Item 1. Financial Statements
CHINA HEALTH INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| |
March 31, 2023 (Unaudited) | | |
June 30, 2022 (Audited) | |
ASSETS | |
| | |
| |
| |
| | |
| |
Current assets | |
| | |
| |
Cash and cash equivalents | |
$ | 43,336,642 | | |
$ | 44,789,999 | |
Accounts receivable, net | |
| 9,331 | | |
| 9,567 | |
Inventory | |
| 399,160 | | |
| 521,229 | |
Other receivables, net | |
| 28,926 | | |
| 31,778 | |
Advances to suppliers | |
| 207,717 | | |
| 214,915 | |
Prepayments | |
| 17,922 | | |
| 30,004 | |
Total current assets | |
$ | 43,999,698 | | |
$ | 45,597,492 | |
| |
| | | |
| | |
Property, plants and equipment, net | |
| 2,904,725 | | |
| 3,158,021 | |
Intangible assets, net | |
| 1,026,537 | | |
| 1,412,603 | |
Construction in progress | |
| 573,416 | | |
| 579,402 | |
Prepayments – Non-Current | |
| - | | |
| - | |
Deferred tax assets | |
| - | | |
| - | |
Total assets | |
$ | 48,504,376 | | |
$ | 50,747,518 | |
| |
| | | |
| | |
LIABILITIES AND EQUITY | |
| | | |
| | |
| |
| | | |
| | |
Current liabilities | |
| | | |
| | |
Accounts payable and accrued expenses | |
$ | 304,961 | | |
$ | 334,972 | |
Other payables | |
| 83,414 | | |
| 82,323 | |
Advances from customers | |
| 169,891 | | |
| 472,307 | |
Related party debts | |
| 5,770,209 | | |
| 6,759,761 | |
Wages payable | |
| 111,403 | | |
| 162,431 | |
Taxes payable | |
| 145,717 | | |
| 133,005 | |
Total current liabilities | |
$ | 6,585,595 | | |
$ | 7,944,799 | |
| |
| | | |
| | |
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 March 31, 2023 and June 30, 2022, respectively) | |
| 6,554 | | |
| 6,554 | |
Additional paid-in capital | |
| 521,987 | | |
| 521,987 | |
Accumulated other comprehensive (loss) income | |
| (527,688 | ) | |
| 538,820 | |
Statutory reserves | |
| 38,679 | | |
| 38,679 | |
Retained earnings | |
| 41,879,249 | | |
| 41,696,679 | |
Total stockholders’ equity | |
$ | 41,918,781 | | |
$ | 42,802,719 | |
Total liabilities and equity | |
$ | 48,504,376 | | |
$ | 50,747,518 | |
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
CHINA HEALTH INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
| |
For the Three Months Ended | | |
For the Nine Months Ended | |
| |
March 31, 2023 | | |
March 31, 2022 | | |
March 31, 2023 | | |
March 31, 2022 | |
| |
| | |
| | |
| | |
| |
REVENUE | |
$ | 21,416 | | |
$ | 1 | | |
$ | 54,066 | | |
$ | 269 | |
| |
| | | |
| | | |
| | | |
| | |
COST OF GOODS SOLD | |
| (19,083 | ) | |
| (7 | ) | |
| (48,728 | ) | |
| (1,762 | ) |
| |
| | | |
| | | |
| | | |
| | |
GROSS PROFIT | |
| 2,333 | | |
| (6 | ) | |
| 5,338 | | |
| (1,493 | ) |
| |
| | | |
| | | |
| | | |
| | |
OPERATING EXPENSES | |
| | | |
| | | |
| | | |
| | |
Selling, general and administrative expenses | |
| 152,627 | | |
| 136,397 | | |
| 710,946 | | |
| 484,056 | |
Depreciation and amortization expenses | |
| 179,171 | | |
| 179,525 | | |
| 527,413 | | |
| 539,487 | |
Total operating expenses | |
| (331,798 | ) | |
| (315,922 | ) | |
| (1,238,359 | ) | |
| (1,023,543 | ) |
| |
| | | |
| | | |
| | | |
| | |
LOSS- FROM OPERATIONS | |
| (329,465 | ) | |
| (315,928 | ) | |
| (1,233,021 | ) | |
| (1,025,036 | ) |
| |
| | | |
| | | |
| | | |
| | |
OTHER INCOME/(EXPENSES) | |
| | | |
| | | |
| | | |
| | |
Interest income | |
| 26,847 | | |
| 37,063 | | |
| 87,376 | | |
| 118,695 | |
Interest expense | |
| - | | |
| - | | |
| - | | |
| - | |
Other income/(expenses), net | |
| 12,426 | | |
| 142 | | |
| 1,328,680 | | |
| 33,024 | |
Bank charges | |
| (96 | ) | |
| (199 | ) | |
| (465 | ) | |
| (516 | ) |
Total other income, net | |
| 39,177 | | |
| 37,006 | | |
| 1,415,591 | | |
| 151,203 | |
| |
| | | |
| | | |
| | | |
| | |
INCOME/(LOSS) BEFORE INCOME TAXES | |
| (290,288 | ) | |
| (278,922 | ) | |
| 182,570 | | |
| (873,833 | ) |
| |
| | | |
| | | |
| | | |
| | |
Provision for income taxes | |
| - | | |
| - | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | |
NET INCOME/(LOSS) | |
| (290,288 | ) | |
| (278,922 | ) | |
| 182,570 | | |
| (873,833 | ) |
| |
| | | |
| | | |
| | | |
| | |
Foreign currency translation gain (loss) | |
| 177,887 | | |
| 237,473 | | |
| (1,066,508 | ) | |
| 828,878 | |
| |
| | | |
| | | |
| | | |
| | |
COMPREHENSIVE INCOME (LOSS) | |
| (112,401 | ) | |
| (41,449 | ) | |
| (883,938 | ) | |
| (44,955 | ) |
Basic & diluted earnings (loss) per share | |
$ | (0.0044 | ) | |
$ | (0.0043 | ) | |
$ | 0.0028 | | |
$ | (0.0133 | ) |
Weighted average shares outstanding: | |
| | | |
| | | |
| | | |
| | |
Basic & diluted weighted average shares outstanding | |
| 65,539,737 | | |
| 65,539,737 | | |
| 65,539,737 | | |
| 65,539,737 | |
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
CHINA HEALTH INDUSTRIES HOLDINGS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE NINE MONTHS ENDED MARCH 31, 2023 AND
2022
(Unaudited)
| |
Common Shares | | |
Additional Paid-in | | |
Retained | | |
Statutory | | |
Accumulated Other Comprehensive Income | | |
Total Stockholders’ | | |
Non- controlling | | |
Total | |
| |
Shares | | |
Amount | | |
Capital | | |
Earnings | | |
Reserve | | |
(loss) | | |
Equity | | |
Interest | | |
Equity | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Balance, June 30, 2021 | |
| 65,539,737 | | |
$ | 6,554 | | |
$ | 521,987 | | |
$ | 42,050,629 | | |
$ | 38,679 | | |
$ | 2,156,792 | | |
$ | 44,774,641 | | |
$ | - | | |
$ | 44,774,641 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss | |
| - | | |
| - | | |
| - | | |
| (873,833 | ) | |
| - | | |
| - | | |
| (873,833 | ) | |
| - | | |
| (873,833 | ) |
Other comprehensive loss - Translation adjustment | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 828,878 | | |
| 828,878 | | |
| - | | |
| 828,878 | |
Balance, March 31, 2022 | |
| 65,539,737 | | |
$ | 6,554 | | |
$ | 521,987 | | |
$ | 41,176,796 | | |
$ | 38,679 | | |
$ | 2,985,670 | | |
$ | 44,729,686 | | |
$ | - | | |
$ | 44,729,686 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance, June 30, 2022 | |
| 65,539,737 | | |
$ | 6,554 | | |
$ | 521,987 | | |
$ | 41,696,679 | | |
$ | 38,679 | | |
$ | 538,820 | | |
$ | 42,802,719 | | |
$ | - | | |
$ | 42,802,719 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net income | |
| - | | |
| - | | |
| - | | |
| 182,570 | | |
| - | | |
| - | | |
| 182,570 | | |
| - | | |
| 182,570 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Other comprehensive loss - Translation adjustment | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (1,066,508 | ) | |
| (1,066,508 | ) | |
| - | | |
| (1,066,508 | ) |
Balance, March 31, 2023 | |
| 65,539,737 | | |
$ | 6,554 | | |
$ | 521,987 | | |
$ | 41,879,249 | | |
$ | 38,679 | | |
$ | (527,688 | ) | |
$ | 41,918,781 | | |
$ | - | | |
$ | 41,918,781 | |
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
CHINA HEALTH INDUSTRIES HOLDINGS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED MARCH 3 1, 2023
AND 2022
(Unaudited)
| |
Common Shares | | |
Additional Paid-in | | |
Retained | | |
Statutory | | |
Accumulated Other Comprehensive Income | | |
Total Stockholders’ | | |
Non- controlling | | |
Total | |
| |
Shares | | |
Amount | | |
Capital | | |
Earnings | | |
Reserve | | |
(loss) | | |
Equity | | |
Interest | | |
Equity | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Balance, December 31, 2021 | |
| 65,539,737 | | |
$ | 6,554 | | |
$ | 521,987 | | |
$ | 41,455,718 | | |
$ | 38,679 | | |
$ | 2,748,197 | | |
$ | 44,771,135 | | |
$ | - | | |
$ | 44,771,135 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss | |
| - | | |
| - | | |
| - | | |
| (278,922 | ) | |
| - | | |
| - | | |
| (278,922 | ) | |
| - | | |
| (278,922 | ) |
Other comprehensive loss - Translation adjustment | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 237,473 | | |
| 237,473 | | |
| - | | |
| 237,473 | |
Balance, March 31, 2022 | |
| 65,539,737 | | |
$ | 6,554 | | |
$ | 521,987 | | |
$ | 41,176,796 | | |
$ | 38,679 | | |
$ | 2,985,670 | | |
$ | 44,729,686 | | |
$ | - | | |
$ | 44,729,686 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance, December 31, 2022 | |
| 65,539,737 | | |
$ | 6,554 | | |
$ | 521,987 | | |
$ | 42,169,537 | | |
$ | 38,679 | | |
$ | (705,575 | ) | |
$ | 42,031,182 | | |
$ | - | | |
$ | 42,031,182 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss | |
| - | | |
| - | | |
| - | | |
| (290,288 | ) | |
| - | | |
| - | | |
| (290,288 | ) | |
| - | | |
| (290,288 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Other comprehensive loss - Translation adjustment | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 177,887 | | |
| 177,887 | | |
| - | | |
| 177,887 | |
Balance, March 31, 2023 | |
| 65,539,737 | | |
$ | 6,554 | | |
$ | 521,987 | | |
$ | 41,879,249 | | |
$ | 38,679 | | |
$ | (527,688 | ) | |
$ | 41,918,781 | | |
$ | - | | |
$ | 41,918,781 | |
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
CHINA HEALTH INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| |
For the Nine Months Ended | |
| |
March 31, | | |
March 31, | |
| |
2023 | | |
2022 | |
Cash Flows from Operating Activities | |
| | |
| |
Net income (loss) | |
$ | 182,570 | | |
$ | (873,833 | ) |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |
| | | |
| | |
Depreciation and amortization expenses | |
| 527,413 | | |
| 624,443 | |
Provisions for doubtful accounts | |
| - | | |
| (10,659 | ) |
Deferred taxes loss/(gain) | |
| | | |
| | |
Changes in operating assets and liabilities, | |
| | | |
| | |
Accounts receivable | |
| - | | |
| 2,282,640 | |
Other receivables | |
| 2,117 | | |
| (6 | ) |
Inventory | |
| 108,165 | | |
| (82,142 | ) |
Advances to suppliers and prepaid expenses | |
| 13,109 | | |
| (11,573 | ) |
Accounts payables and accrued expenses | |
| (17,633 | ) | |
| (64,442 | ) |
Advances from customers and other payables | |
| (242,894 | ) | |
| 1,112,417 | |
Amounts due to related parties | |
| (41,682 | ) | |
| 54,746 | |
Wages payable | |
| (46,571 | ) | |
| (50,673 | ) |
Taxes payable | |
| 5,202 | | |
| (9,016 | ) |
Net cash provided by operating activities | |
| 489,796 | | |
| 2,971,902 | |
| |
| | | |
| | |
Cash Flows from Investing Activities | |
| | | |
| | |
Purchases of property, plants and equipment | |
| - | | |
| - | |
Expenditures in construction in progress | |
| - | | |
| - | |
Disposal of property, plant and equipment | |
| - | | |
| - | |
Net cash (used in)/provided by investing activities | |
| - | | |
| - | |
| |
| | | |
| | |
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 | |
| (1,943,153 | ) | |
| 90,374 | |
| |
| | | |
| | |
Net increase/(decrease) in cash and cash equivalents | |
| (1,453,357 | ) | |
| 3,062,276 | |
| |
| | | |
| | |
Cash and cash equivalents, beginning balance | |
| 44,789,999 | | |
| 44,346,744 | |
| |
| | | |
| | |
Cash and cash equivalents, closing balance | |
| 43,336,642 | | |
| 47,409,020 | |
| |
| | | |
| | |
Supplemental cash flow information | |
| | | |
| | |
Cash paid for income taxes | |
$ | - | | |
$ | - | |
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 unaudited 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. (“China Health US”) on February 19,
2009.
On November 22, 2013, Humankind completed the
acquisition of Heilongjiang Huimeijia Pharmaceutical Co., Ltd. (“HLJ Huimeijia”) for a total purchase price of $16,339,869
(RMB100,000,000). HLJ Huimeijia was founded on October 30, 2003, and is engaged in the manufacturing and distribution of tincture, ointments,
rubber paste (including hormones), topical solution, suppositories, liniment (including traditional Chinese medicine extractions), enemas
and oral liquids. HLJ Huimeijia’s predecessor is Heilongjiang Xue Du Pharmaceutical Co., Ltd., which has established its brand name
in the market through its supply of high quality medical products. HLJ Huimeijia is categorized as a “high and new technology”
enterprise by the Science Technology Department in Heilongjiang Province. HLJ Huimeijia has 21 products which have been approved by, and
have received approval numbers issued by, National Medical Products Administration, or NPMA (formerly known as the China State Food and
Drug Administration, or the CFDA). In addition, HLJ Huimeijia is the holder of one patent for utility models, five patents for external
design and three trademarks in China, including the Chinese brand name of “Xue Du” which has an established reputation among
customers in northeastern China.
On December 24, 2014, Humankind entered into a
stock transfer agreement (the “Original Agreement”) with Xiuzheng Pharmaceutical Group Co., Ltd. a company incorporated under
the laws of the PRC and located in Jilin province (“Xiuzheng Pharmacy” or the “Buyer”), Mr. Xin Sun, the CEO of
the Company, and Huimeijia, 99% owned by Humankind and 1% owned by Mr. Xin Sun. Pursuant to the Original Agreement, Humankind and Mr.
Xin Sun (the “Equity Holders”), would sell their respective equity interests in Huimeijia to Xiuzheng Pharmacy.
On February 9, 2015, the four parties to the Original
Agreement entered into a supplementary agreement (the “Supplementary Agreement”) to modify the terms of the Original Agreement,
pursuant to which the Equity Holders and Huimeijia (collectively the “Asset Transferors”) would sell only the 19 drug approval
numbers (including the tablet, capsule, powder, mixture, oral liquid, syrup and oral solution under the 19 approval numbers; licenses
including the original copies of Business License, Organization Code Certificate, Tax Registration Certificate, Drug Production Permit
and GMP Certificate, and other documents and original copies related to the production and operation of the 19 drugs) (the “Assets”)
to Xiuzheng Pharmacy. The Equity Holders would have retained their equity interests in Huimeijia, but would have pledged such equity interests
to Xiuzheng Pharmacy until the Assets were transferred, at which time the cash consideration would have been paid by the Buyer. Total
cash consideration would have been the same as under the Original Agreement, i.e., RMB 8,000,000 (approximately $1,306,186) to the Asset
Transferors. In the event that the Assets had failed to be transferred to the Buyer due to the fault of the Asset Transferors, the paid
consideration would have been returned to the Buyer with interest accrued. If the failure of the transfer of the Assets were a result
of changes in government policy or force majeure, the paid cash consideration would have been returned to the Buyer but without any interest.
On October 12, 2016, the same four parties agreed
to rescind the Supplementary Agreement and entered into a new supplementary agreement (the “New Supplementary Agreement”),
pursuant to which the four parties agreed to execute the transfer of the equity interests based on the Original Agreement and the Equity
Holders agreed to sell their respective equity interests in Huimeijia to Xiuzheng Pharmacy. The transfer of 100% of the equity interests
of Huimeijia to the Buyer was for total cash consideration of RMB 8,000,000 (approximately $1,306,186) (the “Purchase Price”)
to the Equity Holders. 40% of the Purchase Price was due within 10 business days after the signing of the New Supplementary Agreement;
40% of the Purchase Price was due within 10 business days after the completion of the changes in business registration described in the
Original Agreement and Xiuzheng Pharmacy obtaining documents evidencing its ownership on Huimeijia; 15% of the Purchase Price is due within
10 business days after the transfer of all of the Assets is approved by Heilongjiang FDA; and 5% of the Purchase Price is due within 10
business days after all of the Assets have been transferred to Xiuzheng Pharmacy or its designee and Humankind and Mr. Xin Sun have instructed
Xiuzheng Pharmacy 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 March 31, 2023, 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, 2022. 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 normal and recurring nature. The results of operations of the Company for the nine months ended March 31, 2023 may
not be indicative of results that may be expected for the year ended June 30, 2023.
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 some 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 March 31, 2023 and June 30, 2022, the Company’s
uninsured bank balances were mainly maintained at financial institutions located in the PRC and Hong Kong. The uninsured bank balances
were $43,336,642 and $44,789,999 as of March 31, 2023 and June 30, 2022, respectively. The Company had no insured bank balances as of
March 31, 2023 and June 30, 2022.
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 March 31, 2023 and June 30, 2022, the balances of
accounts receivable were $56,896 and $58,336, 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 $47,565 and $48,769 was appropriate as
of March 31, 2023 and June 30, 2022, 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 Good Manufacturing Practice (“GMP”) upgrading, and records these payments as advances to suppliers. As
of March 31, 2023 and June 30, 2022, advances to suppliers amounted to $207,717 and $214,915, 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.
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 March 31, 2023 and
June 30, 2022, 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 March 31, 2023 and June 30, 2022, 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 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 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 nine months ended March 31, 2023 and 2022, respectively.
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 impairment recorded for construction in progress, for the nine months ended March 31,
2023 and 2022, respectively. 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.
Revenue Recognition
The Company
recognizes revenue in the amount to which it expects to be entitled when control of the products or services is transferred to its customers
based on any contract. Control is generally transferred when the Company has a present right to payment and title and the significant
risks and rewards of ownership of products or services are transferred to its customers while performance obligation are completed. For
most of the Company’s products net sales, control transfers when products are shipped and transaction price are determined. The
majority of the Company’s revenue relates to the sale of inventory to customers, and revenue is recognized when control of the products
or services is transferred to its customers that reflects the performance obligations are properly allocated and satisfied with transaction
price. Given the nature of the Company’s business and the applicable rules guiding revenue recognition, the Company’s revenue
recognition practices do not contain estimates that materially affect the results of operations. The Company records revenue at the discounted
selling price and allows its customers to return products for exchange or credit subject to certain limitations. A provision for such
returns is recorded based upon historical experience. There has been no provision recorded for returns based upon historical experience
for the nine months ended March 31, 2023 and 2022, 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 (“ASC
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 changes 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 PRC Enterprise Income Tax Law, (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, revised on January 1, 2009, and
further revised on November 19, 2017. Under the regulations and the Implementing Rules 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 March 31, 2023 and June 30, 2022, VAT payables were $30,534 and $29,835,
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 as taxes for the purposes of maintaining and building cities
and educational facilities, included as sales-related taxes. Sales-related taxes are recorded when sales revenue is recognized. Sales-related
taxes were $nil and $nil for the nine months ended March 31, 2023 and 2022, 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 USD 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 nine months ended March 31, 2023 and 2022, 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 determined that 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 determined that 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 were $56,896
and $58,336, and net of allowances for doubtful accounts amounted to $47,565 and $48,769, as of March 31, 2023 and June 30, 2022, respectively.
NOTE 4 - INVENTORY
Inventory consisted of following:
| |
March 31, | | |
June 30, | |
| |
2023 | | |
2022 | |
Raw Materials | |
$ | 119,990 | | |
$ | 213,055 | |
Supplies and Packing Materials | |
| 87,430 | | |
| 90,303 | |
Work-in-Progress | |
| 3,136 | | |
| 82,412 | |
Finished Goods | |
| 188,604 | | |
| 135,459 | |
Total | |
$ | 399,160 | | |
$ | 521,229 | |
The inventory allowance in the amounts of $nil
and $nil was provided for as of March 31, 2023 and June 30, 2022, respectively.
NOTE 5 - CONSTRUCTION IN PROGRESS
Construction in progress from the continuing operations of the Company
consisted of the following:
| |
March 31, | | |
June 30, | |
| |
2023 | | |
2022 | |
Plant - HLJ Huimeijia | |
$ | 573,416 | | |
$ | 579,402 | |
Total | |
$ | 573,416 | | |
$ | 579,402 | |
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 March 31, 2023, 71.36% of construction has been completed, $1,329,984 (RMB 9,133,796) has been recorded
as costs of construction in progress and construction in progress at an amount of $764,882 (RMB 5,252,904) has been completed and converted
into property, plant and equipment.
NOTE 6 - PROPERTY, PLANTS AND EQUIPMENT
Property, plants and equipment consisted of the following:
| |
March 31, | | |
June 30, | |
| |
2023 | | |
2022 | |
Building, Warehouses and Improvements | |
$ | 3,849,088 | | |
$ | 3,946,492 | |
Machinery and Equipment | |
| 1,788,371 | | |
| 1,832,446 | |
Office Equipment | |
| 76,426 | | |
| 78,360 | |
Vehicles | |
| 79,314 | | |
| 217,808 | |
Others | |
| 938,907 | | |
| 962,667 | |
Less: Accumulated Depreciation | |
| (3,827,381 | ) | |
| (3,879,752 | ) |
Total | |
$ | 2,904,725 | | |
$ | 3,158,021 | |
Depreciation expenses were $179,555 and $260,224
for the nine months ended March 31, 2023 and 2022, respectively. Depreciation expenses charged to operations were $179,555 and $260,224
for the nine months ended March 31, 2023 and 2022, respectively. Depreciation expenses charged to cost of goods sold were $nil and $nil
for the nine months ended March 31, 2023 and 2022, respectively.
NOTE 7 - INTANGIBLE ASSETS
The following is a summary of intangible assets from the continuing
operations of the Company:
| |
March 31, 2023 | | |
June 30, 2022 | |
Land Use Rights – Humankind | |
$ | 922,882 | | |
$ | 946,237 | |
Health Supplement Product Patents – Humankind | |
| 4,368,338 | | |
| 4,478,882 | |
Pharmaceutical Patents - HLJ Huimeijia | |
| 380,652 | | |
| 390,285 | |
Land Use Rights - HLJ Huimeijia | |
| 631,238 | | |
| 647,211 | |
Less: Accumulated Amortization | |
| (5,276,573 | ) | |
| (5,050,012 | ) |
Total | |
$ | 1,026,537 | | |
$ | 1,412,603 | |
All land in the PRC belongs to the government
of the PRC. Enterprises and individuals can pay the PRC government a fee to obtain the right to use a piece of land for commercial purposes
or residential purposes for an initial period of 50 years or 70 years. These land use rights can be sold, purchased, and exchanged in
the market. The successive owner of the land use right will have the right to use the land for the time remaining on the initial period.
The patents have amortized life of 10 years.
Amortization expenses were $347,858 and $364,219
for the nine months ended March 31, 2023 and 2022, 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:
| |
March 31, 2023 | | |
June 30, 2022 | |
Mr. Xin Sun | |
$ | 5,736,159 | | |
$ | 6,724,850 | |
Mr. Kai Sun | |
| 34,050 | | |
| 34,911 | |
Total | |
$ | 5,770,209 | | |
$ | 6,759,761 | |
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 nine months ended March 31, 2023 and 2022. As of March 31, 2023,
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 nine months
ended March 31, 2023 and 2022. Management reviews this valuation allowance periodically and makes adjustments accordingly.
Hong Kong
China Health HK was incorporated in Hong Kong
and is subject to Hong Kong taxation on its activities conducted in Hong Kong and income arising in or derived from Hong Kong. No provision
for income taxes have been made because China Health HK has no taxable income in Hong Kong.
People’s Republic of China
Under the EIT Law, the standard EIT rate is 25%.
The PRC subsidiaries of the Company are subject to PRC income taxes on an entity basis on income arising in or derived from the tax jurisdiction
in which they operate.
The provision for income taxes of the Company
consisted of the following for the nine months ended March 31, 2023 and 2022:
|
|
For the Three Months Ended |
|
|
For the Nine Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
Current provision: |
|
|
|
|
|
|
|
|
|
|
|
|
USA |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
PRC |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total current provision |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Deferred provision: |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
USA |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
PRC |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total deferred provision |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total provision for income taxes |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
Significant components of deferred tax assets
of the Company were as follows:
| |
March 31, | | |
June 30, | |
| |
2023 | | |
2022 | |
Deferred tax assets | |
| | |
| |
Net operating loss carry forward | |
$ | 1,029,615 | | |
$ | 1,096,936 | |
Allowances for doubtful accounts | |
| (11,891 | ) | |
| (12,192 | ) |
Valuation allowance | |
| (1,017,724 | ) | |
| (1,084,744 | ) |
Total | |
$ | - | | |
$ | - | |
(b) Uncertain tax positions
There were no unrecognized tax benefits as of
March 31, 2023 and June 30, 2022. 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 nine months ended March 31, 2023 and 2022, the Company did not incur any interest
or penalties arising from its tax payments.
NOTE 10 – EARNINGS (LOSS) PER SHARE
Basic earnings (loss) 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 (loss) per common share are 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 nine months ended March 31, 2023 and 2022, 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 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 nine months ended March 31, 2023 and 2022,
the Company did not have potential dilutive shares. The following table sets forth the computation of basic and diluted net income per
share:
| |
For the Three Months Ended | | |
For the Nine Months Ended | |
| |
March 31, | | |
March 31, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| |
| | |
| | |
| | |
| |
Net income/(loss) attributable to China Health Industries Holdings | |
$ | (290,288 | ) | |
$ | (278,922 | ) | |
$ | 182,570 | | |
$ | (873,833 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net income/(loss) per share: | |
| | | |
| | | |
| | | |
| | |
Basic & diluted | |
$ | (0.0044 | ) | |
$ | (0.0043 | ) | |
$ | 0.0028 | | |
| (0.0133 | ) |
Weighted average shares outstanding: | |
| | | |
| | | |
| | | |
| | |
Basic & diluted | |
| 65,539,737 | | |
| 65,539,737 | | |
| 65,539,737 | | |
| 65,539,737 | |
NOTE 11 - COMMITMENTS AND CONTINGENCIES
The Company’s assets are located in the
PRC and revenues are derived from operations in the PRC.
In terms of industry regulations and policies,
the economy of the PRC has been transitioning from a planned economy to market-oriented economy. Although in recent years the Chinese
government has implemented measures emphasizing the utilization of market forces for economic reforms, the reduction of state ownership
of productive assets and the establishment of sound corporate governance in business enterprises, a substantial portion of productive
assets in the PRC is still owned by the Chinese government. For example, all land is state owned and leased to business entities or individuals
through the government’s granting of land use rights. The granting process is typically based on government policies at the time
of granting and can be lengthy and complex. This process may adversely affect the Company’s future manufacturing expansions. The
Chinese government also exercises significant control over the PRC’s economic growth through the allocation of resources and provides
preferential treatment to particular industries or companies. Uncertainties may arise with changing 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 are located 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 transition. The PRC also faces
many social, economic and political challenges that may lead to 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 March
31, 2023.
NOTE 12 - MAJOR SUPPLIERS AND CUSTOMERS
For the nine months ended March 31, 2023, the
Company had only one supplier that in the aggregate accounted for 100%.
For the nine months ended March 31, 2022, the
Company had no suppliers due to them being temporarily out of production.
For the nine months ended March 31, 2023, the
Company had only one customer that in the aggregate accounted for 100% of the Company’s total sales.
For the nine months ended March 31, 2022, the
Company had no customers due to the enterprise Transformation and the COVID-19.
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 segments.
The following tables present summary information
by segment for the three and nine months ended March 31, 2023 and 2022, respectively:
| |
For the Three Months Ended
March 31, 2023 | | |
For the Three Months Ended
March 31, 2022 | |
| |
HLJ | | |
| | |
| | |
| | |
HLJ | | |
| | |
| | |
| |
| |
Huimeijia | | |
Humankind | | |
Others | | |
Consolidated | | |
Huimeijia | | |
Humankind | | |
Others | | |
Consolidated | |
Revenues | |
$ | - | | |
$ | 21,416 | | |
$ | - | | |
$ | 21,416 | | |
$ | 1 | | |
$ | - | | |
$ | - | | |
$ | 1 | |
Cost of revenues | |
| - | | |
| 19,083 | | |
| - | | |
| 19,083 | | |
| 7 | | |
| - | | |
| - | | |
| 7 | |
Gross profit (loss) | |
| - | | |
| 2,333 | | |
| - | | |
| 2,333 | | |
| (6 | ) | |
| - | | |
| - | | |
| (6 | ) |
Interest income(expense) | |
| 17 | | |
| 26,823 | | |
| 7 | | |
| 26,847 | | |
| 260 | | |
| 36,803 | | |
| - | | |
| 37,063 | |
Depreciation and amortization | |
| 27,788 | | |
| 151,383 | | |
| - | | |
| 179,171 | | |
| 15,496 | | |
| 164,029 | | |
| - | | |
| 179,525 | |
Income tax | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Net income (loss) | |
| (89,158 | ) | |
| (178,033 | ) | |
| (23,097 | ) | |
| (290,288 | ) | |
| (74,766 | ) | |
| (172,092 | ) | |
| (32,064 | ) | |
| (278,922 | ) |
Total capital expenditures | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Total assets | |
$ | 2,665,781 | | |
$ | 45,817,974 | | |
$ | 20,621 | | |
$ | 48,504,376 | | |
$ | 3,610,569 | | |
$ | 52,185,187 | | |
$ | (1,561,950 | ) | |
$ | 54,233,806 | |
| |
For the Nine Months Ended March 31, 2023 | | |
For the Nine Months Ended March 31, 2022 | |
| |
HLJ | | |
| | |
| | |
| | |
HLJ | | |
| | |
| | |
| |
| |
Huimeijia | | |
Humankind | | |
Others | | |
Consolidated | | |
Huimeijia | | |
Humankind | | |
Others | | |
Consolidated | |
Revenues | |
$ | - | | |
$ | 54,066 | | |
$ | - | | |
$ | 54,066 | | |
$ | 269 | | |
$ | - | | |
$ | - | | |
$ | 269 | |
Cost of revenues | |
| - | | |
| 48,728 | | |
| - | | |
| 48,728 | | |
| 1,762 | | |
| - | | |
| - | | |
| 1,762 | |
Gross profit (loss) | |
| - | | |
| 5,338 | | |
| - | | |
| 5,338 | | |
| (1,493 | ) | |
| - | | |
| - | | |
| (1,493 | ) |
Interest income | |
| 378 | | |
| 86,978 | | |
| 20 | | |
| 87,376 | | |
| 265 | | |
| 118,429 | | |
| 1 | | |
| 118,695 | |
Depreciation and amortization | |
| 138,898 | | |
| 388,515 | | |
| - | | |
| 527,413 | | |
| 46,227 | | |
| 493,260 | | |
| - | | |
| 539,487 | |
Income tax | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Net income (loss) | |
| 875,655 | | |
| (472,368 | ) | |
| (220,717 | ) | |
| 182,570 | | |
| (203,215 | ) | |
| (465,123 | ) | |
| (205,495 | ) | |
| (873,833 | ) |
Total capital expenditures | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Total assets | |
$ | 2,665,781 | | |
$ | 45,817,974 | | |
$ | 20,621 | | |
$ | 48,504,376 | | |
$ | 3,610,569 | | |
$ | 52,185,187 | | |
$ | (1,561,950 | ) | |
$ | 54,233,806 | |
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, and oral liquid forms. These products address the needs of some key
sectors in China, including the feminine, geriatric, and children’s markets.
HLJ Huimeijia was founded on October 30, 2003
and its latest GMP certificate is effective until April 24, 2023. HLJ Huimeijia engages in the manufacture and distribution of tincture,
ointments, rubber paste, including hormones, topical solution, suppositories, enemas, oral liquids, and liniment, including traditional
Chinese medicine extractions. HLJ Huimeijia’s predecessor was Heilongjiang Xue Du Pharmaceutical Co., Ltd., which established brand
recognition in the market through its supply of high-quality drug products. HLJ Huimeijia is a “high and new technology” enterprise
that provides the most comprehensive types of topical medical products in Heilongjiang Province, a northeastern province of China.
We have developed the following products that
are derived from hemp and obtained business license to manufacture and sell these products. We began to sell these products since May
2018. Hemp Oil, Hemp Protein Powder, Hemp Polypeptide and Collagen Peptide are sold through Humankind, other cosmetics are sold through
HLJ Huimeijia. The revenue of the Hemp Seed Beer accounted for 100.00% and 0.00% for the nine-month periods ended March 31, 2023 and 2022,
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 Anti-aging Brightening Eye Cream |
8 |
|
Natural Hemp Frozen Age Nourishing Cream |
9 |
|
Hemp Seed Beer |
Our business model is to 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. Because of the “Transformation of the Company”, we sold few
of our product to sales agents for the nine months ended March 31, 2023. Humankind is using existing materials to research and develop
hemp related products. Humankind decided to transform the primary business to Cannabidiol (“CBD”) extractive project, following
the government’s guidance in expanding the use of hemps into cosmetics, food, or daily uses. The Company will also receive the government’s
sponsorship in R&D expenses to support the company research in CBD aspect. However, as of the date of this quarterly report, the support guidelines
had not been published. As the Chinese government has officially stopped the zero-case policy, we expect the CBD extractive project to
start generating revenue and finally balance our investment in the hemp related products by 2024 (“Transformation”).
Results of Operations
Three months ended March 31, 2023 compared to the three months
ended March 31, 2022
The following table summarizes the top lines of
the results of our operations for the three months ended March 31, 2023 and 2022, respectively:
| |
March 31, | | |
March 31, | | |
| | |
| |
| |
2023 | | |
2022 | | |
Variance | | |
% | |
Revenues | |
$ | 21,416 | | |
$ | 1 | | |
$ | 21,415 | | |
| 100.00 | % |
Humankind | |
| 21,416 | | |
| - | | |
| 21,416 | | |
| 100.00 | % |
HLJ Huimeijia | |
| - | | |
| 1 | | |
| (1 | ) | |
| (100.00 | )% |
Cost of Goods Sold | |
$ | 19,083 | | |
$ | 7 | | |
$ | 19,076 | | |
| 100.00 | % |
Humankind | |
| 19,083 | | |
| - | | |
| 19,083 | | |
| 100.00 | % |
HLJ Huimeijia | |
| - | | |
| 7 | | |
| (7 | ) | |
| (100.00 | )% |
Gross Profit | |
$ | 2,333 | | |
$ | (6 | ) | |
$ | 2,339 | | |
| 100.00 | % |
Humankind | |
| 2,333 | | |
| - | | |
| 2,333 | | |
| 100.00 | % |
HLJ Huimeijia | |
| - | | |
| (6 | ) | |
| 6 | | |
| 100.00 | % |
Revenue
Total revenues increased by $21,415 or 100%
for the three months ended March 31, 2023, as compared to the same period in 2022. The increase in revenues was primarily due to an increase
of $21,416 in Humankind’s revenues for the three months ended March 31, 2023 as compared to the same period in 2022. The increase
in Humankind’s sales revenues was primarily derived from selling a new product, Hemp Seed Beer, in the three months ended March
31, 2023.
Our total cost of goods sold increased by $19,076
or 100% for the three months ended March 31, 2023 as compared to the same period in 2022. The increase in Humankind’s cost of
goods sold was primarily derived from cost on selling a new product, Hemp Seed Beer, in the three months ended March 31, 2023.
Our gross margin increased by $2,339 for the three
months ended March 31, 2023 as compared to the same period in 2022. This change was consistent with the change of sales and costs in Humankind.
The increase is mainly derived from selling a new product Hemp Seed Beer, in the three months ended March 31, 2023.
Sales by Product Line
The following table summarizes a breakdown of
our sales by major product lines for the three months ended March 31, 2023 and 2022 respectively:
| |
March 31, 2023 | | |
March 31, 2022 | |
| |
Quantity | | |
Sales | | |
% of | | |
Quantity | | |
Sales | | |
% of | |
| |
(Unit) | | |
US $ | | |
Sales | | |
(Unit) | | |
US $ | | |
Sales | |
Humankind | |
| | |
| | |
| | |
| | |
| | |
| |
Hemp Oil | |
| - | | |
| - | | |
| - | % | |
| - | | |
| - | | |
| - | % |
Collagen Peptide | |
| - | | |
| - | | |
| - | % | |
| - | | |
| - | | |
| - | % |
Hemp Polypeptide | |
| - | | |
| - | | |
| - | % | |
| - | | |
| - | | |
| - | % |
Hemp Protein Powder | |
| - | | |
| - | | |
| - | % | |
| - | | |
| - | | |
| - | % |
Hemp Seed Beer | |
| 3,500 | | |
| 21,416 | | |
| 100.00 | % | |
| - | | |
| - | | |
| - | % |
HLJ Huimeijia | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Muskiness Bone Strengthener Paste | |
| - | | |
| - | | |
| - | % | |
| - | | |
| - | | |
| - | % |
Dampness dispelling pain ointment | |
| - | | |
| - | | |
| - | % | |
| - | | |
| - | | |
| - | % |
Refining Cream dogskin | |
| - | | |
| - | | |
| - | % | |
| - | | |
| - | | |
| - | % |
Indometacin and Furazolidone Suppositories | |
| - | | |
| - | | |
| - | % | |
| - | | |
| - | | |
| - | % |
ShangBiTongDing | |
| - | | |
| - | | |
| - | % | |
| - | | |
| - | | |
| - | % |
Total | |
| 3,500 | | |
| 21,416 | | |
| 100.00 | % | |
| - | | |
$ | - | | |
| - | % |
Operating Expenses
The following table summarizes our operating expenses
for the three months ended March 31, 2023 and 2022, respectively:
| |
March 31, 2023 | | |
March 31, 2022 | | |
Variance | | |
% | |
Operating Expenses | |
| | |
| | |
| | |
| |
Selling, general and administrative | |
$ | 152,627 | | |
$ | 136,397 | | |
$ | 16,230 | | |
| 11.90 | % |
Depreciation and amortization | |
| 179,171 | | |
| 179,525 | | |
| (354 | ) | |
| (0.20 | )% |
Total Operating Expenses | |
$ | 331,798 | | |
$ | 315,922 | | |
$ | 15,876 | | |
| 5.03 | % |
Total operating expenses for the three months
ended March 31, 2023 were $15,876 or 5.03% higher than those in the corresponding period in 2022. The increase in operating expenses was
primarily attributable to an increase of $16,230 or 11.90% in selling, general and administrative expenses. The increase in selling, general
and administrative expenses was mainly due to the expired destruction of inventory.
Interest Income and Interest Expense
Interest income was $26,847 for the three months
ended March 31, 2023, as compared to $37,063 for the three months ended March 31, 2022. This decrease of $10,216, or 27.56%, was mainly
due to the decreased average balance of bank deposits compared with the same period of 2022. This decline in bank balances was mainly
due to the effects of currency translation difference from RMB to USD during the periods and normal daily operating expenses payment.
Interest expense was $nil for the three months
ended March 31, 2023 and $nil for the three months ended March 31, 2022.
Income Taxes
Income taxes was $nil for the three months ended
March 31, 2023 as compared to $nil for the three months ended March 31, 2022.
Net Income (loss) and Net Income (loss) Per
Share
Net loss was $290,288 for the three months
ended March 31, 2023, as compared to $278,922 for the three months ended March 31, 2022. This increase of $11,366 in net
loss was primarily due to the increase of non-production expense.
Net loss per share was $0.0044 for the three months
ended March 31, 2023 and $0.0043 for the three months ended March 31, 2022, respectively. This increase was primarily
a result of the aforementioned increase in net loss.
Nine months ended March 31, 2023 compared to the nine months
ended March 31, 2022
The following table summarizes the top lines of
the results of our operations for the nine months ended March 31, 2023 and 2022, respectively:
| |
March 31, | | |
March 31, | | |
| | |
| |
| |
2023 | | |
2022 | | |
Variance | | |
% | |
Revenues | |
$ | 54,066 | | |
$ | 269 | | |
$ | 53,797 | | |
| 100.00 | % |
Humankind | |
| 54,066 | | |
| - | | |
| 54,066 | | |
| 100.00 | % |
HLJ Huimeijia | |
| - | | |
| 269 | | |
| (269 | ) | |
| (100.00 | )% |
Cost of Goods Sold | |
$ | 48,728 | | |
$ | 1,762 | | |
$ | 46,966 | | |
| 100.00 | % |
Humankind | |
| 48,728 | | |
| - | | |
| 48,728 | | |
| 100.00 | % |
HLJ Huimeijia | |
| - | | |
| 1,762 | | |
| (1,762 | ) | |
| (100.00 | )% |
Gross Profit | |
$ | 5,338 | | |
$ | (1,493 | ) | |
$ | 6,831 | | |
| 100.00 | % |
Humankind | |
| 5,338 | | |
| - | | |
| 5,338 | | |
| 100.00 | % |
HLJ Huimeijia | |
| - | | |
| (1,493 | ) | |
| 1,493 | | |
| 100.00 | % |
Revenue
Total revenues increased by $53,797 or 100%
for the nine months ended March 31, 2023, as compared to the same period in 2022. The increase in revenues was primarily caused by an
increase of $54,066 in Humankind’s revenues for the nine months ended March 31, 2023 as compared to the same period in 2022. The
increase in Humankind’s sales revenues was primarily derived from selling a new product, Hemp Seed Beer, in the nine months ended
March 31, 2023.
Our total cost of goods sold increased by $46,966
or 100% for the nine months ended March 31, 2023 as compared to the same period in 2022. This increase was mainly derived from cost
on selling a new product, Hemp Seed Beer, in the nine months ended March 31, 2023.
Our gross margin increased by $6,831 or 100%
for the nine months ended March 31, 2023 as compared to the same period in 2022. This change was consistent with the change of sales and
costs in Humankind. The increase in gross profit was primarily derived from selling a new product, Hemp Seed Beer, in the nine months
ended March 31, 2023.
Sales by Product Line
The following table summarizes the breakdown of
our sales by major product lines for the nine months ended March 31, 2023 and 2022 respectively:
| |
March 31, 2023 | | |
March 31, 2022 | |
| |
Quantity | | |
Sales | | |
% of | | |
Quantity | | |
Sales | | |
% of | |
| |
(Unit) | | |
US$ | | |
Sales | | |
(Unit) | | |
US$ | | |
Sales | |
Humankind | |
| | |
| | |
| | |
| | |
| | |
| |
Hemp Oil | |
| - | | |
| - | | |
| - | % | |
| - | | |
| - | | |
| - | % |
Collagen Peptide | |
| - | | |
| - | | |
| - | % | |
| - | | |
| - | | |
| - | % |
Hemp Polypeptide | |
| - | | |
| - | | |
| - | % | |
| - | | |
| - | | |
| - | % |
Hemp Protein Powder | |
| - | | |
| - | | |
| - | % | |
| - | | |
| - | | |
| - | % |
Hemp Seed Beer | |
| 9,956 | | |
| 54,066 | | |
| 100.00 | % | |
| - | | |
| - | | |
| - | % |
HLJ Huimeijia | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Muskiness Bone Strengthener Paste | |
| - | | |
| - | | |
| - | % | |
| 223 | | |
| 18 | | |
| 6.69 | % |
Dampness dispelling pain ointment | |
| - | | |
| - | | |
| - | % | |
| 1,852 | | |
| 154 | | |
| 57.25 | % |
Refining Cream dogskin | |
| - | | |
| - | | |
| - | % | |
| 788 | | |
| 65 | | |
| 24.16 | % |
Indometacin and Furazolidone Suppositories | |
| - | | |
| - | | |
| - | % | |
| 383 | | |
| 32 | | |
| 11.90 | % |
ShangBiTongDing | |
| - | | |
| - | | |
| - | % | |
| - | | |
| - | | |
| - | |
Enema Glycerini and Essence repair liquid | |
| - | | |
| - | | |
| - | % | |
| - | | |
| - | | |
| - | |
Total | |
| 9,956 | | |
| 54,066 | | |
| 100.00 | % | |
| 3,246 | | |
| 269 | | |
| 100.00 | % |
Operating Expenses
The following table summarizes our operating expenses
for the nine months ended March 31, 2023 and 2022, respectively:
| |
March 31, 2023 | | |
March 31, 2022 | | |
Variance | | |
% | |
Operating Expenses | |
| | |
| | |
| | |
| |
Selling, general and administrative | |
$ | 710,946 | | |
$ | 484,056 | | |
$ | 226,890 | | |
| 46.87 | % |
Depreciation and amortization | |
| 527,413 | | |
| 539,487 | | |
| (12,074 | ) | |
| (2.24 | )% |
Total Operating Expenses | |
$ | 1,238,359 | | |
$ | 1,023,543 | | |
$ | 214,816 | | |
| 20.99 | % |
Total operating expenses for the nine months ended
March 31, 2023 were $214,816 or 20.99% higher than those in the same period in 2022. The increase in operating expenses was primarily
attributable to increase of $226,890 or 46.87% in selling, general and administrative expenses. The increase in selling, general and administrative
expenses was mainly due to the expired destruction of inventory.
Interest Income and Interest Expense
Interest income was $87,376 for the nine
months ended March 31, 2023, as compared to $118,695 for the nine months ended March 31, 2022. This decrease of $31,319, or 26.39%,
was mainly due to the decreased average balance of bank deposits compared with the same period of 2022. This decline in bank
balances was mainly due to the normal daily operating expenses payment and was enhanced by the effects of currency translation
difference from RMB to USD during the periods.
Interest expense was $nil and $nil for the nine
months ended March 31, 2023 and for the nine months ended March 31, 2022.
Income Taxes
Income taxes was $nil for the nine months ended
March 31, 2023 as compared to $nil for the nine months ended March 31, 2022.
Net Income and Net Income Per Share
Net income was $182,570 for the nine months ended
March 31, 2023, as compared to net loss of $873,833 for the nine months ended March 31, 2022. This increase of $1,056,403 in net income
was primarily attributable to the sale of Hemp Seed Beer.
Net income per share was $0.0028 for the nine
months ended March 31, 2023 and net loss per share was $0.0133 for the nine months ended March 31, 2022, respectively. This increase was
primarily a result of the aforementioned increase 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 March 31, 2023 and June 30, 2022 and for the nine months
ended March 31, 2023 and 2022:
| |
March 31, 2023 | | |
June 30, 2022 | |
Cash and cash equivalents | |
$ | 43,336,642 | | |
$ | 44,789,999 | |
Working capital | |
$ | 37,414,103 | | |
$ | 37,652,693 | |
Inventories | |
$ | 399,160 | | |
$ | 521,229 | |
| |
For the Nine Months ended March 31, | |
| |
2023 | | |
2022 | |
Cash provided by (used in): | |
| | |
| |
Operating activities | |
$ | 489,796 | | |
$ | 2,971,902 | |
Investing activities | |
$ | - | | |
$ | - | |
Financing activities | |
$ | - | | |
$ | - | |
For the nine months ended March 31, 2023, our
net decrease in cash and cash equivalents totalled $1,453,357, which total was comprised of net cash provided by operating activities in
the amount of $489,796 and the negative effect of prevailing exchange rates on our cash position of $1,943,153.
Our working capital as of March 31, 2023 was $37,414,103,
compared to working capital of $37,652,693 as of June 30, 2022. This decrease of $238,590 or 1% was primarily attributable to the decrease
of cash and cash equivalents in the amount of $1,453,357, decrease of inventory in the amount of $122,069 , which offset by the decrease
of advance from customers in the amount of $302,416 and a decrease of amount due to related parties in the amount of $989,552.
Net cash provided by operating activities
was $489,796 for the nine months ended March 31, 2023, primarily attributable to net income in the amount of $182,573 and non-cash
item $527,413 in depreciation and amortization expenses while offset by $(242,894) in advances from customers and other payables.
The negative effect of exchange rate changes on cash and cash equivalents in the amount of $1,453,357 for the nine months ended
March 31, 2023 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 6.6981 to 1 and 6.8676 to 1 as of June 30, 2022
and March 31, 2023, respectively, and the average exchange rate from USD to RMB was 6.9336 for the nine months ended March 31,
2023.
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 $
5,770,209 as of March 31, 2023, as compared to $6,759,761 as of June 30, 2022, a decrease of $989,552 or 15%. 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 the Company’s 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
nine months ended March 31, 2023 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, 2022.