Item 1. Financial Statements
CHINA
HEALTH INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
|
|
September 30,
2021
|
|
|
June 30,
2021
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
45,941,677
|
|
|
$
|
44,346,744
|
|
Accounts receivable, net
|
|
|
667,146
|
|
|
|
2,346,867
|
|
Inventory
|
|
|
768,005
|
|
|
|
761,639
|
|
Other receivables, net
|
|
|
33,864
|
|
|
|
32,850
|
|
Advances to suppliers
|
|
|
218,754
|
|
|
|
218,307
|
|
Prepayments
|
|
|
20,749
|
|
|
|
24,466
|
|
Total current assets
|
|
$
|
47,650,195
|
|
|
$
|
47,730,873
|
|
|
|
|
|
|
|
|
|
|
Property, plants and equipment, net
|
|
|
3,546,228
|
|
|
|
3,629,905
|
|
Intangible assets, net
|
|
|
1,842,765
|
|
|
|
1,963,516
|
|
Construction in progress
|
|
|
562,059
|
|
|
|
560,910
|
|
Prepayments – Non-Current
|
|
|
-
|
|
|
|
-
|
|
Deferred tax assets
|
|
|
2,939
|
|
|
|
2,933
|
|
Total assets
|
|
$
|
53,604,186
|
|
|
$
|
53,888,137
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
(76,453
|
)
|
|
$
|
406,821
|
|
Other payables
|
|
|
69,521
|
|
|
|
81,449
|
|
Advances from customers
|
|
|
180,978
|
|
|
|
150,504
|
|
Related party debts
|
|
|
8,124,138
|
|
|
|
8,079,761
|
|
Wages payable
|
|
|
185,898
|
|
|
|
218,602
|
|
Taxes payable
|
|
|
274,008
|
|
|
|
176,359
|
|
Total current liabilities
|
|
$
|
8,758,090
|
|
|
$
|
9,113,496
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
Common stock, ($0.0001 par value per share, 300,000,000 shares authorized, 65,539,737 and 65,539,737 shares issued and outstanding as of September 30, 2021 and June 30, 2021, respectively)
|
|
|
6,554
|
|
|
|
6,554
|
|
Additional paid-in capital
|
|
|
521,987
|
|
|
|
521,987
|
|
Accumulated other comprehensive income
|
|
|
2,249,637
|
)
|
|
|
2,156,792
|
)
|
Statutory reserves
|
|
|
38,679
|
|
|
|
38,679
|
|
Retained earnings
|
|
|
42,029,239
|
|
|
|
42,050,629
|
|
Total stockholders’ equity
|
|
$
|
44,846,096
|
|
|
$
|
44,774,641
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
53,604,186
|
|
|
$
|
53,888,137
|
|
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
|
|
|
|
September 30,
2021
|
|
|
September 30,
2020
|
|
|
|
|
|
|
|
|
REVENUE
|
|
$
|
266
|
|
|
$
|
2,192,082
|
|
|
|
|
|
|
|
|
|
|
COST OF GOODS SOLD
|
|
|
(1,744
|
)
|
|
|
(951,780
|
)
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT (LOSS)
|
|
|
(1,478
|
)
|
|
|
1,240,302
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
255,073
|
|
|
|
200,332
|
|
Depreciation and amortization expenses
|
|
|
179,950
|
|
|
|
157,872
|
|
Total operating expenses
|
|
|
435,023
|
|
|
|
358,204
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) FROM OPERATIONS
|
|
|
(436,501
|
)
|
|
|
882,098
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME/(EXPENSES)
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
41,034
|
|
|
|
32,103
|
|
Interest expenses
|
|
|
-
|
|
|
|
-
|
|
Other expenses, net
|
|
|
481,302
|
|
|
|
(58
|
)
|
Bank charges
|
|
|
(165
|
)
|
|
|
(258
|
)
|
Total other income, net
|
|
|
522,171
|
|
|
|
31,787
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAXES
|
|
|
85,670
|
|
|
|
913,885
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
(107,057
|
)
|
|
|
(274,193
|
)
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
|
(21,387
|
)
|
|
|
639,692
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
92,842
|
|
|
|
1,646,630
|
)
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE INCOME (LOSS)
|
|
$
|
71,455
|
|
|
$
|
2,286,322
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic & diluted earnings per share
|
|
$
|
(0.0003
|
)
|
|
$
|
0.0098
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
Basic & diluted weighted average shares outstanding
|
|
|
65,539,737
|
|
|
|
65,539,737
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements.
CHINA HEALTH INDUSTRIES HOLDINGS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
|
|
Common
Shares
|
|
|
Additional
Paid-in
|
|
|
Retained
|
|
|
Statutory
|
|
|
Accumulated
Other Comprehensive
|
|
|
Total
Stockholders’
|
|
|
Non-controlling
|
|
|
Total
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Reserve
|
|
|
Income
(loss)
|
|
|
Equity
|
|
|
Interest
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
639,692
|
|
|
|
-
|
|
|
|
-
|
|
|
|
639,692
|
|
|
|
-
|
|
|
|
639,692
|
|
Other
comprehensive loss - Translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,639,820
|
|
|
|
1,639,820
|
|
|
|
-
|
|
|
|
1,639,820
|
|
Balance,
September 30, 2020
|
|
|
65,539,737
|
|
|
$
|
6,554
|
|
|
$
|
521,987
|
|
|
$
|
41,399,199
|
|
|
$
|
38,679
|
|
|
$
|
(18,921
|
)
|
|
$
|
41,947,498
|
|
|
$
|
-
|
|
|
$
|
41,947,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
June 30, 2021
|
|
|
65,539,737
|
|
|
|
6,554
|
|
|
|
521,987
|
|
|
|
42,050,629
|
|
|
|
38,679
|
|
|
|
2,156,792
|
|
|
|
44,774,641
|
|
|
|
-
|
|
|
|
44,774,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,387
|
)
|
|
|
|
|
|
|
|
|
|
|
(21,387
|
)
|
|
|
|
|
|
|
(21,387
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive loss - Translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
92,842
|
|
|
|
92,842
|
|
|
|
|
|
|
|
92,842
|
|
Balance,
September 30, 2021
|
|
|
65,539,737
|
|
|
|
6,554
|
|
|
|
521,987
|
|
|
|
42,029,242
|
|
|
|
38,679
|
|
|
|
2,249,634
|
|
|
|
44,846,096
|
|
|
|
-
|
|
|
|
44,846,096
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements.
CHINA
HEALTH INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
For the Three Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
Net income (loss) from operations
|
|
$
|
(21,387
|
)
|
|
$
|
639,692
|
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization expenses
|
|
|
210,060
|
|
|
|
185,485
|
|
Provisions for doubtful accounts
|
|
|
(7,479
|
)
|
|
|
(3,327
|
)
|
Deferred taxes loss/(gain)
|
|
|
-
|
|
|
|
-
|
|
Changes in operating assets and liabilities,
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
1,646,539
|
|
|
|
241,625
|
|
Other receivables
|
|
|
(921
|
)
|
|
|
(4,409
|
)
|
Inventory
|
|
|
(4,677
|
)
|
|
|
1,664
|
|
Advances to suppliers and prepaid expenses
|
|
|
3,665
|
|
|
|
18,128
|
)
|
Accounts payables and accrued expenses
|
|
|
(471,032
|
)
|
|
|
(42,085
|
)
|
Advances from customers and other payables
|
|
|
41,259
|
|
|
|
2,004
|
|
Amounts due to related parties
|
|
|
813,111
|
|
|
|
32,255
|
|
Wages payable
|
|
|
(32,258
|
)
|
|
|
31,162
|
|
|
|
|
|
|
|
|
|
|
Taxes payable
|
|
|
102,732
|
|
|
|
15,185
|
|
Net cash provided by operating activities
|
|
|
2,279,612
|
|
|
|
1,117,379
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
Purchases of property, plants and equipment
|
|
|
-
|
|
|
|
-
|
|
Expenditures in construction in progress
|
|
|
-
|
|
|
|
(145
|
)
|
Disposal of property, plant and equipment
|
|
|
-
|
|
|
|
-
|
|
Net cash (used in)/provided by investing activities
|
|
|
-
|
|
|
|
(145
|
)
|
|
|
|
|
|
|
|
|
|
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
|
|
|
(684,679
|
)
|
|
|
1,528,940
|
|
|
|
|
|
|
|
|
|
|
Net increase/(decrease) in cash and cash equivalents
|
|
|
1,594,933
|
|
|
|
2,646,174
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning balance
|
|
|
44,346,744
|
|
|
|
36,072,474
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, closing balance
|
|
|
45,941,677
|
|
|
|
38,718,648
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
4,156
|
|
|
$
|
239,741
|
|
Cash paid for interest expenses
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Non-cash activities:
|
|
|
|
|
|
|
|
|
Loan from related party for the construction of a facility
|
|
$
|
-
|
|
|
$
|
-
|
|
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 entered into a supplementary agreement (the “Supplementary Agreement”) to modify the terms
of the Original Agreement, pursuant to which the Equity Holders and Huimeijia (collectively the “Asset Transferors”) would
sell only the 19 drug approval numbers (including the tablet, capsule, powder, mixture, oral liquid, syrup and oral solution under the
19 approval numbers; licenses including the original copies of Business License, Organization Code Certificate, Tax Registration Certificate,
Drug Production Permit and GMP Certificate, and other documents and original copies related to the production and operation of the 19
drugs) (the “Assets”) to Xiuzheng Pharmacy. The Equity Holders would have retained their equity interests in Huimeijia, but
would have pledged such equity interests to Xiuzheng Pharmacy until the Assets were transferred, at which time the cash consideration
would have been paid by the Buyer. Total cash consideration would have been the same as under the Original Agreement, i.e., RMB 8,000,000
(approximately $1,306,186) to the Asset Transferors. In the event that the Assets had failed to be transferred to the Buyer due to the
fault of the Asset Transferors, the paid consideration would have been returned to the Buyer with interest accrued. If the failure of
the transfer of the Assets were a result of changes in government policy or force majeure, the paid cash consideration would have been
returned to the Buyer but without any interest.
On
October 12, 2016, the four parties agreed to rescind the Supplementary Agreement and entered into a new supplementary agreement (the
“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 to complete three-batches production of all forms of the
drugs included in the Assets. As of the date of this report, 80% of the Purchase Price has been paid, the Company has completed changes
in its business registration, and Xiuzheng Pharmacy has obtained a business license issued by the local State Administration of Industry
and Commerce in Harbin (“Harbin SAIC”) to Huimeijia, in which the ownership of Huimeijia has been recorded as held by Xiuzheng
Pharmacy, with Harbin SAIC and the legal representative (a person that is authorized to take most of the corporate actions on behalf
of a company under the corporate laws in China) of Huimeijia has been appointed by the Buyer.
China
Health US, China Health HK, Humankind and HLJ Huimeijia are collectively referred herein to as the “Company.”
As
of September 30, 2021, 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, 2021. These unaudited condensed consolidated financial statements
include all adjustments which, in the opinion of Management, are necessary for a fair presentation of the financial position and the
results of operations of the Company. All such adjustments are of a normal and recurring nature. The results of operations of the Company
for the three months ended September 30, 2021 may not be indicative of results that may be expected for the year ended June 30, 2022.
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 (“HKD”).
Transactions
denominated in currencies other than the functional currencies are recorded at the exchange rates prevailing on the date of the transactions,
as quoted by the Federal Reserve Board. Foreign currency exchange gains and losses resulting from these transactions are included in
operations.
Humankind,
Huimeijia, HLJ Huimeijia and China Health Hong Kong’s financial statements are translated into the reporting currency, the United
States Dollar (“USD”). Assets and liabilities of the above entities are translated at the prevailing exchange rate at each
reporting period end date. Contributed capital accounts are translated using the historical rate of exchange when capital is injected.
Income and expense accounts are translated at the average rate of exchange during the reporting period. Translation adjustments resulting
from the translation of these financial statements are reflected as accumulated other comprehensive income in shareholders’ equity
and non-controlling interests.
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 September 30, 2021 and June 30, 2021, the Company’s uninsured bank balances were mainly maintained at financial institutions
located in the PRC and Hong Kong. The uninsured bank balances were $45,941,677 and $44,346,744 as of September 30, 2021 and June 30,
2021, respectively. The Company had no insured bank balances as of September 30, 2021 and June 30, 2021.
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 September 30, 2021 and June 30, 2021, the balances of accounts receivable were $719,977and $2,407,261, 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 $52,831 and $60,394 was appropriate as of September 30, 2021 and June 30, 2021, respectively.
Advances
to Suppliers
The
Company periodically makes advances to certain vendors for purchases of raw materials or to service providers for services relating to
construction plans for its plants, equipment and production lines for GMP upgrading, and records these payments as advances to suppliers.
As of September 30, 2021 and June 30, 2021, advances to suppliers amounted to $218,754 and $218,307, 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 September 30, 2021 and June 30, 2021, respectively.
Impairment
of Long-Lived Assets
The
Company’s long-lived assets and other assets are reviewed for impairment in accordance with the guidance of the FASB ASC Topic
360-10, “Property, Plant, and Equipment”, and FASB ASC Topic 205, “Presentation of Financial Statements”. The
Company tests for impairment losses on long-lived assets used in operations whenever events or changes in circumstances indicate that
the carrying amount of the asset may not be recoverable. Recoverability of an asset to be held and used is measured by a comparison of
the carrying amount of the asset to the future undiscounted cash flows expected to be generated by the asset. If such asset is considered
to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair
value. Impairment evaluations involve Management’s estimates on asset useful life and future cash flows. Actual useful life and
cash flows could be different from those estimated by Management, which could have a material effect on the Company’s reporting
results and financial position. Fair value is determined through various valuation techniques including discounted cash flow models,
quoted market values, and third-party independent appraisals, as considered necessary. As of September 30, 2021 and June 30, 2021, the
Company had not experienced impairment losses on its long-lived assets. However, there can be no assurances that demand for the Company’s
products or services will continue, which could result in an impairment of long-lived assets in the future.
Property,
Plants and Equipment
Property,
plants and equipment are carried at the lower of either cost or fair value. Maintenance, repairs and minor renewals are expensed as incurred,
and major renewals and improvements that extend the life or increases the capacity of plant assets are capitalized.
When
assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gains or losses
are included in the results of operations in the reporting period of disposition.
Depreciation
is calculated on a straight-line basis over the estimated useful life of the assets. The depreciable life applied are:
Buildings, Warehouses and Improvements
|
|
20 to 30 years
|
Office Equipment
|
|
3 to 7 years
|
Vehicles
|
|
5 to15 years
|
Machinery and Equipment
|
|
7 to 15 years
|
Intangible
Assets
The
Company evaluates intangible assets in accordance with FASB ASC Topic 350, “Intangibles — Goodwill and Other”. Intangible
assets deemed to have indefinite life are not amortized, but are subject to annual impairment tests. If the assumptions and estimates
used to allocate the purchase price are not correct, or if business conditions change, purchase price adjustments or future asset impairment
charges could be required. The value of the Company’s intangible assets could be impacted by future adverse changes such as: (i)
any future declines in the Company’s operating results, (ii) a decline in the valuation of technology, including the valuation
of the Company’s common stock, (iii) a significant slowdown in the worldwide economy, or (iv) any failure to meet the performance
projections included in the Company’s forecasts of future operating results. In accordance with FASB ASC Topic 350, the Company
tests intangible assets for impairment on an annual basis or more frequently if the Company believes indicators of impairment exist.
Impairment evaluations involve Management’s estimates of asset useful life and future cash flows. Significant judgment of Management
is required in the forecasts of future operating results that are used in the evaluations. It is possible, however, that the plans and
estimates used may be incorrect. If the Company’s actual results, or the plans and estimates used in future impairment analysis,
are lower than the original estimates used to assess the recoverability of these assets, the Company could incur additional impairment
charges in a future period. Based on such evaluations, there was no impairment recorded for intangible assets, for the three months ended
September 30, 2021 and 2020.
Construction
in Progress
Construction
in progress represents the costs incurred in connection with the construction of buildings or new additions to the Company’s plant
facilities. Costs classified as construction in progress include all costs of obtaining the asset and bringing it to the location and
condition necessary for its intended use. No depreciation is provided for construction in progress until such time as the assets are
completed and are placed into service.
The
Company reviews the carrying value of construction in progress for impairment whenever events and circumstances indicate that the carrying
value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition.
In cases where undiscounted expected future cash flows are less than the carrying value of the assets, an impairment loss is recognized
equal to an amount by which the carrying value exceeds the fair value of the assets. The factors considered by Management in performing
this assessment include current operating results, trends and prospects, the manner in which the property is used, and the effects of
obsolescence, demand, competition, and other economic factors. Based on this assessment, there was no impairments recorded for construction
in progress, for the three months ended September 30, 2021 and 2020.
Revenue
Recognition
The
Company recognizes revenue at the amount to which it expects to be entitled when control of the products or services is identified in
any contract and transferred to its customers. 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
with transaction price and satisfied in the contract. Given the nature of the Company’s business and the applicable rules guiding
revenue recognition, the Company’s revenue recognition practices do not contain estimates that materially affect the results of
operations. The Company records revenue at the discounted selling price and allows its customers to return products for exchange or credit
subject to certain limitations. A provision for such returns is recorded based upon historical experience. There
has been no provision recorded for returns based upon historical experience for the three months ended September 30, 2021 and 2020, 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
these regulations and the Implementing Rules of the Provisional Regulations of the PRC Concerning Value Added Tax, value added tax (“VAT”)
is imposed on goods sold in, or imported into, the PRC and on processing, repair and replacement services provided within the PRC.
VAT
payable in the PRC is charged on an aggregated basis at a rate of 13% or 16% (depending on the type of goods involved) on the full price
collected for the goods sold or, in the case of taxable services provided, at a rate of 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 September 30, 2021 and
June 30, 2021, VAT payables were $33,102 and $34,697, 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 $nil and $23,160 for the three months ended
September 30, 2021 and 2020, 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 three months ended September 30, 2021 and 2020, 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 $719,977
and $2,407,261, net of allowances for doubtful accounts amounting to $52,831 and $60,394, as of September 30, 2021 and June 30, 2021,
respectively.
NOTE 4 - INVENTORY
Inventory consisted of following:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2021
|
|
|
2021
|
|
Raw Materials
|
|
$
|
93,918
|
|
|
$
|
251,989
|
|
Supplies and Packing Materials
|
|
|
221,477
|
|
|
|
93,452
|
|
Work-in-Progress
|
|
|
311,797
|
|
|
|
273,924
|
|
Finished Goods
|
|
|
140,813
|
|
|
|
142,274
|
|
Total
|
|
$
|
768,005
|
|
|
$
|
761,639
|
|
The inventory allowance in the amounts of $nil
and $nil was provided for as of September 30, 2021 and June 30, 2021, respectively.
NOTE 5 - CONSTRUCTION IN PROGRESS
Construction in progress from the continuing operations of the Company
consisted of the following:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2021
|
|
|
2021
|
|
Plant - HLJ Huimeijia
|
|
$
|
562,059
|
|
|
$
|
560,910
|
|
Factory Maintenance - Humankind
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
562,059
|
|
|
$
|
560,910
|
|
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 September 30, 2021, 75.8% of construction has been completed, $1,505,827 (RMB 9,702,644) has been recorded
as costs of construction in progress and construction in progress at an amount of $986,555 (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:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2021
|
|
|
2021
|
|
Building, Warehouses and Improvements
|
|
$
|
4,102,492
|
|
|
$
|
4,094,105
|
|
Machinery and Equipment
|
|
|
1,904,880
|
|
|
|
1,900,986
|
|
Office Equipment
|
|
|
81,458
|
|
|
|
81,291
|
|
Vehicles
|
|
|
226,418
|
|
|
|
225,955
|
|
Others
|
|
|
1,000,720
|
|
|
|
998,674
|
|
Less: Accumulated Depreciation
|
|
|
(3,769,740
|
)
|
|
|
(3,671,106
|
)
|
Total
|
|
$
|
3,546,228
|
|
|
$
|
3,629,905
|
|
Depreciation expenses was $88,654 and $69,226
for the three months ended September 30, 2021 and 2020, respectively. Depreciation expenses charged to operations was $55,687 and $41,613
for the three months ended September 30, 2021 and 2020, respectively. Depreciation expenses charged to cost of goods sold was $ nil and
$27,613 for the three months ended September 30, 2021 and 2020, respectively.
NOTE 7 - INTANGIBLE ASSETS
The following is a summary of intangible assets from the continuing
operations of the Company:
|
|
September 30,
2021
|
|
|
June 30,
2021
|
|
Land Use Rights – Humankind
|
|
$
|
983,640
|
|
|
$
|
981,630
|
|
Health Supplement Product Patents – Humankind
|
|
|
4,655,927
|
|
|
|
4,646,408
|
|
Pharmaceutical Patents - HLJ Huimeijia
|
|
|
405,713
|
|
|
|
404,883
|
|
Land Use Rights - HLJ Huimeijia
|
|
|
672,795
|
|
|
|
671,419
|
|
Less: Accumulated Amortization
|
|
|
(4,875,310
|
)
|
|
|
(4,740,824
|
)
|
Total
|
|
$
|
1,842,765
|
|
|
$
|
1,963,516
|
|
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 patent has amortized life of 10 years.
Amortization expenses was $121,406 and $116,259
for the three months ended September 30, 2021 and 2020, respectively.
NOTE 8 - RELATED PARTY DEBTS
Related party debts, which represent temporary
short-term loans from Mr. Xin Sun and Mr. Kai Sun, consisted of the following:
|
|
September 30,
2021
|
|
|
June 30,
2021
|
|
Mr. Xin Sun
|
|
$
|
8,087,847
|
|
|
$
|
8,043,544
|
|
Mr. Kai Sun
|
|
|
36,291
|
|
|
|
36,217
|
|
Total
|
|
$
|
8,124,138
|
|
|
$
|
8,079,761
|
|
These loans are unsecured, non-interest bearing,
and have no fixed terms of repayment; therefore, they are deemed payable on demand. Mr. Kai Sun is a PRC citizen and a family member of
Mr. Xin Sun, the CEO of the Company.
NOTE 9 - INCOME TAXES
(a) Corporate income taxes
United States
China Health US was organized in the United States.
China Health US had no taxable income for US income tax purposes for the three months ended September 30, 2021 and 2020. As of September
30, 2021, China Health US had a net operating loss carry forward for United States income tax purposes. Net operating loss carry forwards
are available to reduce future years’ taxable income. Management believes that the realization of the benefits from these losses
appears uncertain due to the Company’s operating history and the continued losses of its US entity. Accordingly, the Company has
provided a 100% valuation allowance on the deferred tax asset to reduce the asset to zero. There were no changes in the valuation allowance
for the three months ended September 30, 2021 and 2020. Management reviews this valuation allowance periodically and makes adjustments
accordingly.
Hong Kong
China Health HK was incorporated in Hong Kong
and is subject to Hong Kong taxation on its activities conducted in Hong Kong and income arising in or derived from Hong Kong. No provision
for income taxes have been made because China Health HK had no taxable income in Hong Kong.
People’s Republic of China
Under the EIT Law, the standard EIT rate is 25%.
The PRC subsidiaries of the Company are subject to PRC income taxes on an entity basis on income arising in or derived from the tax jurisdiction
in which they operate.
The provision for income taxes of the Company
consisted of the following for the three months ended September 30, 2021 and 2020:
|
|
For the Three Months
Ended
|
|
|
|
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
Current provision:
|
|
|
|
|
|
|
USA
|
|
$
|
|
|
|
$
|
-
|
|
PRC
|
|
|
107,057
|
|
|
|
274,193
|
|
Total current provision
|
|
|
107,057
|
|
|
|
274,193
|
|
Deferred provision:
|
|
|
|
|
|
|
|
|
USA
|
|
|
-
|
|
|
|
-
|
|
PRC
|
|
|
-
|
|
|
|
-
|
|
Total deferred provision
|
|
|
-
|
|
|
|
-
|
|
Total provision for income taxes
|
|
$
|
107,057
|
|
|
$
|
274,193
|
|
Significant components of deferred tax assets
of the Company were as follows:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2021
|
|
|
2021
|
|
Deferred tax assets
|
|
|
|
|
|
|
Net operating loss carry forward
|
|
$
|
1,070,790
|
|
|
$
|
1,018,253
|
|
Allowances for doubtful accounts
|
|
|
(13,208
|
)
|
|
|
(15,100
|
)
|
Valuation allowance
|
|
|
(1,056,758
|
)
|
|
|
(1,000,220
|
)
|
Total
|
|
$
|
824
|
|
|
$
|
2,933
|
|
(b) Uncertain tax positions
There were no unrecognized tax benefits as of
September 30, 2021 and June 30, 2021. Management does not anticipate any potential future adjustments in the next twelve months which
would result in a material change to its tax positions. For the three months ended September 30, 2021 and 2020, 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 three months ended September 30, 2021
and 2020, the Company did not have potential dilutive shares. The following table sets forth the computation of basic and diluted net
income per share:
|
|
For the Three Months
Ended
|
|
|
|
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(21,387
|
)
|
|
$
|
639,692
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share basic & diluted
|
|
|
(0.0003
|
)
|
|
|
0.0098
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
Basic & diluted
|
|
|
65,539,737
|
|
|
|
65,539,737
|
|
NOTE 11 - COMMITMENTS AND CONTINGENCIES
The Company’s assets are located in the
PRC and revenues are derived from operations in the PRC.
In terms of industry regulations and policies,
the economy of the PRC has been transitioning from a planned economy to 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 September
30, 2021.
NOTE 12 - MAJOR SUPPLIERS AND CUSTOMERS
For the three months ended September 30, 2021,
the Company had no suppliers due to them being temporarily out of production.
For the three months ended September 30, 2020,
the Company had three suppliers that in the aggregate accounted for 78% of the Company’s purchases, with each supplier accounting
for 39%, 23%, and 16%, respectively.
For the three months ended September 30, 2021,
the Company had no customers due to the enterprise transformation and the COVID-19.
For the three months ended September 30, 2020,
the Company had six customers that in the aggregate accounted for 90% of the Company’s total sales, with each customer accounting
for 22%, 18%, 16%, 13%, 12%, and 9%, 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 months ended September 30, 2021 and 2020, respectively:
|
|
For the Three Months Ended
September 30, 2021
|
|
|
For the Three Months Ended
September 30, 2020
|
|
|
|
HLJ
|
|
|
|
|
|
|
|
|
|
|
|
HLJ
|
|
|
|
|
|
|
|
|
|
|
|
|
Huimeijia
|
|
|
Humankind
|
|
|
Others
|
|
|
Consolidated
|
|
|
Huimeijia
|
|
|
Humankind
|
|
|
Others
|
|
|
Consolidated
|
|
Revenues
|
|
$
|
266
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
266
|
|
|
$
|
11,997
|
|
|
$
|
2,180,085
|
|
|
$
|
-
|
|
|
$
|
2,192,082
|
|
Cost of revenues
|
|
|
(1,744
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,744
|
)
|
|
|
49,330
|
|
|
|
902,450
|
|
|
|
-
|
|
|
|
951,780
|
|
Gross profit (loss)
|
|
|
(1,478
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,478
|
)
|
|
|
(37,333
|
)
|
|
|
1,277,635
|
|
|
|
-
|
|
|
|
1,240,302
|
|
Interest income
|
|
|
3
|
|
|
|
41,030
|
|
|
|
1
|
|
|
|
41,034
|
|
|
|
2
|
|
|
|
32,099
|
|
|
|
2
|
|
|
|
32,103
|
|
Depreciation and amortization
|
|
|
15,479
|
|
|
|
164,471
|
|
|
|
-
|
|
|
|
179,950
|
|
|
|
26,461
|
|
|
|
131,411
|
|
|
|
-
|
|
|
|
157,872
|
|
Income tax
|
|
|
-
|
|
|
|
107,057
|
|
|
|
-
|
|
|
|
107,057
|
|
|
|
-
|
|
|
|
274,193
|
|
|
|
-
|
|
|
|
274,193
|
|
Net income (loss)
|
|
|
(73,353
|
)
|
|
|
202,773
|
|
|
|
(150,807
|
)
|
|
|
(21,387
|
)
|
|
|
(106,815
|
)
|
|
|
747,851
|
|
|
|
(1,344
|
)
|
|
|
639,692
|
|
Total capital expenditures
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
145
|
|
|
|
-
|
|
|
|
-
|
|
|
|
145
|
|
Total assets
|
|
$
|
3,423,241
|
|
|
$
|
51,664,803
|
|
|
$
|
(1,483,858
|
)
|
|
$
|
53,604,186
|
|
|
$
|
3,385,549
|
|
|
$
|
48,586,587
|
|
|
$
|
(1,081,979
|
)
|
|
$
|
50,890,157
|
|
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.
There is significant uncertainty around the breadth
and duration of business disruptions related to COVID-19, as well as its impact on the economy of China, U.S. and the rest of the world
and, as such, the extent of the business disruption and the related financial impact cannot be reasonably estimated at this time.
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 0.00% and 99.46%
for the three-month periods ended September 30, 2021 and 2020, 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 0%, 0%, 0%, 0%, 0%, and 0% of our total sales, respectively, for
the three months ended September 30, 2021. Although we do not currently sell our products online, we expect to do so in the future.
Results of Operations
Three months ended September 30, 2021 compared to the three months
ended September 30, 2020
The following table summarizes the top lines of
the results of our operations for the three months ended September 30, 2021 and 2020, respectively:
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Variance
|
|
|
%
|
|
Revenues
|
|
$
|
266
|
|
|
$
|
2,192,082
|
|
|
$
|
(2,191,816
|
)
|
|
|
(99.99
|
)%
|
Humankind
|
|
|
0
|
|
|
|
2,180,085
|
|
|
|
(2,180,085
|
)
|
|
|
(100.00
|
)%
|
HLJ Huimeijia
|
|
|
266
|
|
|
|
11,997
|
|
|
|
(11,731
|
)
|
|
|
(97.78
|
)%
|
Cost of Goods Sold
|
|
$
|
1,744
|
|
|
$
|
951,780
|
|
|
$
|
(950,036
|
)
|
|
|
(99.82
|
)%
|
Humankind
|
|
|
0
|
|
|
|
902,450
|
|
|
|
(902,450
|
)
|
|
|
(100.00
|
)%
|
HLJ Huimeijia
|
|
|
1,744
|
|
|
|
49,330
|
|
|
|
(47,586
|
)
|
|
|
(96.46
|
)%
|
Gross Profit
|
|
$
|
(1,478
|
)
|
|
$
|
1,240,302
|
|
|
$
|
(1,241,780
|
)
|
|
|
(100.12
|
)%
|
Humankind
|
|
|
0
|
|
|
|
1,277,635
|
|
|
|
(1,277,635
|
)
|
|
|
(100.00
|
)%
|
HLJ Huimeijia
|
|
|
(1,478
|
)
|
|
|
(37,333
|
)
|
|
|
35,855
|
|
|
|
(96.04
|
)%
|
Revenue
Total revenues decreased by $2,191,816 or 99.99%
for the three months ended September 30, 2021, as compared to the same period in 2020. The decrease in revenues was primarily due to a
decrease of $2,180,085 or 100.00% in Humankind’s revenues. A decrease of $11,731 also happened in HLJ Huimeijia’s revenues
for the three months ended September 30, 2021 as compared to the same period in 2020. The decrease in Humankind’s sales revenues
was primarily due to Humankind’s enterprise transformation, also sales were not smooth under COVID-19.
Our total cost of goods sold decreased by $950,036
or 99.82% for the three months ended September 30, 2021 as compared to the same period in 2020. This decrease was mainly due to the COVID-19
spread world-wide, Humankind was temporarily out of production.
Our gross margin decreased by $1,241,780 or 100.12%
for the three months ended September 30, 2021 as compared to the same period in 2020. This change was consistent with the change of sales
and costs in Humankind. The decrease in gross profit was primarily due to the enterprise transformation and the COVID-19.
Sales by Product Line
The following table summarizes a breakdown of
our sales by major product lines for the three months ended September 30, 2021 and 2020 respectively:
|
|
September 30, 2021
|
|
|
September 30, 2020
|
|
|
|
Quantity
|
|
|
|
|
|
% of
|
|
|
Quantity
|
|
|
|
|
|
% of
|
|
|
|
(Unit)
|
|
|
Sales US$
|
|
|
Sales
|
|
|
(Unit)
|
|
|
Sales US$
|
|
|
Sales
|
|
Humankind
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hemp Oil
|
|
|
0
|
|
|
$
|
0
|
|
|
|
0.00
|
%
|
|
|
38,004
|
|
|
$
|
758,495
|
|
|
|
34.23
|
%
|
Collagen Peptide
|
|
|
0
|
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
19,132
|
|
|
|
229,142
|
|
|
|
10.34
|
%
|
Hemp Polypeptide
|
|
|
0
|
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
37,076
|
|
|
|
740,029
|
|
|
|
33.41
|
%
|
Hemp Protein Powder
|
|
|
0
|
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
39,707
|
|
|
|
475,579
|
|
|
|
21.47
|
%
|
HLJ Huimeijia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Muskiness Bone Strengthener Paste
|
|
|
223
|
|
|
|
18.30
|
|
|
|
6.87
|
%
|
|
|
38,001
|
|
|
|
4,990
|
|
|
|
0.23
|
%
|
Dampness dispelling pain ointment
|
|
|
1,852
|
|
|
|
151.99
|
|
|
|
57.05
|
%
|
|
|
18,663
|
|
|
|
2,439
|
|
|
|
0.11
|
%
|
Refining Cream dogskin
|
|
|
788
|
|
|
|
64.67
|
|
|
|
24.28
|
%
|
|
|
15,050
|
|
|
|
1,974
|
|
|
|
0.09
|
%
|
Indometacin and Furazolidone Suppositories
|
|
|
383
|
|
|
|
31.43
|
|
|
|
11.80
|
%
|
|
|
19,690
|
|
|
|
2,595
|
|
|
|
0.12
|
%
|
ShangBiTongDing
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
%
|
Enema Glycerini
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
%
|
Essence repair liquid
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
%
|
Total
|
|
|
3,246
|
|
|
$
|
266.39
|
|
|
|
100.00
|
%
|
|
|
225,323
|
|
|
$
|
2,215,243
|
|
|
|
100.00
|
%
|
Operating Expenses
The following table summarizes our operating expenses
for the three months ended September 30, 2021 and 2020, respectively:
|
|
September 30,
2021
|
|
|
September 30,
2020
|
|
|
Variance
|
|
|
%
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
$
|
255,073
|
|
|
$
|
200,332
|
|
|
$
|
54,741
|
|
|
|
27.33
|
%
|
Depreciation and amortization
|
|
|
179,950
|
|
|
|
157,872
|
|
|
|
22,078
|
|
|
|
13.98
|
%
|
Total Operating Expenses
|
|
$
|
435,023
|
|
|
$
|
358,204
|
|
|
$
|
76,819
|
|
|
|
21.45
|
%
|
Total operating expenses for the three months
ended September 30, 2021 were $76,819 or 21.45% higher than those in the corresponding period in 2020. The increase in operating expenses
was primarily attributable to increase of $54,741 or 27.33% in selling general and administrative expenses; and $22,078 or 13.98% in depreciation
and amortization. The increase in depreciation and amortization was mainly due to most of the depreciation expense was absorbed in operating
expense as Humankind was temporarily out of production.
Interest Income and Interest Expense
Interest income was $41,034 for the three months
ended September 30, 2021, as compared to $32,103 for the three months ended September 30, 2020. This increase of $8,931, or 28%, was mainly
due to the increased average balance of bank deposits compared with the same period of 2021 with 2020.
Interest expense was $nil for the three months
ended September 30, 2021, as compared to $nil for the three months ended September 30, 2020.
Income Taxes
Income taxes decreased by $167,136, or 61%, from
$274,193 for the three months ended September 30, 2020 to $107,057 for the three months ended September 30, 2021. The decrease in income
taxes was mainly due to the decrease of the Company’s gross profit in the amount of $1,241,780, from the gross profit of $1,240,302
for the three months ended September 30, 2020 to the gross loss of $1,478 for the three months ended September 30, 2021.
Net Income and Net Income Per Share
Net loss was $21,387 for the three months ended
September 30, 2021, as compared to $639,692 net income for the three months ended September 30, 2020. This decrease of $661,079 in net
income was primarily attributable to a decrease of sales and profits in Humankind.
Net loss per share was $0.0003 for the three months
ended September 30, 2021 and $0.0098 net profit per share for the three months ended September 30, 2020, 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 September 30, 2021 and June 30, 2021 and for the three
months ended September 30, 2021 and 2020:
|
|
September 30,
2021
|
|
|
June 30,
2021
|
|
Cash and cash equivalents
|
|
$
|
45,941,677
|
|
|
$
|
44,346,744
|
|
Working capital
|
|
$
|
38,892,105
|
|
|
$
|
38,617,377
|
|
Inventories
|
|
$
|
768,005
|
|
|
$
|
761,639
|
|
|
|
For the
Three Months ended
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
Cash provided by (used in):
|
|
|
|
|
|
|
Operating activities
|
|
$
|
2,279,612
|
|
|
$
|
1,117,379
|
|
Investing activities
|
|
$
|
-
|
|
|
$
|
(145
|
)
|
Financing activities
|
|
$
|
-
|
|
|
$
|
-
|
|
For the three months ended September 30, 2021,
our net increase in cash and cash equivalents totaled $1,594,933, which total was comprised of net cash provided by operating activities
in the amount of $2,279,612 and the effect of prevailing exchange rates on our cash position of $(684,679).
For the three months ended September 30, 2020,
our net decrease in cash and cash equivalents totaled $2,646,174, which total was comprised of net cash provided by operating activities
in the amount of $1,117,379, net cash used in investing activities in the amount of $145 and the effect of prevailing exchange rates on
our cash position of $1,528,940.
Our working capital at September 30, 2021 was
$38,892,105, compared to working capital of $38,617,377 at June 30, 2021. This increase of $274,728 or 0.71% was primarily attributable
to the decrease of accounts payable and accrued expenses in the amount of $483,274 offset by $80,678 reduction in current assets; $44,377
and $97,649 increase in related arty debts and taxes payable..
Net cash provided by operating activities was
$2,279,612 for the three months ended September 30, 2021, primarily attributable to net loss in the amount of $21,387 with adjustments
of $210,060 of depreciation and amortization expenses, a decrease of accounts receivable in the amount of $1,646,538, increase of amounts
due to related parties in the amount of $813,111 which offset by the decrease of accounts payables and accrued expenses in the amount
of $471,032. The negative effect of exchange rate changes on cash and cash equivalents in the amount of $684,679 for the three months
ended September 30, 2021 was mainly a result of the effect of the valuation of the RMB against the USD on the significant amount of cash
and cash equivalents held by the Company in RMB. The exchange rates from USD to RMB were 6.4566 to 1 and 6.4434 to 1 as of June 30, 2021
and September 30, 2021, respectively, and the average exchange rate from USD to RMB was 6.4699 for the three months ended September 30,
2021.
Net cash provided by operating activities was
$1,117,379 for the three months ended September 30, 2020, primarily attributable to net income in the amount of $639,692 and a decrease
of accounts receivable in the amount of $241,625. Net cash used in investing activities was $145 for the three months ended September
30, 2020, primarily due to expenditures in property, plant and equipment of $145. The positive effect of exchange rate changes on cash
and cash equivalents in the amount of $1,528,940 for the three months ended September 30, 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 6.7896 to 1 as of June 30, 2020 and September 30, 2020, respectively, and the average exchange rate
from USD to RMB was 6.9153 for the three months ended September 30, 2020.
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 $8,124,138
as of September 30, 2021, as compared to $8,079,761 as of June 30, 2021, an increase of $44,377 or 0.55%. Our related party debts mainly
consist of a loan from Mr. Xin Sun, the CEO of the Company. The loan is unsecured, non-interest bearing, and has no fixed terms of repayment.
There was no written agreement for the loan. See Note 8.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements
that are currently material or reasonably likely to be material to its financial position or results of operations.
Critical Accounting Policies and Estimates
We prepare the unaudited condensed consolidated
financial statements in accordance with US GAAP. These accounting principles require us to make judgments, estimates and assumptions on
the reported amounts of assets and liabilities at the end of each fiscal period, and the reported amounts of revenues and expenses during
each fiscal period. We continually evaluate these judgments and estimates based on our own historical experience, knowledge and assessment
of current business and other conditions, our expectations regarding the future based on available information, and assumptions that we
believe to be reasonable.
There have been no material changes during the
three months ended September 30, 2021 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, 2021.