China Health Industries Holdings, Inc. - Annual Report: 2014 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.20549

FORM 10-K

For the fiscal years ended June 30, 2014

or

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

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. x  Yes   ¨ 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).  x  Yes   ¨ 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.   x

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

The aggregate market value of the voting and non-voting common stock of the issuer held by non-affiliates as of December 31, 2013 was approximately $26,839,529 (44,732,549 shares of common stock held by non-affiliates) based upon the closing price of the common stock on such date.

As of September 29, 2014, there were 62,239,737 shares of common stock, par value $0.0001 issued and outstanding.

Table of Contents

PART I

Our History and Corporate Structure

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 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) (the “Purchase Price”). 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 China State Food and Drug Administration (the “CFDA”). In addition, HLJ Huimeijia is the holder of one patent for utility models, five patents for external design and two trademarks in China, including the Chinese brand name of “Xue Du” which has an established reputation among customers in northeastern China.

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

Our corporate structure as of June 30, 2014 was as below:

Business Overview

Humankind was incorporated in the PRC on December 14, 2003, and completed its Good Manufacturing Practice (“GMP”) certificate on April 24, 2007, which will last until February 14, 2015 and is expected to extend after that. It is in the business of the manufacture and sale of health products.

Huimeijia was incorporated in the PRC on October 14, 2008. Huimeijia received its GMP certificate on July 23, 2009, which expired as of July 22, 2014. The Company currently has no operation. It plans to build new manufacturing facilities at HLJ Huimeijia and transfer the titles of 19 medical drugs from Huimeijia to HLJ Huimeijia. Up to present, the Company has already completed the design of the new facilities. We expect that HLJ Huimeijia will be the production base to manufacture 40 drugs including oral taken and external used products in around two years.

HLJ Huimeijia was founded on October 30, 2003, its latest GMP certificate was effective from November 12, 2009 to November 11, 2014, and is expected to extend after that. HLJ Huimeijia engages in the manufacture and distribution of tincture, ointments, rubber paste (including hormones), topical solution, suppositories, liniment (including traditional Chinese medicine extractions), enemas and oral liquids. Its predecessor is Heilongjiang Xue Du Pharmaceutical Co., Ltd., which had established brand name in the market through its supply of high-quality drug products. HLJ Huimeijia is a “high and new technology” enterprise that provides the most comprehensive types of topical medical products in Heilongjiang Province, a northeastern province of China.

Our business is conducted through our PRC subsidiaries, Humankind and HLJ 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 have, through Humankind, the license to manufacture and sell 14 health supplement products, each of which have been assigned a Guo Shi Jian Zi number (as provided below).  In addition, although Humankind does not distribute and sell organic “Green” food, it plans to sell it in fiscal year of 2015.

We have, through HLJ Huimeijia, the license to manufacture and sell 21 products. In addition, HLJ Huimeijia holds one patent for utility models, five patents for external design, and two trademarks in China, including the Chinese characters of “Xue Du,” which has a good reputation amongst customers in northeastern China. Together with the 19 medical drugs Huimeijia is about to transfer to HLJ Huimeijia in around three years, HLJ Huimeijia is expected to manufacture 40 products including oral taken and external used medicines.

We are licensed to sell our products, including our medical drugs, only 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 for freckle removal and skin moisture supplements. The certification number issued by the China Food and Drug Administration (“CFDA”) on September 3, 2013, is 2013B1097, with an expiration date on September 2, 2018.

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 (the “ 2007 Technology Transfer Agreement”), 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 CFDA.  This product is to boost one’s immunity. The certification number issued by the CFDA 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 “2013 Technology Transfer Agreement”), we purchased 12 health products from Guangzhou Aoda Biology Beauty Healthy Technology Co., Ltd, a non-affiliated party. These twelve products are the following:

-           Dr. Xiao Brand Honeysuckle Pearl Capsule (Guo Shi Jian Zi G20100656), which is effective in acne removal,

-           Dr. Xiao Brand Multivitamin Tablet (Guo Shi Jian Zi G20080176), which is a multivitamin and mineral supplement,

-           Dr. Xiao Brand Zhengdian Capsule (Guo Shi Jian Zi 20070261), which is effective in relieving eyestrain,

-           Dr. Xiao Brand Shengui Capsule (Guo Shi Jian Zi G20080297), which is effective in increasing bone density,

-           Dr. Xiao Brand Multivitamin Tablet (Woman) (Guo Shi Jian Zi G20070338), which is an iron and multivitamin supplement,

-           Dr. Xiao Brand Shikong Soft Capsule (Guo Shi Jian Zi 20080096), which is effective in improving memory,

-           Dr. Xiao Brand Huangjingdanggui Tablet (Guo Shi Jian Zi G20080201), which is effective in improving nutritional anemia and chloasma,

-           Dr. Xiao Brand Xingxing Soft Capsule (Guo Shi Jian Zi G20080080), which is effective in improving memory,

-           Dr. Xiao Brand Vitamin A Fish Oil Soft Capsule (Guo Shi Jian Zi G20080406), which is effective in relieving eyestrain,

-           Dr. Xiao Brand Colon Cleanser Granules (Guo Shi Jian Zi G20060061), which is effective in relaxing bowels and promoting the discharge of lead,

-           Dr. Xiao Brand Jianli Soft Capsule (Guo Shi Jian Zi G20050710), which is effective in increasing immunity and relieving physical fatigue, and

-           LB Brand Xinpin Capsule (Guo Shi Jian Zi G20050770), which is effective in dispelling chloasma.

The major suppliers of raw materials for our products who exceeded 10% of our total purchases in the fiscal years 2014 and 2013 are the following:

For the past two fiscal years, Mr. Shukui Wang has been our biggest supplier of raw materials.

The Company typically signs monthly purchase orders with its suppliers. All purchase orders with Mr. Wang and with our other suppliers are on similar terms. We shall remit payment to a supplier’s account no later than three business days after receiving products. A supplier shall deliver products no later than three business days after receiving a purchase order. The cost of delivery is borne by a supplier.

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:

In addition, HLJ Huimeijia has 21 products with approval numbers issued by the CFDA as following:

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 2013, our products were mainly sold in Jiangsu, Zhejiang, Gansu, Anhui, Shanghai and Beijing provinces or cities. In fiscal year of 2014, our sales network covered 26 provinces and 4 Municipalities in China and our products were mainly sold in Beijing, Zhejiang, Jiangsu, Shanghai, Gansu, Anhui, Jilin and Liaoning provinces or cities.

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 2015.

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.

Manufacture

We manufacture our health food 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 City, 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.

After we acquired HLJ Huimeijia on November 22, 2013, we also manufacture our medicines and drugs using HLJ Huimeijia’s land, approximately 43,350 square meters, located in Hai-lin Economic Development Zone, Mudanjiang City. The manufacturing facilities occupy approximately 5,710 square meters. We plan to build new manufacturing facilities on the land. The expected construction cost is approximately $8,950,000 (RMB 55,000,000).

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.

We plan 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 Peking 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”, “Huimeijia” 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

Based on the 2014 report issued by Beijing Zhiyan Kexin Consultant Co., Ltd, the PRC has developed into a dominant country in manufacturing and consuming health products. At the end of 2013, there were 2,006 companies in total manufacturing health products with an output value of RMB 280 billion. In the year of 2013, revenue of health products industry in PRC reached RMB 113.1 billion, an increase of 32.02% from the same period of the last year.

With thousands years of history in health culture and traditional Chinese medicine, PRC currently utilizes advanced technique and production capacity to initiate a new round of health care trend, from drugs and medicines to traditional health food and nutritional supplements, and from medical devices to health management and advices. The trend demonstrates huge potential in PRC’s health products market.

In December 2012, National Development and Reform Committee and Ministry of Industry and Information issued the 12^th Five –year Development Plan for Food Industry, which includes the Nutrition and Health Food Manufacturing Industry in national development. According to the Plan, in the year of 2015, output value of nutrition and health food manufacturing industry in PRC will reach RMB 1,000 billion with an average annual 20% growth rate. It is believed that there will be more than 10 companies with the annual sales over RMB 10 billion. PRC will next focus on the R&D and manufacturing of high-quality protein food, dietary fiber food and health food with new functions. Undoubtedly, all these government policies will inject new power to PRC’s health industry as well as provide guaranty in terms of favorable policy and regulations.

Competition in the Healthcare Products Industry

We believe our competitors are:

Harbin DaZhong Pharmaceutical 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 Heilongjiang Province)

HPGC Renmintongtai Pharmaceuticals Co., Ltd (Located in Heilongjiang 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 could enjoy discounted price of our products and services. After establishing enough stores, we plan to develop a 24-hour delivery system for our B2C e-business.

We did not incur expenses for advertising and promotion for the fiscal year of 2014. We have budgeted approximately $500,000 for advertising and promotion for the fiscal year of 2015.

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 CFDA. This product is consumed to boost one’s immunity. The certification number issued by the CFDA 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 12 trademarks:

In addition, the trademark of “LB” and its associated image under the registration number 1738881 is in the process of the name transfer from Guangzhou Aoda Biology Beauty Healthy Technology Co., Ltd to us, from whom we acquired 12 health products in January 2013.

We have the right to use the following patents 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 CFDA of the PRC on September 7, 2005, the CFDA is responsible for the review and issuance of GMP Certification. To obtain a GMP Certification, a company shall submit its application; the CFDA will then conduct a technical review of the application materials; if such company passes the technical review, the CFDA will inspect the manufacturing site. The CFDA also conducts follow-up inspections on the manufacturing site. After the issuance of the GMP Certification, the CFDA may inspect the manufacturing site from time to time. The GMP Certifications of our wholly owned subsidiaries, Humankind, HLJ Huimeijia and Huimeijia, are valid through February 14, 2015, November 11, 2014, 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

As of June 30, 2014, we have 150 employees including 7 officers, 49 administrators, 39 sales persons and 55 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.

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

Not applicable.

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 land use right of a successor owner will be reduced by the amount of time 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 (RMB 5,248,000). 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 operation. We package our products in bottles, plastic containers and aluminum foil bags.

After we acquired HLJ Huimeijia on November 22, 2013, we also manufacture our medicines and drugs using HLJ Huimeijia’s land, approximately 43,350 square meters, located in Hai-lin Economic Development Zone, Mudanjiang City. The manufacturing facilities occupy approximately 5,710 square meters. We plan to build new manufacturing facilities on the land. The expected construction cost is approximately $8,950,000 (RMB 55,000,000).

In addition, the building of HLJ Huimeijia in the book value of $1,796,166 has been mortgaged for the working capital loan in the principal amount of $1,611,967 (RMB 10,000,000).

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.

This item is not applicable to us.

PART II

Market Information

Our common stock is traded over-the-counter on the OTC Markets QB Tier under the ticker “CHHE” and the market for the stock has been relatively inactive. The range of high and low bid quotations for the quarters of the last two years ended June 30, 2014 and 2013 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 29, 2014, we had approximately 486 shareholders of record of our common stock, such number of holders does not include street name holders who hold shares 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 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.

Not Applicable.

FORWARD LOOKING STATEMENTS

We make certain forward-looking statements in this report. Statements concerning our future operations, prospects, strategies, financial condition, future economic performance (including growth and earnings), demand for our services, and other statements of our plans, beliefs, or expectations, including the statements contained under 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 (“Humankind”) and indirect 99% owned subsidiary, Harbin Huimeijia Medicine Company and indirect wholly owned subsidiary, Heilongjiang Huimeijia Pharmaceutical Co., Ltd. (“HLJ Huimeijia”). 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 subsidiaries, Humankind and HLJ Huimeijia.

Our business is conducted through our sales agents and sales personnel. 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 are generated. Our sales through agents in Beijing, Zhejiang and Jiangsu provinces accounted for 11%, 11%, and 10% of our total sales, respectively, for the year ended June 30, 2014. Although we do not currently sell our products online, we expect to do so in the future.

2015 Outlook

Overall, we anticipate our total revenues for the year ended June 30, 2015 versus the year ended June 30, 2014 to increase by 30% or approximately $2.9 million, with growth in all categories of our product sales, include the anticipated revenue from Humankind at approximately $9.8 million and from HLJ Huimeijia at approximately $2.8 million. The gross profit margin for the year ended June 30, 2015 is expected to be approximately 30%, and we estimate our overall net profit margin for the year ended June 30, 2015 to be 4%. There is, however, no assurance that these projections will be reached.

Results of Operations

The following table summarizes the top lines of the results of our operations for the years ended June 30, 2014 and 2013, respectively:

Revenue

Total revenues increased by $713,446, or 7.9%, for the year ended June 30, 2014 as compared to the same period in 2013. The increase in revenues was primarily due to an increase of $629,382 or 8.1% in Humankind’s revenues and an increase of $84,064 or 6.6% in HLJ Huimeijia’s revenues for the year ended June 30, 2014 as compared to the same period in 2013. The reason for the increase of the sales revenue with a decreasing sales volume is that from November 2013 the sales discounts of two primary products were adjusted. The unit sale prices to the agents of Waterlilies Soft Capsule (Sailuozhi) and Propolis and Black Ant Capsule were adjusted from $41.8 to $62.7 and from $20.1 to $27.6, respectively.

Our total cost of sales decreased $417,112 or 5.4% for the year ended June 30, 2014 as compared to the same period in 2013. The decrease in cost of sales was primarily due to a decrease of $466,120 or 6.9% in Humankind’s cost of sales which offset an increase of $49,008 or 5% in HLJ Huimeijia’s cost of sales for the year ended June 30, 2014 as compared to the same period in 2013. This decrease was primarily due to the decrease in sales volume.

Our gross margin increased $1,130,558 from $1,263,370 for the year ended June 30, 2013 to $2,393,928 for the year ended June 30, 2014. This increase was attributable to the higher sale prices of our two primary products.

Sales by Product Line

The following table summarizes a breakdown of our sales by major product line for the years ended June 30, 2014 and 2013, 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 years ended June 30, 2014 and 2013, respectively:

Total operating expenses for the year ended June 30, 2014 increased $502,252, or 19.2%, as compared to the corresponding period in 2013. The increase in operating expenses was primarily attributable to an increase of $707,517, or 272.7%, in depreciation and amortization expense for the year ended June 30, 2014 as compared to the same period in 2013, partially offset by a decrease of $288,210 or 64.8% in research and development expense. The difference is mainly due to the increase of amortization expense from a pharmaceutical patent purchase on March 29, 2013; and a carrying forward of $2,343,092 from the “construction in progress” to “property, plant and equipment” during the 2014 financial year.

Interest Income and Interest Expense

Interest income was $111,810 for the year ended June 30, 2014, as compared to $247,642 for the year ended June 30, 2013. This decrease of $135,832, or 54.9%, was primarily due to the decrease in the average balance of deposits in the bank.

Interest expense was $111,758 for the year ended June 30, 2014, as compared to $121,703 for the year ended June 30, 2013. This decrease of $9, 945, or 8.2% was primarily a result of the falling interest rates.

Income Taxes

Income taxes decreased $23,932, or 100%, from $23,932 for the year ended June 30, 2013 to $0 for the year ended June 30, 2014. This was due to the Company had a loss before income taxes in the amount of $658,527 for the year ended June 30, 2014.

Net Loss and Loss Per Share

Net loss was $658,527 for the year ended June 30, 2014, as compared to net loss of $1,246,716 for the year ended June 30, 2013. This decrease of $564,257, or 46.1% in net loss was primarily attributable to the increase in revenues in the amount of $713,446, the decrease in cost of goods sold in the amount of $417,112, the decrease in research and development expense in the amount of $288,210, partially offset by the increase in selling, general and administrative expense of $82,945, the increase in depreciation and amortization expense of $707,517, and the decrease in interest income in the amount of $135,832.

Loss per share was $0.01 and $0.02 for the years ended June 30, 2014 and 2013 respectively. This decrease was primarily a result of the above decrease in net loss.

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, 2014 and 2013 and for each of the years then ended:

Cash and cash equivalents decreased $1,636,459, from $28,868,533 as of June 30, 2013 to $27,232,074 as of June 30, 2014, primarily attributable to net cash used in operating activities in the amount of $1,353,165 and investing activities in the amount of $131,380, negative effect of prevailing exchange rates on our cash position of $293,837 and offset by net cash provided by financing activities in the amount of $141,923.

Our working capital at June 30, 2014 was $25,936,346, compared to working capital of $25,880,378 at June 30, 2013. This decrease of $55,968 or 0.2% was minor.

Net cash used in operating activities was $1,353,165 for the year ended June 30, 2014, primarily attributable to a net loss available to the Company in the amount of $658,467 and net increase in accounts receivable of $2,154,160 resulting from Humankind’s extension of the credit period from 30-day payment terms for sales prior to November 1, 2013 to 30-day payment terms for sales after November 1, 2013, partially offset by depreciation and amortization expenses of $1,136,042 as reconciled and net decrease in advance to suppliers and prepaid expense of $281,514. Net cash provided by financing activities was 141,923 for the year ended June 30, 2014, mainly attributable to proceeds of short-term loans in the amount of $488,759, partially offset by payment of related party debts in the amount of $376,175. The negative effect of exchange rate changes on cash and cash equivalents in the amount of $293,837 for the year ended June 30, 2014 was mainly a result of the effect of the weakening of the RMB to the USD on the significant amount of cash and cash equivalents held by the Company in RMB. The average exchange rates from USD to RMB were 6.2036 to 1 and 6.1374 to 1 for the years ended June 30, 2014 and 2013, respectively.

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

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

Management's discussion and analysis of its financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with US GAAP. Our financial statements reflect the selection and application of accounting policies which require management to make significant estimates and judgments. The discussion of our critical accounting policies contained in Note 2 to our consolidated financial statements, “Significant Accounting Policies”, is incorporated herein by reference.

Not Applicable.

The financial statements required by this item are set forth beginning on page F-1.

INDEX TO CONSOLIDATED AND COMBINED STATEMENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of:

China Health Industries Holdings, Inc.

We have audited the accompanying consolidated and combined balance sheets of China Health Industries Holdings, Inc. and Subsidiaries (the “Company”) as of June 30, 2014 and 2013, and the related consolidated and combined statements of operations and comprehensive income, equity, and cash flows for the fiscal years then ended. The Company’s management is responsible for these consolidated and combined financial statements. Our responsibility is to express an opinion on these consolidated and combined financial statements based on our audits.

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated and combined financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated and combined financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated and combined financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated and combined financial statements referred to above present fairly, in all material respects, the consolidated and combined financial positions of China Health Industries Holdings, Inc. and Subsidiaries as of June 30, 2014 and 2013 and the consolidated and combined results of their operations and their cash flows for the fiscal years then ended in conformity with accounting principles generally accepted in the United States of America.

/s/ KCCW Accountancy Corp.

Diamond Bar, California

September 29, 2014

CHINA HEALTH INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED AND COMBINED BALANCE SHEETS

(Audited)

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

CHINA HEALTH INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Audited)

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

CHINA HEALTH INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED AND COMBINED STATEMENTS OF EQUITY

(Audited)

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

CHINA HEALTH INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS

(Audited)

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

CHINA HEALTH INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - ORGANIZATION AND BUSINESS BACKGROUND

China Health Industries Holdings, Inc. (“China Health US”) was incorporated in the State of Arizona on July 11, 1996 and 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 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 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) (the “Purchase Price”). 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 China State Food and Drug Administration (the “CFDA”). In addition, HLJ Huimeijia is the holder of one patent for utility models, five patents for external design and two trademarks in China, including the Chinese brand name of “Xue Du” which has an established reputation among customers in northeastern China. 

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

As of June 30, 2014, the Company’s corporate structure is as follows:

Note 2 - SIGNIFICANT ACCOUNTING POLICIES

This summary of significant accounting policies of the Company is presented to assist in understanding the Company’s 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 and combined financial statements include China Health US and its four subsidiary companies, including China Health HK, Humankind, Huimeijia, 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

ASC 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 Company applies the provisions of accounting guidance, FASB ASC Topic 820 that 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.

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

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

Translation of Foreign Currencies

Humankind, Huimeijia and HLJ Huimeijia maintain their books and accounting records in PRC currency “Renminbi” (“RMB”), which has been determined as the functional currency. Transactions denominated in currencies other than RMB are translated into RMB 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 and HLJ Huimeijia’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 noncontrolling interests.

Statement of Cash Flows

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

Use of Estimates and Assumptions

The preparation of financial statements in conformity with US GAAP requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities on the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates and judgments on historical experience and on various other assumptions and information that are believed to be reasonable under the circumstances. Estimates and assumptions of future events and their effects cannot be perceived with certainty and, accordingly, these estimates may change as new events occur, as more experience is acquired, as additional information is obtained and as our 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, 2014 and 2013, the Company’s uninsured bank balance was mainly maintained at financial institutions located in the PRC and HK, totaled $27,232,074 and $28,868,533 respectively. The Company has no insured bank balance as of June 30, 2014 and 2013, 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, whereas the payment terms for sales before November 1, 2013 were thirty (30) day. As a result, as of June 30, 2014 and 2013, the net balances of accounts receivable were $2,230,746 and $136,414, 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, 2014 and 2013, the balances of allowance for doubtful accounts were $45,463 and $9,979, respectively

Advance to Suppliers

The Company periodically makes advances to certain vendors for purchases of raw materials, and records these purchases as advance to suppliers. As of June 30, 2014 and 2013, advance to suppliers amounted to $40,504 and $171,598, respectively.

Prepaid Expenses

Prepaid expenses principally include prepaid R&D expenses and amounts paid to secure the use of assets or the receipt of services at a future date or continuously over one or more future periods. As of June 30, 2014 and 2013, prepaid expenses amounted to $101,965 and $156,750, respectively. The decrease is mainly due to Humankind’s prepaid R&D expenses. Humankind had entered into five Technology Development Agreements (the “Agreements”) with Shenyang Pharmaceutical University and Jiamusi Pharmaceutical University (the “Contractors”) during the period from April 9, 2010 through July 7, 2010. The Agreements entrust the Contractors to develop different tablet and health food products and obtain approval for the correlated registration or certification within a certain period (3 years) on behalf of the Company. As of June 30, 2014 and 2013, the Company has paid the contractors in the amount of $1,450,771 (RMB 9 million) and $1,466,419 (RMB 9 million), respectively. Humankind recognized the payments to the Contractor as prepaid expenses, and was recognizing R&D expenses proportionally over the terms of the Agreements. As of June 30, 2014 and 2013, prepaid R&D expense amounted $0 and $156, 750, 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 is used 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 volume 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. There was no inventory allowance provided for the years ended June 30, 2014 and 2013, 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 our 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, 2014 and 2013, 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 carried at the lower of cost or fair value. 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 percentages or depreciable life applied are:

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 our intangible assets could be impacted by future adverse changes such as: (i) any future declines in our operating results, (ii) a decline in the valuation of technology, including the valuation of our common stock, (iii) a significant slowdown in the worldwide economy or (iv) any failure to meet the performance projections included in our forecasts of future operating results. In accordance with FASB ASC Topic 350, the Company tests intangible assets for impairment on an annual basis or more frequently if the Company believes indicators of impairment exist. Impairment evaluations involve management estimates of asset useful lives and future cash flows. Significant management judgment is required in the forecasts of future operating results that are used in the evaluations. It is possible, however, that the plans and estimates used may be incorrect. If our actual results, or the plans and estimates used in future impairment analysis, are lower than the original estimates used to assess the recoverability of these assets, we could incur additional impairment charges in a future period. Based on such evaluations, there was no impairment recorded for intangible assets for the years ended June 30, 2014 and 2013, respectively.

Construction in Progress

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

The Company reviews the carrying value of construction in progress for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value of the assets, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of the assets. The factors considered by management in performing this assessment include current operating results, trends and prospects, the manner in which the property is used, and the effects of obsolescence, demand, competition and other economic factors. Based on this assessment, there was no impairment recorded for construction in progress for the years ended June 30, 2014 and 2013, respectively.

Revenue Recognition

The Company recognizes revenue when it is both earned and realized or realizable. The Company’s policy is to recognize revenue when title to the product, ownership and risk of loss have transferred to the customer, persuasive evidence of an arrangement exits and collection of the sales proceeds is reasonably assured, all of which generally occur upon shipment of goods to customers. The majority of the Company’s revenue relates to the sale of inventory to customers, and revenue is recognized when title and the risks and rewards of ownership pass to the customer. Given the nature of the 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, 2014 and 2013, 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. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

In July 2006 the FASB issued FIN 48(ASC 740-10), “Accounting for Uncertainty in Income Taxes — An Interpretation of FASB Statement No. 109 (ASC 740)”, which requires income tax positions to meet a more-likely-than-not recognition threshold to be recognized in the financial statements. Under FIN 48(ASC 740-10), tax positions that previously failed to meet the more-likely-than-not threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met.

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

The application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. Tax laws and regulations themselves are subject to change as a result of changes in fiscal policy, changes in legislation, the evolution of regulations and court rulings. Therefore, the actual liability may be materially different from our 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 PRC Concerning Value Added Tax promulgated by the State Council came into effect on January 1, 1994. Under these regulations and the Implementing Rules of the Provisional Regulations of the PRC Concerning Value Added Tax, value added tax is imposed on goods sold in, or imported into, the PRC and on processing, repair and replacement services provided within the PRC.

Value added tax payable in the PRC is charged on an aggregated basis at a rate of 13% or 17% (depending on the type of goods involved) on the full price collected for the goods sold or, in the case of taxable services provided, at a rate of 17% on the charges for the taxable services provided, but excluding, in respect of both goods and services, any amount paid in respect of value added tax included in the price or charges, and less any deductible value added tax already paid by the taxpayer on purchases of goods and services in the same financial year. Value added taxes for the years ended June 30, 2014 and 2013 were $287,441 and $223,495, respectively.

Sales Taxes and 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 VAT paid as taxes on maintaining and building cities and education additional fees, both of which belong to sales-related taxes. Sales-related taxes are recorded when sales revenue is recognized. Sales taxes and sales-related taxes for the years ended June 30, 2014 and 2013 were $170,599 and $150,171, respectively.

Concentrations of Business and Credit Risks

All of the Company’s manufacturing is located in the PRC. There can be no assurance that the Company will be able to successfully continue to manufacture its products and failure to do so would have a material adverse effect on the Company’s financial position, results of operations and cash flows. Also, 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, 2014 and 2013, 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 April 2014, the Financial Accounting Standards Board (“FASB”) has issued Accounting Standards Update (ASU) No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. Under the new guidance, only disposals representing a strategic shift in operations should be presented as discontinued operations. The new guidance also requires disclosure of the pre-tax income attributable to a disposal of a significant part of an organization that does not qualify for discontinued operations reporting. The amendments in the ASU are effective in the first quarter of 2015 for public organizations with calendar year ends. Early adoption is permitted. The Company does not expect the adoption of this guidance will have a significant impact on the Company’s consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers: Topic 606. This Update affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets, unless those contracts are within the scope of other standards. The guidance in this Update supersedes the revenue recognition requirements in Topic 605, Revenue Recognition and most industry-specific guidance. The core principle of the guidance is that an entity should recognize revenue to illustrate the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new guidance also includes a cohesive set of disclosure requirements that will provide users of financial statements with comprehensive information about the nature, amount, timing, and uncertainty of revenue and cash flows arising from a reporting organization’s contracts with customers. This ASU is effective retrospectively for the Company for fiscal years, and interim periods within those years beginning after December 15, 2016. Management is evaluating the effect, if any, on the Company’s financial position and results of operations.

In June 2014, the FASB issued ASU No. 2014-12, Compensation-Stock Compensation: Topic 718. This amendment requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. This ASU is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. The Company does not expect the adoption of this guidance will have a significant impact on the Company’s consolidated financial statements.

In August 2014, The FASB has issued Accounting Standards Update (ASU) No. 2014-13, Consolidation (Topic 810): Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity. The amendments in this ASU will apply to a reporting entity that is required to consolidate a collateralized financing entity under the Variable Interest Entities guidance when: (1) the reporting entity measures all of the financial assets and the financial liabilities of that consolidated collateralized financing entity at fair value in the consolidated financial statements based on other Codification Topics; and (2) the changes in the fair values of those financial assets and financial liabilities are reflected in earnings. The amendments in this ASU are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2015. For entities other than public business entities, the amendments are effective for annual periods ending after December 15, 2016, and interim periods beginning after December 15, 2016. Early adoption is permitted as of the beginning of an annual period. The Company does not expect the adoption to have a significant impact on its consolidated financial statements.

In August 2014, the FASB has issued Accounting Standards Update (ASU) No. 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. ASU 2014-15 is intended to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures. The amendments are effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. Early application is permitted for annual or interim reporting periods for which the financial statements have not previously been issued. statements. The Company does not expect the adoption to have a significant impact on its consolidated financial statements.

NOTE 3 - ACQUISITION

On November 22, 2013, Humankind completed the acquisition of HLJ Huimeijia for a total purchase price of $16,339,869 (RMB100,000,000) (the “Purchase Price”). HLJ Huimeijia was founded on October 30, 2003. HLJ Huimeijia is engaged in the manufacturing and distribution of tincture, ointments, rubber paste (including hormones), solution (topical), suppositories, liniment (including traditional Chinese medicine extraction), enemas and oral liquid. HLJ Huimeijia’s predecessor is Heilongjiang Xue Du Pharmaceutical Co., Ltd., which had established its brand name in the market by its 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 China State Food and Drug Administration (“CFDA”). In addition, HLJ Huimeijia is a holder of one patent for utility models, five patents for external design and two trademarks in China, including the Chinese brand name of “Xue Du” that has an established reputation among customers in northeastern China.

HLJ Huimeijia and Humankind are under the common control of Mr. Xin Sun, the CEO of the Company before and after the date of the completion of the acquisition, or the 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 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.

NOTE 4 - ACCOUNTS RECEIVABLE

The Company’s accounts receivable amounted to $2,230,746 and $136,414, respectively, net of allowance for doubtful accounts amounting to $45,463 and $9,979 as of June 30, 2014 and 2013, respectively. The difference is mainly due to the Company’s credit policy change, which offered thirty (30) day payment terms for sales before November 2013 and ninety (90) day payment terms for sales after November 2013.

NOTE 5 - INVENTORIES

Inventory consists of following:

For the years ended June 30, 2014 and 2013, the Company has not made provision for inventory in regards to slow moving or obsolete items.

NOTE 6 - CONSTRUCTION IN PROGRESS

Construction in progress consisted of the following:

On December 8, 2012, Humankind entered into an agreement with a contractor for the interior decoration of the office building and the warehouse. As of June 30, 2014, the project was completed and the cost of construction in progress had been transferred to the property, plant and equipment account. The estimated total cost of construction was $0 and $814,677 (RMB 5,000,000) as of June 30, 2014 and 2013, respectively.

On March 10, 2011, Humankind entered into an agreement with a contractor to construct a warehouse for the Company. As of June 30, 2014, the project was completed and the cost of construction in progress had been transferred to the property, plant and equipment account. The estimated total cost of construction was $0 and $684,330 (RMB 4,200,000) as of June 30, 2014 and 2013, respectively.

On August 15, 2011, Humankind entered into an agreement with a contractor to construct an office building for the Company. As of June 30, 2014, the project was completed and the cost of construction in progress had been transferred to the property, plant and equipment account. The estimated total cost of construction was $0 and $655,440 (RMB 4,022,700) as of June 30, 2014 and 2013, respectively.

NOTE 7 - PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consisted of the following:

Depreciation expense was $318,761 and $244,066 for the years ended June 30, 2014 and 2013, respectively. Depreciation expense charged to operations was $169,565 and $111,385 for the years ended June 30, 2014 and 2013, respectively. Depreciation expense charged to cost of goods sold was $149,196 and $132,681 for the years ended June 30, 2014 and 2013, respectively.

The Company transferred construction in progress to property, plant and equipment in the amount of $2,437,639 as of ended June 30, 2014.

As of June 30, 2014, the building of HLJ Huimeijia in the book value of $1,796,166 has been mortgaged for the working capital loan in the principal amount of $1,611,967 (RMB 10,000,000). As of June 30, 2013, the building of HLJ Huimeijia in the book value of $1,471,024 has been mortgaged for the working capital loan in the principal amount of $1,140,548 (RMB 7,000,000).

NOTE 8 - INTANGIBLE ASSETS

The following is a summary of intangible assets:

All land in the PRC belongs to the State. Enterprises and individuals can pay the State 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.

Amortization expense charged to operations was $817,281 and $167,945 for the years ended June 30, 2014 and 2013, respectively. The difference is mainly due to a pharmaceutical patent purchasing on March 29, 2013, where only one quarter of amortization expense has occurred as of June 30, 2013.

As of June 30, 2014, land use rights of HLJ Huimeijia with the book value of $698,802 have been mortgaged for a working capital loan in the principal amount of $1,611,967 (RMB 10,000,000). As of June 30, 2013, land use rights of HLJ Huimeijia with a book value of $706,339 have been mortgaged for a working capital loan in the principal amount of $1,140,548 (RMB 7,000,000).

NOTE 9 - SHORT-TERM LOAN

On December 13, 2012, HLJ Huimeijia entered into a loan agreement with Longjiang Bank, Mudanjiang Hailin Branch (the “Bank”) for a working capital loan in the principal amount of $1,140,548 (RMB 7,000,000) at an interest rate of 8.53% from December 13, 2012 to December 12, 2013. The loan had a one year term with a maturity date on November 29, 2013, and was secured by the land use right and the building of HLJ Huimeijia. As of June 30, 2013, the Company’s short-term loan was $1,140,548 (RMB 7,000,000). The loan was paid off on November 22, 2013.

On December 20, 2013, HLJ Huimeijia entered into a short-term loan agreement with the Bank for a working capital loan in the principal amount of $1,611,967 (RMB 10,000,000), at an interest rate t of 7.8% from December 20, 2013 to December 19, 2014. The loan was secured by the land use right and the building of HLJ Huimeijia, with a maturity date of November 19, 2014. As of June 30, 2014, the Company’s short-term loan was $1,611,967 (RMB 10,000,000).

Interest expenses were $ $111,758 and $121,703 for the years ended June 30, 2014 and 2013, respectively.

NOTE 10 - RELATED PARTY DEBTS

Related party debts, which represent temporary short-term loans from Mr. Xin Sun, Mr Kai Sun and Ms Haiping Man consisted of the following:

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 and Ms. Haiping Man are PRC citizens and family members of Mr. Xin Sun, the CEO of the Company.

NOTE 11 - INCOME TAXES

(a) Corporate income taxes

United States

China Health US was organized in the United States. China Health US had no taxable income for US income tax purposes for the years ended June 30, 2014 and 2013, respectively. As of June 30, 2014, China Health US has a net operating loss carry forward for United States income taxes. Net operating loss carry forwards are available to reduce future years’ taxable income. Management believes that the realization of the benefits from these losses appears uncertain due to the Company’s operating history and the continued losses of the US entity. Accordingly, the Company has provided a 100% valuation allowance on the deferred tax asset to reduce the asset to zero. There were no changes in the valuation allowance for the years ended June 30, 2014 and 2013. Management reviews this valuation allowance periodically and makes adjustments accordingly.

Hong Kong

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

People’s Republic of China

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

The provision for income taxes on income consists of the following for the years ended June 30, 2014 and 2013:

Provision for income taxes consisted of:

As of June 30, 2014, the Company prepaid in the amount of $48,878 in respect of income taxes, which will deduct income taxes payment going forward.

Significant components of deferred tax assets were as follows: 

As of June 30, 2014 and 2013, the Company accrued a 100% valuation allowance on its deferred tax assets based on the assessment on the probability of future reversion.

(b) Uncertain tax positions

There were no unrecognized tax benefits as of June 30, 2014 and 2013, respectively. Management does not anticipate any potential future adjustments in the next twelve months which would result in a material change to its tax positions. For the years ended June 30, 2014 and 2013, the Company did not incur any interest and penalties arising from its tax payments.

NOTE 12 – 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, 2014 and 2013, the Company does not have potential dilutive shares.

The following table sets forth the computation of basic and diluted net income per share:

NOTE 13 - COMMITMENTS AND CONTINGENCIES

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

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

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

Rental expense was $0 and $15,337 for the years ended June 30, 2014 and 2013, respectively. Since the Company terminated its rental agreement on January 9, 2013, it had no rental commitment as of June 30, 2014.

NOTE 14 - MAJOR SUPPLIERS AND CUSTOMERS

The Company had one supplier that in the aggregate accounted for 76% of the Company’s purchases for the year ended June 30, 2014.

The Company had three customers that in the aggregate accounted for 31% of the Company’s total sales for the year ended June 30, 2014, with each customer accounting for 11%, 11% and 10%, respectively.

The Company had one supplier that in the aggregate accounted for 85% of the Company’s total purchases for the year ended June 30, 2013.

The Company had four customers that in the aggregate accounted for 42% of the Company’s total sales for the year ended June 30, 2013, with each individual customer accounting for 11%, 11%, 10% and 10%, respectively.

NOTE 15 - 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 loss by segment.

The following tables present summary information by segment for the years ended June 30, 2014 and 2013, respectively: