,305
|
|
|
|
21.5
|
%
|
|
|
125,124
|
|
|
|
24.1
|
%
|
|
|
281,891
|
|
|
|
54.4
|
%
|
|
|
518,320
|
|
GROSS MARGIN
|
|
|
74.6
|
%
|
|
|
|
|
|
|
51.6
|
%
|
|
|
|
|
|
|
56.1
|
%
|
|
|
|
|
|
|
58.0
|
%
|
OPERATING EXPENSES
|
|
|
95,012
|
|
|
|
14.8
|
%
|
|
|
182,899
|
|
|
|
28.5
|
%
|
|
|
363,721
|
|
|
|
56.7
|
%
|
|
|
641,632
|
|
INCOME (LOSS) FROM OPERATIONS
|
|
$
|
16,293
|
|
|
|
-13.2
|
%
|
|
$
|
(57,775
|
)
|
|
|
46.9
|
%
|
|
$
|
(81,830
|
)
|
|
|
66.4
|
%
|
|
$
|
(123,312
|
)
|
For
the nine months ended September 30, 2017
|
|
Healthcare Knitgoods Series
|
|
|
% of Total
|
|
|
Daily Healthcare and Personal Care Series
|
|
|
% of Total
|
|
|
Wellness House and Activated Water Machine Series
|
|
|
% of Total
|
|
|
Total
|
|
REVENUES
|
|
$
|
600,136
|
|
|
|
23.0
|
%
|
|
$
|
726,099
|
|
|
|
27.8
|
%
|
|
$
|
1,282,511
|
|
|
|
49.2
|
%
|
|
$
|
2,608,746
|
|
COST OF REVENUES
|
|
|
156,481
|
|
|
|
17.0
|
%
|
|
|
206,892
|
|
|
|
22.5
|
%
|
|
|
555,387
|
|
|
|
60.4
|
%
|
|
|
918,760
|
|
GROSS PROFIT
|
|
|
443,655
|
|
|
|
26.3
|
%
|
|
|
519,207
|
|
|
|
30.7
|
%
|
|
|
727,124
|
|
|
|
43.0
|
%
|
|
|
1,689,986
|
|
GROSS MARGIN
|
|
|
73.9
|
%
|
|
|
|
|
|
|
71.5
|
%
|
|
|
|
|
|
|
56.7
|
%
|
|
|
|
|
|
|
64.8
|
%
|
OPERATING EXPENSES
|
|
|
475,472
|
|
|
|
23.0
|
%
|
|
|
575,278
|
|
|
|
27.8
|
%
|
|
|
1,016,112
|
|
|
|
49.2
|
%
|
|
|
2,066,862
|
|
LOSS FROM OPERATIONS
|
|
$
|
(31,817
|
)
|
|
|
8.4
|
%
|
|
$
|
(56,071
|
)
|
|
|
14.9
|
%
|
|
$
|
(288,988
|
)
|
|
|
76.7
|
%
|
|
$
|
(376,876
|
)
|
For
the nine months ended September 30, 2016
|
|
Healthcare Knitgoods Series
|
|
|
% of Total
|
|
|
Daily Healthcare and Personal Care Series
|
|
|
% of Total
|
|
|
Wellness House and Activated Water Machine Series
|
|
|
% of Total
|
|
|
Total
|
|
REVENUES
|
|
$
|
593,718
|
|
|
|
23.6
|
%
|
|
$
|
554,188
|
|
|
|
22.0
|
%
|
|
$
|
1,371,354
|
|
|
|
54.4
|
%
|
|
$
|
2,519,260
|
|
COST OF REVENUES
|
|
|
175,603
|
|
|
|
18.3
|
%
|
|
|
229,879
|
|
|
|
24.0
|
%
|
|
|
554,218
|
|
|
|
57.7
|
%
|
|
|
959,700
|
|
GROSS PROFIT
|
|
|
418,115
|
|
|
|
26.8
|
%
|
|
|
324,309
|
|
|
|
20.8
|
%
|
|
|
817,136
|
|
|
|
52.4
|
%
|
|
|
1,559,560
|
|
GROSS MARGIN
|
|
|
70.4
|
%
|
|
|
|
|
|
|
58.5
|
%
|
|
|
|
|
|
|
59.6
|
%
|
|
|
|
|
|
|
61.9
|
%
|
OPERATING EXPENSES
|
|
|
501,136
|
|
|
|
23.6
|
%
|
|
|
467,770
|
|
|
|
22.0
|
%
|
|
|
1,157,504
|
|
|
|
54.4
|
%
|
|
|
2,126,410
|
|
LOSS FROM OPERATIONS
|
|
$
|
(83,021
|
)
|
|
|
14.6
|
%
|
|
$
|
(143,461
|
)
|
|
|
25.3
|
%
|
|
$
|
(340,368
|
)
|
|
|
60.0
|
%
|
|
$
|
(566,850
|
)
|
For
The Three Months Ended September 30, 2017 Compared to September 30, 2016
Revenue.
For the three months ended September 30, 2017, revenue was $734,938 compared to $894,194 for the three months ended September
30, 2016, a decrease of $159,256 or 17.8%. This decrease was mainly due to the decrease in revenue from wellness house.
Revenue
from healthcare knit goods segment increased by $13,077 or 8.8% to $162,297 for the three months ended September 30, 2017 from
$149,220 for the three months ended September 30, 2016. This increase was mainly due to the increase in sales of our Tourmaline
Bed Linens.
Revenue
from daily healthcare and personal care products decreased by $16,965 or 7% to $225,437 for the three months ended September 30,
2017 from $242,402 for the three months ended September 30, 2016. This was primarily due to the decrease in sales of Body Composition
Analyzer, which is a new product launched in August 2016.
Revenue
from wellness houses and activated water machines decreased by $155,368 or 30.9% to $347,204 for the three months ended September
30, 2017 from $502,572 for the three months ended September 30, 2016. This was primarily due to the slowing demand for our wellness
houses in 2017.
Cost
of Goods Sold.
For the three months ended September 30, 2017, cost of goods sold was $312,613 compared to $375,874 for the
three months ended September 30, 2016, a decrease of $63,261 or 16.8%. This decrease was mainly due to the decrease in the cost
of wellness house and activated water machine segment and daily healthcare and personal care segment.
Cost
of goods sold for healthcare knit goods segment increased to $55,115 for the three months ended September 30, 2017 from $37,915
for the three months ended September 30, 2016, an increase of $17,200 or 45.4%. This increase was due to the increase in sales.
Cost
of goods sold for the daily healthcare and personal care segment decreased to $82,004 for the three months ended September 30,
2017 from $117,278 for the three months ended September 30, 2016, a decrease of $35,274 or 30.1%. This decrease was due to the
decrease in sales.
Cost
of goods sold for our wellness house and activated water machine segment decreased to $175,494 for the three months ended September
30, 2017 from $220,681 for the three months ended September 30, 2016, a decrease of $45,187 or 20.5%. This decrease was mainly
due to the decrease in the cost of the construction of our wellness house as a result of the decrease in sales.
Gross
profit.
Our gross profit decreased by $95,995 or 18.5% to $422,325 for the three months ended September 30, 2017, compared
to $518,320 for the three months ended September 30, 2016. This decrease was mainly due to the decrease in gross profit of wellness
house and activated water machine segment. Our gross margin slightly decreased from 58% for the three months ended September 30,
2016 to 57.5% for the three months ended September 30, 2017.
Gross
profit for the healthcare knit goods segment decreased by $4,123 or 3.7% to $107,182 for the three months ended September 30,
2017 compared to $111,305 for the three months ended September 30, 2016. This decrease was mainly due to decrease in gross profit
from our tourmaline pillow, on which we gave more discounts to our franchisees in 2017. The gross margins of healthcare knit goods
segment decreased from 74.6% for the three months ended September 30, 2016 to 66% for the three months ended September 30, 2017,
which were influenced greatly by price reduction because more discounts were given to our franchisees.
Gross
profit of daily healthcare and personal care segment increased by $18,309 or 14.6% to $143,433 for the three months ended September
30, 2017, compared to $125,124 for the three months ended September 30, 2016. This increase was mainly due to the increased profit
of tourmaline shawls. The gross margin of daily healthcare and personal care segment increased from 51.6% for the three months
ended September 30, 2016 to 63.6% for the three months ended September 30, 2017. In 2016, we gave more discounts to our franchisees
on our daily healthcare and personal care segment.
Gross
profit of the wellness house and activated water machine segments decreased by $110,181 or 39.1% to $171,710 for the three months
ended September 30, 2017, compared to $281,891 for the three months ended September 30, 2016. This decrease was mainly due to
the decrease in gross profit from construction of wellness houses. The gross margin of our wellness house and activated water
machine segments decreased from 56.1% for the three months ended September 30, 2016 to 49.5% for the three months ended September
30, 2017. This decrease was mainly influenced by increased cost of having improved our wellness houses construction to achieve
higher fire safety standard.
Operating
expenses.
Our total operating expenses consist of sales and marketing expenses and general and administrative expenses. Our
total operating expenses increased by $41,150 or 6.4%, from $641,632 for the three months ended September 30, 2016 to $682,782
for the three months ended September 30, 2017. This increase was mainly due to the increase of salary and conference expenses.
Operating expenses for healthcare knit goods segment increased by $57,052 or 60% to $152,064 for the three months ended September
30, 2017 from $95,012 for the three months ended September 30, 2016. Operating expenses for daily healthcare and personal care
segment increased by $22,568 or 12.3% to $205,467 for the three months ended September 30, 2017 from $182,899 for the three months
ended September 30, 2016. Operating expenses for our wellness house and activated water machine segment decreased by $38,470 or
10.6% to $325,251 for the three months ended September 30, 2017 from $363,721 for the three months ended September 30, 2016.
Loss
from operations.
As a result of the foregoing, our loss from operations was $260,457 for the three months ended September
30, 2017, compared to $123,312 for the three months ended September 30, 2016, an increase of $137,145. The increased loss was
mainly due to the decrease in sales.
Income
taxes (income tax benefits).
Our income tax expenses were $0 for the three months ended September 30, 2017, compared to negative
$8 for the three months ended September 30, 2016. The income tax benefits for the third quarter of 2017 were due to the refund
of our income tax for 2016.
Net
loss.
For the three months ended September 30, 2017, our net loss was $292,670 compared to $123,500 for the three months ended
September 30, 2016, which was mainly due to decrease in sales.
For
the Nine Months Ended September 30, 2017 Compared to September 30, 2016
Revenue.
For the nine months ended September 30, 2017, revenue was $2,608,746 compared to $2,519,260 for the nine months ended September
30, 2016, an increase of $89,486 or 3.6%. This increase was mainly due to the increase in revenue from daily healthcare and personal
care products.
Revenue
from healthcare knit goods segment slightly increased by $6,418, or 1.1% to $600,136 for the nine months ended September 30, 2017
from $593,718 for the nine months ended September 30, 2016.
Revenue
from daily healthcare and personal care products increased by $171,911 or 31% to $726,099 for the nine months ended September
30, 2017 from $554,188 for the nine months ended September 30, 2016. This was primarily due to the increase in sales of our tourmaline
breast petals, the new product we launched in 2017.
Revenue
from wellness houses and activated water machines increased by $88,843 or 6.5% to $1,282,511 for the nine months ended September
30, 2017 from $1,371,354 for the nine months ended September 30, 2016. This decrease was mainly due to the decrease in construction
of wellness houses.
Cost
of Goods Sold.
For the nine months ended September 30, 2017, cost of goods sold was $918,760 compared to $959,700 for the
nine months ended September 30, 2016, a decrease of $40,940, or 4.3%. This decrease was mainly due to the decrease in the cost
of daily healthcare and personal care segment and healthcare knit goods segment.
Cost
of goods sold for healthcare knit goods segment decreased to $156,481 for the nine months ended September 30, 2017 from $175,603
for the nine months ended September 30, 2016, a decrease of $19,122 or 10.9%. This decrease was mainly due to the decrease in
the cost of our latex mattress, as a result of decrease in sales.
Cost
of goods sold for the daily healthcare and personal care segment decreased to $206,892 for the nine months ended September 30,
2017 from $229,879 for the nine months ended September 30, 2016, a decrease of $22,987 or 10%. This decrease was mainly due to
the decrease in the cost of Body Composition Analyzer, as a result of decrease in sales.
Cost
of goods sold for our wellness house and activated water machine segment increased to $555,387 for the nine months ended September
30, 2017 from $554,218 for the nine months ended September 30, 2016, a slightly increase of $1,169 or 0.2%.
Gross
profit.
Our gross profit increased by $130,426 or 8.4% to $1,689,986 for the nine months ended September 30, 2017, compared
to $1,559,560 for the nine months ended September 30, 2016. This increase was due to the increase in gross profit of daily healthcare
and personal care segment. Our gross margin slightly increased from 61.9% for the nine months ended September 30, 2016 to 64.8%
for the nine months ended September 30, 2017.
Gross
profit for the healthcare knit goods segment increased by $25,540 or 6.1% to $443,655 for the nine months ended September 30,
2017 compared to $418,115 for the nine months ended September 30, 2016. This increase was mainly due to the increase in gross
profit for our mattress products. The gross margins of healthcare knit goods segment increased from 70.4% for the nine months
ended September 30, 2016 to 73.9% for the nine months ended September 30, 2017. It was mainly due to that we gave more discounts
to our franchisees on our latex mattress in the annual conference held in January 2016.
Gross
profit of daily healthcare and personal care segment decreased by $194,898 or 13% to $519,207 for the nine months ended September
30, 2017, compared to $324,309 for the nine months ended September 30, 2016. This increase was primarily due to the increase in
sales. Our gross margin of daily healthcare and personal care segment increased from 58.5% for the nine months ended September
30, 2016 to 71.5% for the nine months ended September 30, 2017. This was mainly due to our new product, tourmaline breast petals,
which has a higher gross profit rate.
Gross
profit of the wellness house and activated water machine segments decreased by $90,012 or 2.9% to $727,124 for the nine months
ended September 30, 2017, compared to $817,136 for the nine months ended September 30, 2016. This decrease was mainly due to the
decrease in sales. The gross margin of our wellness house and activated water machine segments decreased slightly from 59.6% for
the nine months ended September 30, 2016 to 56.7% for the nine months ended September 30, 2017.
Operating
expenses.
Our total operating expenses consist of sales and marketing expenses and general and administrative expenses. Our
total operating expenses decreased by $59,548 or 2.8%, from $2,126,410 for the nine months ended September 30, 2016 to $2,066,862
for the nine months ended September 30, 2017. This decrease was mainly due to the decrease of conference expenses. Operating expenses
for healthcare knit goods segment decreased by $25,664 or 5.1% to $475,472 for the nine months ended September 30, 2017 from $501,136
for the nine months ended September 30, 2016. Operating expenses for daily healthcare and personal care segment increased by $107,508
or 23% to $575,278 for the nine months ended September 30, 2017 from $467,770 for the nine months ended September 30, 2016. Operating
expenses for our wellness house and activated water machine segment increased by $141,392 or 12.2% to $1,016,112 for the nine
months ended September 30, 2017 from $1,157,504 for the nine months ended September 30, 2016.
Loss
from operations.
As a result of the foregoing, our loss from operations was $376,876 for the nine months ended September 30,
2017, compared to $566,850 for the nine months ended September 30, 2016, a decrease of $189,974. This was mainly due to the increase
in sales and decrease in costs.
Income
taxes (income tax benefits).
Our income tax benefits were $(32) for the nine months ended September 30, 2017, compared to
$925 income tax expenses for the nine months ended September 30, 2016. The income tax benefits in 2017 was due to the refund of
our income tax for 2016.
Net
loss.
Our net loss was $472,028 for the nine months ended September 30, 2017, compared to $573,591 for the nine months ended
September 30, 2016. This decrease was mainly due to the decrease in loss from operation.
Franchising
We
enter into franchise agreements to develop retail outlets for our products. These agreements provide that franchisees will sell
our products exclusively. In exchange, we provide them with geographic exclusivity, discounted products, training, and support.
The agreements also require franchisees to adhere to certain standards of product merchandising, promotion, and presentment. The
agreements do not require the franchisees to purchase any minimum levels of product, but do require that they make at least one
purchase during each year. The agreements are generally for terms of three years and are renewable at the mutual agreement of
both parties. The Agreements are cancelable at our discretion if franchisees violate the terms of the agreements.
The
following is a breakdown of revenue between franchise and non-franchise customers:
|
|
For the three months ended
September 30,
|
|
|
For the nine months ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to franchise customers
|
|
$
|
585,722
|
|
|
$
|
570,189
|
|
|
$
|
1,901,033
|
|
|
$
|
1,664,536
|
|
Sales to non-franchise customers
|
|
|
149,216
|
|
|
|
324,005
|
|
|
|
707,713
|
|
|
|
854,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sales
|
|
$
|
734,938
|
|
|
$
|
894,194
|
|
|
$
|
2,608,746
|
|
|
$
|
2,519,260
|
|
Liquidity
and Capital Resources
Our
cash at December 31, 2016 was $919,390 and decreased to $784,215 at September 30, 2017, a decrease of $135,175. This decrease
was mainly due to our cash flow from investing activities. On September 30, 2017, we had net working capital of $1,252,049, a
decrease of $248,961 from $1,501,010 on December 31, 2016.
Our
cash flow information summary is as follows:
|
|
For the nine months ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Net cash provided by (used in):
|
|
|
|
|
|
|
Operating activities
|
|
$
|
89,197
|
|
|
$
|
115,441
|
|
Investing activities
|
|
$
|
(281,227
|
)
|
|
$
|
(46,183
|
)
|
Financing activities
|
|
$
|
(2,707
|
)
|
|
$
|
(2,463
|
)
|
Net
Cash Provided by Operating Activities
Net
cash provided by operating activities was $89,197 for the nine months ended September 30, 2017, compared to $115,441 for the nine
months ended September 30, 2016. This decrease was primarily due to increased case used in inventory purchase in 2017.
For
the nine months ended September 30, 2017, cash was mainly provided by add-back of $326,896 of depreciation and $110,841 of loss
on sale of assets for non-cash expense, the increase in advances from customer of $99,399, which was primarily offset by cash
used to cover the loss of $472,028,
For
the nine months ended September 30, 2016, cash was mainly provided by an add-back of $355,083 of depreciation for non-cash expense,
the increase in advances from customer of $160,013 and the decrease in inventory purchase of $151,418, which was primarily offset
by cash used to cover the loss of $573,591,
Net
Cash Used in Investing Activities
Net
cash used in investing activities was $281,227 for the nine months ended September 30, 2017, compared to $46,183 for the nine
months ended September 30, 2016.
For
the nine months ended September 30, 2017, we expended $355,765 on purchase of vehicles and office equipment. For the nine months
ended September 30, 2016, we expended $46,335 on purchase of office equipment.
Net
Cash Used in Financing Activities
Net
cash used in financing activities was $2,707 for the nine months ended September 30, 2017, compared to $2,463 for the nine months
ended September 30, 2016.
On
May 7, 2007, our operating subsidiary, Joway Shengshi entered into an agreement with Shenyang Joway pursuant to which Joway Shengshi
and Shenyang Joway agreed to provide each other with interest-free, unsecured advances for working capital. On May 10, 2007, our
subsidiary, Joway Technology and Shenyang Joway entered into an agreement pursuant to which Joway Technology and Shenyang Joway
agreed to provide each other with interest-free, unsecured advances for working capital. Pursuant to these agreements, Shenyang
Joway advanced an aggregate of $791,701 to Joway Shengshi and Joway Technology through December 31, 2010. We repaid $0 and $60
of these advances for the nine months ended September 30, 2017 and 2016, respectively. As of September 30, 2017, the total unpaid
principal balance due Shenyang Joway for advances was $2,189. Shenyang Joway ceased operations at the end of 2009, although it
still exists as a legal entity.
On
May 10, 2007, our operating subsidiaries, Joway Shengshi entered into a cash advance agreement with Jinghe Zhang, our President,
Chief Executive Officer and director. Pursuant to the agreements, Jinghe Zhang agreed to advance operating capital to Joway Shengshi.
These advances are interest free, unsecured and are repayable upon demand. During the period beginning May 17, 2007 (inception
of Joway Shengshi) through March 31, 2016, Joway Shengshi received cash advances in the aggregate principal amount of $4,736,754
from Jinghe Zhang. We repaid $2,707 and $2,403 of advances to Jinghe Zhang for the nine months ended September 30, 2017 and 2016,
respectively.. As of September 30, 2017, the total unpaid principal balance due Jinghe Zhang for advances made to Joway Shengshi
was $125,294.
The
Company has sufficient liquidity from internal and external sources to meet the Company’s operating cash needs over the
next 12 months even if Mr. Zhang and Shenyang Joway were to demand immediate repayment of the remaining balance under these loans
and no longer wish to provide future loans to any of our operating units.
STATUTORY
RESERVES
Pursuant
to the laws and regulations of the PRC, the Company’s PRC subsidiaries are required to allocate a portion of their after-tax
income to statutory reserves funds. The minimum statutory reserves allocation is 10% of after-tax income until the reserves reach
50% of the entities’ registered capital or members’ equity. The reserve funds are not transferable to the Company
in the form of cash dividends, loans or advances. Thus, the reserve funds are not available for distribution except in liquidation.
As of September 30, 2017, the Company had allocated $354,052 to statutory reserves.
Off
Balance Sheet Items
Under
SEC regulations, we are required to disclose off-balance sheet arrangements that have or are reasonably likely to have a current
or future effect on our financial condition, such as changes in financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources that are material to investors. An off-balance sheet arrangement means a
transaction, agreement or contractual arrangement to which any entity that is not consolidated with us is a party, under which
we have:
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●
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any
obligation under certain guarantee contracts,
|
|
●
|
any
retained or contingent interest in assets transferred to an unconsolidated entity or similar arrangement that serves as credit,
liquidity or market risk support to that entity for such assets,
|
|
●
|
any
obligation under a contract that would be accounted for as a derivative instrument, except that it is both indexed to our
stock and classified in shareholder equity in our statement of financial position, and
|
|
●
|
any
obligation arising out of a material variable interest held by us in an unconsolidated entity that provides financing, liquidity,
market risk or credit risk support to us, or engages in leasing, hedging or research and development services with us.
|
We
do not have any off-balance sheet arrangements that we are required to disclose pursuant to these regulations. In the ordinary
course of business, we enter into operating lease commitments, purchase commitments and other contractual obligations. These transactions
are recognized in our financial statements in accordance with generally accepted accounting principles in the United States.
Critical
Accounting Policies
Management’s
discussion and analysis of its financial condition and results of operations are based upon our consolidated financial statements,
which have been prepared in accordance with accounting principles generally accepted in the United States. Our financial statements
reflect the selection and application of accounting policies which require management to make significant estimates and judgments.
Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under
the circumstances. Actual results may differ from these estimates under different assumptions or conditions. We believe that the
following reflect the more critical accounting policies that currently affect our financial condition and results of operations.
Basis
of Consolidation
The
accompanying consolidated financial statements include Joway Health and its wholly owned subsidiaries and controlled VIEs. All
significant inter-company accounts and transactions have been eliminated in the consolidation.
Pursuant
to Accounting Standards Codification Topic 810 “Consolidation” (“ASC 810”), the Company is required to
include in its consolidated financial statements the financial statements of its variable interest entities (“VIEs”).
ASC 810 requires a VIE to be consolidated by a company if that company is subject to a majority of the risk of loss for the VIE
or is entitled to receive a majority of the VIE’s residual returns. VIEs are those entities in which a company, through
contractual arrangements, bears the risk of, and enjoys the rewards normally associated with ownership of the entity, and therefore
the company is the primary beneficiary of the entity.
Based
on the various Contractual Agreements, we believe we are able to exercise control over the VIEs, and to obtain the full economic
benefits. We believe that the terms of the exclusive option agreement are currently exercisable and legally enforceable under
PRC laws and regulations. We also believe that the minimum amount of consideration permitted by the applicable PRC law to exercise
the option does not represent a financial barrier or disincentive for us to exercise our rights under the exclusive option agreement.
A simple majority vote of our board of directors is required to pass a resolution to exercise our rights under the exclusive option
agreement, for which consent of the shareholder of VIEs is not required. Therefore, we believe this gives us the power to direct
the activities that most significantly impact VIEs’ economic performance. T We believe that our ability to exercise effective
control, together with the consulting service agreements and the equity pledge agreements, give us the rights to receive substantially
all of the economic benefits from VIEs in consideration for the services provided by its wholly owned subsidiaries in China. Accordingly,
as the primary beneficiary of VIEs and in accordance with U.S. GAAP, Joway Shengshi, Joway Technology, Joway Decoration, and Shengtang
Trading, as VIEs of Junhe Consulting, has been consolidated in the Company’s financial statements. Sales from Joway Shengshi,
Joway Technology, Joway Decoration, and Shengtang Trading are included in our total sales, their incomes or losses from operations
are consolidated with ours, and our net income or loss includes net income or loss from Joway Shengshi, Joway Technology, Joway
Decoration, and Shengtang Trading.
Revenue
Recognition
We
recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the
purchase price is fixed or determinable and collectability is reasonably assured.
With
respect to sales of product to both franchisee and non-franchisee customers, we prepare product shipment upon the receipt of a
customer’s purchase order. Sales prices are based on fixed price lists that are different depending on whether the price
list is for franchisee customers or for non-franchisee customers. We recognize revenue when the product is shipped. We do not
sell product to any customers with a right of return as defined in ASC 605-15-25-4. Sales are presented net of value added tax
(VAT).
We
recognize revenue on the sale of our wellness houses under the completed contract method. At the time when we enter into a contract
with a customer to build a wellness house, the customer pays a deposit of at least one-half of the sales price. We consider the
contract to be completed when all significant costs have been incurred and the customer accepts the project in writing by signing
in the appropriate place on the contract. At this time the customer will also pay any remaining balance on the contract. We recognize
the full contract revenue at this point. Contract costs consist primarily of materials and labor costs. The construction period
of a wellness house generally does not exceed five days.
Accounts
Receivable
Accounts
receivable are carried at net realizable value. We provide reserves for potential credit losses on accounts receivable. Management
reviews the composition of the accounts receivable and analyzes historical bad debts, customer concentrations, customers’
credit worthiness, current economic trends, and changes in customer’s payment patterns to evaluate the adequacy of these
reserves.
Inventories
Inventories
are stated at the lower of cost, as determined by the specific identification method on contract level (for each individual contract,
inventories cost flow is determined by weighted-average method), or the net realizable value, which is determined on selling prices
less any further costs expected to be incurred for completion and disposal. Management regularly evaluates the composition of
its inventories to identify slow-moving and obsolete inventories to determine whether a valuation allowance is required.
Property,
Plant, and Equipment
Property,
plant and equipment are stated at cost less accumulated depreciation, and include expenditures that substantially increase the
useful lives of existing assets.
Depreciation
is computed using the straight-line method over the estimated useful lives of the assets. Estimated useful lives are as follows:
Building
|
20 years
|
Operating Equipment
|
10 years
|
Office furniture and equipment
|
3 or 5 years
|
Vehicles
|
10 years
|
The
cost and related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts, and any gain or
loss is included in the consolidated statements of income and other comprehensive income. Maintenance, repairs and minor renewals
are charged directly to expenses as incurred. Significant renewals and betterment to buildings and equipment are capitalized.
Leasehold improvements are depreciated over the lesser of the useful life or the life of the lease.
Recent
Accounting Pronouncements
We
do not anticipate that the adoption of recently issued accounting pronouncements to have a material effect on our condensed consolidated
financial statements.