|
Item
|
1.
Financial Statements
|
CHINA
HEALTH INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
|
|
December 31,
2020
|
|
|
June 30,
2020
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
40,666,095
|
|
|
$
|
36,072,474
|
|
Accounts receivable, net
|
|
|
5,562,202
|
|
|
|
4,631,861
|
|
Inventory
|
|
|
982,064
|
|
|
|
807,351
|
|
Other receivables, net
|
|
|
34,439
|
|
|
|
32,255
|
|
Advances to suppliers
|
|
|
220,449
|
|
|
|
205,650
|
|
Prepayments
|
|
|
11,235
|
|
|
|
41,505
|
|
Total current assets
|
|
$
|
47,476,484
|
|
|
$
|
41,791,096
|
|
|
|
|
|
|
|
|
|
|
Property, plants and equipment, net
|
|
|
3,773,138
|
|
|
|
3,677,798
|
|
Intangible assets, net
|
|
|
2,189,361
|
|
|
|
2,249,614
|
|
Construction in progress
|
|
|
553,498
|
|
|
|
511,664
|
|
Prepayments – Non-Current
|
|
|
-
|
|
|
|
-
|
|
Deferred tax assets
|
|
|
6,286
|
|
|
|
5,806
|
|
Total assets
|
|
$
|
53,998,767
|
|
|
$
|
48,235,978
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
396,998
|
|
|
$
|
406,228
|
|
Other payables
|
|
|
75,922
|
|
|
|
63,271
|
|
Advances from customers
|
|
|
148,926
|
|
|
|
137,543
|
|
Related party debts
|
|
|
7,899,586
|
|
|
|
7,259,862
|
|
Wages payable
|
|
|
393,649
|
|
|
|
275,982
|
|
Taxes payable
|
|
|
582,784
|
|
|
|
425,106
|
|
Total current liabilities
|
|
$
|
9,497,865
|
|
|
$
|
8,567,992
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
Common stock, ($0.0001 par value per share, 300,000,000 shares authorized, 65,539,737 and 65,539,737 shares issued and outstanding as of December 31, 2020 and June 30, 2020, respectively)
|
|
|
6,554
|
|
|
|
6,554
|
|
Additional paid-in capital
|
|
|
521,987
|
|
|
|
521,987
|
|
Accumulated other comprehensive income
|
|
|
1,718,440
|
|
|
|
(1,658,741
|
)
|
Statutory reserves
|
|
|
38,679
|
|
|
|
38,679
|
|
Retained earnings
|
|
|
42,215,242
|
|
|
|
40,759,507
|
|
Total stockholders’ equity
|
|
$
|
44,500,902
|
|
|
$
|
39,667,986
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
53,998,767
|
|
|
$
|
48,235,978
|
|
The accompanying
notes are an integral part of these condensed consolidated financial statements.
CHINA
HEALTH INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
|
|
For the three Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUE
|
|
$
|
3,089,716
|
|
|
$
|
3,421,988
|
|
|
$
|
5,281,798
|
|
|
$
|
5,475,912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST OF GOODS SOLD
|
|
|
(1,294,333
|
)
|
|
|
(686,510
|
)
|
|
|
(2,246,113
|
)
|
|
|
(1,195,406
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT
|
|
|
1,795,383
|
|
|
|
2,735,478
|
|
|
|
3,035,685
|
|
|
|
4,280,506
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
516,959
|
|
|
|
633,303
|
|
|
|
717,291
|
|
|
|
1,000,291
|
|
Depreciation and amortization expenses
|
|
|
152,268
|
|
|
|
150,752
|
|
|
|
310,140
|
|
|
|
289,916
|
|
Total operating expenses
|
|
|
(669,227
|
)
|
|
|
(784,055
|
)
|
|
|
(1,027,431
|
)
|
|
|
(1,290,207
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) FROM OPERATIONS
|
|
|
1,126,156
|
|
|
|
1,951,423
|
|
|
|
2,008,254
|
|
|
|
2,990,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME/(EXPENSES)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
34,300
|
|
|
|
31,293
|
|
|
|
66,403
|
|
|
|
62,041
|
|
Interest expense
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1
|
)
|
Other income/(expenses), net
|
|
|
562
|
|
|
|
1
|
|
|
|
504
|
|
|
|
(416
|
)
|
Bank charges
|
|
|
(233
|
)
|
|
|
(237
|
)
|
|
|
(491
|
)
|
|
|
(362
|
)
|
Total other income, net
|
|
|
34,629
|
|
|
|
31,057
|
|
|
|
66,416
|
|
|
|
61,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME/(LOSS) BEFORE INCOME TAXES
|
|
|
1,160,785
|
|
|
|
1,982,480
|
|
|
|
2,074,670
|
|
|
|
3,051,561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
(344,742
|
)
|
|
|
(555,896
|
)
|
|
|
(618,935
|
)
|
|
|
(868,403
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
|
816,043
|
|
|
|
1,426,584
|
|
|
|
1,455,735
|
|
|
|
2,183,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation gain (loss)
|
|
|
1,737,361
|
|
|
|
1,000,316
|
|
|
|
3,377,181
|
|
|
|
(492,989
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE INCOME
|
|
|
2,553,404
|
|
|
|
2,426,900
|
|
|
|
4,832,916
|
|
|
|
1,690,169
|
|
Basic & diluted earnings per share
|
|
$
|
0.0125
|
|
|
$
|
0.0218
|
|
|
$
|
0.0222
|
|
|
$
|
0.0333
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic & diluted weighted average shares outstanding
|
|
|
65,539,737
|
|
|
|
65,539,737
|
|
|
|
65,539,737
|
|
|
|
65,539,737
|
|
The accompanying
notes are an integral part of these condensed consolidated financial statements.
CHINA HEALTH INDUSTRIES HOLDINGS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE
SIX MONTHS ENDED DECEMBER 31, 2020 AND 2019
(Unaudited)
|
|
Common Shares
|
|
|
Additional Paid-in
|
|
|
Retained
|
|
|
Statutory
|
|
|
Accumulated Other Comprehensive
Income
|
|
|
Total Stockholders’
|
|
|
Non-controlling
|
|
|
Total
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Reserve
|
|
|
(loss)
|
|
|
Equity
|
|
|
Interest
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2019
|
|
|
65,539,737
|
|
|
$
|
6,554
|
|
|
$
|
521,987
|
|
|
|
37,208,897
|
|
|
|
38,679
|
|
|
|
(593,654
|
)
|
|
|
37,182,463
|
|
|
|
-
|
|
|
|
37,182,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,183,158
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,183,158
|
|
|
|
-
|
|
|
|
2,183,158
|
|
Other comprehensive loss - Translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(492,989
|
)
|
|
|
(492,989
|
)
|
|
|
-
|
|
|
|
(492,989
|
)
|
Balance, December 31, 2019
|
|
|
65,539,737
|
|
|
$
|
6,554
|
|
|
$
|
521,987
|
|
|
$
|
39,392,055
|
|
|
$
|
38,679
|
|
|
$
|
(1,086,643
|
)
|
|
$
|
38,872,632
|
|
|
$
|
-
|
|
|
$
|
38,872,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2020
|
|
|
65,539,737
|
|
|
$
|
6,554
|
|
|
$
|
521,987
|
|
|
|
40,759,507
|
|
|
|
38,679
|
|
|
|
(1,658,741
|
)
|
|
|
39,667,986
|
|
|
|
-
|
|
|
|
39,667,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,455,735
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,455,735
|
|
|
|
-
|
|
|
|
1,455,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss - Translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,377,181
|
|
|
|
3,377,181
|
|
|
|
-
|
|
|
|
3,377,181
|
|
Balance, December 31, 2020
|
|
|
65,539,737
|
|
|
$
|
6,554
|
|
|
$
|
521,987
|
|
|
$
|
42,215,242
|
|
|
$
|
38,679
|
|
|
$
|
1,718,440
|
|
|
$
|
44,500,902
|
|
|
$
|
-
|
|
|
$
|
44,500,902
|
|
The accompanying
notes are an integral part of these condensed consolidated financial statements.
CHINA HEALTH INDUSTRIES HOLDINGS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE
THREE MONTHS ENDED DECEMBER 31, 2020 AND 2019
(Unaudited)
|
|
Common Shares
|
|
|
Additional Paid-in
|
|
|
Retained
|
|
|
Statutory
|
|
|
Accumulated Other Comprehensive Income
|
|
|
Total Stockholders’
|
|
|
Non-controlling
|
|
|
Total
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Reserve
|
|
|
(loss)
|
|
|
Equity
|
|
|
Interest
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2019
|
|
|
65,539,737
|
|
|
$
|
6,554
|
|
|
$
|
521,987
|
|
|
$
|
37,965,471
|
|
|
$
|
38,679
|
|
|
$
|
(2,086,959
|
)
|
|
$
|
36,445,732
|
|
|
|
-
|
|
|
|
36,445,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,426,584
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,426,584
|
|
|
|
-
|
|
|
|
1,426,584
|
|
Other comprehensive loss - Translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,000,316
|
|
|
|
1,000,316
|
|
|
|
-
|
|
|
|
1,000,316
|
|
Balance, December 31, 2019
|
|
|
65,539,737
|
|
|
$
|
6,554
|
|
|
$
|
521,987
|
|
|
$
|
39,392,055
|
|
|
$
|
38,679
|
|
|
$
|
(1,086,643
|
)
|
|
$
|
38,872,632
|
|
|
$
|
-
|
|
|
$
|
38,872,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2020
|
|
|
65,539,737
|
|
|
$
|
6,554
|
|
|
$
|
521,987
|
|
|
$
|
41,399,199
|
|
|
$
|
38,679
|
|
|
$
|
(18,921
|
)
|
|
$
|
41,947,498
|
|
|
$
|
-
|
|
|
$
|
41,947,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
816,043
|
|
|
|
-
|
|
|
|
-
|
|
|
|
816,043
|
|
|
|
-
|
|
|
|
816,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss - Translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,737,361
|
|
|
|
1,737,361
|
|
|
|
-
|
|
|
|
1,737,361
|
|
Balance, December 31, 2020
|
|
|
65,539,737
|
|
|
$
|
6,554
|
|
|
$
|
521,987
|
|
|
$
|
42,215,242
|
|
|
$
|
38,679
|
|
|
$
|
1,718,440
|
|
|
$
|
44,500,902
|
|
|
$
|
-
|
|
|
$
|
44,500,902
|
|
The accompanying
notes are an integral part of these condensed consolidated financial statements.
CHINA
HEALTH INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
For the Six Months Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
Net income
|
|
$
|
1,455,735
|
|
|
$
|
2,183,158
|
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization expenses
|
|
|
447,096
|
|
|
|
389,647
|
|
Provisions for doubtful accounts
|
|
|
2,693
|
|
|
|
(35,925
|
)
|
Deferred taxes loss/(gain)
|
|
|
|
|
|
|
(1
|
)
|
Changes in operating assets and liabilities,
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(529,591
|
)
|
|
|
(1,253,232
|
)
|
Other receivables
|
|
|
467
|
|
|
|
(58
|
)
|
Inventory
|
|
|
(103,931
|
)
|
|
|
2,447
|
|
Advances to suppliers and prepaid expenses
|
|
|
34,603
|
|
|
|
(186,707
|
)
|
Accounts payables and accrued expenses
|
|
|
(41,111
|
)
|
|
|
(24,592
|
)
|
Advances from customers and other payables
|
|
|
7,275
|
|
|
|
(20,534
|
)
|
Amounts due to related parties
|
|
|
860,632
|
|
|
|
332,431
|
|
Wages payable
|
|
|
91,340
|
|
|
|
91,193
|
|
Taxes payable
|
|
|
122,276
|
|
|
|
250,639
|
|
Net cash provided by operating activities
|
|
|
2,347,484
|
|
|
|
1,728,466
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
Purchases of property, plants and equipment
|
|
|
(8,389
|
)
|
|
|
(24,713
|
)
|
Expenditures in construction in progress
|
|
|
(2,977
|
)
|
|
|
(130,964
|
)
|
Disposal of property, plant and equipment
|
|
|
-
|
|
|
|
5,832
|
|
Net cash (used in)/provided by investing activities
|
|
|
(11,366
|
)
|
|
|
(149,845
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
Proceeds from related party debts
|
|
|
-
|
|
|
|
-
|
|
Net cash (used in)/provided by financing activities
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
2,257,503
|
|
|
|
(410,325
|
)
|
|
|
|
|
|
|
|
|
|
Net increase/(decrease) in cash and cash equivalents
|
|
|
4,593,621
|
|
|
|
1,168,296
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning balance
|
|
|
36,072,474
|
|
|
|
35,507,535
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, closing balance
|
|
|
40,666,095
|
|
|
|
36,675,831
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
568,598
|
|
|
$
|
654,004
|
|
Cash paid for interest expenses
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Non-cash activities:
|
|
|
|
|
|
|
|
|
Loan from related party for the construction of a facility
|
|
$
|
-
|
|
|
$
|
701,623
|
|
The accompanying
notes are an integral part of these condensed consolidated financial statements.
CHINA
HEALTH INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note
1 - ORGANIZATION AND BUSINESS BACKGROUND
China Health
Industries Holdings, Inc. (“China Health US”) was incorporated in the State of Arizona on July 11, 1996 and was the
successor of the business known as Arizona Mist, Inc. which began in 1989. On May 9, 2005, it entered into a stock purchase agreement
and share exchange (effecting a reverse merger) with Edmonds 6, Inc. (“Edmonds 6”), a Delaware corporation, and changed
its name to Universal Fog, Inc. Pursuant to this agreement, Universal Fog, Inc. (which has been in continuous operation since
1996) became a wholly-owned subsidiary of Edmonds 6.
China Health
Industries Holdings Limited (“China Health HK”) was incorporated on July 20, 2007 in Hong Kong under the Companies
Ordinance as a limited liability company. China Health HK was formed for the purpose of seeking and consummating a merger or acquisition
with a business entity organized as a private corporation, partnership, or sole proprietorship as defined by FASB ACS Topic 915
(“Development Stage Entities”).
Harbin Humankind
Biology Technology Co., Limited (“Humankind”) was incorporated in Harbin City, Heilongjiang Province, the People’s
Republic of China (the “PRC”) on December 14, 2003, as a limited liability company under the Company Law of the PRC.
Humankind is engaged in the manufacturing and sale of health products.
On August
20, 2007, the sole shareholder of China Health HK entered into a share purchase agreement (the “Share Purchase Agreement”)
with the owners of Humankind. Pursuant to the Share Purchase Agreement, China Health HK purchased 100% of the ownership in Humankind
for a cash consideration of $60,408 (the “Share Purchase”). Subsequent to the completion of the Share Purchase, Humankind
became a wholly-owned subsidiary of China Health HK. The Share Purchase was accounted for as a “reverse merger” since
the owner of Humankind owned a majority of the outstanding shares of China Health HK’s common stock immediately following
the execution of the Share Purchase Agreement, it was deemed to be the accounting acquirer in the reverse merger. Consequently,
the assets and liabilities and the historical operations that have been reflected in the financial statements for periods prior
to the Share Purchase are those of Humankind and have been recorded at the historical cost basis. After completion of the Share
Purchase, China Health HK’s consolidated financial statements include the assets and liabilities of both China Health HK
and Humankind, the historical operations of Humankind, and the operations of China Health HK and its subsidiaries from the closing
date of the Share Purchase.
On October
14, 2008, Humankind set up a 99% owned subsidiary, Harbin Huimeijia Medicine Company (“Huimeijia”), with its primary
business being manufacturing and distributing medicine. Mr. Xin Sun, the Company’s majority owner, owns 1% of Huimeijia.
Huimeijia is consolidated in the consolidated financial statements of China Health HK.
On December
31, 2008, China Health HK entered into a reverse merger with Universal Fog, Inc., a U.S. publicly traded shell company (the “Transaction”).
China Health HK is the acquirer in the Transaction, and the Transaction has been treated as a recapitalization of China Health
US. After the Transaction and a 20:1 reverse stock split, Mr. Xin Sun owned 61,203,088 shares of common stock, representing 98.3%
of the 62,234,737 total outstanding shares of common stock of China Health US. On April 7, 2009, Mr. Sun transferred 28,200,000
shares of common stock to 296 individuals, leaving him with 33,003,088 shares of common stock of China Health US, or approximately
53.03% of the total outstanding shares of common stock. Universal Fog, Inc. changed its name to China Health Industries Holdings,
Inc. on February 19, 2009.
On November
22, 2013, Humankind completed the acquisition of Heilongjiang Huimeijia Pharmaceutical Co., Ltd. (“HLJ Huimeijia”)
for a total purchase price of $16,339,869 (RMB100,000,000). HLJ Huimeijia was founded on October 30, 2003, and is engaged in the
manufacturing and distribution of tincture, ointments, rubber paste (including hormones), topical solution, suppositories, liniment
(including traditional Chinese medicine extractions), enemas and oral liquids. HLJ Huimeijia’s predecessor is Heilongjiang
Xue Du Pharmaceutical Co., Ltd., which has established its brand name in the market through its supply of high quality medical
products. HLJ Huimeijia is categorized as a “high and new technology” enterprise by the Science Technology Department
in Heilongjiang Province. HLJ Huimeijia has 21 products which have been approved by, and have received approval numbers issued
by, National Medical Products Administration, or NPMA (formerly known as the China State Food and Drug Administration, or the
CFDA). In addition, HLJ Huimeijia is the holder of one patent for utility models, five patents for external design and three trademarks
in China, including the Chinese brand name of “Xue Du” which has an established reputation among customers in northeastern
China.
On December
24, 2014, Humankind entered into a stock transfer agreement (the “Original Agreement”) with Xiuzheng Pharmaceutical
Group Co., Ltd. a company incorporated under the laws of the PRC and located in Jilin province (“Xiuzheng Pharmacy”
or the “Buyer”), Mr. Xin Sun, the CEO of the Company, and Huimeijia, 99% owned by Humankind and 1% owned by Mr. Xin
Sun. Pursuant to the Original Agreement, Humankind and Mr. Xin Sun (the “Equity Holders”), would sell their respective
equity interests in Huimeijia to Xiuzheng Pharmacy.
On February
9, 2015, the four parties to the Original Agreement entered into a supplementary agreement (the “Supplementary Agreement”)
to modify the terms of the Original Agreement, pursuant to which the Equity Holders and Huimeijia (collectively the “Asset
Transferors”) would sell only the 19 drug approval numbers (including the tablet, capsule, powder, mixture, oral liquid,
syrup and oral solution under the 19 approval numbers; licenses including the original copies of Business License, Organization
Code Certificate, Tax Registration Certificate, Drug Production Permit and GMP Certificate, and other documents and original copies
related to the production and operation of the 19 drugs) (the “Assets”) to Xiuzheng Pharmacy. The Equity Holders would
have retained their equity interests in Huimeijia, but would have pledged such equity interests to Xiuzheng Pharmacy until the
Assets were transferred, at which time the cash consideration would have been paid by the Buyer. Total cash consideration would
have been the same as under the Original Agreement, i.e., RMB 8,000,000 (approximately $1,306,186) to the Asset Transferors. In
the event that the Assets had failed to be transferred to the Buyer due to the fault of the Asset Transferors, the paid consideration
would have been returned to the Buyer with interest accrued. If the failure of the transfer of the Assets were a result of changes
in government policy or force majeure, the paid cash consideration would have been returned to the Buyer but without any interest.
On October
12, 2016, the same four parties agreed to rescind the Supplementary Agreement and entered into a new supplementary agreement (the
“New Supplementary Agreement”), pursuant to which the four parties agreed to execute the transfer of the equity interests
based on the Original Agreement and the Equity Holders agreed to sell their respective equity interests in Huimeijia to Xiuzheng
Pharmacy. The transfer of 100% of the equity interests of Huimeijia to the Buyer was for total cash consideration of RMB 8,000,000
(approximately $1,306,186) (the “Purchase Price”) to the Equity Holders. 40% of the Purchase Price was due within
10 business days after the signing of the New Supplementary Agreement; 40% of the Purchase Price was due within 10 business days
after the completion of the changes in business registration described in the Original Agreement and Xiuzheng Pharmacy obtaining
documents evidencing its ownership on Huimeijia; 15% of the Purchase Price is due within 10 business days after the transfer of
all of the Assets is approved by Heilongjiang FDA; and 5% of the Purchase Price is due within 10 business days after all of the
Assets have been transferred to Xiuzheng Pharmacy or its designee and Humankind and Mr. Xin Sun have instructed Xiuzheng Pharmacy
complete three-batches production of all forms of the drugs included in the Assets. As of the date of this report, 80% of the
Purchase Price has been paid, the Company has completed changes in its business registration, and Xiuzheng Pharmacy has obtained
a business license issued by the local State Administration of Industry and Commerce in Harbin (“Harbin SAIC”) to
Huimeijia, in which the ownership of Huimeijia has been recorded as held by Xiuzheng Pharmacy, with Harbin SAIC and the legal
representative (a person that is authorized to take most of the corporate actions on behalf of a company under the corporate laws
in China) of Huimeijia has been appointed by the Buyer.
China Health
US, China Health HK, Humankind and HLJ Huimeijia are collectively referred herein to as the “Company.”
As of December
31, 2020, the Company’s corporate structure was as follows:
Note 2 - SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
This summary
of the Company’s significant accounting policies is presented to assist in understanding the Company’s financial statements.
The financial statements and notes are representations of the Company’s management (“Management”), which is
responsible for the integrity and objectivity of the financial statements and notes. These accounting policies conform to generally
accepted accounting principles in the United States (“US GAAP”) and have been consistently applied in the preparation
of the unaudited condensed consolidated financial statements.
The accompanying
unaudited condensed consolidated financial statements have been prepared by the Company without audit pursuant to the rules and
regulations of the U.S. Securities and Exchange Commission (“SEC”). Certain information and disclosures normally included
in financial statements prepared in accordance with US GAAP have been condensed or omitted as allowed by such rules and regulations,
and Management believes that the disclosures are sufficient so that the information presented is not misleading. These unaudited
condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto
included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2020. These unaudited condensed consolidated
financial statements include all adjustments which, in the opinion of Management, are necessary for a fair presentation of the
financial position and the results of operations of the Company. All such adjustments are of a normal and recurring nature. The
results of operations of the Company for the six months ended December 31, 2020 may not be indicative of results that may be expected
for the year ended June 30, 2021.
Principles
of Consolidation
The accompanying
unaudited condensed consolidated financial statements include China Health US and its three subsidiary companies, namely China
Health HK, Humankind, and HLJ Huimeijia. All significant intercompany balances and transactions have been eliminated in consolidation
and combination.
On November
22, 2013, China Health US, through its wholly owned subsidiary Humankind, completed the acquisition of HLJ Huimeijia. HLJ Huimeijia
and Humankind were and are under the common control of Mr. Xin Sun, the CEO of China Health US, before and after the date of transfer.
Humankind’s accounting policy adopted the guidance in ASC 805-50-05-5 for the transfer of net assets between entities under
common control to apply an accounting method similar to the pooling-of-interests method. Under this method, the financial statements
of Humankind shall report results of operations for the period in which the transfer occurs as though the transfer of net assets
had occurred at the beginning of the period. Results of operations for that period will thus comprise both those of the previously
separate entities combined from the beginning of the period to the date the transfer is completed and those of the combined operations
from that date to the end of the period. Similarly, Humankind shall present statements of financial position and other financial
information as of the beginning of the period as though the assets and liabilities had been transferred at that date. Financial
statements and financial information of Humankind presented for prior years shall also be retrospectively adjusted to furnish
comparative information.
Segment
Reporting
FASB ASC
Topic 280, “Segment Reporting,” established standards for reporting information about operating segments on a basis
consistent with the Company’s internal organizational structure as well as information about geographical areas, business
segments and major customers in financial statements for details on the Company’s business segments. The Company has three
reportable operating segments: Humankind, HLJ Huimeijia and Others. The segments are grouped based on the types of products provided.
Fair
Value of Financial Instruments
The provisions
of accounting guidance, FASB ASC Topic 820 that applies to the Company requires all entities to disclose the fair value of financial
instruments, both assets and liabilities recognized and not recognized on the balance sheet, for which it is practicable to estimate
fair value, and defines fair value of a financial instrument as the amount at which the instrument could be exchanged in a current
transaction between willing parties.
Fair
Value Measurements
FASB ASC
Topic 820, “Fair Value Measurements and Disclosures”, clarifies the definition of fair value for financial reporting,
establishes a framework for measuring fair value, and requires additional disclosures about the use of fair value measurements.
Various
inputs are considered when determining the fair value of the Company’s debt. The inputs or methodologies used for valuing
securities are not necessarily an indication of the risk associated with investing in these securities. These inputs are summarized
in the three broad levels listed below:
Level
1 – observable market inputs that are unadjusted quoted prices for identical assets or liabilities in active markets.
Level
2 – other significant observable inputs, including quoted prices for similar securities, interest rates, credit risk, etc..
Level
3 – significant unobservable inputs, including the Company’s own assumptions in determining the fair value of investments.
The carrying
value of financial assets and liabilities recorded at fair value is measured on a recurring or a nonrecurring basis. Financial
assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when a significant event occurs.
The Company had no financial assets or liabilities carried and measured on a nonrecurring basis during the reporting periods.
Financial assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial
statement is prepared. The Company had no financial assets or liabilities carried and measured on a recurring basis during the
reporting periods.
The availability
of inputs observable in the market varies from instrument to instrument and depends on a variety of factors, including the type
of instrument, whether the instrument is actively traded, and other characteristics particular to the transaction. For many financial
instruments, pricing inputs are readily observable in the market, the valuation methodology used is widely accepted by market
participants, and the valuation does not require significant discretion of Management. For other financial instruments, pricing
inputs are less observable in the market and may require judgment of Management.
Translation
of Foreign Currencies
Humankind,
Huimeijia and HLJ Huimeijia maintain their books and accounting records in PRC currency “Renminbi” (“RMB”),
which has been determined as the functional currency. The functional currency of China Health HK is the Hong Kong Dollar.
Transactions
denominated in currencies other than the functional currencies are recorded at the exchange rates prevailing on the date of the
transactions, as quoted by the Federal Reserve Board. Foreign currency exchange gains and losses resulting from these transactions
are included in operations.
Humankind,
Huimeijia, HLJ Huimeijia and China Health Hong Kong’s financial statements are translated into the reporting currency, the
United States Dollar (“USD”). Assets and liabilities of the above entities are translated at the prevailing exchange
rate at each reporting period end date. Contributed capital accounts are translated using the historical rate of exchange when
capital is injected. Income and expense accounts are translated at the average rate of exchange during the reporting period. Translation
adjustments resulting from the translation of these financial statements are reflected as accumulated other comprehensive income
in shareholders’ equity and non-controlling interests.
Statement
of Cash Flows
In accordance
with Statement FASB ASC Topic 230, “Statement of Cash Flows”, cash flow from the Company’s operations is calculated
based upon the local currencies and translated to the reporting currency using an average foreign exchange rate for the reporting
period. As a result, amounts related to assets and liabilities reported in the statement of cash flows will not necessarily be
the same as the corresponding balances on the balance sheets.
Use of
Estimates and Assumptions
The preparation
of financial statements in conformity with US GAAP requires Management to make estimates and judgments that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and liabilities on the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period. Management bases its estimates and judgments on historical
experience and on various other assumptions and information that are believed to be reasonable under the circumstances. Estimates
and assumptions of future events and their effects cannot be perceived with certainty and, accordingly, these estimates may change
as new events occur, as more experience is acquired, as additional information is obtained, and as the Company’s operating
environment changes. Significant estimates and assumptions by Management include, among others, useful life of long-lived assets
and intangible assets, valuation of inventory, accounts receivable and notes receivable, impairment analysis of long-lived assets,
construction in progress, intangible assets, and deferred taxes. While Management believes that the estimates and assumptions
used in the preparation of the financial statements are appropriate, actual results could differ from those estimates. Estimates
and assumptions are periodically reviewed and the effects of revisions are reflected in the financial statements in the period
they are determined to be necessary.
Cash
and Cash Equivalents
Cash and
cash equivalents include cash on hand, deposits in banks with maturities of three months or less, and all highly liquid investments
which are unrestricted as to withdrawal or use and which have original maturities of three months or less at the time of purchase.
As of December
31, 2020 and June 30, 2020, the Company’s uninsured bank balances were mainly maintained at financial institutions located
in the PRC and Hong Kong. The uninsured bank balances were $40,666,095 and $36,072,474 as of December 31, 2020 and June 30, 2020,
respectively. The Company had no insured bank balances as of December 31, 2020 and June 30, 2020.
Accounts
Receivable
Accounts
receivable is recorded at the invoiced amount and do not bear interest. The Company extends unsecured credit to its customers
in the ordinary course of business, but mitigates the associated risks by performing credit checks and actively pursuing past
due accounts. An allowance for doubtful accounts is established and determined based on Management’s assessment of known
requirements, aging of receivables, payment and bad debt history, the customer’s current credit worthiness, changes in customer
payment patterns and the economic environment. From November 1, 2013, the Company changed its credit policy by offering ninety
(90) day payment terms for sales agents. As of December 31, 2020 and June 30, 2020, the balances of accounts receivable were $5,562,202
and $4,631,861, respectively. The Company determines the allowance based on aging data, historical collection experience, customer
specific facts, and economic conditions. Account balances are charged off against the allowance after all means of collection
have been exhausted and the potential for recovery is considered remote. The Company evaluated the nature of all accounts receivable
then provided allowance for doubtful accounts. The Company has determined that an allowance of $76,426 and $68,003 was appropriate
as of December 31, 2020 and June 30, 2020, respectively.
Advances
to Suppliers
The Company
periodically makes advances to certain vendors for purchases of raw materials or to service providers for services relating to
construction plans for its plants, equipment and production lines for GMP upgrading, and records these payments as advances to
suppliers. As of December 31, 2020 and June 30, 2020, advances to suppliers amounted to $220,449 and $205,650, respectively.
Inventory
Inventory
consists of raw materials, work in progress, and finished goods or manufactured products.
Inventory
is stated at the lower of either cost or market value and consists of materials, labor and overhead. HLJ Huimeijia uses the weighted
average method for inventory valuation. The other subsidiaries of the Company use the first-in, first-out (“FIFO”)
method for inventory valuation. Overhead costs included in finished goods include direct labor costs and other costs directly
applicable to the manufacturing process. The Company evaluates inventory for excess, slow moving, and obsolete inventory, as well
as inventory the value of which is in excess of its net realizable value. This evaluation includes analysis of sales levels by
product and projections of future demand. If future demand or market conditions are less favorable than the Company’s projections,
a write-down of inventory may be required, and would be reflected in cost of goods sold in the period the revision is made. The
inventory allowance in the amounts of $nil and $nil were provided for as of December 31, 2020 and June 30, 2020, respectively.
Impairment
of Long-Lived Assets
The Company’s
long-lived assets and other assets are reviewed for impairment in accordance with the guidance of the FASB ASC Topic 360-10, “Property,
Plant, and Equipment”, and FASB ASC Topic 205, “Presentation of Financial Statements”. The Company tests for
impairment losses on long-lived assets used in operations whenever events or changes in circumstances indicate that the carrying
amount of the asset may not be recoverable. Recoverability of an asset to be held and used is measured by a comparison of the
carrying amount of the asset to the future undiscounted cash flows expected to be generated by the asset. If such asset is considered
to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its
fair value. Impairment evaluations involve Management’s estimates on asset useful life and future cash flows. Actual useful
life and cash flows could be different from those estimated by Management, which could have a material effect on the Company’s
reporting results and financial position. Fair value is determined through various valuation techniques including discounted cash
flow models, quoted market values, and third-party independent appraisals, as considered necessary. As of December 31, 2020 and
June 30, 2020, the Company had not experienced impairment losses on its long-lived assets. However, there can be no assurances
that demand for the Company’s products or services will continue, which could result in an impairment of long-lived assets
in the future.
Property,
Plants and Equipment
Property,
plants and equipment are carried at the lower of either cost or fair value. Maintenance, repairs and minor renewals are expensed
as incurred, and major renewals and improvements that extend the life or increases the capacity of plant assets are capitalized.
When assets
are retired or disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gains or losses
are included in the results of operations in the reporting period of disposition.
Depreciation
is calculated on a straight-line basis over the estimated useful life of the assets. The depreciable life applied are:
Buildings, Warehouses and Improvements
|
|
20 to 30 years
|
Office Equipment
|
|
3 to 7 years
|
Vehicles
|
|
5 to15 years
|
Machinery and Equipment
|
|
7 to 15 years
|
Intangible Assets
The Company
evaluates intangible assets in accordance with FASB ASC Topic 350, “Intangibles — Goodwill and Other”. Intangible
assets deemed to have indefinite life are not amortized, but are subject to annual impairment tests. If the assumptions and estimates
used to allocate the purchase price are not correct, or if business conditions change, purchase price adjustments or future asset
impairment charges could be required. The value of the Company’s intangible assets could be impacted by future adverse changes
such as: (i) any future declines in the Company’s operating results, (ii) a decline in the valuation of technology, including
the valuation of the Company’s common stock, (iii) a significant slowdown in the worldwide economy, or (iv) any failure
to meet the performance projections included in the Company’s forecasts of future operating results. In accordance with
FASB ASC Topic 350, the Company tests intangible assets for impairment on an annual basis or more frequently if the Company believes
indicators of impairment exist. Impairment evaluations involve Management’s estimates of asset useful life and future cash
flows. Significant judgment of Management is required in the forecasts of future operating results that are used in the evaluations.
It is possible, however, that the plans and estimates used may be incorrect. If the Company’s actual results, or the plans
and estimates used in future impairment analysis, are lower than the original estimates used to assess the recoverability of these
assets, the Company could incur additional impairment charges in a future period. Based on such evaluations, there was no impairment
recorded for intangible assets, for the six months ended December 31, 2020 and 2019.
Construction in Progress
Construction
in progress represents the costs incurred in connection with the construction of buildings or new additions to the Company’s
plant facilities. Costs classified as construction in progress include all costs of obtaining the asset and bringing it to the
location and condition necessary for its intended use. No depreciation is provided for construction in progress until such time
as the assets are completed and are placed into service.
The Company
reviews the carrying value of construction in progress for impairment whenever events and circumstances indicate that the carrying
value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition.
In cases where undiscounted expected future cash flows are less than the carrying value of the assets, an impairment loss is recognized
equal to an amount by which the carrying value exceeds the fair value of the assets. The factors considered by Management in performing
this assessment include current operating results, trends and prospects, the manner in which the property is used, and the effects
of obsolescence, demand, competition, and other economic factors. Based on this assessment, there was no impairments recorded
for construction in progress, for the six months ended December 31, 2020 and 2019.
Revenue Recognition
The
Company recognizes revenue at the amount to which it expects to be entitled when control of the products or services is transferred
to its customers based on any contract. Control is generally transferred when the Company has a present right to payment and title
and the significant risks and rewards of ownership of products or services are transferred to its customers while performance
obligation are completed. For most of the Company’s products net sales, control transfers when products are shipped and
transaction price are determined. The majority of the Company’s revenue relates to the sale of inventory to customers, and
revenue is recognized when control of the products or services is transferred to its customers that reflects the performance obligations
are properly allocated and satisfied with transaction price. Given the nature of the Company’s business and the applicable
rules guiding revenue recognition, the Company’s revenue recognition practices do not contain estimates that materially
affect the results of operations. The Company records revenue at the discounted selling price and allows its customers to return
products for exchange or credit subject to certain limitations. A provision for such returns is recorded based upon historical
experience. There has been no provision recorded for returns based upon historical experience
for the six months ended December 31, 2020 and 2019, respectively.
Cost of Goods Sold
Cost of
goods sold consists primarily of the costs of raw materials, freight charges, direct labor, depreciation of plants and machinery,
warehousing and overhead costs associated with the manufacturing process, and commission expenses.
Income Taxes
The Company
adopts FASB ASC Topic 740, “Income Taxes,” which requires the recognition of deferred tax assets and liabilities for
the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this
method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of
assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates
applicable to the periods in which the differences are expected to affect taxable income. A valuation allowance is established
for deferred tax assets if it is more likely than not that these items will either expire before the Company is able to realize
the benefits or that future deductibility is uncertain.
Under ASC
740, a tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be
sustained in a tax examination, with a tax examination being presumed to occur. The evaluation of a tax position is a two-step
process. The first step is to determine whether it is more-likely-than-not that a tax position will be sustained upon examination,
including the resolution of any related appeals or litigations based on the technical merits of that position. The second step
is to measure a tax position that meets the more-likely-than-not threshold to determine the amount of benefit to be recognized
in the financial statements. A tax position is measured at the largest amount of benefit that is greater than 50 percent likely
of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition
threshold should be recognized in the first subsequent period in which the threshold is met. Previously recognized tax positions
that no longer meet the more-likely-than-not criteria should be de-recognized in the first subsequent financial reporting period
in which the threshold is no longer met. Penalties and interest incurred related to underpayment of income tax are classified
as income tax expense in the year incurred. GAAP also provides guidance on de-recognition, classification, interest and penalties,
accounting in interim periods, disclosures and transition.
As a result
of the implementation of FIN 48 (ASC 740-10), the Company undertook a comprehensive review of its portfolio of tax positions in
accordance with recognition standards established by FIN 48 (ASC 740-10). The Company recognized no material adjustments to liabilities
or stockholders’ equity as a result of the implementation. The adoption of FIN 48 did not have a material impact on the
Company’s financial statements.
The application
of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. Tax laws and regulations
themselves are subject to change as a result of changes in fiscal policy, changes in legislation, the evolution of regulations
and court rulings. Therefore, the actual liability may be materially different from the Company’s estimates, which could
result in the need to record additional tax liabilities or potentially reverse previously recorded tax liabilities or deferred
tax asset valuation allowance.
Enterprise Income Tax
Under the
Provisional Regulations of the PRC Concerning Income Tax on Enterprises promulgated by the PRC (the “EIT Law”), income
tax is payable by enterprises at a rate of 25% of their taxable income.
Value Added Tax
The Provisional
Regulations of the PRC Concerning Value Added Tax promulgated by the State Council came into effect on January 1, 1994. Under
the regulations and the Implementing Rules of the Provisional Regulations of the PRC Concerning Value Added Tax, value added tax
(“VAT”) is imposed on goods sold in, or imported into, the PRC and on processing, repair and replacement services
provided within the PRC.
VAT payable
in the PRC is charged on an aggregated basis at a rate of 13% or 16% (depending on the type of goods involved) on the full price
collected for the goods sold or, in the case of taxable services provided, at a rate of 16% on the charges for the taxable services
provided, but excluding, in respect of both goods and services, any amount paid in respect of VAT included in the price or charges,
and less any deductible VAT already paid by the taxpayer on purchases of goods and services in the same financial year. As of
December 31, 2020 and June 30, 2020, VAT payables were $122,026 and $92,652, respectively.
Sales-Related Taxes
Pursuant
to the tax law and regulations of the PRC, the Company is obligated to pay 7% and 5% of the annual aggregate VAT paid by the Company
as taxes for the purposes of maintaining and building cities and educational facilities, which fees are included as sales-related
taxes. Sales-related taxes are recorded when sales revenue is recognized. Sales-related taxes were $55,070 and $74,108 for the
six months ended December 31, 2020 and 2019, respectively.
Concentrations of Business
and Credit Risks
All of the
Company’s manufacturing is located in the PRC. There can be no assurance that the Company will be able to successfully continue
to manufacture its products and failure to do so would have a material adverse effect on the Company’s financial position,
results of operations and cash flows. Moreover, the success of the Company’s operations is subject to numerous contingencies,
some of which are beyond management’s control. These contingencies include general economic conditions, prices of raw materials,
competition, governmental and political conditions, and changes in regulations. Since the Company is dependent on trade in the
PRC, the Company is subject to various additional political, economic and other uncertainties. Among other risks, the Company’s
operations will be subject to the risks of restrictions on transfer of funds, domestic customs, changing taxation policies, foreign
exchange restrictions, and political and governmental regulations. The Company operates in China, which may give rise to significant
foreign currency risks from fluctuations and the degree of volatility of foreign exchange rates between U.S. dollars and the Chinese
currency RMB. The results of operations denominated in foreign currency are translated at the average rate of exchange during
the reporting periods.
Earnings Per Share
Basic earnings
per common share are computed by dividing net earnings applicable to common shareholders by the weighted-average number of common
shares outstanding during the period. When applicable, diluted earnings per common share is determined using the weighted-average
number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents, consisting
of shares that might be issued upon exercise of common stock options and warrants. For the six months ended December 31, 2020
and 2019, the Company had no potential dilutive common stock equivalents outstanding.
Potential
common shares issued are calculated using the treasury stock method, which recognizes the use of proceeds that could be obtained
upon the exercise of options and warrants in computing diluted earnings per share. It assumes that any proceeds would be used
to purchase common stock at the average market price of the common stock during the period.
FASB ASC
Topic 260, “Earnings Per Share”, requires a reconciliation of the numerator and denominator of the basic and diluted
earnings per share (EPS) computations.
Recent Accounting Pronouncements
In June
2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326) – Measurement of Credit Losses on Financial
Instruments (ASU 2016-13). The main objective of the standard is to provide financial statement users with more decision-useful
information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting
entity at each reporting date. In issuing this standard, the FASB is responding to criticism that today’s guidance delays
recognition of credit losses. The standard will replace today’s “incurred loss” approach with an “expected
loss” model. The new model, referred to as the current expected credit loss (“CECL”) model, will apply to: (1)
financial assets subject to credit losses and measured at amortized cost, and (2) certain off-balance sheet credit exposures.
The standard is applicable to loans, accounts receivable, trade receivables, and other financial assets measured at amortized
cost, loan commitments and certain other off-balance sheet credit exposures, debt securities (including those held-to-maturity)
and other financial assets measured at fair value through other comprehensive income, and beneficial interests in securitized
financial assets. The CECL model does not apply to available-for-sale debt securities. For available-for-sale debt securities
with unrealized losses, entities will measure credit losses in a manner similar to what they do today, except that the credit
losses will be recognized as allowances rather than reductions in the amortized cost of the securities. Accordingly, the new methodology
will be utilized when assessing the Company’s financial instruments for impairment. As a result, entities will recognize
improvements to estimated credit losses immediately in earnings rather than as interest income over time, as they do today. The
ASU also simplifies the accounting model for purchased credit-impaired debt securities and loans. ASU 2016-13 also expands the
disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for loan and
lease losses. ASU 2016-13 is effective for years beginning after December 15, 2019, including interim periods within those fiscal
years under a modified retrospective approach. Early adoption is permitted for the periods beginning after December 15, 2018.
The Company adopted the guidance from July 1, 2020. The Company finalized its analysis and the adoption of this guidance has no
material impact on the Company’s consolidated financial statements and its internal controls over financial reporting.
In August
2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) – Disclosure Framework – Changes to the Disclosure
Requirements for Fair Value Measurement (ASU 2018-13), which modifies the disclosure requirements on fair value measurements,
including removing the requirement to disclose (1) the amount of and reasons for transfers between Level 1 and Level 2 of the
fair value hierarchy, (2) the policy for timing of transfers between levels and (3) the valuation processes for Level 3 fair value
measurements. ASU 2018-13 also added new disclosures including the requirement to disclose (a) the changes in unrealized gains
and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end
of the reporting period and (b) the range and weighted average of significant unobservable inputs used to develop Level 3 fair
value measurements. ASU 2018-13 is effective for fiscal years (and interim reporting periods within those years) beginning after
December 15, 2019 and early adoption is permitted. This standard will only impact the disclosures pertaining to fair value measurements.
The Company adopted the guidance from July 1, 2020. The Company finalized its analysis and the adoption of this guidance has no
material impact on the Company’s consolidated financial statements and its internal controls over financial reporting.
NOTE 3 - ACCOUNTS RECEIVABLE
The Company’s
accounts receivable was $5,562,202 and $4,631,861, net of allowances for doubtful accounts amounting to $76,426 and $68,003, as
of December 31, 2020 and June 30, 2020, respectively.
NOTE 4 - INVENTORY
Inventory consisted of following:
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2020
|
|
Raw Materials
|
|
$
|
310,808
|
|
|
$
|
278,189
|
|
Supplies and Packing Materials
|
|
|
123,887
|
|
|
|
104,992
|
|
Work-in-Progress
|
|
|
176,969
|
|
|
|
78,132
|
|
Finished Goods
|
|
|
370,400
|
|
|
|
346,038
|
|
Total
|
|
$
|
982,064
|
|
|
$
|
807,351
|
|
The inventory
allowance in the amounts of $nil and $nil was provided for as of December 31, 2020 and June 30, 2020, respectively.
NOTE 5 - CONSTRUCTION IN PROGRESS
Construction in progress from
the continuing operations of the Company consisted of the following:
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2020
|
|
Plant - HLJ Huimeijia
|
|
$
|
553,498
|
|
|
$
|
511,664
|
|
Factory Maintenance - Humankind
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
553,498
|
|
|
$
|
511,664
|
|
On April
6, 2012, HLJ Huimeijia entered into an agreement with a contractor for construction of the HLJ Huimeijia plant. The estimated
total cost of construction was approximately $1.86 million (RMB 12,800,000). As of December 31, 2020, 78% of construction has
been completed, $1,446,210 (RMB 9,682,478)
has been recorded as costs of construction in progress and construction in progress at an amount of $892,712
(RMB 6,356,767) has been completed and converted into property, plant and
equipment.
NOTE 6 - PROPERTY, PLANTS
AND EQUIPMENT
Property, plants and equipment
consisted of the following:
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2020
|
|
Building, Warehouses and Improvements
|
|
$
|
4,051,187
|
|
|
$
|
3,741,542
|
|
Machinery and Equipment
|
|
|
1,881,058
|
|
|
|
1,729,239
|
|
Office Equipment
|
|
|
80,439
|
|
|
|
74,291
|
|
Vehicles
|
|
|
223,587
|
|
|
|
206,497
|
|
Others
|
|
|
988,205
|
|
|
|
912,674
|
|
Less: Accumulated Depreciation
|
|
|
(3,451,338
|
)
|
|
|
(2,986,445
|
)
|
Total
|
|
$
|
3,773,138
|
|
|
$
|
3,677,798
|
|
Depreciation
expenses was $209,731 and $160,788 for the six months ended December 31, 2020 and 2019, respectively. Depreciation expenses charged
to operations was $72,775 and $61,057 for the six months ended December 31, 2020 and 2019, respectively. Depreciation expenses
charged to cost of goods sold was $136,956 and $99,731 for the six months ended December 31, 2020 and 2019, respectively.
NOTE 7 - INTANGIBLE ASSETS
The following is a summary of
intangible assets from the continuing operations of the Company:
|
|
December 31,
2020
|
|
|
June 30,
2020
|
|
Land Use Rights – Humankind
|
|
$
|
971,339
|
|
|
$
|
897,096
|
|
Health Supplement Product Patents – Humankind
|
|
|
4,597,701
|
|
|
|
4,246,285
|
|
Pharmaceutical Patents - HLJ Huimeijia
|
|
|
400,639
|
|
|
|
370,017
|
|
Land Use Rights - HLJ Huimeijia
|
|
|
664,381
|
|
|
|
613,600
|
|
Less: Accumulated Amortization
|
|
|
(4,444,699
|
)
|
|
|
(3,877,384
|
)
|
Total
|
|
$
|
2,189,361
|
|
|
$
|
2,249,614
|
|
All land
in the PRC belongs to the government of the PRC. Enterprises and individuals can pay the PRC government a fee to obtain the right
to use a piece of land for commercial purposes or residential purposes for an initial period of 50 years or 70 years. These land
use rights can be sold, purchased, and exchanged in the market. The successive owner of the land use right will have the right
to use the land for the time remaining on the initial period. The patents have amortized life of 10 years.
Amortization
expenses were $237,365 and $228,859 for the six months ended December 31, 2020 and 2019, respectively.
NOTE 8 - RELATED PARTY DEBTS
Related
party debts, which represent temporary short-term loans from Mr. Xin Sun and Mr. Kai Sun, consisted of the following:
|
|
December 31,
2020
|
|
|
June 30,
2020
|
|
Mr. Xin Sun
|
|
$
|
7,863,748
|
|
|
$
|
7,226,764
|
|
Mr. Kai Sun
|
|
|
35,838
|
|
|
|
33,098
|
|
Total
|
|
$
|
7,899,586
|
|
|
$
|
7,259,862
|
|
These loans
are unsecured, non-interest bearing, and have no fixed terms of repayment; therefore, they are deemed payable on demand. Mr. Kai
Sun is a PRC citizen and a family member of Mr. Xin Sun, the CEO of the Company.
NOTE 9 - INCOME TAXES
(a) Corporate income taxes
United States
China Health
US was organized in the United States. China Health US had no taxable income for US income tax purposes for the six months ended
December 31, 2020 and 2019. As of December 31, 2020, China Health US had a net operating loss carry forward for United States
income tax purposes. Net operating loss carry forwards are available to reduce future years’ taxable income. Management
believes that the realization of the benefits from these losses appears uncertain due to the Company’s operating history
and the continued losses of its US entity. Accordingly, the Company has provided a 100% valuation allowance on the deferred tax
asset to reduce the asset to zero. There were no changes in the valuation allowance for the six months ended December 31, 2020
and 2019. Management reviews this valuation allowance periodically and makes adjustments accordingly.
Hong Kong
China Health
HK was incorporated in Hong Kong and is subject to Hong Kong taxation on its activities conducted in Hong Kong and income arising
in or derived from Hong Kong. No provision for income taxes have been made because China Health HK has no taxable income in Hong
Kong.
People’s Republic of
China
Under the
EIT Law, the standard EIT rate is 25%. The PRC subsidiaries of the Company are subject to PRC income taxes on an entity basis
on income arising in or derived from the tax jurisdiction in which they operate.
The provision
for income taxes of the Company consisted of the following for the six months ended December 31, 2020 and 2019:
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Current provision:
|
|
|
|
|
|
|
|
|
|
|
|
|
USA
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
PRC
|
|
|
344,742
|
|
|
|
555,896
|
|
|
|
618,935
|
|
|
|
868,403
|
|
Total current provision
|
|
|
344,742
|
|
|
|
555,896
|
|
|
|
618,935
|
|
|
|
868,403
|
|
Deferred provision:
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
USA
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
PRC
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total deferred provision
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total provision for income taxes
|
|
$
|
344,742
|
|
|
$
|
555,896
|
|
|
$
|
618,935
|
|
|
$
|
868,403
|
|
Significant
components of deferred tax assets of the Company were as follows:
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2020
|
|
Deferred tax assets
|
|
|
|
|
|
|
Net operating loss carry forward
|
|
$
|
1,156,708
|
|
|
$
|
1,075,533
|
|
Allowances for doubtful accounts
|
|
|
19,107
|
|
|
|
17,001
|
|
Valuation allowance
|
|
|
(1,169,529
|
)
|
|
|
(1,086,728
|
)
|
Total
|
|
$
|
6,286
|
|
|
$
|
5,806
|
|
(b) Uncertain tax positions
There were
no unrecognized tax benefits as of December 31, 2020 and June 30, 2020. Management does not anticipate any potential future adjustments
in the next twelve months which would result in a material change to its tax positions. For the six months ended December 31,
2020 and 2019, the Company did not incur any interest or penalties arising from its tax payments.
NOTE
10 - 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 dilutive earnings per share. It assumes that any proceeds would be used
to purchase common stock at the average of the market price of the common stock during the period.
FASB ASC
Topic 260, Earnings Per Share, requires a reconciliation of the numerator and denominator of the basic and diluted earnings per
share (EPS) computations.
For the
six months ended December 31, 2020 and 2019, the Company did not have potential dilutive shares. The following table sets forth
the computation of basic and diluted net income per share:
|
|
For the Three Months
Ended
|
|
|
For the Six Months
Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss) attributable to China Health Industries Holdings
|
|
$
|
816,043
|
|
|
$
|
1,426,584
|
|
|
$
|
1,455,735
|
|
|
$
|
2,183,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic & diluted
|
|
$
|
0.0125
|
|
|
$
|
0.0218
|
|
|
$
|
0.0222
|
|
|
|
0.0333
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic & diluted
|
|
|
65,539,737
|
|
|
|
65,539,737
|
|
|
|
65,539,737
|
|
|
|
65,539,737
|
|
NOTE 11 - COMMITMENTS AND
CONTINGENCIES
The Company’s
assets are located in the PRC and revenues are derived from operations in the PRC.
In terms
of industry regulations and policies, the economy of the PRC has been transitioning from a planned economy to market oriented
economy. Although in recent years the Chinese government has implemented measures emphasizing the utilization of market forces
for economic reforms, the reduction of state ownership of productive assets and the establishment of sound corporate governance
in business enterprises, a substantial portion of productive assets in the PRC is still owned by the Chinese government. For example,
all land is state owned and leased to business entities or individuals through the government’s granting of Land Use Rights.
The granting process is typically based on government policies at the time of granting and can be lengthy and complex. This process
may adversely affect the Company’s future manufacturing expansions. The Chinese government also exercises significant control
over the PRC’s economic growth through the allocation of resources and providing preferential treatment to particular industries
or companies. Uncertainties may arise with changing of governmental policies and measures.
The Company
faces a number of risks and challenges not typically associated with companies in North America and Western Europe, since its
assets exist solely in the PRC, and its revenues are derived from its operations therein. The PRC is a developing country with
an early stage market economic system, overshadowed by the state. Its political and economic systems are very different from the
more developed countries and are in a state of change. The PRC also faces many social, economic and political challenges that
may produce major shocks, instabilities and even crises, in both its domestic arena and in its relationships with other countries,
including the United States. Such shocks, instabilities and crises may in turn significantly and negatively affect the Company’s
performance.
The Company
had no rental commitment as of December 31, 2020.
NOTE 12 - MAJOR SUPPLIERS
AND CUSTOMERS
For the
six months ended December 31, 2020, the Company had three suppliers that in the aggregate accounted for 78% of the Company’s
purchases, with each supplier accounting for 39%, 22%, and 17%, respectively.
For the
six months ended December 31, 2019, the Company had three suppliers that in the aggregate accounted for 75% of the Company’s
purchases, with each supplier accounting for 35%, 20%, and 20%, respectively.
For the
six months ended December 31, 2020, the Company had six customers that in the aggregate accounted for 89% of the Company’s
total sales, with each customer accounting for 22%, 18%, 16%, 12%, 12%, and 9%, respectively.
For the
six months ended December 31, 2019, the Company had six customers that in the aggregate accounted for 81% of the Company’s
total sales, with each customer accounting for 20%, 16%, 15%, 11%, 11%, and 8%, respectively.
NOTE 13 - SEGMENT REPORTING
The Company
is organized into the following three main business segments based on the types of products being provided to customers: HLJ Huimeijia,
Humankind, and “Others”. Each of the three aforementioned operating segments has separate and distinct general ledgers.
The chief operating decision maker (“CODM”) receives financial information, including information regarding revenue,
gross margin, operating income, and net income, from the various general ledger systems to make decisions about allocating resources
and assessing performance; however, the principal measure of segment profitability or loss used by the CODM is net income (loss)
by segment.
The following
tables present summary information by segment for the three and six months ended December 31, 2020 and 2019, respectively:
|
|
For the Three Months Ended
December 31, 2020
|
|
|
For the Three Months Ended
December 31, 2019
|
|
|
|
HLJ
|
|
|
|
|
|
|
|
|
|
|
|
HLJ
|
|
|
|
|
|
|
|
|
|
|
|
|
Huimeijia
|
|
|
Humankind
|
|
|
Others
|
|
|
Consolidated
|
|
|
Huimeijia
|
|
|
Humankind
|
|
|
Others
|
|
|
Consolidated
|
|
Revenues
|
|
$
|
1,217
|
|
|
$
|
3,088,499
|
|
|
$
|
-
|
|
|
$
|
3,089,716
|
|
|
$
|
8,894
|
|
|
$
|
3,413,094
|
|
|
$
|
-
|
|
|
$
|
3,421,988
|
|
Cost of revenues
|
|
|
4,330
|
|
|
|
1,290,003
|
|
|
|
-
|
|
|
|
1,294,333
|
|
|
|
4,528
|
|
|
|
681,982
|
|
|
|
-
|
|
|
|
686,510
|
|
Gross profit (loss)
|
|
|
(3,113
|
)
|
|
|
1,798,496
|
|
|
|
-
|
|
|
|
1,795,383
|
|
|
|
4,366
|
|
|
|
2,731,112
|
|
|
|
-
|
|
|
|
2,735,478
|
|
Interest income(expense)
|
|
|
2
|
|
|
|
34,296
|
|
|
|
2
|
|
|
|
34,300
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Depreciation and amortization
|
|
|
15,458
|
|
|
|
136,810
|
|
|
|
-
|
|
|
|
152,268
|
|
|
|
21,451
|
|
|
|
129,301
|
|
|
|
-
|
|
|
|
150,752
|
|
Income tax
|
|
|
-
|
|
|
|
344,742
|
|
|
|
-
|
|
|
|
344,742
|
|
|
|
-
|
|
|
|
555,896
|
|
|
|
-
|
|
|
|
555,896
|
|
Net income (loss)
|
|
|
(65,131
|
)
|
|
|
1,061,740
|
|
|
|
(180,566
|
)
|
|
|
816,043
|
|
|
|
(163,903
|
)
|
|
|
1,667,687
|
|
|
|
(77,200
|
)
|
|
|
1,426,584
|
|
Total capital expenditures
|
|
|
11,221
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11,221
|
|
|
|
1
|
|
|
|
22,435
|
|
|
|
-
|
|
|
|
22,436
|
|
Total assets
|
|
$
|
3,514,254
|
|
|
$
|
51,798,441
|
|
|
$
|
(1,313,928
|
)
|
|
$
|
53,998,767
|
|
|
$
|
3,530,191
|
|
|
$
|
45,384,617
|
|
|
$
|
(931,560
|
)
|
|
$
|
47,983,248
|
|
|
|
For the Six Months Ended
December 31, 2020
|
|
|
For the Six Months Ended
December 31, 2019
|
|
|
|
HLJ
|
|
|
|
|
|
|
|
|
|
|
|
HLJ
|
|
|
|
|
|
|
|
|
|
|
|
|
Huimeijia
|
|
|
Humankind
|
|
|
Others
|
|
|
Consolidated
|
|
|
Huimeijia
|
|
|
Humankind
|
|
|
Others
|
|
|
Consolidated
|
|
Revenues
|
|
$
|
13,214
|
|
|
$
|
5,268,584
|
|
|
$
|
-
|
|
|
$
|
5,281,798
|
|
|
$
|
35,829
|
|
|
$
|
5,440,083
|
|
|
$
|
-
|
|
|
$
|
5,475,912
|
|
Cost of revenues
|
|
|
53,660
|
|
|
|
2,192,453
|
|
|
|
-
|
|
|
|
2,246,113
|
|
|
|
39,536
|
|
|
|
1,155,870
|
|
|
|
-
|
|
|
|
1,195,406
|
|
Gross profit
|
|
|
(40,446
|
)
|
|
|
3,076,131
|
|
|
|
-
|
|
|
|
3,035,685
|
|
|
|
(3,707
|
)
|
|
|
4,284,213
|
|
|
|
-
|
|
|
|
4,280,506
|
|
Interest income(expense)
|
|
|
4
|
|
|
|
66,395
|
|
|
|
4
|
|
|
|
66,403
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3
|
)
|
|
|
(3
|
)
|
Depreciation and amortization
|
|
|
41,919
|
|
|
|
268,221
|
|
|
|
|
|
|
|
310,140
|
|
|
|
30,772
|
|
|
|
259,144
|
|
|
|
-
|
|
|
|
289,916
|
|
Income tax
|
|
|
|
|
|
|
618,935
|
|
|
|
|
|
|
|
618,935
|
|
|
|
|
|
|
|
(868,403
|
)
|
|
|
-
|
|
|
|
(868,403
|
|
Net income (loss)
|
|
|
(171,946
|
)
|
|
|
1,809,591
|
|
|
|
(181,910
|
)
|
|
|
1,455,735
|
|
|
|
(262,198
|
)
|
|
|
2,605,207
|
|
|
|
(159,851
|
)
|
|
|
2,183,158
|
|
Total capital expenditures
|
|
|
11,366
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11,366
|
|
|
|
572
|
|
|
|
130,964
|
|
|
|
-
|
|
|
|
131,536
|
|
Total assets
|
|
$
|
3,514,254
|
|
|
$
|
51,798,441
|
|
|
$
|
(1,313,928
|
)
|
|
$
|
53,998,767
|
|
|
$
|
3,530,191
|
|
|
$
|
45,384,617
|
|
|
$
|
(931,560
|
)
|
|
$
|
47,983,248
|
|
NOTE 14 - SUBSEQUENT EVENTS
The Company
has evaluated subsequent events from the balance sheet date through the date the financial statements were issued and determined
that there are no additional items to disclose.
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
|
FORWARD LOOKING STATEMENTS
We make certain forward-looking statements
in this report. Statements concerning our future operations, prospects, strategies, financial condition, future economic performance
(including growth and earnings), demand for our services, and other statements of our plans, beliefs, or expectations, including
the statements contained under this caption as well as under captions elsewhere in this document, are forward-looking statements.
In some cases, these statements are identifiable through the use of words such as “anticipate”, “believe”,
“estimate”, “expect”, “intend”, “plan”, “project”, “target”,
“can”, “could”, “may”, “should”, “will”, “would”, and similar
expressions. The forward-looking statements we make are not guarantees of future performance and are subject to various assumptions,
risks, and other factors that could cause actual results to differ materially from those suggested by these forward-looking statements.
These risks and uncertainties, together with the other risks described from time to time in reports and documents that we file
with the SEC should be considered in evaluating forward-looking statements. Because such statements are subject to risks and uncertainties,
actual results may differ materially from those expressed or implied by the forward-looking statements. Indeed, it is likely that
some of our assumptions will prove to be incorrect. Our actual results and financial position will vary from those projected or
implied in the forward-looking statements and the variances may be material. You are cautioned not to place undue reliance on such
forward-looking statements, which reflect our view only as of the date of this report.
Important factors that could cause actual
results to differ from those in the forward-looking statements include, without limitation, the following:
|
●
|
the effect of political conditions, economic conditions, market conditions, and geopolitical events;
|
|
|
|
|
●
|
legislative and regulatory changes that affect our business;
|
|
|
|
|
●
|
the availability of funds and working capital; and
|
|
|
|
|
●
|
the actions and initiatives of current and potential competitors.
|
Except as required by applicable laws,
regulations, or rules, we do not undertake any responsibility to publicly release any revisions to these forward-looking statements
to take into account events or circumstances that occur after the date of this report. Additionally, we do not undertake any responsibility
to update you on the occurrence of any unanticipated events which may cause actual results to differ from those expressed or implied
by any forward-looking statements.
The following discussion and analysis should
be read in conjunction with our unaudited condensed consolidated financial statements and the related notes thereto as filed with
the SEC and other financial information contained elsewhere in this report.
Except as otherwise indicated by the context,
references in this report to “we”, “us”, “our”, “the Registrant”, “our Company”,
or “the Company” are to China Health Industries Holdings, Inc., a Delaware corporation, China Health Industries Holdings
Limited, a limited liability company incorporated under the laws of Hong Kong, its wholly owned subsidiary in China, Harbin Humankind
Biology Technology Co. Limited (“Humankind”), and indirect wholly owned subsidiary, Heilongjiang Huimeijia Pharmaceutical
Co., Ltd. (“HLJ Huimeijia”). Unless the context otherwise requires, all references to (i) the “PRC” and
“China” are to the People’s Republic of China; (ii) “U.S. dollar,” “$” and “US$”
are to United States dollars; (iii) “RMB” are to Renminbi Yuan of China; (iv) “Securities Act” are to the
Securities Act of 1933, as amended; and (v) “Exchange Act” are to the Securities Exchange Act of 1934, as amended.
Business Overview
Our principal business operations are conducted
through our wholly-owned subsidiaries, Humankind and HLJ Huimeijia.
The Company owns a GMP-certified plant
and production facilities and has the capacity to produce 21 different NMPA-approved medicines, 14 NMPA-approved health supplement
products and 8 hemp derivative products in soft capsule, hard capsule, tablet, granule, oral liquid forms. These products address
the needs of some key sectors in China, including the feminine, geriatric, and children’s markets.
HLJ Huimeijia was founded on October 30,
2003 and its latest GMP certificate is effective until April 24, 2023. HLJ Huimeijia engages in the manufacture and distribution
of tincture, ointments, rubber paste, including hormones, topical solution, suppositories, enemas, oral liquids, and liniment,
including traditional Chinese medicine extractions. HLJ Huimeijia’s predecessor was Heilongjiang Xue Du Pharmaceutical Co.,
Ltd., which established brand recognition in the market through its supply of high-quality drug products. HLJ Huimeijia is a “high
and new technology” enterprise that provides the most comprehensive types of topical medical products in Heilongjiang Province,
a northeastern province of China.
We have developed the following products
that are derived from hemp and obtained business license to manufacture and sell these products. We began to sell these products
since May 2018. Hemp Oil, Hemp Protein Powder, Hemp Polypeptide and Collagen Peptide are sold through Humankind, Other cosmetics
are sold through HLJ Huimeijia. The revenue of the Hemp Oil, Hemp Protein Powder, Hemp Polypeptide and Collagen Peptide accounted
for 99.75% and 93.35% for the six-month periods ended December 31, 2020 and 2019, respectively.
Serial No.
|
|
Name
|
1
|
|
Hemp Oil
|
2
|
|
Hemp Protein Powder
|
3
|
|
Hemp Polypeptide
|
4
|
|
Collagen Peptide
|
5
|
|
Natural Hemp Essence Repair Lotion
|
6
|
|
Natural Hemp Revitalizing Essence
|
7
|
|
Natural Hemp Anit-aging Brightening Eye Cream
|
8
|
|
Natural Hemp Frozen Age Nourishing Cream
|
Our business is conducted through our sales
agents and sales personnel. We sell our products directly to end customers through our own sales personnel as well as our sales
agents, operating primarily in Anhui, Zhejiang, Shanghai, Jiangsu, Beijing and Gansu, where most of our revenues are generated.
Sales by agents in Anhui, Zhejiang, Shanghai, Jiangsu, Beijing, and Gansu provinces accounted for 22%, 18%, 16%, 12%, 12%, and
9% of our total sales, respectively, for the six months ended December 31, 2020. Although we do not currently sell our products
online, we expect to do so in the future.
Results of Operations
Three months ended December 31, 2020 compared to the three
months ended December 31, 2019
The following table summarizes the top
lines of the results of our operations for the three months ended December 31, 2020 and 2019, respectively:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Variance
|
|
|
%
|
|
Revenues
|
|
$
|
3,089,716
|
|
|
$
|
3,421,988
|
|
|
$
|
(332,272
|
)
|
|
|
(9.71
|
)%
|
Humankind
|
|
|
3,088,499
|
|
|
|
3,413,094
|
|
|
|
(324,595
|
)
|
|
|
(9.51
|
)%
|
HLJ Huimeijia
|
|
|
1,217
|
|
|
|
8,894
|
|
|
|
(7,677
|
)
|
|
|
(86.32
|
)%
|
Cost of Goods Sold
|
|
$
|
1,294,333
|
|
|
$
|
686,510
|
|
|
$
|
607,823
|
|
|
|
88.54
|
%
|
Humankind
|
|
|
1,290,003
|
|
|
|
681,982
|
|
|
|
608,021
|
|
|
|
89.15
|
%
|
HLJ Huimeijia
|
|
|
4,330
|
|
|
|
4,528
|
|
|
|
(198
|
)
|
|
|
(4.37
|
)%
|
Gross Profit
|
|
$
|
1,795,383
|
|
|
$
|
2,735,478
|
|
|
$
|
(940,095
|
)
|
|
|
(34.37
|
)%
|
Humankind
|
|
|
1,798,496
|
|
|
|
2,731,112
|
|
|
|
(932,616
|
)
|
|
|
(34.15
|
)%
|
HLJ Huimeijia
|
|
|
(3,113
|
)
|
|
|
4,366
|
|
|
|
(7,479
|
)
|
|
|
(171.30
|
)%
|
Revenue
Total revenues decreased by $332,272 or
9.71% for the three months ended December 31, 2020, as compared to the same period in 2019. The decrease in revenues was primarily
due to a decrease of $324,595 or 9.51% in Humankind’s revenues, and a decrease of $7,677 in HLJ Huimeijia’s revenues
for the three months ended December 31, 2020 as compared to the same period in 2019. The decrease in Humankind’s sales revenues
was primarily due to the discounts we offered on our major products, while the sales volume increased compared to the same period
in 2019. The decrease in HLJ Huimeijia’s sales revenues was primarily due to the outbreak of COVID-19 pandemic, which resulted
in the cease of production of HLJ Huimeijia.
Our total cost of goods sold increased
by $607,823 or 88.54% for the three months ended December 31, 2020 as compared to the same period in 2019. This increase was mainly
due to the increase in sales volume caused by the discounts and promotions we offered during this period, while unit cost remained
and the total cost of goods sold increased.
Our gross margin decreased by $940,095
or 34.37% for the three months ended December 31, 2020 as compared to the same period in 2019. The decrease in gross profit was
primarily due to the discounts we offered on our major products, which led to a decrease in the sales unit price while the unit
cost remained unchanged.
Sales by Product Line
The following table summarizes a breakdown
of our sales by major product lines for the three months ended December 31, 2020 and 2019 respectively:
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
|
|
Quantity
|
|
|
|
|
|
% of
|
|
|
Quantity
|
|
|
|
|
|
% of
|
|
|
|
(Unit)
|
|
|
Sales US$
|
|
|
Sales
|
|
|
(Unit)
|
|
|
Sales US$
|
|
|
Sales
|
|
Humankind
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hemp Oil
|
|
|
51,329
|
|
|
$
|
1,070,558
|
|
|
|
34.29
|
%
|
|
|
35,948
|
|
|
$
|
1,474,698
|
|
|
|
42.24
|
%
|
Collagen Peptide
|
|
|
26,545
|
|
|
|
332,184
|
|
|
|
10.64
|
%
|
|
|
25,885
|
|
|
|
730,237
|
|
|
|
20.92
|
%
|
Hemp Polypeptide
|
|
|
45,876
|
|
|
|
958,210
|
|
|
|
30.70
|
%
|
|
|
22,165
|
|
|
|
1,107,209
|
|
|
|
31.72
|
%
|
Hemp Protein Powder
|
|
|
60,773
|
|
|
|
759,458
|
|
|
|
24.33
|
%
|
|
|
13,306
|
|
|
|
175,059
|
|
|
|
5.01
|
%
|
HLJ Huimeijia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Muskiness Bone Strengthener Paste
|
|
|
1,480
|
|
|
|
336
|
|
|
|
0.01
|
%
|
|
|
3,309
|
|
|
|
1,293
|
|
|
|
0.04
|
%
|
Dampness dispelling pain ointment
|
|
|
975
|
|
|
|
296
|
|
|
|
0.01
|
%
|
|
|
3,222
|
|
|
|
999
|
|
|
|
0.03
|
%
|
Refining Cream dogskin
|
|
|
800
|
|
|
|
146
|
|
|
|
0.01
|
%
|
|
|
1,530
|
|
|
|
402
|
|
|
|
0.01
|
%
|
Indometacin and Furazolidone Suppositories
|
|
|
1,645
|
|
|
|
438
|
|
|
|
0.01
|
%
|
|
|
3,551
|
|
|
|
871
|
|
|
|
0.02
|
%
|
ShangBiTongDing
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
%
|
|
|
40
|
|
|
|
147
|
|
|
|
0.01
|
%
|
Total
|
|
|
189,423
|
|
|
$
|
3,121,626
|
|
|
|
100.00
|
%
|
|
|
108,956
|
|
|
$
|
3,490,915
|
|
|
|
100.00
|
%
|
Operating Expenses
The following table summarizes our operating
expenses for the three months ended December 31, 2020 and 2019, respectively:
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
|
Variance
|
|
|
%
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
$
|
516,959
|
|
|
$
|
633,303
|
|
|
$
|
(116,344
|
)
|
|
|
(18.37
|
)%
|
Depreciation and amortization
|
|
|
152,268
|
|
|
|
150,752
|
|
|
|
1,516
|
|
|
|
1.01
|
%
|
Total Operating Expenses
|
|
$
|
669,227
|
|
|
$
|
784,055
|
|
|
$
|
(114,828
|
)
|
|
|
(14.65
|
)%
|
Total operating expenses for the three
months ended December 31, 2020 were $114,828 or 14.65% lower than those in the corresponding period in 2019. The decrease in operating
expenses was primarily attributable to decrease of $116,344 or 18.37% in selling, general and administrative expenses. The decrease
in selling, general and administrative expenses was mainly due to lower staff cost.
Interest Income and Interest Expense
Interest income was $34,300 for the three
months ended December 31, 2020, as compared to $31,293 for the three months ended December 31, 2019. This increase of $3,007, or
10%, was mainly due to the increased average balance of bank deposits compared with the same period of 2020.
Interest expense was $nil for the three
months ended December 31, 2020 and for the three months ended December 31, 2019.
Income Taxes
Income taxes decreased by $211,154, or
38%, from $555,896 for the three months ended December 31, 2019 to $344,742 for the three months ended December 31, 2020. The decrease
in income taxes was mainly due to the decrease of the Company’s gross profit in the amount of $940,095, from the gross profit
of $2,735,478 for the three months ended December 31, 2019 to the gross profit of $1,795,383 for the three months ended December
31, 2020.
Net Income and Net Income Per Share
Net Income was $816,043 for the three months
ended December 31, 2020, as compared to $1,426,584 for the three months ended December 31, 2019. This decrease of $610,541 in net
income was primarily attributable to a decrease of gross margin. Revenue section mentioned the gross profit decreased due to the
discounts we offered on our major products with the unchanged unit cost. The decrease of gross profits further caused the decrease
in the net income.
Net Income per share was $0.0125 for the
three months ended December 31, 2020 and $0.0218 for the three months ended December 31, 2019, respectively. This decrease was
primarily a result of the aforementioned decrease in net profit.
Six months ended December 31, 2020 compared to the six
months ended December 31, 2019
The following table summarizes the top
lines of the results of our operations for the six months ended December 31, 2020 and 2019, respectively:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Variance
|
|
|
%
|
|
Revenues
|
|
$
|
5,281,798
|
|
|
$
|
5,475,912
|
|
|
$
|
(194,114
|
)
|
|
|
(3.54
|
)%
|
Humankind
|
|
|
5,268,584
|
|
|
|
5,440,083
|
|
|
|
(171,499
|
)
|
|
|
(3.15
|
)%
|
HLJ Huimeijia
|
|
|
13,214
|
|
|
|
35,829
|
|
|
|
(22,615
|
)
|
|
|
(63.12
|
)%
|
Cost of Goods Sold
|
|
$
|
2,246,113
|
|
|
$
|
1,195,406
|
|
|
$
|
1,050,707
|
|
|
|
87.90
|
%
|
Humankind
|
|
|
2,192,453
|
|
|
|
1,155,870
|
|
|
|
1,036,583
|
|
|
|
89.68
|
%
|
HLJ Huimeijia
|
|
|
53,660
|
|
|
|
39,536
|
|
|
|
14,124
|
|
|
|
35.72
|
%
|
Gross Profit
|
|
$
|
3,035,685
|
|
|
$
|
4,280,506
|
|
|
$
|
(1,244,821
|
)
|
|
|
(29.08
|
)%
|
Humankind
|
|
|
3,076,131
|
|
|
|
4,284,213
|
|
|
|
(1,208,082
|
)
|
|
|
(28.20
|
)%
|
HLJ Huimeijia
|
|
|
(40,446
|
)
|
|
|
(3,707
|
)
|
|
|
(36,739
|
)
|
|
|
991.07
|
%
|
Revenue
Total revenues decreased by $194,114 or
3.54% for the six months ended December 31, 2020, as compared to the same period in 2019. The decrease in revenues was primarily
caused by a decrease of $171,499 or 3.15% in Humankind’s revenues, and a decrease of $22,615 in HLJ Huimeijia’s revenues
for the six months ended December 31, 2020 as compared to the same period in 2019. The decrease in Humankind’s sales revenues
was primarily due to discounts we offered on our major products while the sales volume increased compared to the same period in
2019.
Our total cost of goods sold increased
by $1,050,707 or 87.90% for the six months ended December 31, 2020 as compared to the same period in 2019. This increase was mainly
due to the increase in sales volume caused by the discounts and promotions we offered during this period, while unit cost remained
and the total cost of goods sold increased.
Our gross margin decreased by $1,244,821
or 29.08% for the six months ended December 31, 2020 as compared to the same period in 2019. The decrease in gross profit was primarily
due to the discounts we offered on our major products, which led to a decrease in the sales unit price while the unit cost remained
unchanged.
Sales by Product Line
The following table summarizes the breakdown
of our sales by major product lines for the six months ended December 31, 2020 and 2019 respectively:
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
|
|
Quantity
|
|
|
|
|
|
% of
|
|
|
Quantity
|
|
|
|
|
|
% of
|
|
|
|
(Unit)
|
|
|
Sales US$
|
|
|
Sales
|
|
|
(Unit)
|
|
|
Sales US$
|
|
|
Sales
|
|
Humankind
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hemp Oil
|
|
|
89,333
|
|
|
|
1,829,053
|
|
|
|
34.27
|
%
|
|
|
57,501
|
|
|
|
2,337,103
|
|
|
|
42.16
|
%
|
Collagen Peptide
|
|
|
45,677
|
|
|
|
561,326
|
|
|
|
10.52
|
%
|
|
|
44,927
|
|
|
|
1,253,654
|
|
|
|
22.61
|
%
|
Hemp Polypeptide
|
|
|
82,952
|
|
|
|
1,698,239
|
|
|
|
31.82
|
%
|
|
|
32,543
|
|
|
|
1,328,057
|
|
|
|
23.95
|
%
|
Hemp Protein Powder
|
|
|
100,480
|
|
|
|
1,235,037
|
|
|
|
23.14
|
%
|
|
|
21,261
|
|
|
|
595,377
|
|
|
|
10.74
|
%
|
HLJ Huimeijia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Muskiness Bone Strengthener Paste
|
|
|
39,481
|
|
|
|
5,326
|
|
|
|
0.10
|
%
|
|
|
34,533
|
|
|
|
8,398
|
|
|
|
0.15
|
%
|
Dampness dispelling pain ointment
|
|
|
19,638
|
|
|
|
2,735
|
|
|
|
0.05
|
%
|
|
|
33,059
|
|
|
|
7,700
|
|
|
|
0.14
|
%
|
Refining Cream dogskin
|
|
|
15,850
|
|
|
|
2,120
|
|
|
|
0.04
|
%
|
|
|
17,103
|
|
|
|
4,554
|
|
|
|
0.08
|
%
|
Indometacin and Furazolidone Suppositories
|
|
|
21,335
|
|
|
|
3,033
|
|
|
|
0.06
|
%
|
|
|
37,906
|
|
|
|
2,455
|
|
|
|
0.04
|
%
|
ShangBiTongDing
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
519
|
|
|
|
611
|
|
|
|
0.01
|
%
|
Enema Glycerini and Essence repair liquid
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,580
|
|
|
|
6,930
|
|
|
|
0.12
|
%
|
Total
|
|
|
414,746
|
|
|
$
|
5,336,869
|
|
|
|
100.00
|
%
|
|
|
281,932
|
|
|
$
|
5,544,839
|
|
|
|
100.00
|
%
|
Operating Expenses
The following table summarizes our operating
expenses for the six months ended December 31, 2020 and 2019, respectively:
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
|
Variance
|
|
|
%
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
$
|
717,291
|
|
|
$
|
1,000,291
|
|
|
$
|
(283,000
|
)
|
|
|
(28.29
|
)%
|
Depreciation and amortization
|
|
|
310,140
|
|
|
|
289,916
|
|
|
|
20,224
|
|
|
|
6.98
|
%
|
Total Operating Expenses
|
|
$
|
1,027,431
|
|
|
$
|
1,290,207
|
|
|
$
|
(262,776
|
)
|
|
|
(20.37
|
)%
|
Total operating expenses for the six months
ended December 31, 2020 were $262,776 or 20.37% lower than those in the corresponding period in 2019. The decrease in operating
expenses was primarily attributable to decrease of $283,000 or 28.29% in selling, general and administrative expenses. The decrease
in selling, general and administrative expenses was mainly due to the lower staff cost.
Interest Income and Interest Expense
Interest income was $66,403 for the six
months ended December 31, 2020, as compared to $62,041 for the six months ended December 31, 2019. This increase of $4,362, or
7%, was mainly due to the increased average balance of bank deposits compared with the same period of 2020.
Interest expense was $nil for the six months
ended December 31, 2020 and for the six months ended December 31, 2019.
Income Taxes
Income taxes decreased by $249,468, or
29%, from $868,403 for the six months ended December 31, 2019 to $618,935 for the six months ended December 31, 2020. The decrease
in income taxes was mainly due to the decrease of the Company’s gross profit in the amount of $1,244,821, from the gross
profit of $4,280,506 for the six months ended December 31, 2019 to the gross profit of $3,035,685 for the six months ended December
31, 2020.
Net Income and Net Income Per Share
Net income was $1,455,735 for the six months
ended December 31, 2020, as compared to $2,183,158 for the six months ended December 31, 2019. This decrease of $727,423 in net
income was primarily attributable to a decrease of gross margin. Revenue section mentioned the gross profit decreased due to the
discounts we offered on our major products with the unchanged unit cost. The decrease of gross profits further caused the decrease
in the net income.
Net income per share was $0.0222 for the
six months ended December 31, 2020 and $0. 0.0333 for the six months ended December 31, 2019, respectively. This decrease was primarily
a result of the aforementioned decrease in net profit.
Liquidity and Capital Resources
We believe our current working capital
position, together with our expected future cash flows from operations and loans from our major shareholder, will be adequate to
fund our operations in the ordinary course of business, anticipated capital expenditures, debt payment requirements, and other
contractual obligations for at least the next twelve months. However, this belief is based upon many assumptions and is subject
to numerous risks, and there can be no assurance that we will not require additional funding in the future.
The following table summarizes our cash
and cash equivalents positions, our working capital, and our cash flow activities as of December 31, 2020 and June 30, 2020 and
for the six months ended December 31, 2020 and 2019:
|
|
December 31,
2020
|
|
|
June 30,
2020
|
|
Cash and cash equivalents
|
|
$
|
40,666,095
|
|
|
$
|
36,072,474
|
|
Working capital
|
|
$
|
37,978,619
|
|
|
$
|
33,223,104
|
|
Inventories
|
|
$
|
982,064
|
|
|
$
|
807,351
|
|
|
|
For the
Six Months ended
December 31,,
|
|
|
|
2020
|
|
|
2019
|
|
Cash provided by (used in):
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
2,462,504
|
|
|
$
|
1,728,466
|
|
Investing activities
|
|
$
|
(11,366
|
)
|
|
$
|
(149,845
|
)
|
Financing activities
|
|
$
|
-
|
|
|
$
|
-
|
|
For the six months ended December 31, 2020,
our net increase in cash and cash equivalents totaled $ 4,593,621, which total was comprised of net cash provided by operating
activities in the amount of $2,462,504, net cash used in investing activities in the amount of $11,366 and the effect of prevailing
exchange rates on our cash position of $2,142,483.
For the six months ended December 31, 2019,
our net increase in cash and cash equivalents totaled $1,168,296, which was comprised of net cash provided by operating activities
in the amount of $1,728,466, net cash used in investing activities in the amount of $149,845 and the effect of the prevailing exchange
rates on our cash position of $410,325.
Our working capital at December 31, 2020
was $37,978,619, compared to working capital of $33,223,104 at June 30, 2020. This increase of $4,755,515 or 14% was primarily
attributable to the increase of cash and cash equivalents in the amount of $4,593,621.
Net cash provided by operating activities
was $2,462,504 for the six months ended December 31, 2020, primarily attributable to net income in the amount of $1,455,735 and
a decrease of accounts receivable in the amount of $529,591. The positive effect of exchange rate changes on cash and cash equivalents
in the amount of $2,142,483 for the six months ended December 31, 2020 was mainly a result of the effect of the valuation of the
RMB against the USD on the significant amount of cash and cash equivalents held by the Company in RMB. The exchange rates from
USD to RMB were 7.0650 to 1 and 6.5250 to 1 as of June 30, 2020 and December 31, 2020, respectively, and the average exchange rate
from USD to RMB was 6.7741 for the six months ended December 31, 2020.
Net cash provided by operating activities
was $1,728,466 for the six months ended December 31, 2019, which primarily comes from net income of $2,183,158. Net cash
used in investing activities was $149,845 for the six months ended December 31, 2019, primarily due to expenditures in property,
plant and equipment of $130,964. The negative effect of exchange rate changes on cash and cash equivalents in the amount of $410,325
for the six months ended December 31, 2019 was mainly a result of the effect of the depreciation of the value of RMB for USD. The
exchange rates from USD to RMB were 6.8668 to 1 and 6.9618 to 1 as of June 30, 2019 and December 31, 2019, respectively, and the
average exchange rate from USD to RMB was 7.0297 for the six months ended December 31, 2019.
Other than as described in this report,
we have no present agreements or commitments with respect to any material acquisitions of businesses, products, product rights,
technologies, or any other material capital expenditures. However, we will continue to evaluate acquisitions of, and/or investments
in, products, technologies, capital equipment or improvements, or companies that complement our business and may make such acquisitions
and/or investments in the future. Accordingly, we may need to obtain additional sources of capital in the future to finance any
such acquisitions and/or investments. We may not be able to obtain such financing on commercially reasonable terms, if at all.
Even if we are able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing,
or cause substantial dilution for our stockholders, in the case of equity financing.
Related Party Debts
We had related party debts in the amount
of $7,899,586 as of December 31, 2020, as compared to $7,259,862 as of June 30, 2020, an increase of $639,724 or 9%. Our related
party debts mainly consist of a loan from Mr. Xin Sun, the CEO of the Company. The loan is unsecured, non-interest bearing, and
has no fixed terms of repayment. There was no written agreement for the loan. See Note 8.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements
that are currently material or reasonably likely to be material to its financial position or results of operations.
Critical Accounting Policies and Estimates
We prepare the unaudited condensed consolidated
financial statements in accordance with US GAAP. These accounting principles require us to make judgments, estimates and assumptions
on the reported amounts of assets and liabilities at the end of each fiscal period, and the reported amounts of revenues and expenses
during each fiscal period. We continually evaluate these judgments and estimates based on our own historical experience, knowledge
and assessment of current business and other conditions, our expectations regarding the future based on available information,
and assumptions that we believe to be reasonable.
There have been no material changes during
the three months ended December 31, 2020 in the Company’s significant accounting policies to those previously disclosed in
the annual report on Form 10-K for the fiscal year ended June 30, 2020.