Item 1.
|
Financial Statements
|
CHINA HEALTH INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2017
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
31,992,681
|
|
$
|
21,197,448
|
|
Short term
investments
|
|
-
|
|
|
8,850,471
|
|
Accounts receivable, net
|
|
1,206,487
|
|
|
1,625,695
|
|
Inventory
|
|
549,674
|
|
|
454,468
|
|
Other receivables, net
|
|
32,825
|
|
|
33,265
|
|
Advances to
suppliers
|
|
424,903
|
|
|
400,136
|
|
Prepayments
|
|
33,097
|
|
|
79,714
|
|
Interest
receivable
|
|
-
|
|
|
885,047
|
|
Total current assets
|
|
34,239,667
|
|
|
33,526,244
|
|
|
|
|
|
|
|
|
Property, plants and
equipment, net
|
|
3,660,078
|
|
|
3,694,304
|
|
Intangible assets, net
|
|
3,628,420
|
|
|
3,642,544
|
|
Construction in
progress
|
|
808,354
|
|
|
788,793
|
|
Prepayments Non-Current
|
|
45,090
|
|
|
49,169
|
|
Deferred tax assets
|
|
1,960
|
|
|
1,924
|
|
Total assets
|
$
|
42,383,569
|
|
$
|
41,702,978
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
Short-term loans
|
$
|
1,503,014
|
|
$
|
1,475,079
|
|
Accounts payable
and accrued expenses
|
|
407,587
|
|
|
437,284
|
|
Other payables
|
|
69,919
|
|
|
66,277
|
|
Advances from
customers
|
|
164,980
|
|
|
161,914
|
|
Related party debts
|
|
3,995,534
|
|
|
3,731,681
|
|
Wages payable
|
|
234,595
|
|
|
261,471
|
|
Taxes payable
|
|
799,146
|
|
|
861,416
|
|
Total current liabilities
|
|
7,174,775
|
|
|
6,995,122
|
|
|
|
|
|
|
|
|
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, 2017 and June 30, 2017, respectively)
|
|
6,554
|
|
|
6,554
|
|
Additional paid-in
capital
|
|
521,987
|
|
|
521,987
|
|
Accumulated other comprehensive income
|
|
602,059
|
|
|
(78,049
|
)
|
Statutory reserves
|
|
38,679
|
|
|
38,679
|
|
Retained earnings
|
|
34,039,515
|
|
|
34,218,685
|
|
Total stockholders' equity
|
|
35,208,794
|
|
|
34,707,856
|
|
Total equity
|
|
35,208,794
|
|
|
34,707,856
|
|
|
|
|
|
|
|
|
Total liabilities
and equity
|
$
|
42,383,569
|
|
$
|
41,702,978
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
1
CHINA HEALTH INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(LOSS)
(UNAUDITED)
|
|
For the Three Months Ended
|
|
|
|
September
|
|
|
September 30,
|
|
|
|
30, 2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
REVENUE
|
$
|
1,515,967
|
|
$
|
1,180,168
|
|
|
|
|
|
|
|
|
COST OF GOODS SOLD
|
|
979,633
|
|
|
755,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT
|
|
536,334
|
|
|
424,883
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
Selling, general
and administrative expenses
|
|
557,852
|
|
|
430,264
|
|
Depreciation and amortization
expenses
|
|
141,854
|
|
|
148,875
|
|
Total operating expenses
|
|
699,706
|
|
|
579,139
|
|
|
|
|
|
|
|
|
INCOME (LOSS) FROM
OPERATIONS
|
|
(163,372
|
)
|
|
(154,256
|
)
|
|
|
|
|
|
|
|
OTHER
INCOME/(EXPENSES)
|
|
|
|
|
|
|
Interest income
|
|
24,340
|
|
|
19,909
|
|
Interest
expenses
|
|
(23,340
|
)
|
|
(21,686
|
)
|
Investment income
|
|
-
|
|
|
225,093
|
|
Other
income/(expenses), net
|
|
35,991
|
|
|
8,993
|
|
Bank charges
|
|
(462
|
)
|
|
-
|
|
Exchange
gain/(loss)
|
|
(12,675
|
)
|
|
-
|
|
Total other income
(expenses), net
|
|
23,854
|
|
|
232,309
|
|
|
|
|
|
|
|
|
INCOME/(LOSS) BEFORE INCOME TAXES
|
|
(139,518
|
)
|
|
78,053
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
(39,652
|
)
|
|
(54,030
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
(179,170
|
)
|
|
24,023
|
|
|
|
|
|
|
|
|
Foreign currency translation
income (loss)
|
|
524,010
|
|
|
(117,711
|
)
|
|
|
|
|
|
|
|
COMPREHENSIVE INCOME
(LOSS)
|
$
|
344,840
|
|
$
|
(93,688
|
)
|
Less: Comprehensive income/(loss)
attributable to non-controlling interests from discontinued
operations
|
|
-
|
|
|
(1
|
)
|
COMPREHENSIVE INCOME
(LOSS) attributable to
China Health Industries Holdings
|
|
344,840
|
|
|
(93,687
|
)
|
per share are:
|
|
|
|
|
|
|
Basic &
diluted income (loss) per share
|
$
|
(0.0027
|
)
|
$
|
0.0004
|
|
|
|
|
|
|
|
|
Weighted average shares
outstanding:
|
|
|
|
|
|
|
Basic & diluted weighted
average shares outstanding
|
|
65,539,737
|
|
|
65,616,175
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
2
CHINA HEALTH INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
For the Three Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
Net income
(loss) available to China Health Industries Holdings
|
$
|
(179,170
|
)
|
$
|
24,023
|
|
Net income (loss) from operations
|
|
(179,170
|
)
|
|
24,023
|
|
Adjustments to reconcile net income (loss) to
net cash provided by
operating activities:
|
|
|
|
|
|
|
Depreciation and amortization
expenses
|
|
192,230
|
|
|
192,577
|
|
Provisions for doubtful
accounts
|
|
(3,225
|
)
|
|
(1,243
|
)
|
Short term investment income
|
|
-
|
|
|
(225,093
|
)
|
Changes in operating assets and liabilities,
|
|
|
|
|
|
|
Accounts receivable
|
|
452,203
|
|
|
178,748
|
|
Other receivables
|
|
1,068
|
|
|
(111
|
)
|
Inventory
|
|
(86,404
|
)
|
|
(38,678
|
)
|
Advances to suppliers
and prepaid expenses
|
|
35,866
|
|
|
90
|
|
Accounts payables and accrued
expenses
|
|
(37,835
|
)
|
|
(19,544
|
)
|
Advances from customers
and other payables
|
|
2,381
|
|
|
22,130
|
|
Amounts due to related
parties
|
|
116,491
|
|
|
-
|
|
Wages payable
|
|
(31,755
|
)
|
|
26,128
|
|
Taxes payable
|
|
(72,953
|
)
|
|
(143,283
|
)
|
Net cash
provided by operating activities
|
|
388,877
|
|
|
15,744
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
Expenditure in short term
investments
|
|
-
|
|
|
(9,003,737
|
)
|
Withdraw in short term
investments
|
|
8,997,661
|
|
|
-
|
|
Purchases of property, plants
and equipment
|
|
(5,358
|
)
|
|
-
|
|
Expenditures in
construction in progress
|
|
(4,613
|
)
|
|
(6,718
|
)
|
Proceeds
from short term investments
|
|
899,766
|
|
|
-
|
|
Net cash
provided by investing activities
|
|
9,887,456
|
|
|
(9,010,455
|
)
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
Proceeds from related
party debts
|
|
85,085
|
|
|
85,085
|
|
Net cash provided by
financing activities
|
|
85,085
|
|
|
85,085
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
and cash equivalents
|
|
433,815
|
|
|
(94,784
|
)
|
Effect of exchange rate
changes on cash and cash equivalents from
discontinuing
continuing activities
|
|
-
|
|
|
(29
|
)
|
|
|
|
|
|
|
|
Net increase/(decrease) in cash and cash equivalents
from continuing
operations
|
|
10,795,233
|
|
|
(9,004,410
|
)
|
Net increase/(decrease) in cash and cash
equivalents from
discontinuing operations
|
|
-
|
|
|
(29
|
)
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning
balance from continuing
operations
|
|
21,197,448
|
|
|
29,783,152
|
|
Cash and cash equivalents,
beginning balance from
discontinuing
operations
|
|
-
|
|
|
8,578
|
|
|
|
|
|
|
|
|
Cash and cash equivalents,
beginning balance from continuing
operations
|
|
31,992,681
|
|
|
20,778,742
|
|
Cash and cash equivalents, ending balance
from discontinuing
operations
|
$
|
-
|
|
$
|
8,549
|
|
|
|
|
|
|
|
|
Supplemental cash flow information
|
|
|
|
|
|
|
Cash paid for
income taxes
|
$
|
151,318
|
|
$
|
201,142
|
|
Cash paid for interest expenses
|
$
|
23,339
|
|
$
|
21,682
|
|
|
|
|
|
|
|
|
Non-cash activities:
|
|
|
|
|
|
|
Loan from
related party for the construction of a facility
|
$
|
457,381
|
|
$
|
457,690
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
CHINA HEALTH INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - ORGANIZATION AND BUSINESS BACKGROUND
China Health Industries Holdings, Inc. (China Health US) was
incorporated in the State of Arizona on July 11, 1996, and is the successor to
the business known as Arizona Mist, Inc., which was incorporated in 1989. On May
9, 2005, China Health US entered into a stock purchase agreement and share
exchange (effecting a reverse merger) with Edmonds 6, Inc., a Delaware
corporation (Edmonds 6), and changed its name to Universal Fog, Inc. Pursuant
to this agreement, Universal Fog, Inc. (which has been in continuous operation
since 1996) became a wholly-owned subsidiary of Edmonds 6.
China Health Industries Holdings Limited (China Health HK)
was incorporated on July 20, 2007, in Hong Kong, under the Companies Ordinance
as a limited liability company. China Health HK was formed for the purpose of
seeking and consummating a merger or acquisition with a business entity
organized as a private corporation, partnership, or sole proprietorship, as
defined by Financial Accounting Standards Board (FASB) ACS Topic 915.
Harbin Humankind Biology Technology Co., Limited (Humankind)
was incorporated in Harbin City, Heilongjiang Province, the Peoples Republic of
China (the PRC), on December 14, 2003, as a limited liability company under
the PRC Company Law. Humankind is engaged in the manufacturing and sale of
health products.
On August 20, 2007, the sole shareholder of China Health HK
entered into a share purchase agreement (the Share Purchase Agreement) with
the owners of Humankind. Pursuant to the Share Purchase Agreement, China Health
HK purchased 100% of the equity interests in Humankind for cash consideration of
$60,408 (the Share Purchase). Subsequent to the completion of the Share
Purchase, Humankind became a wholly-owned subsidiary of China Health HK. Because
the owner of Humankind owned a majority of the outstanding shares of China
Health HKs common stock immediately following the execution of the Share
Purchase Agreement, it was deemed to be the acquirer in the reverse merger and
the Share Purchase was accounted for as a reverse merger. Consequently, the
assets and liabilities and the historical operations that were reflected in the
financial statements for periods prior to the Share Purchase are those of
Humankind and have been recorded at historical cost basis. After the completion
of the Share Purchase, China Health HKs 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 formed a 99% owned subsidiary,
Harbin Huimeijia Medicine Company (Huimeijia) in the PRC. Huimeijias primary
business is the manufacture and distribution of pharmaceuticals. Mr. Xin Sun,
the majority owner of China Health US, owns 1% of Huimeijia. Huimeijia is
consolidated in the consolidated financial statements of China Health HK.
On December 31, 2008, China Health HK entered into a reverse
merger with Universal Fog, Inc. (the Transaction). China Health HK was the
acquirer in the Transaction, and the Transaction has been treated as a
recapitalization of China Health US. Following the Transaction and a subsequent
20:1 reverse stock split, Mr. Xin Sun owned 61,203,088 shares of common stock of
China Health US, representing 98.3% of the 62,234,737 total outstanding shares
of common stock. On April 7, 2009, Mr. Sun transferred 28,200,000 shares of
common stock to 296 individuals, leaving him with 33,003,088 shares of common
stock of China Health US, or approximately 53.03% of the total outstanding
shares of common stock. Universal Fog, Inc. changed its name to China Health
Industries Holdings, Inc. on February 19, 2009.
On November 22, 2013, Humankind completed the acquisition of
Heilongjiang Huimeijia Pharmaceutical Co., Ltd. (HLJ Huimeijia) for a total
purchase price of $16,339,869 (RMB100,000,000). HLJ Huimeijia was formed on
October 30, 2003, in the PRC, and is engaged in the manufacturing and distribution of tinctures, ointments, rub-in therapeutic pastes, topical solutions, suppositories, liniments (including traditional Chinese medicine extractions), enemas and orally-administered liquids. HLJ Huimeijia’s
predecessor is Heilongjiang Xue Du Pharmaceutical Co., Ltd., which established its brand by supplying high quality medical products. HLJ Huimeijia is categorized as a “high and new technology” enterprise by the Science Technology
Department of Heilongjiang Province. HLJ Huimeijia has 21 products which have been approved by, and have received approval numbers issued by, the China State Food and Drug Administration (the “CFDA”). In addition, HLJ Huimeijia is the
holder of one patent for a utility model, five patents for external design and three trademarks in the PRC, including the Chinese brand name “Xue Du”, which has an established reputation among customers in the northeastern PRC.
4
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 only sell 19 drug approval numbers (the “Assets”) to Xiuzheng Pharmacy. The Equity Holders would have
retained their equity interests in Huimeijia, but would have pledged such equity interests to Xiuzheng Pharmacy until the Assets were transferred. On October 12, 2016, the four parties agreed to rescind the Supplementary Agreement and entered into a
new supplementary agreement, pursuant to which the parties agreed to execute the transfer of the equity interests based on the Original Agreement and the Equity Holders sold their respective equity interests in Huimeijia to Xiuzheng Pharmacy for
total cash consideration of RMB8,000,000 (approximately $1,306,186, the “Purchase Price”) to the Equity Holders. On October 16, 2016, Huimeijia has completed changes in its business registration, and Xiuzheng Pharmacy has obtained a
new business license issued by the local State Administration of Industry and Commerce in Harbin (“Harbin SAIC”) 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 in China on behalf of a company under PRC corporate laws) of Huimeijia has been appointed by the Buyer.
China Health US, China Health HK, Humankind, Huimeijia and HLJ Huimeijia are collectively referred herein to as the “Company.”
As of September 30, 2017, the Company’s corporate structure was as follows:
Note 2 - SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
This summary of the Companys significant accounting policies
is presented to assist in understanding the Companys financial statements. The
financial statements and notes are representations of the Companys management,
which is responsible for their integrity and objectivity. 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 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 Companys
Annual Report on Form 10-K for the year ended June 30, 2017. These unaudited
condensed consolidated financial statements include all adjustments which in the
opinion of management are necessary for a fair presentation of financial
position and results of operations. All such adjustments are of a normal and
recurring nature. The results of operations for the three months ended September
30, 2017, may not be indicative of results that may be expected for the year
ended June 30, 2018.
Principles of Consolidation
The accompanying unaudited condensed consolidated financial
statements include China Health US and its three subsidiary companies, including
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. Humankinds accounting
policy adopted the guidance in ASC 805-50-05-5 for the transfer of net assets
between entities under common control to apply an accounting method similar to
the pooling-of-interests method. Under this method, the financial statements of
Humankind shall report results of operations for the period in which the
transfer occurs as though the transfer of net assets had occurred at the
beginning of the period. Results of operations for that period will thus
comprise both those of the previously separate entities combined from the
beginning of the period to the date the transfer is completed and those of the
combined operations from that date to the end of the period. Similarly,
Humankind shall present statements of financial position and other financial
information as of the beginning of the period as though the assets and
liabilities had been transferred at that date. Financial statements and
financial information of Humankind presented for prior years shall also be
retrospectively adjusted to furnish comparative information.
Segment Reporting
FASB Accounting Standard Codification (ASC) Topic 280,
Segment Reporting, established standards for reporting information about
operating segments on a basis consistent with a company's internal
organizational structure as well as information about geographical areas,
business segments and major customers in financial statements for details on the
Company's business segments. The Company has three reportable operating
segments: Humankind, HLJ Huimeijia and Others. The segments are grouped based
on the types of products provided.
6
Fair Value of Financial Instruments
The provisions of FASB ASC Topic 820 accounting guidance that
apply to the Company require all entities to disclose the fair value of
financial instruments, both assets and liabilities recognized and not recognized
on balance sheets, for which it is practicable to estimate fair value, and
defines the fair value of a financial instrument as the amount at which the
instrument could be exchanged in a current transaction between willing parties.
Fair Value Measurements
FASB ASC Topic 820, Fair Value Measurements and Disclosures,
clarifies the definition of fair value for financial reporting, establishes a
framework for measuring fair value, and requires additional disclosures about
the use of fair value measurements.
Various inputs are considered when determining the fair value
of the Companys 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 Companys 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 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 management discretion. For other financial instruments,
pricing inputs are less observable in the market and may require management
judgment.
Translation of Foreign Currencies
Humankind, and HLJ Huimeijia maintain their books and
accounting records in the PRC currency Renminbi (RMB), which has been
determined to be the Companys functional currency. Transactions denominated in
currencies other than RMB are translated into RMB at the exchange rates
prevailing on the dates 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, and HLJ Huimeijias 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.
7
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 agree with changes in the corresponding balances on the balance
sheet.
Use of Estimates and Assumptions
The preparation of financial statements in conformity with US
GAAP requires management to make estimates and judgments that affect the
reported amounts of assets and liabilities, disclosure of contingent assets and
liabilities on the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. The Company 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 Companys operating environment changes. Significant
estimates and assumptions by management include, among others; useful lives 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 the
Company 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, 2017 and June 30, 2017, the Companys
uninsured bank balances were mainly maintained at financial institutions located
in the PRC and Hong Kong. The uninsured bank balances were $31,992,681 and
$21,197,448 as of September 30, 2017 and June 30, 2017, respectively. The
Company had no insured bank balances as of September 30, 2017 and June 30, 2017,
respectively.
Short-term investments, held-to-maturity investments
The Companys held-to-maturity investments consist of financial
products purchased from investment guarantee corporations. The Companys short
term held-to-maturity investments are classified as short-term investments on
the consolidated balance sheets based on their contractual maturity dates which
are less than one year and are stated at their amortized costs.
The Company reviews its investments for other-than-temporary
impairment (OTTI) based on the specific identification method. The Company
considers available quantitative and qualitative evidence in evaluating
potential impairment of its investments. If the cost of an investment exceeds
the investments fair value, the Company considers, among other factors, general
market conditions, expected future performance of the investees, the duration
and the extent to which the fair value of the investment is less than the cost,
and the Companys intent and ability to hold the investment. OTTI is recognized
as a loss in the income statement.
Accounts Receivable
Accounts receivable are recorded at the invoiced amount and do
not bear interest. The Company extends unsecured credit to its customers in the
ordinary course of business but mitigates the associated risks by performing
credit checks and actively pursuing past due accounts. An allowance for doubtful
accounts is established and determined based on managements assessment of known
requirements, aging of receivables, payment and bad debt history, the
customers current credit worthiness, changes in customer payment patterns and
the economic environment. From November 1, 2013, the Company changed its credit
policy by offering ninety (90) day payment terms for sales agents, whereas the
payment terms for sales agents before November 1, 2013 were thirty (30) days. As
of September 30, 2017 and June 30, 2017, the balances of accounts receivable
were $1,254,706 and $1,676,191, 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 $48,219 and $50,496 from the
continuing operations of the Company was appropriate as of September 30, 2017
and June 30, 2017, respectively.
8
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, 2017 and June 30, 2017, advances to suppliers amounted to $424,903 and
$400,136, respectively. As of September 30, 2017 and June 30, 2017,
respectively.
Inventory
Inventory consists of raw materials, work in progress, and
finished goods or manufactured products.
Inventory is stated at lower of cost or market 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 Companys 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. There was no inventory allowance provided for the
three months ended September 30, 2017 and 2016, respectively.
Impairment of Long-Lived Assets
The Companys 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 managements estimates on
asset useful lives and future cash flows. Actual useful lives and cash flows
could be different from those estimated by management which could have a
material effect on the Companys 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, 2017 and June 30, 2017, the Company
had not experienced impairment losses on its long-lived assets. However, there
can be no assurances that demand for the Companys products or services will
continue, which could result in an impairment of long-lived assets in the
future.
Property, Plants and Equipment
9
Property, plants and equipment are carried at the lower of cost
or fair value. Maintenance, repairs and minor renewals are expensed as incurred,
and major renewals and improvements that extend the lives or increase the
capacity of plant assets are capitalized.
When assets are retired or disposed of, the cost and
accumulated depreciation are removed from the accounts, and any resulting gains
or losses are included in 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 lives 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 lives 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 Companys
intangible assets could be impacted by future adverse changes such as: (i) any
future declines in the Companys operating results, (ii) a decline in the
valuation of technology, including the valuation of the Companys common stock,
(iii) a significant slowdown in the worldwide economy, or (iv) any failure to
meet the performance projections included in the Companys 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 estimates of asset useful lives and future cash flows. Significant
management judgment 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 Companys 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, we 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, 2017 and 2016, respectively.
Construction in Progress
Construction in progress represents the costs incurred in
connection with the construction of buildings or new additions to the Companys
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, 2017 and 2016, respectively.
Revenue Recognition
10
The Company recognizes revenue when it is both earned and
realized or realizable. The Companys policy is to recognize revenue when title
to the product, ownership and risk of loss have transferred to the customer,
persuasive evidence of an arrangement exists and collection of the sales
proceeds is reasonably assured, all of which generally occur upon shipment of
goods to customers. The majority of the Companys revenue relates to the sale of
inventory to customers, and revenue is recognized when title and the risks and
rewards of ownership pass to the customer. Given the nature of the Companys
business and the applicable rules guiding revenue recognition, the Companys
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 both continuing and discontinued operations, for
the three months ended September 30, 2017 and 2016, 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 has adopted FASB ASC Topic 740, Income Taxes,
which requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred income taxes
are recognized for the tax consequences in future years 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 Companys 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 Companys
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.
11
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 17% (depending on the type of goods involved) on the full price
collected for the goods sold or, in the case of taxable services provided, at a
rate of 17% on the charges for the taxable services provided, but excluding, in
respect of both goods and services, any amount paid in respect of 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, 2017, and June 30, 2017, VAT payables were $160,034 and $196,495,
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 $29,644
and $22,637 for the three months ended September 30, 2017 and 2017,
respectively.
Concentrations of Business and Credit Risks
All of the Companys manufacturing takes place in the PRC.
There can be no assurance that the Company will be able to successfully continue
to manufacture its products and failure to do so would have a material adverse
effect on the Companys financial position, results of operations and cash
flows. Also, the success of the Companys operations is subject to numerous
contingencies, some of which are beyond managements 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 Companys operations will be subject to the risks of restrictions on
transfer of funds, domestic customs, changing taxation policies, foreign
exchange restrictions, and political and governmental regulations.
The Company operates in the PRC, which may give rise to
significant foreign currency risks from fluctuations and the degree of
volatility of foreign exchange rates between U.S. dollars and RMB. The results
of operations denominated in foreign currency are translated at the average rate
of exchange during the reporting periods.
Earnings Per Share
Basic earnings per common share are computed by dividing net
earnings applicable to common shareholders by the weighted-average number of
common shares outstanding during the period. When applicable, diluted earnings
per common share is determined using the weighted-average number of common
shares outstanding during the period, adjusted for the dilutive effect of common
stock equivalents, consisting of shares that might be issued upon exercise of
common stock options and warrants. For the three months ended September 30, 2017
and 2016, the Company had no potential dilutive common stock equivalents
outstanding.
12
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 August 2016, the FASB issued ASU No. 2016-15, Statement of
Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash
Payments, to address diversity in how certain cash receipts and cash payments
are presented and classified in the statement of cash flows. The amendments
provide guidance on the following nine specific cash flow issues: (1) Debt
Prepayment or Debt Extinguishment Costs; (2) Settlement of Zero-Coupon Debt
Instruments or Other Debt Instruments with Coupon Interest Rates That Are
Insignificant in Relation to the Effective Interest Rate of the Borrowing; (3)
Contingent Consideration Payments Made after a Business Combination; (4)Proceeds
from the Settlement of Insurance Claims; (5) Proceeds from the Settlement of
Corporate-Owned Life Insurance Policies, including Bank-Owned; (6) Life
Insurance Policies; (7) Distributions Received from Equity Method Investees; (8)
Beneficial Interests in Securitization Transactions; and (9) Separately
Identifiable Cash Flows and Application of the Predominance Principle. The
amendments are effective for public business entities for fiscal years beginning
after December 15, 2017, and interim periods within those fiscal years. For all
other entities, the amendments are effective for fiscal years beginning after
December 15, 2018, and interim periods within fiscal years beginning after
December 15, 2019. Early adoption is permitted, including adoption in an interim
period. The amendments should be applied using a retrospective transition method
to each period presented. If it is impracticable to apply the amendments
retrospectively for some of the issues, the amendments for those issues would be
applied prospectively as of the earliest date practicable. The Company is
currently evaluating the impact of this new standard on its consolidated
financial statements and related disclosures.
In October 2016, the FASB issued ASU No. 2016-16, Income Taxes
(Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. The
amendments require an entity to recognize the income tax consequences of an
intra-entity transfer of an asset other than inventory when the transfer occurs
and remove the exception to postpone recognition until the asset has been sold
to an outside party. The amendments are effective for public business entities
for annual reporting periods beginning after December 15, 2017, including
interim reporting periods within those annual reporting periods. For all other
entities, the amendments are effective for annual reporting periods beginning
after December 15, 2018, and interim reporting periods within annual reporting
periods beginning after December 15, 2019. Early adoption is permitted. The
Company is currently evaluating the impact of this new standard on its
consolidated financial statements and related disclosures.
Also in October 2016, the FASB issued ASU No. 2016-17,
Consolidation (Topic 810): Interest Held through Related Parties That Are under
Common Control, to provide guidance on the evaluation of whether a reporting
entity is the primary beneficiary of a variable interest entity, or VIE by
amending how a reporting entity, that is a single decision maker of a VIE,
treats indirect interests in that entity held through related parties that are
under common control. The amendments are effective for public business entities
for fiscal years beginning after December 15, 2016, including interim periods
within those fiscal years. For all other entities, the amendments are effective
for fiscal years beginning after December 15, 2016, and interim periods within
fiscal years beginning after December 15, 2017. Early adoption is permitted,
including adoption in an interim period. The Company is currently evaluating the
impact of this new standard on its consolidated financial statements and related
disclosures.
In November 2016, the FASB issued ASU No. 2016-18, Statement of
Cash Flows (Topic 230): Restricted Cash(ASU 2016-18). ASU 2016-18 requires
that a statement of cash flows explain the change during the period in the total
of cash, cash equivalents, and amounts generally described as restricted cash or
restricted cash equivalents. ASU 2016-18 will become effective for us beginning
April 1, 2018, or fiscal 2019. ASU 2016-18 is required to be applied
retrospectively. Upon adoption, amounts described as restricted cash will be included with cash
and cash equivalents when reconciling the beginning-of-period and end-of-period
amounts shown on the statements of cash flows.
13
In January 2017, the FASB issued Accounting Standards Update
No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a
Business (ASU 2017-01), which revises the definition of a business and provides
new guidance in evaluating when a set of transferred assets and activities is a
business. This guidance will be effective for us in the first quarter of 2018 on
a prospective basis, and early adoption is permitted. The Company does not
expect the standard to have a material impact on our consolidated financial
statements.
In May 2017, the FASB issued ASU No. 2017-09,
CompensationStock compensation (Topic 718): Scope of modification accounting
(ASU 2017-09). The purpose of the amendment is to clarify which changes to the
terms or condition of a share-based payment award require an entity to apply
modification accounting. For all entities that offer share based payment awards,
ASU 2017-09 are effective for interim and annual reporting periods beginning
after December 15, 2017. The Company is currently assessing the impact of ASU
2017-09 on its consolidated financial statements.
NOTE 3 SHORT TERM INVESTMENTS
Short term investments consist of held-to-maturity investments.
Held-to-maturity investments
Held-to-maturity investments consist of various financial
products purchased from Harbin Hongxiang Investment Guarantee Co., Ltd., which
are classified as held-to-maturity investments because the Company has the
intent and ability to hold the investments to maturity. The maturity of these
financial products is one year, with contractual maturity date of July 19, 2017,
and estimated annual interest rates of approximately 10%. They are classified as
short term investments on the consolidated balance sheets because their
contractual maturity dates are less than one year. The repayments of principal
of the financial products are not guaranteed by the Hongxiang Investment
Guarantee Co., Ltd. from which the financial products were purchased.
Historically, the Company has received principal and interest in full upon
maturity of these investments. Harbin Hongxiang Investment Guarantee Co., Ltd.,
the financial institution that handled the Companys short term investment with
is a related party of the Company.
While these financial products are not publicly traded, the
Company estimated that their fair value approximates their amortized costs
considering their short-term maturities and high credit quality. No OTTI loss
was recognized for the periods ended September 30, 2017 and June 30, 2017.
NOTE 4 - ACCOUNTS RECEIVABLE
The Companys accounts receivable were $1,254,706 and
$1,676,191, net of allowances for doubtful accounts amounting to $48,219 and
$50,496, as of September 30, 2017 and June 30, 2017, respectively.
NOTE 5 - INVENTORY
Inventory from the continuing operations of the Company
consisted of following:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2017
|
|
Raw Materials
|
$
|
224,245
|
|
$
|
156,248
|
|
Supplies and Packing Materials
|
|
142,570
|
|
|
135,637
|
|
Work-in-Progress
|
|
135,468
|
|
|
126,265
|
|
Finished Goods
|
|
47,391
|
|
|
36,318
|
|
Total
|
$
|
549,674
|
|
$
|
454,468
|
|
14
For the three months ended September 30, 2017 and 2016, the
Company has not made provision for inventory from continued and discontinued
operations in regards to excessive, slow moving or obsolete items.
NOTE 6 - CONSTRUCTION IN PROGRESS
Construction in progress from the continuing operations of the
Company consisted of the following:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2017
|
|
Plant - HLJ Huimeijia
|
$
|
808,354
|
|
$
|
788,793
|
|
Total
|
$
|
808,354
|
|
$
|
788,793
|
|
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 (RMB12,800,000), and
construction was anticipated to be completed by December 2016. As of September
30, 2017, 43% of construction had been completed and $808,354 (RMB5,378,225) has
been recorded as costs of construction in progress.
NOTE 7 - PROPERTY, PLANTS AND EQUIPMENT
Property, plants and equipment consisted of the following:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2017
|
|
Building, Warehouses and Improvements
|
$
|
4,332,794
|
|
$
|
3,352,467
|
|
Machinery and Equipment
|
|
1,400,090
|
|
|
1,368,798
|
|
Office Equipment
|
|
64,680
|
|
|
63,477
|
|
Vehicles
|
|
217,005
|
|
|
212,972
|
|
Others
|
|
22,545
|
|
|
921,924
|
|
Less: Accumulated Depreciation
|
|
(2,377,036
|
)
|
|
(2,225,334
|
)
|
Total
|
$
|
3,660,078
|
|
$
|
3,694,304
|
|
Depreciation expenses was $109,310 and $81,187 for the three
months ended September 30, 2017 and 2016, respectively. Depreciation expenses
charged to operations was $82,884 and $37,485 for the three months ended
September 30, 2017 and 2016, respectively. Depreciation expenses charged to cost
of goods sold was $26,426 and $43,702 for the three months ended September 30,
2017 and 2016, respectively.
As of September 30, 2017, a building owned by HLJ Huimeijia
with a book value of $877,691 has been mortgaged in connection with a working
capital loan in the principal amount of $1,503,014 (RMB10,000,000). As of June
30, 2017, a building owned by HLJ Huimeijia with a book value of $903,115 has
been mortgaged in connection with a working capital loan in the principal amount
of $1,504,687 (RMB10,000,000).
NOTE 8 - INTANGIBLE ASSETS
The following is a summary of intangible assets from the
continuing operations of the Company:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2017
|
|
Land Use Rights Humankind
|
$
|
952,608
|
|
$
|
934,902
|
|
Health Supplement Product Patents Humankind
|
|
4,509,041
|
|
|
4,425,236
|
|
Pharmaceutical Patents - HLJ Huimeijia
|
|
392,913
|
|
|
385,611
|
|
Land Use Rights - HLJ Huimeijia
|
|
651,569
|
|
|
639,459
|
|
Less: Accumulated Amortization
|
|
(2,877,711
|
)
|
|
(2,742,664
|
)
|
Total
|
$
|
3,628,420
|
|
$
|
3,642,544
|
|
15
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, respectively. These land use rights can
be sold, purchased, and exchanged in the market. The successor owner of the land
use right will have the right to use the land for the time remaining on the
initial period.
Amortization expenses was $69,917 and $111,390 for the three
months ended September 30, 2017 and 2016, respectively.
As of September 30, 2017, HLJ Huimeijias land use rights with
a book value of $514,743 have been mortgaged in connection with a working
capital loan in the principal amount of $1,503,014 (RMB10,000,000). As of June
30, 2017, HLJ Huimeijias land use rights with a book value of $519,028 have
been mortgaged in connection with a working capital loan in the principal amount
of $1,504,687 (RMB10,000,000).
NOTE 9 - SHORT-TERM LOAN
On November 12, 2015, HLJ Huimeijia entered into a short-term
loan agreement with a bank for a working capital loan in the principal amount of
RMB10,000,000, at an interest rate of 5.66% from November 12, 2015 to November
10, 2016. The loan was secured by land use rights and a building owned by HLJ
Huimeijia, with a maturity date of November 10, 2016.
On November 18, 2016, the agreement was renewed with an
interest rate of 6.09% with a maturity date of November 16, 2017.
As of September 30, 2017 and June 30, 2017, short-term loans
was $1,503,014 and $ 1,475,079, respectively.
Interest expenses were $23,340 and $21,686 for the three months
ended September 30, 2017 and 2016, respectively.
NOTE 10 - 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,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2017
|
|
Mr. Xin Sun
|
$
|
3,960,387
|
|
$
|
3,697,188
|
|
Mr. Kai Sun
|
|
35,147
|
|
|
34,493
|
|
Total
|
$
|
3,995,534
|
|
$
|
3,713,681
|
|
These loans are unsecured and 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 11 - 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, 2017 and 2016, respectively. As of September 30, 2017, China
Health US had a net operating loss carry forward for United States income taxes.
Net operating loss carry forwards are available to reduce future years taxable
income.
16
Management believes that the realization of the benefits from
these losses appears uncertain due to the Companys 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, 2017 and 2016. 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.
Peoples Republic of China
Under the EIT Law, the standard EIT rate is 25%. The PRC
subsidiaries of the Company are subject to PRC income taxes on an entity basis
on income arising in or derived from the tax jurisdiction in which they operate.
The provision for income taxes from the continuing operations
of the Company consisted of the following for the three months ended September
30, 2017 and 2016:
|
|
For the Three Months
Ended
|
|
|
|
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Current provision:
|
|
|
|
|
|
|
USA
|
$
|
-
|
|
$
|
-
|
|
PRC
|
|
39,652
|
|
|
54,030
|
|
Total current provision
|
|
39,652
|
|
|
54,030
|
|
Deferred provision:
|
|
|
|
|
|
|
USA
|
|
-
|
|
|
-
|
|
PRC
|
|
-
|
|
|
-
|
|
Total deferred provision
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
Total provision for income taxes
|
$
|
39,652
|
|
$
|
54,030
|
|
Significant components of deferred tax assets from the
continuing operations of the Company were as follows:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2017
|
|
Deferred tax assets
|
|
|
|
|
|
|
Net operating loss carry forward
|
$
|
592,323
|
|
$
|
356,201
|
|
Allowances for doubtful accounts
|
|
10,702
|
|
|
10,702
|
|
Valuation allowance
|
|
(601,065
|
)
|
|
(364,979
|
)
|
|
$
|
1,960
|
|
$
|
1,924
|
|
(b) Uncertain tax positions
There were no unrecognized tax benefits as of September 30,
2017 and June 30, 2017, respectively. 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,
2017 and 2016, the Company did not incur any interest or penalties arising from
its tax payments.
NOTE 12 - EARNINGS/(LOSS) PER SHARE
Basic earnings per common share is computed by dividing net
earnings applicable to common shareholders by the weighted-average number of
common shares outstanding during the period. When applicable ,diluted earnings per common share is determined
using the weighted-average number of common shares outstanding during the
period, adjusted for the dilutive effect of common stock equivalents, consisting
of shares that might be issued upon exercise of common stock options and
warrants.
17
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 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, 2017 and 2016, the
Company does 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,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss) attributable to China
Health Industries Holdings
|
$
|
(179,170
|
)
|
$
|
24,022
|
|
|
|
|
|
|
|
|
Net income/(loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss) from continuing operation
per share
|
|
|
|
|
|
|
Basic & diluted
|
$
|
(0.0027
|
)
|
$
|
0.0004
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
Basic & diluted
|
|
65,539,737
|
|
|
65,616,175
|
|
NOTE 13 - COMMITMENTS AND CONTINGENCIES
The Companys 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 PRC government has implemented measures
emphasizing the utilization of market forces for economic reforms, the reduction
of state ownership of productive assets and the establishment of sound corporate
governance in business enterprises, a substantial portion of productive assets
in the PRC is still owned by the PRC government. For example, all land is state
owned and leased to business entities or individuals through the PRC
governments 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 Companys future manufacturing
expansions. The PRC government also exercises significant control over the PRCs
economic growth through the allocation of resources and providing preferential
treatment to particular industries or companies. Uncertainties may arise with
changing of governmental policies and measures.
The Company faces a number of risks and challenges not
typically associated with companies in North America or Western Europe, because
its assets exist solely in the PRC, and its revenues are derived from its
operations therein. The PRC is a developing country with an early stage market
economic system, 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 Companys performance.
18
The Company had no rental commitments as of September 30, 2017.
NOTE 14 - MAJOR SUPPLIERS AND CUSTOMERS
For the three months ended September 30, 2017, the Company had
two suppliers that in the aggregate accounted for 88% of the Companys purchases
for continuing operations, with each supplier accounting for 78% and 10%,
respectively.
For the three months ended September 30, 2016, the Company had
two supplier that accounted for 88% of the Companys purchases.
For the three months ended September 30, 2017, the Company had
six customers that in the aggregate accounted for 66% of the Companys total
sales for continuing operations, with each customer accounting for 17%, 13%,
12%, 9%, 9% and 7%, respectively.
For the three months ended September 30, 2016, the Company had
six customers that in the aggregate accounted for 81% of the Companys total
sales, with each customer accounting for 16%, 15%, 13%, 13%, 12% and 12%,
respectively.
NOTE 15 - SEGMENT REPORTING
The Company is organized into three main business segments
based on the types of products being provided to customers: HLJ Huimeijia,
Humankind and Others. Each of the three operating segments referenced above
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 discontinued Huimeijia
business was included in the Others segment.
The following tables present summary information by segment for
the three months ended September 30, 2017 and 2016, respectively:
19
|
|
For the Three Months Ended September 30, 2017
|
|
|
For the Three Months Ended September 30, 2016
|
|
|
|
HLJ
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HLJ
|
|
|
|
|
|
|
|
|
|
|
|
|
Huimeijia
|
|
|
|
|
|
Humankind
|
|
|
Others
|
|
|
Consolidated
|
|
|
Huimeijia
|
|
|
Humankind
|
|
|
Others
|
|
|
Consolidated
|
|
Revenues
|
$
|
-
|
|
$
|
|
|
|
1,515,967
|
|
$
|
-
|
|
$
|
1,515,967
|
|
$
|
100
|
|
$
|
1,180,068
|
|
$
|
-
|
|
$
|
1,180,068
|
|
Cost of revenues
|
|
-
|
|
|
|
|
|
979,633
|
|
|
-
|
|
|
979,633
|
|
|
58
|
|
|
755,227
|
|
|
-
|
|
|
775,285
|
|
Gross profit
|
|
-
|
|
|
|
|
|
536,334
|
|
|
-
|
|
|
536,334
|
|
|
42
|
|
|
424,841
|
|
|
-
|
|
|
424,883
|
|
Interest expense
|
|
23,340
|
|
|
|
|
|
-
|
|
|
-
|
|
|
23,340
|
|
|
21,686
|
|
|
-
|
|
|
-
|
|
|
21,686
|
|
Depreciation and amortization
|
|
31,201
|
|
|
|
|
|
110,653
|
|
|
-
|
|
|
141,854
|
|
|
14,230
|
|
|
134,645
|
|
|
-
|
|
|
148,875
|
|
Income tax
|
|
-
|
|
|
|
|
|
39,652
|
|
|
-
|
|
|
39,652
|
|
|
-
|
|
|
54,030
|
|
|
-
|
|
|
54,030
|
|
Net income (loss)
|
|
(179,144
|
)
|
|
|
|
|
118,957
|
|
|
(118,983
|
)
|
|
(179,170
|
)
|
|
(137,873
|
)
|
|
162,091
|
|
|
(195
|
)
|
|
24,023
|
|
Total capital expenditures
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Total assets
|
$
|
3,423,860
|
|
$
|
|
|
|
38,959,019
|
|
$
|
690
|
|
$
|
42,383,569
|
|
$
|
2,922,517
|
|
$
|
37,194,994
|
|
$
|
1,444
|
|
$
|
40,118,955
|
|
NOTE 16 - SUBSEQUENT EVENTS
The Company has evaluated subsequent events from the balance
sheet date through the date the financial statements were issued and determined
that there are no additional items to disclose except the above mentioned
matters.
Item 2.
|
Managements 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, economic, and market
conditions and geopolitical events;
|
20
|
|
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 Peoples Republic of China; (ii) U.S. dollar, $
and US$ are to United States dollars; (iii) RMB are to Renminbi Yuan of
China; (iv) Securities Act are to the Securities Act of 1933, as amended; and
(v) Exchange Act are to the Securities Exchange Act of 1934, as amended.
Business Overview
Our principal business operations are conducted through our
wholly-owned subsidiaries, Humankind and HLJ Huimeijia.
The Company owns a GMP-certified plant and production
facilities and has the capacity to produce 21 different CFDA-approved medicines
and 14 CFDA-approved health supplement products in soft capsule, hard capsule,
tablet, granule and oral liquid forms. These products address the needs of some
key sectors in China, including the feminine, geriatric and childrens
markets.
HLJ Huimeijia's current GMP certificate expired at the end of
December 2015. HLJ Huimeijia has applied for a new GMP certificate, which is
expected to be obtained in December 2017. However, there is no assurance that we
will obtain the new GMP certificate by such time. According to PRC law, HLJ
Huimeijia must cease all production activities before receiving the new GMP
certificate. The equipment and production line is being reconstructed from the
third quarter of the fiscal year 2016 to the second quarter of the fiscal year
2018 for the purpose of applying for the new GMP certificate. HLJ Huimeijia is
currently in the final stages of reconstruction, which is expected to be
completed in December 2017. Although HLJ Huimeijia could sell inventory produced
prior to obtaining the new GMP certificate, nominal revenue has been generated by HLJ Huimeijia after the expiration of the
old GMP certificate.
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 only sell 19 drug approval numbers (the Assets) to
Xiuzheng Pharmacy. The Equity Holders would have retained their equity interests in Huimeijia, but
would have pledged such equity interests to Xiuzheng Pharmacy until the Assets
were transferred. On October 12, 2016, the four parties agreed to rescind the
Supplementary Agreement and entered into a new supplementary agreement, pursuant
to which the parties agreed to execute the transfer of the equity interests
based on the Original Agreement and the Equity Holders sold their respective
equity interests in Huimeijia to Xiuzheng Pharmacy for total cash consideration
of RMB8,000,000 (approximately $1,306,186, the Purchase Price) to the Equity
Holders. On October 12, 2016, Huimeijia has completed changes in its business
registration, and Xiuzheng Pharmacy has obtained a new business license issued
by the local State Administration of Industry and Commerce in Harbin (Harbin
SAIC) for Huimeijia, in which Huimeijias ownership is recorded as held by
Xiuzheng Pharmacy with Harbin SAIC, and the legal representative (a person that
is authorized to take most of corporate actions on behalf of a company under PRC
corporate laws) of Huimeijia has been appointed by the Buyer.
21
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, Beijing, Jiangsu, and Gansu, where most of our revenues are generated.
Sales by agents in Anhui, Zhejiang, Shanghai, Beijing, Jiangsu, and Gansu
provinces accounted for 17%, 13%, 12%, 9%, 9% and 7% of our total sales,
respectively, for the three months ended September 30, 2017. 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, 2017 compared to the
three months ended September 30, 2016
The following table summarizes the top lines of the results of
our operations for the three months ended September 30, 2017 and 2016,
respectively:
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Variance
|
|
|
%
|
|
Revenues
|
$
|
1,515,967
|
|
$
|
1,180,168
|
|
$
|
335,799
|
|
|
28.45%
|
|
Humankind
|
|
1,515,967
|
|
|
1,180,068
|
|
|
335,899
|
|
|
28.46%
|
|
HLJ Huimeijia
|
|
-
|
|
|
100
|
|
|
(100
|
)
|
|
(100.00%
|
)
|
Cost of Goods Sold
|
$
|
979,633
|
|
$
|
755,285
|
|
$
|
224,348
|
|
|
29.70%
|
|
Humankind
|
|
979,633
|
|
|
755,227
|
|
|
224,406
|
|
|
29.71%
|
|
HLJ Huimeijia
|
|
-
|
|
|
58
|
|
|
(58
|
)
|
|
(100.00%
|
)
|
Gross Profit
|
$
|
536,344
|
|
$
|
424,883
|
|
$
|
111,451
|
|
|
26.23%
|
|
Humankind
|
|
536,344
|
|
|
424,841
|
|
|
111,493
|
|
|
26.24%
|
|
HLJ Huimeijia
|
|
-
|
|
|
42
|
|
|
(42
|
)
|
|
(100.00%
|
)
|
Revenue
Total revenues increased by $335,799 or 28.45% for the three
months ended September 30, 2017, as compared to the same period in 2016. The
increase in revenues was primarily due to a increase of $335,899 or 28.46% in
Humankinds revenues and a decrease of $100 or 100.00% in HLJ Huimeijias
revenues for the three months ended September 30, 2017 as compared to the same
period in 2016. The increase in Humankinds sales revenues was primarily due to
the increase in the sales volume of Propolis and Black Ant Capsules, which was
caused by a rise in demand. The lack of sales revenue by HLJ Huimeijias was due to the expiration of its GMP certificate on
December 31, 2015. During the three months prior to such expiration, HLJ
Huimeijia reduced its production and marketing operations as more attention was
paid to the preparation of manufacturing and technical improvements in order to
meet the requirements for obtaining a new GMP certificate. Since the third
quarter of fiscal year 2016, HLJ Huimeijia has ceased all production activities,
reconstructed its equipment and production line for the purpose of applying for
the new GMP certificate.
Our total cost of sales increased by $224,348 or 29.70% for the
three months ended September 30, 2017 as compared to the same period in 2016.
The jump in the overall cost of sales was attributed to the increase of $224,406
or 29.71% in Humankinds cost of sales and a decrease of $58 or 100.00% in HLJ Huimeijias cost of sales for the three months ended
September 30, 2017 as compared to the same period in 2016. This increase aligned
with the increase in sales volume of products sold by Humankind.
22
Our gross margin increased by $111,451 from $424,883 for the
three months ended September 30, 2016 to $536,344 for the three months ended
September 30, 2017. This change was consistent with the increase in sales volume
of products sold by Humankind as discussed above.
Sales by Product Line
The following table summarizes a breakdown of our sales by
major product line for the three months ended September 30, 2017 and 2016,
respectively:
|
|
September 30, 2017
|
|
|
September 30, 2016
|
|
|
|
Quantity
|
|
|
|
|
|
% of
|
|
|
Quantity
|
|
|
|
|
|
% of
|
|
|
|
(Unit)
|
|
|
Sales US$
|
|
|
Sales
|
|
|
(Unit)
|
|
|
Sales US$
|
|
|
Sales
|
|
Humankind
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Waterlilies Soft Capsules (Sailuozhi)
|
|
5,502
|
|
$
|
333,826
|
|
|
22.02%
|
|
|
4,389
|
|
$
|
269,847
|
|
|
22.87%
|
|
Propolis and Black Ant Capsules
|
|
40,669
|
|
|
1,182,141
|
|
|
77.98%
|
|
|
32,925
|
|
|
910,215
|
|
|
77.13%
|
|
HLJ Huimeijia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Musk Bone Strengthener Paste
|
|
-
|
|
|
-
|
|
|
-
|
|
|
59
|
|
|
24
|
|
|
1.01%
|
|
Musk Pain Relieving Paste
|
|
-
|
|
|
-
|
|
|
-
|
|
|
21
|
|
|
9
|
|
|
0.07%
|
|
Injury and Rheumatism relieving Paste
|
|
-
|
|
|
-
|
|
|
-
|
|
|
68
|
|
|
28
|
|
|
-
|
|
Refining GouPi Cream
|
|
-
|
|
|
-
|
|
|
-
|
|
|
15
|
|
|
6
|
|
|
-
|
|
Enema Glycerini
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
UmguentumAcidiBoriciCamphoratum
|
|
-
|
|
|
-
|
|
|
-
|
|
|
10
|
|
|
3
|
|
|
-
|
|
Indometacin and Furazolidone Suppositories
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
7
|
|
|
-
|
|
Ge Hong Beriberi Water
|
|
-
|
|
|
-
|
|
|
-
|
|
|
92
|
|
|
29
|
|
|
-
|
|
Total
|
|
|
|
$
|
1,515,967
|
|
|
100.00%
|
|
|
|
|
$
|
1,180,168
|
|
|
100.00%
|
|
Operating Expenses
The following table summarizes our operating expenses for the
three months ended September 30, 2017 and 2016, respectively:
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Variance
|
|
|
%
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
$
|
557,852
|
|
$
|
430,264
|
|
$
|
127,588
|
|
|
29.65%
|
|
Depreciation and amortization
|
|
141,854
|
|
|
148,875
|
|
|
(7,021
|
)
|
|
(4.72%
|
)
|
Total Operating Expenses
|
$
|
699,706
|
|
$
|
579,139
|
|
$
|
120,567
|
|
|
20.82%
|
|
Total operating expenses for the three months ended September
30, 2017 were $699,706 or 20.82% higher than in the corresponding period in
2016. The increase in operating expenses was primarily attributable to increase
of $127,588 or 29.65% in selling, general and administrative expenses. The
increase in selling, general and administrative expenses was mainly due to the
increase of professional fee for the three months ended September 30, 2017 as
compared to the same period in 2016. The decrease in depreciation and
amortization expenses was primarily attributed to an unfavorable foreign
exchange rate for the three months ended September 30, 2017, as compared to the
same period in 2016.
Interest Income and Interest Expense
23
Interest income was $ 24,340 for the three months ended
September 30, 2017, as compared to $ 19,909 for the three months ended September
30, 2016. This increase of $ 4,431, or 22.26%, was mainly due to the increased
average balance of bank deposits compared with the same period of 2016.
Interest expense was $23,340 for the three months ended
September 30, 2017, an increase of $1,654 or 7.63%, as compared to $21,686 for
the three months ended September 30, 2016. The increase of interest expense was
mainly due to the increase in short-term loan interest rates from 5.66% to 6.09%
in November 2016.
Investment Income
During the three months ended September 30, 2017, investment
income from the Companys was nil, as compared to $225,093 or 100% for the same
period in 2016. On July 5, 2016, the Company entered into a one-year financial
management agreement with the principal in the amount of $8,716,876 (RMB
60,000,000) at the expected annual rate of return of 10%. The financial
institution that handled the Companys short term investment with is the related
party of the Company, and the contract had terminated as of September 30, 2017.
Income Taxes
Income taxes significantly decreased by $14,378, or 27%, from
$54,030 for the three months ended September 30, 2016 to $39,652 for the three
months ended September 30, 2017. The decrease in income taxes was due to the
termination of the Companys short term investment with the related party
with the principal in the amount of $8,716,876 (RMB60,000,000), which
decreased its investment income from $225,093 for the three months ended
September 30, 2016 to nil for the same period of 2017.
Net Income (Loss) and Net Income (Loss) Per Share
Net loss was $179,170 for the three months ended September 30,
2017, as compared to $24,023 for the three months ended September 30, 2016. This
decrease of $203,193, or 846% in net profit was primarily attributable to a
decrease in other income of $225,093.
Net Loss per share was $0.0027 for the three months ended
September 30, 2017 and net income per share was $0.0004 for the three months ended September
30, 2016, respectively. This decrease was primarily a result of the
above-described 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,
2017 and June 30, 2017 and for the three months ended September 30, 2017 and
2016:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2017
|
|
Cash and cash equivalents
|
$
|
31,992,681
|
|
$
|
21,197,448
|
|
Working capital
|
$
|
27,064,892
|
|
$
|
26,531,122
|
|
Inventories
|
$
|
549,674
|
|
$
|
454,468
|
|
|
|
|
|
|
|
|
For the three months ended September
30:
|
|
2017
|
|
|
2016
|
|
Cash provided by (used in):
|
|
|
|
|
|
|
Operating activities
|
$
|
388,877
|
|
$
|
15,744
|
|
Investing activities
|
$
|
9,887,456
|
|
$
|
(9,010,455
|
)
|
Financing activities
|
$
|
85,085
|
|
$
|
85,085
|
|
24
For the three months ended September 30, 2017, our net increase
in cash and cash equivalents totaled $10,795,233, which total was comprised of
net cash provided by operating activities in the amount of $388,877, net cash
provided by investing activities in the amount of $9,887,456 and the effect of
prevailing exchange rates on our cash position of $433,815, by net cash provided
by financing activities in the amount of $85,085.
For the three months ended September 30, 2016, our net increase
in cash and cash equivalents totaled $9,004,410, which total was comprised of
net cash used in investing activities in the amount of $9,010,455 and the
negative effect of prevailing exchange rates on our cash position of $94,784,
offset by net cash provided by operating activities in the amount of $15,744 and
net cash provided by financing activities in the amount of $85,085.
Our working capital at September 30, 2017 was $27,064,892,
compared to working capital of $26,531,122 at June 30, 2017. This increase of
$533,770 or 2.01% was primarily attributable to the decrease of accounts
receivables in the amount of $452,203 and the increase in amounts due to related
parties in the amount of $116,419.
Net cash provided by operating activities was $388,877 for the
three months ended September 30, 2017, primarily attributable to the net cash
provided by operating activities amounts in $1,020,586, a decrease in accounts
receivables in the amount of $452,203 and the increase in amounts due to related
parties in the amount of $116,419. Net cash used in investing activities was
$9,887,456 for the three months ended September 30, 2017, primarily due to
expenditures in short-term investments of $8,054,281. Net cash provided by
financing activities from continuing operations was $33,211 for the nine months
ended September 30, 2017, attributable to withdraw of short term investment
amounts in $8,997,661, proceeds from short term investment in the amount of $899,766. The negative effect of exchange rate changes on cash and cash
equivalents in the amount of $ 433,815 for the three months ended September 30,
2017 was mainly a result of the effect of the valuation of the RMB against the
USD on the significant amount of cash and cash equivalents held by the Company
in RMB. The exchange rates from USD to RMB were 6.7793 to 1 and 6.6533 to 1 as
of June 30, 2017 and September 30, 2017, respectively, and the average exchange
rate from USD to RMB was 6.6684 for the three months ended September 30,
2017.
Net cash provided by operating activities was $15,744 for the
nine months ended September 30, 2016, primarily attributable to a decrease in
accounts receivables if $178,748, partially offset by an increase in taxes
payable of $143,283.Net cash used in investing activities from the continuing
operations was $9,010,455 for the three months ended September 30, 2016,
primarily due to the expenditure in short-term investment of $9,003,737. Net
cash provided by financing activities from continuing operations was $85,085.
The negative effect of exchange rate changes on cash and cash equivalents in the
amount of $94,784 for the three months ended September 30, 2016 was mainly a
result of the effect of the devaluation of the RMB to 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 6.6639 to 1 and 6.6459 to 1 as of September 30, 2016
and June 2016, respectively. And the average exchange rate from USD to RMB was
6.6639 for three months ended September 30, 2016.
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 or 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.
25
Related Party Debts
We had related party debts in the amount of $3,995,534 as of
September 30, 2017, as compared to $3,713,681 as of June 30, 2017, an increase
of $281,853 or 7.59% . Our related party debts mainly consist of a loan from
Mr. Xin Sun, the CEO of the Company. The loan is unsecured and non-interest
bearing and has no fixed terms of repayment. There was no written agreement for
the loan. See Note 10.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that are
currently material or reasonably likely to be material to our financial position
or results of operations.
Critical Accounting Policies and Estimates
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, 2017 in the Companys significant accounting policies to
those previously disclosed in the annual report on Form 10-K for the fiscal year
ended June 30, 2017.
26
Item 2.
|
Managements Discussion and Analysis of
Financial Condition and Results of Operations.
|
[Please insert MD&A from a separate document]