The financial statements required by this
item are set forth beginning on page F-1.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note
1 - ORGANIZATION AND BUSINESS BACKGROUND
China
Health Industries Holdings, Inc. (“China Health US”) was incorporated in the State of Arizona on July 11, 1996 and
was the successor of the business known as Arizona Mist, Inc. which began in 1989. On May 9, 2005, it entered into a Stock Purchase
Agreement and Share Exchange (effecting a reverse merger) with Edmonds 6, Inc. (“Edmonds 6”), a Delaware corporation,
and changed its name to Universal Fog, Inc. Pursuant to this agreement, Universal Fog, Inc. (which has been in continuous operation
since 1996) became a wholly-owned subsidiary of Edmonds 6.
China
Health Industries Holdings Limited (“China Health HK”) was incorporated on July 20, 2007 in Hong Kong under the Companies
Ordinance as a limited liability company. China Health HK was formed for the purpose of seeking and consummating a merger or acquisition
with a business entity organized as a private corporation, partnership, or sole proprietorship as defined by FASB ACS Topic 915
(“Development Stage Entities”).
Harbin
Humankind Biology Technology Co., Limited (“Humankind”) was incorporated in Harbin City, Heilongjiang Province, the
People’s Republic of China (the “PRC”) on December 14, 2003, as a limited liability company under the Company
Law of the PRC. Humankind is engaged in the manufacturing and sale of health products.
On
August 20, 2007, the sole shareholder of China Health HK entered into a share purchase agreement (the “Share Purchase Agreement”)
with the owners of Humankind. Pursuant to the Share Purchase Agreement, China Health HK purchased 100% of the ownership in Humankind
for a cash consideration of $60,408 (the “Share Purchase”). Subsequent to the completion of the Share Purchase, Humankind
became a wholly-owned subsidiary of China Health HK. The Share Purchase was accounted for as a “reverse merger” since
the owner of Humankind owned a majority of the outstanding shares of China Health HK’s common stock immediately following
the execution of the Share Purchase Agreement, it was deemed to be the acquirer in the reverse merger. Consequently, the assets
and liabilities and the historical operations that have been reflected in the financial statements for periods prior to the Share
Purchase are those of Humankind and have been recorded at the historical cost basis. After completion of the Share Purchase, China
Health HK’s consolidated financial statements include the assets and liabilities of both China Health HK and Humankind,
the historical operations of Humankind, and the operations of China Health HK and its subsidiaries from the closing date of the
Share Purchase.
On
October 14, 2008, Humankind set up a 99% owned subsidiary, Harbin Huimeijia Medicine Company (“Huimeijia”), with its
primary business being manufacturing and distributing medicine. Mr. Xin Sun, the Company’s majority owner, owns 1% of Huimeijia.
Huimeijia is consolidated in the consolidated financial statements of China Health HK.
On
December 31, 2008, China Health HK entered into a reverse merger with Universal Fog, Inc., a U.S. publicly traded shell company
(the “Transaction”). China Health HK is the acquirer in the Transaction, and the Transaction has been treated as a
recapitalization of China Health US. After the Transaction and a 20:1 reverse stock split, Mr. Xin Sun owned 61,203,088 shares
of common stock, representing 98.3% of the 62,234,737 total outstanding shares of common stock of China Health US. On April 7,
2009, Mr. Sun transferred 28,200,000 shares of common stock to 296 individuals, leaving him with 33,003,088 shares of common stock
of China Health US, or approximately 53.03% of the total outstanding shares of common stock. Universal Fog, Inc. changed its name
to China Health Industries Holdings, Inc. on February 19, 2009.
On
November 22, 2013, Humankind completed the acquisition of Heilongjiang Huimeijia Pharmaceutical Co., Ltd. (“HLJ Huimeijia”)
for a total purchase price of $16,339,869 (RMB100,000,000). HLJ Huimeijia was founded on October 30, 2003, and is engaged in the
manufacturing and distribution of tincture, ointments, rubber paste (including hormones), topical solution, suppositories, liniment
(including traditional Chinese medicine extractions), enemas and oral liquids. HLJ Huimeijia’s predecessor is Heilongjiang
Xue Du Pharmaceutical Co., Ltd., which has established its brand name in the market through its supply of high quality medical
products. HLJ Huimeijia is categorized as a “high and new technology” enterprise by the Science Technology Department
in Heilongjiang Province. HLJ Huimeijia has 21 products which have been approved by, and have received approval numbers issued
by, the China State Food and Drug Administration (the “CFDA”). In addition, HLJ Huimeijia is the holder of one patent
for utility models, five patents for external design and three trademarks in China, including the Chinese brand name of “Xue
Du” which has an established reputation among customers in northeastern China.
On
December 24, 2014, Humankind entered into a stock transfer agreement (the “Original Agreement”) with Xiuzheng Pharmaceutical
Group Co., Ltd. a company incorporated under the laws of the PRC and located in Jilin province (“Xiuzheng Pharmacy”
or the “Buyer”), Mr. Xin Sun, the CEO of the Company, and Huimeijia, 99% owned by Humankind and 1% owned by Mr. Xin
Sun. Pursuant to the Original Agreement, Humankind and Mr. Xin Sun (the “Equity Holders”), would sell their respective
equity interests in Huimeijia to Xiuzheng Pharmacy.
On
February 9, 2015, the four parties entered into a supplementary agreement (the “Supplementary Agreement”) to modify
the terms of the Original Agreement, pursuant to which the Equity Holders and Huimeijia (collectively the “Asset Transferors”)
would sell only the 19 drug approval numbers (including the tablet, capsule, powder, mixture, oral liquid, syrup and oral solution
under the 19 approval numbers; licenses including the original copies of Business License, Organization Code Certificate, Tax
Registration Certificate, Drug Production Permit and GMP Certificate, and other documents and original copies related to the production
and operation of the 19 drugs) (the “Assets”) to Xiuzheng Pharmacy. The Equity Holders would have retained their equity
interests in Huimeijia, but would have pledged such equity interests to Xiuzheng Pharmacy until the Assets were transferred, at
which time the cash consideration would have been paid by the Buyer. Total cash consideration would have been the same as under
the Original Agreement, i.e., RMB 8,000,000 (approximately $1,306,186) to the Asset Transferors. In the event that the Assets
had failed to be transferred to the Buyer due to the fault of the Asset Transferors, the paid consideration would have been returned
to the Buyer with interest accrued. If the failure of the transfer of the Assets were a result of changes in government policy
or force majeure, the paid cash consideration would have been returned to the Buyer but without any interest.
On
October 12, 2016, the four parties agreed to rescind the Supplementary Agreement and entered into a new supplementary agreement
(the “Agreement”), pursuant to which the four parties agreed to execute the transfer of the equity interests based
on the Original Agreement and the Equity Holders agreed to sell their respective equity interests in Huimeijia to Xiuzheng Pharmacy.
The transfer of 100% of the equity interests of Huimeijia to the Buyer was for total cash consideration of RMB 8,000,000 (approximately
$1,306,186) (the “Purchase Price”) to the Equity Holders. 40% of the Purchase Price was due within 10 business days
after the signing of the Agreement; 40% of the Purchase Price was due within 10 business days after the completion of the changes
in business registration described in the Original Agreement and Xiuzheng Pharmacy obtaining documents evidencing its ownership
on Huimeijia; 15% of the Purchase Price is due within 10 business days after the transfer of all of the Assets is approved by
Heilongjiang FDA; and 5% of the Purchase Price is due within 10 business days after all of the Assets have been transferred to
Xiuzheng Pharmacy or its designee and Humankind and Mr. Xin Sun have instructed Xiuzheng Pharmacy complete three-batches production
of all forms of the drugs included in the Assets. As of the date of this report, 80% of the Purchase Price has been paid, the
Company has completed changes in its business registration, and Xiuzheng Pharmacy has obtained a business license issued by the
local State Administration of Industry and Commerce in Harbin (“Harbin SAIC”) to Huimeijia, in which the ownership
of Huimeijia has been recorded as held by Xiuzheng Pharmacy, with Harbin SAIC and the legal representative (a person that is authorized
to take most of the corporate actions on behalf of a company under the corporate laws in China) of Huimeijia has been appointed
by the Buyer. The transfer of all the drug licenses to the Buyer and the payments of the remainder of the Purchase Price to the
Equity Holders are pending.
China
Health US, China Health HK, Humankind and HLJ Huimeijia are collectively referred herein to as the “Company.”
As
of June 30, 2018, the Company’s corporate structure was as follows:
Note
2 - SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
This
summary of significant accounting policies of the Company is presented to assist in understanding the Company’s consolidated
financial statements. The financial statements and notes are representations of the Company’s management, which is responsible
for their integrity and objectivity. These accounting policies conform to generally accepted accounting principles in the United
States (“US GAAP”) and have been consistently applied in the preparation of the consolidated financial statements.
Principles
of Consolidation
The
accompanying consolidated financial statements include China Health US and its four subsidiary companies, including China Health
HK, Humankind and HLJ Huimeijia. All significant intercompany balances and transactions have been eliminated in consolidation
and combination.
On
November 22, 2013, China Health US, through its wholly owned subsidiary Humankind, completed the acquisition of HLJ Huimeijia.
HLJ Huimeijia and Humankind are under the common control of Mr. Xin Sun, the CEO of the Company before and after the date of transfer.
Humankind’s accounting policy adopted the guidance in ASC 805-50-05-5 for the transfer of net assets between entities under
common control to apply a method similar to the pooling-of-interests’ method. Under this method, the financial statements
of Humankind shall report results of operations for the period in which the transfer occurs as though the transfer of net assets
had occurred at the beginning of the period. Results of operations for that period will thus comprise both those of the previously
separate entities combined from the beginning of the period to the date the transfer is completed and those of the combined operations
from that date to the end of the period. Similarly, Humankind shall present the statements of financial position and other financial
information as of the beginning of the period as though the assets and liabilities had been transferred at that date. Financial
statements and financial information of Humankind presented for prior years also shall be retrospectively adjusted to furnish
comparative information.
Discontinued
Operations
The
Company has adopted ASC Topic 205 “Presentation of Financial Statements” Subtopic 20-45, in determining whether any
of its business component(s) classified as held for sale, disposed of by sale or other than by sale is required to be reported
in discontinued operations. In accordance with ASC Topic 205-20-45-1, a discontinued operation may include a component of an entity
or a group of components of an entity, or a business or non-profit activity. A disposal of a component of an entity or a group
of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift
that has (or will have) a major effect on an entity’s operations and financial results when any of the following occurs:
(1) the component of an entity or group of components of an entity meets the criteria to be classified as held for sale; (2) the
component of an entity or group of components of an entity is disposed of by sale; (3) the component of an entity or group of
components of an entity is disposed of other than by sale (for example, by abandonment or in a distribution to owners in a spinoff).
For
any component classified as held for sale or disposed by sale or other than by sale that qualifying for presentation as a discontinued
operation in the period, the Company adopted ASC Topic 205-20-45-3 and reported the results of operations of the discontinued
operations (including any gain or loss recognized on the disposal or loss recognized on classification as held for sale of a discontinued
operation), less applicable income taxes (benefit), as a separate component in the statement where net income (loss) is reported
for current and all prior periods presented.
The
transfer of equity interest of Huimeijia is qualified for presentation as a discontinued operation in accordance with ASC Topic
205. As a result, the results of operations of this business was reported in discontinued operation as a separate component in
the Company’s consolidated statements of operations and comprehensive income (loss) for all periods presented.
Reclassifications
Certain
prior year balances were reclassified to conform to the current period’s presentation in order to reflect Huimeijia’s business
as discontinued operations. None of these reclassifications had an impact on reported financial position or cash flows for any
of the periods presented.
Segment
Reporting
FASB
ASC Topic 280, “Segment Reporting,” established standards for reporting information about operating segments on a
basis consistent with the Company’s internal organizational structure as well as information about geographical areas, business
segments and major customers in financial statements for details on the Company’s business segments. The Company has three reportable
operating segments: Humankind, HLJ Huimeijia and Others. The segments are grouped based on the types of products provided.
Fair
Value of Financial Instruments
The
provisions of accounting guidance, FASB ASC Topic 820 that applies to the Company requires all entities to disclose the fair value
of financial instruments, both assets and liabilities recognized and not recognized on the balance sheet, for which it is practicable
to estimate fair value, and defines fair value of a financial instrument as the amount at which the instrument could be exchanged
in a current transaction between willing parties.
Fair
Value Measurements
FASB
ASC Topic 820, “Fair Value Measurements and Disclosures,” clarifies the definition of fair value for financial reporting,
establishes a framework for measuring fair value and requires additional disclosures about the use of fair value measurements.
Various
inputs are considered when determining the fair value of the Company’s debt. The inputs or methodologies used for valuing
securities are not necessarily an indication of the risk associated with investing in these securities. These inputs are summarized
in the three broad levels listed below.
Level
1 – observable market inputs that are unadjusted quoted prices for identical assets or liabilities in active
markets.
Level
2 – other significant observable inputs (including quoted prices for similar securities, interest rates, credit risk,
etc.).
Level
3 – significant unobservable inputs (including the Company’s own assumptions in determining the fair value of
investments).
The
carrying value of financial assets and liabilities recorded at fair value is measured on a recurring or nonrecurring basis. Financial
assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when a significant event occurs.
The Company had no financial assets or liabilities carried and measured on a nonrecurring basis during the reporting periods.
Financial assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial
statement is prepared. The Company had no financial assets or liabilities carried and measured on a recurring basis during the
reporting periods.
The
availability of inputs observable in the market varies from instrument to instrument and depends on a variety of factors including
the type of instrument, whether the instrument is actively traded, and other characteristics particular to the transaction. For
many financial instruments, pricing inputs are readily observable in the market, the valuation methodology used is widely accepted
by market participants, and the valuation does not require significant management discretion. For other financial instruments,
pricing inputs are less observable in the market and may require management judgment.
Foreign
Currency Translation and Transaction
Humankind,
Huimeijia and HLJ Huimeijia maintain their books and accounting records in PRC currency “Renminbi” (“RMB”),
which has been determined as the functional currency. The functional currency of China Health HK is the Hong Kong Dollar (“HKD”).
Transactions
denominated in currencies other than the functional currencies are recorded at the exchange rates prevailing on the date of the
transactions, as quoted by the Federal Reserve Board. Foreign currency exchange gains and losses resulting from these transactions
are included in operations.
Humankind,
Huimeijia, HLJ Huimeijia and China Health Hong Kong’s financial statements are translated into the reporting currency, the
United States Dollar (“USD”). Assets and liabilities of the above entities are translated at the prevailing exchange
rate at each reporting period end date. Contributed capital accounts are translated using the historical rate of exchange when
capital is injected. Income and expense accounts are translated at the average rate of exchange during the reporting period. Translation
adjustments resulting from the translation of these financial statements are reflected as accumulated other comprehensive income
in shareholders’ equity and non-controlling interests.
For
the purpose of presenting these financial statements, the Company’s assets and liabilities with functional currency of HKD
are expressed in USD at the exchange rate on the balance sheet date, which was 7.8463 and 7.8055 as of June 30, 2018 and June
30, 2017, respectively; stockholder’s equity accounts are translated at historical rates, and income and expense items are
translated at the weighted average exchange rates during the year, which was 7.8245 and 7.7654 for the years ended June 30, 2018
and 2017, respectively. For Renminbi currency, the Company’s assets and liabilities are expressed in USD at the exchange
rate on the balance sheet date, which was 6.6198 and 6.7793 as of June 30, 2018 and June 30, 2017, respectively; stockholder’s
equity accounts are translated at historical rates, and income and expense items are translated at the weighted average exchange
rates during the year, which was 6.5064 and 6.8087 for the years ended June 30, 2018 and 2017, respectively.
Statement
of Cash Flows
In
accordance with Statement FASB ASC Topic 230, “Statement of Cash Flows,” cash flow from the Company’s operations is
calculated based upon the local currencies and translated to the reporting currency using an average foreign exchange rate for
the reporting period. As a result, amounts related to assets and liabilities reported in the statement of cash flows will not
necessarily agree with changes in the corresponding balances on the balance sheet.
Use
of Estimates and Assumptions
The
preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and judgments that affect
the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities on the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates and judgments on
historical experience and on various other assumptions and information that are believed to be reasonable under the circumstances.
Estimates and assumptions of future events and their effects cannot be perceived with certainty and, accordingly, these estimates
may change as new events occur, as more experience is acquired, as additional information is obtained and as the Company’s
operating environment changes. Significant estimates and assumptions by management include, among others; useful lives of long-lived
assets and intangible assets, valuation of inventory, accounts receivable and notes receivable, impairment analysis of long-lived
assets, construction in progress, intangible assets and deferred taxes. While the Company believes that the estimates and assumptions
used in the preparation of the financial statements are appropriate, actual results could differ from those estimates. Estimates
and assumptions are periodically reviewed and the effects of revisions are reflected in the financial statements in the period
they are determined to be necessary.
Cash
and Cash Equivalents
Cash
and cash equivalents include cash on hand, deposits in banks with maturities of three months or less, and all highly liquid investments
which are unrestricted as to withdrawal or use, and which have original maturities of three months or less at the time of purchase.
As
of June 30, 2018, and 2017, the Company’s uninsured bank balance was mainly maintained at financial institutions located
in the PRC and HK, totaled $32,614,910 and $21,197,448 respectively. The Company has no insured bank balance as of June 30, 2018
and 2017, respectively.
Short-term
investments, held-to-maturity investments
The
Company’s held-to-maturity investments consist of financial products purchased from investment guarantee corporations. The
Company’s short term held-to-maturity investments are classified as short-term investments on the consolidated balance sheets
based on their contractual maturity dates which are less than one year and are stated at their amortized costs.
The
Company reviews its investments for other-than-temporary impairment (“OTTI”) based on the specific identification
method. The Company considers available quantitative and qualitative evidence in evaluating potential impairment of its investments.
If the cost of an investment exceeds the investment’s fair value, the Company considers, among other factors, general market
conditions, expected future performance of the investees, the duration and the extent to which the fair value of the investment
is less than the cost, and the Company’s intent and ability to hold the investment. OTTI is recognized as a loss in the
income statement.
Accounts
Receivable
Accounts
receivable are recorded at the invoiced amount and do not bear interest. The Company extends unsecured credit to its customers
in the ordinary course of business but mitigates the associated risks by performing credit checks and actively pursuing past due
accounts. An allowance for doubtful accounts is established and determined based on management’s assessment of known requirements,
aging of receivables, payment and bad debt history, the customer’s current credit worthiness, changes in customer payment
patterns and the economic environment. From November 1, 2013, the Company changed its credit policy by offering ninety (90) day
payment terms for sales agents, whereas the payment terms for sales agents before November 1, 2013 were thirty (30) day. As of
June 30, 2018, and 2017, the balances of accounts receivable were $1,455,433 and $1,625,695, respectively. The Company determines
the allowance based on aging data, historical collection experience, customer specific facts and economic conditions. Account
balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery
is considered remote. The Company evaluated the nature of all accounts receivable then provided allowance for doubtful accounts.
As of June 30, 2018, and 2017, the balances of allowance for doubtful accounts were $57,245 and $50,496 respectively.
Advance
to Suppliers
The
Company periodically makes advances to certain vendors for purchases of raw materials, or service providers for services relating
to construction plans for our plant, equipment and production lines for the GMP upgrading, and records these payments as advance
to suppliers. As of June 30, 2018, and 2017, advance to suppliers amounted to $94,749 and $400,136, respectively.
Inventory
Inventory
consists of raw materials, work in progress and finished goods of manufactured products.
Inventory
is stated at lower of cost or market and consists of materials, labor and overhead. HLJ Huimeijia uses the weighted average method
for inventory valuation. The other entities of the Company use the first-in, first-out (“FIFO”) method for inventory
valuation. Overhead costs included in finished goods include direct labor cost and other costs directly applicable to the manufacturing
process. The Company evaluates inventory for excess, slow moving, and obsolete inventory as well as inventory the value of which
is in excess of its net realizable value. This evaluation includes analysis of sales levels by product and projections of future
demand. If future demand or market conditions are less favorable than the Company’s projections, a write-down of inventory
may be required, and would be reflected in cost of goods sold in the period the revision is made. The inventory allowance with
an amount of $160,394 and $156,620 were provided for the years ended June 30, 2018, and 2017, respectively.
Impairment
of Long-Lived Assets
The
Company’s long-lived assets and other assets are reviewed for impairment in accordance with the guidance of the FASB ASC
Topic 360-10, “Property, Plant, and Equipment,” and FASB ASC Topic 205, “Presentation of Financial Statements.”
The Company tests for impairment losses on long-lived assets used in operations whenever events or changes in circumstances indicate
that the carrying amount of the asset may not be recoverable. Recoverability of an asset to be held and used is measured by a
comparison of the carrying amount of the asset to the future undiscounted cash flows expected to be generated by the asset. If
such asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount
of the asset exceeds its fair value. Impairment evaluations involve management’s estimates on asset useful lives and future
cash flows. Actual useful lives and cash flows could be different from those estimated by management which could have a material
effect on the Company’s reporting results and financial position. Fair value is determined through various valuation techniques
including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. As
of June 30, 2018, and 2017, the Company has not experienced impairment losses on its long-lived assets. However, there can be
no assurances that demand for the Company’s products or services will continue, which could result in an impairment of long-lived
assets in the future.
Property,
Plant and Equipment
Property,
plant and equipment are stated at cost less accumulated depreciation and impairment losses. Maintenance, repairs and minor renewals
are expensed as incurred, major renewals and improvements that extend the lives or increase the capacity of plant assets are capitalized.
When
assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains
or losses are included in the results of operations in the reporting period of disposition.
Depreciation
is calculated on a straight-line basis over the estimated useful life of the assets. The depreciable lives applied are:
Building, Warehouse and Improvements
|
|
20 to 30 years
|
Office Equipment
|
|
3 to 7 years
|
Vehicles
|
|
5 to15 years
|
Machinery and Equipment
|
|
7 to 15 years
|
Intangible
Assets
The
Company evaluates intangible assets in accordance with FASB ASC Topic 350, “Intangibles — Goodwill and Other.”
Intangible assets deemed to have indefinite lives are not amortized, but are subject to annual impairment tests. If the assumptions
and estimates used to allocate the purchase price are not correct, or if business conditions change, purchase price adjustments
or future asset impairment charges could be required. The value of the Company’s intangible assets could be impacted by
future adverse changes such as: (i) any future declines in the Company’s operating results, (ii) a decline in the valuation
of technology, including the valuation of the Company’s common stock, (iii) a significant slowdown in the worldwide economy,
or (iv) any failure to meet the performance projections included in the Company’s forecasts of future operating results.
In accordance with FASB ASC Topic 350, the Company tests intangible assets for impairment on an annual basis or more frequently
if the Company believes indicators of impairment exist. Impairment evaluations involve management estimates of asset useful lives
and future cash flows. Significant judgment by management is required in the forecasts of future operating results that are used
in the evaluations. It is possible, however, that the plans and estimates used may be incorrect. If the Company’s actual
results, or the plans and estimates used in future impairment analysis, are lower than the original estimates used to assess the
recoverability of these assets, we could incur additional impairment charges in a future period. Based on such evaluations, there
were no impairments recorded for intangible assets for the years ended June 30, 2018, and 2017, respectively.
Revenue
Recognition
The
Company recognizes revenue when it is both earned and realized or realizable. The Company’s policy is to recognize revenue
when title to the product, ownership and risk of loss have transferred to the customer, persuasive evidence of an arrangement
exits and collection of the sales proceeds is reasonably assured, all of which generally occur upon shipment of goods to customers.
The majority of the Company’s revenue relates to the sale of inventory to customers, and revenue is recognized when title
and the risks and rewards of ownership pass to the customer. Given the nature of the Company’s business and the applicable
rules guiding revenue recognition, the Company’s revenue recognition practices do not contain estimates that materially
affect the results of operations. The Company records revenue at the discounted selling price and allows its customers to return
products for exchange or credit subject to certain limitations. A provision for such returns is recorded based upon historical
experience. There has been no provision recorded for returns based upon historical experience for the years ended June 30, 2018
and 2017, respectively.
Cost
of Goods Sold
Cost
of goods sold consists primarily of the costs of raw materials, freight charges, direct labor, depreciation of plants and machinery,
warehousing and overhead costs associated with the manufacturing process and commission expenses.
Income
Taxes
The
Company adopts FASB ASC Topic 740, “Income Taxes,” which requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this
method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of
assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates
applicable to the periods in which the differences are expected to affect taxable income. A valuation allowance is established
for deferred tax assets if it is more likely than not that these items will either expire before the Company is able to realize
the benefits or that future deductibility is uncertain.
Under
ASC 740, a tax position is recognized as a benefit only if it is “more likely than not” that the tax position would
be sustained in a tax examination, with a tax examination being presumed to occur. The evaluation of a tax position is a two-step
process. The first step is to determine whether it is more-likely-than-not that a tax position will be sustained upon examination,
including the resolution of any related appeals or litigations based on the technical merits of that position. The second step
is to measure a tax position that meets the more-likely-than-not threshold to determine the amount of benefit to be recognized
in the financial statements. A tax position is measured at the largest amount of benefit that is greater than 50 percent likely
of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition
threshold should be recognized in the first subsequent period in which the threshold is met. Previously recognized tax positions
that no longer meet the more-likely-than-not criteria should be de-recognized in the first subsequent financial reporting period
in which the threshold is no longer met. Penalties and interest incurred related to underpayment of income tax are classified
as income tax expense in the year incurred. GAAP also provides guidance on de-recognition, classification, interest and penalties,
accounting in interim periods, disclosures and transition.
As
a result of the implementation of FIN 48 (ASC 740-10), the Company undertook a comprehensive review of its portfolio of tax positions
in accordance with recognition standards established by FIN 48 (ASC 740-10). The Company recognized no material adjustments to
liabilities or stockholders’ equity as a result of the implementation. The adoption of FIN 48 did not have a material impact
on the Company’s financial statements.
The
application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. Tax laws and
regulations themselves are subject to change as a result of changes in fiscal policy, changes in legislation, the evolution of
regulations and court rulings. Therefore, the actual liability may be materially different from the Company’s estimates,
which could result in the need to record additional tax liabilities or potentially reverse previously recorded tax liabilities
or deferred tax asset valuation allowance.
Enterprise
Income Tax
Under
the Provisional Regulations of PRC Concerning Income Tax on Enterprises promulgated by the PRC (the “EIT Law”), income
tax is payable by enterprises at a rate of 25% of their taxable income.
Value
Added Tax
The
Provisional Regulations of PRC Concerning Value Added Tax promulgated by the State Council came into effect on January 1, 1994.
Under these regulations and the Implementing Rules of the Provisional Regulations of the PRC Concerning Value Added Tax, value
added tax (“VAT”) is imposed on goods sold in, or imported into, the PRC and on processing, repair and replacement
services provided within the PRC. VAT payable in the PRC is charged on an aggregated basis at a rate of 13% or 17% (depending
on the type of goods involved) on the full price collected for the goods sold or, in the case of taxable services provided, at
a rate of 17% on the charges for the taxable services provided, but excluding, in respect of both goods and services, any amount
paid in respect of VAT included in the price or charges, and less any deductible VAT already paid by the taxpayer on purchases
of goods and services in the same financial year. As of June 30, 2018, and 2017, VAT payables were $132,439 and $196,495, respectively.
Sales-Related
and Payroll Taxes
Pursuant
to the tax law and regulations of the PRC, the Company is obligated to pay 7% and 5% of the annual VAT paid as taxes on maintaining
and building cities and education additional fees, both of which belong to sales-related taxes. Sales-related taxes are recorded
when sales revenue is recognized. Additionally, the Company is required to pay payroll taxes on its employee’s salary and
wages. Total sales-related and payroll taxes for the years ended June 30, 2018 and 2017 were $76,679 and $183,530 respectively.
Concentrations
of Business and Credit Risks
All
of the Company’s manufacturing is located in the PRC. There can be no assurance that the Company will be able to successfully
continue to manufacture its products and failure to do so would have a material adverse effect on the Company’s financial
position, results of operations and cash flows. Moreover, the success of the Company’s operations is subject to numerous
contingencies, some of which are beyond management’s control. These contingencies include general economic conditions, prices
of raw materials, competition, governmental and political conditions, and changes in regulations. Since the Company is dependent
on trade in the PRC, the Company is subject to various additional political, economic and other uncertainties. Among other risks,
the Company’s operations will be subject to the risks of restrictions on transfer of funds, domestic customs, changing taxation
policies, foreign exchange restrictions, and political and governmental regulations. The Company operates in China, which may
give rise to significant foreign currency risks from fluctuations and the degree of volatility of foreign exchange rates between
U.S. dollars and the Chinese currency RMB. The results of operations denominated in foreign currency are translated at the average
rate of exchange during the reporting periods.
Earnings
Per Share
Basic
earnings per common share is computed by dividing net earnings applicable to common shareholders by the weighted-average number
of common shares outstanding during the period. When applicable, diluted earnings per common share is determined using the weighted-average
number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents, consisting
of shares that might be issued upon exercise of common stock options and warrants. For the years ended June 30, 2018 and 2017,
the Company had no potential dilutive common stock equivalents outstanding.
Potential
common shares issued are calculated using the treasury stock method, which recognizes the use of proceeds that could be obtained
upon the exercise of options and warrants in computing diluted earnings per share. It assumes that any proceeds would be used
to purchase common stock at the average market price of the common stock during the period.
FASB
ASC Topic 260, “Earnings Per Share,” requires a reconciliation of the numerator and denominator of the basic and diluted
earnings per share (EPS) computations.
Recent
Accounting Pronouncements
Revenue
Recognition:
In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers:
Topic 606 (ASU 2014-09), to supersede nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of
ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the
consideration that is expected to be received for those goods or services. ASU 2014-09 defines a five-step process to achieve
this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition
process than are required under existing U.S. GAAP, including identifying performance obligations in the contract, estimating
the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate
performance obligation. ASU 2014-09 is effective for us in our first quarter of fiscal 2018 using either of two methods: (i) retrospective
to each prior reporting period presented with the option to elect certain practical expedients as defined within ASU 2014-09 (full
retrospective method); or (ii) retrospective with the cumulative effect of initially applying ASU 2014-09 recognized at the date
of initial application and providing certain additional disclosures as defined per ASU 2014-09 (modified retrospective method).
We are currently assessing the impact to our consolidated financial statements, and have not yet selected a transition approach.
In
April 2016, the FASB issued ASU 2016-10,
Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations
and Licensing.
The objective is to clarify the two aspects of Topic 606: identifying performance obligations and the
licensing implementation guidance, while retaining the related principles for these areas. The ASU affects the guidance in ASU
2014-09,
Revenue from Contracts with Customers (Topic 606),
which is not yet effective. The effective date and
transition requirements for this ASU are the same as the effective date and transition requirements in Topic 606 (and any other
Topic amended by ASU 2014-09). ASU 2015-14,
Revenue from Contracts with Customers (Topic 606): Deferral of the Effective
Date,
defers the effective date of ASU 2014-09 by one year. We will adopt the new standard effective June 30, 2019, using
the modified retrospective transition method. We finalized our analysis and the adoption of this guidance will not have a material
impact on our consolidated financial statements and our internal controls over financial reporting.
Except
for the ASU above, in the period from January 1, 2018 to September 2018, the FASB has issued ASU No. 2018-01 through ASU 2018-015,
which are not expected to have a material impact on the consolidated financial statements upon adoption.
NOTE
3 - ASSETS SALE
On
December 24, 2014, Humankind entered into a stock transfer agreement (the “Agreement”) with Xiuzheng Pharmaceutical
Group Co., Ltd a company incorporated under the laws of the People’s Republic of China and located in Jilin province (“Xiuzheng
Pharmacy” or the “Buyer”), Mr. Xin Sun, the CEO of the Company, and Huimeijia, pursuant to which, Humankind
and Mr. Xin Sun (the “Equity Holders”), shall sell their respective equity interests in Huimeijia to Xiuzheng Pharmacy.
The transfer of the 100% equity interests of Huimeijia to the Buyer was for total cash consideration of RMB 8,000,000 (approximately
$1,306,186) to the Equity Holders.
On
February 9, 2015, the four parties entered into a supplementary agreement (the “Supplementary Agreement”) to modify
the terms of the Agreement, pursuant to which, the Equity Holders and Huimeijia (collectively the “Assets Transferors”)
shall only sell the 19 drug approval numbers (including the tablet, capsule, powder, mixture, oral liquid, syrup and oral solution
under the 19 approval numbers; licenses including the original copies of Business License, Organization Code Certificate, Tax
Registration Certificate, Drug Production Permit and GMP Certificate, and other documents and original copies related to the production
and operation of the 19 drugs) (the “Assets”) to Xiuzheng Pharmacy. The Equity Holders will retain the equity interests
in Huimeijia, but will have the equity interests pledged to Xiuzheng Pharmacy until the Assets are transferred, at which time
all the cash consideration shall be paid by the Buyer. The total cash consideration remains to be the same as under the Agreement,
i.e., RMB 8,000,000 (approximately $1,306,186) to the Assets Transferors. In the event that the Assets are failed to be transferred
to the Buyer due to the fault of the Assets Transferors, the paid consideration shall be returned to the Buyer with interests
accrued. If the failure of the transfer of the Assets is a result of the government policy changes or force majeure, the paid
cash consideration shall be returned to the Buyer but without any interests.
As
of June 30, 2016, the transfer of the Assets had not been completed because the assets transfer crossed different provinces which
resulted in a complicated interaction among the local administrations of Heilongjiang Province, where Huimeijia is located and
Jilin Province, where the transferee is located. The Company is striving to accelerate the process of the transfer.
On
October 12, 2016, the four parties agreed to rescind the Supplementary Agreement and entered into a new supplementary agreement
(the “Agreement”), pursuant to which the four parties agreed to execute the transfer of the equity interests based
on the Original Agreement and the Equity Holders agreed to sell their respective equity interests in Huimeijia to Xiuzheng Pharmacy.
The transfer of 100% of the equity interests of Huimeijia to the Buyer was for total cash consideration of RMB 8,000,000 (approximately
$1,306,186) (the “Purchase Price”) to the Equity Holders. 40% of the Purchase Price was due within 10 business days
after the signing of the Agreement; 40% of the Purchase Price was due within 10 business days after the completion of the changes
in business registration described in the Original Agreement and Xiuzheng Pharmacy obtaining documents evidencing its ownership
on Huimeijia; 15% of the Purchase Price is due within 10 business days after the transfer of all of the Assets is approved by
Heilongjiang FDA; and 5% of the Purchase Price is due within 10 business days after all of the Assets have been transferred to
Xiuzheng Pharmacy or its designee and Humankind and Mr. Xin Sun have instructed Xiuzheng Pharmacy to complete three-batches production
of all forms of the drugs included in the Assets. As of the date of this report, 80% of the Purchase Price has been paid, the
Company has completed changes in its business registration, and Xiuzheng Pharmacy has obtained a business license issued by the
local State Administration of Industry and Commerce in Harbin (“Harbin SAIC”) to Huimeijia, in which the ownership
of Huimeijia has been recorded as held by Xiuzheng Pharmacy, with Harbin SAIC and the legal representative (a person that is authorized
to take most of the corporate actions on behalf of a company under the corporate laws in China) of Huimeijia has been appointed
by the Buyer. The transfer of all the drug licenses to the Buyer and the payments of the remainder of the Purchase Price to the
Equity Holders are pending.
NOTE
4 - SHORT TERM INVESTMENTS
Short
term investments consist of held-to-maturity investments.
Held-to-maturity
investments
Held-to-maturity
investments consist of various financial products purchased from Harbin Hongxiang Investment Guarantee Co., Ltd., which are classified
as held-to-maturity investments because the Company has the intent and ability to hold the investments to maturity. The maturity
of these financial products is one year, with contractual maturity date of July 19, 2017, and estimated annual interest rates
of approximately 10%. They are classified as short-term investments on the consolidated balance sheets because their contractual
maturity dates are less than one year. The repayments of principal of the financial products are not guaranteed by the Hongxiang
Investment Guarantee Co., Ltd. from which the financial products were purchased. On July 31, 2017, Company has received principal
and interest in full upon maturity of these investments. Harbin Hongxiang Investment Guarantee Co., Ltd., the financial institution
that handled the Company’s short-term investment with is a related party of the Company.
NOTE
5 - ACCOUNTS RECEIVABLE
The
Company’s accounts receivable amounted to $1,455,433 and $1,625,695 net of allowance for doubtful accounts amounting to
$57,245 and $50,496 as of June 30, 2018 and 2017, respectively.
NOTE
6 - INVENTORIES
Inventory
consists of following:
|
|
June 30,
2018
|
|
|
June 30,
2017
|
|
Raw Materials
|
|
$
|
219,735
|
|
|
$
|
156,248
|
|
Supplies and Packing Materials
|
|
|
132,329
|
|
|
|
135,637
|
|
Work-in-Progress
|
|
|
22,083
|
|
|
|
126,265
|
|
Finished Goods
|
|
|
78,250
|
|
|
|
36,318
|
|
Total
|
|
$
|
452,397
|
|
|
$
|
454,468
|
|
The
inventory allowance with an amount of $160,394 and $156,620 were provided for the years ended June 30, 2018 and 2017, respectively.
NOTE
7 - CONSTRUCTION IN PROGRESS
Construction
in progress consisted of the following:
|
|
June 30,
2018
|
|
|
June 30,
2017
|
|
Plant - HLJ Huimeijia
|
|
$
|
1,116,652
|
|
|
$
|
788,793
|
|
Factory Maintenance - HMK
|
|
|
18,182
|
|
|
|
-
|
|
Total
|
|
$
|
1,134,834
|
|
|
$
|
788,793
|
|
On
April 6, 2012, HLJ Huimeijia entered into an agreement with a contractor for the plant, the estimated total cost of construction
was approximately $1.9 million (RMB 12,800,000), anticipated to be completed by December 2016. As of June 30, 2018, approximately
62% of construction had been completed and $ 1,193,390 (RMB 7,900,000) had been recorded as a cost of construction in progress.
NOTE
8 - PROPERTY, PLANTS AND EQUIPMENT
Property,
plants and equipment consisted of the following
|
|
June 30,
2018
|
|
|
June 30,
2017
|
|
Building, Warehouses and Improvements
|
|
$
|
3,487,904
|
|
|
$
|
3,352,467
|
|
Machinery and Equipment
|
|
|
1,589,195
|
|
|
|
1,368,798
|
|
Office Equipment
|
|
|
71,927
|
|
|
|
63,477
|
|
Vehicles
|
|
|
209,760
|
|
|
|
212,972
|
|
Others
|
|
|
944,138
|
|
|
|
921,924
|
|
Less Accumulated Depreciation
|
|
|
(2,578,434
|
)
|
|
|
(2,225,334
|
)
|
Total
|
|
$
|
3,724,490
|
|
|
$
|
3,694,304
|
|
Depreciation
expense was $304,704
and $276,277 for the years ended June
30, 2018 and 2017, respectively. Depreciation expense charged to operations was $131,791 and $164,596 for the years ended June
30, 2018 and 2017, respectively. Depreciation expense charged to cost of goods sold was $172,913
and
$111,681 for the years ended June 30, 2018 and 2017, respectively.
NOTE
9 - INTANGIBLE ASSETS
The
following is a summary of intangible assets:
|
|
June 30,
2018
|
|
|
June 30,
2017
|
|
Land Use Rights – Humankind
|
|
$
|
957,428
|
|
|
$
|
934,902
|
|
Health Supplement Product Patents – Humankind
|
|
|
4,531,858
|
|
|
|
4,425,236
|
|
Pharmaceutical Patents - HLJ Huimeijia
|
|
|
394,902
|
|
|
|
385,611
|
|
Land Use Rights - HLJ Huimeijia
|
|
|
654,867
|
|
|
|
639,459
|
|
Less: Accumulated Amortization
|
|
|
(3,166,554
|
)
|
|
|
(2,742,664
|
)
|
Intangible Assets, net, Held for Continuing Operations
|
|
$
|
3,372,501
|
|
|
$
|
3,642,544
|
|
All
land in the PRC belongs to the State. Enterprises and individuals can pay the State a fee to obtain the right to use a piece of
land for commercial purposes or residential purposes for an initial period of 50 years or 70 years, respectively. The land use
right can be sold, purchased, and exchanged in the market. The successor owner of the land use right will have the right to use
the land for the time remaining on the initial period.
Amortization
expense charged to operations was $364,044 and $464,035 for the years ended June 30, 2018 and 2017, respectively.
NOTE
10 - SHORT-TERM LOAN
On
November 12, 2015, HLJ Huimeijia entered into a short-term loan agreement with a bank for working capital purpose of RMB 10,000,000,
at an interest rate of 5.66% from November 12, 2015 to November 10, 2016. The loan was secured by the land use right and the building
of HLJ Huimeijia, with a maturity date of November 10, 2016. On November 18, 2016, the agreement was renewed with an interest
rate of 6.09% with a maturity date of November 16, 2017. HLJ Huimeijia paid the principal amount in December 14, 2017, and the
land use rights and building have been released from the mortgage.
As
of June 30, 2018, and June 30, 2017, short-term loans were nil and $1,475,079, respectively.
Interest
expenses were $49,408 and $159,878 for the years ended June 30, 2018 and 2017, respectively.
NOTE
11 - RELATED PARTY DEBTS
Related
party debts, which represent temporary short-term loans from Mr. Xin Sun and Mr. Kai Sun consisted of the following:
|
|
June 30,
2018
|
|
|
June 30,
2017
|
|
Mr. Xin Sun
|
|
$
|
6,358,406
|
|
|
$
|
3,697,188
|
|
Mr. Kai Sun
|
|
|
35,324
|
|
|
|
34,493
|
|
Related Party Debts, Held for Continuing Operations
|
|
$
|
6,393,730
|
|
|
$
|
3,731,681
|
|
These
loans are unsecured and non-interest bearing and have no fixed terms of repayment; therefore, they are deemed payable on demand.
Mr. Kai Sun is a PRC citizen and a family member of Mr. Xin Sun, the CEO of the Company.
NOTE
12 - INCOME TAXES
(a)
Corporate income taxes
The
Company was incorporated in the State of Delaware under the name of Universal Fog, Inc. on August 19, 2004. After the Company
had acquired the business of China Health HK through the acquisition of all the share capital of China Health HK under a Share
Exchange Agreement dated December 31, 2008, it became a holding company and do not conduct any substantial operations or business
of its own in the State of Delaware and in the U.S.
The
Company also does not provide for U.S. taxes or foreign withholding taxes on undistributed earnings from its non-U.S. subsidiaries,
either owned directly or indirectly, because it was elected to indefinitely reinvest such earnings outside the U.S to support
non-U.S. liquidity needs to fund operations and growth of its foreign subsidiaries and acquisitions.
United
States
China
Health Industries Holdings Inc (“China Health U.S.”) was incorporated in Delaware on August 19, 2004. China Health U.S.
had no taxable income for U.S. corporate income tax purposes for the years ended June 30, 2018 and 2017, respectively. As of June
30, 2018, and 2017, China Health U.S. had $787,362 and $548,034in net operating loss carry forwards available to offset future
taxable income, respectively. The federal corporate net operating loss carryover is expired in 20 taxable years following the
taxable year of the loss. If not utilized, the federal net operating loss for the fiscal years 2017 and 2018 in an amount of $263,034
and $239,328, respectively, will begin to expire in the years 2038 and 2039, respectively. Management believes that it is more
likely than not that the benefits from these accumulated net operating losses will not be realized in the future due to the Company’s
operating history and the continued losses of its U.S. operation. Accordingly, the Company has provided a full valuation allowance
on the deferred tax assets under its U.S. entity.
Hong
Kong
China
Health Industries Holdings Limited (“China Health HK”) was incorporated in Hong Kong on July 20, 2007 and is subject
to Hong Kong profits taxation on its business activities conducted in Hong Kong and income sourced in Hong Kong. As of June 30,
2018, and 2017, China Health Hong Kong had $9,104 and $8,465 in net operating loss carry forwards available to offset future taxable
income, respectively. Net operating losses of Hong Kong can generally be carried forward indefinitely. The Company believes that
it is more likely than not that these accumulated net operating losses will not be utilized in the future. Therefore, the Company
had provided full valuation allowance for the deferred tax assets arising from the losses in Hong Kong during the years ended
June 30, 2018, and 2017, amounting $639 and $548, respectively. Accordingly, there is no net deferred tax assets under this entity.
People’s
Republic of China
Harbin
Humankind Biology Technology Co. Limited (“Humankind”), Heilongjiang Huimeijia Pharmaceutical Co., Ltd (“HLJ Huimeijia”)
and Harbin Huimeijia Medicine Company (“Huimeijia”) were incorporated in PRC and are governed by the income tax laws
of the PRC. The income tax provision with respect to operations in the PRC is calculated at the applicable tax rates on the taxable
income for the periods based on existing legislation, interpretations and practices in respect thereof. Under the Enterprise Income
Tax Laws of the PRC (the “EIT Laws”), Chinese enterprises are subject to income tax at a rate of 25% after appropriate
tax adjustments.
The
net operating losses carried forward incurred by the Company’s PRC subsidiaries were approximately $866,056 and $672,867 as of
June 30, 2018 and 2017, respectively. The net operating loss carry forwards gradually expire over time, the last of which expires
in 2023. The related deferred tax assets were calculated based on the respective net operating losses incurred by each of the
PRC subsidiaries and the respective corresponding enacted tax rate that will be in effect in the period in which the losses are
expected to be utilized. The Company recorded approximately $217,639 and $177,251 net valuation allowance as of June 30, 2018
and 2017, respectively, because it is considered more likely than not that this portion of the deferred tax assets will not be
realized through sufficient future earnings of the entities to which the operating losses relate.
As
of June 30, 2018, and 2017, taxes payable consists of:
|
|
June 30,
2018
|
|
|
June 30,
2017
|
|
Income tax payable
|
|
$
|
219,305
|
|
|
$
|
481,391
|
|
Value-added tax payable
|
|
|
132,439
|
|
|
|
196,495
|
|
Other taxes payable
|
|
|
76,679
|
|
|
|
183,530
|
|
Total
|
|
$
|
428,423
|
|
|
$
|
861,416
|
|
A
reconciliation between the Company’s actual provision for income taxes and the provision at the statutory rate is as follows:
|
|
6/30/2018
|
|
|
6/30/2017
|
|
Pre-tax book income
|
|
$
|
(53,762
|
)
|
|
$
|
917,106
|
|
Federal statutory rate
|
|
|
21
|
%
|
|
|
34
|
%
|
Income tax computed at U.S. federal statutory rate
|
|
|
(11,290
|
)
|
|
|
311,816
|
|
Non-deductible staff welfare
|
|
|
2,645
|
|
|
|
7,679
|
|
Foreign rate differential
|
|
|
2,645
|
|
|
|
(108,493
|
)
|
Change in valuation allowance
|
|
|
269,065
|
|
|
|
247,092
|
|
Total provision for income taxes
|
|
$
|
263,065
|
|
|
$
|
458,094
|
|
The
Company’s effective tax rate was -489.3% and 50.0% for the years ended June 30, 2018 and 2017, respectively.
The
provision for income taxes on income consists of the following for the years ended June 30, 2018 and 2017:
Provision
for income taxes consisted of:
|
|
For the Years Ended
|
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
Current provision:
|
|
|
|
|
|
|
Domestic
|
|
$
|
|
|
|
$
|
|
|
Foreign
|
|
|
263,111
|
|
|
|
460,009
|
|
Total current provision
|
|
|
263,111
|
|
|
|
460,009
|
|
Deferred provision:
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
(46
|
)
|
|
|
(1,915
|
)
|
Total deferred provision
|
|
|
(46
|
)
|
|
|
(1,915
|
)
|
Total provision for income taxes
|
|
$
|
263,065
|
|
|
$
|
458,094
|
|
Significant
components of deferred tax assets were as follows:
|
|
June 30,
2018
|
|
|
June 30,
2017
|
|
Deferred tax assets
|
|
|
|
|
|
|
Net operating loss carry forward
|
|
$
|
653,936
|
|
|
$
|
356,201
|
|
Allowance for doubtful accounts
|
|
|
13,962
|
|
|
|
10,702
|
|
Valuation allowance
|
|
|
(665,928
|
)
|
|
|
(364,979
|
)
|
Deferred tax assets, net
|
|
$
|
1,970
|
|
|
$
|
1,924
|
|
(b)
Uncertain tax positions
There
were no unrecognized tax benefits as of June 30, 2018, and 2017, respectively. Management does not anticipate any potential future
adjustments in the next twelve months which would result in a material change to its tax positions. For the years ended June 30,
2018, the company incurred and paid $205,747 penalties due to late payment of land use taxes and building taxes for previous years.
There was no interests and penalties arising from its tax payments for the years ended June 30, 2017.
NOTE
13 - EARNINGS PER SHARE
Basic
earnings per common share is computed by dividing net earnings applicable to common shareholders by the weighted-average number
of common shares outstanding during the period. When applicable, diluted earnings per common share is determined using the weighted-average
number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents, consisting
of shares that might be issued upon exercise of common stock options and warrants.
Potential
common shares issued are calculated using the treasury stock method, which recognizes the use of proceeds that could be obtained
upon the exercise of options and warrants in computing diluted earnings per share. It assumes that any proceeds would be used
to purchase common stock at the average market price of the common stock during the period.
FASB
ASC Topic 260, Earnings Per Share, requires a reconciliation of the numerator and denominator of the basic and diluted earnings
per share (EPS) computations.
For
the years ended June 30, 2018, and 2017, the Company does not have potential dilutive shares. The following table sets forth the
computation of basic and diluted net income per share:
|
|
For the Years Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
Net income from continuing operations attributable to China Health Industries Holdings
|
|
$
|
(316,827
|
)
|
|
$
|
459,012
|
|
Net income (loss) from discontinued operations attributable to China Health Industries Holdings
|
|
|
-
|
|
|
|
852,815
|
|
Net income/(loss) attributable to China Health Industries Holdings
|
|
$
|
(316,827
|
)
|
|
$
|
1,311,827
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing
operations per share Basic & diluted
|
|
$
|
(0.0048
|
)
|
|
$
|
0.0070
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss) from discontinued operations per share Basic & diluted
|
|
$
|
-
|
|
|
$
|
0.0131
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
Basic & diluted
|
|
|
65,539,737
|
|
|
|
65,676,997
|
|
NOTE
14 - COMMITMENTS AND CONTINGENCIES
The
Company’s assets are located in the PRC and revenues are derived from operations in the PRC.
In
terms of industry regulations and policies, the economy of the PRC has been transitioning from a planned economy to market oriented
economy. Although in recent years the Chinese government has implemented measures emphasizing the utilization of market forces
for economic reforms, the reduction of state ownership of productive assets and the establishment of sound corporate governance
in business enterprises, a substantial portion of productive assets in the PRC is still owned by the Chinese government. For example,
all land is state owned and leased to business entities or individuals through the government’s granting of Land Use Rights.
The granting process is typically based on government policies at the time of granting and can be lengthy and complex. This process
may adversely affect the Company’s future manufacturing expansions. The Chinese government also exercises significant control
over the PRC’s economic growth through the allocation of resources and providing preferential treatment to particular industries
or companies. Uncertainties may arise with changing of governmental policies and measures.
The
Company faces a number of risks and challenges not typically associated with companies in North America and Western Europe, since
its assets exist solely in the PRC, and its revenues are derived from its operations therein. The PRC is a developing country
with an early stage market economic system, overshadowed by the state. Its political and economic systems are very different from
the more developed countries and are in a state of change. The PRC also faces many social, economic and political challenges that
may produce major shocks, instabilities and even crises, in both its domestic arena and in its relationships with other countries,
including the United States. Such shocks, instabilities and crises may in turn significantly and negatively affect the Company’s
performance.
Since
the Company terminated its rental agreement on January 9, 2013, it had no rental commitment as of June 30, 2018.
NOTE
15 - MAJOR SUPPLIERS AND CUSTOMERS
For
the year ended June 30, 2018, the Company had two suppliers that in the aggregate accounted for approximately 88% of the Company’s
purchases for the continuing operations, with each supplier accounting for 78% and 10%, respectively. The Company had one supplier
that accounted for 78% of the Company’s purchases for the year ended June 30, 2017.
For
the year ended June 30, 2018, the Company had six customers that in the aggregate accounted for 84% of the Company’s total
sales for the continuing operations, with each customer accounting for 21%, 17%, 15%, 12%, 11% and 8%, respectively.
For
the year ended June 30, 2017, the Company had six customers that in the aggregate accounted for 69% of the Company’s total
sales for the continuing operations, with each customer accounting for 16%, 14%, 12%, 10%, 10% and 8%, respectively.
NOTE
16 - SEGMENT REPORTING
The
Company was organized into three main business segments based on the types of products being provided to customers: HLJ Huimeijia,
Humankind and others. Each of the three operating segments referenced above has separate and distinct general ledgers. The chief
operating decision maker (“CODM”) receives financial information, including revenue, gross margin, operating income,
and net income produced from the various general ledger systems to make decisions about allocating resources and assessing performance;
however, the principal measure of segment profitability or loss used by the CODM is net loss by segment.
The
following tables present summary information by segment for the years ended June 30, 2018 and 2017, respectively:
|
|
|
|
|
For
the Year Ended
June 30, 2018
|
|
|
|
|
|
|
|
|
For
the Year Ended
June 30, 2017
|
|
|
|
HLJ
|
|
|
|
|
|
|
|
|
|
|
|
HLJ
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
from
continuing
|
|
|
|
|
|
|
|
|
|
|
|
from
continuing
|
|
|
|
Huimeijia
|
|
|
Humankind
|
|
|
Others
|
|
|
operations
|
|
|
Huimeijia
|
|
|
Humankind
|
|
|
Others
|
|
|
operations
|
|
Revenues
|
|
$
|
78,686
|
|
|
$
|
6,476,253
|
|
|
$
|
-
|
|
|
$
|
6,554,939
|
|
|
$
|
162
|
|
|
$
|
6,371,390
|
|
|
$
|
-
|
|
|
$
|
6,371,552
|
|
Cost of revenues
|
|
|
267,084
|
|
|
|
4,012,551
|
|
|
|
-
|
|
|
|
4,279,635
|
|
|
|
67
|
|
|
|
4,068,880
|
|
|
|
-
|
|
|
|
4,068,947
|
|
Gross
profit
|
|
|
(188,398
|
)
|
|
|
2,463,702
|
|
|
|
-
|
|
|
|
2,275,304
|
|
|
|
95
|
|
|
|
2,302,510
|
|
|
|
-
|
|
|
|
2,302,605
|
|
Interest
income
|
|
|
181
|
|
|
|
110,410
|
|
|
|
-
|
|
|
|
110,591
|
|
|
|
167
|
|
|
|
146,502
|
|
|
|
-
|
|
|
|
146,669
|
|
Interest
expense
|
|
|
49,403
|
|
|
|
-
|
|
|
|
5
|
|
|
|
49,408
|
|
|
|
87,371
|
|
|
|
72,504
|
|
|
|
3
|
|
|
|
159,878
|
|
Depreciation
and amortization
|
|
|
35,899
|
|
|
|
459,936
|
|
|
|
-
|
|
|
|
495,835
|
|
|
|
93,595
|
|
|
|
550,789
|
|
|
|
-
|
|
|
|
644,384
|
|
Income
tax
|
|
|
-
|
|
|
|
263,065
|
|
|
|
-
|
|
|
|
263,065
|
|
|
|
-
|
|
|
|
458,094
|
|
|
|
-
|
|
|
|
458,094
|
|
Net
income (loss)
|
|
|
(866,056
|
)
|
|
|
789,196
|
|
|
|
(239,967
|
)
|
|
|
(316,827
|
)
|
|
|
(651,691
|
)
|
|
|
1,374,284
|
|
|
|
(263,581
|
)
|
|
|
459,012
|
|
Total
capital expenditures
|
|
|
18,692
|
|
|
|
50,912
|
|
|
|
-
|
|
|
|
69,604
|
|
|
|
1,084
|
|
|
|
180,019
|
|
|
|
-
|
|
|
|
181,103
|
|
Total
assets
|
|
$
|
3,469,831
|
|
|
$
|
39,462,373
|
|
|
$
|
365
|
|
|
$
|
42,932,569
|
|
|
$
|
3,349,890
|
|
|
$
|
38,352,081
|
|
|
$
|
1,007
|
|
|
$
|
41,702,978
|
|
NOTE
17 - SUBSEQUENT EVENTS
The
Company has evaluated subsequent events from the balance sheet date through the date the financial statements were issued and
determined that there are no additional items to disclose except the above-mentioned matters.