UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20-549
FORM
10-Q
(Mark
One)
|
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
quarterly period ended September 30, 2010
|
o
|
TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
ACT
|
For the
transition period from ______________ to _____________
Commission
file number:
000-51060
CHINA
HEALTH INDUSTRIES HOLDINGS, INC.
(Exact
name of registrant as specified in its charter)
|
Delaware
(State
or other jurisdiction of incorporation or organization)
|
|
86-0827216
(I.R.S.
Employer Identification No.)
|
|
168
Binbei Street, Songbei District, Harbin City
Heilongjiang
Province, People’s Republic of China
(Address
of principal executive offices)
|
|
(Zip
Code)
|
011-86-451-51719407
(Registrant’s
telephone number, including area code)
Not
Applicable
(Former
name, former address and former fiscal year, if changed since last
report)
Indicate
by check mark whether the registrant (1) has filed reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90
days. Yes
x
No
o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files). Yes
o
No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
|
Large
accelerated filer
o
|
Accelerated
filer
o
|
|
|
|
|
Non-accelerated
filer
o
|
Smaller
reporting company
x
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange
Act). Yes
o
No
x
APPLICABLE
ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS
DURING THE PRECEDING FIVE YEARS
Indicate
by check mark whether the registrant has filed all documents and reports
required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court. Yes
o
No
o
APPLICABLE
ONLY TO CORPORATE ISSUERS
Indicate
the number of shares outstanding of each of the issuer’s classes of common
equity, as of the latest practicable date:
As of
November 12, 2010, there are 62,239,737 shares
of $0.0001
par value common stock issued and outstanding.
FORM
10-Q
CHINA
HEALTH INDUSTRIES HOLDINGS, INC.
INDEX
|
|
|
Page
|
|
PART
I
|
FINANCIAL
INFORMATION
|
3
|
|
|
|
|
|
|
Item
1. Financial Statements (Unaudited).
|
3
|
|
|
|
|
|
|
Condensed
Consolidated Balance Sheets as of September 30, 2010 (Unaudited) and June
30, 2010.
|
5
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Operations and Comprehensive Income for the
Three Months Ended September 30, 2010 and September 30, 2009
(Unaudited).
|
6
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Cash Flows for the Three Months ended September
30, 2010 and September 30, 2009 (Unaudited).
|
7
|
|
|
|
|
|
|
Condensed
Consolidated Statement of Changes in Stockholders’ Equity for the Three
Months ended September 30, 2010 (Unaudited).
|
8
|
|
|
|
|
|
|
Notes
to Financial Statements.
|
9
|
|
|
|
|
|
|
Item
2. Management’s Discussion and Analysis of Financial Condition and Results
of Operations.
|
22
|
|
|
|
|
|
|
Item
3. Quantitative and Qualitative Disclosures About Market
Risk.
|
27
|
|
|
|
|
|
|
Item
4. Controls and Procedures.
|
27
|
|
|
|
|
|
PART
II
|
OTHER
INFORMATION
|
29
|
|
|
|
|
|
|
Item
1. Legal Proceedings.
|
29
|
|
|
|
|
|
|
Item
1A. Risk Factors.
|
29
|
|
|
|
|
|
|
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds.
|
29
|
|
|
|
|
|
|
Item
3. Defaults Upon Senior Securities.
|
29
|
|
|
|
|
|
|
Item
4. (Removed and Reserved).
|
29
|
|
|
|
|
|
|
Item
5. Other Information.
|
29
|
|
|
|
|
|
|
Item
6. Exhibits.
|
29
|
PART I - FINANCIAL
INFORMATION
Item
1. Financial Statements (Unaudited)
INDEX
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
Condensed
Consolidated Balance Sheets
|
|
|
F-2
|
|
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Operations and Comprehensive
Income
|
|
|
F-3
|
|
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Cash Flows
|
|
|
F-4
|
|
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Stockholders’ Equity
|
|
|
F-5
|
|
|
|
|
|
|
|
|
Notes
to Condensed Consolidated Financial Statements
|
|
|
F-6
- F-19
|
|
CHINA HEALTH INDUSTRIES HOLDINGS,
INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
|
September
30, 2010 (Unaudited)
|
|
|
June
30, 2010 (Audited)
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
14,132,435
|
|
|
$
|
13,344,531
|
|
|
Accounts
receivable
|
|
|
5,787
|
|
|
|
5,693
|
|
|
Inventory
|
|
|
327,395
|
|
|
|
184,522
|
|
|
Notes
receivable
|
|
|
3,072,390
|
|
|
|
2,992,893
|
|
|
Prepaid
expenses
|
|
|
812,980
|
|
|
|
764,738
|
|
|
Deposit
|
|
|
3,135,217
|
|
|
|
3,084,335
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
21,486,204
|
|
|
|
20,376,712
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment – net
|
|
|
988,826
|
|
|
|
987,310
|
|
|
Intangible
Assets – net
|
|
|
843,704
|
|
|
|
835,183
|
|
|
Construction-in-progress
|
|
|
166,017
|
|
|
|
163,323
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
23,484,751
|
|
|
$
|
22,362,528
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
367,740
|
|
|
$
|
228,629
|
|
|
Customer
deposits
|
|
|
367
|
|
|
|
363
|
|
|
Related
party debt
|
|
|
88,009
|
|
|
|
85,408
|
|
|
Wages
payable
|
|
|
296,707
|
|
|
|
291,885
|
|
|
Self-insured
reserve
|
|
|
219,912
|
|
|
|
216,343
|
|
|
Tax
payable
|
|
|
1,839,992
|
|
|
|
3,629,951
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
2,812,727
|
|
|
|
4,452,579
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
909,833
|
|
|
|
968,484
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
|
Common
stock ($0.0001 par value, 300,000,000 shares authorized, 62,239,737 and
62,239,737 issued and outstanding, respectively)
|
|
|
6,224
|
|
|
|
6,224
|
|
|
Additional
paid-in capital
|
|
|
1,436,078
|
|
|
|
1,434,910
|
|
|
Accumulated
other comprehensive income
|
|
|
814,171
|
|
|
|
589,618
|
|
|
Retained
earnings
|
|
|
18,415,551
|
|
|
|
15,879,197
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Stockholders' equity
|
|
|
20,672,024
|
|
|
|
17,909,949
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$
|
23,484,751
|
|
|
$
|
22,362,528
|
|
See
accompanying notes to the condensed consolidated financial
statements
CHINA
HEALTH INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
For
the Three Months Ended
|
|
|
|
|
September
30, 2010
|
|
|
September
30, 2009
|
|
|
REVENUE
|
|
$
|
11,617,393
|
|
|
$
|
10,246,606
|
|
|
COST
OF GOODS SOLD
|
|
|
5,985,295
|
|
|
|
4,486,366
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit
|
|
|
5,632,098
|
|
|
|
5,760,240
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
|
|
Selling,
general & administrative expenses
|
|
|
1,261,392
|
|
|
|
516,325
|
|
|
Depreciation
and amortization expenses
|
|
|
19,697
|
|
|
|
20,331
|
|
|
Research
& development
|
|
|
737,428
|
|
|
|
-
|
|
|
Total
operating expenses
|
|
|
2,018,517
|
|
|
|
536,656
|
|
|
Operating
profit
|
|
|
3,613,581
|
|
|
|
5,223,584
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSES)
|
|
|
|
|
|
|
|
|
|
Interest
expenses
|
|
|
(1,168
|
)
|
|
|
(15,899
|
)
|
|
Interest
income
|
|
|
39,355
|
|
|
|
-
|
|
|
Other
income
|
|
|
|
|
|
|
5
|
|
|
Total
other income (expense)
|
|
|
38,187
|
|
|
|
(15,894
|
)
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
(LOSS) BEFORE INCOME TAXES
|
|
|
3,651,768
|
|
|
|
5,207,690
|
|
|
Income
taxes
|
|
|
1,115,414
|
|
|
|
1,318,033
|
|
|
Net
income (loss)
|
|
$
|
2,536,354
|
|
|
$
|
3,889,657
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation gain (loss)
|
|
$
|
224,553
|
|
|
$
|
184,455
|
|
|
Comprehensive
income
|
|
$
|
2,760,907
|
|
|
$
|
4,074,112
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted net loss per share
|
|
|
0.04
|
|
|
|
0.06
|
|
|
Weight
average shares outstanding
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
62,239,737
|
|
|
|
62,234,737
|
|
|
Diluted
|
|
|
62,239,737
|
|
|
|
62,234,737
|
|
See
accompanying notes to the condensed consolidated financial
statements
CHINA
HEALTH INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
For
the Three Months Ended
September
30
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
2,536,354
|
|
|
$
|
3,889,657
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net income (loss) to net cash
|
|
|
|
|
|
|
|
|
|
provided
by (used in) operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
& amortization
|
|
|
19,698
|
|
|
|
20,331
|
|
|
Imputed
interest
|
|
|
1,168
|
|
|
|
15,899
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes
in assets and liabilities -
|
|
|
|
|
|
|
|
|
|
(Increase)
decrease in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivables and other receivables
|
|
|
(50,976
|
)
|
|
|
15,841
|
|
|
Inventory
|
|
|
(142,873
|
)
|
|
|
(1,962
|
)
|
|
Prepaid
expense
|
|
|
(48,242
|
)
|
|
|
(31,483
|
)
|
|
Accounts
payable and other payables
|
|
|
(1,642,453
|
)
|
|
|
976,324
|
|
|
Net
cash provided by (used in) operating activities
|
|
|
672,675
|
|
|
|
4,884,607
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases/
(transfer) of fixed assets
|
|
|
-
|
|
|
|
(5,643
|
)
|
|
Notes
receivable
|
|
|
(79,497
|
)
|
|
|
-
|
|
|
Prepayment
on acquisition
|
|
|
|
|
|
|
(8,043,758
|
)
|
|
Prepayment
on land use right
|
|
|
|
|
|
|
(3,071,253
|
)
|
|
construction-in-progress
|
|
|
-
|
|
|
|
(160,886
|
)
|
|
Net
cash provided by investing activities
|
|
|
(79,497
|
)
|
|
|
(11,281,540
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Proceeds
from related party debt
|
|
|
2,601
|
|
|
|
(17,201
|
)
|
|
Net
cash provided by financing activities
|
|
|
2,601
|
|
|
|
(17,201
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rates on cash
|
|
|
192,124
|
|
|
|
184,454
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
787,904
|
|
|
|
(6,229,680
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, at beginning of year
|
|
|
13,344,531
|
|
|
|
7,394,270
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, at end of year
|
|
$
|
14,132,435
|
|
|
$
|
1,164,590
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
cash flow information
|
|
|
|
|
|
|
|
|
|
Cash
paid for income tax
|
|
$
|
2,408,152
|
|
|
$
|
-
|
|
See
accompanying notes to the condensed consolidated financial
statements
CHINA
HEALTH INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
|
|
|
Common
shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Additional
Paid-in Capital
|
|
|
Retained
Earnings (Accumulated Deficit)
|
|
|
Accumulated
Other Comprehensive Income
|
|
|
Stockholders'
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances,
June 30, 2010
|
|
|
62,239,737
|
|
|
$
|
6,224
|
|
|
$
|
1,434,910
|
|
|
$
|
15,879,197
|
|
|
$
|
589,618
|
|
|
$
|
17,909,949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Imputed
interest on shareholder loan
|
|
|
|
|
|
|
|
|
|
|
1,168
|
|
|
|
|
|
|
|
|
|
|
|
1,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income for the three months ended September 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,536,354
|
|
|
|
|
|
|
|
2,536,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income-Translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
224,553
|
|
|
|
224,553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances,
September 30, 2010
|
|
|
62,239,737
|
|
|
$
|
6,224
|
|
|
$
|
1,436,078
|
|
|
$
|
18,415,551
|
|
|
$
|
814,171
|
|
|
$
|
20,672,024
|
|
See
accompanying notes to the condensed consolidated financial
statements
CHINA
HEALTH INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note
1 - ORGANIZATION AND BUSINESS BACKGROUND
We were
incorporated in the state of Arizona on July 11, 1996 and were the successor of
the business known as Arizona Mist, Inc. which began in 1989. On May 9, 2005, we
entered into a Stock Purchase Agreement and Share Exchange (effecting a reverse
merger) with Edmonds 6, Inc. (Edmonds 6) and our name was changed to Universal
Fog, Inc. Edmonds 6 was incorporated on August 19, 2004 under the laws of the
State of Delaware to engage in any lawful corporate undertaking, including, but
not limited to, selected mergers and acquisitions. 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") was incorporated on July 20,
2007 in Hong Kong under the Companies Ordinance as a limited liability company.
China Health 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 Statement of Financial
Accounting Standards (SFAS) No. 7.
Harbin
Humankind Biology Technology Co., Limited ("Humankind") was incorporated in
Harbin City, Heilongjiang Province, the People's Republic of China (the "PRC")
on December 14, 2003, as a limited liability company under the Company Law of
PRC.
Harbin Humankind is
engaged in the business of production and distribution of health
food.
On August
20, 2007, the sole shareholder of China Health entered into a Share Purchase
Agreement with the owners of Humankind. Pursuant to the Agreement, China Health
purchased 100% of the ownership in Humankind for a cash consideration of
$60,408. Subsequent to completion of the Agreement, Humankind became a
wholly-owned subsidiary of China Health. The share purchase transaction is being
accounted for as a “reverse merger,” since the owner of Humankind owns a
majority of the outstanding shares of China Health’s common stock immediately
following the execution of the Agreement. Humankind is deemed to be
the acquirer in the reverse merger. Consequently, the assets and
liabilities and the historical operations that will be reflected in the
financial statements for periods prior to the Agreement will be those of
Humankind and will be recorded at the historical cost basis. After
completion of the Agreement, China Health’s consolidated financial statements
will include the assets and liabilities of both China Health and Humankind, the
historical operations of Humankind and the operations of China Health and its
subsidiaries from the closing date of the Agreement.
On
October 14, 2008, Harbin Humankind set up a 99% owned subsidiary Harbin
Huimeijia Medicine with its primary business being manufacturing and
distributing medicine. Mr. Xin Sun, the Company’s majority owner, owns 1% of
this subsidiary. The subsidiary is consolidated in the consolidated financial
statements of the Company.
On
December 31, 2008, China Health closed a reverse merger with Universal Fog, Inc;
a U.S. public traded Shell Company. China Health is the accounting
acquirer in the transaction and the transaction is treated as a recapitalization
of the Company. After the transaction and a 1:20 reverse stock split, Xin Sun
owned 61,203,088 shares of common stock, representing 98.3% of the 62,234,737
total outstanding shares of common stock of the Company. 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 the Company, or approximately
53.03%. We changed our name from "Universal Fog, Inc." to "China Health
Industries Holdings, Inc." on February 19, 2009.
Note
2 - SIGNIFICANT ACCOUNTING POLICIES
Principals
of Consolidation
The
accompanying consolidated financial statements include China Health Industries
Holdings Inc. and its wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
Basis
of Presentation
The
accompanying financial statements are prepared in accordance with generally
accepted accounting principles in the United States of America (“US GAAP”). This
basis of accounting differs from that used in the statutory accounts of China
Health, which are prepared in accordance with the “Accounting Principles of
China” (“PRC GAAP”).
Translation
of Foreign Currencies
China
Health maintains its books and accounting records in PRC currency “Renminbi”
(“RMB”), which is determined as the functional currency. Transactions
denominated in currencies other than RMB are translated into RMB at the exchange
rates quoted by the People’s Bank of China (“PBOC”) prevailing at the date of
the transactions. Foreign currency exchange gain and losses resulting from these
transactions are included in operations.
China
Health’s financial statements are translated into the reporting currency, the
United States Dollar (“US$”). Assets and liabilities of China Health are
translated at the prevailing exchange rate at each reporting period end.
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 translation of these financial statements are
reflected as accumulated other comprehensive income (loss) in the shareholders’
equity.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and judgments that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. China Health 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 about 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 our operating environment
changes. While China Health believes that the estimates and
assumptions used in the preparation of the financial statements are appropriate,
actual results could differ from those estimates.
Earnings
per share
Basic
earnings per common share is computed by dividing net earnings applicable to
common shareholders by the weighted-average number of common shares outstanding
during the period. When applicable, diluted earnings per common share is
determined using the weighted-average number of common shares outstanding during
the period, adjusted for the dilutive effect of common stock equivalents,
consisting of shares that might be issued upon exercise of common stock options
and warrants.
Potential
common shares issued are calculated using the treasury stock method, which
recognizes the use of proceeds that could be obtained upon the exercise of
options and warrants in computing diluted earnings per share. It assumes that
any proceeds would be used to purchase common stock at the average market price
of the common stock during the period.
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.
Accounts
Receivable
Accounts
receivable are recorded at the invoiced amount and do not bear interest. China
Health extends unsecured credit to its customers in the ordinary course of
business but mitigates the associated risks by performing credit checks and
actively pursuing past due accounts. An allowance for doubtful accounts is
established and determined based on managements’ assessment of known
requirements, aging of receivables, payment history, the customer’s current
credit worthiness, and the economic environment.
Concentrations
of Credit Risk
Financial
instruments that subject China Health to concentrations of credit risk consist
primarily of cash and cash equivalents. China Health maintains its cash and cash
equivalents with high-quality institutions. Deposits held with banks may exceed
the amount of insurance provided on such deposits. Generally these deposits may
be redeemed upon demand and therefore bear minimal risk.
Self-Insured
Reserve and Allowance
The
Company is self-insured for all risks and carries no general liability or
product insurance coverage of any kind. This account requires the use of
estimates and judgment. The Company bases its estimates on historical experience
and on various other assumptions that are believed to be reasonable under the
circumstances. The Company believes that such estimates are made with consistent
and appropriate methods. Actual results may differ from these estimates under
different assumptions or conditions.
Fair
Value of Financial Instruments
The
carrying value of financial instruments including cash and cash equivalents,
receivables, accounts payable and accrued expenses, approximates their fair
value at September 30, 2010 and 2009 due to the relatively short-term nature of
these instruments.
Prepaid
Expenses
Prepaid
expenses principally include advances to raw material suppliers.
Inventory
Inventories
are stated at the lower of cost or market using the weighted average method.
China Health reviews its inventory on a regular basis for possible obsolete
goods or to determine if any reserves are necessary for potential obsolescence.
No reserve was made in the three months ended September 30, 2010 and 2009,
respectively.
Impairment
of Long–Lived Assets
China
Health reviews all of its long-lived assets, including tangible and intangible
long-lived assets, for impairment indicators at least annually and performs
detailed impairment testing for all long-lived assets whenever impairment
indicators are present. When necessary, China Health records charges for
impairments of long-lived assets for the amount by which the present value of
future cash flows, or some other fair value measure, is less than the carrying
value of these assets.
Property,
Plant and Equipment
Property,
plant and equipment are carried at cost. Maintenance, repairs and minor renewals
are expensed as incurred; major renewals and improvements that extend the lives
or increase the capacity of plant assets are capitalized.
When
assets are retired or disposed of, the cost and accumulated depreciation are
removed from the accounts, and any resulting gains or losses are included in
income in the reporting period of disposition.
Depreciation
is calculated on a straight-line basis over the estimated useful life of the
assets... The percentages or depreciable life applied are:
|
Building,
warehouse and Improvements
|
20
to 30 years
|
|
Land
use rights
|
50
years
|
|
Furniture
& Equipment
|
5
to 7 years
|
|
Transportation
Equipment
|
5
to 15 years
|
|
Machinery
and Equipment
|
7
to 15 years
|
Property
and equipment are evaluated for impairment in value whenever an event or change
in circumstances indicates that the carrying values may not be recoverable. If
such an event or change in circumstances occurs and potential impairment is
indicated because the carrying values exceed the estimated future undiscounted
cash flows of the asset, the Company will measure the impairment loss as the
amount by which the carrying value of the asset exceeds its fair
value.
Intangible
assets
Intangible
assets consist of patents and goodwill. Patent costs are amortized over an
estimated life of ten years.
Intangible
assets are accounted for in accordance with Statement of Financial Accounting
Standards No. 142,
Goodwill and Other Intangible
Assets
(“SFAS 142”). Intangible assets with finite useful lives are
amortized while intangible assets with indefinite useful lives are not
amortized. As prescribed by SFAS 142, goodwill and intangible assets are tested
periodically for impairment. The Company adopted SFAS No. 144, "Accounting for
the Impairment or Disposal of Long- Lived Assets," effective January 1, 2002.
Accordingly, the Company reviews its long-lived assets, including property and
equipment and finite-lived intangible assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of the assets may not
be fully recoverable. To determine recoverability of its long-lived assets, the
Company evaluates the probability that future undiscounted net cash flows will
be less than the carrying amount of the assets. Impairment costs, if any, are
measured by comparing the carrying amount of the related assets to their fair
value. The Company recognizes an impairment loss based on the excess
of the carrying amount of the assets over their respective fair values. Fair
value is determined by discounted future cash flows, appraisals or other
methods. If the assets determined to be impaired are to be held and
used, the Company recognizes an impairment loss thru a charge to operating
results to the extent the present value of anticipated cash flows attributable
to the assets are less than the asset’s carrying value. The Company would
depreciate the remaining the remaining value over the remaining estimated useful
life of the asset to operating results.
Pharmaceutical
Patents
On June
9, 2007, China Health entered into a Purchase Agreement, pursuant to which China
Health agreed to purchase pharmaceutical patents from a third party for $410,792
(RMB ¥ 3,180,000).
China
Health recorded the pharmaceutical patents at the purchase price and amortizes
the costs over their estimated beneficial period, 10 years, using the
straight-line method as of June 30, 2008. The Company recognizes an
impairment loss based on the excess of the carrying amount of the assets over
their respective fair values. Fair value is determined by discounted future cash
flows, appraisals or other methods. If the assets determined to be
impaired are to be held and used, the Company recognizes an impairment loss thru
a charge to operating results to the extent the present value of anticipated
cash flows attributable to the assets are less than the asset’s carrying value.
The Company would depreciate the remaining the remaining value over the
remaining estimated useful life of the asset to operating results.
There
were no impairments during the three months ended September 30, 2010 and
2009.
Land
Use Right
All land
belongs to the State in PRC. Enterprises and individuals can pay the State a fee
to obtain a right to use a piece of land for commercial purpose or residential
purpose for an initial period of 50 years or 70 years, respectively. The land
use right can be sold, purchased, and exchanged in the market. The successor
owner of the land use right will reduce the amount of time which has been
consumed by the predecessor owner. On June 7, 2004, China Health enter into a
Purchase Contract with the local government, pursuant to which China Health
agreed to purchase the right to use a piece of land, approximately 8 acres,
located in the Harbin County, Heilongjiang Province for commercial purpose over
a fifty-year period from June 7, 2004 through June 6, 2054, for $637,261 (RMB
5,248,000), which China Health has fully paid to the seller on June 13, 2004.
The Department of Housing and Urban Development (“HUD”) of Harbin City approved
this transaction. China Health recorded the land use right at its purchase
price. The cost of the land use right is amortized over its prospective
beneficial period, using the straight-line method with no residual value. China
Health’s production facilities and office are located in this piece of
land. As of September 30, 2010, the land use right and improvement
have net balance of $843,704.
Customer
Deposit represents the money the Company has received from customers in advance
for the purchase of goods. The Company considers customer deposits as a
liability until the title of goods have been transferred at which point the
balance will be credited to sales revenue.
Revenue Recognition
China
Health recognizes revenue when it is both earned and realized or realizable. The
Company’s policy is to recognize revenue when title to the product, ownership
and risk of loss have transferred to the customer, persuasive evidence of an
arrangement exits and collection of the sales proceeds is reasonably assured,
all of which generally occur upon shipment of goods to customers. The majority
of the Company’s revenue relates to the sale of inventory to customers, and
revenue is recognized when title and the risks and rewards of ownership pass to
the customer. Given the nature of the Company’s business and the applicable
rules guiding revenue recognition, the Company’s revenue recognition practices
do not contain estimates that materially affect the results of operations, with
the exception of estimated returns and credit memos. The Company allows its
customers to return product for exchange or credit subject to certain
limitations. A provision for such returns is recorded based upon historical
experience. As of September 30, 2010 and 2009, the Company had a
reserve of $nil and $nil, respectively.
Sales Incentives
— The
Company accounts for cash consideration (such as sales incentives and cash
discounts) given to its customers or resellers as a reduction of revenue rather
than an operating expense.
Research
and Development Costs
Research
and development costs relating to the development of new products and processes,
including significant improvements and refinements to existing products, are
expensed when incurred.
The
Company recognizes in-process research and development in accordance with FASB
Interpretation No. 4,
Applicability of FASB Statement No.
2 to Business Combinations Accounted for by the Purchase Method
and
the
AICPA
Technical Practice Aid, Assets Acquired in a Business Combination to be used in
Research and Development Activities: A Focus on Software, Electronic
Devices, and Pharmaceutical Industries. Assets to be used in research and
development activities, specifically, compounds that have yet to receive new
drug approval and would have no alternative use, should approval not be given,
are immediately charged to expense when acquired. Certain assets and
high technologies acquired that has a foreseeable future cash flows are
capitalized as intangible assets. Such intangible assets are
amortized starting from the year revenue is generated and amortize over a period
of 10 years.
For the
three months ended September 30, 2010, the Company incurred $737,428 in research
and development costs. There was $nil research and development costs for the
three months ended September 30, 2009.
Advertising
Costs
Advertising
costs are expensed as incurred and included as part of selling and marketing
expenses in accordance with the American Institute of Certified Public
Accountants (“AICPA”) Statement of Position 93-7, “Reporting for Adverting
Costs”. Advertising costs were immaterial for the three months ended September
30, 2010 and 2009, respectively.
Income
Taxes
China
Health accounts for income tax using SFAS No. 109 “Accounting for Income Taxes”,
which requires the asset and liability approach for financial accounting and
reporting for income taxes. Deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment
date.
Enterprise income
tax
Under the
Provisional Regulations of PRC Concerning Income Tax on Enterprises promulgated
by the PRC, income tax is payable by enterprises at a rate of 25% of their
taxable income. Preferential tax treatment may, however, be granted pursuant to
any law or regulations from time to time promulgated by the State
Council.
Value added
tax
The
Provisional Regulations of PRC Concerning Value Added Tax promulgated by the
State Council came into effect on January 1, 1994. Under these regulations and
the Implementing Rules of the Provisional Regulations of the PRC Concerning
Value Added Tax, value added tax is imposed on goods sold in, or imported into,
the PRC and on processing, repair and replacement services provided within the
PRC.
Value
added tax payable in the PRC is charged on an aggregated basis at a rate of 13%
or 17% (depending on the type of goods involved) on the full price collected for
the goods sold or, in the case of taxable services provided, at a rate of 17% on
the charges for the taxable services provided, but excluding, in respect of both
goods and services, any amount paid in respect of value added tax included in
the price or charges, and less any deductible value added tax already paid by
the taxpayer on purchases of goods and services in the same financial
year.
According
to “Agriculture Product Value Added Tax Rate Adjustment and Certain Items’ Value
Added Tax Waiver” published by the Ministry of Finance and the National Tax
Affairs Bureau, the value added tax for agriculture related products is to be
taxed at 13%. Furthermore, traditional Chinese medicine and medicinal plant are
by definition agriculture related products.
Accounting for uncertainty in income
taxes –
In June 2006, the Financial Accounting Standards Board (FASB)
issued Interpretation No. 48,
Accounting for Uncertainty in Income
Taxes - an Interpretation of FASB Statement No. 109
(FIN 48). FIN 48 is
intended to clarify the accounting for uncertainty in income taxes recognized in
a company’s financial statements and prescribes the recognition and measurement
of a tax position taken or expected to be taken in a tax return. FIN 48 also
provides guidance on de-recognition, classification, interest and penalties,
accounting in interim periods, disclosure and transition.
Under FIN
48, 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% likely of being realized upon ultimate settlement.
Tax
positions that previously failed to meet the more-likely-than-not recognition
threshold should be recognized in the first subsequent period in which the
threshold is met. Previously recognized tax positions that no longer meet the
more-likely-than-not criteria should be de-recognized in the first subsequent
financial reporting period in which the threshold is no longer met.
The
adoption of FIN 48 did not have a material effect on the Company’s results of
operations and financial position.
Sales
Taxes and Sales-related Taxes
Pursuant
to the tax law and regulations of PRC, China Health is obligated to pay totally
6.66% of gross sales as sales tax and sales-related taxes.
Comprehensive
Income
Statement
of Financial Accounting Standards (SFAS) No. 130, “Reporting Comprehensive
Income,” establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. Accumulated comprehensive
income, as presented in the accompanying statements of changes in shareholders’
equity consists of changes in cumulative foreign currency translation
adjustment.
Pension
and Employee Benefits
Full time
employees of the PRC entities participate in a government mandated
multi-employer defined contribution plan pursuant to which certain pension
benefits, medical care, unemployment insurance, employee housing fund and other
welfare benefits are provided to employees. Chinese labor regulations require
China Health to accrue for these benefits based on certain percentages of the
employees’ salaries. The Management believes full time employees who have passed
the probation period are entitled to such benefits. The total provisions for
such employee benefits were $4,798 and $1,036 for the three months ended
September 30, 2010 and 2009, respectively.
Statutory
Reserves
Pursuant
to the applicable laws in PRC, PRC entities are required to make appropriations
to three non-distributable reserve funds, the statutory surplus reserve,
statutory public welfare fund, and discretionary surplus reserve, based on
after-tax net earnings as determined in accordance with the PRC GAAP, after
offsetting any prior years ’ losses. Appropriation to the statutory surplus
reserve should be at least 10% of the after-tax net earnings until the reserve
is equal to 50% of China Health’s registered capital. Appropriation to the
statutory public welfare fund is 5% to 10% of the after-tax net earnings. The
statutory public welfare fund is established for the purpose of providing
employee facilities and other collective benefits to the employees and is
non-distributable other than in liquidation. No appropriations to the
discretionary surplus reserve are made at the discretion of the Board of
Directors. Since China Health has been accumulating deficiency until June 30,
2009, no statutory surplus reserve fund or statutory public welfare reserve fund
have been made since its inception. (Refer to Note 14)
Segment
Reporting
SFAS No.
131 “Disclosures about Segments of an Enterprise and Related Information”
establishes standards for reporting information about operating segments on a
basis consistent with China Health’s internal organization structure as well as
information about geographical areas, business segments and major customers in
financial statements. China Health currently operates in one principal business
segment; therefore segment disclosure is not presented.
Recent
Accounting Pronouncements
In April
2010, the Financial Accounting Standards Board (“FASB”) issued Accounting
Standards Update (“ASU”) No. 2010-17, Revenue Recognition—Milestone Method
(Topic 605) – Revenue Recognition (ASU 2010-17). ASU 2010-17 provides guidance
on defining the milestone and determining when the use of the milestone method
of revenue recognition for research or development transactions is appropriate.
It provides criteria for evaluating if the milestone is substantive and
clarifies that a vendor can recognize consideration that is contingent upon
achievement of a milestone as revenue in the period in which the milestone is
achieved, if the milestone meets all the criteria to be considered substantive.
ASU 2010-17 is effective for us in fiscal 2012 and should be applied
prospectively. The adoption of this ASU will not have a material impact on the
Company’s consolidated financial statements.
In
October 2009, the FASB issued Accounting Standards Update 2009-13, Revenue
Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements. This update
addressed the accounting for multiple-deliverable arrangements to enable vendors
to account for products or services (deliverables) separately rather than a
combined unit and will be separated in more circumstances that under existing US
GAAP. This amendment has eliminated that residual method of
allocation. Effective prospectively for revenue arrangements entered into or
materially modified in fiscal years beginning on or after June 15,
2010. Early adoption is permitted. The Company does not expect the
provisions of ASU 2009-13 to have a material effect on the financial position,
results of operations or cash flows of the Company.
In
September 2009, the FASB issued Accounting Standards Update 2009-12, Fair Value
Measurements and Disclosures (Topic 820): Investments in Certain Entities That
Calculate Net Asset Value per Share (or Its Equivalent). This update provides
amendments to Topic 820 for the fair value measurement of investments in certain
entities that calculate net asset value per share (or its equivalent). It is
effective for interim and annual periods ending after December 15,
2009.
In June
2009, the Financial Accounting Standards Board (“FASB”) issued the Accounting
Standards Codification (“ASC”) as the single source of authoritative U.S. GAAP
recognized by the FASB to be applied by nongovernmental entities in preparation
of financial statements in conformity with U.S. GAAP. The ASC supersedes
existing FASB, American Institute of Certified Public Accountants (“AICPA”),
Emerging Issues Task Force (“EITF”) and related literature. While the adoption
of the ASC as of July 1, 2009 changes how we reference accounting standards, the
adoption did not have an impact on our consolidated financial position, results
of operations or cash flows.
In
January 2010, the FASB issued accounting standards update related to fair
value measurements and disclosures. This update provides amendments to
related guidance within U.S. GAAP to require disclosure of the transfers in and
out of Levels 1 and 2 and a schedule for Level 3 that separately identifies
purchases, sales, issuances and settlements and requires more detailed
disclosures regarding valuation techniques and inputs. We adopted this new
standard effective January 1, 2010. Early application is
permitted and, in the period of initial adoption, entities are not required to
provide the amended disclosures for any previous periods presented for
comparative purposes. The adoption of this guidance did not have a significant
impact on the Group’s financial statements.
In
February 2010, the FASB issued an accounting standard update related to the
disclosure requirements for subsequent events. This update provides
amendments to the subsequent event guidance within U.S. GAAP to clarify that an
SEC filer is required to evaluate subsequent events through the date the
financial statements are issued, but disclosure of this date is no longer
required. We adopted this new guidance upon issuance of the accounting
standard update.
Note
3 – CASH AND CASH EQUIVALENTS
The
company maintains cash and cash equivalents balance at several financial
institutions. Only accounts at US financial institutions are insured
by the Federal Deposit Insurance Corporation (FDIC) up to
$250,000. As of September 30, 2010 the Company’s uninsured bank
balances totaled $14,128,126.
Note
4 - CONTROL BY PRINCIPAL OWNERS
The
directors, executive officers, their affiliates and related parties own,
beneficially and in the aggregate, the majority of the voting power of the
outstanding capital of China Health. Accordingly, directors, executive officers
and their affiliates, if they voted their shares uniformly, would have the
ability to control the approval of most corporate actions, including approving
significant expenses, increasing the authorized capital stock and the
dissolution, merger or sale of China Health's assets.
Note
5 – NOTES RECEIVABLE
Notes
receivable consist of the following:
|
|
|
September
30,
2010
|
|
|
June
30,
2010
|
|
|
Advances
to employees
|
|
|
46,159
|
|
|
|
55,432
|
|
|
Notes
receivable -Tiefeng
|
|
|
3,026,231
|
|
|
|
2,937,461
|
|
|
Total notes receivable
|
|
$
|
3,072,390
|
|
|
$
|
2,992,893
|
|
The
advances to employees are unsecured, non-interest bearing and have no fixed
terms of repayment, therefore, deemed payable on demand.
On April
9, 2009 the Company’s wholly-owned subsidiary, Harbin Humankind Biology
Technology Co., Limited (“Harbin Humankind”), entered into a letter of intent
with the shareholders of Heilongjiang Tiefeng Rice Company Limited (“Tiefeng”)
to purchase all the equity interest of Tiefeng (“the Share Transfer
Agreement”). On July 23, 2009 the amount of $746,480 (RMB 5,000,000)
were paid as retaining fees. The purchase agreement was signed on August 18,
2009; the amount of $7,312,507 (RMB 50,000,000) was prepaid to Tiefeng on August
19, 2009.
As of
March 31, 2010, Tiefeng did not get the crucial certified documents from local
government agencies. Based on the amended agreement, the deal is thus
voided. Tiefeng paid back approximately $1.46 million (RMB
10,000,000) to the Company on March 31, 2010, the additional $1.46 million (RMB
10,000,000) was paid on April 30, 2010 as part of the deposit
refund. Another $1.46 million (RMB 10,000,000) was paid on May 31,
2010. The balance of $2,985,921 (RMB 20,000,000) is converted as
loans to Tiefeng with two years term starting from May 5,
2010. Interest is charged semi-yearly by using the current Chinese
bank borrowing rate of 5.31%. For the three months ended
September 30, 2010, accrued interest income on the Tiefeng loan totals
$40,310.
Note
6 - INVENTORIES
Inventories
consist of following:
|
|
|
September
30,
2010
|
|
|
June
30,
2010
|
|
|
Finished
goods
|
|
$
|
119,387
|
|
|
$
|
74,478
|
|
|
Work-in-process
|
|
|
135,343
|
|
|
|
75,498
|
|
|
Raw
materials
|
|
|
51,094
|
|
|
|
17,836
|
|
|
Supplies
and packing materials
|
|
|
21,571
|
|
|
|
14,972
|
|
|
Total
inventory
|
|
$
|
327,395
|
|
|
$
|
184,522
|
|
Note
7 - PREPAID EXPENSES
Prepaid
expenses consist of the following:
|
|
|
September
30,
2010
|
|
|
June
30,
2010
|
|
|
Advances
on raw materials
|
|
|
812,980
|
|
|
|
764,738
|
|
|
Prepaid
services
|
|
|
|
|
|
|
|
|
|
Total
prepaid expenses
|
|
$
|
812,980
|
|
|
$
|
764,738
|
|
The
Company periodically makes advances to certain vendors for purchases of raw
materials, and records those advances as prepaid expense. Advances to vendors as
of September 30, 2010 amounted to $812,980. The majority
balance in the amount of $746,480 (RMB 5,000,000) is converted from retaining
fees paid to Tiefeng on July 23, 2009 to advances to Tiefeng for future
purchasing of its inventory after cancelling the acquisition contract on May 5,
2010.
Note
8 - DEPOSIT
The
Company paid $3,135,217 (RMB 21,000,000) to Harbin Songbei District Development
and Construction Committee as the prepayment for the acquisition of the land use
rights. The Company is in the process of going through a full range
of procedures before the land use rights can be granted to the
Company.
Note
9 - PROPERTY, PLANT AND EQUIPMENT
The
following is a summary of property, plant and equipment:
|
|
|
September
30,
2010
|
|
|
June
30,
2010
|
|
|
Building
and warehouses
|
|
$
|
872,185
|
|
|
$
|
858,030
|
|
|
Machinery
and equipment
|
|
|
177,241
|
|
|
|
174,365
|
|
|
Office
equipment
|
|
|
31,737
|
|
|
|
29,963
|
|
|
Vehicles
|
|
|
90,905
|
|
|
|
89,428
|
|
|
Other
|
|
|
25,231
|
|
|
|
24,822
|
|
|
Less:
Accumulated depreciation
|
|
|
(208,473
|
)
|
|
|
(189,298
|
)
|
|
Total
|
|
$
|
988,826
|
|
|
$
|
987,310
|
|
Depreciation
expense charged to operations was $15,024 and $15,184 for the three months ended
September 30, 2010 and 2009, respectively.
Note 10 - LAND USE RIGHT
The
following is a summary of the land use right:
|
|
|
September
30,
2010
|
|
|
June
30,
2010
|
|
|
Land
use right
|
|
$
|
946,236
|
|
|
$
|
930,879
|
|
|
Less:
Accumulated amortization
|
|
|
(102,532
|
)
|
|
|
(95,696
|
)
|
|
|
|
$
|
843,704
|
|
|
$
|
835,183
|
|
Amortization
expense charged to operations was $4,674 and $5,147 for the three months ended
September 30, 2010 and 2009 respectively.
Note
11 - RELATED PARTY DEBT
“Related
party debt" represents temporary short-term loans from majority owner, Mr. Xin
Sun, a People Republic China citizen. These loans are unsecured, non-interest
bearing and have no fixed terms of repayment, therefore, deemed payable on
demand. Cash flows classified as due to majority owner are classified as cash
flows from financing activities. The total borrowings from Mr. Sun were $88,009
and $851,351 as of September 30, 2010 and 2009, respectively.
Interest
was imputed on the loans using the Chinese bank borrowing rate of 5.31% for the
three months ended September 30, 2010. The total imputed interest expense was
$1,168 and $15,215 for the three months ended September 30, 2010 and 2009
respectively.
Note
12 – TAXES PAYABLE
The
following is a summary of taxes payable:
|
|
|
September
30,
2010
|
|
|
June
30,
2010
|
|
|
Income
taxes payable
|
|
$
|
1,129,105
|
|
|
$
|
2,421,843
|
|
|
VAT
taxes payable
|
|
|
318,005
|
|
|
|
781,962
|
|
|
City
and Supplement taxes
|
|
|
22,263
|
|
|
|
371,430
|
|
|
Payroll
taxes payable & other taxes
|
|
|
370,619
|
|
|
|
54,716
|
|
|
|
|
$
|
1,839,992
|
|
|
$
|
3,629,951
|
|
Note
13 - INCOME TAX
On March
16, 2007, the National People’s Congress approved the Corporate Income Tax Law
of the People’s Republic of China (the “New CIT Law”). The new CIT Law reduces
the corporate income tax rate from 33% to 25% with effect from January 1, 2008.
All Chinese enterprises are governed by the PRC Income Tax Law and various local
income tax laws, pursuant to which a company generally is subject to an income
tax at a statutory rate of 25% for the three months ended September 30, 2010 and
2009.
The
provision for income taxes consisted of the following:
|
|
|
September
30,
2010
|
|
|
June
30,
2010
|
|
|
Provision
for PRC income tax - current taxes
|
|
$
|
1,115,414
|
|
|
$
|
4,447,467
|
|
|
Provision
for PRC income tax - deferred taxes
|
|
|
-
|
|
|
|
-
|
|
|
Total
provision for income taxes
|
|
$
|
1,115,414
|
|
|
$
|
4,447,467
|
|
The
following table reconciles the PRC statutory rates to China Health’s effective
tax rate:
|
|
|
September
30,
2010
|
|
|
June
30,
2010
|
|
|
|
|
|
|
|
|
|
|
Pretax
Income( loss)
|
|
$
|
3,651,767
|
|
|
$
|
17,701,638
|
|
|
Statutory
tax rate
|
|
|
25
|
%
|
|
|
25
|
%
|
|
PRC
enterprise income tax at statutory rate
|
|
|
912,942
|
|
|
|
4,425,410
|
|
|
Expenses
not deductible for taxes – temporary difference
|
|
|
77,553
|
|
|
|
-109,343
|
|
|
Expenses
not deductible for taxes – permanent difference
|
|
|
120,246
|
|
|
|
112,219
|
|
|
Increase
in valuation allowance related to deferred tax assets
|
|
|
4,674
|
|
|
|
19,182
|
|
|
Total
provision for income taxes
|
|
$
|
1,115,414
|
|
|
$
|
4,447,467
|
|
Deferred
tax assets (liabilities) as of September 30, 2010 and June 30, 2010 are composed
of the following:
|
|
|
September
30,
2010
|
|
|
June
30,
2010
|
|
|
PRC
|
|
|
|
|
|
|
|
Noncurrent
deferred tax assets :
|
|
|
|
|
|
|
|
Amortization
of land use right and other intangible assets
|
|
$
|
4,674
|
|
|
$
|
19,182
|
|
|
Valuation
allowance
|
|
|
(4,674
|
)
|
|
|
(19,182
|
)
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Note
14 - COMMITMENTS AND CONTINGENCIES
China
Health’s assets are located in PRC and revenues are derived from operations in
PRC.
In terms
of industry regulations and policies, the economy of PRC has been transitioning
from a planned economy to market oriented economy. Although in recent years the
Chinese government has implemented measures emphasizing the utilization of
market forces for economic reforms, the reduction of state ownership of
productive assets and the establishment of sound corporate governance in
business enterprises, a substantial portion of productive assets in PRC are
still owned by the Chinese government. For example, all lands are state owned
and are leased to business entities or individuals through governmental granting
of Land Use Rights. The granting process is typically based on government
policies at the time of granting and it could be lengthy and complex. This
process may adversely affect our company’s future manufacturing expansions. The
Chinese government also exercises significant control over 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.
China
Health faces a number of risks and challenges not typically associated with
companies in North America and Western Europe, since its assets exist solely in
the PRC, and its revenues are derived from its operations therein. The PRC is a
developing country with an early stage market economic system, overshadowed by
the state. Its political and economic systems are very different from the more
developed countries and are in a state of change. The PRC also faces many
social, economic and political challenges that may produce major shocks and
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 China
Health’s performance.
The
Company is not involved in any legal matters arising in the normal course of
business. While incapable of estimation, in the opinion of the management, the
individual regulatory and legal matters in which the Company might be involved
in the future are not expected to have a material adverse effect on the
Company’s financial position, results of operations, or cash flows.
Rental
expense is approximately $44,245 and $43,850 for each of the three months ended
September 30, 2010 and 2009 respectively. The rental commitment for
the fiscal year 2011 is approximately $89,600.
STATUTORY
RESERVE COMMITMENT
In
compliance with PRC laws, the Company is required to appropriate a portion of
its net income to its statutory reserve up to a maximum of 50% of an
enterprise’s registered capital in the PRC. No appropriations to the
discretionary surplus reserve are made at the discretion of the Board of
Directors. Since China Health has been accumulating deficiency until June 30,
2009, no statutory surplus reserve fund or statutory public welfare reserve fund
have been made since its inception.
The
Company had future unfunded commitments, as provided below.
|
|
|
September
30, 2010
|
|
|
June
30,
2010
|
|
|
PRC
Subsidiaries Registered Capital
|
|
|
|
|
|
|
|
Harbin
Humankind Biology
|
|
$
|
1,640,465
|
|
|
$
|
1,584,467
|
|
|
H
Harbin Huimeijia Medicine (Company has accumulating deficiency, no reserve
commitment required)
|
|
|
149,296
|
|
|
|
146,873
|
|
|
|
|
|
|
|
|
|
|
|
|
Statutory
Reserve Ceiling based on 50% of PRC Registered Capital of Harbin
Humankind Biology or at least 10% of the after-tax net earnings until the
reserve are equal to 50% of its registered capital.
|
|
|
820,233
|
|
|
|
792,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
Retained
Earnings appropriated to Statutory Reserve
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve
Commitment Outstanding
|
|
$
|
820,233
|
|
|
$
|
792,234
|
|
Total commitments as of September 30,
2010 and June 30, 2010 are composed of the following:
|
|
|
September
30, 2010
|
|
|
June
30,
2010
|
|
|
Rental
Commitment
|
|
$
|
89,600
|
|
|
$
|
176,250
|
|
|
Statutory
Reserve Commitment
|
|
|
820,233
|
|
|
|
792,234
|
|
|
Total
commitments
|
|
$
|
909,833
|
|
|
$
|
968,484
|
|
Item
2. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
FORWARD
LOOKING STATEMENTS
The
following discussion should be read in conjunction with the information
contained in the consolidated financial statements of the Company and the notes
thereto appearing elsewhere herein and in the risk factors and “Forward Looking
Statements” summary set forth in the forepart of our Annual Report for the year
ended September 30, 2010. This quarterly report on Form 10-Q contains
forward-looking statements and is afforded the safe harbor provisions of
Section 27A of the Securities Act and Section 21E of the Securities
Exchange Act of 1934, as amended. Readers should carefully review the risk
factors disclosed in our Annual Report for the year ended September 30, 2010 and
other documents filed by us with the SEC.
DISCUSSION
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 the captions “Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” “Business,” as well as 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. We intend such
forward-looking statements to be covered by the safe harbor provisions contained
in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”)
and in Section 21E of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”). 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. 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. 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.
The
nature of our business makes predicting the future trends of our revenue,
expenses, and net income difficult. Thus, our ability to predict results or the
actual effect of our future plans or strategies is inherently uncertain. The
risks and uncertainties involved in our business could affect the matters
referred to in any forward-looking statements and it is possible that our actual
results may differ materially from the anticipated results indicated in these
forward-looking statements. Important factors that could cause actual results to
differ from those in the forward-looking statements include, without limitation,
the following:
|
|
●
|
the
effect of political, economic, and market conditions and geopolitical
events;
|
|
|
●
|
legislative
and regulatory changes that affect our
business;
|
|
|
●
|
the
availability of funds and working
capital;
|
|
|
●
|
the
actions and initiatives of current and potential
competitors;
|
|
|
●
|
investor
sentiment; and
|
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
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 Form 10-Q 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, and its wholly owned subsidiary, Harbin Humankind Biology
Technology Co. Limited. Unless the context otherwise requires, all references to
(i) “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 Yuan Renminbi 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
Harbin
Humankind Biology Technology Co., Limited was incorporated under the People’s
Republic of China on December 14, 2003 and completed its GMP certification on
April 24, 2007. It is in the business of the manufacture and sale of
health products, “green” (or organic) food and the detection of disease
susceptibility or pre-disposition through genetic studies.
Harbin
Huimeijia Medicine Company was incorporated on October 14,
2008. Huimeijia completed its GMP certification on July 23,
2009 and will be producing and selling our medical drugs.
Our
business is conducted through chain-stores and, with regard to the sale of our
products, eventually over the internet.
Results
Of Operations
For
the three months ended September 30, 2010 as compared to September 30,
2009
Our
principal business operations are conducted through our wholly owned subsidiary,
Harbin Humankind Biology Technology Co., Limited (“Humankind”) and Humankind’s
subsidiary, Harbin Huimeijia Medicine Company (“Huimeijia”) which was
incorporated on October 14, 2008. Huimeijia received GMP
certification on July 23, 2009 and will be produces and sells our medical
drugs.
|
|
|
September
30
|
|
|
|
|
2010
|
|
|
Variance
|
|
|
2009
|
|
|
REVENUES
|
|
|
|
|
|
|
|
|
|
|
Product
Sales (net of sales allowance)
|
|
$
|
11,617,393
|
|
|
|
13.38
|
%
|
|
$
|
10,246,606
|
|
|
Total
revenues
|
|
$
|
11,617,393
|
|
|
|
|
|
|
|
10,246,606
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST
OF GOODS SOLD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold
|
|
|
5,985,295
|
|
|
|
33.41
|
%
|
|
|
4,486,366
|
|
|
Gross
Profit
|
|
$
|
5,632,098
|
|
|
|
-2.23
|
%
|
|
$
|
5,760,240
|
|
Total
revenues increased by 13.38% to $11,617,393 for the three months
ended September 30, 2010 compared to $10,246,606 for the same period in 2009.
The $1,370,787 increase in revenue is attributable to strong performances from
our sales distribution channels.
This
growth in sales is in turn attributable to an increase in sales volume and our
efforts to continue to develop our distribution channels by hiring additional
sales agents to assure that our products and their associated benefits are seen
by those making or influencing the purchasing decisions.
Our cost
of sales increased $1,498,929, or 33.41% to $5,985,295 for the three months
ended September 30, 2010 compared to $4,486,366 for the same period in 2009. The
increase in cost of sales is a result of the increased sales and the increase in
raw material costs.
Our gross
margin decreased 7.74% from 56.22% for the three month period ended September
30, 2009 to 48.48% for the three month period ended September
30, 2010. This decrease was primarily attributable to an increase in
the raw material and labor costs.
Sales
by Product Line
A
break-down of our sales by major product line for each of the three months ended
September 30, 2010 and 2009 is as follows:
|
|
|
For the Three Months Ended
September 30
|
|
|
|
|
2010
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
Product
Category
|
|
Quantity
(Unit)
|
|
|
Sales
USD
|
|
|
%
of Sales
|
|
|
Quantity
(Unit)
|
|
|
Sales
USD
|
|
|
%
of
Sales
|
|
|
Sleeping
Beauty Capsule
|
|
28,594
|
|
|
582,274
|
|
|
5.01
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ruddy
Granule
|
|
28,426
|
|
|
782,325
|
|
|
6.73
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Virility
Max Capsule
|
|
65,051
|
|
|
1,513,833
|
|
|
13.03
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Blood
Cleanser Soft Capsule
|
|
39,140
|
|
|
1,022,658
|
|
|
8.80
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Abalone,
Sea cucumber and Frog oil soft capsule
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,496
|
|
|
|
1,181,036.60
|
|
|
|
11.53
|
%
|
|
Ganoderma
lucidum and Aweto Soft Capsules
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,424
|
|
|
|
911,994.06
|
|
|
|
8.90
|
%
|
|
Energy
Elemental Powder
|
|
|
14,195
|
|
|
|
234,149
|
|
|
|
2.02
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Propolis
and Black Ant Capsule
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,982
|
|
|
|
2,672,224.26
|
|
|
|
26.08
|
%
|
|
Waterlilies
Soft Capsule(Sailuozhi)
|
|
|
52,867
|
|
|
|
4,710,276
|
|
|
|
40.55
|
%
|
|
|
13,885
|
|
|
|
3,226,614.02
|
|
|
|
31.49
|
%
|
|
Colon
Cleanser Capsule
|
|
|
72,528
|
|
|
|
2,771,878
|
|
|
|
23.86
|
%
|
|
|
31,589
|
|
|
|
2,241,673.72
|
|
|
|
21.88
|
%
|
|
OEM
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,063.34
|
|
|
|
0.13
|
%
|
|
Total
|
|
|
|
|
|
|
11,617,393
|
|
|
|
100
|
%
|
|
|
|
|
|
|
10,246,606
|
|
|
|
100
|
%
|
Operating
Expenses
The
following table summarizes the changes in our operating expenses from $2,018,517
to $536,656 for each of the three months ended September 30, 2010 and 2009,
respectively:
|
|
|
For
the Three Months Ended September 30
|
|
|
|
|
2010
|
|
|
Variance
|
|
|
2009
|
|
|
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
Selling
, General and Administrative expenses
|
|
$
|
1,261,392
|
|
|
|
144.30
|
%
|
|
$
|
516,325
|
|
|
Depreciation
and amortization
|
|
|
19,697
|
|
|
|
-3.12
|
%
|
|
|
20,331
|
|
|
Research
& development
|
|
|
737,428
|
|
|
|
|
|
|
|
-
|
|
|
Total
operating expenses
|
|
$
|
2,018,517
|
|
|
|
276.13
|
%
|
|
$
|
536,656
|
|
Total
operating expenses for the three months ended September 30, 2010 increased
$1,481,861 or 276.13% over the same period in 2009. The higher operating
expenses were primarily attributable to the increased cost of sales, increased
number of representatives and the commissions paid to them, professional fees
and distribution costs of our products to generate our increased product
sales from $10,246,606 in 2009 to $11,617,393 in 2010.
We
incurred imputed interest expenses in the amount of $1.168 on the loans due to
Mr. Sun Xin, the executive officer and major shareholder of Company. These loans
are unsecured, non-interest bearing and have no fixed terms of
repayment.
Other
Income (Expenses)
Other
income (expenses) increased approximately $54,100 for the three month period
ended September 30, 2010. The increase was primarily attributable to
increased interest income in the approximate amount of $39,400 from Tiefeng Rice
Group and the decrease in interest expenses of approximately $14,700, which was
due to repayment of debts in 2009.
2011
Outlook
We
anticipate our total revenues in 2011 versus 2010 to increase by 40% or
approximately $17.2 million with growth in all categories of our product sales.
Our gross profit margin in 2011 is expected to be approximately 53% due to raw
material cost inflation. We estimate our overall 2011 net profit
margins to be approximately 28%. However, there is no assurance that
these predictions will be reached.
Liquidity
and Capital Resources
The
following table summarizes our cash and cash equivalents position, our working
capital, and our cash flow activity as of September 30, 2010 and 2009 and for
each of the three months then ended:
|
|
|
September
30, 2010
|
|
|
September
30, 2009
|
|
|
|
|
|
|
|
|
|
|
As
of September 30:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
14,132,435
|
|
|
$
|
1,164,590
|
|
|
Working
capital
|
|
$
|
18,673,477
|
|
|
$
|
6,354,077
|
|
|
Inventories
|
|
$
|
327,395
|
|
|
$
|
150,652
|
|
|
For
the Three Months Ended September 30:
|
|
|
|
|
|
|
|
|
|
Cash
provided by (used in):
|
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
$
|
672,675
|
|
|
$
|
4,884,607
|
|
|
Investing
activities
|
|
$
|
(79,497
|
)
|
|
$
|
(11,281,540
|
)
|
|
Financing
activities
|
|
$
|
2,601
|
|
|
$
|
(17,201
|
)
|
As of
September 30, 2010, cash and cash equivalents were $14,132,435 as compared to
$1,164,590 at September 30, 2009. This represents an increased cash and cash
equivalents position of $12,967,845 or an increase of 1113.51% at September
30, 2010 compared to September 30, 2009.
Our
current ratio was 7.64 versus 2.04 and the quick ratio was 7.52
versus 2.01 at September 30, 2010 and 2009, respectively. Management
endeavors to ensure that funds are available to take advantage of new investment
opportunities and that funds are sufficient to meet future liquidity and capital
needs.
Cash flow
provided by operating activities was $672,675 for the three months ended
September 30, 2010 compared to cash flow used by operation activities of
$4,884,607 for the same period in 2009. The decrease in cash provided by
operating activities of $4,211,932 is primarily attributable to the decrease in
account payables in the amount of $1,642,453.
Our
working capital position at September 30, 2010 was $18,673,477 compared to
working capital of $6,354,076 at September 30, 2009. Our increased working
capital position in 2010 was principally funded by the increased cash flow
generated by sales. Management considers current working capital and
borrowing capabilities adequate to cover our current operating and capital
requirements for the full fiscal year 2011.
Currency
Exchange Fluctuations
All of
our revenues and majority of the expenses during the three months ended
September 30, 2010 were denominated primarily in Renminbi (“RMB”), the currency
of China, and was converted into US dollars at the exchange rate of 6.78032 RMB
to 1 U.S. Dollar. In the third quarter of 2005, the Renminbi began to rise
against the US dollar. There can be no assurance that RMB-to-U.S.
dollar exchange rates will remain stable. A devaluation of RMB relative to the
U.S. dollar would adversely affect our business, financial condition and results
of operations. We do not engage in currency hedging.
Off-Balance
Sheet Arrangements
We do not
have any off-balance sheet arrangements that are currently material or
reasonably likely to be material to our financial position or results of
operations.
Critical
Accounting Policies and Estimates
The
discussion and analysis of the Company’s financial condition presented in this
section are based upon the audited consolidated financial statements of the
Company, including Harbin Humankind, which have been prepared in accordance with
the generally accepted accounting principles in the United States. For purposes
of this section entitled “Critical Accounting Policies and Estimates,” During
the preparation of the financial statements of the Company we were required to
make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an ongoing basis, the Company evaluates its estimates and
judgments, including those related to sales, returns, pricing concessions, bad
debts, inventories, investments, fixed assets, intangible assets, income taxes
and other contingencies. The Company bases its estimates on historical
experience and on various other assumptions that it believes are reasonable
under current conditions. Actual results may differ from these estimates under
different assumptions or conditions.
In
response to the SEC’s Release No. 33-8040, “Cautionary Advice Regarding
Disclosure about Critical Accounting Policy,” The Company identified the most
critical accounting principles upon which its financial status depends. The
Company determined that those critical accounting principles are related to the
use of estimates, inventory valuation, revenue recognition, income tax and
impairment of intangibles and other long-lived assets. The Company presents
these accounting policies in the relevant sections in this management’s
discussion and analysis, including the Recently Issued Accounting Pronouncements
discussed below.
Revenue Recognition
. The
Company recognizes revenue when the earnings process is complete. This generally
occurs when products are shipped to unaffiliated customer or services are
performed in accordance with terms of the agreement, title and risk of loss have
been transferred, collectability is reasonably assured and pricing is fixed or
determinable. Accruals are made for sales returns and other allowances based on
the Company’s experience.
Accounts Receivable, Trade and
Allowance for Doubtful Accounts
. The Company’s business operations are
conducted in the PRC. During the normal course of business, the Company extends
unsecured credit to its customers. Management reviews accounts receivable on a
regular basis to determine if the allowance for doubtful accounts is adequate.
An estimate for doubtful accounts is recorded when collection of the full amount
is no longer probable. At December 31, 2008, and 2007, no allowances for
doubtful accounts were accrued.
Inventories
. Inventories are
stated at the lower of cost or market using the weighted average method. The
Company reviews its inventory on a regular basis for possible obsolete goods or
to determine if any reserves are necessary for potential obsolescence. As of
September 30, 2009 and 2008, the Company has determined that no reserves are
necessary.
Impairment of Long-Lived
Assets
. The Company reviews all of its long-lived assets, including
tangible and intangible long-lived assets, for impairment indicators at least
annually and performs detailed impairment testing for all long-lived assets
whenever impairment indicators are present. When necessary, the Company records
charges for impairments of long-lived assets for the amount by which the present
value of future cash flows, or some other fair value measure, is less than the
carrying value of these assets.
Off-Balance Sheet
Arrangements
. The Company has not entered into any financial guarantees
or other commitments to guarantee the payment obligations of any third parties.
The Company has not entered into any derivative contracts that are indexed to
China the Company’s shares and classified as shareholder’s equity or that are
not reflected in the Company’s financial statements. Furthermore, The Company
does not have any retained or contingent interest in assets transferred to an
unconsolidated entity that serves as credit, liquidity or market risk support to
such entity. The Company does not have any variable interest in any
unconsolidated entity that provides financing, liquidity, market risk or credit
support to the Company or engages in leasing, hedging or research and
development services with the Company.
Income Taxes
. The Company has
adopted Statement of Financial Accounting Standards No. 109, “Accounting for
Income Taxes” (SFAS 109). SFAS 109 requires the recognition of deferred income
tax liabilities and assets for the expected future tax consequences of temporary
differences between income tax basis and financial reporting basis of assets and
liabilities. Provision for income taxes consist of taxes currently due plus
deferred taxes. Since the Company had no operations within the United States
there is no provision for US income taxes and there are no deferred tax amounts
as of September 30, 2009 and 2008. The charge for taxation is based on the
results for the year as adjusted for items, which are non-assessable or
disallowed. It is calculated using tax rates that have been enacted or
substantively enacted by the balance sheet date.
Deferred
tax is accounted for using the balance sheet liability method in respect of
temporary differences arising from differences between the carrying amount of
assets and liabilities in the financial statements and the corresponding tax
basis used in the computation of assessable tax profit. In principle, deferred
tax liabilities are recognized for all taxable temporary differences, and
deferred tax assets are recognized to the extent that it is probably that
taxable profit will be available against which deductible temporary differences
can be utilized. Deferred tax is calculated at the tax rates that are expected
to apply to the period when the asset is realized or the liability is settled.
Deferred tax is charged or credited in the income statement, except when it
related to items credited or charged directly to equity, in which case the
deferred tax is also dealt with in equity. Deferred tax assets and liabilities
are offset when they related to income taxes levied by the same taxation
authority and the Company intends to settle current tax assets and liabilities
on a net basis.
Recently
Issued Accounting Pronouncements
The
Company does not believe the recently issued accounting pronouncements would
have a material impacts on its financial statements.
Item 3.
Quantitative and Qualitative
Disclosures About Market Risk.
Not
applicable.
Item
4. Controls and Procedures.
Evaluation
of our Disclosure Controls
As of the
end of the period covered by this Quarterly Report on Form 10-Q, our principal
executive officer and principal financial officer have evaluated the
effectiveness of our “disclosure controls and procedures” (“Disclosure
Controls”). Disclosure Controls, as defined in Rule 13a-15(e) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), are procedures that are
designed with the objective of ensuring that information required to be
disclosed in our reports filed under the Exchange Act, such as this Quarterly
Report, is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission’s rules and forms.
Disclosure Controls are also designed with the objective of ensuring that such
information is accumulated and communicated to our management, including the CEO
and CFO, as appropriate to allow timely decisions regarding required disclosure.
Our management, including the CEO and CFO, does not expect that our Disclosure
Controls will prevent all error and all fraud. A control system, no matter how
well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Further, the design
of a control system must reflect the fact that there are resource constraints,
and the benefits of controls must be considered relative to their costs. Because
of the inherent limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues and instances of fraud,
if any, within the company have been detected. These inherent limitations
include the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake. The design of any
system of controls also is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future
conditions.
Based
upon their controls evaluation, our CEO and CFO have concluded that our
Disclosure Controls are effective at a reasonable assurance
level.
Changes
in internal control over financial reporting
There
have been no changes in our internal controls over financial reporting during
our first fiscal quarter that have materially affected, or are reasonably likely
to materially affect, our internal control over financial
reporting.
PART
II - OTHER INFORMATION
I
tem 1. Legal
Proceedings.
There is no material legal proceeding pending against
us.
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
None.
Item
3. Defaults Upon Senior Securities
None.
Item
4. (Removed and Reserved)
Item
5. Other Information
Not
applicable.
Item
6. Exhibits
Copies of
the following documents are included as exhibits to this report pursuant to Item
601 of Regulation S-K.
|
Exhibit No.
|
|
SEC Ref. No.
|
|
Title of Document
|
|
|
|
|
|
|
|
1
|
|
31.1
|
|
Certification
of the Principal Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 *
|
|
|
|
|
|
|
|
2.
|
|
31.2
|
|
Certification
of the Principal Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 *
|
|
|
|
|
|
|
|
3
|
|
32.1
|
|
Certification
of the Principal Executive Officer pursuant to U.S.C. Section 1350 as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002*
|
|
|
|
|
|
|
|
4
|
|
32.2
|
|
Certification
of the Principal Financial Officer pursuant to U.S.C. Section 1350 as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002*
|
*
The Exhibits attached to
this Form 10-Q shall not be deemed "filed" for purposes of Section 18 of the
Securities Exchange Act of 1934 (the "Exchange Act") or otherwise subject to
liability under that section, nor shall it be deemed incorporated by reference
in any filing under the Securities Act of 1933, as amended, or the Exchange Act,
except as expressly set forth by specific reference in such
filing.
SIGNATURES
In
accordance with the Exchange Act, the registrant caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
|
|
CHINA
HEALTH INDUSTRIES HOLDINGS, INC.
|
|
|
|
|
Date:
November 12, 2010
|
|
|
|
/s/
Xin Sun
|
|
|
Xin
Sun
|
|
|
Chief
Executive Officer and Chief Financial
Officer
|
China Health Industries (QB) (USOTC:CHHE)
과거 데이터 주식 차트
부터 6월(6) 2024 으로 7월(7) 2024
China Health Industries (QB) (USOTC:CHHE)
과거 데이터 주식 차트
부터 7월(7) 2023 으로 7월(7) 2024
