Item 7. MANAGEMENT’S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.
The following discussion
should be read in conjunction with our consolidated financial statements and notes to those consolidated financial statements, included
elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results
and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of various
factors, including those set forth under “Risk factors” and elsewhere in this prospectus.
FORWARD-LOOKING STATEMENTS:
Certain statements made in
this Report may constitute “forward-looking statements on our current expectations and projections about future events.” These
forward-looking statements involve known or unknown risks, uncertainties and other factors that may cause our actual results, performance,
or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking
statements. In some cases you can identify forward-looking statements by some words such as “may,” “should,” “potential,”
“continue,” “expects,” “anticipates,” “intends,” “plans,” “believes,”
“estimates,” and similar expressions. These statements are based on our current beliefs, expectations, and assumptions and
are subject to a number of risks and uncertainties. Although we believe that the expectations reflected in the forward-looking statements
are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. These forward-looking statements
are made as of the date of this Report, and we assume no obligation to update these forward-looking statements whether as a result of
new information, future events, or otherwise, other than as required by law. In light of these assumptions, risks, and uncertainties,
the forward-looking events discussed in this Report might not occur and actual results and events may vary significantly from those discussed
in the forward-looking statements.
Overview
General
We are incorporated in the
state of Nevada. Prior to the consummation of the Merger as of December 31, 2020, we, through our PRC Operating Entities, were engaged
in the manufacture, distribution and sales of tourmaline-related healthcare products, including knit goods, daily healthcare and personal
care products, and wellness house and activated water machine products, that were coated, embedded or filled with tourmaline. Most of
our products, such as clothing, bedding, and mattresses are purchased as finished products which we then coated and/or infused with liquid
or granular tourmaline using one or more of our manufacturing techniques. We conducted all of our operations in Tianjin City, China and
distributed most of our products to 49 franchisees in China as of December 31, 2020. Our franchisees, in turn, sell the products to their
customers. All of our revenues as of December 31, 2020 have been generated by sales to customers located in the PRC and reported as part
of loss from operations of discontinued component.
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Beginning in 2009, we developed
a franchise network to distribute our healthcare knit goods, daily healthcare products and personal care products. Through these franchisees,
we were able to significantly increase sales of our healthcare knit goods segment and daily healthcare and personal care segment. In 2010,
we began distributing our wellness house and activated water machine products through our franchise network. As of December 31, 2020,
we had 49 franchisees compared to 82 as of December 31, 2019. However, after the consummation of the Merger, we became a shell company
as of December 31, 2020 and maintained no franchisee after then.
We are a holding company with
no material operations of our own. Prior to the consummation of the Merger as of December 31, 2020, all of our operations were conducted
through Joway Shengshi and its three subsidiaries, Joway Technology, Joway Decoration and Shengtang Trading. Joway Shengshi engaged in
the manufacture and distribution of tourmaline health-related products such as knit goods, and daily healthcare and personal care products.
Joway Technology and Joway Decoration engaged in the manufacture and distribution of activated water machines and wellness houses. We
utilized our Shengtang Trading subsidiary to purchase raw materials, which were then sold to Joway Shengshi and Joway Decoration.
As a holding company, our
ability to pay dividends and other cash distributions to our shareholders prior to the consummation of the Merger depended in part upon
dividends and other distributions paid to us by our PRC subsidiaries. The amount of dividends paid by our PRC subsidiaries to us primarily
depended on the service fees paid to our PRC subsidiaries from Joway Shengshi and its subsidiaries, and, to a lesser degree, our PRC subsidiaries’
retained earnings. Conducting our operations through contractual arrangements with Joway Shengshi and its subsidiaries had a risk that
we may lose the power to direct the activities that most significantly affect the economic performance of Joway Shengshi and its subsidiaries,
which may result in our being unable to consolidate their financial results with our results and may impair our access to their cash flow
from operations and thereby reduce our liquidity.
On November 20, 2020, Joway
Health entered into a Merger Agreement with Dynamic Elite, Crystal Globe and Merger Sub. The Merger Agreement provides that, upon the
terms and subject to the satisfaction or waiver of the conditions set forth therein, Merger Sub will be merged with and into Dynamic Elite
(the “Merger”), with Dynamic Elite continuing as the surviving corporation as a wholly-owned subsidiary of Crystal Globe.
The special committee of the Board of Directors of the Company unanimously approved the Merger Agreement and the transactions contemplated
thereby.
Pursuant to the terms of the
Merger Agreement dated November 20, 2020, as of December 31, 2020, the Effective Time of the Merger, the 10,000 ordinary shares of common
stock of Dynamic Elite issued and outstanding immediately which were held by the Company, were cancelled. In accordance with the Merger
Agreement, Crystal Globe has offered to pay cash consideration of $0.045 per share for the outstanding shares of the common stock of the
Company as Merger Consideration. As of November 20, 2020, the Company had 20,054,000 shares of common stock outstanding.
The Company is obligated to
distribute the Merger Consideration to its shareholders in an amount equal to such shareholder’s proportionate share of the Merger
Consideration based on such shareholders’ percentage of the outstanding common stock of the Company In January 2021, the Company
distributed an aggregate amount of $119,070 at $0.045 per share to its shareholders other than Crystal Globe, which represents 2,646,000
shares of our common stock. Said amount represented the Merger Consideration paid to the Company in connection with the Merger. Since
the remaining 17,408,000 shares of our common stock is owned by Crystal Globe, the $0.045 per share payment for the 17,408,000 shares
is offset.
As a result of the consummation
of the Merger, we became a shell company as of December 31, 2020.
Going Concern Uncertainties
The accompanying consolidated
financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization
of assets and the discharge of liabilities in the normal course of business for the foreseeable future.
As reflected in the accompanying
consolidated financial statements, for the years ended December 31, 2020 and 2019, we incurred net losses of $2.3 million and $1.2 million,
respectively. In addition, we reported cash out flow of $0.2 million and $0.1 million from our continuing operating activities for the
years ended December 31, 2020 and 2019, respectively. As of December 31, 2020, we had an accumulated deficit of $7.2 million. Management
believes these factors raise substantial doubt about our ability to continue as a going concern for the next twelve months.
29
The continuation of our company
as a going concern through the next twelve months is dependent upon (1) the continued financial support from our stockholders or external
financing. Management believes that our existing stockholders will provide the additional cash to meet our obligations as they become
due, and (2) that it will be able to implement its business plan to expand our company’s operations and generate sufficient revenues
to meet its obligations.
These conditions raise substantial
doubt about our company’s ability to continue as a going concern. These financial statements do not include any adjustments to reflect
the possible future effect on the recoverability and classification of assets or the amounts and classifications of liabilities that may
result from the outcome of these uncertainties. Management believes that the actions presently being taken to obtain additional funding
and implement its strategic plan provides the opportunity for our company to continue as a going concern.
Important Factors Affecting our Results of Operations and Existing
Trends
Price of Raw Materials
Prior to the consummation
of the Merger as of December 31, 2020, tourmaline powder and textiles are the most important raw materials used in the production of our
products. The price of tourmaline powder remained stable in 2020. The average price of textiles that we purchased and the average sales
prices of our products were stable in fiscal year 2020 and 2019.
Growth of the Chinese economy
Prior to the consummation
of the Merger, we operated our manufacturing facilities in China and derived all of our revenues from sales to customers in China. As
such, economic conditions in China affected virtually all aspects of our operations, including the demand for our products, the availability
and prices of our raw materials and our other expenses. According to the National Bureau of Statistics, China’s gross domestic product
in 2020 declined to 2.3% compared with 6.1% in 2019.
Costs of being a public company
We expect that compliance
with our obligations as a U.S. public company will require significant management time and significantly increase our general and administrative
expenses, including insurance, legal and financial compliance costs.
Foreign currency translation
Our financial statements are
expressed in U.S. dollars but the functional currency of our operating subsidiaries prior to the consummation of the Merger is in
RMB. Our results of operations are translated at average exchange rates during the relevant financial Reporting periods, assets and liabilities
are translated at the unified exchange rate at the end of these periods and equity is translated at historical exchange rates. Adjustments
resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive
income.
Description of Selected Income Statement Items
Operating expenses. Our
total operating expenses consist of audit fee, attorney fee and general and administrative expenses. General and administrative expenses
consist primarily of employee remuneration from directors and general office expenses.
Other loss. Our
other loss consists primarily of other loss from bank service fee.
Income taxes. The
Company was established under the laws of the State of Nevada and is subject to U.S. federal income tax and Nevada Annual Reporting requirements.
30
Results of Operations
The following table sets forth
certain information regarding our results of operations.
For the year ended December 31,
INCOME TAXES - -
NET LOSS FROM CONTINUING OPERATIONS $ (222,859 ) $ (118,583 )
Year Ended December 31, 2020 Compared to December
31, 2019
Operating expenses. For the year
ended December 31, 2020, our total operating expenses was $222,607, increased by $104,161, or 87.9%, from $118,446 for the year ended
December 31, 2019. This increase was mainly due to the increase of attorney fee, as a result of the Merger.
Loss from operations. As a result
of the foregoing, our loss from operations was $222,607 for the year ended December 31, 2020, compared to $118,446 for the year ended
December 31, 2019. This was mainly due to the increase in operating expenses.
Income taxes. Our income tax expenses
did not incur for the years ended December 31, 2020 and 2019.
Net loss from continuing operations. For
the year ended December 31, 2020, our net loss was $222,859 compared to $118,583 for the year ended December 31, 2019. The increased loss
was primarily due to the increased operating expenses.
Operating loss from discontinued operations.
As of December 31, 2020, we sold all of our subsidiaries and VIEs to Crystal Globe, one of our major shareholders. With a result,
operating results from our subsidiaries and VIEs during the years ended December 31, 2020 and 2019 were reported as part of loss from
operations of our discontinued component.
For the year ended December 31, 2020, revenue
from our discontinued operations was $225,419 compared to $609,174 for the year ended December 31, 2019, a decrease of $383,755, or 63%.
This decrease was mainly due to the downturn of the health care industry in China.
For the year ended December 31, 2020, cost of
goods sold from our discontinued operations was $117,632 compared to $295,705 for the year ended December 31, 2019, a decrease of $178,073,
or 60.2%. This decrease was mainly due to the decrease in sales.
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Liquidity and Capital Resources
We do not have cash at the beginning and the end
of the year ended December 31, 2020.
Our cash flow information summary is as follows:
For the year ended December 31,
Net cash provided by (used in):
Net Cash Used in Operating Activities
Net cash used in operating activities was $564,761
for the year ended December 31, 2020, which included cash used in the discontinued operations of $382,246, compared to $772,117 for the
year ended December 31, 2019, which included cash used in the discontinued operations of $664,534. This was mainly due to an increase
of $104,276 in net loss from our continuing operations.
For the year of 2020, cash was mainly used to
cover the loss from continuing operations of $222,859.
For the year of 2019, cash was mainly used to
cover the loss from continuing operations of $118,583.
Net Cash Used in Investing Activities
Net cash used in investing activities was $79,446
for the year ended December 31, 2020, compared to $89,472 for the year ended December 31, 2019. No cash provided by (used in) our continuing
operations for the years ended December 31, 2020 and 2019. The net cash out flow from our investing activities in 2020 and 2019 was from
our discontinued operations.
Net Cash Provided by Financing Activities
Net cash provided by financing activities was
$607,077 for the year ended December 31, 2020, which included cash provided by the discontinued operations of $424,562, compared to $836,529
for the year ended December 31, 2019, which included cash provided by the discontinued operations of $728,946.
Since the Company has no cash, Mr. Jinghe Zhang,
our President, Chief Executive Officer and director, agreed to advance operating capital to the Company. During the years of 2020 and
2019, we received $158,930 and $55,625, respectively, of these advances. As of December 31, 2020, the total unpaid principal balance due
to Mr. Jinghe Zhang for advances was $233,693.
Joway Shengshi, a company of the discontinued
operations, was owned 99% of the equity interest by Mr. Jinghe Zhang. During the years of 2020 and 2019, we received $23,585 and $51,958
of advances from Joway Shengshi, respectively. As of December 31, 2020, the total unpaid principal balance due to Joway Shengshi for advances
was $459,853.
Off Balance Sheet Items
Under SEC regulations, we
are required to disclose off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial
condition, such as changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital
resources that are material to investors. An off-balance sheet arrangement means a transaction, agreement or contractual arrangement to
which any entity that is not consolidated with us is a party, under which we have:
● any obligation under certain guarantee contracts,
32
We do not have any off-balance
sheet arrangements that we are required to disclose pursuant to these regulations. In the ordinary course of business, we enter into operating
lease commitments, purchase commitments and other contractual obligations. These transactions are recognized in our financial statements
in accordance with generally accepted accounting principles in the United States.
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 accounting principles generally accepted in the United States. Our financial statements reflect the selection
and application of accounting policies which require management to make significant estimates and judgments. Management bases its estimates
on historical experience and on various other assumptions that are believed to be reasonable under the circumstances.
Actual results may differ
from these estimates under different assumptions or conditions. We believe that the following reflect the more critical accounting policies
that currently affect our financial condition and results of operations.
Going Concern
The accompanying consolidated
financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization
of assets and the discharge of liabilities in the normal course of business for the foreseeable future.
As reflected in the accompanying
consolidated financial statements, for the years ended December 31, 2020 and 2019, we incurred net losses of $2.3 million and $1.2 million,
respectively. In addition, we reported cash out flow of $0.2 million and $0.1 million from our continuing operating activities for the
years ended December 31, 2020 and 2019, respectively. As of December 31, 2020, we had an accumulated deficit of $7.2 million. Management
believes these factors raise substantial doubt about our ability to continue as a going concern for the next twelve months.
The continuation of our company
as a going concern through the next twelve months is dependent upon (1) the continued financial support from our stockholders or external
financing. Management believes that our existing stockholders will provide the additional cash to meet our obligations as they become
due, and (2) that it will be able to implement its business plan to expand our company’s operations and generate sufficient revenues
to meet its obligations.
These conditions raise substantial
doubt about our company’s ability to continue as a going concern. These financial statements do not include any adjustments to reflect
the possible future effect on the recoverability and classification of assets or the amounts and classifications of liabilities that may
result from the outcome of these uncertainties. Management believes that the actions presently being taken to obtain additional funding
and implement its strategic plan provides the opportunity for our company to continue as a going concern.
Basis of Presentation
The accompanying consolidated
financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“US
GAAP”). The Company’s functional currency is the Chinese Renminbi (“RMB”); however, the accompanying consolidated
financial statements have been translated and presented in United States Dollars (“USD”). All significant inter-company transactions
and balances have been eliminated. The consolidated financial statements include all adjustments that, in the opinion of management, are
necessary to make the financial statements not misleading.
33
Use of Estimates
The preparation of the consolidated
financial statements is in conformity with generally accepted accounting principles in the United States of America, which require management
to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Management
makes these estimates using the best information available at the time the estimates are made. Actual results could differ from those
estimates.
Reclassification
Certain prior year balances
were reclassified to conform to the current year’s presentation with consideration of reflecting all of the Company’s subsidiaries
and VIEs as discontinued operations. None of these reclassifications had an impact on reported financial position or cash flows for any
of the periods presented.
Basis of Consolidation
For the periods prior to the
sale of Dynamic Elite, its subsidiaries, and controlled VIEs, the Company consolidated financial statements include Dynamic Elite, its
wholly owned subsidiaries, and controlled VIEs. All significant inter-company accounts and transactions have been eliminated in the consolidation.
Foreign Currencies Translation
Transactions denominated in
currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates
of the transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the
functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in
the statement of operations. The reporting currency of our company is the United States Dollar (“US$”). Our subsidiaries in
the PRC maintain their books and records in their local currency, the Renminbi Yuan (“RMB”), which is the functional currency
as it is the primary currency of the economic environment in which these entities operate.
In general, for consolidation
purposes, assets and liabilities of its subsidiaries whose functional currency is not the US$ are translated into US$, in accordance with
ASC Topic 830-30, “Translation of Financial Statement”, using the exchange rate on the balance sheet date. Revenues and expenses
are translated at average rates prevailing during the period. The gains and losses resulting from translation of financial statements
of foreign subsidiaries are recorded as a separate component of accumulated other comprehensive income within the statement of stockholders’
equity.
Other Comprehensive Income
Other comprehensive income
is defined as the change in equity during the period from transactions and other events, excluding the changes resulting from investments
by owners and distributions to owners. Other comprehensive income is not included in the computation of income tax expense or benefit.
Accumulated other comprehensive income represents the accumulated balance of foreign currency translation adjustments.
Fair Value of Financial Instruments
Financial Accounting Standards
Board (“FASB”) Accounting Standards Codification (“ASC”) 820 (formerly Statement of Financial Accounting Standard
(“SFAS”) No. 157 Fair Value Measurements) establishes a three-tier fair value hierarchy, which prioritizes the inputs used
in measuring fair value as the following:
34
The carrying amounts reported
in the balance sheets for cash, accounts receivable, other receivable, accounts payable, other payable, and amounts due from related parties
generally approximate their fair market values based on the short-term maturity of these instruments. ASC 825-10 “Financial Instruments”
allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair
value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If the fair value
option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent
reporting date. The Company did not elect to apply the fair value option to any outstanding instruments.
Revenue Recognition
The Company recognizes revenue
when control of promised goods or services is transferred to the company’s customers, in an amount that reflects the consideration
the Company expects to be entitled to in exchange for those goods or services.
Prior to the Merger Agreement,
with respect to sales of product to both franchisee and non-franchisee customers, the Company transfers control, invoices the customer
and recognizes revenue upon shipment to the customer. Sales prices are based on fixed price lists that are different depending on whether
the price list is for franchisee customers or for non-franchisee customers. Sales, value add and other taxes collected concurrent with
revenue-producing activities are excluded from revenue.
Income Taxes
The Company accounts for income
taxes in accordance with FASB ASC 740 “Income Taxes” (formerly SFAS No. 109 Accounting for Income Taxes), which is
an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences
of events that have been recognized in the Company’s financial statements or tax returns. ASC 740 additionally requires the establishment
of a valuation allowance to reflect the likelihood of realization of deferred tax assets. Realization of deferred tax assets is dependent
upon future earnings, if any, of which the timing and amount are uncertain.
According to ASC 740, the
evaluation of a tax position is a two-step process. The first step is to determine whether it is more likely than not that a tax position
will be sustained upon examination, including the resolution of any related appeals or litigation based on the technical merits of that
position. The second step is to measure a tax position that meets the more-likely-than-not threshold to determine the amount of benefit
to be recognized in the financial statements. A tax position is measured at the largest amount of benefit that is greater than 50% likelihood
of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold
should be recognized in the first subsequent period in which the threshold is met. Previously recognized tax positions that no longer
meet the more-likely-than-not criteria should be de-recognized in the first subsequent financial reporting period in which the threshold
is no longer met. ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods,
disclosures, and transition.
Basic and Diluted Earnings per Share
The Company reports earnings
per share in accordance with FASB ASC 260 “Earnings per share”. The Company’s basic earnings per share are computed
using the weighted average number of shares outstanding for the periods presented. Diluted earnings per share are computed based on the
assumption that any dilutive options or warrants were converted or exercised. Dilution is computed by applying the treasury stock method.
Under this method, the Company’s outstanding stock warrants are assumed to be exercised, and funds thus obtained were assumed to
be used to purchase common stock at the average market price during the period. There were no dilutive instruments outstanding during
the years ended December 31, 2020 and 2019.
35
Recent Accounting Pronouncements
In June 2016, the FASB issued
ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), which requires entities to measure all expected credit losses for financial
assets held at the Reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces
the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost.
This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early application
will be permitted for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.
The Company has completed its assessment of the new standard as of December 31, 2019 and concluded that the adoption will not have a material
impact on its consolidated financial statements.
In August 2018, the FASB issued
Accounting Standard Update (“ASU”) No. 2018-13, Fair Value Measurement (Topic 820), which modifies the disclosure requirements
on fair value measurements in Topic 820, Fair Value Measurement, including, among other changes, the consideration of costs and benefits
when evaluating disclosure requirements. For public companies, the amendments are effective for annual reporting periods beginning after
December 15, 2019, including interim periods within those annual periods. Early adoption is permitted. The Company is currently assessing
the impact that adopting this new accounting guidance will have on the Company’s financial statements and footnote disclosures.
In December 2019, the FASB
issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended
to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in
Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years,
and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company is currently
evaluating the impact of this standard on its consolidated financial statements and related disclosures.
Other accounting standards
that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not
expected to have a material impact on the Company’s consolidated financial statements upon adoption.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
Not applicable.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The audited financial statements
of Joway Health Industries Group Inc. as of December 31, 2020 and 2019 are appended to this Annual Report beginning on page F-1.
Item 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
Item 9A. CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
Our management, under the
supervision and with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”),
has evaluated the effectiveness of our disclosure controls and procedures as defined in SEC Rules 13a-15(e) and 15d-15(e) as of the end
of the period covered by this Annual Report. Our disclosure controls and procedures are designed to ensure that information required to
be disclosed in the Reports we file or submit under the Securities Exchange Act of 1934 (“Exchange Act”) is recorded, processed,
summarized, and Reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated
and communicated to our management including our CEO and CFO, to allow timely decisions regarding required disclosures.
Based on their evaluation,
our CEO and CFO have concluded that, as of December 31, 2020, our disclosure controls and procedures were not effective.
36
Management Report on Internal Control over Financial Reporting
Our management is responsible
for establishing and maintaining adequate internal control over financial Reporting, as such term is defined in Exchange Act Rules 13a-15(f)
and 15d-15(f). Our internal control over financial Reporting was designed to provide reasonable assurance to the Company’s management
and board of directors regarding the preparation and fair presentation of published consolidated financial statements. Internal control
over financial Reporting is promulgated under the Exchange Act as a process designed by, or under the supervision of, the Company’s
principal executive and principal financial officers and effected by the Company’s board of directors, management and other personnel,
to provide reasonable assurance regarding the reliability of financial Reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. Internal control over financial Reporting, no matter how well designed,
has inherent limitations and may not prevent or detect misstatements. Therefore, even effective internal control over financial Reporting
can only provide reasonable assurance with respect to the financial statement preparation and presentation.
Our management has conducted,
with the participation of our CEO and CFO, an assessment, including testing of the effectiveness, of our internal control over financial
Reporting as of December 31, 2020. Management’s assessment of internal control over financial Reporting was conducted using the
criteria in Internal Control - Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Based on such evaluation, management identified deficiencies that were determined to be a material weakness.
A material weakness is a deficiency,
or a combination of deficiencies, in internal control over financial Reporting, such that there is a reasonable possibility that a material
misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. Because
of the material weakness described below, management concluded that our internal controls over financial Reporting were not effective
as of December 31, 2020.
The specific material weakness
identified by the Company’s management as of December 31, 2020 is described as follows:
We did not have sufficient
skilled accounting personnel that are either qualified as Certified Public Accountants in the U.S. or that have received education from
U.S. institutions or other educational programs that would provide enough relevant education relating to U.S. GAAP. The Company’s
CFO and Financial Manager have worked for U.S. listed companies but have limited experience with U.S. GAAP and are not U.S. Certified
Public Accountants. Further, our operating subsidiaries are based in China, and in accordance with PRC laws and regulations, are required
to comply with PRC GAAP, rather than U.S. GAAP. Thus, the accounting skills and understanding necessary to fulfill the requirements of
U.S. GAAP-based Reporting, including the preparation of consolidated financial statements, are inadequate, and determined to be a material
weakness.
Remediation Initiative
37
We believe that the foregoing
steps will remediate the significant deficiencies identified above, and we will continue to monitor the effectiveness of these steps and
make any changes that our management deems appropriate.
Because of its inherent limitations,
internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations.
Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation
and presentation.
Conclusion
Despite the material weakness
and deficiencies Reported above, our management believes that our consolidated financial statements included in this Report fairly present
in all material respects our financial condition, results of operations and cash flows for the periods presented and that this Report
does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report.
This Annual Report does not
include an attestation Report of our registered public accounting firm regarding internal control over financial Reporting. Management’s
Report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to
provide only management’s Report in this Annual Report.
Changes in Internal Control over Financial Reporting
There were no significant
changes in our internal controls over financial Reporting that occurred for the year ended December 31, 2020, that have materially affected,
or are reasonably like to materially affect, our internal controls over financial Reporting.
Item 9B. OTHER INFORMATION.
None.
38
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS
AND CORPORATE GOVERNANCE.
Our Board of Directors
The Board of Directors is
presently composed of three members: Jinghe Zhang, Jun Pang and Haibo Fan. Mr. Zhang serves as Chairman of the Board of Directors. On
November 27, 2018, the Board of Directors appointed Jun Pang and Haibo Fan as directors of the Company. The Board determined that Mr.
Pang and Mr. Fan are independent directors within the meaning set forth in the rules and regulations of the SEC, as currently in effect.
There are no family relationships between any director and executive officer.
The following table sets forth
certain information concerning our current directors:
Name Age Position Director Since
Jinghe Zhang 55 President, Chief Executive Officer, Chairman and Director 2010
Jun Pang 49 Independent Director 2018
Haibo Fan 48 Independent Director 2018
The following is a summary
of the biographical information of our directors:
JINGHE ZHANG, age 55, is the
founder of Tianjin Joway Shengshi. Mr. Zhang has extensive experience in business management and product marketing. He has served as Chairman
of the Board and CEO for Joway Shengshi since its incorporation in 2007. Since January 2005 he has served as the Chairman and general
manager for Shenyang Joway. From May 2003 to December 2004, he served as Chairman and general manager of Shenyang Dazhou Healthcare Products
Co., Ltd. He headed the marketing department of Tianjin Tianshi Biological Engineering Co., Ltd. from July 2000 to May 2003. From July
1988 to July 2000, he was employed as sales manager by Tianjin Hardware Procurement & Supply Station. Mr. Zhang received his bachelor
degree in economics from Tianjin University of Finance and Economics in July 1988.
Jun Pang, age 49, was appointed
to the Company’s Board of Directors on November 27, 2018. Mr. Pang has been the Purchasing and Logistics Manager for Evonik Specialty
Chemicals (Jilin) Co., Ltd., where he has served as such since 2013. Prior to transitioning to his current role, Mr. Pang served since
2004 as purchasing manager, and from 2004 to 2010 he was also logistics manager for BASF Petrochina Pentyl Glycol Co., Ltd.
Jun Pang resigned as a director
of the Company effective as of April 29, 2021.
Haibo Fan, age 48, was appointed
to the Company’s Board of Directors on November 27, 2018. Mr. Fan has been the financial controller for Jilin Petrochemical Co.,
Ltd. (“Jilin”), where he has served in that role since October 2007. He previously served as Jilin’s vice chief in the
budget and internal accounting control departments from May 2003 until becoming Jilin’s financial controller in October 2007. From
March 2002 to May 2003, Mr. Fan served as director of investment in the office of the Secretary of the Board of China Petroleum Jilin
Chemical Engineering & Construction Co., Ltd.
Haibo Fan resigned as a director
of the Company effective as of April 29, 2021.
Our directors hold their position
until the next annual meeting of shareholders and until their successors are elected and qualified by our shareholders, or until earlier
death, retirement, resignation or removal.
39
Involvement in Certain Legal Proceedings
To our knowledge, during the
last ten years, none of our directors and executive officers (including those of our subsidiaries) has:
Audit Committee
We do not presently have an
audit committee. Our Board of Directors currently acts as our audit committee.
Compensation Committee
We do not presently have a
compensation committee. Our Board of Directors currently acts as our compensation committee.
Nominating Committee
We do not presently have a
nominating committee. Our Board of Directors currently acts as our nominating committee.
Code of Ethics
On May 11, 2012, our Board
of Directors approved a renewed Code of Ethics which is applicable to our officers and senior executives, which include our Chief Financial
Officer, Treasurer and Chief Accounting Officer. This Code embodies our commitment to conduct business in accordance with the highest
ethical standards and applicable laws, rules and regulations. We will provide any person a copy of our Code of Ethics, without charge,
upon written request to the Company’s Secretary. Requests should be addressed in writing to Jinghe Zhang (No. 19, Baowang Road,
Baodi Economic Development Zone, Tianjin, PRC 301800).
40
Our Executive Officers and Other Significant Employees
Set forth below is information
regarding our current executive and certain key officers, including officers of our operating subsidiaries.
Name Age Position
Yuan Huang 49 Chief Financial Officer, Secretary and Treasurer
JINGHE ZHANG is
the founder of Joway Shengshi. Mr. Zhang has extensive experience in business management and product marketing. He has served as
Chairman of the Board and CEO for Joway Shengshi since its incorporation in 2007. Since January 2005 he has served as the Chairman and
general manager for Shenyang Joway. From May 2003 to December 2004, he served as Chairman and general manager of Shenyang Dazhou Healthcare
Products Co., Ltd. He headed the marketing department of Tianjin Tianshi Biological Engineering Co., Ltd. from July 2000 to May 2003.
From July 1988 to July 2000, he was employed as sales manager by Tianjin Hardware Procurement & Supply Station. Mr. Zhang
received his bachelor degree in economics from Tianjin University of Finance and Economics in July 1988.
YUAN HUANG has
served as the Chief Financial Officer of Joway Shengshi since September 2009. Prior to his appointment as Joway Shengshi’s Chief
Financial Officer, he was a Senior Financial Manager of Tianjin Tianshi Group Co., Ltd. from September 2005 to August 2009. From November
2003 to July 2005, he served as financial manager of Herbie (Tianjin) Electronics Co., Ltd. from. From December 1998 to November
2003, he served as Section Chief of the Budget Department of Bridgestone Tires (Tianjin) Co., Ltd. Mr. Huang received his master
degree and bachelor degree in accounting from Tianjin University of Finance and Economics in July 2009 and July 1993, respectively.
Item 11. EXECUTIVE COMPENSATION.
Executive Officer Compensation
The following is a summary
of the compensation we paid to our Chief Executive Officers for the fiscal years ended December 31, 2020 and 2019. This includes all compensation,
including any compensation paid to our Chief Executive Officers by any of our subsidiaries. No executive officer received compensation
in excess of $100,000 in 2020 or 2019.
Summary Compensation Table
41
Employment Agreements with Executive Management
On September 28, 2010, we
entered into an employment agreement with each of Mr. Jinghe Zhang and Mr. Yuan Huang. Under their respective agreements, Mr. Jinghe Zhang
is employed as our President and Chief Executive Officer for a term of three years at a monthly salary of RMB 7,000 (approximately $1,070),
and Yuan Huang is employed as our Chief Financial Officer, Secretary and Treasurer for a term of three years and a monthly salary of RMB
5,000 (approximately $746). These employment agreements were renewed on September 28, 2013, 2016 and 2019 for the same terms. Pursuant
to these agreements, neither party may terminate the employment agreement without cause.
Option Plan
There were no stock options
and no common shares set aside for any stock option plan as of December 31, 2020.
Aggregated Option Exercises and Fiscal Year-End
Option Value Table
There were no stock options
exercised during the fiscal year ended December 31, 2020, by the executive officer named in the Executive Compensation Table.
Long-Term Incentive Plan (“LTIP”)
Awards Table
There were no awards made
to a named executive officer in the last completed fiscal year under any LTIP.
Director Compensation
On November 27, 2018, the
Board of Directors appointed Jun Pang and Haibo Fan as independent directors of the Company. In connection with the appointment of the
new directors to the Board, the Company has agreed to pay (i) Jun Pang annual cash compensation in the amount of $12,000; and (ii) Haibo
Fan annual cash compensation in the amount of $12,000. The following is a summary of the compensation to our directors for the fiscal
year ended December 31, 2020.
Director Compensation
Each of Messrs. Pang and Fan resigned as directors of the Company
effective as of April 29, 2021.
42
Item 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth
information regarding beneficial ownership of our common stock as of August 5, 2021 (i) by each person who is known by us to beneficially
own more than 5% of our common stock; (ii) by each of our officers and directors; and (iii) by all of our officers and directors
as a group. Unless otherwise indicated, the address of each listed stockholder is c/o Joway Health, Inc., No. 19 Baowang Road, Baodi
Economic Development Zone, Tianjin City, PRC 300180.
Owner of More than 5% of Class
Director and Executive Officers
All directors and executive officers (2 persons) 17,438,000 86.96 %
* Under 1% of the issued and outstanding shares as of August 5, 2021.
43
Item 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.
The following are transactions
for the last two completed fiscal years and any currently proposed transaction, in which the registrant was or is to be a participant
and the amount involved exceeds the less of $120,000 or one percent of the average of the registrant’s total assets at December
31, 2020 and 2019, and in which any of the following persons had or will have a direct or indirect material interest.
● Any director or executive officer;
Transactions with Jinghe Zhang
As of April 28, 2021, Jinghe
Zhang released the Company from $295,928.47 of indebtedness owed to him from the Company. There is no further indebtedness owed from or
to Jinghe Zhang by the Company.
Transactions with Joway Shengshi
Joway Shengshi is a company
of the discontinued operations. Mr. Jinghe Zhang owns 99% of the equity interest in Joway Shengshi. During the years of 2020 and 2019,
we received $23,585 and $51,958 of advances from Joway Shengshi, respectively. As of December 31, 2020, the total unpaid principal balance
due to Joway Shengshi for advances was $459,853.
As of April 28, 2021, Joway
Shengshi released the Company from $463,697.67 of indebtedness owed to it from the Company. There is no further indebtedness owed from
or to Joway Shengshi by the Company.
44
Other Related Party Transactions
Except as disclosed in this
Annual Report, no executive officer, director or any member of these individuals’ immediate families, any corporation or organization
with whom any of these individuals is an affiliate or any trust or estate in which any of these individuals serve as a trustee or in a
similar capacity or has a substantial beneficial interest in is or has been indebted to us at any time since the beginning of our last
fiscal year. (See Item I Business - Recent Developments - Entry into a Material Definitive Agreement & Completion of Acquisition or
Disposition of Assets)
Procedures for Approval of Related Party Transactions
Our Director Board is charged
with reviewing and approving all potential related party transactions. All such related party transactions must then be reported
under applicable SEC rules. We have not adopted other procedures for review, or standards for approval, of such transactions, but instead
review them on a case-by-case basis.
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
Audit Fees
For each fiscal year of 2020
and 2019, we incurred aggregate fees and expenses of $55,000 and $79,000, respectively, from HHC for works completed for our annual audits
and quarterly reviews.
Audit-Related Expenses
Audit-related expenses for
2020 and 2019 were $0 and $1,007, respectively.
Tax Fees
We incurred aggregate fees
and expenses of $0 for each fiscal year of 2020 and 2019, respectively.
All Other Fees
We incurred other fees of
$0 for each fiscal year of 2020 and 2019.
Policy on Audit Committee Pre-Approval of Audit and Permissible