Item 1.
Financial Statements.
In
the opinion of management, the accompanying unaudited condensed consolidated financial statements included in this Form 10-Q reflect
all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the results of operations
for the periods presented. The results of operations for the periods presented are not necessarily indicative of the results to
be expected for the full year.
INDEX
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JOWAY
HEALTH INDUSTRIES GROUP INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
Cash
|
|
$
|
56,105
|
|
|
$
|
99,979
|
|
Other receivables, net
|
|
|
31,017
|
|
|
|
28,740
|
|
Inventories
|
|
|
504,377
|
|
|
|
500,269
|
|
Advances to suppliers
|
|
|
53,941
|
|
|
|
56,418
|
|
Prepaid taxes
|
|
|
74,317
|
|
|
|
97,381
|
|
Total current assets
|
|
|
719,757
|
|
|
|
782,787
|
|
|
|
|
|
|
|
|
|
|
PROPERTY, PLANT AND EQUIPMENT, net
|
|
|
3,228,215
|
|
|
|
3,377,361
|
|
|
|
|
|
|
|
|
|
|
OTHER ASSETS:
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
|
437,039
|
|
|
|
448,033
|
|
Total other assets
|
|
|
437,039
|
|
|
|
448,033
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
4,385,011
|
|
|
$
|
4,608,181
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
96,165
|
|
|
$
|
92,071
|
|
Advances from customers
|
|
|
18,582
|
|
|
|
21,734
|
|
Other payables
|
|
|
126,255
|
|
|
|
55,792
|
|
Due to related parties
|
|
|
1,567,496
|
|
|
|
1,480,515
|
|
Total current liabilities
|
|
|
1,808,498
|
|
|
|
1,650,112
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY:
|
|
|
|
|
|
|
|
|
Preferred stock - par value $0.001; 1,000,000 shares authorized; no shares issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
Common stock - par value $0.001; 200,000,000 shares authorized; 20,054,000 shares issued and outstanding at March 31, 2020 and December 31, 2019
|
|
|
20,054
|
|
|
|
20,054
|
|
Additional paid-in-capital
|
|
|
7,361,665
|
|
|
|
7,361,665
|
|
Statutory reserves
|
|
|
354,052
|
|
|
|
354,052
|
|
Accumulate deficit
|
|
|
(5,601,469
|
)
|
|
|
(5,264,040
|
)
|
Accumulated other comprehensive income
|
|
|
442,211
|
|
|
|
486,338
|
|
Total stockholders’ equity
|
|
|
2,576,513
|
|
|
|
2,958,069
|
|
Total liabilities and stockholders’ equity
|
|
$
|
4,385,011
|
|
|
$
|
4,608,181
|
|
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements
JOWAY
HEALTH INDUSTRIES GROUP INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
|
|
Three Months Ended
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
REVENUES
|
|
$
|
14,216
|
|
|
$
|
138,871
|
|
|
|
|
|
|
|
|
|
|
COST OF REVENUES
|
|
|
8,022
|
|
|
|
69,404
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT
|
|
|
6,194
|
|
|
|
69,467
|
|
|
|
|
|
|
|
|
|
|
Selling expenses
|
|
|
21,973
|
|
|
|
84,328
|
|
General and administrative expenses
|
|
|
320,827
|
|
|
|
355,528
|
|
OPERATING EXPENSES
|
|
|
342,800
|
|
|
|
439,856
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS
|
|
|
(336,606
|
)
|
|
|
(370,389
|
)
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
20
|
|
|
|
44
|
|
Other income
|
|
|
1
|
|
|
|
11
|
|
Other expenses
|
|
|
(844
|
)
|
|
|
(1,163
|
)
|
OTHER EXPENSE, NET
|
|
|
(823
|
)
|
|
|
(1,108
|
)
|
|
|
|
|
|
|
|
|
|
LOSS BEFORE INCOME TAXES
|
|
|
(337,429
|
)
|
|
|
(371,497
|
)
|
|
|
|
|
|
|
|
|
|
INCOME TAXES
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
|
(337,429
|
)
|
|
|
(371,497
|
)
|
|
|
|
|
|
|
|
|
|
OTHER COMPREHENSIVE INCOME (LOSS):
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
(44,127
|
)
|
|
|
103,780
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE LOSS
|
|
$
|
(381,556
|
)
|
|
$
|
(267,717
|
)
|
|
|
|
|
|
|
|
|
|
NET LOSS PER COMMON SHARE, BASIC AND DILUTED
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING, BASIC AND DILUTED
|
|
|
20,054,000
|
|
|
|
20,054,000
|
|
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements
JOWAY
HEALTH INDUSTRIES GROUP INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
Three Months Ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net loss
|
|
$
|
(337,429
|
)
|
|
$
|
(371,497
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
99,130
|
|
|
|
105,717
|
|
Amortization
|
|
|
4,171
|
|
|
|
4,868
|
|
Allowance for doubtful accounts
|
|
|
1,473
|
|
|
|
-
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Other receivables
|
|
|
(3,750
|
)
|
|
|
20,008
|
|
Inventories
|
|
|
(2,463
|
)
|
|
|
(16,808
|
)
|
Advances to suppliers
|
|
|
2,477
|
|
|
|
55,404
|
|
Prepaid expense
|
|
|
-
|
|
|
|
415
|
|
Accounts payable
|
|
|
4,094
|
|
|
|
(1,075
|
)
|
Advances from customers
|
|
|
(3,152
|
)
|
|
|
(59,136
|
)
|
Other payable
|
|
|
43,798
|
|
|
|
111
|
|
Salary and welfare payable
|
|
|
26,665
|
|
|
|
(5,530
|
)
|
Taxes payable
|
|
|
23,064
|
|
|
|
9,565
|
|
Net cash used in operating activities
|
|
|
(141,922
|
)
|
|
|
(257,958
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchase of property plant and equipment
|
|
|
-
|
|
|
|
(88,809
|
)
|
Net cash used in investing activities
|
|
|
-
|
|
|
|
(88,809
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Payment to related parties
|
|
|
86,981
|
|
|
|
319,757
|
|
Net cash provided by financing activities
|
|
|
86,981
|
|
|
|
319,757
|
|
|
|
|
|
|
|
|
|
|
EFFECT OF EXCHANGE RATE CHANGES ON CASH
|
|
|
11,067
|
|
|
|
1,875
|
|
|
|
|
|
|
|
|
|
|
NET DECREASE IN CASH
|
|
|
(43,874
|
)
|
|
|
(25,135
|
)
|
|
|
|
|
|
|
|
|
|
CASH, beginning of period
|
|
|
99,979
|
|
|
|
118,996
|
|
|
|
|
|
|
|
|
|
|
CASH, end of period
|
|
$
|
56,105
|
|
|
$
|
93,861
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
-
|
|
|
$
|
-
|
|
Interest paid
|
|
$
|
-
|
|
|
$
|
-
|
|
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements
JOWAY
HEALTH INDUSTRIES GROUP INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 – ORGANIZATION
The
unaudited condensed consolidated financial statements include the financial statements of Joway Health Industries Group Inc. (referred
to herein as “Joway Health”), its subsidiaries, and variable interest entities (“VIEs”) where Joway Health
is deemed the primary beneficiary. Joway Health, its subsidiaries and VIEs are collectively referred to herein as the “Company”,
“we” and “us”.
Joway
Health (formerly G2 Ventures, Inc.) was originally incorporated under the laws of the State of Texas on March 21, 2003. On September
21, 2010, Joway Health entered into a Share Exchange Agreement (the “Share Exchange”) with the sole stockholder of
Dynamic Elite International Limited. As a result of the Share Exchange, Dynamic Elite became a wholly-owned subsidiary of Joway
Health and the stockholders of Dynamic Elite acquired approximately 76.08% of the issued and outstanding stock of Joway Health.
The share exchange transaction resulted in the shareholders of Dynamic Elite acquiring a majority voting interest in Joway Health.
Generally accepted accounting principles in the United States of America require that the company whose shareholders retain the
majority interest in the combined business be treated as the acquirer for accounting purposes. The reverse acquisition process
utilizes the capital structure of Joway Health and the assets and liabilities of Dynamic Elite recorded at historical cost. On
December 22, 2010, Joway Health changed its jurisdiction of incorporation from the State of Texas to the State of Nevada.
Dynamic
Elite International Limited (referred to herein as “Dynamic Elite”) was incorporated under the laws of the British
Virgin Islands on June 2, 2010 as a limited liability company (a BVI company). Dynamic Elite engages in manufacturing and distributing
tourmaline products in China. Its wholly owned subsidiary, Tianjin Junhe Management Consulting Co., Ltd. was incorporated on September
15, 2010 in Tianjin, People’s Republic of China (“PRC”). Other than the equity interest in Junhe Consulting,
Dynamic Elite does not own any assets or conduct any operations.
Tianjin
Junhe Management Consulting Co., Ltd. (referred to herein as “Junhe Consulting”) conducts its business through Tianjin
Joway Shengshi Group Co., Ltd. that is consolidated as a variable interest entity.
Tianjin
Joway Shengshi Group Co., Ltd. (referred to herein as “Joway Shengshi”) was incorporated in PRC on May 17, 2007. Joway
Shengshi is currently owned 99% by Jinghe Zhang, the Company’s current CEO and President and 1% by Song Baogang. Joway Shengshi
engages in manufacturing and distributing tourmaline products in China. Shenyang Joway Electronic Technology Co., Ltd., Tianjin
Joway Decoration Engineering Co., Ltd. and Tianjin Oriental Shengtang Trading Import & Export Trading Co., Ltd are subsidiaries
of Joway Shengshi.
Shenyang
Joway Electronic Technology Co., Ltd. (referred to herein as “Joway Technology”) was originally named Liaoning Joway
Technology Engineering Co., Ltd. which was incorporated on March 28, 2007 in PRC. The name was changed on June 22, 2011. It engages
in the distribution of Tourmaline Activated Water Machines and Tourmaline Wellness Houses. Prior to July 25, 2010, Joway Shengshi
owned 90.91% of Joway Technology. Joway Shengshi entered into a share acquisition agreement with Jingyun Chen, another stockholder
of Joway Technology on July 25, 2010 to acquire the remaining 9.09% of the share of Joway Technology. As a result of the share
acquisition, Joway Technology became a wholly-owned subsidiary of Joway Shengshi.
Tianjin
Joway Decoration Engineering Co., Ltd. (referred to herein as “Joway Decoration”) was incorporated on April 22, 2009
in PRC. It engages in the distribution of Tourmaline Activated Water Machines, Tourmaline Wellness House for family use and Tourmaline
Wellness House materials. Prior to July 9, 2010, Joway Shengshi owned 90% of Joway Decoration. Joway Shengshi entered into a share
acquisition agreement with Jingyun Chen, another stockholder of Joway Decoration on July 9, 2010 to acquire the remaining 10%
of the shares of Joway Decoration. As a result of the share acquisition, Joway Decoration became a wholly-owned subsidiary of
Joway Shengshi. Jingyun Chen is currently the General Manager of Joway Decoration.
Tianjin
Oriental Shengtang Import & Export Trading Co., Ltd (referred to herein as “Shengtang Trading”) was incorporated
on September 18, 2009 in the PRC. It engages in purchasing raw materials which it sells to other companies of the group. Prior
to July 28, 2010, Joway Shengshi owned 95% of Shengtang Trading. Joway Shengshi entered into a share acquisition agreement with
Wang Aiying, another stockholder of Shengtang Trading on July 28, 2010 to acquire the remaining 5% of the shares of Shengtang
Trading. As a result of the share acquisition, Shengtang Trading became a wholly-owned subsidiary of Joway Shengshi.
The
following table lists the Company and its subsidiaries:
Name
|
|
Domicile
and Date of Incorporation
|
|
Paid
in Capital
|
|
Percentage
of
Effective
Ownership
|
|
Principal
Activities
|
Joway
Health Industries Group Inc.
|
|
March
21, 2003,
Nevada
|
|
USD
20,054
|
|
86.8%
owned by Crystal Globe Limited 13.2% owned by other institutional and individual investors
|
|
Investment
Holding
|
|
|
|
|
|
|
|
|
|
Dynamic
Elite International Limited
|
|
June
2, 2010,
British Virgin Islands
|
|
USD
10,000
|
|
100%
owned by Joway Health Industries Group Inc.
|
|
Investment
Holding
|
|
|
|
|
|
|
|
|
|
Tianjin
Junhe Management Consulting Co., Ltd.
|
|
September
15, 2010,
PRC
|
|
USD
20,000
|
|
100%
owned by Dynamic Elite International Limited
|
|
Advisory
|
|
|
|
|
|
|
|
|
|
Tianjin
Joway Shengshi Group Co., Ltd.
|
|
May
17, 2007,
PRC
|
|
USD
7,216,140.72
|
|
99%
owned by Jinghe Zhang, and 1% owned by Baogang Song
|
|
Production
and distribution of Healthcare Knit Goods and Daily Healthcare and Personal Care products
|
|
|
|
|
|
|
|
|
|
Shenyang
Joway Electronic Technology Co., Ltd.
|
|
March
28, 2007,
PRC
|
|
USD
142,072.97
|
|
100%
owned by Tianjin Joway Shengshi Group Co., Ltd
|
|
Distribution
of Tourmaline Activated Water Machine and construction of Tourmaline Wellness House
|
|
|
|
|
|
|
|
|
|
Tianjin
Joway Decoration Engineering Co., Ltd.
|
|
April
22, 2009,
PRC
|
|
USD
292,367.74
|
|
100%
owned by Tianjin Joway Shengshi Group Co., Ltd
|
|
Distribution
of Wellness House for family use and Activated Water Machine and construction of Tourmaline Wellness House
|
|
|
|
|
|
|
|
|
|
Tianjin
Oriental Shengtang Import & Export Trading Co., Ltd.
|
|
September
18, 2009,
PRC
|
|
USD
292,463.75
|
|
100%
owned by Tianjin Joway Shengshi Group Co., Ltd
|
|
Distribution
of tourmaline products
|
On September 16, 2010, prior to the share
exchange, Junhe Consulting entered into a series of contractual agreements (the “Contractual Agreements”) with Joway
Shengshi and Joway Shengshi’s owners. The following is a brief description of the Contractual Agreements entered into between
Junhe Consulting and Joway Shengshi or Joway Shengshi’s owners:
1. Consulting Services Agreement.
Pursuant to the consulting services agreement between Junhe Consulting and Joway Shengshi, Junhe Consulting has the right to advise,
consult, manage and operate Joway Shengshi, and collect and own all of the net profits of the Operating Entities.
2. Operating Agreement. Under the
operating agreement between Junhe Consulting and Joway Shengshi, Junhe Consulting has the right to recommend director candidates
and appoint the senior executives of Joway Shengshi, approve any transactions that may materially affect the assets, liabilities,
rights or operations of Joway Shengshi, and guarantee the contractual performance by Joway Shengshi of any agreements with third
parties, in exchange for a pledge by Joway Shengshi of its accounts receivable and assets.
3. Voting Rights Proxy Agreement.
Under the voting rights proxy agreement between Joway Shengshi’s owners and Junhe Consulting, the owners of Joway Shengshi
have vested their collective voting control over Joway Shengshi to Junhe Consulting and will only transfer their respective equity
interests in Joway Shengshi to Junhe Consulting or its designee.
4. Option Agreement. Under the option
agreement between Joway Shengshi’s owners and Junhe Consulting, the owners of Joway Shengshi have granted Junhe Consulting
the irrevocable right and option to acquire all of their equity interests in Joway Shengshi.
5. Equity Pledge Agreement. Under
the equity pledge agreement between Joway Shengshi’s owners and Junhe Consulting, the owners of Joway Shengshi have pledged
all of their rights, titles and interests in Joway Shengshi to Junhe Consulting to guarantee Joway Shengshi’s performance
of its obligations under the Consulting Services Agreement.
As a result of the Contractual Agreements,
Joway Shengshi is effectively a variable interest entity of Junhe Consulting. Accordingly, the Company through its wholly-owned
subsidiary Junhe Consulting, consolidates Joway Shengshi’s results of operation, assets and liabilities in its financial
statements.
In connection with the Share Exchange and
as consideration for entering into the VIE Agreements, Jingshe Zhang and Baogang Song, the shareholders of Joway Shengshi (the
“Grantees”), entered into a Call Option Agreement, dated July 20,2010 with Lionel Evan Liu (the “Grantor”),
the sole shareholder of Crystal Globe (the controlling shareholder of Dynamic Elite), a British Virgin Islands company (the “Call
Option Agreement”), pursuant to which the Grantees had the right to purchase up to 100% of the shares of Crystal Globe (the
“Call Option”) at an exercise price of $2.00 per share (the “Exercise Price”) for a period of five years.
The Call Option vested as to 34% of the shares of Crystal Globe on April 2, 2011 and as to 33% on each of April 2, 2012 and 2013
(the respective “Call Option Effective Date”). On March 28, 2015, the Grantor and Grantees amended the Call Option
Agreement, to (i) reduce the Exercise Price to $0.00 per share and (ii) extend the Grantees’ rights to exercise their call
option within ten years from the respective Option Effective Date.
On November 13, 2016, Jinghe Zhang exercised
the Call Option as to 99% of the shares of Crystal Globe and Baogang Song exercised his Call Option as to 1% of the shares of Crystal
Globe. As a result of exercising the Call Option, Jinghe Zhang became the controlling shareholder of Crystal Globe and in turn,
the controlling shareholder of the Company. On November 20, 2016, Baogang Song transferred 1% of the shares of Crystal Globe to
Jinghe Zhang. Consequently, Jinghe Zhang controls 17,408,000 shares, or 86.8%, of the issued and outstanding shares of the Company’s
common stock.
NOTE 2 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated
financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America
(“US GAAP”). Accordingly, they do not include all of the information and the footnotes required by generally accepted
accounting principles for complete financial statements. The Company’s functional currency is the Chinese Renminbi (“RMB”);
however, the accompanying unaudited condensed consolidated financial statements have been translated and presented in United States
Dollars (“USD”). All significant inter-company transactions and balances have been eliminated. The consolidated financial
statements include all adjustments that, in the opinion of management, are necessary to make the financial statements not misleading.
Operating results for the three month period
ended March 31, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31,
2020. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company’s
form 10-K for the fiscal year ended December 31, 2019 which was filed on March 31, 2020.
Use of Estimates
The preparation of the consolidated financial
statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements
and the reported amounts of revenues and expenses during the reporting periods. Management makes these estimates using the best
information available at the time the estimates are made. Actual results could differ from those estimates.
Basis of Consolidation
The accompanying consolidated financial
statements include Joway Health, its wholly owned subsidiaries, and controlled VIEs. All significant inter-company accounts and
transactions have been eliminated in the consolidation.
Pursuant to Accounting Standards Codification
Topic 810 “Consolidation” (“ASC 810”), the Company is required to include in its consolidated financial
statements the financial statements of its variable interest entities (“VIEs”). ASC 810 requires a VIE to be consolidated
by a company if that company is subject to a majority of the risk of loss for the VIE or is entitled to receive a majority of the
VIE’s residual returns. VIEs are those entities in which a company, through contractual arrangements, bears the risk of,
and enjoys the rewards normally associated with ownership of the entity, and therefore the company is the primary beneficiary of
the entity.
Based on the various Contractual Agreements,
the Company is able to exercise control over the VIEs, and to obtain the full economic benefits. The terms of the exclusive option
agreement are currently exercisable and legally enforceable under PRC laws and regulations. The minimum amount of consideration
permitted by the applicable PRC law to exercise the option does not represent a financial barrier or disincentive for the Company
to exercise its rights under the exclusive option agreement. A simple majority vote of the Company’s board of directors is
required to pass a resolution to exercise its rights under the exclusive option agreement, for which consent of the shareholder
of VIEs is not required. Therefore, this gives the Company the power to direct the activities that most significantly impact VIEs’
economic performance. The Company’s ability to exercise effective control, together with the consulting service agreements
and the equity pledge agreements, give the Company the rights to receive substantially all of the economic benefits from VIEs in
consideration for the services provided by its wholly owned subsidiaries in China. Accordingly, as the primary beneficiary of VIEs
and in accordance with U.S. GAAP, Joway Shengshi, Joway Technology, Joway Decoration, and Shengtang Trading, as VIEs of Junhe Consulting,
has been consolidated in the Company’s financial statements. Sales from Joway Shengshi, Joway Technology, Joway Decoration,
and Shengtang Trading are included in the Company’s total sales, their incomes or losses from operations are consolidated
with the Company’s, and the Company’s net income or loss includes net income or loss from Joway Shengshi, Joway Technology,
Joway Decoration, and Shengtang Trading.
Foreign Currency Translation
The accompanying consolidated financial
statements are presented in USD. The functional currency of the Company is RMB. The consolidated financial statements are translated
into United States dollars from RMB at period-end exchange rates as to assets and liabilities and average exchange rates as to
revenues and expenses. Equity accounts are translated at their historical exchange rates when the equity transactions occurred.
The resulting transaction adjustments are recorded as a component of stockholders’ equity. Gains and losses from foreign
currency transactions are included in net income.
|
|
For the three months ended
March 31,
|
|
|
For the year ended
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2019
|
|
Period ended RMB: USD Exchange rate
|
|
|
7.0851
|
|
|
|
6.71111
|
|
|
|
6.9762
|
|
Average RMB: USD Exchange rate
|
|
|
6.9790
|
|
|
|
6.7464
|
|
|
|
6.8985
|
|
The RMB is not freely convertible into
foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made
that the RMB amounts could have been, or could be, converted into USD at the rates used in translation.
For the three months ended March 31, 2020
and 2019 foreign currency translation adjustments of $(44,127) and $103,780, respectively, have been reported as comprehensive
income (loss) in the unaudited condensed consolidated financial statements.
Other Comprehensive Income
Other comprehensive income is defined as
the change in equity during the period from transactions and other events, excluding the changes resulting from investments by
owners and distributions to owners, and is not included in the computation of income tax expense or benefit. Accumulated other
comprehensive income represents the accumulated balance of foreign currency translation adjustments.
Concentrations of Credit Risk
The Company’s operations are carried out
in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political,
economic and legal environment in the PRC, and by the general state of the PRC’s economy. The Company’s operations in the PRC are
subject to specific considerations and significant risks not typically associated with companies in North America. The Company’s
results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures,
currency conversion and remittance abroad, and rates and methods of taxation, among other things. Financial instruments which potentially
subject the Company to concentrations of credit risk consist principally of cash. Substantially all of the Company’s cash
is maintained with state-owned banks within the PRC, and no deposits are covered by insurance. The Company has not experienced
any losses in such accounts and believes it is not exposed to any risks on its cash in bank accounts.
Fair Value of Financial Instruments
Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) 820 establishes a three-tier fair value hierarchy, which prioritizes the
inputs used in measuring fair value as follows:
|
●
|
Level 1—defined as observable inputs such as quoted
prices in active markets for identical assets or liabilities;
|
|
●
|
Level 2—defined as inputs other than quoted prices
in active markets that are either directly or indirectly observable; and
|
|
●
|
Level 3—defined as unobservable inputs in which little
or no market data exists, therefore requiring an entity to develop its own assumptions.
|
The carrying amounts reported in the balance
sheets for cash, accounts receivable, other receivable, accounts payable, other payable, and amounts due from related parties generally
approximate their fair market values based on the short-term maturity of these instruments. ASC 825-10 “Financial Instruments”
allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The
fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If
the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings
at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding instruments.
Cash
For financial reporting purposes, the Company
considers all highly liquid financial instruments with an original maturity of three months or less to be cash equivalents. The
Company had no cash equivalents at any point during the period of the financial statements presented. Balances at financial institutions
or state-owned banks within the PRC are not covered by insurance. The Company has not experienced any losses in such accounts and
believes it is not exposed to any significant risks on its cash in bank accounts.
Accounts Receivable
Accounts receivable are presented net of
an allowance for doubtful accounts. The Company maintains allowances for doubtful accounts for estimated losses. On a periodic
basis, the Company reviews the composition of the accounts receivable and analyzes historical bad debts, customer concentrations,
customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these
allowances. Accounts are written off after exhaustive efforts at collection. As of March 31, 2020 and December 31, 2019, based
on a review of its outstanding balances, the Company reported an allowance $2,551 and $2,591 for doubtful accounts, respectively.
Inventories
Inventories are stated at the lower of
cost, as determined by the specific identification method on contract level (for each individual contract, inventories cost flow
are determined by weighted-average method), or the net realizable value, which is determined on selling prices less any further
costs expected to be incurred for completion and disposal. The Company regularly evaluates the composition of its inventories to
identify slow-moving and obsolete inventories to determine whether a valuation allowance is required. As of March 31, 2020 and
December 31, 2019, the Company recorded $105,352 and $106,997 for inventory valuation allowance, respectively.
Advances to Suppliers
Advances to suppliers represent the cash
paid in advance for inventory items or construction in progress. The advance payments are meant to ensure preferential pricing
and delivery. The amounts advanced under such arrangements totaled $53,941 and $56,418 as of March 31, 2020 and December 31, 2019,
respectively.
Property, Plant, and Equipment
Property, plant and equipment are stated
at cost less accumulated depreciation, and include expenditures that substantially increase the useful lives of existing assets.
Depreciation is computed using the straight-line
method over the estimated useful lives of the assets. Estimated useful lives are as follows:
Building
|
|
20 years
|
Operating Equipment
|
|
10 years
|
Office furniture and equipment
|
|
3 or 5 years
|
Vehicles
|
|
10 years
|
The cost and related accumulated depreciation of assets sold
or otherwise retired are eliminated from the accounts, and any gain or loss is included in the consolidated statements of operations.
Maintenance, repairs and minor renewals are charged directly to expenses as incurred. Significant renewals and betterment to buildings
and equipment are capitalized. Leasehold improvements are depreciated over the lesser of the useful life or the life of the lease.
Intangible Assets
Intangible assets mainly consist of land use rights. All land
located in the PRC is owned by the government and cannot be sold to any individual or company. The land use rights granted to the
Company are being amortized using the straight-line method over the lease term of 50 years. Other intangible assets are software
programs that are amortized over their estimated useful life of 10 years.
Impairment of Long-lived Assets
Long-lived assets of the Company are reviewed annually as to
whether their carrying value has become impaired, pursuant to the guidelines established in FASB ASC 360. The Company considers
assets to be impaired if the carrying value exceeds the future projected cash flows from the related operations. The Company also
re-evaluates the periods of depreciation and amortization to determine whether subsequent events and circumstances warrant revised
estimates of useful lives. The Company did not record any impairment loss for the three months ended March 31, 2020 and 2019.
Revenue Recognition
The Company recognizes revenue when persuasive evidence of
an arrangement exists, delivery has occurred or services have been rendered, the purchase price is fixed or determinable and collectability
is reasonably assured.
With respect to sales of product to both franchisee and non-franchisee
customers, the Company prepares product shipments upon the receipt of a customer’s purchase order. Sales prices are based
on fixed price lists that are different depending on whether the price list is for a franchisee customer or for non-franchisee
customers. The Company recognizes revenue when the product is shipped. The Company does not sell product to any customers with
a right of return. Sales are presented net of value added tax (VAT).
For Tourmaline Wellness House sales, the Company recognizes
revenue under the completed contract method. Customers contact the Company with requests to construct a Wellness House. The Company
and the customer enter into a contract, at which time the customer pays a deposit of at least one-half of the sales price. A contract
is considered completed when all significant costs have been incurred and the project has been accepted by the customer. The contracts
have a place for the customer to sign indicating their acceptance of the completed Wellness House. At this time the customer will
also pay any remaining balance on the contract. The Company recognizes the full contract revenue at this point. Contract costs
consist primarily of materials and labor costs. The construction period of a Wellness House generally does not exceed five days.
Shipping Costs
Shipping costs are included in selling expenses and totaled
$3,889 and $17,396 for the three months ended March 31, 2020 and 2019, respectively.
Income Taxes
The Company is governed by the Income Tax Law and associated
legislations of the PRC. The Company accounts for income taxes in accordance with FASB ASC 740 “Income Taxes”, which
is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future
tax consequences of events that have been recognized in the Company’s financial statements or tax returns. ASC 740 additionally
requires the establishment of a valuation allowance to reflect the likelihood of realization of deferred tax assets. Realization
of deferred tax assets is dependent upon future earnings, if any, of which the timing and amount are uncertain.
According to ASC 740, the evaluation of a tax position is a
two-step process. The first step is to determine whether it is more likely than not that a tax position will be sustained upon
examination, including the resolution of any related appeals or litigation based on the technical merits of that position. The
second step is to measure a tax position that meets the more-likely-than-not threshold to determine the amount of benefit to be
recognized in the financial statements. A tax position is measured at the largest amount of benefit that is greater than 50% likelihood
of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold
should be recognized in the first subsequent period in which the threshold is met. Previously recognized tax positions that no
longer meet the more-likely-than-not criteria should be de-recognized in the first subsequent financial reporting period in which
the threshold is no longer met. ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting
in interim periods, disclosures, and transition.
Basic and Diluted Earnings per Share
The Company reports earnings per share in accordance with FASB
ASC 260 “Earnings per share”. The Company’s basic earnings per share are computed using the weighted average
number of shares outstanding for the periods presented. Diluted earnings per share are computed based on the assumption that any
dilutive options or warrants were converted or exercised. Dilution is computed by applying the treasury stock method. Under this
method, the Company’s outstanding stock warrants are assumed to be exercised, and funds thus obtained were assumed to be
used to purchase common stock at the average market price during the period. There were no dilutive instruments outstanding during
the three month periods ended March 31, 2020 and 2019.
Segment Information
The Company follows FASB ASC 280-Segment Reporting, which requires
that companies disclose segment data based on how management makes decision about allocating resources to segments and evaluating
their performance.
For the three months ended March 31, 2020 and the year ended
December 31, 2019, management has determined that the Company is operating in three reportable business segments, (1) Healthcare
Knit Goods Series, (2) Daily Healthcare and Personal Care Series, and (3) Wellness House and Activated Water Machine Series. The
Company’s reportable segments are strategic business units that offer different products. They are managed separately based on
the fundamental differences in their operations.
Recently Issued Accounting Pronouncements
In January 2017, the FASB issued ASU No. 2017-04, Simplifying
the Test for Goodwill Impairment. The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase
price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair
value, not to exceed the carrying amount of goodwill. The guidance should be adopted on a prospective basis for the annual or any
interim goodwill impairment tests beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill
impairment tests performed on testing dates after January 1, 2017. The Company adopted the standard in 2019. Adoption of the standard
did not have a significant impact on the Company’s consolidated statement of earnings in 2019.
In June 2018, the FASB issued ASU 2018-07, “Stock Compensation
(Topic 718): Improvements to Nonemployee Share-Based Payment Accounting,” which simplifies the accounting for share-based
payments granted to nonemployees for goods and services and aligns most of the guidance on such payments to nonemployees with the
requirements for share-based payments granted to employees. ASU 2018-07 becomes effective for the Company on January 1, 2019. Early
adoption is permitted. The Company adopted the standard in 2019. Adoption of the standard did not have a significant impact on
the Company’s consolidated statement of earnings in 2019.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic
842). The standard outlined a comprehensive lease accounting model that superseded the previous lease guidance and required lessees
to recognize lease liabilities and corresponding right-of-use assets for all leases with lease terms greater than 12 months. The
guidance also changed the definition of a lease and expanded the disclosure requirements of lease arrangements. The Company adopted
the standard on December 15, 2019. Adoption of the standard did not have a significant impact on the Company’s consolidated statement
of earnings in 2019.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit
Losses (Topic 326), which requires entities to measure all expected credit losses for financial assets held at the reporting date
based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred
loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. This guidance
is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early application
will be permitted for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15,
2018. The Company adopted the standard in 2019. Adoption of the standard did not have a significant impact on the Company’s consolidated
statement of earnings in 2019.
Other recent accounting pronouncements issued by the FASB, including
its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the SEC did not or are not believed
by management to have a material impact on the Company’s present or future consolidated financial statements.
NOTE 3 – GOING CONCERN
The accompanying unaudited condensed financial statements have
been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization
of assets, and liquidation of liabilities in the normal course of business. As reflected in the accompanying unaudited condensed
financial statements, the Company has an accumulated deficit of approximately $5,601,000 and a working capital deficit of approximately
$1,088,000 at March 31, 2020. In addition, the Company continues to generate operating losses and negative cash flows from operations.
This raises substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue
as a going concern is dependent on the Company’s ability to raise additional capital. The financial statements do not include
any adjustments that might be necessary if the Company is unable to continue as a going concern. Management intends to provide
the Company with additional loans as needed. Management feels these actions provide the opportunity for the Company to continue
as a going concern.
NOTE 4 – ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Accounts receivable
|
|
$
|
2,551
|
|
|
$
|
2,591
|
|
Less: allowance for bad debt
|
|
|
(2,551
|
)
|
|
|
(2,591
|
)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
As of March 31, 2020 and December 31, 2019,
the Company allowance $2,551 and $2,591 for doubtful accounts, respectively. No bad debt expense was recorded during the three
month period ended March 31, 2020 and 2019.
NOTE 5 – INVENTORIES
Inventories consisted of the following:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Raw materials
|
|
$
|
127,787
|
|
|
$
|
126,563
|
|
Finished goods
|
|
|
445,975
|
|
|
|
444,175
|
|
Low value consumables
|
|
|
35,967
|
|
|
|
36,528
|
|
Total
|
|
|
609,729
|
|
|
|
607,266
|
|
Less: impairment loss
|
|
|
(105,352
|
)
|
|
|
(106,997
|
)
|
Inventory, net
|
|
$
|
504,377
|
|
|
$
|
500,269
|
|
Low value consumables represent low priced and easily worn articles
and are amortized on equal-split amortization method. Pursuant to this method, half value of the low value consumable should be
amortized once used and the remaining half value should be amortized when disposed of.
As of March 31, 2020 and December 31, 2019, the Company recognized
$105,352 and $106,997, respectively, as a reserve for impairment loss from inventory. No impairment loss was recorded during the
three month period ended March 31, 2020 and 2019.
NOTE 6 – PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Building
|
|
$
|
5,619,777
|
|
|
$
|
5,707,503
|
|
Operating equipment
|
|
|
412,603
|
|
|
|
419,044
|
|
Office furniture and equipment
|
|
|
333,934
|
|
|
|
339,147
|
|
Vehicles
|
|
|
965,380
|
|
|
|
980,450
|
|
Total
|
|
|
7,331,694
|
|
|
|
7,446,144
|
|
Less: accumulated depreciation
|
|
|
(4,103,479
|
)
|
|
|
(4,068,783
|
)
|
Property, plant and equipment, net
|
|
$
|
3,228,215
|
|
|
$
|
3,377,361
|
|
Depreciation expense for the three months
ended March 31, 2020 and 2019 amounted to $99,130 and $105,717, respectively.
NOTE 7 – INTANGIBLE ASSETS
Intangible assets consisted of the following:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Land use rights
|
|
$
|
582,640
|
|
|
$
|
591,734
|
|
Other intangible assets
|
|
|
74,546
|
|
|
|
75,710
|
|
Total
|
|
|
657,186
|
|
|
|
667,444
|
|
Less: accumulated amortization
|
|
|
(220,147
|
)
|
|
|
(219,411
|
)
|
Intangible assets, net
|
|
$
|
437,039
|
|
|
$
|
448,033
|
|
Amortization expense of intangible assets
for the three months ended March 31, 2020 and 2019 was $4,171 and $4,868, respectively.
The estimated amortization expense for
the next five years is as follows:
Estimated
amortization expense for the year ending December 31,
|
|
Amount
|
|
2020
|
|
$
|
19,000
|
|
2021
|
|
$
|
19,000
|
|
2022
|
|
$
|
19,000
|
|
2023
|
|
$
|
19,000
|
|
2024
|
|
$
|
19,000
|
|
Thereafter
|
|
$
|
353,033
|
|
NOTE 8 – RELATED
PARTY TRANSACTIONS
Payables due to related parties
consist of the following:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Jinghe Zhang
|
|
$
|
1,567,496
|
|
|
$
|
1,480,515
|
|
Total
|
|
$
|
1,567,496
|
|
|
$
|
1,480,515
|
|
Transactions with Jinghe Zhang
|
●
|
On
December 1, 2009, the Company, through its subsidiary Joway Shengshi, entered into a royalty-free license agreement with Jinghe
Zhang, our President, Chief Executive Officer and director. Pursuant to the license agreement, we are authorized to use the trademark
“Joway” for a term of nine years and five patents from December 1, 2009 till the expiration dates of the patents.
|
|
●
|
On
May 10, 2007, Joway Shengshi entered into a cash advance agreement with Jinghe Zhang, our President, Chief Executive Officer and
director. Pursuant to the agreement, Jinghe Zhang agreed to advance operating capital to Joway Shengshi. The advances are interest
free, unsecured, and have no specified repayment terms. The agreement is valid throughout Joway Shengshi’s term of operation.
During the period beginning May 17, 2007 (inception of Joway Shengshi) through March 31, 2020, Joway Shengshi received cash advances
in the aggregate principal amount of $6,200,307 from Jinghe Zhang of which $4,632,811 has been repaid. For the three months ended
March 31, 2020 and 2019, the Company received $86,981 and $320,501 of advances, respectively. As of March 31, 2020, the total
unpaid principal balance due Jinghe Zhang for advances was $1,567,496.
|
Transactions with Shenyang Joway
●
|
Shenyang Joway Industrial Development Co., Ltd. (“Shenyang Joway”) was formed in 2005 in Shenyang, China by Mr. Jinghe Zhang and three other individuals. Mr. Zhang holds more than 50% of the equity in Shenyang Joway. Shenyang Joway was in the business of marketing and distributing clothing and related products to other companies. Through 2009 Shenyang Joway had ceased operations, although it still existed as a legal entity. Shenyang Joway was cancelled in 2019.
|
|
|
●
|
On May 7, 2007, the Company’s subsidiary Joway Shengshi entered into an agreement with Shenyang Joway pursuant to which Joway Shengshi and Shenyang Joway agreed to provide each other with interest-free, unsecured advances for working capital. On May 10, 2007, the Company’s subsidiary Joway Technology and Shenyang Joway entered into an agreement pursuant to which Joway Technology and Shenyang Joway agreed to provide each other with interest-free, unsecured advances for working capital. Through December 31, 2008, Joway Technology advanced $58,568 to Shenyang Joway, which was paid off by Shenyang Joway to Joway Technology in 2009. Through December 31, 2018, Shenyang Joway advanced an aggregate of $912,645 to Joway Shengshi and Joway Technology. For the three months ended March 31, 2020 and 2019, the Company repaid $0 and $744 of these advances, respectively. As of March 31, 2020, the total unpaid principal balance due to Shenyang Joway for advances was $0.
|
The amounts owed to related parties are
non-interest bearing and have no specified repayment terms.
NOTE 9 – INCOME TAXES
The Company operations in the People’s
Republic of China are subject to the Income Tax Law of the People’s Republic of China. Pursuant to the PRC Income Tax Laws,
the Company is subject to the Enterprise Income Tax (“EIT”) which is generally a statutory rate of 25% beginning January
2008, on income as reported in its statutory financial statements after appropriate tax adjustments.
The table below summarizes the differences
between the PRC statutory federal rate and the Company’s effective tax rate:
|
|
For the three months ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Tax computed at China statutory rates
|
|
|
25
|
%
|
|
|
25
|
%
|
Effect of losses
|
|
|
(25
|
%)
|
|
|
(25
|
%)
|
Effective rate
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
NOTE 10 – STATUTORY RESERVES
Pursuant to the laws and regulations of
the PRC, annual income of the Company’s subsidiaries is required to be partly allocated to the statutory reserves funds after
the payment of the PRC income taxes. The allocation to the statutory reserves funds should be at least 10% of income after tax
until the reserves reaches 50% of the entities’ registered capital or members’ equity. The reserve funds are not transferable
to the Company in the form of cash dividends, loans or advances. Thus the reserve funds are not available for distribution except
in liquidation. As of March 31, 2020 and December 31, 20119, the Company had allocated $354,052 to statutory reserves.
NOTE 11 – SEGMENTS
In 2020 and 2019, the Company operated
in three reportable business segments: (1) Healthcare Knit Goods Series, (2) Daily Healthcare and Personal Care Series and (3)
Wellness House and Activated Water Machine Series. The Company’s reportable segments are strategic business units that offer different
products. They are managed separately based on the fundamental differences in their operations. Information with respect to these
reportable business segments is as follows:
For the three months ended March 31, 2020
|
|
Sales
|
|
|
COGS
|
|
|
Gross
profit
|
|
|
Loss from
operations
|
|
|
Depreciation
and
amortization
|
|
|
Assets
|
|
Healthcare Knit Goods Series
|
|
$
|
2,207
|
|
|
$
|
1,022
|
|
|
$
|
1,185
|
|
|
$
|
(52,035
|
)
|
|
$
|
16,037
|
|
|
$
|
123,792
|
|
Daily Healthcare and Personal Care Series
|
|
|
4,977
|
|
|
|
2,313
|
|
|
|
2,664
|
|
|
|
(117,348
|
)
|
|
|
36,166
|
|
|
|
199,003
|
|
Wellness House and Activated Water Machine Series
|
|
|
7,032
|
|
|
|
4,687
|
|
|
|
2,345
|
|
|
|
(167,223
|
)
|
|
|
51,098
|
|
|
|
178,924
|
|
Segment Totals
|
|
$
|
14,216
|
|
|
$
|
8,022
|
|
|
$
|
6,194
|
|
|
|
(336,606
|
)
|
|
$
|
103,301
|
|
|
|
501,719
|
|
Other Loss, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(823
|
)
|
|
|
|
|
|
|
|
|
Income tax benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Unallocated Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,883,292
|
|
Net Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(337,429
|
)
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,385,011
|
|
For the three months ended March 31, 2019
|
|
Sales
|
|
|
COGS
|
|
|
Gross
profit
|
|
|
Loss from
operations
|
|
|
Depreciation
and
amortization
|
|
|
Assets
|
|
Healthcare Knit Goods Series
|
|
$
|
31,346
|
|
|
$
|
18,984
|
|
|
$
|
12,362
|
|
|
$
|
(86,925
|
)
|
|
$
|
24,961
|
|
|
$
|
150,284
|
|
Daily Healthcare and Personal Care Series
|
|
|
30,318
|
|
|
|
14,849
|
|
|
|
15,469
|
|
|
|
(80,560
|
)
|
|
|
24,143
|
|
|
|
218,797
|
|
Wellness House and Activated Water Machine Series
|
|
|
77,207
|
|
|
|
35,571
|
|
|
|
41,636
|
|
|
|
(202,904
|
)
|
|
|
61,481
|
|
|
|
203,536
|
|
Segment Totals
|
|
$
|
138,871
|
|
|
$
|
69,404
|
|
|
$
|
69,467
|
|
|
|
(370,389
|
)
|
|
$
|
110,585
|
|
|
|
572,617
|
|
Other Expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,108
|
)
|
|
|
|
|
|
|
|
|
Income tax benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Unallocated Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,558,300
|
|
Net Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(371,497
|
)
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,130,917
|
|
NOTE 12 – FRANCHISE REVENUES
The Company enters into franchising agreements
to develop retail outlets for the Company’s products. The agreements provide that franchisees will sell Company products exclusively
at a predetermined retail price. In exchange the Company provides them with geographic exclusivity, discounted products, training
and support. The agreements also require franchisees to adhere to certain standards of product merchandising, promotion and presentment.
The agreements also prohibit franchisees from selling competitor’s products. The agreements do not require any initial franchise
fees from the franchisees, nor do they require the franchisees to pay continuing royalties. The agreements do not require the franchisees
to purchase any minimum levels of product, but do require that they make at least one purchase during each year. The Company does
not act to manage the franchisees’ levels of product. Franchisees hold periodic conferences, assisted by the Company’s
marketing department, to promote product awareness and the introduction of new products. The franchising agreements are generally
for terms of three years and are renewable at the mutual agreement of both parties. The franchising agreements are cancelable at
the Company’s discretion if franchisees violate the terms of the agreements.
The following is a breakdown of revenue
between franchise and non-franchise customers:
|
|
For the three months ended
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Sales to franchise customers
|
|
$
|
13,912
|
|
|
$
|
105,107
|
|
Sales to non-franchise customers
|
|
|
304
|
|
|
|
33,764
|
|
|
|
|
|
|
|
|
|
|
Total sales
|
|
$
|
14,216
|
|
|
$
|
138,871
|
|
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operation.
The
following discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto included
in Item 1 of this Quarterly Report on Form 10-Q and with Management’s Discussion and Analysis of Financial Condition and
Results of Operations contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31,
2020.
FORWARD-LOOKING
STATEMENTS:
Certain
statements made in this report may constitute “forward-looking statements on our current expectations and projections about
future events.” These forward-looking statements involve known or unknown risks, uncertainties, and other factors that may
cause our actual results, performance, or achievements to be materially different from any future results, performance or achievements
expressed or implied by the forward-looking statements. In some cases you can identify forward-looking statements by some words
such as “may,” “should,” “potential,” “continue,” “expects,” “anticipates,”
“intends,” “plans,” “believes,” “estimates,” and similar expressions. These statements
are based on our current beliefs, expectations, and assumptions, and are subject to a number of risks and uncertainties. Although
we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. These forward-looking statements are made as of the date of this report, and
we assume no obligation to update these forward-looking statements whether as a result of new information, future events, or otherwise,
other than as required by law. In light of these assumptions, risks, and uncertainties, the forward-looking events discussed in
this report might not occur and actual results and events may vary significantly from those discussed in the forward-looking statements.
Overview
General
We
develop, manufacture, market, distribute, and sell products, including knit goods, daily healthcare and personal care products,
and wellness house and activated water machine products, that are coated, embedded or filled with tourmaline. Most of our products,
such as clothing, bedding, and mattresses are purchased as finished products which we then coat and/or infuse with liquid or granular
tourmaline using one or more of our manufacturing techniques. We conduct all of our operations in Tianjin City, China and distribute
most of our products to more than 80 franchisees in China. Our franchisees, in turn, sell the products to their customers. All
of our revenues to date have been generated by sales to customers located in the PRC.
Beginning
in 2009, we began to develop a franchise network to distribute our healthcare knit goods, daily healthcare products and personal
care products. Through these franchisees, we were able to significantly increase sales of our healthcare knit goods segment and
daily healthcare and personal care segment. In 2010, we began distributing our wellness house and activated water machine products
through our franchise network.
We
are a holding company with no material operations of our own. All of our operations are conducted through Joway Shengshi and its
three subsidiaries, Joway Technology, Joway Decoration and Shengtang Trading. Joway Shengshi engages in the manufacture and distribution
of tourmaline health-related products such as knit goods, and daily healthcare and personal care products. Joway Technology and
Joway Decoration engage in the manufacture and distribution of activated water machines and wellness houses. We utilize our Shengtang
Trading subsidiary to purchase raw materials, which are then sold to Joway Shengshi and Joway Decoration.
As
a holding company, our ability to pay dividends and other cash distributions to our shareholders depends in part upon dividends
and other distributions paid to us by our PRC subsidiaries. The amount of dividends paid by our PRC subsidiaries to us primarily
depends on the service fees paid to our PRC subsidiaries from Joway Shengshi and its subsidiaries, and, to a lesser degree, our
PRC subsidiaries’ retained earnings. Conducting our operations through contractual arrangements with Joway Shengshi and
its subsidiaries has a risk that we may lose the power to direct the activities that most significantly affect the economic performance
of Joway Shengshi and its subsidiaries, which may result in our being unable to consolidate their financial results with our results
and may impair our access to their cash flow from operations and thereby reduce our liquidity.
We
have negative working capital, accumulated deficit and cash outflows from operations. These conditions raise substantial doubt
about our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to
develop additional sources of capital, develop a new sale strategy, and ultimately achieve profitable operations.
Description
of Selected Income Statement Items
Revenues.
We generate revenue from sales of our Healthcare Knit Goods Series, Daily Healthcare and Personal Care Series and Wellness
House and Activated Water Machine Series.
Cost
of goods sold. Cost of goods sold consists of costs directly attributable to production, including the cost of
raw materials, salaries for staff engaged in production activity, electricity, depreciation, packing materials, and related expenses.
Operating
expenses. Our total operating expenses consist of sales and marketing expenses and general and administrative expenses.
Sales and marketing expenses consist primarily of salaries and traveling expenses of our marketing department employees, transportation
expenses, and advertising expenses. General and administrative expenses consist primarily of salaries of our administrative
department employees, payroll taxes and benefits, general office expenses and depreciation.
Other
income (expense). Our other income (expense) consists primarily of interest income, investment income and bank service fee.
Income
taxes. According to the revised Enterprise Income Tax Law effective as of January 1, 2008, the income tax rate of our PRC
subsidiaries is generally 25%. Joway Health Industries Group Inc. was established under the laws of the State of Nevada and is
subject to U.S. federal income tax and Nevada annual reporting requirements.
Results
of Operations
The
following table sets forth certain information regarding our results of operations.
|
|
For the three months ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
REVENUES
|
|
$
|
14,216
|
|
|
$
|
138,871
|
|
COST OF REVENUES
|
|
|
8,022
|
|
|
|
69,404
|
|
GROSS PROFIT
|
|
|
6,194
|
|
|
|
69,467
|
|
OPERATING EXPENSES
|
|
|
342,800
|
|
|
|
439,856
|
|
LOSS FROM OPERATIONS
|
|
|
(336,606
|
)
|
|
|
(370,389
|
)
|
OTHER EXPENSE, NET
|
|
|
(823
|
)
|
|
|
(1,108
|
)
|
LOSS BEFORE INCOME TAXES
|
|
|
(337,429
|
)
|
|
|
(371,497
|
)
|
INCOME TAXES
|
|
|
-
|
|
|
|
-
|
|
NET LOSS
|
|
$
|
(337,429
|
)
|
|
$
|
(371,497
|
)
|
Business
Segments
In
2020 and 2019, we operated in three reportable business segments: (1) Healthcare Knit Goods, (2) Daily Healthcare and Personal
Care Products and (3) Wellness House and Activated Water Machine Products. The following table sets forth the contributions of
each reportable business segment in dollars and as a percent of revenue:
For
the three months ended March 31, 2020
|
|
Healthcare Knit goods Series
|
|
|
% of
Total
|
|
Daily Healthcare and Personal Care Series
|
|
|
% of
Total
|
|
Wellness House and Activated Water Machine Series
|
|
|
% of
Total
|
|
Total
|
|
REVENUES
|
|
$
|
2,207
|
|
|
15.5%
|
|
$
|
4,977
|
|
|
35.0%
|
|
$
|
7,032
|
|
|
49.5%
|
|
$
|
14,216
|
|
COST OF REVENUES
|
|
|
1,022
|
|
|
12.7%
|
|
|
2,313
|
|
|
28.8%
|
|
|
4,687
|
|
|
58.4%
|
|
|
8,022
|
|
GROSS PROFIT
|
|
|
1,185
|
|
|
19.1%
|
|
|
2,664
|
|
|
43.0%
|
|
|
2,345
|
|
|
37.9%
|
|
|
6,194
|
|
GROSS MARGIN
|
|
|
53.7
|
%
|
|
|
|
|
53.5
|
%
|
|
|
|
|
33.3
|
%
|
|
|
|
|
43.6
|
%
|
OPERATING EXPENSES
|
|
|
53,220
|
|
|
15.5%
|
|
|
120,012
|
|
|
35.0%
|
|
|
169,568
|
|
|
49.5%
|
|
|
342,800
|
|
LOSS FROM OPERATIONS
|
|
$
|
(52,035
|
)
|
|
15.5%
|
|
$
|
(117,348
|
)
|
|
34.9%
|
|
$
|
(167,223
|
)
|
|
49.7%
|
|
$
|
(336,606
|
)
|
For
the three months ended March 31, 2019
|
|
Healthcare Knit goods Series
|
|
|
% of
Total
|
|
Daily Healthcare and Personal Care Series
|
|
|
% of
Total
|
|
Wellness House and Activated Water Machine Series
|
|
|
% of
Total
|
|
Total
|
|
REVENUES
|
|
$
|
31,346
|
|
|
22.6%
|
|
$
|
30,318
|
|
|
21.8%
|
|
$
|
77,207
|
|
|
55.6%
|
|
$
|
138,871
|
|
COST OF REVENUES
|
|
|
18,984
|
|
|
27.4%
|
|
|
14,849
|
|
|
21.4%
|
|
|
35,571
|
|
|
51.3%
|
|
|
69,404
|
|
GROSS PROFIT
|
|
|
12,362
|
|
|
17.8%
|
|
|
15,469
|
|
|
22.3%
|
|
|
41,636
|
|
|
59.9%
|
|
|
69,467
|
|
GROSS MARGIN
|
|
|
39.4
|
%
|
|
|
|
|
51.0
|
%
|
|
|
|
|
53.9
|
%
|
|
|
|
|
50.0
|
%
|
OPERATING EXPENSES
|
|
|
99,287
|
|
|
22.6%
|
|
|
96,029
|
|
|
21.8%
|
|
|
244,540
|
|
|
55.6%
|
|
|
439,856
|
|
LOSS FROM OPERATIONS
|
|
$
|
(86,925
|
)
|
|
23.5%
|
|
$
|
(80,560
|
)
|
|
21.8%
|
|
$
|
(202,904
|
)
|
|
54.8%
|
|
$
|
(370,389
|
)
|
For
The Three Months Ended March 31, 2020 Compared to March 31, 2019
Revenue.
For the three months ended March 31, 2020, revenue was $14,216 compared to $138,871 for the three months ended March 31, 2019,
a decrease of $124,655 or 89.8%. In the first quarter of 2020, the impact of COVID-19 on the Chinese economy seriously affected
our business with implementation of restrictions at business operations and city lockdowns.
Revenue
from healthcare knit goods segment decreased by $29,139 or 93% to $2,207 for the three months ended March 31, 2020 from $31,346
for the three months ended March 31, 2019. This decrease was mainly due to decrease in sales of our mattress products. Our mattress
products are our best-selling products and were most affected by market fluctuations and stop working orders implemented by cities
under the lockdown period as COVID-19 swept China.
Revenue
from daily healthcare and personal care products decreased by $25,341 or 83.6% to $4,977 for the three months ended March 31,
2020 from $30,318 for the three months ended March 31, 2019. This was primarily due to the decrease in sales of most of our daily
healthcare and personal care products affected by industry downturn and almost of all cities under lockdown as COVID-19 swept
China.
Revenue
from wellness houses and activated water machines decreased by $70,175 or 90.9% to $7,032 for the three months ended March 31,
2020 from $77,207 for the three months ended March 31, 2019. This was mainly due to the decrease in revenue of our wellness house
construction. For the first quarter of 2020, there was no revenue from the wellness house construction due to whole lockdown of
cities as COVID-19 swept China.
Cost
of Goods Sold. For the three months ended March 31, 2020, cost of goods sold was $8,022 compared to $69,404 for the three
months ended March 31, 2019, a decrease of $61,382, or 88.4%. This decrease was mainly due to the decrease in sales.
Cost
of goods sold for healthcare knit goods segment decreased to $1,022 for the three months ended March 31, 2020 from $18,984 for
the three months ended March 31, 2019, a decrease of $17,962 or 94.6%. This decrease was due to the decrease in sales.
Cost
of goods sold for the daily healthcare and personal care segment decreased to $2,313 for the three months ended March 31, 2020
from $14,849 for the three months ended March 31, 2019, a decrease of $12,536 or 84.4%. This decrease was primarily due to the
decrease in sales.
Cost
of goods sold for our wellness house and activated water machine segment decreased to $4,687 for the three months ended March
31, 2020 from $35,571 for the three months ended March 31, 2019, a decrease of $30,884 or 86.8%. This decrease was mainly due
to the decrease in sales.
Gross
profit. Our gross profit decreased by $63,273 or 91.1% to $6,194 for the three months ended March 31, 2020, compared to $69,467
for the three months ended March 31, 2019. This decrease was mainly due to the decrease in sales. Our gross margin decreased from
50% for the three months ended March 31, 2019 to 43.6% for the three months ended March 31, 2020. This decrease was mainly due
to our wellness house and activated water machine segment.
Gross
profit for the healthcare knit goods segment decreased by $11,177 or 90.4% to $1,185 for the three months ended March 31, 2020
compared to $12,362 for the three months ended March 31, 2019. This decrease was mainly due to decreased sales of our mattress
products. The gross margins of healthcare knit goods segment increased from 39.4% for the three months ended March 31, 2019 to
53.7% for the three months ended March 31, 2020. It was mainly due to the increased proportion of products with higher gross margin.
Gross
profit of daily healthcare and personal care segment decreased by $12,805 or 82.8% to $2,664 for the three months ended March
31, 2020, compared to $15,469 for the three months ended March 31, 2019. This decrease was primarily due to the decrease in sales.
The gross margin of daily healthcare and personal care segment slightly increased from 51% for the three months ended March 31,
2019 to 53.5% for the three months ended March 31, 2020.
Gross
profit of the wellness house and activated water machine segments decreased by $39,291 or 94.4% to $2,345 for the three months
ended March 31, 2020, compared to $41,636 for the three months ended March 31, 2019. This decrease was mainly due to the decrease
in sales. The gross margin of our wellness house and activated water machine segments slightly decreased from 53.9% for the three
months ended March 31, 2019 to 33.3% for the three months ended March 31, 2020. It was mainly due to that there was no gross profit
from the wellness house construction, which has higher gross margin, for the first quarter of 2020.
Operating
expenses. Our total operating expenses consist of sales and marketing expenses and general and administrative expenses. Our
total operating expenses decreased by $97,056, or 22.1%, from $439,856 for the three months ended March 31, 2019 to $342,800 for
the three months ended March 31, 2020. This decrease was mainly due to the decrease in salary and R&D costs. Operating expenses
for healthcare knit goods segment decreased by $46,067 or 46.4% to $53,220 for the three months ended March 31, 2020 from $99,287
for the three months ended March 31, 2019. Operating expenses for daily healthcare and personal care segment increased by $23,983
or 25% to $120,012 for the three months ended March 31, 2020 from $96,029 for the three months ended March 31, 2019. Operating
expenses for our wellness house and activated water machine segment decreased by $74,972 or 30.7% to $169,568 for the three months
ended March 31, 2020 from $244,540 for the three months ended March 31, 2019.
Loss
from operations. As a result of the foregoing, our loss from operations was $337,429 for the three months ended March 31,
2020, compared to $370,389 for the three months ended March 31, 2019, a decrease of $34,068. This decrease of loss was mainly
due to the decrease in operating expenses.
Income
taxes. Our income tax expense was $0 for the three months ended March 31, 2020 and 2019, separately.
Net
Loss. For the three months ended March 31, 2020, our net loss was $337,429 compared to $371,497 for the three months ended
March 31, 2019. This decrease was primarily due to the decrease in operating expenses.
Franchising
We
enter into franchise agreements to develop retail outlets for our products. These agreements provide that franchisees will sell
our products exclusively. In exchange, we provide them with geographic exclusivity, discounted products, training, and support.
The agreements also require franchisees to adhere to certain standards of product merchandising, promotion, and presentment. The
agreements do not require the franchisees to purchase any minimum levels of product, but do require that they make at least one
purchase during each year. The agreements are generally for terms of three years and are renewable at the mutual agreement of
both parties. The Agreements are cancelable at our discretion if franchisees violate the terms of the agreements.
The
following is a breakdown of revenue between franchise and non-franchise customers:
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For the three months ended March 31,
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2020
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2019
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Sales to franchise customers
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$
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13,912
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$
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105,107
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Sales to non-franchise customers
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304
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33,764
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Total sales
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$
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14,216
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$
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138,871
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Liquidity
and Capital Resources
Our
cash at the beginning of the three months ended March 31, 2020 was $99,979 and decreased to $56,105 by the end of March 2020,
a decrease of $43,874. This decrease was mainly due to our deteriorated operating results. On March 31, 2020, we had net working
capital of $(1,088,741), a decrease of $221,416 from $(867,325) on December 31, 2019.
Our
cash flow information summary is as follows:
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For
the three months ended March 31,
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2020
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2019
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Net
cash provided by (used in):
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Operating
activities
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$
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(141,922
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)
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$
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(257,958
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Investing activities
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$
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-
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$
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(88,809
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)
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Financing activities
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$
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86,981
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$
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319,757
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Net
Cash Used In Operating Activities
Net
cash used in operating activities was $141,922 for the three months ended March 31, 2020 compared to $257,958 for the three months
ended March 31, 2019.
For
the three months ended March 31, 2020, cash was mainly used to cover the loss of $337,429, which was primarily offset by an add-back
of $99,130 of depreciation for non-cash expense and an increase in other payable of $43,798.
For
the three months ended March 31, 2019, cash was mainly used to cover the loss of $371,497, which was primarily offset by an add-back
of $105,717 of depreciation for non-cash expense.
Net
Cash Used In Investing Activities
Net
cash used in investing activities was $0 for the three months ended March 31, 2020, compared to $88,809 for the three months ended
March 31, 2019. During the first quarter of 2019, the cash expenditure of $88,809 was used in purchase of advanced production
equipment.
Net
Cash Provided By Financing Activities
Net
cash provided by financing activities was $86,981 for the three months ended March 31, 2020, compared to $319,757 for the three
months ended March 31, 2019.
On
May 10, 2007, one of our operating subsidiaries, Joway Shengshi entered into a cash advance agreement with Mr. Jinghe Zhang, our
President, Chief Executive Officer and director. Pursuant to the agreement, Mr. Jinghe Zhang agreed to advance operating capital
to Joway Shengshi. These advances are interest free, unsecured and are repayable upon demand. During the period beginning May
17, 2007 (inception of Joway Shengshi) through March 31, 2020, Joway Shengshi received cash advances in the aggregate principal
amount of $6,200,307 from Jinghe Zhang of which $4,632,811 has been repaid. For the three months ended March 31, 2020 and 2019,
we received $86,981 and $320,501, respectively. As of March 31, 2020, the total unpaid principal balance due to Mr. Jinghe Zhang
for advances made to Joway Shengshi was $1,567,496.
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On May 7, 2007, our subsidiary Joway Shengshi entered into an agreement with Shenyang Joway pursuant to which Joway Shengshi and Shenyang Joway agreed to provide each other with interest-free, unsecured advances for working capital. On May 10, 2007, our subsidiary Joway Technology and Shenyang Joway entered into an agreement pursuant to which Joway Technology and Shenyang Joway agreed to provide each other with interest-free, unsecured advances for working capital. Through December 31, 2008, Joway Technology advanced $58,568 to Shenyang Joway, which was paid off by Shenyang Joway to Joway Technology in 2009. Through December 31, 2018, Shenyang Joway advanced an aggregate of $912,645 to Joway Shengshi and Joway Technology. For the three months ended March 31, 2020 and 2019, we repaid $0 and $744 of these advances, respectively. As of March 31, 2020, the total unpaid principal balance due to Shenyang Joway for advances was $0.
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STATUTORY
RESERVES
Pursuant
to the laws and regulations of the PRC, the Company’s PRC subsidiaries are required to allocate a portion of their after-tax
income to statutory reserves funds. The minimum statutory reserves allocation is 10% of after-tax income until the reserves reach
50% of the entities’ registered capital or members’ equity. The reserve funds are not transferable to the Company
in the form of cash dividends, loans or advances. Thus, the reserve funds are not available for distribution except in liquidation.
As of March 31, 2020 and December 31, 2019, the Company had allocated $354,052 to statutory reserves.
Off
Balance Sheet Items
Under
SEC regulations, we are required to disclose off-balance sheet arrangements that have or are reasonably likely to have a current
or future effect on our financial condition, such as changes in financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources that are material to investors. An off-balance sheet arrangement means a
transaction, agreement or contractual arrangement to which any entity that is not consolidated with us is a party, under which
we have:
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any
obligation under certain guarantee contracts,
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any
retained or contingent interest in assets transferred to an unconsolidated entity or similar arrangement that serves as credit,
liquidity or market risk support to that entity for such assets,
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any
obligation under a contract that would be accounted for as a derivative instrument, except that it is both indexed to our
stock and classified in shareholder equity in our statement of financial position, and
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any
obligation arising out of a material variable interest held by us in an unconsolidated entity that provides financing, liquidity,
market risk or credit risk support to us, or engages in leasing, hedging or research and development services with us.
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We
do not have any off-balance sheet arrangements that we are required to disclose pursuant to these regulations. In the ordinary
course of business, we enter into operating lease commitments, purchase commitments and other contractual obligations. These transactions
are recognized in our financial statements in accordance with generally accepted accounting principles in the United States.
Critical
Accounting Policies
Management’s
discussion and analysis of its financial condition and results of operations are based upon our consolidated financial statements,
which have been prepared in accordance with accounting principles generally accepted in the United States. Our financial statements
reflect the selection and application of accounting policies which require management to make significant estimates and judgments.
Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under
the circumstances. Actual results may differ from these estimates under different assumptions or conditions. We believe that the
following reflect the more critical accounting policies that currently affect our financial condition and results of operations.
Basis
of Consolidation
The
accompanying consolidated financial statements include Joway Health and its wholly owned subsidiaries and controlled VIEs. All
significant inter-company accounts and transactions have been eliminated in the consolidation.
Pursuant
to Accounting Standards Codification Topic 810 “Consolidation” (“ASC 810”), the Company is required to
include in its consolidated financial statements the financial statements of its variable interest entities (“VIEs”).
ASC 810 requires a VIE to be consolidated by a company if that company is subject to a majority of the risk of loss for the VIE
or is entitled to receive a majority of the VIE’s residual returns. VIEs are those entities in which a company, through
contractual arrangements, bears the risk of, and enjoys the rewards normally associated with ownership of the entity, and therefore
the company is the primary beneficiary of the entity.
Based
on the various Contractual Agreements, we believe we are able to exercise control over the VIEs, and to obtain the full economic
benefits. We believe that the terms of the exclusive option agreement are currently exercisable and legally enforceable under
PRC laws and regulations. We also believe that the minimum amount of consideration permitted by the applicable PRC law to exercise
the option does not represent a financial barrier or disincentive for us to exercise our rights under the exclusive option agreement.
A simple majority vote of our board of directors is required to pass a resolution to exercise our rights under the exclusive option
agreement, for which consent of the shareholder of VIEs is not required. Therefore, we believe this gives us the power to direct
the activities that most significantly impact VIEs’ economic performance. T We believe that our ability to exercise effective
control, together with the consulting service agreements and the equity pledge agreements, give us the rights to receive substantially
all of the economic benefits from VIEs in consideration for the services provided by its wholly owned subsidiaries in China. Accordingly,
as the primary beneficiary of VIEs and in accordance with U.S. GAAP, Joway Shengshi, Joway Technology, Joway Decoration, and Shengtang
Trading, as VIEs of Junhe Consulting, has been consolidated in the Company’s financial statements. Sales from Joway Shengshi,
Joway Technology, Joway Decoration, and Shengtang Trading are included in our total sales, their incomes or losses from operations
are consolidated with ours, and our net income or loss includes net income or loss from Joway Shengshi, Joway Technology, Joway
Decoration, and Shengtang Trading.
Revenue
Recognition
We
recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the
purchase price is fixed or determinable and collectability is reasonably assured.
With
respect to sales of product to both franchisee and non-franchisee customers, we prepare product shipment upon the receipt of a
customer’s purchase order. Sales prices are based on fixed price lists that are different depending on whether the price
list is for franchisee customers or for non-franchisee customers. We recognize revenue when the product is shipped. We do not
sell product to any customers with a right of return as defined in ASC 605-15-25-4. Sales are presented net of value added tax
(VAT).
We
recognize revenue on the sale of our wellness houses under the completed contract method. At the time when we enter into a contract
with a customer to build a wellness house, the customer pays a deposit of at least one-half of the sales price. We consider the
contract to be completed when all significant costs have been incurred and the customer accepts the project in writing by signing
in the appropriate place on the contract. At this time the customer will also pay any remaining balance on the contract. We recognize
the full contract revenue at this point. Contract costs consist primarily of materials and labor costs. The construction period
of a wellness house generally does not exceed five days.
Accounts
Receivable
Accounts
receivable are carried at net realizable value. We provide reserves for potential credit losses on accounts receivable. Management
reviews the composition of the accounts receivable and analyzes historical bad debts, customer concentrations, customers’
credit worthiness, current economic trends, and changes in customer’s payment patterns to evaluate the adequacy of these
reserves.
Inventories
Inventories
are stated at the lower of cost, as determined by the specific identification method on contract level (for each individual contract,
inventories cost flow is determined by weighted-average method), or the net realizable value, which is determined on selling prices
less any further costs expected to be incurred for completion and disposal. Management regularly evaluates the composition of
its inventories to identify slow-moving and obsolete inventories to determine whether a valuation allowance is required.
Property,
Plant, and Equipment
Property,
plant and equipment are stated at cost less accumulated depreciation, and include expenditures that substantially increase the
useful lives of existing assets.
Depreciation
is computed using the straight-line method over the estimated useful lives of the assets. Estimated useful lives are as follows:
Building
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20 years
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Operating Equipment
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10 years
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Office furniture and equipment
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3 or 5 years
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Vehicles
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10 years
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The
cost and related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts, and any gain or
loss is included in the consolidated statements of income and other comprehensive income. Maintenance, repairs and minor renewals
are charged directly to expenses as incurred. Significant renewals and betterment to buildings and equipment are capitalized.
Leasehold improvements are depreciated over the lesser of the useful life or the life of the lease.
Recent
Accounting Pronouncements
We
do not anticipate that the adoption of recently issued accounting pronouncements to have a material effect on our condensed consolidated
financial statements.
Going
Concern
The
accompanying unaudited condensed financial statements have been prepared assuming that the Company will continue as a going concern,
which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.
As reflected in the accompanying unaudited condensed financial statements, the Company had an accumulated deficit of $5,601,469
and a working capital deficit of approximately $1,088,000 at March 31, 2020, and has incurred losses for all periods presented.
These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The ability of the
Company to continue as a going concern is dependent on the Company’s ability to raise additional capital and implement its
business plan, which is now to seek and develop a new sale strategy to enhance our sale force. The financial statements do not
include any adjustments that might be necessary if the Company is unable to continue as a going concern. Management intends to
provide the Company with additional loans as needed. Management feels these actions provide the opportunity for the Company to
continue as a going concern.