China Health Industries Holdings, Inc. - Annual Report: 2013 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.20549

FORM 10-K

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal years ended June 30, 2013 and 2012

For the three month periods ended September 30, 2012 and 2011

For the six month periods ended December 31, 2012 and 2011

For the nine month periods ended March 31, 2013 and 2012

or

¨ 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)

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

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.0001 par value

Title of Class

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   ¨ Yes   x No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.   ¨ Yes   x No

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has 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   x No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).   ¨ Yes   x No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   ¨

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

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

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter.

Note. – If a determination as to whether a particular person or entity is an affiliate cannot be made without involving unreasonable effort and, the aggregate market value of the common stock held by non-affiliates may be calculated on the basis of assumptions reasonable under the circumstances, provided that the assumptions are set forth in this Form.

The aggregate market value of the voting and non-voting common stock of the issuer held by non-affiliates as of December 31, 2012 was approximately $8,523,126 (30,439,737 shares of common stock held by non-affiliates) based upon the closing price of the common stock on such date.

(APPLICABLE ONLY TO CORPORATE REGISTRANTS)

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

As of September 24, 2013, there are presently 62,239,737 shares of common stock, par value $0.0001 issued and outstanding.

Table of Contents

EXPLANATORY NOTE

China Health Industries Holdings, Inc., a Delaware corporation (“we”, “us” or the “Company”) has not filed financial statements with the Securities and Exchange Commission (the “SEC”) since the fiscal quarter ended March 31, 2012. The Company had been in communication with the SEC and is filing a comprehensive annual report on Form 10-K with the permission of the SEC. The comprehensive 10-K includes the required late reports for the years ending June 30, 2013 and 2012. The filing includes quarterly financial information for the three month periods ended September 30, 2012 and 2011, the three month and six month periods ended December 31, 2012 and 2011, and the three month and nine month periods ended March 31, 2013 and 2012.

PART I

Item 1. Business.

Our History and Corporate Structure

We were incorporated in the state of Arizona on July 11, 1996, and are the successor of the business known as Arizona Mist, Inc., which was founded in 1989. On May 9, 2005, we entered into a Stock Purchase Agreement and Share Exchange (effecting a reverse merger) with Edmonds 6, Inc. (“Edmonds 6”) and our name was changed to Universal Fog, Inc. Edmonds 6 was incorporated on August 19, 2004, under the laws of the State of Delaware for the purposes of engaging in any lawful corporate undertaking, including, but not limited to, selected mergers and acquisitions. Pursuant to the Stock Purchase Agreement and Share Exchange, Universal Fog, Inc. (which has been in continuous operation since 1996) became a wholly-owned subsidiary of Edmonds 6.

Pursuant to the Securities Purchase Agreement dated as of September 10, 2007, between the Company, Thomas Bontems (“Bontems”) and Xin Sun, we experienced a change in control whereby Xin Sun acquired a total of 22,000,545 shares of common stock of the Company from Bontems and the Company issued 2,061,200 shares of common stock of the Company to Xin Sun, such that upon consummation of the agreement, Xin Sun held an aggregate of 24,061,745 shares, or 51.53% of the total issued and outstanding shares of common stock of the Company on a fully-diluted basis.

Pursuant to the Asset Purchase and Sale Agreement dated as of September 10, 2007, between the Company and Universal Fog Systems, Inc., we transferred all our liabilities to the latter on September 10, 2007, and similarly all of our assets on December 31, 2008.

On December 31, 2008, we acquired the business of Harbin Humankind Biology Technology Co. Limited through the acquisition of all the share capital of China Health Industries Holdings Limited under the Share Exchange Agreement dated as of October 15, 2007. China Health Industries Holdings Limited was incorporated on July 20, 2007 in Hong Kong (“China Health HK”)

As a result of the above, China Health HK became our wholly-owned subsidiary. Because Harbin Humankind Biology Technology Co., Limited (“Harbin Humankind”) is a wholly-owned subsidiary of China Health HK and Harbin Huimeijia Medicine Company (“Huimeijia”) is in turn a subsidiary 99% of whose shares are owned by Harbin Humankind, both Harbin Humankind and Huimeijia are our indirect owned subsidiaries.

Our corporate structure as of June 30, 2013 was as below:

Recent Development

On April 10, 2013, Harbin Humankind entered into an agreement with the shareholders of Heilongjiang Huimeijia Pharmaceutical Co.,Ltd. (“HLJ Huimeijia”) to purchase all the equity interests of HLJ Huimeijia (the “HLJ Share Transfer Agreement”) for a total purchase price of $16,293,545 (RMB100,000,000). The full purchase price was prepaid to HLJ Huimeijia as of June 30, 2013. The procedures to change the ownership record of HLJ Huimeijia with the local State Administration for Industry and Commerce are currently under way, and the transaction is expected to close in the fourth quarter of the 2013 calendar year.

Business Overview

Harbin Humankind was incorporated in the People’s Republic of China (“PRC”) on December 14, 2003, and completed its Good Manufacturing Practice (“GMP”) certification on April 24, 2007.  It is in the business of the manufacture and sale of health products, “green” (or organic) food and the detection of disease susceptibility or pre-disposition through genetic studies.

Huimeijia was incorporated in the PRC on October 14, 2008. Huimeijia completed its GMP certification on July 23, 2009. We expect it will manufacture and sell our medical drugs.

Our business is conducted through our PRC subsidiaries, Harbin Humankind and Huimeijia. Our products are primarily sold through sales agents.  We plan to develop chain-stores to sell our products and to eventually sell our products online.

Products

We presently have, through Huimeijia, the license to manufacture nineteen medical drugs and have obtained a State Drug Approval Issue number for each of these drugs.  Huimeijia completed its GMP certification on July 23, 2009, and is now authorized to commercially manufacture and sell medical drugs.

We have, through Harbin Humankind, the license to manufacture and sell fourteen health supplement products, each of which have been assigned a State Good Health Issue number (as provided below).  In addition, Harbin Humankind distributes and sells 52 kinds of health food and organic “Green” food.

We are licensed to sell our products, including our medical drugs, only in the PRC.

(i) Health Supplement Products

Our “QunLe” brand Sailuozhi soft capsule, which is made from frog oil, soybean isoflavone, procyanidine (made from grape seeds) and vitamin C, is for freckle removal and supplementing the water content of the skin. The certification number issued by the State Food and Drug Administration on August 29, 2007, is 2007B0837.

On May 12, 2010, we received a patent for this product (number 200610010394.4) under the name “Run Chao” (which has since been changed to “Qunle”) with the National Bureau of Intellectual Property.

Pursuant to a Technology Transfer Agreement dated October 12, 2007, we purchased a health product known as “Kindlink” brand propolis and black ant capsule made from propolis, black ant, acanthopanax and astragalus root from Beijing Jindelikang Bio-Technology Co., Ltd (“Jindelikang”). The change of the ownership has been approved by the State Food and Drug Administration.  This product is consumed to boost one’s immunity. The certification number issued by the State Food and Drug Administration on August 20, 2004, for the license to manufacture the product is GuoShiJianZi G20040906. We have no continuing obligations under the Technology Transfer Agreement.

Pursuant to a technology transfer agreement dated January 18, 2013 (the “Technology Transfer Agreement”), we purchased twelve health products from Guangzhou Aoda Biology Beauty Healthy Technology Co., Ltd, a non-affiliated party. These twelve products are the following:

(ii) Health Food and Organic “Green” Food

Our health and organic “green” food products include (i) abalone, sea cucumber and frog oil soft capsules (Serial Number 016-2007), (ii) ganodermalucidum and aweto soft capsules (Serial Number 017-2007), (iii) propolis soft capsules, (iv) deep sea fish oil (Serial Number 012-2006),  (v) liquid calcium (Serial Number 013-2006),  (vi) multi-vitamins (Serial Number  010-2007), (vii) soybean isoflavone (Serial Number 012-2006),  (viii) royal jelly (Serial Number 011-2006), (ix) Sleeping Beauty Capsule, (x) Virility Max Capsule, (xi) Ruddy Granule, (xii) Blood Cleanser Soft Capsule, (xiii) Colon Cleanser Capsule and (xiv) Energy Elemental Power.

The major suppliers of raw materials for our products who exceeded 10% of our total purchases in the fiscal years 2013, 2012 and 2011 are the following:

For the past three fiscal years, Mr. Wang Shukui has been our biggest supplier of raw materials. The Company typically signs monthly purchase orders with its suppliers and a sample of such purchase order with Mr. Wang can be found in exhibit 10.7 hereto. All purchase orders with Mr. Wang and with our other suppliers are on similar terms. Delivery of goods is against payment. The cost of delivery is borne by the suppliers. Parties have an opportunity to inspect the goods on delivery and the Company may raise any objection to the goods within 30 days of delivery. In the event of any dispute of quality, the inspection results of the municipal drug administration shall be the final determining factor. Neither party may modify or terminate the contract of sale unilaterally.

(iii) Medical Drugs

Huimeijia purchased  Harbin Dong Feng Medicine Company’s license to manufacture 19 medical drugs on September 16, 2008. Huimeijia is now the registered owner of the license, approved by the Heilongjiang Food and Medicine Supervising Bureau.

A description of the 19 medical drugs is as follows:

Distribution

We signed a non-exclusive cooperation agreement with the Commercial Bureau of Qing’an County, Heilongjiang on September 17, 2008.  Under the agreement, various affiliated companies of the Commercial Bureau provides organic food and green food products to us for distribution and sale throughout the PRC.

We order products from the Commercial Bureau and such products are delivered within 20 days of placing the order.  The prices for these products fluctuate within a 3% range from its wholesale price, but we are not restricted in any way in dictating the retail prices for such products.  We typically have an average profit margin of approximately 20%. 

Most of our products are sold to sales agent. In fiscal year of 2012, our products were mainly sold in Jiangsu, Zhejiang , Gansu, Anhui, Shanghai and Beijing provinces or cities. In fiscal year of 2013, our products were mainly sold in Zhejiang, Beijing, Jiangsu, Shanghai, Gansu and Anhui provinces or cities.

Gene Studies

Genes are the basic elements of life. The makeup of certain genes may predispose someone to certain types of diseases.  Accordingly, the purpose of the gene study services we provide to our customers is to educate them on their pre-dispositions or susceptibility to certain types of diseases.

We entered into a cooperation contract with Shanghai Hujing Bio Technology Co., Ltd (“Hujing”) on February 28, 2008.  Pursuant to this agreement, we collect genetic samples from our customers using simple oral smear techniques and send the samples to Hujing for analysis.  Hujing will then deliver a report to us for each sample which we will transmit to our customers.

E-business

We are in the process of building the infrastructure to conduct our business over the internet. A B2C e-business call and sales center has been established and will become an integral part of our distribution channel in the future. We have employed graduates from Tsinghua University, Harbin Industry University and Harbin Engineering University to develop the ERP, CRM and OA software for our e-business. OA software has been used in our daily operation. The Company plans to sell its products via internet in 2014.

Our Customers

We sell most of our products to sales agents, who are our customers. The sales agents sell the products to the end users.

Our customers who contributed more than 10% of our consolidated revenues during the past two fiscal years are as following. There were no customers contributing more than 10% of our consolidated revenues during the fiscal year 2011.

Manufacture

We manufacture our products on a plot of land located in Jin Xing Industrial Park, Songbei District, Harbin. On June 7, 2004, the Company entered into a Land Use Purchase Contract with the local government, pursuant to which the Company agreed to purchase the right to use a piece of land, approximately 8 acres (32,000 square meters), located in Harbin County, Heilongjiang Province for commercial purposes for a fifty-year period from June 7, 2004 through June 6, 2054, for $637,261 (RMB5,248,000). The Company has fully paid to the government the consideration for the land use right on June 13, 2004. The Department of Housing and Urban Development of Harbin City approved this transaction. The Company is in the process of applying for the title certificate from the local government. The manufacturing facility on the land is 4,000 square meters and there are five production lines which is sufficient for our purposes. We package our products in bottles, plastic containers and aluminum foil bags there.

Our Development Strategy

We will focus on combining our products with traditional Chinese medicine, the creation of new products, and developing our B2C e-business and chain-stores. We plan to implement health management projects in our future chain-stores throughout China and establish a database of our clients’ health from data obtained from our B2C e-business and call center.

Our business model is to establish a one-stop shop for our customer’s health needs. From conducting a genetic profile of our customer to determine his/her susceptibility to certain types of diseases and then customizing health supplements and organic/green food to meet his/her needs, we plan to cater to our customer’s needs at all levels.  With the distribution network we hope to establish through our chain stores and B2C e-businesses, we plan to eventually branch into the sale and distribution of beauty products and medical appliances.

The Future

Within the next ten years, our goals are to:

Our target market is the health industry market. Presently, we believe that our product coverage is approximately 0.2%. We plan to open distribution stores in different provinces of China to expand our coverage. We also plan to sell our products through B2C websites to our customers.

Currently, we are not ranked in the top 500 medicine, health product and health industry companies in the PRC. We believe that if our projected increase in revenue is achieved, we will achieve our goal of becoming one of the top 500 medicine, health product, health industry companies in China.

Currently, our management group comprises people graduated from the most prestigious universities in the PRC, such as Tsinghua University and Remin University of China. We plan to further diversify management group by hiring talent both in the PRC and abroad.

Currently, our products are sold under the brand names Qunle, Kindlink and Dr. Xiao in the PRC. Our goal is eventually to expand our sales abroad to countries such as the United States of America, Russia, and Eastern Europe and South-east Asian countries.

Currently, we sell our products only in the PRC. We plan to sell our products to Russia, East Europe, and Southeast Asia in the future.

Our Business Plan

The plans designed to meet our manufacturing, marketing and profit targets include:

Manufacturing:

Marketing: Adopt an effective marketing mode to:

Product Distribution:

Our approach to manufacturing, marketing, cost control and products distribution, which is detailed above, is designed to minimize production costs and increase revenue at the same time. We feel that our procedures will enable us to reach our sales goals with an optimal manufacturing cost. The result should yield profits and a return to our investors.

Good Manufacturing Practice or “GMP” is a term that is recognized worldwide for the control and management of manufacturing and quality control testing of foods and pharmaceutical products. An important part of GMP is documentation of every aspect of the process, activities, and operations involved with drug and medical device manufacture. Additionally, GMP requires that all manufacturing and testing equipment has been qualified as suitable for use, and that all operational methodologies and procedures (such as manufacturing, cleaning, and analytical testing) utilized in the drug manufacturing process have been validated (according to predetermined specifications), to demonstrate that they can perform their purported function(s).

The Market for Healthcare and Beauty Products

The health product industry is one of the mainstream industries in the PRC, since it has a high level of recognition and importance. Recently there have been new policies for health products, which control quality, manufacturing, manufacturing environments and techniques. With the PRC’s large and aging population there will be a steady demand for healthcare products. It is predicted that the healthcare and beauty industry will flourish over the next 50 years.

The Healthcare Product Market in the PRC

At present, the PRC healthcare market is growing rapidly and the demand for Chinese medicine and healthcare products has doubled every year. According to certain estimates, the PRC is the world’s fifth largest healthcare product market and by the year 2020, the size of the PRC healthcare product market may exceed the United States and become the number one largest healthcare market.

Production: According to certain estimates, approximately 7,000 healthcare manufacturers and companies have passed the PRC GMP standards. This includes over 500 Sino-Foreign Joint Ventures. 

The Healthcare Product Market in Heilongjiang Province, PRC

The healthcare product industry is the major industry in Heilongjiang Province. Harbin Pharmaceutical Group Health Technology has been the market leader in the PRC for many years. According to a study conducted by Harbin Pharmaceutical Group in 2008, over the last 10 years products of the Harbin Pharmaceutical Group Sixth Pharm Factory, and Flaming Sun Group have been among the most popular healthcare foods and products in the PRC.

Competition in the Healthcare Products Industry

We believe our competitors are:

Harbin DaZhong Pharmaceutical Co., Ltd.(Located in Harbin, Heilongjiang Province)

Harbin ShenXinJianKang Co., Ltd. (Located in Harbin, Heilongjiang Province)

Tsinghua Unisplendour Corporation Limited (Located in Weihai City, Shandong Province)

Yeecare Company (Located in Beijing)

Heilongjiang Tianlong Pharmaceuticals Co., Ltd (Located in Helongjiang Province)

Our Competitive Advantages and Strategy

We believe that we have the following competitive advantages over our competitors:

Sales and Marketing

We plan to open more chain stores throughout the PRC.  Customers who are members of our stores will enjoy discount off our products and services. Complementing these stores, we plan to develop a 24-hour delivery system for our B2C e-business.

We incurred approximately $1,000,000 for advertising and promotion for the fiscal year of 2012 and $500,000 for the fiscal year of 2013.

Intellectual Property

We have received a patent (200610010394.4) for our “Qunle” brand Sailuozhi soft capsule from the National Bureau of Intellectual Property.  We had initially applied for and used the trade name of “RunChao” soft capsules but the trade name was changed to “Qunle”, and the change has been approved by the National Bureau of Intellectual Property.

Pursuant to a Technology Transfer Agreement dated October 12, 2007 (“Kindlink Technology Transfer Agreement”), we purchased for a total of RMB350,000 the technology, manufacturing, and trademark rights to the health product known as “Kindlink” brand propolis and black ant capsule made from propolis, black ant, acanthopanax, astragalus root from Jindelikang. The change of the ownership has been approved by the State Food and Drug Administration. This product is consumed to boost one’s immunity. The certification number issued by the State Food and Drug Administration on August 20, 2004, to permit the manufacture of the product is GuoShiJianZi G20040906. We have no continuing obligations under the Kindlink Technology Transfer Agreement.

We have the following seven trademarks:

In addition, the trademark of “dr. xiao” and its associated image under the registration number 5176731 is in the process of the name transfer from Guangzhou Aoda Biology Beauty Healthy Technology Co., Ltd from whom we acquired 12 health products in January 2013.

We have the right to use the following patent under the approval of National Bureau of Intellectual Property:

Regulation

The laws governing our business are as follows:

In the PRC, a Good Manufacturing Practice Certification (“GMP Certification”) is required for companies that produce medical drugs and health supplements.  It is also required to market our medical drugs and health supplements. According to the Administrative Rules of Drug Manufacturing and Certification issued by the State Food and Drug Administration of the PRC on September 7, 2005, the State Food and Drug Administration is responsible for the review and issuance of GMP Certification. To obtain a GMP Certification, a company shall submit its application; the State Food and Drug Administration will then conduct a technical review of the application materials; if such company passes the technical review, the State Food and Drug Administration will inspect the manufacturing site. The State Food and Drug Administration also conducts follow-up inspections on the manufacturing site. After the issuance of the GMP Certification, the State Food and Drug Administration may inspect the manufacturing site from time to time. The GMP Certifications of our wholly owned subsidiaries, Harbin Humankind and Huimeijia, are valid through February 14, 2015 and July 22, 2014, respectively. Once GMP Certification is obtained, we would be able to manufacture and market our products without further governmental approval.

Employees

We have 76 employees including 6 officers, 17 administrators, 31salespersons and 22 workers in manufacturing. We believe that we are in compliance with local prevailing wage, contractor licensing and insurance regulations, and have good relations with our employees.

We also have 19 independent workers for packing.

Item 1A. Risk Factors.

We are a smaller reporting company and therefore this item is not applicable to us.

Item 1B. Unresolved Staff Comments.

Not applicable.

Item 2. Properties.

All land belongs to the State in PRC. Enterprises and individuals can pay the State a fee to obtain a right to use a piece of land for commercial purpose or residential purpose 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 reduce the amount of time which has been consumed by the predecessor owner.

We manufacture our products on a plot of land located in Jin Xing Industrial Park, Songbei District, Harbin. On June 7, 2004, the Company entered into a Land Use Purchase Contract with the local government, pursuant to which the Company agreed to purchase the right to use a piece of land, approximately 8 acres (32,000 square meters), located in Harbin County, Heilongjiang Province for commercial purposes for a fifty-year period from June 7, 2004 through June 6, 2054, for $637,261 (RMB5,248,000). The Company has fully paid to the government the consideration for the land use right on June 13, 2004. The Department of Housing and Urban Development of Harbin City approved this transaction. The Company is in the process of applying for the title certificate from the local government. The manufacturing facility on the land is 4,000 square meters and there are five production lines which is sufficient for our purposes. We package our products in bottles, plastic containers and aluminum foil bags there.

Item 3. Legal Proceedings.

We do not know of any material, active, pending or threatened proceeding against us or our subsidiaries, nor are we, or any subsidiary, involved as a plaintiff or defendant in any material proceeding or pending litigation.

Item 4. Mine Safety Disclosures.

This item is not applicable to us.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information

Our common stock is traded over-the-counter on the OTC Markets Pink Tier under the designation CHHE.PK (previously UFOG.OB) and the market for the stock has been relatively inactive. The range of high and low bid quotations for the quarters of the last three years ended June 30, 2013, 2012 and 2011 and the subsequent interim period for which financial statements are included is listed below. The quotations are taken from Yahoo Finance. They reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not necessarily represent actual transactions.

As of September 24, 2013, we had approximately 495 shareholders of record of our common stock, including the shares held in street name by brokerage firms. The holders of common stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders. Holders of the common stock have no preemptive rights and no right to convert their common stock into any other securities. There are no redemption or sinking fund provisions applicable to the common stock.

Dividends

We have not paid dividends on our common stock and do not anticipate paying such dividends in the foreseeable future. We will rely on dividends from Humankind for our funds and PRC regulations may limit the amount of funds distributed to us from Humankind, which will affect our ability to declare any dividends.

Securities Authorized for Issuance Under Equity Compensation Plans

As of the date of this annual report, we do not have any securities authorized for issuance under any equity compensation plans and we do not have any equity compensation plans.

Registrar and Stock Transfer Agent

Our stock transfer agent is Interwest Transfer Company, Inc. at 1981 Murray Holladay Road, Suite 100 Salt Lake City, UT  84117. Their telephone number is (801)272-9294, and their fax number is (801)277-3147.

Shares Eligible for Future Sale

There is no established trading market for our common stock. Future sales of substantial amounts of our common stock in the trading market could adversely affect market prices.

Penny Stock Regulations

Our shares of common stock are subject to the “penny stock” rules of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and various rules thereunder. In general terms, “penny stock” is defined as any equity security that has a market price less than $5.00 per share, subject to certain exceptions. The rules provide that any equity security is considered to be a penny stock unless that security is registered and traded on a national securities exchange meeting specified criteria set by the SEC, issued by a registered investment company, and excluded from the definition on the basis of price (at least $5.00 per share), or based on the issuer’s net tangible assets or revenues. In the last case, the issuer’s net tangible assets must exceed $3,000,000 if in continuous operation for at least three years or $5,000,000 if in operation for less than three years or the issuer’s average revenues for each of the past three years must exceed $6,000,000.

Trading in shares of penny stock is subject to additional sales practice requirements for broker-dealers who sell penny stocks to persons other than established customers and accredited investors. Accredited investors, in general, include individuals with assets in excess of $1,000,000 or annual income exceeding $200,000 (or $300,000 together with their spouse), and certain institutional investors. For transactions covered by these rules, broker-dealers must make a special suitability determination for the purchase of the security and must have received the purchaser’s written consent to the transaction prior to the purchase. Additionally, for any transaction involving a penny stock, the rules require the delivery, prior to the first transaction, of a risk disclosure document relating to the penny stock. A broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative, and current quotations for the security. Finally, monthly statements must be sent disclosing recent price information for the penny stocks. These rules may restrict the ability of broker-dealers to trade or maintain a market in our common stock, to the extent it is penny stock, and may affect the ability of shareholders to sell their shares.

Recent Sale of Unregistered Securities

None.

Repurchase of Equity Securities

None.

Item 6. Selected Financial Data.

Not Applicable.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

FORWARD LOOKING STATEMENTS

We make certain forward-looking statements in this Annual Report on Form 10-K (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 the captions “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business,” as well as 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. 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. 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.

The nature of our business makes predicting the future trends of our revenue, expenses, and net income difficult. Thus, our ability to predict results or the actual effect of our future plans or strategies is inherently uncertain. The risks and uncertainties involved in our business could affect the matters referred to in any forward-looking statements and it is possible that our actual results may differ materially from the anticipated results indicated in these forward-looking statements. Important factors that could cause actual results to differ from those in the forward-looking statements include, without limitation, the following:

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 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 corporation incorporated under the laws of Hong Kong, its wholly owned subsidiary in China, Harbin Humankind Biology Technology Co. Limited and indirect 99% owned subsidiary, Harbin Huimeijia Medicine Company. Unless the context otherwise requires, all references to (i) “PRC” and “China” are to the People’s Republic of China; (ii) “U.S. dollar,” “$” and “US$” are to United States dollars; (iii) “RMB” are to Renminbi Yuan of China; (iv) “Securities Act” are to the Securities Act of 1933, as amended; and (v) “Exchange Act” are to the Securities Exchange Act of 1934, as amended.

Business Overview

Our principal business operations are conducted through our wholly owned subsidiary, Humankind.

Humankind was incorporated in the People’s Republic of China (“PRC”) on December 14, 2003 and completed its Good Manufacturing Practice (“GMP”) certification on April 24, 2007. It is engaged in the manufacture and sale of health products, “green” (or organic) food and the detection of disease susceptibility or pre-disposition through genetic studies.

Huimeijia, was incorporated in the PRC on October 14, 2008 and completed its GMP certification on July 23, 2009. It is anticipated that Huimeijia will be producing and selling our drugs. As of the date of this Report, Huimeijia has not started any production or sales.

We sell our products to our own sales personnel and our sales agents, who in turn sell our products to our end customers. We have sales agents located in Jiangsu, Zhejiang, Gansu, Shanghai, Anhui and Beijing, where most of our revenues were generated from. Our sales through agents in Zhejiang, Beijing, Jiangsu, Shanghai, Gansu and Anhui provinces accounted for 13%, 12%, 12%, 12%, 11% and 11% of our total sales, respectively, for the fiscal year ended June 30, 2013. Our sales through agents in Jiangsu, Zhejiang and Gansu provinces accounted for 12%, 12% and 11% of our total sales, respectively, for the year ended June 30, 2012. Although we do not currently sell our products online, we expect to do so in the future.

Through Humankind, we are licensed to manufacture and sell two health supplement products, which have a State Good Health Issue Number as provided below. Humankind distributes and sells seven kinds of health food and one kind of cosmetics product. In addition, the Company purchased 12 health supplement products on January 18, 2013 from a third-party company based in Guangdong province.

Currently, we are only licensed to sell our products in the PRC.

Our “QunLe” brand Sailuozhi soft capsule, which is made from frog oil, soybean isoflavone, procyanidine (made from grape seeds) and vitamin C, is an effective product for freckle removal and supplementing the water content of the skin. The certification number issued by the State Food and Drug Administration on August 29, 2007 was GuoShiJianZi20070356.

On May 12, 2010, we obtained a patent for this product (2006100103944) under the name “Run Chao” (which has now been changed to “Qunle”) from the National Bureau of Intellectual Property.

Pursuant to a technology transfer agreement dated October 12, 2007 (the “Jindelikang Technology Transfer Agreement”), we purchased a health product known as the “Kindlink” brand propolis and black ant capsule, which is made from propolis, black ant, acanthopanax and astragalus root, from Beijing Jindelikang Bio-Technology Co., Ltd. The change of the ownership was approved by the China Food and Drug Administration (the “CFDA”). This product is consumed to boost one’s immunity. The certification number issued by the CFDA on August 20, 2004 for the license to manufacture the product was GuoShiJianZi G20040906. We have no continuing obligations under the Jindelikang Technology Transfer Agreement.

Pursuant to a technology transfer agreement dated January 18, 2013 (the “Technology Transfer Agreement”), we purchased twelve health products from Guangzhou Aoda Biology Beauty Healthy Technology Co., Ltd, a non-affiliated party. These twelve products are the following:

Our health and organic “green” food products include (i) Sleeping Beauty Capsule, (ii) Virility Max Capsule, (iii) Ruddy Granule, (iv) Blood Cleanser Soft Capsule, (v) Colon Cleanser Capsule, and (vi) Energy Elemental Power.

We are putting more effort into developing new products and increasing our customer base. As of June 30, 2013, we have only one cosmetics product named New Looks-28 Set.

Results of Operations

For the years ended June 30, 2013 and June 30, 2012 as compared to June 30, 2011

Total revenues decreased by $51,208,530, or 86.89%, from $58,935,570 for the year ended June 30, 2012 to $7,727,040 for the same period in 2013. Total revenues decreased by $3,844,408, or 6.12%, from $62,779,978 for the ended June 30, 2011 to $58,935,570 for the same period in 2012. The decrease in revenues was attributable to a decrease in product sales. According to the current PRC Health Food and Supplement Policy, all health products which have certifications issued by the local CFDA (CFDA at the level lower than national level, such as provincial level and city level) cannot renew their certification once it has expired. Only health products certified by the CFDA can renew their certifications and continue to be sold in the market. Currently, other than the twleve health supplement products we purchased in January 2013, Humankind has eight health products in our product portfolio, of which only Waterlilies Soft Capsule (Sailuozhi) and Propolis and Black Ant Capsule are certified by the CFDA. All other products were certified by the local CFDA, and their certifications expired by May 2012. In order to reduce operation risk, the Company had decided to suspend its manufacture and sale of health products certified by the local CFDA. Currently, only Virility Max Capsule, Propolis, Black Ant Capsule, Waterlilies Soft Capsule (Sailuozhi), and Colon Cleanser Capsule are still sold in the market, reducing our sales from seven to four products. This government policy change was unforeseeable and has caused a dramatic decrease in the Company’s sales. In addition, “poison capsule” incidence cuased by Jilin Xiuzheng Pharmaceuticals, Inc. in April 2012 raised doubt for consumers to consume health food made of capsule shell, soft capsule shell or even gelatin related food (Gelatin is the main ingredient of capsule shell) in China. Most of our consumers prefer to buying product portfolio. The fact we only had two CFDA certified products during the fiscal 2012 also resulted in fewer orders placed to us by the customers. Nevertheless, as stated above, the Company entered into an agreement dated January 18, 2013 (“Technology Transfer Agreement”) with a non-affiliate company based in Guangdong province, pursuant to which the company purchased twelve other health supplement products, with certification numbers issued by the CFDA. As of June 30, 2013, the Company had 14 health supplement products and one cosmetics product named New Looks-28 Set.

Our cost of sales decreased $28,177,875, or 80.67% from $34,930,574 for the year ended June 30, 2012 to $6,752,699 for the same period in 2013. The decrease in the cost of sales was a direct result of the decrease in sales. Our cost of sales increased $1,595,240 or 4.79% from $33,335,334 for the year ended June 30, 2011 to $34,930,574 for the same period in 2012. This increase in the costs of sales was a direct result of the rising cost of raw materials between the respective periods.

Our gross margin decreased 28.12% from 40.73% for the year ended June 30, 2012 to 12.61% for the year ended June 30, 2013. Our gross margin decreased 6.17% from 46.90% for the year ended June 30, 2011 to 40.73% for the year ended June 30, 2012. This decrease was primarily attributable to the increased discounts in sales prices offered to the regional sales agents and customers.

Sales by Product Line

A break-down of our sales by major product line for the years ended June 30, 2013, 2012 and 2011 was as follows:

*All of the products are manufactured by the Company except the New Looks-28 Set.

Operating Expenses

The following table summarizes our operating expenses for the years ended June 30, 2013, 2012 and 2011, respectively:

Total operating expenses for the year ended June 30, 2013 decreased $3,274,495 or 65.16% compared to the corresponding period in 2012. Total operating expenses for the year ended June 30, 2012 decreased $1,021,328 or 16.89% compared to the corresponding period in 2011. The lower operating expenses were primarily attributable to the decrease in selling expenses. The Company paid bonuses to those sales agents whose sales volume exceeded the annual sales amounts required by their respective agreements. Per their agreements, the bonuses were paid 50% in cash and 50% in the Company’s products in 2011. There were no bonus payments to sales agents in 2012 and 2013.

Interest Income and Interest Expense

Interest income was $247,513 for the year ended June 30, 2013 as compared to $304,619 for the year ended June 30, 2012. This decrease of $57,106 or 18.75% was primarily due to the decrease in interest income received from cash deposits in the bank. Interest income was $227,837 for the year ended June 30, 2011. The increase of $76,782 or 33.70% for the year ended June 30, 2012 as compared to the year ended June 30, 2011 was primarily due to the increase in interest income received from cash deposits in the bank.

Income Taxes

Income taxes decreased $4,784,937, or 99.50%, from $4,808,869 for the year ended June 30, 2012 to $23,932 for the year ended June 30, 2013. This decrease was primarily attributable to the decrease in income before income taxes, in the amount of $19,813,266. Income taxes decreased by $1,115,632, or 18.83%, from $5,924,501 for the year ended June 30, 2011 to $4,808,869 for the year ended June 30, 2012. This decrease was primarily attributable to the decrease in income before income taxes, in the amount of $4,314,221.

Net Income (Loss) and Earnings Per Share

Net loss was $552,923 for the year ended June 30, 2013, and the net income was $14,475,406 for the year ended June 30, 2012, a decrease of $15,028,329. From $17,673,995 for the year ended June 30, 2011 to $14,475,406 for the year ended June 30, 2012, there was a decrease of $3,198,589. Both decreases were primarily attributable to the decrease in revenue, which was greater than the decrease in cost of goods sold and operating expenses.

Earnings per share were ($0.0089) for the year ended June 30, 2013, a decrease of $0.2415 per share as compared to $0.2326 per share for the year ended June 30, 2012. The decrease was primarily attributable to a decrease in net income in the amount of $15,028,329. Earnings per share were $0.2840 for the year ended June 30, 2011, a decrease of $0.0514 per share from $0.2840 for the year ended June 30, 2011 to $0.2326 for the year ended June 30, 2012. The decrease was primarily attributable to a decrease in net income in the amount of $3,198,589.

2014 Outlook

Overall, we anticipate our total revenues for the year ended June 30, 2014 versus the year ended June 30, 2013 to increase by 48% or approximately $3.7 million, with growth in all categories of our product sales. The gross profit margin for the year ended June 30, 2014 is expected to be approximately 33%, and we estimate our overall net profit margin for the year ended June 30, 2014 to be 13%. There is, however, no assurance that these predictions will be reached.

Liquidity and Capital Resources

We believe our current working capital position together with our expected future cash flows from operations 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 position, our working capital, and our cash flow activity as of June 30, 2013, 2012 and 2011 and for each year then ended:

As of June 30, 2013, cash and cash equivalents were $28,839,609 as compared to $44,504,531 as of June 30, 2012. The decreased cash and cash equivalents position was $15,664,922 or 35.20% at June 30, 2013. This decrease was primarily attributable to an increase in cash used in operating activities and investing activities. There was an increase in cash and cash equivalents in the amount of $20,759,711, or 87.43%, as of June 30, 2012 compared to June 30, 2011. This increase was primarily attributable to an increase in cash flow provided by operating activities.

Our working capital at June 30, 2013 was $44,553,869 compared to working capital of $46,371,088 at June 30, 2012. Working capital decreased $1,817,219 or 3.92% in 2013, which decrease was primarily attributable to the decrease in accounts receivable in the amount of $2,181,457. Working capital was $31,774,310 as of June 30, 2011. The increase in working capital of $14,596,778, or 45.94%, as at June 30, 2012 compared to June 30, 2011 was principally a result of an increase in cash and cash equivalents over that period in the amount of $20,759,711, and a decrease in accounts receivable and other receivables over that period in the amount of $9,423,900. Management considers current working capital and borrowing capabilities adequate to cover our current operating and capital requirements.

Cash flow used in operating activities was $10,489,376 for the year ended June 30, 2013 and cash flow provided by operating activities was $20,892,290 for the year ended June 30, 2012. This decrease in cash provided by operating activities of $31,381,666, or 150.21%, was primarily attributable to a decrease in net income in the amount of $15,028,329, an increase in accounts receivable and other receivables in the amount of $23,440,357, and a decrease in the payment of taxes and other expenses in the amount of $3,792,774. Furthermore, Harbin Songbei District Development and Construction Committee paid back approximately $3,305,525 (RMB 21,000,000) to the Company on December 21, 2012 for the return of the Company’s prepayment of the land use right. Cash flow provided by operating activities was $9,344,473 for the year ended June 30, 2011. This increase in cash provided by operating activities of $11,547,817, or 123.58%, for the period ended June 30, 2012 was primarily attributable to the collection of accounts receivable and other receivables in the amount of $17,934,595, and an increase in the payment of taxes and other expenses in the amount of $4,914,741.

Cash flow used in investing activities was $6,443,089 for the year ended June 30, 2013, and cash flow used in investing activities was $551,085 for the year ended June 30, 2012. This increase in cash used in investing activities of $5,892,004, or 1,069.16%, was primarily attributable to an increase in intangible assets in the amount of $4,805,481, and an increase in construction in progress in the amount of $1,159,942. Cash flow used in investing activities was $3,134 for the year ended June 30, 2011. This increase in cash used in investing activities for the year ended June 30, 2012 of 547,951, or 17,484.08%, was primarily attributable to an increase in construction in progress in the amount of $474,803.

We have no present agreements or commitments with respect to any material acquisitions of businesses, products, product rights or technologies or any other material capital expenditures, other than those described herein. 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. Due to the ongoing global economic crisis, we believe it may be difficult to obtain additional financing if needed. 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.

Plan of Operation

We will continue to focus on expanding our operations, developing new products and increasing our customer base. Additionally, we are putting more effort into developing our distribution channels by hiring more sales agents and sales people. We presently have enough liquidity to meet our expansion plans. However, depending on the level and speed of any growth, the Company may need additional funding in the future.

Currency Exchange Fluctuations

Aggregate net foreign currency transactions included in the income statement were gains of $1,837,051, $653,748 and $1,421,363, respectively, for the years ended June 30, 2013, 2012 and 2011, primarily as a result of the decline of the value of the USD to the RMB. The average rates of exchange from USD to RMB were 6.2430 to 1, 6.3543 to 1 and 6.6255 to 1 for the years ended June 30, 2013, 2012 and 2011, respectively.

Off-Balance Sheet Arrangements

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

Critical Accounting Policies and Estimates

This discussion and analysis of financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures. We evaluate our estimates on an on-going basis, including those related to property, plant and equipment, inventories, revenue recognition, accounts receivable, derivative warrant liability, warranty reserve, goodwill and intangibles, stock based compensation, and foreign currency transactions and translation. We base our estimates on historical experience and on various other market-specific assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results, however, may differ significantly from these estimates.

We believe the following critical accounting policies reflect the more significant judgments and estimates used in the preparation of our consolidated financial statements:

Method of Accounting

The Company maintains its general ledger and journals with the accrual method accounting for financial reporting purposes. The financial statements and notes are representations of the management. Accounting policies adopted by the Company conform to generally accepted accounting principles in the United States of America and have been consistently applied in the presentation of financial statements.

Accounts Receivable

The accounts receivable incurred in the current reporting period were primarily due to the receivables from our sales agents. These sales agents are our customers and we offer these agents a 60-90 day payment term in order to increase our sales. Most of the Company’s products were sold to the sales agents. The PRC does not have a well-established system of sales on credit. Our sales agreements with our customers provide that the risk of loss passes to the customer upon delivery, and that we accept product exchanges but we do not have a return policy. Accordingly, accounts receivable are recorded at the invoiced amount and do not bear interest. We extend unsecured credit to our customers in the ordinary course of business, but mitigate 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 history, the customer’s current credit worthiness, and the economic environment.

Accounts receivable will be recorded at the invoiced amount. We use the aging analysis method quarterly on accounts receivable.

Inventory

We value our inventory at the lower of cost or market value. Our inventory includes various raw materials, semi-finished products, finished products, packages and low-value consumption goods, labors and overhead. Inventory is stated at cost using the weighted average cost method and includes any related production overhead costs incurred in bringing the inventory to its present location and condition. Inventory costs include purchase costs, processing costs and other related costs. Purchase costs include purchase price, related taxes, transportation fees, handling costs, insurance fees and other related fees. We evaluate inventory for excess, slow moving, and obsolete inventory as well as inventory the volume of which is in excess of its net realizable value.  Our management uses estimates of future demand and sales prices for each product to determine appropriate inventory reserves.

Amortization of low-value consumption goods and packaging is based on the direct write-off method. The Company conducts a count of physical inventory at the end of each quarter.

Recognition of Revenue

Our revenue comprises of the fair value of the consideration received or receivable for the sale of goods and services, net of value-added tax and other sales taxes, discounts, and after eliminating sales within subsidiaries of the parent company.

Our sales occur either through a purchase order submitted by our sales agents or through our direct marketing sales personnel. Our principal sources of revenue are from sales of our products through our sales agents. We recognize revenue when title to the product, ownership and risk of loss have transferred to the customer, persuasive evidence of an arrangement exists and collection of the sales proceeds is reasonably assured, all of which generally occur upon shipment of the goods to the customer.

The Company may offer sales incentives and cash discounts to customers or resellers, which it recognizes as an operating expense. For the years ended June 30, 2013 and 2012, the Company did not provide any sales incentives to its customers or resellers.

We allow our customers to return products for exchange or credit subject to certain limitations. A provision for such returns is recorded based upon historical experience. We have reserves against revenue recognized for product exchange. The consumer credit system has not been well established and recognized by sellers in the PRC. With the exception of our sales agents, our customers pay us upon receipt of their orders.

Cost

The matching principle requires that costs have to be matched with revenues, and the Company ensures that our costs always match the corresponding revenue. The cost of production is calculated based on the actual number of products manufactured, and is matched with revenue as long as it is reasonable to do so. There has been no change in our calculation of the cost of production. There are no circumstances that cause variations in our calculation of the cost of production. Expenses are recognized not when the product is produced, but when the product actually makes its contribution to revenue. If no connection to revenue can be established in the current period, cost may be charged as an expense for the current period (e.g. office salaries and other administrative expenses). This principle allows greater evaluation of actual profitability and performance.

We calculate the cost of production at the end of each month. If there is any work in progress, the cost of production is allocated between finished products and work in progress. Below is a detailed step-by-step description of our cost of production calculation:

Foreign Currency Translation

The Company’s two operating subsidiaries maintain their financial statements in the functional currency, which is RMB. Another subsidiary maintains its financial statements in the Hong Kong Dollar (“HKD”). Monetary assets and liabilities denominated in currencies other than the functional currencies are translated into the functional currency at the exchange rates prevailing on the balance sheet dates. Transactions undertaken in currencies other than the functional currency are translated into the functional currency at the exchanges rates prevailing on the dates of the transaction. Exchange gains or losses arising from foreign currency transactions are included in the determination of net income for the respective periods.

For financial reporting purposes, the financial statements of subsidiaries, which are prepared using the functional currency, have been translated into the reporting currency, the United States Dollars (“USD”). Assets and liabilities are translated at the prevailing exchange rate on each reporting period end date, revenue and expenses are translated at the average exchange rates, and stockholders’ equity is translated at historical exchange rates. Translation adjustments are not included in determining net income but are included in foreign exchange adjustment to other comprehensive income, a component of stockholders’ equity.

Results of Operations

For the three months ended September 30, 2012 as compared to the three months ended September 30, 2011

Revenue

Total revenues decreased by $20,740,218, or 93.45%, for the three months ended September 30, 2012 compared to the same period in 2011. The decrease in revenues was attributable to a decrease in product sales. According to the current PRC Health Food and Supplement Policy, all health products which have certifications issued by the local CFDA (CFDA at the level lower than national level, such as provincial level and city level) cannot renew their certification once it has expired. Only health products certified by the CFDA can renew their certificates and continue to be sold in the market. As of September 30, 2012, Humankind had seven health products in our product portfolio, of which only Waterlilies Soft Capsule (Sailuozhi) and Propolis and Black Ant Capsule were certified by the CFDA. All other products were certified by the local CFDA, and their certifications expired by May 2012. In order to reduce operation risk, the Company had decided to suspend its manufacture and sale of health products certified by the local CFDA. As of September 30, 2012, only Virility Max Capsule, Colon Cleanser Capsule, Waterlilies Soft Capsule (Sailuozhi) and Propolis and Black Ant Capsule were still sold in the market, reducing our sales from seven to four products. This government policy change was unforeseeable and has caused a dramatic decrease in the Company’s sales. In addition, the “poison capsule” incidence caused by Jilin Xiuzheng Pharmaceuticals, Inc. in April 2012 raised concerns in consumers about consuming health foods made with capsule shells, soft capsule shells or gelatin (which is the main ingredient of capsule shell) in China. Most of our consumers prefer to buy product portfolios. The fact that we only had two products certified by the CFDA during the three months ended September 30, 2012 also resulted in fewer orders placed with us by customers. The Company continued to focus on expanding its operations, developing new products and increasing its customer base.

Our cost of sales decreased $11,853,418, or 91.39% for the three months ended September 30, 2012 as compared to the same period in 2011. The decrease in the cost of sales was a direct result of the decrease in sales.

Our gross margin decreased 18.39% from 41.56% for the three months ended September 30, 2011 to 23.17% for the three months ended September 30, 2012. This decrease was primarily attributable to the increased discounts in sales prices offered to the regional sales agents and customers.

Sales by Product Line

The following table summarizes a break-down of our sales by major product line for the three months ended September 30, 2012 and 2011, respectively:

*All of the products are manufactured by the Company.

Operating Expenses

The following table summarizes our operating expenses for the three months ended September 30, 2012 and 2011, respectively:

Total operating expenses for the three months ended September 30, 2012 decreased $1,489,726 or 75.32% compared to the same period in 2011. The lower operating expenses were primarily attributable to the decrease in selling expenses. The Company paid bonuses to those sales agents whose sales volume exceeded the annual sales amounts required by their respective agreements. Per their agreements, the bonuses were paid 50% in cash and 50% in the Company’s products. There was no bonus payment for three months ended September 30, 2012.

Interest Income and Interest Expense

Interest income was $61,480 for the three months ended September 30, 2012 and $73,138 for the three months ended September 30, 2011. This decrease of $11,658 or 15.94% was primarily due to the decrease in interest income received from cash deposits in the bank.

Income Taxes

Income taxes were $7,743 for the three months ended September 30, 2012 and $1,996,728 for the three months ended September 30, 2011. This decrease of $1,988,985 or 99.61% was primarily attributable to the decrease in income before income taxes, in the amount of $7,401,632.

Net Income (Loss) and Earnings Per Share

Net loss was $97,749 for the three months ended September 30, 2012, compared to a net income of $5,314,898 for the three months ended September 30, 2011. This decrease of $5,412,647 was primarily attributable to a decrease in revenue which was greater than the aggregate decrease in cost of goods sold and operating expenses, resulting in a decrease in net income.

Earnings per share were ($0.0016) for the three months ended September 30, 2012, a decrease of $0.0870 per share as compared to $0.0854 per share for the same period in 2011. This decrease was primarily attributable to the decrease in net income in the amount of $5,412,647.

For the three months ended December 31, 2012 as compared to the three months ended December 31 2011

Revenue

Total revenues decreased by $21,967,718, or 91.63%, for the three months ended December 31, 2012 compared to the same period in 2011. The decrease in revenues was attributable to a decrease in product sales. According to the current PRC Health Food and Supplement Policy, all health products which have certifications issued by the local CFDA (CFDA at the level lower than national level, such as provincial level and city level) cannot renew their certification once it has expired. Only health products certified by the CFDA can renew their certificates and continue to be sold in the market. As of December 31, 2012, Humankind had seven health products in our product portfolio, of which only Waterlilies Soft Capsule (Sailuozhi) and Propolis and Black Ant Capsule were certified by the CFDA. All other products were certified by the local CFDA, and their certifications expired by May 2012. In order to reduce operation risk, the Company had decided to suspend its manufacture and sale of health products certified by the local CFDA. As of December 31, 2012, only Virility Max Capsule, Colon Cleanser Capsule, Waterlilies Soft Capsule (Sailuozhi) and Propolis and Black Ant Capsule were still sold in the market, reducing our sales from seven to four products. This government policy change was unforeseeable and has caused a dramatic decrease in the Company’s sales. In addition, the “poison capsule” incidence caused by Jilin Xiuzheng Pharmaceuticals, Inc. in April 2012 raised concerns in consumers about consuming health foods made with capsule shells, soft capsule shells or gelatin (which is the main ingredient of capsule shell) in China. Most of our consumers prefer to buy product portfolios. The fact that we only had two products certified by the CFDA during the three months ended December 31, 2012 also resulted in fewer orders placed with us by customers. The Company continued to focus on expanding its operations, developing new products and increasing its customer base. As of December 31, 2012, the Company had only one cosmetics product named New Looks-28 Set.

Our cost of sales decreased $12,763,621, or 88.63% for the three months ended December 31, 2012 compared to the same period in 2011. The decrease in the cost of sales was a direct result of the decrease in sales.

Our gross margin decreased 21.57% from 39.93% for the three months ended December 31, 2011 to 18.36% for the three months ended December 31, 2012. This decrease was primarily attributable to the increased discounts in sales prices offered to the regional sales agents and customers.

Sales by Product Line

The following table summarizes a break-down of our sales by major product line for the three months ended December 31, 2012 and 2011, respectively:

*All of the products are manufactured by the Company except the New Looks-28 Set.

Operating Expenses

The following table summarizes our operating expenses for the three months ended December 31, 2012 and 2011, respectively:

Total operating expenses for the three months ended December 31, 2012 decreased $1,924,616 or 79.46% compared to the same period in 2011. The lower operating expenses were primarily attributable to the decrease in selling expenses. The Company paid bonuses to those sales agents whose sales volume exceeded the annual sales amounts required by their respective agreements. Per their agreements, the bonuses were paid 50% in cash and 50% in the Company’s products. There was no bonus payment for the three months ended December 31, 2012.

Interest Income and Interest Expense

Interest income was $62,059 for the three months ended December 31, 2012, as compared to $76,778 for the three months ended December 31, 2011. This decrease of $14,719 or 19.17% was primarily due to the decrease in interest income received from cash deposits in the bank.

Income Taxes

Income taxes were $15,980 for the three months ended December 31, 2012 as compared to $2,041,873 for the same period in 2011, a decrease of $2,025,893. This decrease was primarily attributable to the decrease in income before income taxes, in the amount of $7,300,795.

Net Income (Loss) and Earnings Per Share

Net loss was $83,181 for the three months ended December 31, 2012, compared to a net income of $5,178,531 for the three months ended December 31, 2011. This decrease of $5,261,712 was primarily attributable to a decrease in revenue which was greater than the aggregate decrease in cost of goods sold and operating expenses, resulting in a decrease in net income.

Earnings per share were $(0.0013) for the three months ended December 31, 2012, a decrease of $0.0845 per share as compared to $0.0832 per share for the same period in 2011. This decrease was primarily attributable to the decrease in net income in the amount of $5,261,712.

For the six months ended December 31, 2012 as compared to the six months ended December 31 2011

Revenue

Total revenues decreased by $42,707,936, or 92.51%, for the six months ended December 31, 2012 compared to the same period in 2011. This decrease in revenues was attributable to a decrease in product sales. According to the current PRC Health Food and Supplement Policy, all health products which have certifications issued by the local CFDA (CFDA at the level lower than national level, such as provincial level and city level) cannot renew their certification once it has expired. Only health products certified by the CFDA can renew their certificates and continue to be sold in the market. As of December 31, 2012, Humankind had seven health products in our product portfolio, of which only Waterlilies Soft Capsule (Sailuozhi) and Propolis and Black Ant Capsule were certified by the CFDA. All other products were certified by the local CFDA, and their certifications expired by May 2012. In order to reduce operation risk, the Company had decided to suspend its manufacture and sale of health products certified by the local CFDA. As of December 31, 2012, only Virility Max Capsule, Colon Cleanser Capsule, Waterlilies Soft Capsule (Sailuozhi) and Propolis and Black Ant Capsule were still sold in the market, reducing our sales from seven to four products. This government policy change was unforeseeable and has caused a dramatic decrease in the Company’s sales. In addition, the “poison capsule” incidence caused by Jilin Xiuzheng Pharmaceuticals, Inc. in April 2012 raised concerns in consumers about consuming health foods made with capsule shells, soft capsule shells or gelatin (which is the main ingredient of capsule shell) in China. Most of our consumers prefer to buy product portfolios. The fact that we only had two products certified by the CFDA during the six months ended December 31, 2012 also resulted in fewer orders placed with us by customers. The Company continues to focus on expanding its operations, developing new products and increasing its customer base. As of December 31, 2012, the Company had only one cosmetics product named New Looks-28 Set.

Our cost of sales decreased $24,617,039, or 89.94% for the six months ended December 31, 2012 compared to the same period in 2011. The decrease in the cost of sales was a direct result of the decrease in sales.

Our gross margin decreased 20.33% from 40.71% for the six months ended December 31, 2011 to 20.38% for the six months ended December 31, 2012. This decrease was primarily attributable to the increased discounts in sales prices offered to the regional sales agents.

Sales by Product Line

The following table summarizes a break-down of our sales by major product line for the six months ended December 31, 2012 and 2011, respectively::

*All of the products are manufactured by the Company except the New Looks-28 Set.

Operating Expenses

The following table summarizes our operating expenses for the six months ended December 31, 2012 and 2011, respectively:

Total operating expenses for the six months ended December 31, 2012 decreased $3,414,342 or 77.60% compared to the same period in 2011. The lower operating expenses were primarily attributable to the decrease in selling expenses. The Company paid bonuses to those sales agents whose sales volume exceeded the annual sales amounts required by their respective agreements. Per their agreements, the bonuses were paid 50% in cash and 50% in the Company’s products. There were no bonus payments for the six months ended December 31, 2012.

Interest Income and Interest Expense

Interest income was $123,539 for the six months ended December 31, 2012, as compared to $149,916 for the six months ended December 31, 2011. This decrease of $26,377 or 17.59% was primarily due to the decrease in interest income received from cash deposits in the bank.

Income Taxes

Income taxes were $23,723 for the six months ended December 31, 2012 as compared to $4,038,601 for the same period in 2011, a decrease of $4,014,878. This decrease was primarily attributable to the decrease in income, before income taxes, in the amount of $14,716,627.

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Net Income (Loss) and Earnings Per Share

Net loss was $180,930 for the six months ended December 31, 2012, compared to a net income of $10,493,429 for the six months ended December 31, 2011. This decrease of $10,674,359 was primarily attributable to a decrease in revenue which was greater than the aggregate decrease in cost of goods sold and operating expenses, resulting in a decrease in net income.

Earnings per share were $(0.0029) which for the six months ended December 31, 2012, a decrease of $0.1715 per share as compared to $0.1686 per share for the same period in 2011. This decrease was primarily attributable to the decrease in net income in the amount of $10,674,359.

Results of Operations

For the three months ended March 31, 2013 as compared to the three months ended March 31, 2012

Revenue

Total revenues decreased by $8,770,843, or 77.96%, for the three months ended March 31, 2013 compared to the same period in 2012. The decrease in revenues was attributable to a decrease in product sales. According to the current PRC Health Food and Supplement Policy, all health products which have certifications issued by the local CFDA (CFDA at the level lower than national level, such as provincial level and city level) cannot renew their certification once it has expired. Only health products certified by the CFDA can renew their certificates and continue to be sold in the market. As of March 31, 2013, Humankind had seven health products in our product portfolio, of which only Virility Max Capsule, Colon Cleanser Capsule, Waterlilies Soft Capsule (Sailuozhi) and Propolis and Black Ant Capsule were certified by the CFDA. All other products were certified by the local CFDA, and their certifications expired by May 2012. In order to reduce operation risk, the Company had decided to suspend its manufacture and sale of health products certified by the local CFDA. As of March 31, 2013, only Waterlilies Soft Capsule (Sailuozhi) and Propolis and Black Ant Capsule were still sold in the market, reducing our sales from seven to four products. This government policy change was unforeseeable and has caused a dramatic decrease in the Company’s sales. In addition, the “poison capsule” incidence caused by Jilin Xiuzheng Pharmaceuticals, Inc. in April 2012 raised concerns in consumers about consuming health foods made with capsule shells, soft capsule shells or gelatin (which is the main ingredient of capsule shell) in China. Most of our consumers prefer to buy product portfolios. Nevertheless, the Company entered into an agreement dated January 18, 2013 (“Technology Transfer Agreement”) with a non-affiliate company based in Guangdong province, pursuant to which the Company purchased twelve health supplement products, with certification numbers issued by the CFDA. As of March 31, 2013, the Company had fourteen health supplement products and one cosmetics product named New Looks-28 Set.

Our cost of sales decreased $4,100,693, or 64.01% for the three months ended March 31, 2013 compared to the same period in 2012. This decrease in the cost of sales was a direct result of the decrease in sales.

Our gross margin decreased 36.04% from 43.06% for the three months ended March 31, 2012 to 7.02% for the three months ended March 31, 2013. This decrease was primarily attributable to the increased discounts in sales prices offered to the regional sales agents and customers.

Sales by Product Line

The following table summarizes a break-down of our sales by major product line for the three months ended March 31, 2013 and 2012, respectively:

All of the products are manufactured by the Company except the New Looks-28 Set.

Operating Expenses

The following table summarizes our operating expenses for the three months ended March 31, 2013 and 2012, respectively:

Total operating expenses for the three months ended March 31, 2013 decreased $224,872 or 30.45% compared to the same period in 2012. The lower operating expenses were primarily attributable to the decrease in selling expenses. The Company paid bonuses to those sales agents whose sales volume exceeded the annual sales amounts required by their respective agreements. Per their agreements, the bonuses were paid 50% in cash and 50% in the Company’s products. The was no bonus payment for three months ended March 31, 2013.

Interest Income and Interest Expense

Interest income was $66,951 for the three months ended March 31, 2013 as compared to $82,860 for the three months ended March 31, 2012. This decrease of $15,909 or 19.20% was primarily due to the decrease in interest income received from cash deposits in the bank.

Income Taxes

Income taxes were $93 for the three months ended March 31, 2013 as compared to $550,167 for the same period in 2012, a decrease of $550,074. This decrease was primarily attributable to the decrease in income before income taxes, in the amount of $4,454,280.

Net Income (Loss) and Earnings Per Share

Net loss was $272,781 for the three months ended March 31, 2013, compared to a net income of $3,631,425 for the three months ended March 31, 2012. This decrease of $3,904,206 was primarily attributable to a decrease in revenue which was greater than the aggregate decrease in cost of goods sold and operating expenses, resulting in a decrease in net income.

Earnings per share were ($0.0044) for the three months ended March 31, 2013, a decrease of $0.0627 per share as compared to $0.0583 per share for the same period in 2012. This decrease was primarily attributable to the decrease in net income in the amount of $3,904,206.

For the nine months ended March 31, 2013 as compared to the nine months ended March 31, 2012

Revenue

Total revenues decreased by $50,225,249 or 89.43% for the nine months ended March 31, 2013 compared to the same period in 2012. This decrease in revenues was attributable to a decrease in product sales. According to the current PRC Health Food and Supplement Policy, all health products which have certifications issued by the local CFDA (CFDA at the level lower than national level, such as provincial level and city level) cannot renew their certification once it has expired. Only health products certified by the CFDA can renew their certificates and continue to be sold in the market. As of March 31, 2013, Humankind had seven health products sold in our product portfolio, of which only Waterlilies Soft Capsule (Sailuozhi) and Propolis and Black Ant Capsule were certified by the CFDA. All other products were certified by the local CFDA, and their certifications expired by May 2012. In order to reduce operation risk, the Company had decided to suspend its manufacture and sale of health products certified by the local CFDA. As of March 31, 2013, only Virility Max Capsule, Colon Cleanser Capsule, Waterlilies Soft Capsule (Sailuozhi) and Propolis and Black Ant Capsule were still sold in the market, reducing our sales from seven to four products. This government policy change was unforeseeable and has caused a dramatic decrease in the Company’s sales. In addition, the “poison capsule” incidence caused by Jilin Xiuzheng Pharmaceuticals, Inc. in April 2012 raised concerns in consumers about consuming health foods made with capsule shells, soft capsule shells or gelatin (which is the main ingredient of capsule shell) in China. Most of our consumers prefer to buy product portfolios. Nevertheless, the Company entered into an agreement dated January 18, 2013 (“Technology Transfer Agreement”) with a non-affiliate company based in Guangdong province, pursuant to which the Company purchased twelve health supplement products, with certification numbers issued by the CFDA. As of March 31, 2013, the Company has fourteen health supplement products and one cosmetics product named New Looks-28 Set.

Our cost of sales decreased $28,717,732 or 85.02% to $5,059,918 for the nine months ended March 31, 2013 as compared to $33,777,650 for the same period in 2012. This decrease in the cost of sales was a direct result of the decrease in sales.

Our gross margin decreased 25.06% from 39.86% for the nine months ended March 31, 2013 to 14.8% for the nine months ended March 31, 2012. This decrease was primarily attributable to the increased discounts in sales prices offered to the regional sales agents and customers.

Sales by Product Line

The following table summarizes a break-down of our sales by major product line for the nine months ended March 31, 2013 and 2012, respectively:

*All of the products are manufactured by the Company except the New Looks-28 Set.

Operating Expenses

The following table summarizes our operating expenses for the nine months ended March 31, 2013 and 2012, respectively:

Total operating expenses for the nine months ended March 31, 2013 decreased $2,385,685 or 61.41% to $1,499,329 from $3,885,014 for the same period in 2012. The lower operating expenses were primarily attributable to the decrease in selling expenses. The Company paid bonuses to those sales agents whose sales volume exceeded the annual sales amounts required by their respective agreements. Per their agreements, the bonuses were paid 50% in cash and 50% in the Company’s products. There was no bonus payment for the nine months ended March 31, 2013.

Interest Income and Interest Expense

Interest income was $190,490 for the nine months ended March 31, 2013 as compared to $232,776 for the nine months ended March 31, 2012. This decrease of $42,286 or 18.17% was primarily due to a decrease in interest income received from cash deposits in the bank.

Income Taxes

Income taxes decreased $4,564,952 to $23,816 for the nine months ended March 31, 2013 as compared to $4,588,768 for the same period in 2012. This decrease was primarily attributable to the decrease in income before income taxes, in the amount of $19,143,516.

Net Income (Loss) and Earnings Per Share

Net loss was $453,711 for the nine months ended March 31, 2013, a decrease of $14,578,564 as compared to $14,124,853 for the same period in 2012. This decrease was primarily attributable to a decrease in revenue which was greater than the aggregate decrease in cost of goods sold and operating expenses, resulting in a decrease in net income.

Earnings per share were ($0.073) for the nine months ended March 31, 2013, a decrease of $0.2342 per share as compared to $0.2269 per share for the same period in 2012. This decrease was primarily attributable to the decrease in net income in the amount of $14,578,564.

Liquidity and Capital Resources

We believe our current working capital position, together with our expected future cash flows from operations, 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 position, our working capital, and our cash flow activity as of September 30, 2012 and 2011 and for each of the three months then ended:

As of September 30, 2012, cash and cash equivalents were $45,846,175 as compared to $26,343,592 as of September 30, 2011. The increased cash and cash equivalents position was $19,502,583 or 74.03% at September 30, 2012. This increase in cash and cash equivalents was primarily attributable to the decrease in accounts receivable and other receivables in the amount of $15,562,975.61.

Our working capital position at September 30, 2012 was $46,807,721, compared to working capital of $37,140,983 as of September 30, 2011. This increase of $9,666,738 or 26.03% was principally funded by (i) the increase in cash and cash equivalents in the amount of $19,502,582.92, (ii) the decrease in accounts receivable and other receivables in the amount of $15,562,976, and (iii) the decrease in accounts payable, other payables, wages payable and tax payable in the amount of $6,6166,660.

Cash provided by operating activities was $854,027 for the three months ended September 30, 2012, compared to cash provided by operating activities of $2,332,867 for the same period in 2011. The decrease of $1,478,840 in cash provided by operating activities was primarily attributable to (i) the decrease in net income in the amount of $5,412,647, (ii) the increase in the payment of taxes and other expenses in the amount of $2,189,271, and (iii) the decrease in accounts receivable and other receivables in the amount of $5,967,318.

The following table summarizes our cash and cash equivalents position, our working capital, and our cash flow activity as of December 31, 2012 and 2011 and for each of the six months then ended:

As of December 31, 2012, cash and cash equivalents were $49,866,019 as compared to $27,608,798 as of December 31, 2011, an increase of $22,257,221 or 80.62%. This increase in cash and cash equivalents was primarily attributable to the decrease in accounts receivable and other receivables in the amount of $19,648,087.

Our working capital at December 31, 2012 was $50,373,416, as compared to working capital of $42,804,068 as of December 31, 2011. This increase of $7,569,348 or 17.68% was principally attributable to the decrease in accounts payable, other payables, wages payable and tax payable in the amount of $6,022,057.

Cash provided by operating activities was $4,602,116 for the six months ended December 31, 2012 compared to cash provided by operating activities of $3,622,415 for the same period in 2011. The increase of $979,701 or 27.05% in cash provided by operating activities was primarily attributable to (i) the decrease in net income in the amount of $10,674,359, (ii) the increase in the payment of taxes and other expenses in the amount of $1,805,166, (iii) the increase in the collection of accounts receivable and other receivables in the amount of $9,941,829, and (iv) most importantly, the refund to the Company by the Harbin Songbei District Development and Construction Committee of approximately $3,370,732.41 (RMB 21,000,000) on December 21, 2012 for the prepayment of the land use right.

The following table summarizes our cash and cash equivalents position, our working capital, and our cash flow activity as of March 31, 2013and 2012 and for each of the nine months then ended: