|
Item 1.
|
Financial Statements
|
CHINA HEALTH INDUSTRIES HOLDINGS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
|
|
September 30,
2018
|
|
|
June 30,
2018
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
31,940,188
|
|
|
$
|
32,614,910
|
|
Accounts receivable, net
|
|
|
2,053,953
|
|
|
|
1,455,433
|
|
Inventory
|
|
|
666,972
|
|
|
|
452,397
|
|
Other receivables, net
|
|
|
29,596
|
|
|
|
30,611
|
|
Advances to suppliers
|
|
|
20,802
|
|
|
|
94,749
|
|
Prepayments
|
|
|
4,930
|
|
|
|
20,462
|
|
Total current assets
|
|
|
34,716,441
|
|
|
|
34,668,562
|
|
|
|
|
|
|
|
|
|
|
Property, plants and equipment, net
|
|
|
3,614,907
|
|
|
|
3,724,490
|
|
Intangible assets, net
|
|
|
3,133,420
|
|
|
|
3,372,501
|
|
Construction in progress
|
|
|
1,159,249
|
|
|
|
1,134,834
|
|
Prepayments – Non-Current
|
|
|
24,266
|
|
|
|
30,212
|
|
Deferred tax assets
|
|
|
2,235
|
|
|
|
1,970
|
|
Total assets
|
|
$
|
42,650,518
|
|
|
$
|
42,932,569
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
457,368
|
|
|
$
|
400,109
|
|
Other payables
|
|
|
82,013
|
|
|
|
67,800
|
|
Advances from customers
|
|
|
158,051
|
|
|
|
163,459
|
|
Related party debts
|
|
|
6,451,333
|
|
|
|
6,393,730
|
|
Wages payable
|
|
|
258,006
|
|
|
|
234,668
|
|
Taxes payable
|
|
|
665,280
|
|
|
|
428,423
|
|
Total current liabilities
|
|
|
8,072,051
|
|
|
|
7,688,189
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
Common stock, ($0.0001 par value per share, 300,000,000 shares authorized, 65,539,737 and 65,539,737 shares issued and outstanding as of September 30, 2018 and June 30, 2018, respectively)
|
|
|
6,554
|
|
|
|
6,554
|
|
Additional paid-in capital
|
|
|
521,987
|
|
|
|
521,987
|
|
Accumulated other comprehensive income
|
|
|
(522,825
|
)
|
|
|
775,302
|
|
Statutory reserves
|
|
|
38,679
|
|
|
|
38,679
|
|
Retained earnings
|
|
|
34,534,072
|
|
|
|
33,901,858
|
|
Total stockholders' equity
|
|
|
34,578,467
|
|
|
|
35,244,380
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
42,650,518
|
|
|
$
|
42,932,569
|
|
The accompanying notes are an integral part
of these condensed consolidated financial statements.
CHINA HEALTH INDUSTRIES HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
|
|
For the Three Months Ended
|
|
|
|
September 30,
2018
|
|
|
September 30,
2017
|
|
|
|
|
|
|
|
|
REVENUE
|
|
$
|
2,141,825
|
|
|
$
|
1,515,967
|
|
|
|
|
|
|
|
|
|
|
COST OF GOODS SOLD
|
|
|
473,741
|
|
|
|
979,633
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT
|
|
|
1,668,084
|
|
|
|
536,334
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
613,992
|
|
|
|
557,852
|
|
Depreciation and amortization expenses
|
|
|
141,522
|
|
|
|
141,854
|
|
Total operating expenses
|
|
|
755,514
|
|
|
|
699,706
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) FROM OPERATIONS
|
|
|
912,570
|
|
|
|
(163,372
|
)
|
|
|
|
|
|
|
|
|
|
OTHER INCOME/(EXPENSES)
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
28,126
|
|
|
|
24,340
|
|
Interest expenses
|
|
|
(2
|
)
|
|
|
(23,340
|
)
|
Other income/(expenses), net
|
|
|
(376
|
)
|
|
|
35,991
|
|
Bank charges
|
|
|
(435
|
)
|
|
|
(462
|
)
|
Exchange gain/(loss)
|
|
|
-
|
|
|
|
(12,675
|
)
|
Total other income, net
|
|
|
27,313
|
|
|
|
23,854
|
|
|
|
|
|
|
|
|
|
|
INCOME/(LOSS) BEFORE INCOME TAXES
|
|
|
939,883
|
|
|
|
(139,518
|
)
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
(307,669
|
)
|
|
|
(39,652
|
)
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
|
632,214
|
|
|
|
(179,170
|
)
|
|
|
|
|
|
|
|
|
|
Foreign currency translation income (loss)
|
|
|
(1,298,123
|
)
|
|
|
524,010
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE INCOME (LOSS)
|
|
$
|
(665,909
|
)
|
|
$
|
344,840
|
|
Basic & diluted income (loss) per share
|
|
$
|
0.0096
|
|
|
$
|
(0.0027
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
Basic & diluted weighted average shares outstanding
|
|
|
65,539,737
|
|
|
|
65,539,737
|
|
The accompanying notes are an integral part
of these condensed consolidated financial statements.
CHINA HEALTH INDUSTRIES HOLDINGS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(UNAUDITED)
|
|
For the Three Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
Net income (loss) from operations
|
|
$
|
632,214
|
|
|
$
|
(179,170
|
)
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization expenses
|
|
|
193,804
|
|
|
|
192,230
|
|
Provisions for doubtful accounts
|
|
|
77
|
|
|
|
(3,225
|
)
|
Deferred taxes loss/(gain)
|
|
|
(340
|
)
|
|
|
-
|
|
Changes in operating assets and liabilities,
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(657,334
|
)
|
|
|
452,203
|
|
Other receivables
|
|
|
(95
|
)
|
|
|
1,068
|
|
Inventory
|
|
|
(233,098
|
)
|
|
|
(86,404
|
)
|
Advances to suppliers and prepaid expenses
|
|
|
91,004
|
|
|
|
35,866
|
|
Accounts payables and accrued expenses
|
|
|
72,328
|
|
|
|
(37,855
|
)
|
Advances from customers and other payables
|
|
|
17,333
|
|
|
|
2,381
|
|
Amounts due to related parties
|
|
|
274,512
|
|
|
|
116,491
|
|
Wages payable
|
|
|
32,126
|
|
|
|
(31,755
|
)
|
Taxes payable
|
|
|
250,981
|
|
|
|
(72,953
|
)
|
Net cash provided by operating activities
|
|
|
673,512
|
|
|
|
388,877
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
Withdraw in short term investments
|
|
|
-
|
|
|
|
8,997,661
|
|
Purchases of property, plants and equipment
|
|
|
(101,072
|
)
|
|
|
(5,358
|
)
|
Expenditures in construction in progress
|
|
|
(66,088
|
)
|
|
|
(4,613
|
)
|
Proceeds from short term investments
|
|
|
-
|
|
|
|
899,766
|
|
Net cash provided by (used in) investing activities
|
|
|
(167,160
|
)
|
|
|
9,887,456
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
Proceeds from related party debts
|
|
|
-
|
|
|
|
85,085
|
|
Net cash provided by financing activities
|
|
|
-
|
|
|
|
85,085
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(1,181,074
|
)
|
|
|
433,815
|
|
|
|
|
|
|
|
|
|
|
Net increase/(decrease) in cash and cash equivalents
|
|
|
(674,722
|
)
|
|
|
10,795,233
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning balance
|
|
|
32,614,910
|
|
|
|
21,197,448
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning balance
|
|
|
31,940,188
|
|
|
|
31,992,681
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
91,286
|
|
|
$
|
151,318
|
|
Cash paid for interest expenses
|
|
$
|
-
|
|
|
$
|
23,339
|
|
|
|
|
|
|
|
|
|
|
Non-cash activities:
|
|
|
|
|
|
|
|
|
Loan from related party for the construction of a facility
|
|
$
|
516,923
|
|
|
$
|
457,381
|
|
The accompanying notes are an integral part
of these condensed consolidated financial statements.
CHINA HEALTH INDUSTRIES HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - ORGANIZATION AND BUSINESS BACKGROUND
China Health Industries Holdings, Inc.
(“China Health US”) was incorporated in the State of Arizona on July 11, 1996, and is the successor to the business
known as Arizona Mist, Inc., which was incorporated in 1989. On May 9, 2005, China Health US entered into a stock purchase agreement
and share exchange (effecting a reverse merger) with Edmonds 6, Inc., a Delaware corporation (“Edmonds 6”), and changed
its name to Universal Fog, Inc. Pursuant to this agreement, Universal Fog, Inc. (which has been in continuous operation since 1996)
became a wholly-owned subsidiary of Edmonds 6.
China Health Industries Holdings Limited
(“China Health HK”) was incorporated on July 20, 2007, in Hong Kong, under the Companies Ordinance as a limited liability
company. China Health HK was formed for the purpose of seeking and consummating a merger or acquisition with a business entity
organized as a private corporation, partnership, or sole proprietorship, as defined by Financial Accounting Standards Board (“FASB”)
ACS Topic 915.
Harbin Humankind Biology Technology Co.,
Limited (“Humankind”) was incorporated in Harbin City, Heilongjiang Province, the People’s Republic of China
(the “PRC”), on December 14, 2003, as a limited liability company under the PRC Company Law. Humankind is engaged in
the manufacturing and sale of health products.
On August 20, 2007, the sole shareholder
of China Health HK entered into a share purchase agreement (the “Share Purchase Agreement”) with the owners of Humankind.
Pursuant to the Share Purchase Agreement, China Health HK purchased 100% of the equity interest in Humankind for cash consideration
of $60,408 (the “Share Purchase”). Subsequent to the completion of the Share Purchase, Humankind became a wholly-owned
subsidiary of China Health HK. 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 and the Share Purchase was accounted for as a “reverse merger”. Consequently, the assets, liabilities and historical
operations that were reflected in the financial statements for the periods prior to the Share Purchase are those of Humankind and
have been recorded at historical cost basis. After the completion of the Share Purchase, China Health 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 onward.
On October 14, 2008, Humankind formed a
99% owned subsidiary, Harbin Huimeijia Medicine Company (“Huimeijia”), in the PRC. Huimeijia’s primary business
is the manufacture and distribution of pharmaceuticals. Mr. Xin Sun, the majority owner of China Health US, owns 1% of Huimeijia.
Huimeijia is consolidated in the consolidated financial statements of China Health HK.
On December 31, 2008, China Health HK entered
into a reverse merger with Universal Fog, Inc. (the “Transaction”). China Health HK was the acquirer in the Transaction,
and the Transaction has been treated as a recapitalization of China Health US. Following the Transaction and a subsequent 20:1
reverse stock split, Mr. Xin Sun owned 61,203,088 shares of common stock of China Health US, representing 98.3% of the 62,234,737
total outstanding shares of common stock. On April 7, 2009, Mr. Sun transferred 28,200,000 shares of common stock to 296 individuals,
leaving him with 33,003,088 shares of common stock of China Health US, or approximately 53.03% of the total outstanding shares
of common stock. Universal Fog, Inc. changed its name to China Health Industries Holdings, Inc. on February 19, 2009.
On November 22, 2013, Humankind completed
the acquisition of Heilongjiang Huimeijia Pharmaceutical Co., Ltd. (“HLJ Huimeijia”) for a total purchase price of
$16,339,869 (RMB100,000,000). HLJ Huimeijia was formed on October 30, 2003, in the PRC and is engaged in the manufacturing and
distribution of tinctures, ointments, rub-in therapeutic pastes, topical solutions, suppositories, enemas, orally-administered
liquids, and liniments, including traditional Chinese medicine extractions. HLJ Huimeijia’s predecessor is Heilongjiang Xue
Du Pharmaceutical Co., Ltd., which established its brand by supplying high quality medical products. HLJ Huimeijia is categorized
as a “high and new technology” enterprise by the Science Technology Department of Heilongjiang Province. HLJ Huimeijia
has 21 products that have been approved by, and have received approval numbers issued by, the China State Food and Drug Administration
(the “CFDA”). In addition, HLJ Huimeijia is the holder of one patent for a utility model, five patents for external
design, and three trademarks in the PRC, including the Chinese brand name “Xue Du”, which has an established reputation
among customers in the northeastern PRC.
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, which was 99% owned by Humankind and 1% owned by Mr. Xin Sun. Pursuant to the
Original Agreement, Humankind and Mr. Xin Sun (the “Equity Holders”), sold their respective equity interests in Huimeijia
to Xiuzheng Pharmacy.
On February 9, 2015, the four parties (i.e.
Humankind, Xiuzheng Pharmacy, Mr. Xin Sun and Huimeijia) 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. Pursuant to the Agreement, 40% of the Purchase Price is due within 10 business days after the signing of
the Agreement; 40% of the Purchase Price is 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 of Huimeijia; 15% of the
Purchase Price is due within 10 business days after the transfer of all of the Assets is approved by the 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 the 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, because the Company
has completed changes in its business registration, Xiuzheng Pharmacy has obtained a business license to Huimeijia that was issued
by the local State Administration of Industry and Commerce in Harbin (“Harbin SAIC”) that reflects the recording of
the ownership of Huimeijia as being held by Xiuzheng Pharmacy and 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 of the drug licenses to the Buyer and the payment of the remainder of the Purchase
Price to the Equity Holders are still pending.
China Health US, China Health HK, Humankind,
Huimeijia, and HLJ Huimeijia are collectively referred to herein as the “Company”.
As of September 30, 2018, the Company’s
corporate structure was as follows:
Note 2 - SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
This summary of the Company’s significant
accounting policies is presented to assist in understanding the Company’s financial statements. The financial statements
and notes are representations of the Company’s management (“Management”), which is responsible for the integrity
and objectivity of the financial statements and notes. These accounting policies conform to generally accepted accounting principles
in the United States ("US GAAP") and have been consistently applied in the preparation of the unaudited condensed consolidated
financial statements.
The accompanying unaudited condensed consolidated
financial statements have been prepared by the Company without audit pursuant to the rules and regulations of the U.S. Securities
and Exchange Commission (“SEC”). Certain information and disclosures normally included in financial statements prepared
in accordance with US GAAP have been condensed or omitted as allowed by such rules and regulations, and Management believes that
the disclosures are sufficient so that the information presented is not misleading. These unaudited condensed consolidated financial
statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s
Annual Report on Form 10-K for the year ended June 30, 2018. These unaudited condensed consolidated financial statements include
all adjustments which, in the opinion of Management, are necessary for a fair presentation of the financial position and the results
of operations of the Company. All such adjustments are of a normal and recurring nature. The results of operations of the Company
for the three months ended September 30, 2018 may not be indicative of results that may be expected for the year ended June 30,
2019.
Principles of Consolidation
The accompanying unaudited condensed consolidated
financial statements include China Health US and its three subsidiary companies, namely 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 were and
are under the common control of Mr. Xin Sun, the CEO of China Health US, before and after the date of transfer. Humankind’s
accounting policy adopted the guidance in ASC 805-50-05-5 for the transfer of net assets between entities under common control
to apply an accounting method similar to the pooling-of-interests method. Under this method, the financial statements of Humankind
shall report results of operations for the period in which the transfer occurs as though the transfer of net assets had occurred
at the beginning of the period. Results of operations for that period will thus comprise both those of the previously separate
entities combined from the beginning of the period to the date the transfer is completed and those of the combined operations from
that date to the end of the period. Similarly, Humankind shall present statements of financial position and other financial information
as of the beginning of the period as though the assets and liabilities had been transferred at that date. Financial statements
and financial information of Humankind presented for prior years shall also be retrospectively adjusted to furnish comparative
information.
Segment Reporting
FASB Accounting Standard Codification (“ASC”)
Topic 280, “Segment Reporting”, established standards for reporting information about operating segments on a basis
consistent with a company's internal organizational structure, as well as information about geographical areas, business segments,
and major customers in financial statements for details on the Company's business segments. The Company has three reportable operating
segments: Humankind, HLJ Huimeijia, and “Others”. The segments are grouped based on the types of products provided.
Fair Value of Financial Instruments
The provisions of FASB ASC Topic 820 accounting
guidance that apply to the Company require all entities to disclose the fair value of financial instruments, including both assets
and liabilities recognized and those not recognized on the balance sheets, for which it is practicable to estimate fair value,
and defines the fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction
between willing parties.
Fair Value Measurements
FASB ASC Topic 820, “Fair Value Measurements
and Disclosures”, clarifies the definition of fair value for financial reporting, establishes a framework for measuring fair
value, and requires additional disclosures about the use of fair value measurements.
Various inputs are considered when determining
the fair value of the 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 a 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 discretion of Management. For other financial instruments, pricing inputs are less observable
in the market and may require judgment of Management.
Translation of Foreign Currencies
Humankind and HLJ Huimeijia maintain their
books and accounting records in the PRC currency “Renminbi” (“RMB”), which has been determined to be the
Company’s functional currency.
Transactions denominated in currencies
other than RMB are translated into RMB at the exchange rates prevailing on the dates of the respective transactions, as quoted
by the Federal Reserve Board. Foreign currency exchange gains and losses resulting from these transactions are included in operations.
Humankind and HLJ Huimeijia’s financial
statements are translated into the reporting currency, the United States Dollar (“USD”). Assets and liabilities of
the aforementioned entities are translated at the prevailing exchange rate at the end date of each reporting period. Contributed
capital accounts are translated using the historical rate of exchange when capital is injected. Income and expense accounts are
translated at the average rate of exchange during the reporting period. Translation adjustments resulting from the translation
of these financial statements are reflected as accumulated other comprehensive income in shareholders’ equity and non-controlling
interests.
Statement of Cash Flows
In accordance with Statement FASB ASC Topic
230, “Statement of Cash Flows”, cash flow from the Company's operations is calculated based upon the local currencies
and translated to the reporting currency using an average foreign exchange rate for the reporting period. As a result, amounts
related to assets and liabilities reported in the statement of cash flows will not necessarily be the same as the corresponding
balances on the balance sheet.
Use of Estimates and Assumptions
The preparation of financial statements
in conformity with US GAAP requires Management to make estimates and judgments that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities on the date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Management 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 life 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 Management 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 September 30, 2018 and June 30, 2018,
the Company’s uninsured bank balances were mainly maintained at financial institutions located in the PRC and Hong Kong.
The uninsured bank balances were $31,940,188 and $32,614,910 as of September 30, 2018 and June 30, 2018, respectively. The Company
had no insured bank balances as of September 30, 2018 and June 30, 2018.
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) days. As of September 30, 2018 and June 30, 2018, the
balances of accounts receivable were $2,109,203 and $1,512,678, 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. The Company has determined that
an allowance of $55,250 and $57,245 from the continuing operations of the Company was appropriate as of September 30, 2018 and
June 30, 2018, respectively.
Advances to Suppliers
The Company periodically makes advances
to certain vendors for purchases of raw materials or to service providers for services relating to construction plans for its plants,
equipment and production lines for GMP upgrading, and records these payments as advances to suppliers. As of September 30, 2018
and June 30, 2018, advances to suppliers amounted to $20,802 and $94,749, respectively.
Inventory
Inventory consists of raw materials, work
in progress, and finished goods or manufactured products.
Inventory is stated at the lower of either
cost or market value and consists of materials, labor and overhead. HLJ Huimeijia uses the weighted average method for inventory
valuation. The other subsidiaries of the Company use the first-in, first-out (“FIFO”) method for inventory valuation.
Overhead costs included in finished goods include direct labor costs and other costs directly applicable to the manufacturing process.
The Company evaluates inventory for excess, slow moving, and obsolete inventory, as well as inventory the value of which is in
excess of its net realizable value. This evaluation includes analysis of sales levels by product and projections of future demand.
If future demand or market conditions are less favorable than the 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 in the amounts
of $154,591 and $160,394 were provided for as of September 30, 2018 and June 30, 2018, respectively.
Impairment of Long-Lived Assets
The Company’s long-lived assets and
other assets are reviewed for impairment in accordance with the guidance of the FASB ASC Topic 360-10, “Property, Plant,
and Equipment”, and FASB ASC Topic 205, “Presentation of Financial Statements”. The Company tests for impairment
losses on long-lived assets used in operations whenever events or changes in circumstances indicate that the carrying amount of
the asset may not be recoverable. Recoverability of an asset to be held and used is measured by a comparison of the carrying amount
of the asset to the future undiscounted cash flows expected to be generated by the asset. If such asset is considered to be impaired,
the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. Impairment
evaluations involve Management’s estimates on asset useful life and future cash flows. Actual useful life 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 September 30, 2018 and June 30, 2018, the
Company had 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, Plants and Equipment
Property, plants and equipment are carried
at the lower of either cost or fair value. Maintenance, repairs and minor renewals are expensed as incurred, and major renewals
and improvements that extend the life or increases 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 life applied are:
Buildings, Warehouses 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
life 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’s estimates of asset useful life and future cash flows. Significant judgment of
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, the Company could
incur additional impairment charges in a future period. Based on such evaluations, there was no impairment recorded for intangible
assets, for the three months ended September 30, 2018 and 2017.
Construction in Progress
Construction in progress represents the
costs incurred in connection with the construction of buildings or new additions to the Company’s plant facilities. Costs
classified as construction in progress include all costs of obtaining the asset and bringing it to the location and condition necessary
for its intended use. No depreciation is provided for construction in progress until such time as the assets are completed and
are placed into service.
The Company reviews the carrying value
of construction in progress for impairment whenever events and circumstances indicate that the carrying value of an asset may not
be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted
expected future cash flows are less than the carrying value of the assets, an impairment loss is recognized equal to an amount
by which the carrying value exceeds the fair value of the assets. The factors considered by Management in performing this assessment
include current operating results, trends and prospects, the manner in which the property is used, and the effects of obsolescence,
demand, competition, and other economic factors. Based on this assessment, there was no impairments recorded for construction in
progress, for the three months ended September 30, 2018 and 2017.
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 exists, and collection of the sales proceeds
is reasonably assured, all of which generally occur upon shipment of goods to customers. The majority of the 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 three months ended September 30, 2018 and 2017.
Cost of Goods Sold
Cost of goods sold consists primarily of
the costs of raw materials, freight charges, direct labor, depreciation of plants and machinery, warehousing and overhead costs
associated with the manufacturing process, and commission expenses.
Income Taxes
The Company has adopted FASB ASC Topic
740, “Income Taxes”, which requires the recognition of deferred tax assets and liabilities for the expected future
tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income
taxes are recognized for the tax consequences in future years based on the differences between the tax bases of assets and liabilities
and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods
in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred
tax assets to the amount expected to be realized.
In July 2006, the FASB issued FIN 48(ASC
740-10), “Accounting for Uncertainty in Income Taxes — An Interpretation of FASB Statement No. 109 (ASC 740)”,
which requires income tax positions to meet a more-likely-than-not recognition threshold to be recognized in the financial statements.
Under FIN 48(ASC 740-10), tax positions that previously failed to meet the more-likely-than-not threshold should be recognized
in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no
longer meet the more-likely-than-not threshold should be derecognized in the first subsequent financial reporting period in which
that threshold is no longer met.
As a result of the implementation of FIN
48 (ASC 740-10), the Company undertook a comprehensive review of its portfolio of tax positions in accordance with recognition
standards established by FIN 48 (ASC 740-10). The Company recognized no material adjustments to liabilities or stockholders’
equity as a result of the implementation. The adoption of FIN 48 did not have a material impact on the 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 the
PRC Concerning Income Tax on Enterprises promulgated by the PRC (the “EIT Law”), income tax is payable by enterprises
at a rate of 25% of their taxable income.
Value Added Tax
The Provisional Regulations of the PRC
Concerning Value Added Tax promulgated by the State Council came into effect on January 1, 1994. Under these regulations and the
Implementing Rules of the Provisional Regulations of the PRC Concerning Value Added Tax, value added tax (“VAT”) is
imposed on goods sold in, or imported into, the PRC, and on processing, repair and replacement services provided within the PRC.
VAT payable in the PRC is charged on an
aggregated basis at a rate of 13% or 16% (depending on the type of goods involved) on the full price collected for the goods sold
or, in the case of taxable services provided, at a rate of 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 September 30, 2018 and June
30, 2018, VAT payables were $160,533 and $132,439, respectively.
Sales-Related Taxes
Pursuant to the tax law and regulations
of the PRC, the Company is obligated to pay 7% and 5% of the annual aggregate VAT paid by the Company as taxes for the purposes
of maintaining and building cities and educational facilities, which fees are included as sales-related taxes. Sales-related taxes
are recorded when sales revenue is recognized. Sales-related taxes were $33,157 and $29,644 for the three months ended September
30, 2018 and 2017, respectively.
Concentrations of Business and Credit Risks
All of the Company’s manufacturing
takes place in the PRC. There can be no assurance that the Company will be able to successfully continue to manufacture its products
and failure to do so would have a material adverse effect on the Company’s financial position, results of operations, and
cash flows. Also, the success of the Company’s operations is subject to numerous contingencies, some of which are beyond
Management’s control. These contingencies include general economic conditions, prices of raw materials, competition, governmental
and political conditions, and changes in regulations. 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 the PRC, which
may give rise to significant foreign currency risks from fluctuations and the degree of volatility of foreign exchange rates between
U.S. dollars and RMB. The results of operations denominated in foreign currency are translated at the average rate of exchange
during the reporting periods.
Earnings Per Share
Basic earnings per common share are computed
by dividing net earnings applicable to common shareholders by the weighted-average number of common shares outstanding during the
period. When applicable, diluted earnings per common share is determined using the weighted-average number of common shares outstanding
during the period, adjusted for the dilutive effect of common stock equivalents, consisting of shares that might be issued upon
exercise of common stock options and warrants. For the three months ended September 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 the Company in its 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). The Company is currently assessing the
impact to its consolidated financial statements, and has 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. The Company will adopt the new standard beginning on July 1, 2018, using the modified retrospective transition method. The
Company finalized its analysis and the adoption of this guidance is not expected to have a material impact on the Company’s
consolidated financial statements and its internal controls over financial reporting.
Except for the ASU above, in the period
from January 1, 2018 to September 30, 2018, the FASB has issued ASU No. 2018-01 through ASU 2018-015, which are not expected to
have a material impact on the Company’s consolidated financial statements upon adoption.
NOTE 3 - ACCOUNTS RECEIVABLE
The Company’s accounts receivable
were $2,053,953 and $1,455,433, net of allowances for doubtful accounts amounting to $55,250 and $57,245, as of September 30, 2018
and June 30, 2018, respectively.
NOTE 4 - INVENTORY
Inventory from the continuing operations of the Company consisted
of following:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2018
|
|
Raw Materials
|
|
$
|
354,197
|
|
|
$
|
219,735
|
|
Supplies and Packing Materials
|
|
|
88,186
|
|
|
|
132,329
|
|
Work-in-Progress
|
|
|
19,232
|
|
|
|
22,083
|
|
Finished Goods
|
|
|
205,357
|
|
|
|
78,250
|
|
Total
|
|
$
|
666,972
|
|
|
$
|
452,397
|
|
The inventory allowance in the amounts
of $154,591 and $160,394 were provided for as of September 30, 2018 and June 30, 2018, respectively.
NOTE 5 - CONSTRUCTION IN PROGRESS
Construction in progress from the continuing operations of the
Company consisted of the following:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2018
|
|
Plant - HLJ Huimeijia
|
|
$
|
1,132,066
|
|
|
$
|
1,116,652
|
|
Factory Maintenance - HMK
|
|
|
27,183
|
|
|
|
18,182
|
|
Total
|
|
$
|
1,159,249
|
|
|
$
|
1,134,834
|
|
On April 6, 2012, HLJ Huimeijia entered
into an agreement with a contractor for construction of the HLJ Huimeijia plant. The estimated total cost of construction was approximately
$1.86 million (RMB 12,800,000), and construction was anticipated to be completed by December 2016. As of Sep 30, 2018, approximately
61% of construction had been completed and $1,132,066 (RMB7,775,387) has been recorded as a cost of construction in progress.
NOTE 6 - PROPERTY, PLANTS AND EQUIPMENT
Property, plants and equipment consisted of the following:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2018
|
|
Building, Warehouses and Improvements
|
|
$
|
3,361,702
|
|
|
$
|
3,487,904
|
|
Machinery and Equipment
|
|
|
1,626,089
|
|
|
|
1,589,195
|
|
Office Equipment
|
|
|
75,067
|
|
|
|
71,927
|
|
Vehicles
|
|
|
202,171
|
|
|
|
209,760
|
|
Others
|
|
|
909,975
|
|
|
|
944,138
|
|
Less: Accumulated Depreciation
|
|
|
(2,560,097
|
)
|
|
|
(2,578,434
|
)
|
Total
|
|
$
|
3,614,907
|
|
|
$
|
3,724,490
|
|
Depreciation expenses was $75,657 and $109,310
for the three months ended September 30, 2018 and 2017, respectively. Depreciation expenses charged to operations was $23,375 and
$82,884 for the three months ended September 30, 2018 and 2017, respectively. Depreciation expenses charged to cost of goods sold
was $52,282 and $26,426 for the three months ended September 30, 2018 and 2017, respectively.
NOTE 7 - INTANGIBLE ASSETS
The following is a summary of intangible assets from the continuing
operations of the Company:
|
|
September 30,
2018
|
|
|
June 30,
2018
|
|
Land Use Rights – Humankind
|
|
$
|
922,786
|
|
|
$
|
957,428
|
|
Health Supplement Product Patents – Humankind
|
|
|
4,367,883
|
|
|
|
4,531,858
|
|
Pharmaceutical Patents - HLJ Huimeijia
|
|
|
380,613
|
|
|
|
394,902
|
|
Land Use Rights - HLJ Huimeijia
|
|
|
631,172
|
|
|
|
654,867
|
|
Less: Accumulated Amortization
|
|
|
(3,169,034
|
)
|
|
|
(3,166,554
|
)
|
Total
|
|
$
|
3,133,420
|
|
|
$
|
3,372,501
|
|
All land in the PRC belongs to the government
of the PRC. Enterprises and individuals can pay the PRC government a fee to obtain the right to use a piece of land for commercial
purposes or residential purposes for an initial period of 50 years or 70 years. These land use rights can be sold, purchased, and
exchanged in the market. The successive owner of the land use right will have the right to use the land for the time remaining
on the initial period.
Amortization expenses was $118,147 and
$69
,
917 for the three months ended September 30, 2018 and 2017,
respectively.
NOTE 8 - RELATED PARTY DEBTS
Related party debts, which represent temporary
short-term loans from Mr. Xin Sun and Mr. Kai Sun, consisted of the following:
|
|
September 30,
2018
|
|
|
June 30,
2018
|
|
Mr. Xin Sun
|
|
$
|
6,417,287
|
|
|
$
|
6,358,406
|
|
Mr. Kai Sun
|
|
|
34,046
|
|
|
|
35,324
|
|
Total
|
|
$
|
6,451,333
|
|
|
$
|
6,393,730
|
|
These loans are unsecured, 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 9 - INCOME TAXES
(a) Corporate income taxes
United States
China Health US was organized in the United
States. China Health US had no taxable income for US income tax purposes for the three months ended September 30, 2018 and 2017.
As of September 30, 2018, China Health US had a net operating loss carry forward for United States income tax purposes. Net operating
loss carry forwards are available to reduce future years’ taxable income. Management believes that the realization of the
benefits from these losses appears uncertain due to the Company’s operating history and the continued losses of its US entity.
Accordingly, the Company has provided a 100% valuation allowance on the deferred tax asset to reduce the asset to zero. There were
no changes in the valuation allowance for the three months ended September 30, 2018 and 2017. Management reviews this valuation
allowance periodically and makes adjustments accordingly.
Hong Kong
China Health HK was incorporated in Hong
Kong and is subject to Hong Kong taxation on its activities conducted in Hong Kong and income arising in or derived from Hong Kong.
No provision for income taxes have been made because China Health HK had no taxable income in Hong Kong.
People’s Republic of China
Under the EIT Law, the standard EIT rate
is 25%. The PRC subsidiaries of the Company are subject to PRC income taxes on an entity basis on income arising in or derived
from the tax jurisdiction in which they operate.
The provision for income taxes from the
continuing operations of the Company consisted of the following for the three months ended September 30, 2018 and 2017:
|
|
For the Three Months Ended
|
|
|
|
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
Current provision:
|
|
|
|
|
|
|
USA
|
|
$
|
-
|
|
|
$
|
-
|
|
PRC
|
|
|
307,669
|
|
|
|
39,652
|
|
Total current provision
|
|
|
307,669
|
|
|
|
39,652
|
|
Deferred provision:
|
|
|
|
|
|
|
|
|
USA
|
|
|
-
|
|
|
|
-
|
|
PRC
|
|
|
-
|
|
|
|
-
|
|
Total deferred provision
|
|
|
-
|
|
|
|
-
|
|
Total provision for income taxes
|
|
$
|
307,669
|
|
|
$
|
39,652
|
|
Significant components of deferred tax
assets from the continuing operations of the Company were as follows:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2018
|
|
Deferred tax assets
|
|
|
|
|
|
|
Net operating loss carry forward
|
|
$
|
660,269
|
|
|
$
|
653,936
|
|
Allowances for doubtful accounts
|
|
|
13,813
|
|
|
|
13,962
|
|
Valuation allowance
|
|
|
(671,847
|
)
|
|
|
(665,928
|
)
|
Total
|
|
$
|
2,235
|
|
|
$
|
1,970
|
|
(b) Uncertain tax positions
There were no unrecognized tax benefits
as of September 30, 2018 and June 30, 2018. 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 three months ended September 30, 2018 and 2017, the
Company did not incur any interest or penalties arising from its tax payments.
NOTE 10 - EARNINGS/(LOSS) 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 dilutive earnings per share. It assumes that any proceeds would be used to purchase common stock at the average of
the 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 three months ended September 30,
2018 and 2017, the Company did not have potential dilutive shares. The following table sets forth the computation of basic and
diluted net income per share:
|
|
For the Three Months Ended
|
|
|
|
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Net income/(loss) attributable to China Health Industries Holdings
|
|
$
|
632,214
|
|
|
$
|
(179,170
|
)
|
|
|
|
|
|
|
|
|
|
Net income/(loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss) from continuing operation per share Basic &
diluted
|
|
|
0.0096
|
|
|
|
(0.0027
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
Basic & diluted
|
|
$
|
65,539,737
|
|
|
$
|
65,539,737
|
|
NOTE 11 - 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 a market oriented economy. Although in recent years the
PRC government has implemented measures emphasizing the utilization of market forces for economic reforms, the reduction of state
ownership of productive assets and the establishment of sound corporate governance in business enterprises, a substantial portion
of productive assets in the PRC is still owned by the PRC government. For example, all land is state owned and leased to business
entities or individuals through the PRC 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 PRC 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 or Western Europe, because its assets exist solely in the PRC,
and its revenues are derived from its operations therein. The PRC is a developing country with an early stage market economic system,
which is overshadowed by the state. Its political and economic systems are very different from the more developed countries and
are in a state of change. The PRC also faces many social, economic, and political challenges that may produce major shocks, instabilities,
and even crises, in both its domestic arena and in its relationships with other countries, including the United States. Such shocks,
instabilities, and crises may in turn significantly and negatively affect the Company’s performance.
The Company had no rental commitments as
of September 30, 2018.
NOTE 12 - MAJOR SUPPLIERS AND CUSTOMERS
For the three months ended September 30,
2018, the Company had three suppliers that in the aggregate accounted for 86% of the Company’s purchases for continuing operations,
with each supplier accounting for 37%, 36%, and 13%, respectively.
For the three months ended September 30,
2017, the Company had two suppliers that accounted for 88% of the Company’s purchases.
For the three months ended September 30,
2018, the Company had six customers that in the aggregate accounted for 84% of the Company’s total sales for continuing operations,
with each customer accounting for 21%, 17%, 15%, 12%, 11%, and 8%, respectively.
For the three months ended September 30,
2017, the Company had six customers that in the aggregate accounted for 67% of the Company’s total sales for continuing operations,
with each customer accounting for 17%, 13%, 12%, 9%, 9%, and 7%, respectively.
NOTE 13 - SEGMENT REPORTING
The Company is organized into the following
three main business segments based on the types of products being provided to customers: HLJ Huimeijia, Humankind, and “Others”.
Each of the three aforementioned operating segments has separate and distinct general ledgers. The chief operating decision maker
(“CODM”) receives financial information, including information regarding revenue, gross margin, operating income, and
net income, from the various general ledger systems to make decisions about allocating resources and assessing performance; however,
the principal measure of segment profitability or loss used by the CODM is net loss by segment.
The following tables present summary information
by segment for the three months ended September 30, 2018 and 2017, respectively:
|
|
For the Three Months Ended
September 30, 2018
|
|
|
For the Three Months Ended
September 30, 2017
|
|
|
|
HLJ
|
|
|
|
|
|
|
|
|
|
|
|
HLJ
|
|
|
|
|
|
|
|
|
|
|
|
|
Huimeijia
|
|
|
Humankind
|
|
|
Others
|
|
|
Consolidated
|
|
|
Huimeijia
|
|
|
Humankind
|
|
|
Others
|
|
|
Consolidated
|
|
Revenues
|
|
$
|
16,317
|
|
|
$
|
2,125,508
|
|
|
$
|
-
|
|
|
$
|
2,141,825
|
|
|
$
|
-
|
|
|
$
|
1,515,967
|
|
|
$
|
-
|
|
|
$
|
1,515,967
|
|
Cost of revenues
|
|
|
20,465
|
|
|
|
453,276
|
|
|
|
-
|
|
|
|
473,741
|
|
|
|
-
|
|
|
|
979,633
|
|
|
|
-
|
|
|
|
979,633
|
|
Gross profit
|
|
|
(4,148
|
)
|
|
|
1,672,232
|
|
|
|
-
|
|
|
|
1,668,084
|
|
|
|
-
|
|
|
|
536,334
|
|
|
|
-
|
|
|
|
536,334
|
|
Interest expense
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
|
|
2
|
|
|
|
23,340
|
|
|
|
-
|
|
|
|
-
|
|
|
|
23,340
|
|
Depreciation and amortization
|
|
|
7,005
|
|
|
|
134,517
|
|
|
|
-
|
|
|
|
141,522
|
|
|
|
31,201
|
|
|
|
110,653
|
|
|
|
-
|
|
|
|
141,854
|
|
Income tax
|
|
|
-
|
|
|
|
307,669
|
|
|
|
-
|
|
|
|
307,669
|
|
|
|
-
|
|
|
|
39,652
|
|
|
|
-
|
|
|
|
39,652
|
|
Net income (loss)
|
|
|
(153,945
|
)
|
|
|
924,364
|
|
|
|
(138,295
|
)
|
|
|
632,214
|
|
|
|
(179,144
|
)
|
|
|
118,957
|
|
|
|
(118,983
|
)
|
|
|
(179,170
|
)
|
Total capital expenditures
|
|
|
20,212
|
|
|
|
80,860
|
|
|
|
-
|
|
|
|
101,072
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total assets
|
|
$
|
3,468,398
|
|
|
$
|
39,812,246
|
|
|
$
|
70,911
|
|
|
$
|
42,650,518
|
|
|
$
|
3,423,860
|
|
|
$
|
38,959,019
|
|
|
$
|
690
|
|
|
$
|
42,383,569
|
|
NOTE 14 - 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 for the aforementioned matters.
|
Item 2.
|
Management’s Discussion
and Analysis of Financial Condition and Results of Operations.
|
FORWARD LOOKING STATEMENTS
We make certain forward-looking statements
in this report. Statements concerning our future operations, prospects, strategies, financial condition, future economic performance
(including growth and earnings), demand for our services, and other statements of our plans, beliefs, or expectations, including
the statements contained under this caption as well as under captions elsewhere in this document, are forward-looking statements.
In some cases, these statements are identifiable through the use of words such as “anticipate”, “believe”,
“estimate”, “expect”, “intend”, “plan”, “project”, “target”,
“can”, “could”, “may”, “should”, “will”, “would”, and similar
expressions. The forward-looking statements we make are not guarantees of future performance and are subject to various assumptions,
risks, and other factors that could cause actual results to differ materially from those suggested by these forward-looking statements.
These risks and uncertainties, together with the other risks described from time to time in reports and documents that we file
with the SEC should be considered in evaluating forward-looking statements. Because such statements are subject to risks and uncertainties,
actual results may differ materially from those expressed or implied by the forward-looking statements. Indeed, it is likely that
some of our assumptions will prove to be incorrect. Our actual results and financial position will vary from those projected or
implied in the forward-looking statements and the variances may be material. You are cautioned not to place undue reliance on such
forward-looking statements, which reflect our view only as of the date of this report.
Important factors that could cause actual
results to differ from those in the forward-looking statements include, without limitation, the following:
|
●
|
the effect of political conditions, economic conditions, market conditions, and geopolitical events;
|
|
|
|
|
●
|
legislative and regulatory changes that affect our business;
|
|
|
|
|
●
|
the availability of funds and working capital; and
|
|
|
|
|
●
|
the actions and initiatives of current and potential competitors.
|
Except as required by applicable laws,
regulations, or rules, we do not undertake any responsibility to publicly release any revisions to these forward-looking statements
to take into account events or circumstances that occur after the date of this report. Additionally, we do not undertake any responsibility
to update you on the occurrence of any unanticipated events which may cause actual results to differ from those expressed or implied
by any forward-looking statements.
The following discussion and analysis should
be read in conjunction with our unaudited condensed consolidated financial statements and the related notes thereto as filed with
the SEC and other financial information contained elsewhere in this report.
Except as otherwise indicated by the context,
references in this report to “we”, “us”, “our”, “the Registrant”, “our Company”,
or “the Company” are to China Health Industries Holdings, Inc., a Delaware corporation, China Health Industries Holdings
Limited, a limited liability company incorporated under the laws of Hong Kong, its wholly owned subsidiary in China, Harbin Humankind
Biology Technology Co. Limited (“Humankind”), and indirect wholly owned subsidiary, Heilongjiang Huimeijia Pharmaceutical
Co., Ltd. (“HLJ Huimeijia”). Unless the context otherwise requires, all references to (i) the “PRC” and
“China” are to the People’s Republic of China; (ii) “U.S. dollar,” “$” and “US$”
are to United States dollars; (iii) “RMB” are to Renminbi Yuan of China; (iv) “Securities Act” are to the
Securities Act of 1933, as amended; and (v) “Exchange Act” are to the Securities Exchange Act of 1934, as amended.
Business Overview
Our principal business operations are conducted
through our wholly-owned subsidiaries, Humankind and HLJ Huimeijia.
The Company owns a GMP-certified plant
and production facilities and has the capacity to produce 21 different CFDA-approved medicines, 14 CFDA-approved health supplement
products and 8 hemp derivative products in soft capsule, hard capsule, tablet, granule, oral liquid forms. These products address
the needs of some key sectors in China, including the feminine, geriatric, and children’s markets.
HLJ Huimeijia was founded on October 30,
2003 and its latest GMP certificate is effective until April 24, 2023. HLJ Huimeijia engages in the manufacture and distribution
of tincture, ointments, rubber paste, including hormones, topical solution, suppositories, enemas, oral liquids, and liniment,
including traditional Chinese medicine extractions. HLJ Huimeijia’s predecessor was Heilongjiang Xue Du Pharmaceutical Co.,
Ltd., which established brand recognition in the market through its supply of high-quality drug products. HLJ Huimeijia is a “high
and new technology” enterprise that provides the most comprehensive types of topical medical products in Heilongjiang Province,
a northeastern province of 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 (i.e. Humankind, Xiuzheng Pharmacy, Mr. Xin Sun and Huimeijia) entered into a supplementary
agreement (the “Supplementary Agreement”) to modify the terms of the Original Agreement, pursuant to which, the Equity
Holders and Huimeijia (collectively the “Asset Transferors”) would only sell 19 drug approval numbers (the “Assets”)
to Xiuzheng Pharmacy. The Equity Holders would have retained their equity interests in Huimeijia, but would have pledged such equity
interests to Xiuzheng Pharmacy until the Assets were transferred. On October 12, 2016, the four parties agreed to rescind the Supplementary
Agreement and entered into a new supplementary agreement, pursuant to which the parties agreed to execute the transfer of the equity
interests based on the Original Agreement and the Equity Holders sold their respective equity interests in Huimeijia to Xiuzheng
Pharmacy for total cash consideration of RMB 8,000,000 (approximately $1,306,186, the “Purchase Price”) to the Equity
Holders. On October 12, 2016, Huimeijia has completed changes in its business registration, and Xiuzheng Pharmacy has obtained
a new business license issued by the local State Administration of Industry and Commerce in Harbin (“Harbin SAIC”)
for Huimeijia, in which Huimeijia’s ownership is recorded as held by Xiuzheng Pharmacy with Harbin SAIC, and the legal representative
(a person that is authorized to take most of corporate actions on behalf of a company under PRC corporate laws) of Huimeijia has
been appointed by the Buyer.
Our business is conducted through our
sales agents and sales personnel. We sell our products directly to end customers through our own sales personnel as well as our
sales agents, operating primarily in Anhui, Zhejiang, Shanghai, Jiangsu, Beijing and Gansu, where most of our revenues are generated.
Sales by agents in Anhui, Zhejiang, Shanghai, Jiangsu, Beijing, and Gansu provinces accounted for 21%, 17%, 15%, 12%, 11%, and
8% of our total sales, respectively, for the three months ended September 30, 2018. Although we do not currently sell our products
online, we expect to do so in the future.
Results of Operations
Three months ended September 30, 2018 compared to the
three months ended September 30, 2017
The following table summarizes the top
lines of the results of our operations for the three months ended September 30, 2018 and 2017, respectively:
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
2017
|
|
|
Variance
|
|
|
%
|
|
Revenues
|
|
$
|
2,141,825
|
|
|
$
|
1,515,967
|
|
|
$
|
625,858
|
|
|
|
41.28
|
%
|
Humankind
|
|
|
2,125,508
|
|
|
$
|
1,515,967
|
|
|
$
|
609,541
|
|
|
|
40.21
|
%
|
HLJ Huimeijia
|
|
|
16,317
|
|
|
|
-
|
|
|
|
16,317
|
|
|
|
-
|
|
Cost of Goods Sold
|
|
$
|
473,741
|
|
|
$
|
979,633
|
|
|
$
|
(505,892
|
)
|
|
|
(51.64
|
)%
|
Humankind
|
|
|
453,276
|
|
|
$
|
979,633
|
|
|
$
|
526,357
|
|
|
|
(53.73
|
)%
|
HLJ Huimeijia
|
|
|
20,465
|
|
|
|
-
|
|
|
|
20,465
|
|
|
|
|
|
Gross Profit
|
|
$
|
1,668,084
|
|
|
$
|
536,344
|
|
|
$
|
1,131,740
|
|
|
|
211.01
|
%
|
Humankind
|
|
|
1,672,232
|
|
|
|
536,344
|
|
|
|
1,135,888
|
|
|
|
211.78
|
%
|
HLJ Huimeijia
|
|
|
(4,148
|
)
|
|
|
-
|
|
|
|
(4,148
|
)
|
|
|
-
|
|
Revenue
Total revenues increased by $625,858 or
41.28% for the three months ended September 30, 2018, as compared to the same period in 2017. The increase in revenues was primarily
due to an increase of $609,541 or 40.28% in Humankind’s revenues and an increase of $16,317 in HLJ Huimeijia’s revenues
for the three months ended September 30, 2018 as compared to the same period in 2017. The increase in Humankind’s sales revenues
was primarily due to the increase demand of the newly launched products. The increase in HLJ Huimeijia’s sales revenue was
primarily due to small-scale production after obtaining a new GMP certificate.
Our total cost of sales decreased by $505,892
or 51.64% for the three months ended September 30, 2018 as compared to the same period in 2017. The significant decline in the
cost of the main business was mainly due to the lower unit cost of new products and the fact that the old products were no longer
sold for the three months ended September 30, 2018 compared with the same period in 2017. The increase in HLJ Huimeijia cost of
sales was primarily due to the small-scale production.
Our gross margin increased by $1,131,740
or 211.01% for the three months ended September 30, 2018 as compared to the same period in 2017. This change was consistent with
the change in the main products in Humankind. As HLJ Huimeijia resumed production for a short period of time, the output of the
product is small, but the fixed cost of the apportionment has not decreased, resulting in high cost of the product. After the Company
operates normally, the cost will return to a reasonable level.
Sales by Product Line
The following table summarizes a breakdown
of our sales by major product line for the three months ended September 30, 2018 and 2017 respectively:
|
|
September 30, 2018
|
|
|
September 30, 2017
|
|
|
|
Quantity
|
|
|
|
|
|
% of
|
|
|
Quantity
|
|
|
|
|
|
% of
|
|
|
|
(Unit)
|
|
|
Sales US$
|
|
|
Sales
|
|
|
(Unit)
|
|
|
Sales US$
|
|
|
Sales
|
|
Humankind
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Waterlilies Soft Capsules (Sailuozhi)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,502
|
|
|
$
|
333,826
|
|
|
|
22.02
|
%
|
Propolis and Black Ant Capsules
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
40,669
|
|
|
|
1,182,141
|
|
|
|
77.98
|
%
|
Hemp Oil
|
|
|
35,325
|
|
|
$
|
1,426,600
|
|
|
|
66.61
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Collagen Peptide
|
|
|
18,376
|
|
|
|
505,926
|
|
|
|
23.62
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Hemp Polypeptide
|
|
|
3,401
|
|
|
|
133,358
|
|
|
|
6.23
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Hemp Protein Powder
|
|
|
2,160
|
|
|
|
59,624
|
|
|
|
2.78
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
HLJ Huimeijia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Muskiness Bone Strengthener Paste
|
|
|
30,273
|
|
|
|
11,415
|
|
|
|
0.52
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Indometacin and Furazolidone Suppositories
|
|
|
1,730
|
|
|
|
1,513
|
|
|
|
0.07
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
ShangBiTongDing
|
|
|
1,600
|
|
|
|
2,009
|
|
|
|
0.09
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Enema Glycerini
|
|
|
620
|
|
|
|
46
|
|
|
|
0.00
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Essence repair liquid
|
|
|
30
|
|
|
|
426
|
|
|
|
0.02
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Revitalizing Essence
|
|
|
30
|
|
|
|
323
|
|
|
|
0.01
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Anti aging eye cream
|
|
|
30
|
|
|
|
220
|
|
|
|
0.01
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Moisturizing cream
|
|
|
30
|
|
|
|
361
|
|
|
|
0.02
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Ge Hong Beriberi Water
|
|
|
10
|
|
|
|
4
|
|
|
|
0.00
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
93,615
|
|
|
$
|
2,141,825
|
|
|
|
100.00
|
%
|
|
|
|
|
|
$
|
1,515,967
|
|
|
|
100.00
|
%
|
Operating Expenses
The following table summarizes our operating
expenses for the three months ended September 30, 2018 and 2017, respectively:
|
|
September 30,
2018
|
|
|
September 30,
2017
|
|
|
Variance
|
|
|
%
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
$
|
613,992
|
|
|
$
|
557,852
|
|
|
$
|
56,140
|
|
|
|
10.06
|
%
|
Depreciation and amortization
|
|
|
141,522
|
|
|
|
141,854
|
|
|
|
(332
|
)
|
|
|
(0.23
|
%)
|
Total Operating Expenses
|
|
$
|
755,514
|
|
|
$
|
699,706
|
|
|
$
|
55,808
|
|
|
|
7.98
|
%
|
Total operating expenses for the three
months ended September 30, 2018 were $755,514 or 7.98% higher than in the corresponding period in 2017. The increase in operating
expenses was primarily attributable to increase of $56,140 or 10.06% in selling, general and administrative expenses. The increase
in selling, general and administrative expenses was mainly due to the increase of staff cost which is positively related with the
increase of revenue for the three months ended September 30, 2018 as compared to the same period in 2017. The decrease in depreciation
and amortization expenses was primarily attributed to an unfavorable foreign exchange rate for the three months ended September
30, 2018, as compared to the same period in 2017.
Interest Income and Interest Expense
Interest income was $28,126 for the three
months ended September 30, 2018, as compared to $24,340 for the three months ended September 30, 2017. This increase of $3,786,
or 16%, was mainly due to the increased average balance of bank deposits compared with the same period of 2017.
Interest expense was $2 for the three months
ended September 30, 2018, as compared to $23,340 for the three months ended September 30, 2017. The decrease of interest expense
was mainly due to the maturity of short-term loan.
Investment Income
During the three months ended September
30, 2018 and 2017, investment income was nil.
Income Taxes
Income taxes significantly increased by
$268,017, or 676%, from $39,652 for the three months ended September 30, 2017 to $307,669 for the three months ended September
30, 2018. The increase in income taxes was due to the significant increase of the Company’s income from operations in the
amount of $1,075,942, from the net loss of $163,372 for the three months ended September 30, 2017 to the net income of
$912,570 for the three months ended September 30, 2018.
Net Income (Loss) and Net Income (Loss)
Per Share
Net Income was $632,214 for the three months
ended September 30, 2018, as compared to the net loss $179,170 for the three months ended September 30, 2017. This increase of
$811,384 in net profit was primarily attributable to an increase of $805,407 in Humankind.
Net Income per share was $0.0096 for the
three months ended September 30, 2018 and net loss $0.0027 for the three months ended September 30, 2017, respectively. This increase
was primarily a result of the aforementioned increase in net profit.
Liquidity and Capital Resources
We believe our current working capital
position, together with our expected future cash flows from operations and loans from our major shareholder, will be adequate to
fund our operations in the ordinary course of business, anticipated capital expenditures, debt payment requirements, and other
contractual obligations for at least the next twelve months. However, this belief is based upon many assumptions and is subject
to numerous risks, and there can be no assurance that we will not require additional funding in the future.
The following table summarizes our cash
and cash equivalents positions, our working capital, and our cash flow activities as of September 30, 2018 and June 30, 2018 and
for the three months ended September 30, 2018 and 2017:
|
|
September 30,
2018
|
|
|
June 30,
2018
|
|
Cash and cash equivalents
|
|
$
|
31,940,188
|
|
|
$
|
32,614,910
|
|
Working capital
|
|
$
|
26,644,390
|
|
|
$
|
26,980,373
|
|
Inventories
|
|
$
|
666,972
|
|
|
$
|
452,397
|
|
|
|
2018
|
|
|
2017
|
|
For the three months ended September 30:
|
|
|
|
|
|
|
Cash provided by (used in):
|
|
|
|
|
|
|
Operating activities
|
|
$
|
673,512
|
|
|
$
|
388,877
|
|
Investing activities
|
|
$
|
(167,160
|
)
|
|
$
|
9,887,456
|
|
Financing activities
|
|
$
|
-
|
|
|
$
|
85,085
|
|
For the three months ended September 30,
2018, our net decrease in cash and cash equivalents totaled $674,722, which total was comprised of net cash provided by operating
activities in the amount of $673,512, net cash used in investing activities in the amount of $167,160 and the effect of prevailing
exchange rates on our cash position of $1,181,074.
For the three months ended September 30,
2017, our net increase in cash and cash equivalents totaled $10,795,233, which total was comprised of net cash provided by operating
activities in the amount of $388,877, net cash provided by investing activities in the amount of $9,887,456 and the effect of prevailing
exchange rates on our cash position of $433,815, by net cash provided by financing activities in the amount of $85,085.
Our working capital at September 30, 2018
was $26,644,390, compared to working capital of $26,980,373 at June 30, 2018. This decrease of $335,983 or 1.25% was primarily
attributable to the increase of taxes payable in the amount of $236,857 and the increase of amounts due to related parties in the
amount of $57,603.
Net cash provided by operating activities
was $673,512 for the three months ended September 30, 2018, primarily attributable to an increase of taxes payable in the amount
of $250,981 and the increase of amounts due to related parties in the amount of $274,510. Net cash used in investing activities
was $167,160 for the three months ended September 30, 2018, primarily due to expenditures in property, plant and equipment of $101,072.
The negative effect of exchange rate changes on cash and cash equivalents in the amount of $1,181,074 for the three months ended
September 30, 2018 was mainly a result of the effect of the valuation of the RMB against the USD on the significant amount of cash
and cash equivalents held by the Company in RMB. The exchange rates from USD to RMB were 6.6202 to 1 and 6.8683 to 1 as of June
30, 2018 and September 30, 2018, respectively, and the average exchange rate from USD to RMB was 6.8048 for the three months ended
September 30, 2018.
Net cash provided by operating activities was $388,877 for the three months ended September 30, 2017,
primarily attributable to a decrease in accounts receivables in the amount of $452,203 and the increase of amounts due to related
parties in the amount of $116,419. Net cash used in investing activities was $9,887,456 for the three months ended September 30,
2017, primarily due to expenditures in short-term investments of $8,997,661 and proceeds from short term investment in the amount
of $899,766. Net cash provided by financing activities was $85,085 for the three months ended September 30, 2017. The positive
effect of exchange rate changes on cash and cash equivalents in the amount of $433,815 for the three months ended September 30,
2017 was mainly a result of the effect of the valuation of the RMB against the USD on the significant amount of cash and cash
equivalents held by the Company in RMB. The exchange rates from USD to RMB were 6.7793 to 1 and 6.6533 to 1 as of June 30, 2017
and September 30, 2017, respectively, and the average exchange rate from USD to RMB was 6.6684 for the three months ended September
30, 2017.
Other than as described in this report,
we haves no present agreements or commitments with respect to any material acquisitions of businesses, products, product rights,
technologies, or any other material capital expenditures. However, the we will continue to evaluate acquisitions of, and/or investments
in, products, technologies, capital equipment or improvements, or companies that complement our business and may make such acquisitions
and/or investments in the future. Accordingly, we may need to obtain additional sources of capital in the future to finance any
such acquisitions and/or investments. We may not be able to obtain such financing on commercially reasonable terms, if at all.
Even if we are able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing,
or cause substantial dilution for our stockholders, in the case of equity financing.
Related Party Debts
We had related party debts in the amount
of $6,451,333 as of September 30, 2018, as compared to $6,393,730 as of June 30, 2018, an increase of $57,603 or 0.90%. Our related
party debts mainly consist of a loan from Mr. Xin Sun, the CEO of the Company. The loan is unsecured, non-interest bearing, and
has no fixed terms of repayment. There was no written agreement for the loan. See Note 8.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements
that are currently material or reasonably likely to be material to its financial position or results of operations.
Critical Accounting Policies and Estimates
We prepare the unaudited condensed consolidated
financial statements in accordance with US GAAP. These accounting principles require us to make judgments, estimates and assumptions
on the reported amounts of assets and liabilities at the end of each fiscal period, and the reported amounts of revenues and expenses
during each fiscal period. We continually evaluate these judgments and estimates based on our own historical experience, knowledge
and assessment of current business and other conditions, our expectations regarding the future based on available information,
and assumptions that we believe to be reasonable.
There have been no material changes during
the three months ended September 30, 2018 in the Company’s significant accounting policies to those previously disclosed
in the annual report on Form 10-K for the fiscal year ended June 30, 2018.