The financial statements required by this item
are set forth beginning on page F-1.
The accompanying notes are an integral part of
these consolidated financial statements.
The accompanying notes are an integral part of
these consolidated financial statements.
The accompanying notes are an integral part of
these consolidated financial statements.
The accompanying notes are an integral part of
these consolidated financial statements.
The accompanying notes are an integral part of
these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - ORGANIZATION AND BUSINESS BACKGROUND
China Health Industries Holdings, Inc. (“China
Health US”) was incorporated in the State of Arizona on July 11, 1996 and 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, the National Medical Products Administration (the “NMPA”). In addition, HLJ Huimeijia
is the holder of one patent for utility models, five patents for external design and three trademarks in China, including the Chinese
brand name of “Xue Du” which has an established reputation among customers in northeastern China.
On December 24, 2014, Humankind entered into a
stock transfer agreement (the “Original Agreement”) with Xiuzheng Pharmaceutical Group Co., Ltd. a company incorporated under
the laws of the PRC and located in Jilin province (“Xiuzheng Pharmacy” or the “Buyer”), Mr. Xin Sun, the CEO of
the Company, and Huimeijia, 99% owned by Humankind and 1% owned by Mr. Xin Sun. Pursuant to the Original Agreement, Humankind and Mr.
Xin Sun (the “Equity Holders”), would sell their respective equity interests in Huimeijia to Xiuzheng Pharmacy.
On February 9, 2015, the four parties entered
into a supplementary agreement (the “Supplementary Agreement”) to modify the terms of the Original Agreement, pursuant to
which the Equity Holders and Huimeijia (collectively the “Asset Transferors”) would sell only the 19 drug approval numbers
(including the tablet, capsule, powder, mixture, oral liquid, syrup and oral solution under the 19 approval numbers; licenses including
the original copies of Business License, Organization Code Certificate, Tax Registration Certificate, Drug Production Permit and GMP Certificate,
and other documents and original copies related to the production and operation of the 19 drugs) (the “Assets”) to Xiuzheng
Pharmacy. The Equity Holders would have retained their equity interests in Huimeijia, but would have pledged such equity interests to
Xiuzheng Pharmacy until the Assets were transferred, at which time the cash consideration would have been paid by the Buyer. Total cash
consideration would have been the same as under the Original Agreement, i.e., RMB 8,000,000 (approximately $1,306,186) to the Asset Transferors.
In the event that the Assets had failed to be transferred to the Buyer due to the fault of the Asset Transferors, the paid consideration
would have been returned to the Buyer with interest accrued. If the failure of the transfer of the Assets were a result of changes in
government policy or force majeure, the paid cash consideration would have been returned to the Buyer but without any interest.
On October 12, 2016, the four parties agreed to
rescind the Supplementary Agreement and entered into a new supplementary agreement (the “New Supplementary Agreement”), pursuant
to which the four parties agreed to execute the transfer of the equity interests based on the Original Agreement and the Equity Holders
agreed to sell their respective equity interests in Huimeijia to Xiuzheng Pharmacy. The transfer of 100% of the equity interests of Huimeijia
to the Buyer was for total cash consideration of RMB 8,000,000 (approximately $1,306,186) (the “Purchase Price”) to the Equity
Holders. 40% of the Purchase Price was due within 10 business days after the signing of the New Supplementary Agreement; 40% of the Purchase
Price was due within 10 business days after the completion of the changes in business registration described in the Original Agreement
and Xiuzheng Pharmacy obtaining documents evidencing its ownership on Huimeijia; 15% of the Purchase Price is due within 10 business days
after the transfer of all of the Assets is approved by Heilongjiang FDA; and 5% of the Purchase Price is due within 10 business days after
all of the Assets have been transferred to Xiuzheng Pharmacy or its designee and Humankind and Mr. Xin Sun have instructed Xiuzheng Pharmacy
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 June 30, 2022, the Company’s corporate
structure was as follows:
Note 2 - SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
This summary of significant accounting policies
of the Company is presented to assist in understanding the Company’s consolidated financial statements. The financial statements
and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting
policies conform to generally accepted accounting principles in the United States (“US GAAP”) and have been consistently applied
in the preparation of the consolidated financial statements.
Principles of Consolidation
The accompanying consolidated financial statements
include China Health US and its four subsidiary companies, including China Health HK, Humankind and HLJ Huimeijia. All significant intercompany
balances and transactions have been eliminated in consolidation and combination.
On November 22, 2013, China Health US, through
its wholly owned subsidiary Humankind, completed the acquisition of HLJ Huimeijia. HLJ Huimeijia and Humankind are under the common control
of Mr. Xin Sun, the CEO of the Company 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 a 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 the 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 also shall be retrospectively adjusted
to furnish comparative information.
Segment Reporting
FASB ASC Topic 280, “Segment Reporting,”
established standards for reporting information about operating segments on a basis consistent with the Company’s internal organizational
structure as well as information about geographical areas, business segments and major customers in financial statements for details on
the Company’s business segments. The Company has three reportable operating segments: Humankind, HLJ Huimeijia and Others. The segments
are grouped based on the types of products provided.
Fair Value of Financial Instruments
The provisions of accounting guidance, FASB ASC
Topic 820 that applies to the Company requires all entities to disclose the fair value of financial instruments, both assets and liabilities
recognized and not recognized on the balance sheet, for which it is practicable to estimate fair value, and defines fair value of a financial
instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties.
Fair Value Measurements
FASB ASC Topic 820, “Fair Value Measurements
and Disclosures,” clarifies the definition of fair value for financial reporting, establishes a framework for measuring fair value
and requires additional disclosures about the use of fair value measurements.
Various inputs are considered when determining
the fair value of the Company’s debt. The inputs or methodologies used for valuing securities are not necessarily an indication
of the risk associated with investing in these securities. These inputs are summarized in the three broad levels listed below.
Level 1 – observable market inputs
that are unadjusted quoted prices for identical assets or liabilities in active markets.
Level 2 – other significant observable
inputs (including quoted prices for similar securities, interest rates, credit risk, etc.).
Level 3 – significant unobservable
inputs (including the Company’s own assumptions in determining the fair value of investments).
The carrying value of financial assets and liabilities
recorded at fair value is measured on a recurring or nonrecurring basis. Financial assets and liabilities measured on a non-recurring
basis are those that are adjusted to fair value when a significant event occurs. The Company had no financial assets or liabilities carried
and measured on a nonrecurring basis during the reporting periods. Financial assets and liabilities measured on a recurring basis are
those that are adjusted to fair value each time a financial statement is prepared. The Company had no financial assets or liabilities
carried and measured on a recurring basis during the reporting periods.
The availability of inputs observable in the market
varies from instrument to instrument and depends on a variety of factors including the type of instrument, whether the instrument is actively
traded, and other characteristics particular to the transaction. For many financial instruments, pricing inputs are readily observable
in the market, the valuation methodology used is widely accepted by market participants, and the valuation does not require significant
management discretion. For other financial instruments, pricing inputs are less observable in the market and may require management judgment.
Foreign Currency Translation and Transaction
Humankind, Huimeijia and HLJ Huimeijia maintain
their books and accounting records in PRC currency “Renminbi” (“RMB”), which has been determined as the functional
currency. The functional currency of China Health HK is the Hong Kong Dollar (“HKD”).
Transactions denominated in currencies other than
the functional currencies are recorded at the exchange rates prevailing on the date of the transactions, as quoted by the Federal Reserve
Board. Foreign currency exchange gains and losses resulting from these transactions are included in operations.
Humankind, Huimeijia, HLJ Huimeijia and China
Health Hong Kong’s financial statements are translated into the reporting currency, the United States Dollar (“USD”).
Assets and liabilities of the above entities are translated at the prevailing exchange rate at each reporting period end date. Contributed
capital accounts are translated using the historical rate of exchange when capital is injected. Income and expense accounts are translated
at the average rate of exchange during the reporting period. Translation adjustments resulting from the translation of these financial
statements are reflected as accumulated other comprehensive income in shareholders’ equity and non-controlling interests.
For the purpose of presenting these financial
statements, the Company’s assets and liabilities with functional currency of HKD are expressed in USD at the exchange rate on the
balance sheet date, which was 7.8472 and 7.7658 as of June 30, 2022 and June 30, 2021, respectively; stockholder’s equity accounts
are translated at historical rates, and income and expense items are translated at the weighted average exchange rates during the year,
which was 7.8049 and 7.7563 for the years ended June 30, 2022 and 2021, respectively. For Renminbi currency, the Company’s assets
and liabilities are expressed in USD at the exchange rate on the balance sheet date, which was 6.6981 and 6.4566 as of June 30, 2022 and
June 30, 2021, respectively; stockholder’s equity accounts are translated at historical rates, and income and expense items are
translated at the weighted average exchange rates during the year, which was 6.4554 and 6.6221 for the years ended June 30, 2022 and 2021,
respectively.
Statement of Cash Flows
In accordance with Statement FASB ASC Topic 230,
“Statement of Cash Flows,” cash flow from the Company’s operations is calculated based upon the local currencies and
translated to the reporting currency using an average foreign exchange rate for the reporting period. As a result, amounts related to
assets and liabilities reported in the statement of cash flows will not necessarily agree with changes in the corresponding balances on
the balance sheet.
Use of Estimates and Assumptions
The preparation of financial statements in conformity
with U.S. GAAP requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, disclosure
of contingent assets and liabilities on the date of the financial statements and the reported amounts of revenues and expenses during
the reporting period. The Company bases its estimates and judgments on historical experience and on various other assumptions and information
that are believed to be reasonable under the circumstances. Estimates and assumptions of future events and their effects cannot be perceived
with certainty and, accordingly, these estimates may change as new events occur, as more experience is acquired, as additional information
is obtained and as the Company’s operating environment changes. Significant estimates and assumptions by management include, among
others; useful lives of long-lived assets and intangible assets, valuation of inventory, accounts receivable and notes receivable, impairment
analysis of long-lived assets, construction in progress, intangible assets and deferred taxes. While the Company believes that the estimates
and assumptions used in the preparation of the financial statements are appropriate, actual results could differ from those estimates.
Estimates and assumptions are periodically reviewed and the effects of revisions are reflected in the financial statements in the period
they are determined to be necessary.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand,
deposits in banks with maturities of three months or less, and all highly liquid investments which are unrestricted as to withdrawal or
use, and which have original maturities of three months or less at the time of purchase.
As of June 30, 2022, and 2021, the Company’s
uninsured bank balance was mainly maintained at financial institutions located in the PRC and Hong Kong, totaled $44,789,999 and $44,346,744,
respectively. The Company has no insured bank balance as of June 30, 2022 and 2021, respectively.
Accounts Receivable
Accounts receivable are recorded at the invoiced
amount and do not bear interest. The Company extends unsecured credit to its customers in the ordinary course of business but mitigates
the associated risks by performing credit checks and actively pursuing past due accounts. An allowance for doubtful accounts is established
and determined based on 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, whereas the payment terms for sales agents before November
1, 2013 were thirty (30) day. Due to COVID-19, the company extended its credit policy to 180 days this year. As of June 30, 2022 and 2021,
the balances of accounts receivable were $9,567 and $2,346,867, 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. As of June 30, 2022, and 2021, the balances of allowance for
doubtful accounts were $48,769 and $60,394 respectively.
Advance to Suppliers
The Company periodically makes advances to certain
vendors for purchases of raw materials, or service providers for services relating to construction plans for our plant, equipment and
production lines for the GMP upgrading, and records these payments as advance to suppliers. The decrease in the amount of advance to suppliers
is due to fluctuation of exchange rate. As a result, as of June 30, 2022, and 2021, advance to suppliers amounted to $214,915 and $218,307,
respectively.
Inventory
Inventory consists of raw materials, work in progress
and finished goods of manufactured products.
Inventory is stated at lower of cost or market
and consists of materials, labor and overhead. HLJ Huimeijia uses the weighted average method for inventory valuation. The other entities
of the Company use the first-in, first-out (“FIFO”) method for inventory valuation. Overhead costs included in finished goods
include direct labor cost 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 with an amount of $nil and $nil were provided for the years ended June 30, 2022, and 2021,
respectively.
Impairment of Long-Lived Assets
The Company’s long-lived assets and other
assets are reviewed for impairment in accordance with the guidance of the FASB ASC Topic 360-10, “Property, Plant, and Equipment,”
and FASB ASC Topic 205, “Presentation of Financial Statements.” The Company tests for impairment losses on long-lived assets
used in operations whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.
Recoverability of an asset to be held and used is measured by a comparison of the carrying amount of the asset to the future undiscounted
cash flows expected to be generated by the asset. If such asset is considered to be impaired, the impairment to be recognized is measured
by the amount by which the carrying amount of the asset exceeds its fair value. Impairment evaluations involve management’s estimates
on asset useful lives and future cash flows. Actual useful lives and cash flows could be different from those estimated by management
which could have a material effect on the 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 June 30, 2022, and 2021, the Company has not experienced impairment losses on its long-lived assets. However, there can
be no assurances that demand for the Company’s products or services will continue, which could result in an impairment of long-lived
assets in the future.
Property, Plant and Equipment
Property, plant and equipment are stated at cost
less accumulated depreciation and impairment losses. Maintenance, repairs and minor renewals are expensed as incurred, major renewals
and improvements that extend the lives or increase the capacity of plant assets are capitalized.
When assets are retired or disposed of, the cost
and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in the results of operations
in the reporting period of disposition.
Depreciation is calculated on a straight-line
basis over the estimated useful life of the assets. The depreciable lives applied are:
Building, Warehouse and Improvements | |
20 to 30 years |
Office Equipment | |
3 to 7 years |
Vehicles | |
5 to15 years |
Machinery and Equipment | |
7 to 15 years |
Intangible Assets
The Company evaluates intangible assets in accordance
with FASB ASC Topic 350, “Intangibles — Goodwill and Other.” Intangible assets deemed to have indefinite lives are not
amortized, but are subject to annual impairment tests. If the assumptions and estimates used to allocate the purchase price are not correct,
or if business conditions change, purchase price adjustments or future asset impairment charges could be required. The value of the 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 estimates of asset useful
lives and future cash flows. Significant judgment by 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, we could incur additional impairment charges in a future period. Based on such evaluations, there were no impairments
recorded for intangible assets for the years ended June 30, 2022 and 2021, respectively.
Construction in Progress
Construction in progress represents the costs
incurred in connection with the construction of buildings or new additions to the Company’s plant facilities. Costs classified as
construction in progress include all costs of obtaining the asset and bringing it to the location in the 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 were no impairments recorded for construction in progress, for the years ended June 30, 2022
and June 30, 2021, respectively. However, there can be no assurances that demand for the Company’s products or services will continue,
which could result in an impairment of long-lived assets in the future.
Revenue Recognition
The Company recognizes revenue 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 which has
been identified. 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 identified and 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 determined. 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 years ended June 30, 2022 and 2021, 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 shareholders’ equity as a result of the
implementation. The adoption of FIN 48 did not have a material impact on the Company’s financial statements.
The application of tax laws and regulations is
subject to legal and factual interpretation, judgment and uncertainty. Tax laws and regulations themselves are subject to change as a
result of changes in fiscal policy, changes in legislation, the evolution of regulations and court rulings. Therefore, the actual liability
may be materially different from the Company’s estimates, which could result in the need to record additional tax liabilities or
potentially reverse previously recorded tax liabilities or deferred tax asset valuation allowance.
Enterprise Income Tax
Under the Provisional Regulations of 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 and revised on January 1, 2009. Under these regulations
and the Implementing Rules of the Provisional Regulations of the PRC Concerning Value Added Tax, value added tax (“VAT”) is
imposed on goods sold in, or imported into, the PRC and on processing, repair and replacement services provided within the PRC.
VAT payable in the PRC is charged on an aggregated
basis at a rate of 13% or 16% (depending on the type of goods involved) on the full price collected for the goods sold or, in the case
of taxable services provided, at a rate of 16% on the charges for the taxable services provided, but excluding, in respect of both goods
and services, any amount paid in respect of VAT included in the price or charges, and less any deductible VAT already paid by the taxpayer
on purchases of goods and services in the same financial year. As of June 30, 2022 and June 30, 2021, VAT payables were $29,835 and $34,697,
respectively.
Sales-Related Taxes
Pursuant to the tax law and regulations of the
PRC, the Company is obligated to pay 7% and 5% of the annual aggregate VAT paid by the Company as taxes for the purposes of maintaining
and building cities and educational facilities, which fees are included as sales-related taxes. Sales-related taxes are recorded when
sales revenue is recognized.
Concentrations of Business and Credit Risks
All of the Company’s manufacturing is located
in the PRC. There can be no assurance that the Company will be able to successfully continue to manufacture its products and failure to
do so would have a material adverse effect on the Company’s financial position, results of operations and cash flows. Moreover,
the success of the Company’s operations is subject to numerous contingencies, some of which are beyond management’s control.
These contingencies include general economic conditions, prices of raw materials, competition, governmental and political conditions,
and changes in regulations. Since the Company is dependent on trade in the PRC, the Company is subject to various additional political,
economic and other uncertainties. Among other risks, the Company’s operations will be subject to the risks of restrictions on transfer
of funds, domestic customs, changing taxation policies, foreign exchange restrictions, and political and governmental regulations. The
Company operates in China, which may give rise to significant foreign currency risks from fluctuations and the degree of volatility of
foreign exchange rates between U.S. dollars and the Chinese currency RMB. The results of operations denominated in foreign currency are
translated at the average rate of exchange during the reporting periods.
Earnings Per Share
Basic earnings per common share 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. For the years ended June 30, 2022 and 2021, the Company had no potential dilutive common stock equivalents
outstanding.
Potential common shares issued are calculated
using the treasury stock method, which recognizes the use of proceeds that could be obtained upon the exercise of options and warrants
in computing diluted earnings per share. It assumes that any proceeds would be used to purchase common stock at the average market price
of the common stock during the period.
FASB ASC Topic 260, “Earnings Per Share,”
requires a reconciliation of the numerator and denominator of the basic and diluted earnings per share (EPS) computations.
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial
Instruments-Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments (ASU 2016-13). The main objective
of the standard is to provide financial statement users with more decision-useful information about the expected credit losses on financial
instruments and other commitments to extend credit held by a reporting entity at each reporting date. In issuing this standard, the FASB
is responding to criticism that today’s guidance delays recognition of credit losses. The standard will replace today’s “incurred
loss” approach with an “expected loss” model. The new model, referred to as the current expected credit loss (“CECL”)
model, will apply to: (1) financial assets subject to credit losses and measured at amortized cost, and (2) certain off-balance sheet
credit exposures. The standard is applicable to loans, accounts receivable, trade receivables, and other financial assets measured at
amortized cost, loan commitments and certain other off-balance sheet credit exposures, debt securities (including those held-to-maturity)
and other financial assets measured at fair value through other comprehensive income, and beneficial interests in securitized financial
assets. The CECL model does not apply to available-for-sale debt securities. For available-for-sale debt securities with unrealized losses,
entities will measure credit losses in a manner similar to what they do today, except that the credit losses will be recognized as allowances
rather than reductions in the amortized cost of the securities. Accordingly, the new methodology will be utilized when assessing the Company’s
financial instruments for impairment. As a result, entities will recognize improvements to estimated credit losses immediately in earnings
rather than as interest income over time, as they do today. The ASU also simplifies the accounting model for purchased credit-impaired
debt securities and loans. ASU 2016-13 also expands the disclosure requirements regarding an entity’s assumptions, models, and methods
for estimating the allowance for loan and lease losses. ASU 2016-13 is effective for years beginning after December 15, 2019, including
interim periods within those fiscal years under a modified retrospective approach. Early adoption is permitted for the periods beginning
after December 15, 2018. The Company adopted the guidance from July 1, 2020. The Company finalized its analysis and determined that the
adoption of this guidance has no material impact on the Company’s consolidated financial statements and its internal controls over
financial reporting.
In August 2018, the FASB issued ASU 2018-13, Fair
Value Measurement (Topic 820) – Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (ASU
2018-13), which modifies the disclosure requirements on fair value measurements, including removing the requirement to disclose (1) the
amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, (2) the policy for timing of transfers between
levels and (3) the valuation processes for Level 3 fair value measurements. ASU 2018-13 also added new disclosures including the requirement
to disclose (a) the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3
fair value measurements held at the end of the reporting period and (b) the range and weighted average of significant unobservable inputs
used to develop Level 3 fair value measurements. ASU 2018-13 is effective for fiscal years (and interim reporting periods within those
years) beginning after December 15, 2019 and early adoption is permitted. This standard will only impact the disclosures pertaining to
fair value measurements. The Company adopted the guidance from July 1, 2020. The Company finalized its analysis and determined that the
adoption of this guidance has no material impact on the Company’s consolidated financial statements and its internal controls over
financial reporting.
NOTE 3 - ASSETS SALE
On December 24, 2014, Humankind entered into a
stock transfer agreement (the “Agreement”) with Xiuzheng Pharmaceutical Group Co., Ltd a company incorporated under the laws
of the People’s Republic of China and located in Jilin province (“Xiuzheng Pharmacy” or the “Buyer”), and
Mr. Xin Sun, the CEO of the Company, and Huimeijia, pursuant to which, Humankind and Mr. Xin Sun (the “Equity Holders”), shall
sell their respective equity interests in Huimeijia to Xiuzheng Pharmacy. The transfer of the 100% equity interests of Huimeijia to the
Buyer was for a total cash consideration of RMB 8,000,000 (approximately $1,306,186) to the Equity Holders.
On February 9, 2015, the four parties entered
into a supplementary agreement (the “Supplementary Agreement”) to modify the terms of the Agreement, pursuant to which, the
Equity Holders and Huimeijia (collectively the “Assets Transferors”) shall only sell 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 will retain the equity interests in Huimeijia, but will have the equity interests pledged to Xiuzheng Pharmacy until
the Assets are transferred, at which time all the cash consideration shall be paid by the Buyer. The total cash consideration remains
to be the same as under the Agreement, i.e., RMB 8,000,000 (approximately $1,306,186) to the Assets Transferors. In the event that the
Assets are failed to be transferred to the Buyer due to the fault of the Assets Transferors, the paid consideration shall be returned
to the Buyer with interests accrued. If the failure of the transfer of the Assets is a result of the government policy changes or force
majeure, the paid cash consideration shall be returned to the Buyer but without any interests.
As of June 30, 2016, the transfer of the Assets
had not been completed because the assets transfer crossed different provinces which resulted in a complicated interaction among the local
administrations of Heilongjiang Province, where Huimeijia is located and Jilin Province, where the transferee is located.
On October 12, 2016, the four parties agreed to
rescind the Supplementary Agreement and entered into a new supplementary agreement (the “New Supplementary Agreement”), pursuant
to which the four parties agreed to execute the transfer of the equity interests based on the Original Agreement and the Equity Holders
agreed to sell their respective equity interests in Huimeijia to Xiuzheng Pharmacy. The transfer of 100% of the equity interests of Huimeijia
to the Buyer was for a total cash consideration of RMB 8,000,000 (approximately $1,306,186) (the “Purchase Price”) to the
Equity Holders. 40% of the Purchase Price was due within 10 business days after the signing of the New Supplementary Agreement; 40% of
the Purchase Price was due within 10 business days after the completion of the changes in business registration described in the Original
Agreement and Xiuzheng Pharmacy obtaining documents evidencing its ownership on Huimeijia; 15% of the Purchase Price is due within 10
business days after the transfer of all of the Assets is approved by Heilongjiang FDA; and 5% of the Purchase Price is due within 10 business
days after all of the Assets have been transferred to Xiuzheng Pharmacy or its designee and Humankind and Mr. Xin Sun have instructed
Xiuzheng Pharmacy to complete three-batches production of all forms of the drugs included in the Assets. As of the date of this report,
80% of the Purchase Price has been paid, the Company has completed changes in its business registration, and Xiuzheng Pharmacy has obtained
a business license issued by the local State Administration of Industry and Commerce in Harbin (“Harbin SAIC”) to Huimeijia,
in which the ownership of Huimeijia has been recorded as held by Xiuzheng Pharmacy, with Harbin SAIC and the legal representative (a person
that is authorized to take most of the corporate actions on behalf of a company under the corporate laws in China) of Huimeijia has been
appointed by the Buyer.
NOTE 4 - ACCOUNTS RECEIVABLE
The Company’s accounts receivable amounted
to $9,567 and $2,346,867 net of allowance for doubtful accounts amounting to $48,769 and $60,394 as of June 30, 2022 and 2021, respectively.
NOTE 5 - INVENTORIES
Inventory consists of following:
| |
June 30, 2022 | | |
June 30, 2021 | |
Raw Materials | |
$ | 213,055 | | |
$ | 251,989 | |
Supplies and Packing Materials | |
| 90,303 | | |
| 93,452 | |
Work-in-Progress | |
| 82,412 | | |
| 273,924 | |
Finished Goods | |
| 135,459 | | |
| 142,274 | |
Total | |
$ | 521,229 | | |
$ | 761,639 | |
The finished goods produced for wholesale
are sold out and cannot be refilled because of the lockdown of factory plant. In addition, the finished goods produced for retail
cannot be sold because of the lockdown of the retail store. The inventory allowance with an amount of $nil and $nil were provided
for the years ended June 30, 2022 and 2021, respectively.
NOTE 6 - CONSTRUCTION IN PROGRESS
Construction in progress consisted of the following:
| |
June 30, 2022 | | |
June 30, 2021 | |
Plant - HLJ Huimeijia | |
$ | 579,402 | | |
$ | 560,910 | |
Total | |
$ | 579,402 | | |
$ | 560,910 | |
On April 6, 2012, HLJ Huimeijia entered into an
agreement with a contractor for construction of the HLJ Huimeijia plant. The estimated total cost of construction was approximately $1.86
million (RMB 12,800,000). As of June 30, 2022, 77.9% of construction has been completed, $1,448,567 (RMB9,702,644)
has been recorded as costs of construction in progress and construction in progress at an amount of $949,040 (RMB6,356,767)
has been completed and converted into property, plant and equipment.
NOTE 7 - PROPERTY, PLANTS AND EQUIPMENT
Property, plants and equipment consisted of the
following:
| |
June 30, 2022 | | |
June 30, 2021 | |
Building, Warehouses and Improvements | |
$ | 3,946,492 | | |
$ | 4,094,105 | |
Machinery and Equipment | |
| 1,832,446 | | |
| 1,900,986 | |
Office Equipment | |
| 78,360 | | |
| 81,291 | |
Vehicles | |
| 217,808 | | |
| 225,955 | |
Others | |
| 962,667 | | |
| 998,674 | |
Less Accumulated Depreciation | |
| (3,879,752 | ) | |
| (3,671,106 | ) |
Total | |
$ | 3,158,021 | | |
$ | 3,629,905 | |
Depreciation expense was $344,919 and $393,168
for the years ended June 30, 2022 and 2021, respectively. Depreciation expense charged to operations was $344,919 and $124,073 for the
years ended June 30, 2022 and 2021, respectively. Depreciation expense charged to cost of goods sold was $nil and $269,095 for the years
ended June 30, 2022 and 2021, respectively.
NOTE 8 - INTANGIBLE ASSETS
The following is a summary of intangible assets:
| |
June 30, 2022 | | |
June 30, 2021 | |
Land Use Rights – Humankind | |
$ | 946,237 | | |
$ | 981,630 | |
Health Supplement Product Patents – Humankind | |
| 4,478,882 | | |
| 4,646,408 | |
Pharmaceutical Patents - HLJ Huimeijia | |
| 390,285 | | |
| 404,883 | |
Land Use Rights - HLJ Huimeijia | |
| 647,211 | | |
| 671,419 | |
Less: Accumulated Amortization | |
| (5,050,012 | ) | |
| (4,740,824 | ) |
Intangible Assets, net, Held for Continuing Operations | |
$ | 1,412,603 | | |
$ | 1,963,516 | |
There is no private land ownership in PRC.. Enterprises
and individuals can pay the government a fee to obtain the right to use a piece of land for commercial purposes or residential purposes
for an initial period of 50 years or 70 years, respectively. The land use right can be sold, purchased, and exchanged in the market. The
successor owner of the land use right will have the right to use the land for the time remaining on the initial period. The patent has
amortized life of 10 years.
Amortization expense charged to operations was
$485,625 and $485,625 for the years ended June 30, 2022 and 2021, respectively.
NOTE 9 - RELATED PARTY DEBTS
Related party debts, which represent temporary
short-term loans from Mr. Xin Sun and Mr. Kai Sun consisted of the following:
| |
June 30, 2022 | | |
June 30, 2021 | |
Mr. Xin Sun | |
$ | 6,724,850 | | |
$ | 8,043,544 | |
Mr. Kai Sun | |
| 34,911 | | |
| 36,217 | |
Related Party Debts, Held for Continuing Operations | |
$ | 6,759,761 | | |
$ | 8,079,761 | |
These loans are unsecured and non-interest bearing
and have no fixed terms of repayment; therefore, they are deemed payable on demand. Mr. Kai Sun, a director of Humankind, is a PRC citizen
and a family member of Mr. Xin Sun, the CEO of the Company.
NOTE 10 - INCOME TAXES
(a) Corporate income taxes
China Health US was incorporated in the State
of Arizona on July 11, 1996. After the Company had acquired the business of China Health HK through the acquisition of all the share capital
of China Health HK under a share exchange agreement dated December 31, 2008, it became a holding company and did not conduct any substantial
operations or business of its own in the State of Delaware and in the U.S.
The Company also does not provide for U.S. taxes
or foreign withholding taxes on undistributed earnings from its non-U.S. subsidiaries, either owned directly or indirectly, because it
was elected to indefinitely reinvest such earnings outside the U.S to support non-U.S. liquidity needs to fund operations and growth of
its foreign subsidiaries and acquisitions.
United States
China Health US had no taxable income for U.S.
corporate income tax purposes for the years ended June 30, 2022 and 2021, respectively. As of June 30, 2022 and 2021, China Health US
had $1,793,042 and $1,569,209 in net operating loss carry forwards available to offset future taxable income, respectively. The federal
corporate net operating loss carryover is expired in 20 taxable years following the taxable year of the loss. If not utilized, the federal
net operating loss for the fiscal years 2022 and 2021 in an amount of $223,833 and $187,462, respectively, will begin to expire in the
years 2041 and 2040, respectively. Management believes that it is more likely than not that the benefits from these accumulated net operating
losses will not be realized in the future due to the Company’s operating history and the continued losses of its U.S. operation.
Accordingly, the Company has provided a full valuation allowance on the deferred tax assets under its U.S. entity.
Hong Kong
China Health Industries Holdings Limited (“China
Health HK”) was incorporated in Hong Kong on July 20, 2007 and is subject to Hong Kong profits taxation on its business activities
conducted in Hong Kong and income sourced in Hong Kong. As of June 30, 2022, and 2021, China Health Hong Kong had $11,030 and $10,588
in net operating loss carry forwards available to offset future taxable income, respectively. Net operating losses of Hong Kong can generally
be carried forward indefinitely. The Company believes that it is more likely than not that these accumulated net operating losses will
not be utilized in the future due to the fact that the Company does not have and probably will not have any business operations in HK.
Therefore, the Company had provided full valuation allowance for the deferred tax assets arising from the losses in Hong Kong during the
years ended June 30, 2022, and 2021, amounting $441 and $489, respectively. Accordingly, there is no net deferred tax assets under this
entity.
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 consisted of the following for the years
ended June 30, 2022 and 2021:
As of June 30, 2022, and 2021, taxes payable consists
of:
| |
June 30, 2022 | | |
June 30, 2021 | |
Income tax payable | |
$ | 23,839 | | |
$ | 28,895 | |
Value-added tax payable | |
| 29,835 | | |
| 34,697 | |
Other taxes payable | |
| 79,331 | | |
| 112,767 | |
Total | |
$ | 133,005 | | |
$ | 176,359 | |
A reconciliation between the Company’s actual
provision for income taxes and the provision at the statutory rate is as follows:
| |
June 30, 2022 | | |
June 30, 2021 | |
Pre-tax book income | |
$ | (351,016 | ) | |
$ | 2,021,583 | |
Federal statutory rate | |
| 21 | % | |
| 21 | % |
Income tax computed at U.S. federal statutory rate | |
| (73,714 | ) | |
| 424,532 | |
Non-deductible staff welfare | |
| - | | |
| - | |
Foreign rate differential | |
| (7,874 | ) | |
| 392,435 | |
Change in valuation allowance | |
| 84,522 | | |
| (86,506 | ) |
Total provision for income taxes | |
$ | 2,934 | | |
$ | 730,461 | |
The Company’s effective tax rate was 0.8%
and 36.1% for the years ended June 30, 2022 and 2021, respectively.
The provision for income taxes on income consists of the following
for the years ended June 30, 2022 and 2021:
Provision for income taxes consisted of:
| |
For the Years Ended | |
| |
June 30, | |
| |
2022 | | |
2021 | |
Current provision: | |
| | | |
| | |
Domestic | |
$ | - | | |
$ | - | |
Foreign | |
| - | | |
| 727,588 | |
Total current provision | |
| - | | |
| 727,588 | |
Deferred provision: | |
| | | |
| | |
Domestic | |
| - | | |
| - | |
Foreign | |
| 2,934 | | |
| 2,873 | |
Total deferred provision | |
| 2,934 | | |
| 2,873 | |
Total provision for income taxes | |
$ | 2,934 | | |
$ | 730,461 | |
Significant components of deferred tax assets
were as follows:
| |
June 30, 2022 | | |
June 30, 2021 | |
Deferred tax assets | |
| | | |
| | |
Net operating loss carry forward | |
$ | 1,096,936 | | |
$ | 1,018,253 | |
Allowance for doubtful accounts | |
| (12,192 | ) | |
| (15,100 | ) |
Valuation allowance | |
| (1,084,744 | ) | |
| (1,000,220 | ) |
Deferred tax assets, net | |
$ | - | | |
$ | 2,933 | |
(b) Uncertain tax positions
There were no unrecognized tax benefits as of
June 30, 2022 and 2021, respectively. Management does not anticipate any potential future adjustments in the next twelve months which
would result in a material change to its tax positions. There was no interests and penalties arising from its tax payments for the years
ended June 30, 2022.
NOTE 11 - 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 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.
For the years ended June 30, 2022, and 2021, the
Company does not have potential dilutive shares. The following table sets forth the computation of basic and diluted net income per share:
| |
For the Years Ended | |
| |
June 30, | | |
June 30, | |
| |
2022 | | |
2021 | |
Net income/(loss) | |
$ | (353,950 | ) | |
$ | 1,291,122 | |
| |
| | | |
| | |
Net income/(loss) per share: | |
| | | |
| | |
| |
| | | |
| | |
Net income (loss) per share Basic & diluted | |
$ | (0.0054 | ) | |
$ | 0.0197 | |
| |
| | | |
| | |
Weighted average shares outstanding: | |
| | | |
| | |
Basic & diluted | |
| 65,539,737 | | |
| 65,539,737 | |
NOTE 12 - 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, there is no private land ownership in PRC and all land is leased
by government 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 June
30, 2022.
NOTE 13 - MAJOR SUPPLIERS AND CUSTOMERS
For the year ended June 30, 2022, the Company
had no suppliers due to its being temporarily out of production. For the year ended June 30, 2021, the Company had three suppliers that
in aggregate accounted for approximately 78% of the Company’s purchases, with each supplier accounting for 40%, 22% and 16%, respectively.
For the year ended June 30, 2022, the Company
had no customers due to the enterprise Transformation and the COVID-19 resurgence. For the year ended June 30, 2021, the Company had six
customers that in aggregate accounted for 91% of the Company’s total sales, with each customer accounting for 23%, 18%, 16%, 13%,
12%, and 9%, respectively.
NOTE 14 - SEGMENT REPORTING
The Company was organized into three main business
segments based on the types of products being provided to customers: HLJ Huimeijia, Humankind and others. Each of the three operating
segments referenced above has separate and distinct general ledgers. The chief operating decision maker (“CODM”) receives
financial information, including revenue, gross margin, operating income, and net income produced 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 or loss by segment.
The following tables present summary information
by segment for the years ended June 30, 2022 and 2021, respectively:
| |
| | |
For the Year Ended June 30, 2022 | | |
| | |
| | |
For the Year Ended June 30, 2021 | |
| |
HLJ | | |
| | |
| | |
Consolidated | | |
HLJ | | |
| | |
| | |
Consolidated | |
| |
Huimeijia | | |
Humankind | | |
Others | | |
operations | | |
Huimeijia | | |
Humankind | | |
Others | | |
operations | |
Revenues | |
$ | 267 | | |
$ | - | | |
$ | - | | |
$ | 267 | | |
$ | 16,754 | | |
$ | 6,475,966 | | |
$ | - | | |
$ | 6,492,720 | |
Cost of revenues | |
| 1,748 | | |
| - | | |
| - | | |
| 1,748 | | |
| 96,316 | | |
| 2,754,413 | | |
| - | | |
| 2,850,729 | |
Gross profit (loss) | |
| (1,481 | ) | |
| - | | |
| - | | |
| (1,481 | ) | |
| (79,562 | ) | |
| 3,721,553 | | |
| - | | |
| 3,641,991 | |
Interest income | |
| 322 | | |
| 157,536 | | |
| 2 | | |
| 157,860 | | |
| 9 | | |
| 137,468 | | |
| 8 | | |
| 137,485 | |
Interest expense | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Depreciation and amortization | |
| 60,962 | | |
| 650,553 | | |
| - | | |
| 711,515 | | |
| 62,239 | | |
| 547,459 | | |
| - | | |
| 609,698 | |
Income tax | |
| - | | |
| 2,934 | | |
| - | | |
| 2,934 | | |
| - | | |
| 730,461 | | |
| - | | |
| 730,461 | |
Net income (loss) | |
| 509,990 | | |
| (637,666 | ) | |
| (226,274 | ) | |
| (353,950 | ) | |
| (386,910 | ) | |
| 1,865,983 | | |
| (187,951 | ) | |
| 1,291,122 | |
Total capital expenditures | |
| - | | |
| - | | |
| - | | |
| - | | |
| 5,074 | | |
| 8,582 | | |
| - | | |
| 13,656 | |
Total assets | |
$ | 2,994,826 | | |
$ | 47,724,803 | | |
$ | 27,889 | | |
$ | 50,747,518 | | |
$ | 3,453,342 | | |
$ | 50,347,870 | | |
$ | 86,925 | | |
$ | 53,888,137 | |
NOTE 15 - 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 required
to disclose.