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EX-32.1 - CERTIFICATION - China Health Industries Holdings, Inc.f10q0321ex32-1_chinahealth.htm
EX-31.2 - CERTIFICATION - China Health Industries Holdings, Inc.f10q0321ex31-2_chinahealth.htm
EX-31.1 - CERTIFICATION - China Health Industries Holdings, Inc.f10q0321ex31-1_chinahealth.htm

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

 

For the quarterly period ended March 31, 2021

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

 

For the transition period from ____________ to ____________

 

Commission File Number: 000-51060

 

CHINA HEALTH INDUSTRIES HOLDINGS, INC.
(Exact name of registrant as specified in its charter)

 

Delaware   86-0827216
(State or other jurisdiction of   (IRS Employer
incorporation or organization)   Identification No.)

 

3199-1 Longxiang Road, Songbei District
Harbin City, Heilongjiang Province
People’s Republic of China
  150028
(Address of principal executive offices)   (Zip Code)

 

86-451-88100688
(Registrant’s telephone number, including area code)

 

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

  

Securities registered pursuant to Section 12(b) of the Act: None.

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Not Applicable   Not Applicable   Not Applicable

 

Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒    No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒    No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☒ Smaller reporting company ☒
  Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐    No ☒

 

As of May 14, 2021, there were 65,539,737 shares of common stock, $0.0001 par value per share, issued and outstanding. 

 

 

 

 

 

 

TABLE OF CONTENTS

 

    Page
     
PART I FINANCIAL INFORMATION 1
     
Item 1. Financial Statements (Unaudited) 1
     
  Condensed Consolidated Balance Sheets As of March 31, 2021 and June 30, 2020 (Unaudited) 1
     
  Condensed Consolidated Statements of Operations and Comprehensive Income For the Three and Nine Months Ended March 31, 2021 and 2020 (Unaudited) 2
     
  Condensed Consolidated Statements of Shareholders’ Equity For the Three and Nine Months Ended March 31, 2021 and 2020 (Unaudited) 3
     
  Condensed Consolidated Statements of Cash Flows For the Nine Months Ended March 31, 2021 and 2020 (Unaudited) 5
     
  Notes to Condensed Consolidated Financial Statements As of March 31, 2021 (Unaudited) 6
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 22
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 30
     
Item 4. Controls and Procedures 30
     
PART II OTHER INFORMATION 31
     
Item 6. Exhibits 31
     
Signatures   32 
     
Exhibits/Certifications 33

 

i

 

  

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

CHINA HEALTH INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

   March 31,
2021
   June 30,
2020
 
ASSETS        
         
Current assets        
Cash and cash equivalents  $41,116,145   $36,072,474 
Accounts receivable, net   4,873,823    4,631,861 
Inventory   952,042    807,351 
Other receivables, net   38,770    32,255 
Advances to suppliers   215,135    205,650 
Prepayments   16,383    41,505 
Total current assets  $47,212,298   $41,791,096 
           
Property, plants and equipment, net   3,661,448    3,677,798 
Intangible assets, net   2,057,696    2,249,614 
Construction in progress   551,234    511,664 
Prepayments – Non-Current   -    - 
Deferred tax assets   6,260    5,806 
Total assets  $53,488,936   $48,235,978 
           
LIABILITIES AND EQUITY          
           
Current liabilities          
Accounts payable and accrued expenses  $399,007   $406,228 
Other payables   75,000    63,271 
Advances from customers   148,317    137,543 
Related party debts   7,927,301    7,259,862 
Wages payable   264,515    275,982 
Taxes payable   274,766    425,106 
Total current liabilities  $9,088,906   $8,567,992 
           
Equity          
Common stock, ($0.0001 par value per share, 300,000,000 shares authorized, 65,539,737 and 65,539,737 shares issued and outstanding as of March 31, 2021 and June 30, 2020, respectively)   6,554    6,554 
Additional paid-in capital   521,987    521,987 
Accumulated other comprehensive income   1,515,536    (1,658,741)
Statutory reserves   38,679    38,679 
Retained earnings   42,317,274    40,759,507 
Total stockholders’ equity  $44,400,030   $39,667,986 
           
Total liabilities and equity  $53,488,936   $48,235,978 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

1

 

 

CHINA HEALTH INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)

 

   For the three Months   For the Nine Months 
   Ended   Ended 
   March 31,
2021
   March 31,
2020
   March 31,
2021
   March 31,
2020
 
                 
REVENUE  $778,675   $2,423,720   $6,060,473   $7,899,632 
                     
COST OF GOODS SOLD   (292,316)   (566,692)   (2,538,429)   (1,762,098)
                     
GROSS PROFIT   486,359    1,857,028    3,522,044    6,137,534 
                     
OPERATING EXPENSES                    
Selling, general and administrative expenses   166,236    389,009    883,527    1,389,300 
Depreciation and amortization expenses   155,627    145,817    465,767    435,733 
Total operating expenses   (321,863)   (534,826)   (1,349,294)   (1,825,033)
                     
INCOME (LOSS) FROM OPERATIONS   164,496    1,322,202    2,172,750    4,312,501 
                     
OTHER INCOME/(EXPENSES)                    
Interest income   35,687    31,801    102,090    93,842 
Interest expense   -    -    -    (1)
Other income/(expenses), net   7    (1)   511    (417)
Bank charges   (155)   (186)   (646)   (548)
Total other income, net   35,539    31,614    101,955    92,876 
                     
INCOME/(LOSS) BEFORE INCOME TAXES   200,035    1,353,816    2,274,705    4,405,377 
                     
Provision for income taxes   (98,003)   (361,094)   (716,938)   (1,229,497)
                     
NET INCOME (LOSS)   102,032    992,722    1,557,767    3,175,880 
                     
Foreign currency translation gain (loss)   (202,904)   (677,194)   3,174,277    (1,170,183)
                     
COMPREHENSIVE INCOME   (100,872)   315,528    4,732,044    2,005,697 
Basic & diluted earnings per share  $0.0016   $0.0151   $0.0238   $0.0485 
Weighted average shares outstanding:                    
Basic & diluted weighted average shares outstanding   65,539,737    65,539,737    65,539,737    65,539,737 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

2

 

 

CHINA HEALTH INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE NINE MONTHS ENDED MARCH 31, 2021 AND 2020
(Unaudited)

 

    Common Shares     Additional Paid-in     Retained     Statutory     Accumulated Other Comprehensive     Total Stockholders’     Non-controlling     Total  
    Shares     Amount     Capital     Earnings     Reserve     Income (loss)     Equity     Interest     Equity  
                                                       
Balance, June 30, 2019     65,539,737     $ 6,554     $ 521,987       37,208,897       38,679       (593,654 )     37,182,463               -       37,182,463  
                                                                         
Net income     -       -       -       3,175,880       -       -       3,175,880       -       3,175,880  
Other comprehensive loss - Translation adjustment     -       -       -       -       -       (1,170,183 )     (1,170,183 )     -       (1,170,183 )
Balance, March 31, 2020     65,539,737     $ 6,554     $ 521,987     $ 40,384,777     $ 38,679     $ (1,763,837

 

)

  $ 39,188,160     $ -     $ 39,188,160  
                                                                         
Balance, June 30, 2020     65,539,737     $ 6,554     $ 521,987       40,759,507       38,679       (1,658,741 )     39,667,986       -       39,667,986  
                                                                         
Net income     -       -       -       1,557,767       -       -       1,557,767       -       1,557,767  
                                                                         
Other comprehensive loss - Translation adjustment     -       -       -       -       -       3,174,277       3,174,277       -       3,174,277  
Balance, March 31, 2021     65,539,737     $ 6,554     $ 521,987     $ 42,317,274     $ 38,679     $ 1,515,536     $ 44,400,030     $ -     $ 44,400,030  

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

3

 

  

CHINA HEALTH INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED March 31, 2021 AND 2020
(Unaudited)

 

    Common Shares     Additional Paid-in     Retained     Statutory     Accumulated Other Comprehensive     Total Stockholders’     Non-controlling     Total  
    Shares     Amount     Capital     Earnings     Reserve     Income (loss)     Equity     Interest     Equity  
                                                       
Balance, December  31,2019     65,539,737     $ 6,554     $ 521,987     $ 39,392,055     $ 38,679     $ (1,086,643 )   $ 38,872,632               -       38,872,632  
                                                                         
Net income     -       -       -       992,722       -       -       992,722       -       992,722  
Other comprehensive loss - Translation adjustment     -       -       -       -       -       (677,194 )     (677,194 )     -       (677,194 )
Balance, March 31, 2020     65,539,737     $ 6,554     $ 521,987     $ 40,384,777     $ 38,679     $ (1,763,837 )   $ 39,188,160     $ -     $ 39,188,160  
                                                                         
Balance, December  31, 2020     65,539,737     $ 6,554     $ 521,987     $ 42,215,242     $ 38,679     $ 1,718,440     $ 44,500,902     $ -     $ 44,500,902  
                                                                         
Net income     -       -       -       102,032       -       -       102,032       -       102,032  
                                                                         
Other comprehensive loss - Translation adjustment     -       -       -       -       -       (202,904 )     (202,904 )     -       (202,904 )
Balance, March 31, 2021     65,539,737     $ 6,554     $ 521,987     $ 42,317,274     $ 38,679     $ 1,515,536     $ 44,400,030     $ -     $ 44,400,030  

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

4

 

 

CHINA HEALTH INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

   For the Nine Months Ended 
   March 31,   March 31, 
   2021   2020 
Cash Flows from Operating Activities        
Net income  $1,557,767   $3,175,880 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:          
Depreciation and amortization expenses   784,945    568,074 
Provisions for doubtful accounts   (550)   (35,936)
Deferred taxes loss/(gain)        (1)
Changes in operating assets and liabilities,          
Accounts receivable   119,103    (1,656,659)
Other receivables   (3,914)   (3,642)
Inventory   (79,904)   (9,356)
Advances to suppliers and prepaid expenses   34,331    (173,894)
Accounts payables and accrued expenses   (38,137)   (88,458)
Advances from customers and other payables   6,780    (16,074)
Amounts due to related parties   918,910    478,665 
Wages payable   (32,455)   19,014 
Taxes payable   (177,088)   (3,845)
Net cash provided by operating activities   3,089,788    2,253,768 
           
Cash Flows from Investing Activities          
Purchases of property, plants and equipment   (8,509)   (24,773)
Expenditures in construction in progress   (5,031)   (133,436)
Disposal of property, plant and equipment   -    5,846 
Net cash (used in)/provided by investing activities   (13,540)   (152,363)
           
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   1,967,423    (1,015,331)
           
Net increase/(decrease) in cash and cash equivalents   5,043,671    1,086,074 
           
Cash and cash equivalents, beginning balance   36,072,474    35,507,535 
           
Cash and cash equivalents, closing balance   41,116,145    36,593,609 
           
Supplemental cash flow information          
Cash paid for income taxes  $876,004   $1,226,331 
Cash paid for interest expenses  $-   $- 
           
Non-cash activities:          
Loan from related party for the construction of a facility  $613,583   $729,669 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

5

 

 

CHINA HEALTH INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1 - ORGANIZATION AND BUSINESS BACKGROUND

 

China Health Industries Holdings, Inc. (“China Health US”) was incorporated in the State of Arizona on July 11, 1996 and was the successor of the business known as Arizona Mist, Inc. which began in 1989. On May 9, 2005, it entered into a stock purchase agreement and share exchange (effecting a reverse merger) with Edmonds 6, Inc. (“Edmonds 6”), a Delaware corporation, and changed its name to Universal Fog, Inc. Pursuant to this agreement, Universal Fog, Inc. (which has been in continuous operation since 1996) became a wholly-owned subsidiary of Edmonds 6.

 

China Health Industries Holdings Limited (“China Health HK”) was incorporated on July 20, 2007 in Hong Kong under the Companies Ordinance as a limited liability company. China Health HK was formed for the purpose of seeking and consummating a merger or acquisition with a business entity organized as a private corporation, partnership, or sole proprietorship as defined by FASB ACS Topic 915 (“Development Stage Entities”).

 

Harbin Humankind Biology Technology Co., Limited (“Humankind”) was incorporated in Harbin City, Heilongjiang Province, the People’s Republic of China (the “PRC”) on December 14, 2003, as a limited liability company under the Company Law of the PRC. Humankind is engaged in the manufacturing and sale of health products.

 

On August 20, 2007, the sole shareholder of China Health HK entered into a share purchase agreement (the “Share Purchase Agreement”) with the owners of Humankind. Pursuant to the Share Purchase Agreement, China Health HK purchased 100% of the ownership in Humankind for a cash consideration of $60,408 (the “Share Purchase”). Subsequent to the completion of the Share Purchase, Humankind became a wholly-owned subsidiary of China Health HK. The Share Purchase was accounted for as a “reverse merger” since the owner of Humankind owned a majority of the outstanding shares of China Health HK’s common stock immediately following the execution of the Share Purchase Agreement, it was deemed to be the accounting acquirer in the reverse merger. Consequently, the assets and liabilities and the historical operations that have been reflected in the financial statements for periods prior to the Share Purchase are those of Humankind and have been recorded at the historical cost basis. After completion of the Share Purchase, China Health HK’s consolidated financial statements include the assets and liabilities of both China Health HK and Humankind, the historical operations of Humankind, and the operations of China Health HK and its subsidiaries from the closing date of the Share Purchase.

 

On October 14, 2008, Humankind set up a 99% owned subsidiary, Harbin Huimeijia Medicine Company (“Huimeijia”), with its primary business being manufacturing and distributing medicine. Mr. Xin Sun, the Company’s majority owner, owns 1% of Huimeijia. Huimeijia is consolidated in the consolidated financial statements of China Health HK.

 

On December 31, 2008, China Health HK entered into a reverse merger with Universal Fog, Inc., a U.S. publicly traded shell company (the “Transaction”). China Health HK is the acquirer in the Transaction, and the Transaction has been treated as a recapitalization of China Health US. After the Transaction and a 20:1 reverse stock split, Mr. Xin Sun owned 61,203,088 shares of common stock, representing 98.3% of the 62,234,737 total outstanding shares of common stock of China Health US. On April 7, 2009, Mr. Sun transferred 28,200,000 shares of common stock to 296 individuals, leaving him with 33,003,088 shares of common stock of China Health US, or approximately 53.03% of the total outstanding shares of common stock. Universal Fog, Inc. changed its name to China Health Industries Holdings, Inc. on February 19, 2009.

 

On November 22, 2013, Humankind completed the acquisition of Heilongjiang Huimeijia Pharmaceutical Co., Ltd. (“HLJ Huimeijia”) for a total purchase price of $16,339,869 (RMB100,000,000). HLJ Huimeijia was founded on October 30, 2003, and is engaged in the manufacturing and distribution of tincture, ointments, rubber paste (including hormones), topical solution, suppositories, liniment (including traditional Chinese medicine extractions), enemas and oral liquids. HLJ Huimeijia’s predecessor is Heilongjiang Xue Du Pharmaceutical Co., Ltd., which has established its brand name in the market through its supply of high quality medical products. HLJ Huimeijia is categorized as a “high and new technology” enterprise by the Science Technology Department in Heilongjiang Province. HLJ Huimeijia has 21 products which have been approved by, and have received approval numbers issued by, National Medical Products Administration, or NPMA (formerly known as the China 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.

  

6

 

 

On February 9, 2015, the four parties to the Original Agreement entered into a supplementary agreement (the “Supplementary Agreement”) to modify the terms of the Original Agreement, pursuant to which the Equity Holders and Huimeijia (collectively the “Asset Transferors”) would sell only the 19 drug approval numbers (including the tablet, capsule, powder, mixture, oral liquid, syrup and oral solution under the 19 approval numbers; licenses including the original copies of Business License, Organization Code Certificate, Tax Registration Certificate, Drug Production Permit and GMP Certificate, and other documents and original copies related to the production and operation of the 19 drugs) (the “Assets”) to Xiuzheng Pharmacy. The Equity Holders would have retained their equity interests in Huimeijia, but would have pledged such equity interests to Xiuzheng Pharmacy until the Assets were transferred, at which time the cash consideration would have been paid by the Buyer. Total cash consideration would have been the same as under the Original Agreement, i.e., RMB 8,000,000 (approximately $1,306,186) to the Asset Transferors. In the event that the Assets had failed to be transferred to the Buyer due to the fault of the Asset Transferors, the paid consideration would have been returned to the Buyer with interest accrued. If the failure of the transfer of the Assets were a result of changes in government policy or force majeure, the paid cash consideration would have been returned to the Buyer but without any interest.

 

On October 12, 2016, the same four parties agreed to rescind the Supplementary Agreement and entered into a new supplementary agreement (the “New Supplementary Agreement”), pursuant to which the four parties agreed to execute the transfer of the equity interests based on the Original Agreement and the Equity Holders agreed to sell their respective equity interests in Huimeijia to Xiuzheng Pharmacy. The transfer of 100% of the equity interests of Huimeijia to the Buyer was for total cash consideration of RMB 8,000,000 (approximately $1,306,186) (the “Purchase Price”) to the Equity Holders. 40% of the Purchase Price was due within 10 business days after the signing of the New Supplementary Agreement; 40% of the Purchase Price was due within 10 business days after the completion of the changes in business registration described in the Original Agreement and Xiuzheng Pharmacy obtaining documents evidencing its ownership on Huimeijia; 15% of the Purchase Price is due within 10 business days after the transfer of all of the Assets is approved by Heilongjiang FDA; and 5% of the Purchase Price is due within 10 business days after all of the Assets have been transferred to Xiuzheng Pharmacy or its designee and Humankind and Mr. Xin Sun have instructed Xiuzheng Pharmacy complete three-batches production of all forms of the drugs included in the Assets. As of the date of this report, 80% of the Purchase Price has been paid, the Company has completed changes in its business registration, and Xiuzheng Pharmacy has obtained a business license issued by the local State Administration of Industry and Commerce in Harbin (“Harbin SAIC”) to Huimeijia, in which the ownership of Huimeijia has been recorded as held by Xiuzheng Pharmacy, with Harbin SAIC and the legal representative (a person that is authorized to take most of the corporate actions on behalf of a company under the corporate laws in China) of Huimeijia has been appointed by the Buyer.

China Health US, China Health HK, Humankind and HLJ Huimeijia are collectively referred herein to as the “Company.”

 

As of March 31, 2021, the Company’s corporate structure was as follows:

 

 

7

 

 

Note 2 - SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

This summary of the Company’s significant accounting policies is presented to assist in understanding the Company’s financial statements. The financial statements and notes are representations of the Company’s management (“Management”), which is responsible for the integrity and objectivity of the financial statements and notes. These accounting policies conform to generally accepted accounting principles in the United States (“US GAAP”) and have been consistently applied in the preparation of the unaudited condensed consolidated financial statements.

 

The accompanying unaudited condensed consolidated financial statements have been prepared by the Company without audit pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Certain information and disclosures normally included in financial statements prepared in accordance with US GAAP have been condensed or omitted as allowed by such rules and regulations, and Management believes that the disclosures are sufficient so that the information presented is not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2020. These unaudited condensed consolidated financial statements include all adjustments which, in the opinion of Management, are necessary for a fair presentation of the financial position and the results of operations of the Company. All such adjustments are of a normal and recurring nature. The results of operations of the Company for the nine months ended March 31, 2021 may not be indicative of results that may be expected for the year ended June 30, 2021.

 

8

 

 

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.

 

9

 

 

The carrying value of financial assets and liabilities recorded at fair value is measured on a recurring or a nonrecurring basis. Financial assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when a significant event occurs. The Company had no financial assets or liabilities carried and measured on a nonrecurring basis during the reporting periods. Financial assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial statement is prepared. The Company had no financial assets or liabilities carried and measured on a recurring basis during the reporting periods.

 

The availability of inputs observable in the market varies from instrument to instrument and depends on a variety of factors, including the type of instrument, whether the instrument is actively traded, and other characteristics particular to the transaction. For many financial instruments, pricing inputs are readily observable in the market, the valuation methodology used is widely accepted by market participants, and the valuation does not require significant discretion of Management. For other financial instruments, pricing inputs are less observable in the market and may require judgment of Management.

 

Translation of Foreign Currencies

 

Humankind, Huimeijia and HLJ Huimeijia maintain their books and accounting records in PRC currency “Renminbi” (“RMB”), which has been determined as the functional currency. The functional currency of China Health HK is the Hong Kong Dollar.

 

Transactions denominated in currencies other than the functional currencies are recorded at the exchange rates prevailing on the date of the transactions, as quoted by the Federal Reserve Board. Foreign currency exchange gains and losses resulting from these transactions are included in operations.

 

Humankind, Huimeijia, HLJ Huimeijia and China Health Hong Kong’s financial statements are translated into the reporting currency, the United States Dollar (“USD”). Assets and liabilities of the above entities are translated at the prevailing exchange rate at each reporting period end date. Contributed capital accounts are translated using the historical rate of exchange when capital is injected. Income and expense accounts are translated at the average rate of exchange during the reporting period. Translation adjustments resulting from the translation of these financial statements are reflected as accumulated other comprehensive income in shareholders’ equity and non-controlling interests.

 

Statement of Cash Flows

 

In accordance with Statement FASB ASC Topic 230, “Statement of Cash Flows”, cash flow from the Company’s operations is calculated based upon the local currencies and translated to the reporting currency using an average foreign exchange rate for the reporting period. As a result, amounts related to assets and liabilities reported in the statement of cash flows will not necessarily be the same as the corresponding balances on the balance sheets.

 

Use of Estimates and Assumptions

 

The preparation of financial statements in conformity with US GAAP requires Management to make estimates and judgments that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities on the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Management bases its estimates and judgments on historical experience and on various other assumptions and information that are believed to be reasonable under the circumstances. Estimates and assumptions of future events and their effects cannot be perceived with certainty and, accordingly, these estimates may change as new events occur, as more experience is acquired, as additional information is obtained, and as the Company’s operating environment changes. Significant estimates and assumptions by Management include, among others, useful life of long-lived assets and intangible assets, valuation of inventory, accounts receivable and notes receivable, impairment analysis of long-lived assets, construction in progress, intangible assets, and deferred taxes. While Management believes that the estimates and assumptions used in the preparation of the financial statements are appropriate, actual results could differ from those estimates. Estimates and assumptions are periodically reviewed and the effects of revisions are reflected in the financial statements in the period they are determined to be necessary.

 

10

 

 

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, 2021 and June 30, 2020, the Company’s uninsured bank balances were mainly maintained at financial institutions located in the PRC and Hong Kong. The uninsured bank balances were $41,116,145 and $36,072,474 as of March 31, 2021 and June 30, 2020, respectively. The Company had no insured bank balances as of March 31, 2021 and June 30, 2020.

 

Accounts Receivable

 

Accounts receivable is recorded at the invoiced amount and do not bear interest. The Company extends unsecured credit to its customers in the ordinary course of business, but mitigates the associated risks by performing credit checks and actively pursuing past due accounts. An allowance for doubtful accounts is established and determined based on Management’s assessment of known requirements, aging of receivables, payment and bad debt history, the customer’s current credit worthiness, changes in customer payment patterns and the economic environment. From November 1, 2013, the Company changed its credit policy by offering ninety (90) day payment terms for sales agents. As of March 31, 2021 and June 30, 2020, the balances of accounts receivable were $4,873,823 and $4,631,861, respectively. The Company determines the allowance based on aging data, historical collection experience, customer specific facts, and economic conditions. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company evaluated the nature of all accounts receivable then provided allowance for doubtful accounts. The Company has determined that an allowance of $72,769 and $68,003 was appropriate as of March 31, 2021 and June 30, 2020, respectively.

 

Advances to Suppliers

 

The Company periodically makes advances to certain vendors for purchases of raw materials or to service providers for services relating to construction plans for its plants, equipment and production lines for GMP upgrading, and records these payments as advances to suppliers. As of March 31, 2021 and June 30, 2020, advances to suppliers amounted to $215,135 and $205,650, respectively.

 

Inventory

 

Inventory consists of raw materials, work in progress, and finished goods or manufactured products.

 

Inventory is stated at the lower of either cost or market value and consists of materials, labor and overhead. HLJ Huimeijia uses the weighted average method for inventory valuation. The other subsidiaries of the Company use the first-in, first-out (“FIFO”) method for inventory valuation. Overhead costs included in finished goods include direct labor costs and other costs directly applicable to the manufacturing process. The Company evaluates inventory for excess, slow moving, and obsolete inventory, as well as inventory the value of which is in excess of its net realizable value. This evaluation includes analysis of sales levels by product and projections of future demand. If future demand or market conditions are less favorable than the Company’s projections, a write-down of inventory may be required, and would be reflected in cost of goods sold in the period the revision is made. The inventory allowance in the amounts of $nil and $nil were provided for as of March 31, 2021 and June 30, 2020, respectively.

 

Impairment of Long-Lived Assets

 

The Company’s long-lived assets and other assets are reviewed for impairment in accordance with the guidance of the FASB ASC Topic 360-10, “Property, Plant, and Equipment”, and FASB ASC Topic 205, “Presentation of Financial Statements”. The Company tests for impairment losses on long-lived assets used in operations whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Recoverability of an asset to be held and used is measured by a comparison of the carrying amount of the asset to the future undiscounted cash flows expected to be generated by the asset. If such asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. Impairment evaluations involve Management’s estimates on asset useful life and future cash flows. Actual useful life and cash flows could be different from those estimated by Management, which could have a material effect on the Company’s reporting results and financial position. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values, and third-party independent appraisals, as considered necessary. As of March 31, 2021 and June 30, 2020, the Company had not experienced impairment losses on its long-lived assets. However, there can be no assurances that demand for the Company’s products or services will continue, which could result in an impairment of long-lived assets in the future.

 

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Property, Plants and Equipment

 

Property, plants and equipment are carried at the lower of either cost or fair value. Maintenance, repairs and minor renewals are expensed as incurred, and major renewals and improvements that extend the life or increases the capacity of plant assets are capitalized.

 

When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gains or losses are included in the results of operations in the reporting period of disposition.

 

Depreciation is calculated on a straight-line basis over the estimated useful life of the assets. The depreciable life applied are:

 

Buildings, Warehouses and Improvements  20 to 30 years
Office Equipment  3 to 7 years
Vehicles  5 to15 years
Machinery and Equipment  7 to 15 years

 

Intangible Assets

 

The Company evaluates intangible assets in accordance with FASB ASC Topic 350, “Intangibles — Goodwill and Other”. Intangible assets deemed to have indefinite life are not amortized, but are subject to annual impairment tests. If the assumptions and estimates used to allocate the purchase price are not correct, or if business conditions change, purchase price adjustments or future asset impairment charges could be required. The value of the Company’s intangible assets could be impacted by future adverse changes such as: (i) any future declines in the Company’s operating results, (ii) a decline in the valuation of technology, including the valuation of the Company’s common stock, (iii) a significant slowdown in the worldwide economy, or (iv) any failure to meet the performance projections included in the Company’s forecasts of future operating results. In accordance with FASB ASC Topic 350, the Company tests intangible assets for impairment on an annual basis or more frequently if the Company believes indicators of impairment exist. Impairment evaluations involve Management’s estimates of asset useful life and future cash flows. Significant judgment of Management is required in the forecasts of future operating results that are used in the evaluations. It is possible, however, that the plans and estimates used may be incorrect. If the Company’s actual results, or the plans and estimates used in future impairment analysis, are lower than the original estimates used to assess the recoverability of these assets, the Company could incur additional impairment charges in a future period. Based on such evaluations, there was no impairment recorded for intangible assets, for the nine months ended March 31, 2021 and 2020.

 

Construction in Progress

 

Construction in progress represents the costs incurred in connection with the construction of buildings or new additions to the Company’s plant facilities. Costs classified as construction in progress include all costs of obtaining the asset and bringing it to the location and condition necessary for its intended use. No depreciation is provided for construction in progress until such time as the assets are completed and are placed into service.

 

The Company reviews the carrying value of construction in progress for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value of the assets, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of the assets. The factors considered by Management in performing this assessment include current operating results, trends and prospects, the manner in which the property is used, and the effects of obsolescence, demand, competition, and other economic factors. Based on this assessment, there was no impairments recorded for construction in progress, for the nine months ended March 31, 2021 and 2020.

 

12

 

 

Revenue Recognition

 

The Company recognizes revenue at the amount to which it expects to be entitled when control of the products or services is transferred to its customers based on any contract. Control is generally transferred when the Company has a present right to payment and title and the significant risks and rewards of ownership of products or services are transferred to its customers while performance obligation are completed. For most of the Company’s products net sales, control transfers when products are shipped and transaction price are determined. The majority of the Company’s revenue relates to the sale of inventory to customers, and revenue is recognized when control of the products or services is transferred to its customers that reflects the performance obligations are properly allocated and satisfied with transaction price. Given the nature of the Company’s business and the applicable rules guiding revenue recognition, the Company’s revenue recognition practices do not contain estimates that materially affect the results of operations. The Company records revenue at the discounted selling price and allows its customers to return products for exchange or credit subject to certain limitations. A provision for such returns is recorded based upon historical experience. There has been no provision recorded for returns based upon historical experience for the nine months ended March 31, 2021 and 2020, respectively.

 

Cost of Goods Sold

 

Cost of goods sold consists primarily of the costs of raw materials, freight charges, direct labor, depreciation of plants and machinery, warehousing and overhead costs associated with the manufacturing process, and commission expenses.

 

Income Taxes

 

The Company adopts FASB ASC Topic 740, “Income Taxes,” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. A valuation allowance is established for deferred tax assets if it is more likely than not that these items will either expire before the Company is able to realize the benefits or that future deductibility is uncertain.

 

Under ASC 740, a tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The evaluation of a tax position is a two-step process. The first step is to determine whether it is more-likely-than-not that a tax position will be sustained upon examination, including the resolution of any related appeals or litigations based on the technical merits of that position. The second step is to measure a tax position that meets the more-likely-than-not threshold to determine the amount of benefit to be recognized in the financial statements. A tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent period in which the threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not criteria should be de-recognized in the first subsequent financial reporting period in which the threshold is no longer met. Penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the year incurred. GAAP also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosures and transition.

 

As a result of the implementation of FIN 48 (ASC 740-10), the Company undertook a comprehensive review of its portfolio of tax positions in accordance with recognition standards established by FIN 48 (ASC 740-10). The Company recognized no material adjustments to liabilities or stockholders’ equity as a result of the implementation. The adoption of FIN 48 did not have a material impact on the Company’s financial statements.

 

The application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. Tax laws and regulations themselves are subject to change as a result of changes in fiscal policy, changes in legislation, the evolution of regulations and court rulings. Therefore, the actual liability may be materially different from the Company’s estimates, which could result in the need to record additional tax liabilities or potentially reverse previously recorded tax liabilities or deferred tax asset valuation allowance.

 

13

 

 

Enterprise Income Tax

 

Under the Provisional Regulations of the PRC Concerning Income Tax on Enterprises promulgated by the PRC (the “EIT Law”), income tax is payable by enterprises at a rate of 25% of their taxable income.

 

Value Added Tax

 

The Provisional Regulations of the PRC Concerning Value Added Tax promulgated by the State Council came into effect on January 1, 1994. Under the regulations and the Implementing Rules of the Provisional Regulations of the PRC Concerning Value Added Tax, value added tax (“VAT”) is imposed on goods sold in, or imported into, the PRC and on processing, repair and replacement services provided within the PRC.

 

VAT payable in the PRC is charged on an aggregated basis at a rate of 13% or 16% (depending on the type of goods involved) on the full price collected for the goods sold or, in the case of taxable services provided, at a rate of 16% on the charges for the taxable services provided, but excluding, in respect of both goods and services, any amount paid in respect of VAT included in the price or charges, and less any deductible VAT already paid by the taxpayer on purchases of goods and services in the same financial year. As of March 31, 2021 and June 30, 2020, VAT payables were $53,049 and $92,652, respectively.

 

Sales-Related Taxes

 

Pursuant to the tax law and regulations of the PRC, the Company is obligated to pay 7% and 5% of the annual aggregate VAT paid by the Company as taxes for the purposes of maintaining and building cities and educational facilities, which fees are included as sales-related taxes. Sales-related taxes are recorded when sales revenue is recognized. Sales-related taxes were $64,867 and $105,600 for the nine months ended March 31, 2021 and 2020, respectively.

 

Concentrations of Business and Credit Risks

 

All of the Company’s manufacturing is located in the PRC. There can be no assurance that the Company will be able to successfully continue to manufacture its products and failure to do so would have a material adverse effect on the Company’s financial position, results of operations and cash flows. Moreover, the success of the Company’s operations is subject to numerous contingencies, some of which are beyond management’s control. These contingencies include general economic conditions, prices of raw materials, competition, governmental and political conditions, and changes in regulations. Since the Company is dependent on trade in the PRC, the Company is subject to various additional political, economic and other uncertainties. Among other risks, the Company’s operations will be subject to the risks of restrictions on transfer of funds, domestic customs, changing taxation policies, foreign exchange restrictions, and political and governmental regulations. The Company operates in China, which may give rise to significant foreign currency risks from fluctuations and the degree of volatility of foreign exchange rates between U.S. dollars and the Chinese currency RMB. The results of operations denominated in foreign currency are translated at the average rate of exchange during the reporting periods.

 

14

 

 

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, 2021 and 2020, the Company had no potential dilutive common stock equivalents outstanding.

 

Potential common shares issued are calculated using the treasury stock method, which recognizes the use of proceeds that could be obtained upon the exercise of options and warrants in computing diluted earnings per share. It assumes that any proceeds would be used to purchase common stock at the average market price of the common stock during the period.

 

FASB ASC Topic 260, “Earnings Per Share”, requires a reconciliation of the numerator and denominator of the basic and diluted earnings per share (EPS) computations.

 

Recent Accounting Pronouncements

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments (ASU 2016-13). The main objective of the standard is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. In issuing this standard, the FASB is responding to criticism that today’s guidance delays recognition of credit losses. The standard will replace today’s “incurred loss” approach with an “expected loss” model. The new model, referred to as the current expected credit loss (“CECL”) model, will apply to: (1) financial assets subject to credit losses and measured at amortized cost, and (2) certain off-balance sheet credit exposures. The standard is applicable to loans, accounts receivable, trade receivables, and other financial assets measured at amortized cost, loan commitments and certain other off-balance sheet credit exposures, debt securities (including those held-to-maturity) and other financial assets measured at fair value through other comprehensive income, and beneficial interests in securitized financial assets. The CECL model does not apply to available-for-sale debt securities. For available-for-sale debt securities with unrealized losses, entities will measure credit losses in a manner similar to what they do today, except that the credit losses will be recognized as allowances rather than reductions in the amortized cost of the securities. Accordingly, the new methodology will be utilized when assessing the Company’s financial instruments for impairment. As a result, entities will recognize improvements to estimated credit losses immediately in earnings rather than as interest income over time, as they do today. The ASU also simplifies the accounting model for purchased credit-impaired debt securities and loans. ASU 2016-13 also expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for loan and lease losses. ASU 2016-13 is effective for years beginning after December 15, 2019, including interim periods within those fiscal years under a modified retrospective approach. Early adoption is permitted for the periods beginning after December 15, 2018. The Company adopted the guidance from July 1, 2020. The Company finalized its analysis and the adoption of this guidance has no material impact on the Company’s consolidated financial statements and its internal controls over financial reporting.

 

15

 

 

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) – Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (ASU 2018-13), which modifies the disclosure requirements on fair value measurements, including removing the requirement to disclose (1) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, (2) the policy for timing of transfers between levels and (3) the valuation processes for Level 3 fair value measurements. ASU 2018-13 also added new disclosures including the requirement to disclose (a) the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and (b) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. ASU 2018-13 is effective for fiscal years (and interim reporting periods within those years) beginning after December 15, 2019 and early adoption is permitted. This standard will only impact the disclosures pertaining to fair value measurements. The Company adopted the guidance from July 1, 2020. The Company finalized its analysis and the adoption of this guidance has no material impact on the Company’s consolidated financial statements and its internal controls over financial reporting.

 

In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes” (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 will simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. For public business entities, the amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. The Company does not expect that the requirements of ASU 2019-12 will have a material impact on its consolidated financial statements.

  

NOTE 3 - ACCOUNTS RECEIVABLE

 

The Company’s accounts receivable was $4,873,823 and $4,631,861, net of allowances for doubtful accounts amounting to $72,769 and $68,003, as of March 31, 2021 and June 30, 2020, respectively.

 

NOTE 4 - INVENTORY

 

Inventory consisted of following:

 

   March 31,   June 30, 
   2021   2020 
Raw Materials  $266,393   $278,189 
Supplies and Packing Materials   100,916    104,992 
Work-in-Progress   226,850    78,132 
Finished Goods   357,883    346,038 
Total  $952,042   $807,351 

 

The inventory allowance in the amounts of $nil and $nil was provided for as of March 31, 2021 and June 30, 2020, respectively.

  

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NOTE 5 - CONSTRUCTION IN PROGRESS

 

Construction in progress from the continuing operations of the Company consisted of the following:

 

   March 31,   June 30, 
   2021   2020 
Plant - HLJ Huimeijia  $551,234   $511,664 
Factory Maintenance - Humankind   -    - 
Total  $551,234   $511,664 

 

On April 6, 2012, HLJ Huimeijia entered into an agreement with a contractor for construction of the HLJ Huimeijia plant. The estimated total cost of construction was approximately $1.86 million (RMB 12,800,000). As of March 31, 2021, 78% of construction has been completed, $1,449,229 (RMB 9,702,644) has been recorded as costs of construction in progress and construction in progress at an amount of $892,712 (RMB 6,356,767) has been completed and converted into property, plant and equipment.

 

NOTE 6 - PROPERTY, PLANTS AND EQUIPMENT

 

Property, plants and equipment consisted of the following:

 

   March 31,   June 30, 
   2021   2020 
Building, Warehouses and Improvements  $4,034,616   $3,741,542 
Machinery and Equipment   1,873,364    1,729,239 
Office Equipment   80,110    74,291 
Vehicles   222,672    206,497 
Others   984,163    912,674 
Less: Accumulated Depreciation   (3,533,477)   (2,986,445)
Total  $3,661,448   $3,677,798 

 

Depreciation expenses was $423,813 and $254,553 for the nine months ended March 31, 2021 and 2020, respectively. Depreciation expenses charged to operations was $104,635 and $94,770 for the nine months ended March 31, 2021 and 2020, respectively. Depreciation expenses charged to cost of goods sold was $319,178 and $159,783 for the nine months ended March 31, 2021 and 2020, respectively.

 

NOTE 7 - INTANGIBLE ASSETS

 

The following is a summary of intangible assets from the continuing operations of the Company:

 

  

March 31,

2021

  

June 30,

2020

 
Land Use Rights – Humankind  $967,365   $897,096 
Health Supplement Product Patents – Humankind   4,578,896    4,246,285 
Pharmaceutical Patents - HLJ Huimeijia   399,000    370,017 
Land Use Rights - HLJ Huimeijia   661,663    613,600 
Less: Accumulated Amortization   (4,549,228)   (3,877,384)
Total  $2,057,696   $2,249,614 

 

All land in the PRC belongs to the government of the PRC. Enterprises and individuals can pay the PRC government a fee to obtain the right to use a piece of land for commercial purposes or residential purposes for an initial period of 50 years or 70 years. These land use rights can be sold, purchased, and exchanged in the market. The successive owner of the land use right will have the right to use the land for the time remaining on the initial period. The patents have amortized life of 10 years.

 

Amortization expenses were $361,132 and $340,963 for the nine months ended March 31, 2021 and 2020, respectively.

 

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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,

2021

  

June 30,

2020

 
Mr. Xin Sun  $7,891,610   $7,226,764 
Mr. Kai Sun   35,691    33,098 
Total  $7,927,301   $7,259,862 

 

These loans are unsecured, non-interest bearing, and have no fixed terms of repayment; therefore, they are deemed payable on demand. Mr. Kai Sun is a PRC citizen and a family member of Mr. Xin Sun, the CEO of the Company.

 

NOTE 9 - INCOME TAXES

 

(a) Corporate income taxes

 

United States

 

China Health US was organized in the United States. China Health US had no taxable income for US income tax purposes for the nine months ended March 31, 2021 and 2020. As of March 31, 2021, China Health US had a net operating loss carry forward for United States income tax purposes. Net operating loss carry forwards are available to reduce future years’ taxable income. Management believes that the realization of the benefits from these losses appears uncertain due to the Company’s operating history and the continued losses of its US entity. Accordingly, the Company has provided a 100% valuation allowance on the deferred tax asset to reduce the asset to zero. There were no changes in the valuation allowance for the nine months ended March 31, 2021 and 2020. Management reviews this valuation allowance periodically and makes adjustments accordingly.

 

Hong Kong

 

China Health HK was incorporated in Hong Kong and is subject to Hong Kong taxation on its activities conducted in Hong Kong and income arising in or derived from Hong Kong. No provision for income taxes have been made because China Health HK has no taxable income in Hong Kong.

  

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People’s Republic of China

 

Under the EIT Law, the standard EIT rate is 25%. The PRC subsidiaries of the Company are subject to PRC income taxes on an entity basis on income arising in or derived from the tax jurisdiction in which they operate.

 

The provision for income taxes of the Company consisted of the following for the three and nine months ended March 31, 2021 and 2020:

 

   For the Three Months Ended   For the Nine Months Ended 
   March 31,   March 31, 
   2021   2020   2021   2020 
Current provision:                
USA  $-   $-   $-   $- 
PRC   98,003    361,094    716,938    1,229,497 
Total current provision   98,003    361,094    716,938    1,229,497 
Deferred provision:   -    -    -    - 
USA   -    -    -    - 
PRC   -    -    -    - 
Total deferred provision   -    -    -    - 
Total provision for income taxes  $98,003   $361,094   $716,938   $1,229,497 

 

Significant components of deferred tax assets of the Company were as follows:

 

   March 31,   June 30, 
   2021   2020 
Deferred tax assets        
Net operating loss carry forward  $1,173,720   $1,075,533 
Allowances for doubtful accounts   18,192    17,001 
Valuation allowance   (1,185,652)   (1,086,728)
Total  $6,260   $5,806 

 

(b) Uncertain tax positions

 

There were no unrecognized tax benefits as of March 31, 2021 and June 30, 2020. Management does not anticipate any potential future adjustments in the next twelve months which would result in a material change to its tax positions. For the nine months ended March 31, 2021 and 2020, the Company did not incur any interest or penalties arising from its tax payments.

 

NOTE 10 - EARNINGS PER SHARE

 

Basic earnings per common share is computed by dividing net earnings applicable to common shareholders by the weighted-average number of common shares outstanding during the period. When applicable, diluted earnings per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents, consisting of shares that might be issued upon exercise of common stock options and warrants.

 

Potential common shares issued are calculated using the treasury stock method, which recognizes the use of proceeds that could be obtained upon the exercise of options and warrants in computing dilutive earnings per share. It assumes that any proceeds would be used to purchase common stock at the average of the market price of the common stock during the period.

 

FASB ASC Topic 260, Earnings Per Share, requires a reconciliation of the numerator and denominator of the basic and diluted earnings per share (EPS) computations.

  

19

 

 

For the nine months ended March 31, 2021 and 2020, the Company did not have potential dilutive shares. The following table sets forth the computation of basic and diluted net income per share:

 

   For the Three Months Ended   For the Nine Months Ended 
   March 31,   March 31, 
   2021   2020   2021   2020 
                 
Net income/(loss) attributable to China Health Industries Holdings  $102,032   $992,722   $1,557,767   $3,175,880 
                     
Net income/(loss) per share:                    
Basic & diluted  $0.0016   $0.0151   $0.0238    0.0485 
Weighted average shares outstanding:                    
Basic & diluted   65,539,737    65,539,737    65,539,737    65,539,737 

 

NOTE 11 - COMMITMENTS AND CONTINGENCIES

 

The Company’s assets are located in the PRC and revenues are derived from operations in the PRC.

 

In terms of industry regulations and policies, the economy of the PRC has been transitioning from a planned economy to market oriented economy. Although in recent years the Chinese government has implemented measures emphasizing the utilization of market forces for economic reforms, the reduction of state ownership of productive assets and the establishment of sound corporate governance in business enterprises, a substantial portion of productive assets in the PRC is still owned by the Chinese government. For example, all land is state owned and leased to business entities or individuals through the government’s granting of Land Use Rights. The granting process is typically based on government policies at the time of granting and can be lengthy and complex. This process may adversely affect the Company’s future manufacturing expansions. The Chinese government also exercises significant control over the PRC’s economic growth through the allocation of resources and providing preferential treatment to particular industries or companies. Uncertainties may arise with changing of governmental policies and measures.

 

The Company faces a number of risks and challenges not typically associated with companies in North America and Western Europe, since its assets exist solely in the PRC, and its revenues are derived from its operations therein. The PRC is a developing country with an early stage market economic system, overshadowed by the state. Its political and economic systems are very different from the more developed countries and are in a state of change. The PRC also faces many social, economic and political challenges that may produce major shocks, instabilities and even crises, in both its domestic arena and in its relationships with other countries, including the United States. Such shocks, instabilities and crises may in turn significantly and negatively affect the Company’s performance.

 

The Company had no rental commitment as of March 31, 2021.

 

NOTE 12 - MAJOR SUPPLIERS AND CUSTOMERS

 

For the nine months ended March 31, 2021, the Company had three suppliers that in the aggregate accounted for 78% of the Company’s purchases, with each supplier accounting for 40%, 22%, and 16%, respectively.

 

For the nine months ended March 31, 2020, the Company had three suppliers that in the aggregate accounted for 75% of the Company’s purchases, with each supplier accounting for 29%, 24% and 22%, respectively.

 

For the nine months ended March 31, 2021, the Company had six customers that in the aggregate accounted for 90% of the Company’s total sales, with each customer accounting for 22%, 18%, 16%, 13%, 12%, and 9%, respectively.

 

For the nine months ended March 31, 2020, the Company had six customers that in the aggregate accounted for 83% of the Company’s total sales, with each customer accounting for 21%, 17%, 15%, 12%, 11% and 8%, respectively. 

 

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NOTE 13 - SEGMENT REPORTING

 

The Company is organized into the following three main business segments based on the types of products being provided to customers: HLJ Huimeijia, Humankind, and “Others”. Each of the three aforementioned operating segments has separate and distinct general ledgers. The chief operating decision maker (“CODM”) receives financial information, including information regarding revenue, gross margin, operating income, and net income, from the various general ledger systems to make decisions about allocating resources and assessing performance; however, the principal measure of segment profitability or loss used by the CODM is net income (loss) by segment.

 

The following tables present summary information by segment for the three and nine months ended March 31, 2021 and 2020, respectively:

 

   For the Three Months Ended
March 31, 2021
   For the Three Months Ended
March 31, 2020
 
   HLJ               HLJ             
   Huimeijia   Humankind   Others   Consolidated   Huimeijia   Humankind   Others   Consolidated 
Revenues  $189   $778,486   $-   $778,675   $1,785   $2,421,935   $-   $2,423,720 
Cost of revenues   766    291,550    -    292,316    1,283    565,409    -    566,692 
Gross profit (loss)   (577)   486,936    -    486,359    502    1,856,526    -    1,857,028 
Interest income(expense)   2    35,684    1    35,687    -    -    -    - 
Depreciation and amortization   15,931    139,696    -    155,627    15,308    130,509    -    145,817 
Income tax   -    98,003    -    98,003    -    361,094    -    361,094 
Net income (loss)   (65,793)   170,533    (2,708)   102,032    (136,207)   1,176,897    (47,968)   992,722 
Total capital expenditures   2,174    -    -    2,174    -    (2,135)   -    (2,135)
Total assets  $3,533,409   $51,264,133   $(1,308,606)  $53,488,936   $3,427,246   $45,427,820   $(933,875)  $47,921,191 

 

   For the Nine Months Ended
March 31, 2021
   For the Nine Months Ended
March 31, 2020
 
   HLJ               HLJ             
   Huimeijia   Humankind   Others   Consolidated   Huimeijia   Humankind   Others   Consolidated 
Revenues  $13,403   $6,047,070   $-   $6,060,473   $37,614   $7,862,018   $-   $7,899,632 
Cost of revenues   54,426    2,484,003    -    2,538,429    40,819    1,721,279    -    1,762,098 
Gross profit   (41,023)   3,563,067    -    3,522,044    (3,205)   6,140,739    -    6,137,534 
Interest income(expense)   5    102,079    6    102,090    -    -    (1)   (1)
Depreciation and amortization   57,850    407,917    -    465,767    46,080    389,653    -    435,733 
Income tax   -    716,938    -    716,938    -    1,229,497    -    1,229,497 
Net income (loss)   (237,739)   1,980,124    (184,618)   1,557,767    (398,405)   3,782,104    (207,819)   3,175,880 
Total capital expenditures   13,540    -     -    13,540    (572)   (133,099)   -    (133,671)
Total assets  $3,533,409   $51,264,133   $(1,308,606)  $53,488,936   $3,427,246   $45,427,820   $(933,875)  $47,921,191 

 

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.

  

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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.

 

22

 

 

Business Overview

 

Our principal business operations are conducted through our wholly-owned subsidiaries, Humankind and HLJ Huimeijia.

 

The Company owns a GMP-certified plant and production facilities and has the capacity to produce 21 different NMPA-approved medicines, 14 NMPA-approved health supplement products and 8 hemp derivative products in soft capsule, hard capsule, tablet, granule, oral liquid forms. These products address the needs of some key sectors in China, including the feminine, geriatric, and children’s markets.

 

HLJ Huimeijia was founded on October 30, 2003 and its latest GMP certificate is effective until April 24, 2023. HLJ Huimeijia engages in the manufacture and distribution of tincture, ointments, rubber paste, including hormones, topical solution, suppositories, enemas, oral liquids, and liniment, including traditional Chinese medicine extractions. HLJ Huimeijia’s predecessor was Heilongjiang Xue Du Pharmaceutical Co., Ltd., which established brand recognition in the market through its supply of high-quality drug products. HLJ Huimeijia is a “high and new technology” enterprise that provides the most comprehensive types of topical medical products in Heilongjiang Province, a northeastern province of China.

 

We have developed the following products that are derived from hemp and obtained business license to manufacture and sell these products. We began to sell these products since May 2018. Hemp Oil, Hemp Protein Powder, Hemp Polypeptide and Collagen Peptide are sold through Humankind, Other cosmetics are sold through HLJ Huimeijia. The revenue of the Hemp Oil, Hemp Protein Powder, Hemp Polypeptide and Collagen Peptide accounted for 99.78% and 79.69% for the nine-month periods ended March 31, 2021 and 2020, respectively.

 

Serial No.   Name
1   Hemp Oil
2   Hemp Protein Powder
3   Hemp Polypeptide
4   Collagen Peptide
5   Natural Hemp Essence Repair Lotion
6   Natural Hemp Revitalizing Essence
7   Natural Hemp Anit-aging Brightening Eye Cream
8   Natural Hemp Frozen Age Nourishing Cream

  

Our business is conducted through our sales agents and sales personnel. We sell our products directly to end customers through our own sales personnel as well as our sales agents, operating primarily in Anhui, Zhejiang, Shanghai, Jiangsu, Beijing and Gansu, where most of our revenues are generated. Sales by agents in Anhui, Zhejiang, Shanghai, Jiangsu, Beijing, and Gansu provinces accounted for 22%, 18%, 16%, 13%, 12%, and 9% of our total sales, respectively, for the nine months ended March 31, 2021. Although we do not currently sell our products online, we expect to do so in the future.

 

23

 

 

Results of Operations

 

Three months ended March 31, 2021 compared to the three months ended March 31, 2020

 

The following table summarizes the top lines of the results of our operations for the three months ended March 31, 2021 and 2020, respectively:

 

   March 31,   March 31,         
   2021   2020   Variance   % 
Revenues  $778,675   $2,423,720   $(1,645,045)   (67.87)%
Humankind   778,486    2,421,935    (1,643,449)   (67.86)%
HLJ Huimeijia   189    1,785    (1,596)   (89.41)%
Cost of Goods Sold  $292,316   $566,692   $(274,376)   (48.42)%
Humankind   291,550    565,409    (273,859)   (48.44)%
HLJ Huimeijia   766    1,283    (517)   (40.30)%
Gross Profit  $486,359   $1,857,028   $(1,370,669)   (73.81)%
Humankind   486,936    1,856,526    (1,369,590)   (73.77)%
HLJ Huimeijia   (577)   502    (1,079)   (214.94)%

 

Revenue

 

Total revenues decreased by $1,645,045 or 67.87% for the three months ended March 31, 2021, as compared to the same period in 2020. The decrease in revenues was primarily due to a decrease of $1,643,449 or 67.86% in Humankind’s revenues, and a decrease of $1,596 in HLJ Huimeijia’s revenues for the three months ended March 31, 2021 as compared to the same period in 2020. The decrease in Humankind’s sales revenues was primarily due to the discounts we have been offering on our major products since April 2020 and the continuing impacts of COVID-19 pandemic for the three months ended March 31, 2021, which resulted in the decrease of sales volume of Humankind compared to the same period in 2020.

 

Our total cost of goods sold decreased by $274,376 or 48.42% for the three months ended March 31, 2021 as compared to the same period in 2020. This decrease was mainly due to the decrease in sales volume caused by the outbreak of COVID-19 pandemic, which resulted in the decrease of sales volume of Humankind for the three months ended March 31, 2021.

 

Our gross margin decreased by $1,370,669 or 73.81% for the three months ended March 31, 2021 as compared to the same period in 2020. The decrease in gross profit was primarily due to the discounts we offered on our major products, which led to a decrease in the sales unit price while the unit cost remained unchanged.

 

Sales by Product Line

 

The following table summarizes a breakdown of our sales by major product lines for the three months ended March 31, 2021 and 2020 respectively:

 

   March 31, 2021   March 31, 2020 
       % of       % of 
   Sales US$   Sales   Sales US$   Sales 
                 
Hemp Derivative Products  $727,915    92.32%  $2,084,249    85.99%
Health Products   60,367    7.66%   339,110    13.99%
Medical Drugs   189    0.02%   361    0.01%
                     
Total  $788,471    100.00%  $2,423,720    100.00%

 

24

 

 

Operating Expenses

 

The following table summarizes our operating expenses for the three months ended March 31, 2021 and 2020, respectively:

 

  

March 31,

2021

  

March 31,

2020

   Variance   % 
Operating Expenses                
Selling, general and administrative  $166,236   $389,009   $(222,773)   (57.27)%
Depreciation and amortization   155,627    145,817    9,810    6.73%
Total Operating Expenses  $321,863   $534,826   $(212,963)   (39.82)%

 

Total operating expenses for the three months ended March 31, 2021 were $212,963 or 39.82% lower than those in the corresponding period in 2020. The decrease in operating expenses was primarily attributable to decrease of $222,773 or 57.27% in selling, general and administrative expenses. The decrease in selling, general and administrative expenses was mainly due to lower staff cost.

 

Interest Income and Interest Expense

 

Interest income was $35,687 for the three months ended March 31, 2021, as compared to $31,801 for the three months ended March 31, 2021. This increase of $3,886, or 12%, was mainly due to the increased average balance of bank deposits compared with the same period of 2021.

   

Income Taxes

 

Income taxes decreased by $263,091, or 73%, from $361,094 for the three months ended March 31, 2020 to $98,003 for the three months ended March 31, 2021. The decrease in income taxes was mainly due to the decrease of the Company’s gross profit in the amount of $1,370,669, from the gross profit of $1,857,028 for the three months ended March 31, 2020 to the gross profit of $486,359 for the three months ended March 31, 2021.

 

25

 

 

Net Income and Net Income Per Share

 

Net Income was $102,032 for the three months ended March 31, 2021, as compared to $992,722 for the three months ended March 31, 2020. This decrease of $890,690 in net income was primarily attributable to a decrease of gross margin. Revenue section mentioned the gross profit decreased due to the discounts we offered on our major products with the unchanged unit cost. The decrease of gross profits further caused the decrease in the net income.

 

Net Income per share was $0.0016 for the three months ended March 31, 2021 and $0.0151 for the three months ended March 31, 2020, respectively. This decrease was primarily a result of the aforementioned decrease in net profit.

 

Nine months ended March 31, 2021 compared to the nine months ended March 31, 2020

 

The following table summarizes the top lines of the results of our operations for the nine months ended March 31, 2021 and 2020, respectively:

 

   March 31,   March 31,         
   2021   2020   Variance   % 
Revenues  $6,060,473   $7,899,632   $(1,839,159)   (23.28)%
Humankind   6,047,070    7,862,018    (1,814,948)   (23.09)%
HLJ Huimeijia   13,403    37,614    (24,211)   (64.37)%
Cost of Goods Sold  $2,538,429   $1,762,098   $776,331    44.06%
Humankind   2,484,003    1,721,279    762,724    44.31%
HLJ Huimeijia   54,426    40,819    13,607    33.33%
Gross Profit  $3,522,044   $6,137,534   $(2,615,490)   (42.61)%
Humankind   3,563,067    6,140,739    (2,577,672)   (41.98)%
HLJ Huimeijia   (41,023)   (3,205)   (37,818)   (1,179.97)%

 

Revenue

 

Total revenues decreased by $1,839,159 or 23.28% for the nine months ended March 31, 2021, as compared to the same period in 2020. The decrease in revenues was primarily caused by a decrease of $1,814,948 or 23.09% in Humankind’s revenues, and a decrease of $24,211 in HLJ Huimeijia’s revenues for the nine months ended March 31, 2021 as compared to the same period in 2020. Although the sales volume increased compared to the same period in 2020, we experienced a decrease in Humankind’s sales revenues during the nine months ended March 31, 2021 primarily due to discounts we offered on our major products.

 

Our total cost of goods sold increased by $776,331 or 44.06% for the nine months ended March 31, 2021 as compared to the same period in 2020. This increase was mainly due to the increase in sales volume caused by the discounts and promotions we offered during this period, while unit cost remained unchanged but the total cost of goods sold increased.

 

Our gross margin decreased by $2,615,490 or 42.61% for the nine months ended March 31, 2021 as compared to the same period in 2020. The decrease in gross profit was primarily due to the discounts we offered on our major products, which led to a decrease in the sales unit price while the unit cost remained unchanged.

 

26

 

 

Sales by Product Line

 

The following table summarizes the breakdown of our sales by major product lines for the nine months ended March 31, 2021 and 2020 respectively:

  

   March 31, 2021   March 31, 2020 
       % of       % of 
   Sales US$   Sales   Sales US$   Sales 
                 
Hemp Derivative Products  $5,490,244    89.63%  $6,295,569    79.69%
Health Products   621,693    10.15%   1,572,186    19.90%
Medical Drugs   13,403    0.22%   31,877    0.40%
                     
Total  $6,125,340    100.00%  $7,899,632    100.00%

 

Operating Expenses

 

The following table summarizes our operating expenses for the nine months ended March 31, 2021 and 2020, respectively:

 

  

March 31,

2021

  

March 31,

2020

   Variance   % 
Operating Expenses                
Selling, general and administrative  $883,527   $1,389,300   $(505,773)   (36.40)%
Depreciation and amortization   465,767    435,733    30,034    6.89%
Total Operating Expenses  $1,349,294   $1,825,033   $(475,739)   (26.07)%

 

Total operating expenses for the nine months ended March 31, 2021 were $475,739 or 26.07% lower than those in the corresponding period in 2020. The decrease in operating expenses was primarily attributable to decrease of $505,773 or 36.40% in selling, general and administrative expenses. The decrease in selling, general and administrative expenses was mainly due to the lower staff cost.

 

Interest Income and Interest Expense

 

Interest income was $102,090 for the nine months ended March 31, 2021, as compared to $93,842 for the nine months ended March 31, 2020. This increase of $8,248, or 9%, was mainly due to the increased average balance of bank deposits compared with the same period of 2021.

 

Interest expense was $nil for the nine months ended March 31, 2021, a decrease of $1 or 100.00%, as compared to $1 for the nine months ended March 31, 2020.

  

Income Taxes

 

Income taxes decreased by $512,559, or 42%, from $1,229,497 for the nine months ended March 31, 2020 to $716,938 for the nine months ended March 31, 2021. The decrease in income taxes was mainly due to the decrease of the Company’s gross profit in the amount of $2,615,490, from the gross profit of $6,137,534 for the nine months ended March 31, 2020 to the gross profit of $3,522,044 for the nine months ended March 31, 2021.

 

Net Income and Net Income Per Share

 

Net income was $1,557,767 for the nine months ended March 31, 2021, as compared to $3,175,880 for the nine months ended March 31, 2020. This decrease of $1,618,113 in net income was primarily attributable to a decrease of gross margin. Revenue section mentioned the gross profit decreased due to the discounts we offered on our major products with the unchanged unit cost. The decrease of gross profits further caused the decrease in the net income.

 

Net income per share was $0.0238 for the nine months ended March 31, 2021 and $0.0485 for the nine months ended March 31, 2020, respectively. This decrease was primarily a result of the aforementioned decrease in net profit.

 

27

 

 

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, 2021 and June 30, 2020 and for the nine months ended March 31, 2021 and 2020:

 

  

March 31,

2021

   June 30,
2020
 
Cash and cash equivalents  $41,116,145   $36,072,474 
Working capital  $38,123,392   $33,223,104 
Inventories  $952,042   $807,351 

 

   For the Nine Months ended
March 31,
 
   2021   2020 
Cash provided by (used in):        
Operating activities  $3,089,788   $2,253,768 
Investing activities  $(13,540)  $(152,363)
Financing activities  $-   $- 

 

For the nine months ended March 31, 2021, our net increase in cash and cash equivalents totaled $5,043,671, which total was comprised of net cash provided by operating activities in the amount of $3,089,788, net cash used in investing activities in the amount of $13,540 and the effect of prevailing exchange rates on our cash position of $1,967,423.

 

For the nine months ended March 31, 2020, our net increase in cash and cash equivalents totaled $1,374,122, which total was comprised of net cash provided by operating activities in the amount of $2,253,768, net cash used in financing activities in the amount of $152,363 and the effect of the prevailing exchange rates on our cash position of $1,015,331.

 

Our working capital at March 31, 2021 was $38,123,392, compared to working capital of $33,223,104 at June 30, 2020. This increase of $4,900,288 or 15% was primarily attributable to the increase of cash and cash equivalents in the amount of $5,043,671.

 

Net cash provided by operating activities was $3,089,788 for the nine months ended March 31, 2021, primarily attributable to net income in the amount of $1,557,767 and a decrease of accounts receivable in the amount of $119,103. The positive effect of exchange rate changes on cash and cash equivalents in the amount of $1,967,423 for the nine months ended March 31, 2021 was mainly a result of the effect of the valuation of the RMB against the USD on the significant amount of cash and cash equivalents held by the Company in RMB. The exchange rates from USD to RMB were 7.0650 to 1 and 6.5518 to 1 as of June 30, 2020 and March 31, 2021, respectively, and the average exchange rate from USD to RMB was 6.6788 for the nine months ended March 31, 2021.

 

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Net cash provided by operating activities was $2,253,768 for the nine months ended March 31, 2020, primarily attributable from net income of $3,175,880. Net cash used in investing activities was $152,363 for the nine months ended March 31, 2020, primarily due to expenditures in property, plant and equipment of $133,436. The negative effect of exchange rate changes on cash and cash equivalents in the amount of $1,015,331 for the nine months ended March 31, 2020 was mainly a result of the effect of the depreciation of the value of RMB for USD. The exchange rates from USD to RMB were 6.8668 to 1 and 7.0808 to 1 as of June 30, 2019 and March 31, 2020, respectively, and the average exchange rate from USD to RMB was 7.0128 for the nine months ended March 31, 2020.

 

Other than as described in this report, we have no present agreements or commitments with respect to any material acquisitions of businesses, products, product rights, technologies, or any other material capital expenditures. However, we will continue to evaluate acquisitions of, and/or investments in, products, technologies, capital equipment or improvements, or companies that complement our business and may make such acquisitions and/or investments in the future. Accordingly, we may need to obtain additional sources of capital in the future to finance any such acquisitions and/or investments. We may not be able to obtain such financing on commercially reasonable terms, if at all. Even if we are able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing, or cause substantial dilution for our stockholders, in the case of equity financing.

 

Related Party Debts

 

We had related party debts in the amount of $7,927,301 as of March 31, 2021, as compared to $7,259,862 as of June 30, 2020, an increase of $667,439 or 9%. Our related party debts mainly consist of a loan from Mr. Xin Sun, the CEO of the Company. The loan is unsecured, non-interest bearing, and has no fixed terms of repayment. There was no written agreement for the loan. See Note 8.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements that are currently material or reasonably likely to be material to its financial position or results of operations.

 

Critical Accounting Policies and Estimates

 

We prepare the unaudited condensed consolidated financial statements in accordance with US GAAP. These accounting principles require us to make judgments, estimates and assumptions on the reported amounts of assets and liabilities at the end of each fiscal period, and the reported amounts of revenues and expenses during each fiscal period. We continually evaluate these judgments and estimates based on our own historical experience, knowledge and assessment of current business and other conditions, our expectations regarding the future based on available information, and assumptions that we believe to be reasonable.

 

There have been no material changes during the nine months ended March 31, 2021 in the Company’s significant accounting policies to those previously disclosed in the annual report on Form 10-K for the fiscal year ended June 30, 2020.

 

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Not applicable.

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

The Company maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in our reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that this information is accumulated and communicated to Management, including the Company’s chief executive and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

 

At the conclusion of the period ended March 31, 2021, the Company carried out an evaluation, under the supervision and with the participation of Management, including the Company’s principal executive and principal financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based upon that evaluation, the Company’s principal executive and principal financial officer concluded that, due to the material weakness in the Company’s internal controls over financial reporting as discussed in the Company’s annual report on Form 10-K for the fiscal year ended June 30, 2020, as of the end of the period covered by this Quarterly Report on Form 10-Q, the Company’s disclosure controls and procedures were not effective to satisfy the objectives for which they are intended.

 

Despite the material weakness referenced above, Management believes that the Company’s unaudited condensed consolidated financial statements included in this report fairly present in all material respects the Company’s financial condition, results of operations and cash flows for the periods presented because the Company has retained a consultant who has U.S. GAAP experience to assist the Company in the preparation of its unaudited condensed consolidated financial statements.

 

Changes in Internal Controls over Financial Reporting

 

No changes in the Company’s internal controls over financial reporting have come to Management’s attention during the quarter ended March 31, 2021 that have materially affected, or are likely to materially affect, the Company’s internal control over financial reporting.

 

Limitations on Controls

 

Management does not expect that the Company’s disclosure controls and procedures or the Company’s internal control over financial reporting will prevent or detect all error and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.

 

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PART II - OTHER INFORMATION

 

Item 6. Exhibits.

 

The exhibits required by this item are set forth in the Exhibit Index attached hereto.

 

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SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  CHINA HEALTH INDUSTRIES HOLDINGS, INC.
     
  /s/ Xin Sun
  By: Xin Sun
  Title: Chief Executive Officer and
Chief Financial Officer
    (Principal Executive Officer,
Principal Financial Officer and
    Principal Accounting Officer)
     
  Date: May 14, 2021

 

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EXHIBIT INDEX

 

Exhibit No.   Description
     
31.1   Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
31.2   Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
32.1   Certification of the Principal Executive Officer and the Principal Financial Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
101.INS   XBRL Instance Document
     
101.SCH   XBRL Taxonomy Extension Schema Document
     
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document
     
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document
     
101.LAB   XBRL Taxonomy Extension Label Linkbase Document
     
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document

 

 

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