UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2018

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

For the transition period from              to             

Commission File No. 333-108715

Joway Health Industries Group Inc.

(Exact Name of Registrant as Specified in Its Charter)

Nevada	98-0221494
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
No. 2, Baowang Road, Baodi Economic Development Zone, Tianjin, PRC 301800	86-22-22533666
(Address of Principal Executive Offices)	(Issuer’s Telephone Number)

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

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

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

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

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☒
(Do not check if smaller reporting company)		Emerging growth company	☐

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

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

The number of shares outstanding of the Issuer’s Common Stock as of August 14, 2018 was 20,054,000 shares.

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION	1
Item 1. Financial Statements	1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3. Quantitative and Qualitative Disclosures About Market Risk	31
Item 4. Controls and Procedures	31
PART II - OTHER INFORMATION	33
Item 1. Legal Proceedings	33
Item 1A. Risk Factors	33
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 3. Defaults Upon Senior Securities	33
Item 4. Mine Safety Disclosures	33
Item 5. Other Information	33
Item 6. Exhibits	34
SIGNATURES	35

i

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements included in this Form 10-Q reflect all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the results of operations for the periods presented. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year.

1

INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

	Page
Condensed Consolidated Balance Sheets as of June 30, 2018 (Unaudited) and December 31, 2017	3
Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income for the Three and the Six Months Ended June 30, 2018 and 2017 (Unaudited)	4
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2018 and 2017 (Unaudited)	5
Notes to Unaudited Condensed Consolidated Financial Statements	6-20

2

JOWAY HEALTH INDUSTRIES GROUP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30,			December 31,
	2018			2017
	(Unaudited)			(Audited)
ASSETS
CURRENT ASSETS:
Cash	$	296,264		$	518,535
Accounts receivable		2,730			2,777
Other receivables		61,933			66,003
Inventories		555,397			618,247
Advances to suppliers		58,980			95,521
Prepaid taxes		85,177			75,557
Prepaid expense		279			2,364
Total current assets		1,060,760			1,379,004
PROPERTY, PLANT AND EQUIPMENT, net		4,116,121			4,398,832
OTHER ASSETS:
Intangible assets, net		502,155			521,294
Total other assets		502,155			521,294
Total assets	$	5,679,036		$	6,299,130
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	77,082		$	29,419
Advances from customers		120,908			38,034
Other payables		61,807			66,716
Due to related parties		257,398			129,038
Total current liabilities		517,195			263,207
COMMITMENTS		-			-
STOCKHOLDERS’ EQUITY:
Preferred stock - par value $0.001; 1,000,000 shares authorized; no shares issued and outstanding		-			-
Common stock - par value $0.001; 200,000,000 shares authorized; 20,054,000 shares issued and outstanding at June 30, 2018 and December 31, 2017		20,054			20,054
Additional paid-in-capital		7,361,665			7,361,665
Statutory reserves		354,052			354,052
Accumulated deficits		(3,306,003	)		(2,503,952	)
Accumulated other comprehensive income		732,073			804,104
Total stockholders’ equity		5,161,841			6,035,923
Total liabilities and stockholders’ equity	$	5,679,036		$	6,299,130

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

3

JOWAY HEALTH INDUSTRIES GROUP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

	Three months ended June 30,						Six months ended June 30,
	2018			2017			2018			2017
REVENUES	$	677,620		$	1,130,927		$	1,086,920		$	1,873,808
COST OF REVENUES		314,229			368,217			487,354			606,147
GROSS PROFIT		363,391			762,710			599,566			1,267,661
Selling expenses		297,801			280,480			495,516			498,794
General and administrative expenses		406,110			409,987			888,005			885,286
OPERATING EXPENSES		703,911			690,467			1,383,521			1,384,080
INCOME (LOSS) FROM OPERATIONS		(340,520	)		72,243			(783,955	)		(116,419	)
Interest income		85			183			206			419
Other income		1,369			2,675			2,452			5,211
Other expenses		(1,500	)		(68,601	)		(20,754	)		(68,601	)
OTHER EXPENSES, NET		(46	)		(65,743	)		(18,096	)		(62,971	)
INCOME (LOSS) BEFORE INCOME TAXES		(340,566	)		6,500			(802,051	)		(179,390	)
INCOME TAX BENEFITS		-			(32	)		-			(32	)
NET INCOME (LOSS)		(340,566	)		6,532			(802,051	)		(179,358	)
OTHER COMPREHENSIVE INCOME (LOSS):
Foreign currency translation adjustment		(286,650	)		105,863			(72,031	)		156,717
COMPREHENSIVE INCOME (LOSS)	$	(627,216	)	$	112,395		$	(874,082	)	$	(22,641	)
NET LOSS PER COMMON SHARE, BASIC AND DILUTED	$	(0	)	$	0		$	(0	)	$	(0	)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING, BASIC AND DILUTED		20,054,000			20,054,000			20,054,000			20,054,000

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

4

JOWAY HEALTH INDUSTRIES GROUP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Six months ended June 30,
	2018			2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(802,051	)	$	(179,358	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation		211,457			211,614
Amortization		10,755			10,930
Loss on sale of assets		6,259			68,601
Changes in operating assets and liabilities:
Accounts receivable, trade		-			(2,499	)
Other receivables		4,070			(220,255	)
Inventories		63,957			(83,800	)
Advances to suppliers		36,541			148,397
Prepaid expense		2,085			2,304
Accounts payable		47,663			(8,879	)
Advances from customers		82,874			32,450
Other payable		626			(2,990	)
Salary and welfare payable		(5,535	)		7,194
Taxes payable		(9,620	)		(23,027	)
Net cash used in operating activities		(350,919	)		(39,318	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment		(5,704	)		(158,864	)
Proceeds from sale of equipment		352			43,635
Net cash used in investing activities		(5,352	)		(115,229	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds (repayment) of due to related parties		128,360			(2,035	)
Net cash provided by (used in) financing activities		128,360			(2,035	)
EFFECT OF EXCHANGE RATE CHANGES ON CASH		5,640			36,922
NET DECREASE IN CASH		(222,271	)		(119,660	)
CASH, beginning of period		518,535			919,390
CASH, end of period	$	296,264		$	799,730
SUPPLEMENTAL DISCLOSURES:
Income taxes paid	$	-		$	-
Interest paid	$	-		$	-

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

5

JOWAY HEALTH INDUSTRIES GROUP INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – ORGANIZATION

The unaudited condensed consolidated financial statements include the financial statements of Joway Health Industries Group Inc. (referred to herein as “Joway Health”), its subsidiaries, and variable interest entities (“VIEs”) where Joway Health is deemed the primary beneficiary. Joway Health, its subsidiaries and VIEs are collectively referred to herein as the “Company”, “we” and “us”.

Joway Health (formerly G2 Ventures, Inc.) was originally incorporated under the laws of the State of Texas on March 21, 2003. On September 21, 2010, Joway Health entered into a Share Exchange Agreement (the “Share Exchange”) with the sole stockholder of Dynamic Elite International Limited. As a result of the Share Exchange, Dynamic Elite became a wholly-owned subsidiary of Joway Health and the stockholders of Dynamic Elite acquired approximately 76.08% of the issued and outstanding stock of Joway Health. The share exchange transaction resulted in the shareholders of Dynamic Elite acquiring a majority voting interest in Joway Health. Generally accepted accounting principles in the United States of America require that the company whose shareholders retain the majority interest in the combined business be treated as the acquirer for accounting purposes. The reverse acquisition process utilizes the capital structure of Joway Health and the assets and liabilities of Dynamic Elite recorded at historical cost. On December 22, 2010, Joway Health changed its jurisdiction of incorporation from the State of Texas to the State of Nevada.

Dynamic Elite International Limited (referred to herein as “Dynamic Elite”) was incorporated under the laws of the British Virgin Islands on June 2, 2010 as a limited liability company (a BVI company). Dynamic Elite engages in manufacturing and distributing tourmaline products in China. Its wholly owned subsidiary, Tianjin Junhe Management Consulting Co., Ltd. was incorporated on September 15, 2010 in Tianjin, People’s Republic of China (“PRC”). Other than the equity interest in Junhe Consulting, Dynamic Elite does not own any assets or conduct any operations.

Tianjin Junhe Management Consulting Co., Ltd. (referred to herein as “Junhe Consulting”) conducts its business through Tianjin Joway Shengshi Group Co., Ltd. that is consolidated as a variable interest entity.

Tianjin Joway Shengshi Group Co., Ltd. (referred to herein as “Joway Shengshi”) was incorporated in PRC on May 17, 2007. Joway Shengshi is currently owned 99% by Jinghe Zhang, the Company’s current CEO and President and 1% by Song Baogang. Joway Shengshi engages in manufacturing and distributing tourmaline products in China. Shenyang Joway Electronic Technology Co., Ltd., Tianjin Joway Decoration Engineering Co., Ltd. and Tianjin Oriental Shengtang Trading Import & Export Trading Co., Ltd are subsidiaries of Joway Shengshi.

Shenyang Joway Electronic Technology Co., Ltd. (referred to herein as “Joway Technology”) was originally named Liaoning Joway Technology Engineering Co., Ltd. which was incorporated on March 28, 2007 in PRC. The name was changed on June 22, 2011. It engages in the distribution of Tourmaline Activated Water Machines and Tourmaline Wellness Houses. Prior to July 25, 2010, Joway Shengshi owned 90.91% of Joway Technology. Joway Shengshi entered into a share acquisition agreement with Jingyun Chen, another stockholder of Joway Technology on July 25, 2010 to acquire the remaining 9.09% of the share of Joway Technology. As a result of the share acquisition, Joway Technology became a wholly-owned subsidiary of Joway Shengshi.

Tianjin Joway Decoration Engineering Co., Ltd. (referred to herein as “Joway Decoration”) was incorporated on April 22, 2009 in PRC. It engages in the distribution of Tourmaline Activated Water Machines, Tourmaline Wellness House for family use and Tourmaline Wellness House materials. Prior to July 9, 2010, Joway Shengshi owned 90% of Joway Decoration. Joway Shengshi entered into a share acquisition agreement with Jingyun Chen, another stockholder of Joway Decoration on July 9, 2010 to acquire the remaining 10% of the shares of Joway Decoration. As a result of the share acquisition, Joway Decoration became a wholly-owned subsidiary of Joway Shengshi. Jingyun Chen is currently the General Manager of Joway Decoration.

6

Tianjin Oriental Shengtang Import & Export Trading Co., Ltd (referred to herein as “Shengtang Trading”) was incorporated on September 18, 2009 in the PRC. It engages in purchasing raw materials which it sells to other companies of the group. Prior to July 28, 2010, Joway Shengshi owned 95% of Shengtang Trading. Joway Shengshi entered into a share acquisition agreement with Wang Aiying, another stockholder of Shengtang Trading on July 28, 2010 to acquire the remaining 5% of the shares of Shengtang Trading. As a result of the share acquisition, Shengtang Trading became a wholly-owned subsidiary of Joway Shengshi.

The following table lists the Company and its subsidiaries:

Name	Domicile and Date of Incorporation	Paid in Capital	Percentage of Effective Ownership	Principal Activities
Joway Health Industries Group Inc.	March 21, 2003, Nevada	USD 20,054	86.8% owned by Crystal Globe Limited 13.2%owned by other institutional and individual investors	Investment Holding
Dynamic Elite International Limited	June 2, 2010, British Virgin Islands	USD 10,000	100% owned by Joway Health Industries Group Inc.	Investment Holding
Tianjin Junhe Management Consulting Co., Ltd.	September 15, 2010, PRC	USD 20,000	100% owned by Dynamic Elite International Limited	Advisory
Tianjin Joway Shengshi Group Co., Ltd.	May 17, 2007, PRC	USD 7,216,140.72	99% owned by Jinghe Zhang,  and 1% owned  by Baogang Song	Production and distribution of Healthcare Knit Goods and Daily Healthcare and Personal Care products
Shenyang Joway Electronic Technology Co., Ltd.	March 28, 2007, PRC	USD 142,072.97	100% owned by Tianjin Joway Shengshi Group Co., Ltd	Distribution of Tourmaline Activated Water Machine and construction of Tourmaline Wellness House
Tianjin Joway Decoration Engineering Co., Ltd.	April 22, 2009, PRC	USD 292,367.74	100% owned by Tianjin Joway Shengshi Group Co., Ltd	Distribution of Wellness House for family use and Activated Water Machine and construction of Tourmaline Wellness House
Tianjin Oriental Shengtang Import & Export Trading Co., Ltd.	September 18, 2009, PRC	USD 292,463.75	100% owned by Tianjin Joway Shengshi Group Co., Ltd	Distribution of tourmaline products

7

On September 16, 2010, prior to the share exchange, Junhe Consulting entered into a series of contractual agreements (the “Contractual Agreements”) with Joway Shengshi and Joway Shengshi’s owners. The following is a brief description of the Contractual Agreements entered into between Junhe Consulting and Joway Shengshi or Joway Shengshi’s owners:

1. Consulting Services Agreement. Pursuant to the consulting services agreement between Junhe Consulting and Joway Shengshi, Junhe Consulting has the right to advise, consult, manage and operate Joway Shengshi, and collect and own all of the net profits of the Operating Entities.

2. Operating Agreement. Under the operating agreement between Junhe Consulting and Joway Shengshi, Junhe Consulting has the right to recommend director candidates and appoint the senior executives of Joway Shengshi, approve any transactions that may materially affect the assets, liabilities, rights or operations of Joway Shengshi, and guarantee the contractual performance by Joway Shengshi of any agreements with third parties, in exchange for a pledge by Joway Shengshi of its accounts receivable and assets.

3. Voting Rights Proxy Agreement. Under the voting rights proxy agreement between Joway Shengshi’s owners and Junhe Consulting, the owners of Joway Shengshi have vested their collective voting control over Joway Shengshi to Junhe Consulting and will only transfer their respective equity interests in Joway Shengshi to Junhe Consulting or its designee.

4. Option Agreement. Under the option agreement between Joway Shengshi’s owners and Junhe Consulting, the owners of Joway Shengshi have granted Junhe Consulting the irrevocable right and option to acquire all of their equity interests in Joway Shengshi.

5. Equity Pledge Agreement. Under the equity pledge agreement between Joway Shengshi’s owners and Junhe Consulting, the owners of Joway Shengshi have pledged all of their rights, titles and interests in Joway Shengshi to Junhe Consulting to guarantee Joway Shengshi’s performance of its obligations under the Consulting Services Agreement.

As a result of the Contractual Agreements, Joway Shengshi is effectively a variable interest entity of Junhe Consulting. Accordingly, the Company through its wholly-owned subsidiary Junhe Consulting, consolidates Joway Shengshi’s results of operation, assets and liabilities in its financial statements.

In connection with the Share Exchange and as consideration for entering into the VIE Agreements, Jingshe Zhang and Baogang Song, the shareholders of Joway Shengshi (the “Grantees”), entered into a Call Option Agreement, dated July 20, 2010 with Lionel Evan Liu (the “Grantor”), the sole shareholder of Crystal Globe (the controlling shareholder of Dynamic Elite), a British Virgin Islands company (the “Call Option Agreement”), pursuant to which the Grantees had the right to purchase up to 100% of the shares of Crystal Globe (the “Call Option”) at an exercise price of $2.00 per share (the “Exercise Price”) for a period of five years. The Call Option vested as to 34% of the shares of Crystal Globe on April 2, 2011 and as to 33% on each of April 2, 2012 and 2013 (the respective “Call Option Effective Date”). On March 28, 2015, the Grantor and Grantees amended the Call Option Agreement, to (i) reduce the Exercise Price to $0.00 per share and (ii) extend the Grantees’ rights to exercise their call option within ten years from the respective Option Effective Date.

On November 13, 2016, Jinghe Zhang exercised the Call Option as to 99% of the shares of Crystal Globe and Baogang Song exercised his Call Option as to 1% of the shares of Crystal Globe. As a result of exercising the Call Option, Jinghe Zhang became the controlling shareholder of Crystal Globe and in turn, the controlling shareholder of the Company. On November 20, 2016, Baogang Song transferred 1% of the shares of Crystal Globe to Jinghe Zhang. Consequently, Jinghe Zhang controls 17,408,000 shares, or 86.8%, of the issued and outstanding shares of the Company’s common stock.

8

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”). Accordingly, they do not include all of the information and the footnotes required by generally accepted accounting principles for complete financial statements. The Company’s functional currency is the Chinese Renminbi (“RMB”); however, the accompanying unaudited condensed 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.

Operating results for the six month period ended June 30, 2018 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2018. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company’s form 10-K for the fiscal year ended December 31, 2017 which was filed on April 2, 2018.

Use of Estimates

The preparation of the consolidated financial statements in conformity with US GAAP requires 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.

Basis of Consolidation

The accompanying consolidated financial statements include the Company and its wholly owned subsidiaries and controlled VIEs. All significant inter-company accounts and transactions have been eliminated in the consolidation.

Pursuant to Accounting Standards Codification Topic 810 “Consolidation” (“ASC 810”), the Company is required to include in its consolidated financial statements the financial statements of its variable interest entities (“VIEs”). ASC 810 requires a VIE to be consolidated by a company if that company is subject to a majority of the risk of loss for the VIE or is entitled to receive a majority of the VIE’s residual returns. VIEs are those entities in which a company, through contractual arrangements, bears the risk of, and enjoys the rewards normally associated with ownership of the entity, and therefore the company is the primary beneficiary of the entity.

Based on the various Contractual Agreements, the Company is able to exercise control over the VIEs, and to obtain the full economic benefits. The terms of the exclusive option agreement are currently exercisable and legally enforceable under PRC laws and regulations. The minimum amount of consideration permitted by the applicable PRC law to exercise the option does not represent a financial barrier or disincentive for the Company to exercise its rights under the exclusive option agreement. A simple majority vote of the Company’s board of directors is required to pass a resolution to exercise its rights under the exclusive option agreement, for which consent of the shareholder of VIEs is not required. Therefore, this gives the Company the power to direct the activities that most significantly impact VIEs’ economic performance. The Company’s ability to exercise effective control, together with the consulting service agreements and the equity pledge agreements, give the Company the rights to receive substantially all of the economic benefits from VIEs in consideration for the services provided by its wholly owned subsidiaries in China. Accordingly, as the primary beneficiary of VIEs and in accordance with U.S. GAAP, Joway Shengshi, Joway Technology, Joway Decoration, and Shengtang Trading, as VIEs of Junhe Consulting, has been consolidated in the Company’s financial statements. Sales from Joway Shengshi, Joway Technology, Joway Decoration, and Shengtang Trading are included in the Company’s total sales, their incomes or losses from operations are consolidated with the Company’s, and the Company’s net income or loss includes net income or loss from Joway Shengshi, Joway Technology, Joway Decoration, and Shengtang Trading.

Foreign Currency Translation

The accompanying consolidated financial statements are presented in USD. The functional currency of the Company is RMB. The consolidated financial statements are translated into United States dollars from RMB at period-end exchange rates as to assets and liabilities and average exchange rates as to revenues and expenses. Equity accounts are translated at their historical exchange rates when the equity transactions occurred. The resulting transaction adjustments are recorded as a component of stockholders’ equity. Gains and losses from foreign currency transactions are included in net income.

	For the six months ended June 30,				For the year ended December 31,
	2018		2017		2017
Period ended RMB: USD Exchange rate		6.61905		6.7774		6.50739
Average RMB: USD Exchange rate		6.36655		6.8752		6.75783

9

The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into USD at the rates used in translation.

Foreign currency translation adjustments have been reported as comprehensive income (loss) in the consolidated financial statements and totaled $(286,650) and $105,863 for the three months ended June 30, 2018 and 2017, respectively, and $(72,031) and $156,717 for the six months ended June 30, 2018 and 2017, respectively.

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, and 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.

Concentrations of Credit Risk

The Company’s operations are carried out in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC’s economy. The Company’s operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in North America. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things. Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash. Substantially all of the Company’s cash is maintained with state-owned banks within the PRC, and no deposits are covered by insurance. The Company has not experienced any losses in such accounts and believes it is not exposed to any risks on its cash in bank accounts.

Fair Value of Financial Instruments

Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

● Level 1—defined as observable inputs such as quoted prices in active markets for identical assets or liabilities;

● Level 2—defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and

● Level 3—defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

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.

10

Cash

For financial reporting purposes, the Company considers all highly liquid financial instruments with an original maturity of three months or less to be cash equivalents. The Company had no cash equivalents at any point during the period of the financial statements presented. Balances at financial institutions or state-owned banks within the PRC are not covered by insurance. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant risks on its cash in bank accounts.

Accounts Receivable

Accounts receivable are presented net of an allowance for doubtful accounts. The Company maintains allowances for doubtful accounts for estimated losses. On a periodic basis, the Company reviews the composition of the accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these allowances. Accounts are written off after exhaustive efforts at collection. As of June 30, 2018 and December 31, 2017, based on a review of its outstanding balances, the Company allowance for doubtful accounts had a zero balance, respectively.

Inventories

Inventories are stated at the lower of cost, as determined by the specific identification method on contract level (for each individual contract, inventories cost flow are determined by weighted-average method), or the net realizable value, which is determined on selling prices less any further costs expected to be incurred for completion and disposal. The Company regularly evaluates the composition of its inventories to identify slow-moving and obsolete inventories to determine whether a valuation allowance is required. As of June 30, 2018 and December 31, 2017, the Company recorded $64,477 and $65,584 for inventory valuation allowance, respectively.

Advances to Suppliers

Advances to suppliers represent the cash paid in advance for inventory items or construction in progress. The advance payments are meant to ensure preferential pricing and delivery. The amounts advanced under such arrangements totaled $60,306 and $95,521 as of June 30, 2018 and December 31, 2017, respectively.

Property, Plant, and Equipment

Property, plant and equipment are stated at cost less accumulated depreciation, and include expenditures that substantially increase the useful lives of existing assets.

Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Estimated useful lives are as follows:

Building	20 years
Operating Equipment	10 years
Office furniture and equipment	3 or 5 years
Vehicles	10 years

The cost and related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts, and any gain or loss is included in the consolidated statements of operations. Maintenance, repairs and minor renewals are charged directly to expenses as incurred. Significant renewals and betterment to buildings and equipment are capitalized. Leasehold improvements are depreciated over the lesser of the useful life or the life of the lease.

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Intangible Assets

Intangible assets mainly consist of land use rights. All land located in the PRC is owned by the government and cannot be sold to any individual or company. The land use rights granted to the Company are being amortized using the straight-line method over the lease term of 50 years. Other intangible assets are software programs that are amortized over their estimated useful life of 10 years.

Impairment of Long-lived Assets

Long-lived assets of the Company are reviewed annually as to whether their carrying value has become impaired, pursuant to the guidelines established in FASB ASC 360. The Company considers assets to be impaired if the carrying value exceeds the future projected cash flows from the related operations. The Company also re-evaluates the periods of depreciation and amortization to determine whether subsequent events and circumstances warrant revised estimates of useful lives. The Company did not record any impairment loss for the six months ended June 30, 2018 and 2017.

Revenue Recognition

The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the purchase price is fixed or determinable and collectability is reasonably assured.

With respect to sales of product to both franchisee and non-franchisee customers, the Company prepares product shipments upon the receipt of a customer’s purchase order. Sales prices are based on fixed price lists that are different depending on whether the price list is for a franchisee customer or for non-franchisee customers. The Company recognizes revenue when the product is shipped. The Company does not sell product to any customers with a right of return as defined in ASC 605-15-25-4. Sales are presented net of value added tax (“VAT”).

For Tourmaline Wellness House sales, the Company recognizes revenue under the completed contract method. Customers contact the Company with requests to construct a Wellness House. The Company and the customer enter into a contract, at which time the customer pays a deposit of at least one-half of the sales price. A contract is considered completed when all significant costs have been incurred and the project has been accepted by the customer. The contracts have a place for the customer to sign indicating their acceptance of the completed Wellness House. At this time the customer will also pay any remaining balance on the contract. The Company recognizes the full contract revenue at this point. Contract costs consist primarily of materials and labor costs. The construction period of a Wellness House generally does not exceed five days.

Shipping Costs

Shipping costs are included in selling expenses and totaled $35,758 and $36,039 for the three months ended June 30, 2018 and 2017, respectively, and $68,288 and $67,833 for the six months ended June 30, 2018 and 2017, respectively.

Income Taxes

The Company is governed by the Income Tax Law and associated legislations of the PRC. The Company accounts for income taxes in accordance with FASB ASC 740 “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.

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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 six months periods ended June 30, 2018 and 2017.

Segment Information

The Company follows FASB ASC 280-Segment Reporting, which requires that companies disclose segment data based on how management makes decision about allocating resources to segments and evaluating their performance.

For the six months ended June 30, 2018 and the year ended December 31, 2017, management has determined that the Company is operating in three reportable business segments, (1) Healthcare Knit Goods Series, (2) Daily Healthcare and Personal Care Series, and (3) Wellness House and Activated Water Machine Series. The Company’s reportable segments are strategic business units that offer different products. They are managed separately based on the fundamental differences in their operations.

Recently Issued Accounting Pronouncements

In August 2017, the FASB issued new guidance related to accounting for hedging activities. This guidance expands strategies that qualify for hedge accounting, changes how many hedging relationships are presented in the financial statements, and simplifies the application of hedge accounting in certain situations. The standard will be effective for us beginning July 1, 2019, with early adoption permitted for any interim or annual period before the effective date. Adoption of the standard will be applied using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the effective date. The Company does not expect the impact on its consolidated financial statements to be material.

In October 2016, the Financial Accounting Standards Board (“FASB”) issued new guidance requiring an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs, rather than when the asset has been sold to an outside party. This guidance is effective for us beginning July 1, 2018, with early adoption permitted beginning July 1, 2017. We plan to adopt the guidance effective July 1, 2018. Adoption of the guidance will be applied using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the effective date. A cumulative-effect adjustment will capture the write-off of income tax consequences deferred from past intra-entity transfers involving assets other than inventory and new deferred tax assets for amounts not recognized under current U.S. GAAP. The Company does not expect the impact on its consolidated financial statements to be material.

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”). ASU 2014-09 provides for a single comprehensive principles-based standard for the recognition of revenue across all industries through the application of the following five-step process:

Step 1: Identify the contract(s) with a customer.

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Step 2: Identify the performance obligations in the contract.

Step 3: Determine the transaction price.

Step 4: Allocate the transaction price to the performance obligations in the contract.

Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.

The updated guidance related to revenue recognition 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 requires that an entity recognize revenue to depict 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 guidance is effective for the Company starting on January 1, 2017.

In February 2016, the FASB issued a new standard related to leases to increase transparency and comparability among organizations by requiring the recognition of lease assets and lease liabilities on the balance sheet. Most prominent among the amendments is the recognition of assets and liabilities by lessees for those leases classified as operating leases under previous U.S. GAAP. Under the new standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The Company does not expect the impact on its consolidated financial statements to be material.

In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing”. The amendments add further guidance on identifying performance obligations and also to improve the operability and understandability of the licensing implementation guidance. The amendments do not change the core principle of the guidance in Topic 606. Public entities should apply the amendments for annual reporting periods beginning after December 15, 2017, including interim reporting periods therein. Early application for public entities is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company does not expect the impact on its consolidated financial statements to be material.

In May 2016, the FASB issued ASU 2016-11, “Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting”, The amendments rescinds SEC paragraphs pursuant to two SEC Staff Announcements at the March 3, 2016 Emerging Issues Task Force (EITF) meeting. Specifically, registrants should not rely on the following SEC Staff Observer comments upon adoption of Topic 606: 1) Revenue and Expense Recognition for Freight Services in Process, which is codified in paragraph 605-20-S99-2; 2) Accounting for Shipping and Handling Fees and Costs, which is codified in paragraph 605-45-S99-1; 3) Accounting for Consideration Given by a Vendor to a Customer (including Reseller of the Vendor’s Products), which is codified in paragraph 605-50-S99-1; 4) Accounting for Gas-Balancing Arrangements (i.e., use of the “entitlements method”), which is codified in paragraph 932-10-S99-5, which is effective upon adoption of ASU 2014-09. The Company does not expect the impact on its consolidated financial statements to be material.

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In May 2016, the FASB issued ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients”. The amendments, among other things: (1) clarify the objective of the collectability criterion for applying paragraph 606-10-25-7; (2) permit an entity to exclude amounts collected from customers for all sales (and other similar) taxes from the transaction price; (3) specify that the measurement date for noncash consideration is contract inception; (4) provide a practical expedient that permits an entity to reflect the aggregate effect of all modifications that occur before the beginning of the earliest period presented when identifying the satisfied and unsatisfied performance obligations, determining the transaction price, and allocating the transaction price to the satisfied and unsatisfied performance obligations; (5) clarify that a completed contract for purposes of transition is a contract for which all (or substantially all) of the revenue was recognized under legacy GAAP before the date of initial application, and (6) clarify that an entity that retrospectively applies the guidance in Topic 606 to each prior reporting period is not required to disclose the effect of the accounting change for the period of adoption. The effective date of these amendments is at the same date that Topic 606 is effective. The Company does not expect the impact on its consolidated financial statements to be material.

In June 2016, the FASB issued a new standard to replace the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. For trade and other receivables, loans, and other financial instruments, we will be required to use a forward-looking expected loss model rather than the incurred loss model for recognizing credit losses which reflects losses that are probable. Credit losses relating to available-for-sale debt securities will also be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. The new standard will be effective for us beginning July 1, 2020, with early adoption permitted beginning July 1, 2019. Application of the amendments is through a cumulative-effect adjustment to retained earnings as of the effective date. The Company does not expect the impact on its consolidated financial statements to be material.

NOTE 3 – ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following:

	June 30,		December 31,
	2018		2017
Accounts receivable	$	2730	$	2,777
Less: allowance for bad debt		-		-
	$	2730	$	2,777

As of the periods presented, the Company has no allowance for bad debts, because the management, based on their analysis, considers all the accounts receivable to be collectible.

NOTE 4 – INVENTORIES

Inventories consisted of the following:

	June 30,			December 31,
	2018			2017
Raw materials	$	172,280		$	219,357
Finished goods		409,095			425,314
Low value consumables		38,499			39,160
Total		619,874			683,831
Less: impairment loss		(64,477	)		(65,584	)
Inventory, net	$	555,397		$	618,247

Low value consumables represent low priced and easily worn articles and are amortized on equal-split amortization method. Pursuant to this method, half value of the low value consumable should be amortized once used and the remaining half value should be amortized when disposed of.

As of June 30, 2018 and December 31, 2017, the Company recognized $64,477 and $65,584, respectively, as a reserve for impairment loss from inventory.

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NOTE 5 – PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consisted of the following:

	June 30,			December 31,
	2018			2017
Building	$	6,015,468		$	6,118,687
Operating Equipment		349,759			372,368
Office furniture and equipment		356,959			360,601
Vehicles		1,060,121			1,116,010
Total		7,782,307			7,967,666
Less: accumulated depreciation		(3,666,186	)		(3,568,834	)
Property, plant and equipment, net	$	4,116,121		$	4,398,832

Depreciation expense for the three months ended June 30, 2018 and 2017 amounted to $92,383 and $107,662, respectively, and for the six months ended June 30, 2018 and 2017 amounted to $211,457 and $211,614, respectively.

NOTE 6 – INTANGIBLE ASSETS

Intangible assets consisted of the following:

	June 30,			December 31,
	2018			2017
Land use rights	$	623,663		$	634,365
Other intangible assets		79,795			81,164
Total		703,458			715,529
Less: accumulated amortization		(201,303	)		(194,235	)
Intangible assets, net	$	502,155		$	521,294

Amortization expense of intangible assets for the three months ended June 30, 2018 and 2017 was $5,107 and $5,475, respectively, and for the six months ended June 30, 2018 and 2017 amounted to $10,755 and $10,930, respectively.

The estimated amortization expense for the next five years is as follows:

Estimated amortization expense for
the year ending December 31,	Amount
2018	$	22,240
2019	$	22,240
2020	$	22,240
2021	$	22,240
2022	$	22,240
Thereafter	$	410,094

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NOTE 7 – RELATED PARTY TRANSACTIONS

Payables due to related parties consist of the following:

	June 30,		December 31,
	2018		2017
Shenyang Joway Industrial Development Co., Ltd.	$	2,201	$	2,239
Jinghe Zhang		255,197		126,799
Total	$	257,398	$	129,038

Transactions with Shenyang Joway

Shenyang Joway Industrial Development Co., Ltd. (“Shenyang Joway”) was formed in 2005 in Shenyang, China by Mr. Jinghe Zhang and three other individuals. Mr. Zhang holds more than 50% of the equity in Shenyang Joway. Shenyang Joway was in the business of marketing and distributing clothing and related products to other companies. In 2009, Mr. Zhang decided to shut down the operations of Shenyang Joway in order to focus his attention on Joway Shengshi’s business. Shenyang Joway has ceased operations, although it still exists as a legal entity, and Joway Shengshi was able to find new suppliers with no material adverse impact to the Company.

● On May 7, 2007, the Company’s subsidiary Joway Shengshi entered into an agreement with Shenyang Joway pursuant to which Joway Shengshi and Shenyang Joway agreed to provide each other with interest-free, unsecured advances for working capital. On May 10, 2007, the Company’s subsidiary Joway Technology and Shenyang Joway entered into an agreement pursuant to which Joway Technology and Shenyang Joway agreed to provide each other with interest-free, unsecured advances for working capital.

● Through December 31, 2008, Joway Technology advanced $58,568 to Shenyang Joway, which was paid off by Shenyang Joway to Joway Technology in 2009.

● Through December 31, 2010, Shenyang Joway advanced an aggregate of $791,701 to Joway Shengshi and Joway Technology of which $789,552 has been repaid. For the six months ended June 30, 2018 and 2017, the Company both repaid $0 of these advances. But the exchange rate fluctuation affected $38 of decrease in the balance of these advances for the six months ended June 30, 2018. As of June 30, 2018, the total unpaid principal balance due Shenyang Joway for advances was $2,201.

● Shenyang Joway ceased operations at the end of 2009.

Transactions with Jinghe Zhang

● On December 1, 2009, the Company, through its subsidiary Joway Shengshi, entered into a royalty-free license agreement with Jinghe Zhang, our President, Chief Executive Officer and director. Pursuant to the license agreement, we are authorized to use the trademark “Joway” for a term of nine years and five patents from December 1, 2009 till the expiration dates of the patents.

● On May 10, 2007, Joway Shengshi entered into a cash advance agreement with Jinghe Zhang, the Company’s President, Chief Executive Officer and director. Pursuant to the agreement, Jinghe Zhang agreed to advance operating capital to Joway Shengshi. The advances are interest free, unsecured, and have no specified repayment terms. The agreement is valid throughout Joway Shengshi’s term of operation. During the period beginning May 17, 2007 (inception of Joway Shengshi) through June 30, 2018, Joway Shengshi received cash advances in the aggregate principal amount of $4,736,754 from Jinghe Zhang of which $4,481,557 has been repaid. For the six months ended June 30, 2018 and 2017, the Company received $128,360 and repaid $2,035 of these advances, respectively. As of June 30, 2018, the total unpaid principal balance due Jinghe Zhang for advances was $255,197.

The amounts owed to related parties are non-interest bearing and have no specified repayment terms.

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NOTE 8 – INCOME TAXES

The Company operations in the People’s Republic of China are subject to the Income Tax Law of the People’s Republic of China. Pursuant to the PRC Income Tax Laws, the Company is subject to the Enterprise Income Tax (“EIT”) which is generally a statutory rate of 25% beginning January 2008, on income as reported in its statutory financial statements after appropriate tax adjustments.

The table below summarizes the differences between the PRC statutory federal rate and the Company’s effective tax rate:

	For the six months ended June 30,
	2018			2017
Tax computed at China statutory rates		25	%		25	%
Effect of losses		(25	%)		(25	%)
Effective rate		0	%		0	%

NOTE 9 – STATUTORY RESERVES

Pursuant to the laws and regulations of the PRC, annual income of the Company’s subsidiaries is required to be partly allocated to the statutory reserves funds after the payment of the PRC income taxes. The allocation to the statutory reserves funds should be at least 10% of income after tax until the reserves reaches 50% of the entities’ registered capital or members’ equity. The reserve funds are not transferable to the Company in the form of cash dividends, loans or advances. Thus the reserve funds are not available for distribution except in liquidation. As of June 30, 2018, the Company had allocated $354,052 to statutory reserves.

NOTE 10 – SEGMENTS

In 2018 and 2017, the Company operated in three reportable business segments: (1) Healthcare Knit Goods Series, (2) Daily Healthcare and Personal Care Series and (3) Wellness House and Activated Water Machine Series. The Company’s reportable segments are strategic business units that offer different products. They are managed separately based on the fundamental differences in their operations. Information with respect to these reportable business segments is as follows:

For the three months ended June 30, 2018

	Sales		COGS		Gross profit		Loss from operations			Depreciation and amortization		Assets
Healthcare Knit Goods Series	$	70,983	$	21,893	$	49,090	$	(9,053	)	$	10,212	$	126,670
Daily Healthcare and Personal Care Series		193,227		89,479		103,748		(101,287	)		27,800		245,036
Wellness House and Activated Water Machine Series		413,410		202,857		210,553		(230,180	)		59,478		202,594
Segment Totals	$	677,620	$	314,229	$	363,391		(340,520	)	$	97,490		574,300
Other Expense, net								(46	)
Income Taxs								0
Unallocated Assets													5,106,062
Net Loss							$	(340,566	)
Total Assets												$	5,680,362

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For the three months ended June 30, 2017

	Sales		COGS		Gross profit		Income (Loss) from operations			Depreciation and amortization		Assets
Healthcare Knit Goods Series	$	206,991	$	46,646	$	160,345	$	52,477		$	20,707	$	182,128
Daily Healthcare and Personal Care Series		303,991		68,204		235,787		49,602			30,411		298,602
Wellness House and Activated Water Machine Series		619,945		253,367		366,578		(29,836	)		62,019		191,998
Segment Totals	$	1,130,927	$	368,217	$	762,710		72,243		$	113,137		672,728
Other Expense, net								(65,743	)
Income Tax Benefits								(32	)
Unallocated Assets													6,026,806
Net Income							$	6,532
Total Assets												$	6,699,534

For the six months ended June 30, 2018

	Sales		COGS		Gross profit		Loss from operations			Depreciation and amortization		Assets
Healthcare Knit Goods Series	$	154,100	$	55,174	$	98,926	$	(97,225	)	$	31,504	$	126,670
Daily Healthcare and Personal Care Series		298,820		132,844		165,976		(214,387	)		61,091		245,036
Wellness House and Activated Water Machine Series		634,000		299,336		334,664		(472,343	)		129,617		202,594
Segment Totals	$	1,086,920	$	487,354	$	599,566		(783,955	)	$	222,212		574,300
Other Expense, net								(18,096	)
Income Taxs								-
Unallocated Assets													5,106,062
Net Loss							$	(802,051	)
Total Assets												$	5,680,362

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For the six months ended June 30, 2017

	Sales		COGS		Gross profit		Income (Loss) from operations			Depreciation and amortization		Assets
Healthcare Knit Goods Series	$	437,839	$	101,366	$	336,473	$	13,065		$	52,000	$	182,128
Daily Healthcare and Personal Care Series		500,662		124,888		375,774		5,963			59,461		298,602
Wellness House and Activated Water Machine Series		935,307		379,893		555,414		(135,447	)		111,083		191,998
Segment Totals	$	1,873,808	$	606,147	$	1,267,661		(116,419	)	$	222,544		672,728
Other Expense, net								(62,971	)
Income Tax Benefits								(32	)
Unallocated Assets													6,026,806
Net Loss							$	(179,358	)
Total Assets												$	6,699,534

NOTE 11 – FRANCHISE REVENUES

The Company enters into franchising agreements to develop retail outlets for the Company’s products. The agreements provide that franchisees will sell Company products exclusively at a predetermined retail price. In exchange the Company provides them with geographic exclusivity, discounted products, training and support. The agreements also require franchisees to adhere to certain standards of product merchandising, promotion and presentment. The agreements also prohibit franchisees from selling competitor’s products. The agreements do not require any initial franchise fees from the franchisees, nor do they require the franchisees to pay continuing royalties. The agreements do not require the franchisees to purchase any minimum levels of product, but do require that they make at least one purchase during each year. The Company does not act to manage the franchisees’ levels of product. Franchisees hold periodic conferences, assisted by the Company’s marketing department, to promote product awareness and the introduction of new products. The franchising agreements are generally for terms of three years and are renewable at the mutual agreement of both parties. The franchising agreements are cancelable at the Company’s discretion if franchisees violate the terms of the agreements.

The following is a breakdown of revenue between franchise and non-franchise customers:

	For the three months ended June 30,				For the six months ended June 30,
	2018		2017		2018		2017
Sales to franchise customers	$	460,707	$	755,304	$	745,932	$	1,315,311
Sales to non-franchise customers		216,913		375,623		340,988		558,497
Total sales	$	677,620	$	1,130,927	$	1,086,920	$	1,873,808

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation.

The following discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto included in Item 1 of this Quarterly Report on Form 10-Q and with Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 2, 2018.

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 develop, manufacture, market, distribute, and sell products, including knit goods, daily healthcare and personal care products, and wellness house and activated water machine products, that are coated, embedded or filled with tourmaline. Most of our products, such as clothing, bedding, and mattresses are purchased as finished products which we then coat and/or infuse with liquid or granular tourmaline using one or more of our manufacturing techniques. We conduct all of our operations in Tianjin City, China and distribute most of our products to more than 200 franchisees in China. Our franchisees, in turn, sell the products to their customers. All of our revenues to date have been generated by sales to customers located in the PRC.

Beginning in 2009, we began to develop 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.

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We are a holding company with no material operations of our own. All of our operations are conducted through Joway Shengshi and its three subsidiaries, Joway Technology, Joway Decoration and Shengtang Trading. Joway Shengshi engages 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 engage in the manufacture and distribution of activated water machines and wellness houses. We utilize our Shengtang Trading subsidiary to purchase raw materials, which are then sold to Joway Shengshi and Joway Decoration.

As a holding company, our ability to pay dividends and other cash distributions to our shareholders depends 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 depends 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 has 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.

Description of Selected Income Statement Items

Revenues. We generate revenue from sales of our Healthcare Knit goods Series, Daily Healthcare and Personal Care Series and Wellness House and Activated Water Machine Series.

Cost of goods sold.  Cost of goods sold consists of costs directly attributable to production, including the cost of raw materials, salaries for staff engaged in production activity, electricity, depreciation, packing materials, and related expenses.

Operating expenses.  Our total operating expenses consist of sales and marketing expenses and general and administrative expenses. Sales and marketing expenses consist primarily of salaries and traveling expenses of our marketing department employees, transportation expenses, and advertising expenses. General and administrative expenses consist primarily of salaries of our administrative department employees, payroll taxes and benefits, general office expenses and depreciation.

Other (expense) income. Our other (expense) income consists primarily of interest income, investment income and bank service fee.

Income taxes. According to the revised Enterprise Income Tax Law effective as of January 1, 2008, the income tax rate of our PRC subsidiaries is generally 25%. Joway Health Industries Group Inc. was established under the laws of the State of Nevada and is subject to U.S. federal income tax and Nevada annual reporting requirements.

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Results of Operations

The following table sets forth certain information regarding our results of operations.

	For the three months ended June 30,						For the six months ended June 30,
	2018			2017			2018			2017
REVENUES	$	677,620		$	1,130,927		$	1,086,920		$	1,873,808
COST OF REVENUES		314,229			368,217			487,354			606,147
GROSS PROFIT		363,391			762,710			599,566			1,267,661
OPERATING EXPENSES		703,911			690,467			1,383,521			1,384,080
INCOME (LOSS) FROM OPERATIONS		(340,520	)		72,243			(783,955	)		(116,419	)
OTHER EXPENSE, NET		(46	)		(65,743	)		(18,096	)		(62,971	)
INCOME (LOSS) BEFORE INCOME TAXES		(340,566	)		6,500			(802,051	)		(179,390	)
INCOME TAX BENEFITS		-			(32	)		-			(32	)
NET INCOME (LOSS)	$	(340,566	)	$	6,532		$	(802,051	)	$	(179,358	)

Business Segments

In 2018 and 2017, we operated in three reportable business segments: (1) Healthcare Knit Goods, (2) Daily Healthcare and Personal Care Products and (3) Wellness House and Activated Water Machine Products. The following table sets forth the contributions of each reportable business segment in dollars and as a percent of revenue:

For the three months ended June 30, 2018

	Healthcare Knitgoods Series			% of Total			Daily Healthcare and Personal Care Series			% of Total			Wellness House and Activated Water Machine Series			% of Total			Total
REVENUES	$	70,983			10.5	%	$	193,227			28.5	%	$	413,410			61.0	%	$	677,620
COST OF REVENUES		21,893			7.0	%		89,479			28.5	%		202,857			64.6	%		314,229
GROSS PROFIT		49,090			13.5	%		103,748			28.5	%		210,553			57.9	%		363,391
GROSS MARGIN		69.2	%					53.7	%					50.9	%					53.6	%
OPERATING EXPENSES		58,143			8.3	%		205,035			29.1	%		440,733			62.6	%		703,911
LOSS FROM OPERATIONS	$	(9,053	)		2.7	%	$	(101,287	)		29.7	%	$	(230,180	)		67.6	%	$	(340,520	)

For the three months ended June 30, 2017

	Healthcare Knitgoods Series			% of Total			Daily Healthcare and Personal Care Series			% of Total			Wellness House and Activated Water Machine Series			% of Total			Total
REVENUES	$	206,991			18.3	%	$	303,991			26.9	%	$	619,945			54.8	%	$	1,130,927
COST OF REVENUES		46,646			12.7	%		68,204			18.5	%		253,367			68.8	%		368,217
GROSS PROFIT		160,345			21.0	%		235,787			30.9	%		366,578			48.1	%		762,710
GROSS MARGIN		77.5	%					77.6	%					59.1	%					67.4	%
OPERATING EXPENSES		107,868			15.6	%		186,185			27.0	%		396,414			57.4	%		690,467
INCOME (LOSS) FROM OPERATIONS	$	52,477			72.6	%	$	49,602			68.7	%	$	(29,836	)		-41.3	%	$	72,243

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For the six months ended June 30, 2018

	Healthcare Knitgoods Series			% of Total			Daily Healthcare and Personal Care Series			% of Total			Wellness House and Activated Water Machine Series			% of Total			Total
REVENUES	$	154,100			14.2	%	$	298,820			27.5	%	$	634,000			58.3	%	$	1,086,920
COST OF REVENUES		55,174			11.3	%		132,844			27.3	%		299,336			61.4	%		487,354
GROSS PROFIT		98,926			16.5	%		165,976			27.7	%		334,664			55.8	%		599,566
GROSS MARGIN		64.2	%					55.5	%					52.8	%					55.2	%
OPERATING EXPENSES		196,151			14.2	%		380,363			27.5	%		807,007			58.3	%		1,383,521
LOSS FROM OPERATIONS	$	(97,225	)		12.4	%	$	(214,387	)		27.3	%	$	(472,343	)		60.3	%	$	(783,955	)

For the six months ended June 30, 2017

	Healthcare Knitgoods Series			% of Total			Daily Healthcare and Personal Care Series			% of Total			Wellness House and Activated Water Machine Series			% of Total			Total
REVENUES	$	437,839			23.4	%	$	500,662			26.7	%	$	935,307			49.9	%	$	1,873,808
COST OF REVENUES		101,366			16.7	%		124,888			20.6	%		379,893			62.7	%		606,147
GROSS PROFIT		336,473			26.5	%		375,774			29.6	%		555,414			43.8	%		1,267,661
GROSS MARGIN		76.8	%					75.1	%					59.4	%					67.7	%
OPERATING EXPENSES		323,408			23.4	%		369,811			26.7	%		690,861			49.9	%		1,384,080
INCOME (LOSS) FROM OPERATIONS	$	13,065			-11.2	%	$	5,963			-5.1	%	$	(135,447	)		116.3	%	$	(116,419	)

For The Three Months Ended June 30, 2018 Compared to June 30, 2017

Revenue. For the three months ended June 30, 2018, revenue was $677,620 compared to $1,130,927 for the three months ended June 30, 2017, a decrease of $453,307 or 40.1%. In early 2018, most of our sales staff resigned after implementing austerity plans on marketing. In addition, we regulated our marketing policy to our franchisees. The above two mentioned made a temporary adverse effect on our revenue. We anticipated our revenue will improve at the end of 2018, after the reconstruction period.

Revenue from healthcare knit goods segment decreased by $136,008 or 65.7% to $70,983 for the three months ended June 30, 2018 from $206,991 for the three months ended June 30, 2017. This decrease was mainly due to the decrease in sales of our mattress products. Our mattress products are our best-selling products and were most affected by market fluctuations.

Revenue from daily healthcare and personal care products decreased by $110,764 or 36.4% to $193,227 for the three months ended June 30, 2018 from $303,991 for the three months ended June 30, 2017. This was mainly due to the decrease in sales of our tourmaline breast petals, which was a new product in 2017 and had a higher sales for the three months ended June 30, 2017.

Revenue from wellness houses and activated water machines decreased by $206,535 or 33.3% to $413,410 for the three months ended June 30, 2018 from $619,945 for the three months ended June 30, 2017. This decrease was mainly due to the decrease in the construction of our wellness house.

Cost of Goods Sold. For the three months ended June 30, 2018, cost of goods sold was $314,229 compared to $368,217 for the three months ended June 30, 2017, a decrease of $53,988 or 14.7%. This decrease was mainly due to the decreased cost in wellness house and activated water machine segment.

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Cost of goods sold for healthcare knit goods segment decreased to $21,893 for the three months ended June 30, 2018 from $46,646 for the three months ended June 30, 2017, a decrease of $24,753 or 53.1%. This decrease was mainly due to the decrease in sales.

Cost of goods sold for the daily healthcare and personal care segment increased to $89,479 for the three months ended June 30, 2018 from $68,204 for the three months ended June 30, 2017, an increase of $21,275 or 31.2%. This increase was mainly due to the increase in the cost of Xin-Nao-Ling Fish Oil Soft Gel, which had an increase in sales.

Cost of goods sold for our wellness house and activated water machine segment decreased to $202,857 for the three months ended June 30, 2018 from $253,367 for the three months ended June 30, 2017, a decrease of $50,510 or 19.9%. This decrease was mainly due to the decrease in the cost of the construction of wellness house.

Gross profit. Our gross profit decreased by $399,319 or 52.4% to $363,391 for the three months ended June 30, 2018, compared to $762,710 for the three months ended June 30, 2017. This decrease was mainly due to the decrease in sales. Our gross margin decreased from 67.4% for the three months ended June 30, 2017 to 53.6% for the three months ended June 30, 2018. This decrease was mainly due to the fact that we gave more discounts to our franchisees beginning from 2018.

Gross profit for the healthcare knit goods segment decreased by $111,255 or 69.4% to $49,090 for the three months ended June 30, 2018 compared to $160,345 for the three months ended June 30, 2017. This decrease was mainly due to the decrease in sales. The gross margins of healthcare knit goods segment decreased from 77.5% for the three months ended June 30, 2017 to 69.2% for the three months ended June 30, 2018. It was mainly due to more discounts to our franchisees for the three months ended June 30, 2018.

Gross profit of daily healthcare and personal care segment decreased by $132,039 or 56% to $103,748 for the three months ended June 30, 2018, compared to $235,787 for the three months ended June 30, 2017. This decrease was mainly due to the decrease in gross margin. The gross margin of daily healthcare and personal care segment decreased from 77.6% for the three months ended June 30, 2017 to 53.7% for the three months ended June 30, 2018. It was mainly due to the decreased sales of our tourmaline breast petals, which has a higher gross profit rate. In addition, for the three months ended June 30, 2018 we gave more discounts to our franchisees, especially on Xin-Nao-Ling Fish Oil Soft Gel.

Gross profit of the wellness house and activated water machine segments decreased by $156,025 or 42.6% to $210,553 for the three months ended June 30, 2018, compared to $366,578 for the three months ended June 30, 2017. This decrease was mainly due to the decrease in sales. The gross margin of our wellness house and activated water machine segments decreased from 59.1% for the three months ended June 30, 2017 to 50.9% for the three months ended June 30, 2018. In 2018, we promoted our advanced wellness house that better satisfy the sanitation and firefighting requirements. The new kind of wellness house has higher cost and lower gross margin.

Operating expenses. Our total operating expenses consist of sales and marketing expenses and general and administrative expenses. Our total operating expenses increased by $13,444 or 1.9%, from $690,467 for the three months ended June 30, 2017 to $703,911 for the three months ended June 30, 2018. This increase was mainly due to RMB’s depreciation against USD. Excluding the effect of exchange rate fluctuation, our total operating expenses decreased by 5.3%, as a result of decrease in conference expense and salary. Operating expenses for healthcare knit goods segment decreased by $49,725 or 46.1% to $58,143 for the three months ended June 30, 2018 from $107,868 for the three months ended June 30, 2017. Operating expenses for daily healthcare and personal care segment increased by $18,850 or 10.1% to $205,035 for the three months ended June 30, 2018 from $186,185 for the three months ended June 30, 2017. Operating expenses for our wellness house and activated water machine segment increased by $44,319 or 11.2% to $440,733 for the three months ended June 30, 2018 from $396,414 for the three months ended June 30, 2017.

Income (loss) from operations. As a result of the foregoing, our loss from operations was $(340,520) for the three months ended June 30, 2018, compared to $72,243 of income from operations for the three months ended June 30, 2017. This was mainly due to the decrease in sales as a result of implementing our new more regulated marketing policy as described above.

Income taxes (income tax benefits). Our income taxes were $0 for the three months ended June 30, 2018, compared to $(32) income taxes benefits for the three months ended June 30, 2017. The income tax benefits for the second quarter of 2017 were due to the refund of our income tax for 2016.

Net income (loss). For the three months ended June 30, 2018, our net loss was $(340,566) compared to $6,532 of net income for the three months ended June 30, 2017. This was mainly due to the decrease in sales.

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For the six months Ended June 30, 2018 Compared to June 30, 2017

Revenue. For the six months ended June 30, 2018, revenue was $1,086,920 compared to $1,873,808 for the six months ended June 30, 2017, a decrease of $786,888 or 42%. In early 2018, most of our sales staff resigned after implementing austerity plans on marketing. In addition, we regulated our marketing policy to our franchisees. The above two mentioned made a temporary adverse effect on our revenue. We anticipated our revenue will improve at the end of 2018, after the reconstruction period.

Revenue from healthcare knit goods segment decreased by $283,739, or 64.8% to $154,100 for the six months ended June 30, 2018 from $437,839 for the six months ended June 30, 2017. This decrease was mainly due to the decrease in sales of our mattress products. Our mattress products are our best-selling products and were most affected by market fluctuations. 

Revenue from daily healthcare and personal care products decreased by $201,842 or 40.3% to $298,820 for the six months ended June 30, 2018 from $500,662 for the six months ended June 30, 2017. This decrease was primarily due to the decrease in sales of our tourmaline breast petals, the new product we launched in 2017.

Revenue from wellness houses and activated water machines decreased by $301,307 or 32.2% to $634,000 for the six months ended June 30, 2018 from $935,307 for the six months ended June 30, 2017. This decrease was mainly due to the decrease in sales of our wellness house.

Cost of Goods Sold. For the six months ended June 30, 2018, cost of goods sold was $487,354 compared to $606,147 for the six months ended June 30, 2017, a decrease of $118,793, or 19.6%. This decrease was mainly due to the decrease in sales in healthcare knit goods segment.

Cost of goods sold for healthcare knit goods segment decreased to $55,174 for the six months ended June 30, 2018 from $101,366 for the six months ended June 30, 2017, a decrease of $46,192 or 45.6%. This decrease was mainly due to the decrease in the cost of our mattress products.

Cost of goods sold for the daily healthcare and personal care segment increased to $132,844 for the six months ended June 30, 2018 from $124,888 for the six months ended June 30, 2017, an increase of $7,956 or 6.4%. This increase was mainly due to RMB’s depreciation against USD. Excluding the effect of exchange rate fluctuation, cost of goods sold for the daily healthcare and personal care segment decreased 1.5%.

Cost of goods sold for our wellness house and activated water machine segment decreased to $299,336 for the six months ended June 30, 2018 from $379,893 for the six months ended June 30, 2017, a decrease of $80,557 or 21.2%. This decrease was due to the decrease in the cost of our wellness house as a result of the decrease in sales.

Gross profit. Our gross profit decreased by $668,095 or 52.7% to $599,566 for the six months ended June 30, 2018, compared to $1,267,661 for the six months ended June 30, 2017. This decrease was due to the decrease in sales. In addition, our gross margin decreased from 67.7% for the six months ended June 30, 2017 to 55.2% for the six months ended June 30, 2018. This decrease was mainly due to the decrease in gross margin in our daily healthcare and personal care segment and healthcare knit goods segment.

Gross profit for the healthcare knit goods segment decreased by $237,547 or 70.6% to $98,926 for the six months ended June 30, 2018 compared to $336,473 for the six months ended June 30, 2017. This decrease was mainly due to the decrease in gross profit from our mattress products. The gross margins of healthcare knit goods segment decreased from 76.8% for the six months ended June 30, 2017 to 64.2% for the six months ended June 30, 2018. It was mainly due to that we gave more discounts to our franchisees in January 2018.

Gross profit of daily healthcare and personal care segment decreased by $209,798 or 55.8% to $165,976 for the six months ended June 30, 2018, compared to $375,774 for the six months ended June 30, 2017. This decrease was primarily due to the decrease in sales. Our gross margin of daily healthcare and personal care segment decreased from 75.1% for the six months ended June 30, 2017 to 55.5% for the six months ended June 30, 2018. This was mainly due to the decrease in sales of tourmaline breast petals, which has a higher gross profit rate.

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Gross profit of the wellness house and activated water machine segment decreased by $200,750 or 39.7% to $334,664 for the six months ended June 30, 2018, compared to $555,414 for the six months ended June 30, 2017. This decrease was mainly due to the decrease in gross profit of construction of wellness house. The gross margin of our wellness house and activated water machine segments decreased from 59.4% for the six months ended June 30, 2017 to 52.8% for the six months ended June 30, 2018. This was mainly due to the increase in sales of our advanced wellness house with lower gross profit rate.

Operating expenses. Our total operating expenses consist of sales and marketing expenses and general and administrative expenses. Our total operating expenses decreased by $559, or 0.04%, from $1,384,080 for the six months ended June 30, 2017 to $1,383,521 for the six months ended June 30, 2018. This decrease was mainly due to the decreased conference expenses and salary. Operating expenses for healthcare knit goods segment decreased by $127,257 or 39.3% to $196,151 for the six months ended June 30, 2018 from $323,408 for the six months ended June 30, 2017. Operating expenses for daily healthcare and personal care segment increased by $10,552 or 2.9% to $380,363 for the six months ended June 30, 2018 from $369,811 for the six months ended June 30, 2017. Operating expenses for our wellness house and activated water machine segment increased by $116,146 or 16.8% to $807,007 for the six months ended June 30, 2018 from $690,861 for the six months ended June 30, 2017.

Loss from operations. As a result of the foregoing, our loss from operations was $783,955 for the six months ended June 30, 2018, compared to a loss from operations of $116,419 for the six months ended June 30, 2017, an increase of $667,536.

Income taxes (income tax benefits). Our income taxes were $0 for the six months ended June 30, 2018, compared to $(32) income tax benefits for the six months ended June 30, 2017.

Net loss. Our net loss was $802,051 for the six months ended June 30, 2018, compared to a net loss of $179,358 for the six months ended June 30, 2017. This increase of net loss was mainly due to the decrease of sales.

Franchising

We enter into franchise agreements to develop retail outlets for our products. These agreements provide that franchisees will sell our products exclusively. In exchange, we provide them with geographic exclusivity, discounted products, training, and support. The agreements also require franchisees to adhere to certain standards of product merchandising, promotion, and presentment. The agreements do not require the franchisees to purchase any minimum levels of product, but do require that they make at least one purchase during each year. The agreements are generally for terms of three years and are renewable at the mutual agreement of both parties. The Agreements are cancelable at our discretion if franchisees violate the terms of the agreements.

The following is a breakdown of revenue between franchise and non-franchise customers:

	For the three months ended June 30,				For the six months ended June 30,
	2018		2017		2018		2017
Sales to franchise customers	$	460,707	$	755,304	$	745,932	$	1,315,311
Sales to non-franchise customers		216,913		375,623		340,988		558,497
Total sales	$	677,620	$	1,130,927	$	1,086,920	$	1,873,808

Liquidity and Capital Resources

Our cash at the beginning of the six months ended June 30, 2018 was $518,535 and decreased to $296,264 by the end of June 30, 2018, a decrease of $222,271. This decrease was mainly due to our deteriorated operating results. On June 30, 2018, we had net working capital of $543,565, a decrease of $572,232 from $1,115,797 on December 31, 2017.

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Our cash flow information summary is as follows:

	For the six months ended June 30,
	2018			2017
Net cash provided by (used in):
Operating activities	$	(350,919	)		(39,318	)
Investing activities		(5,352	)		(115,229	)
Financing activities	$	128,360			(2,035	)

Net Cash Used in Operating Activities

Net cash used in operating activities was $350,919 for the six months ended June 30, 2018, compared to $39,318 for the six months ended June 30, 2017. This was primarily due to an increase of $622,693 in net loss from our deteriorated operating results.

For the six months ended June 30, 2018, cash was mainly used to cover our loss of $802,051, which was primarily offset by an add-back of $211,457 of depreciation for non-cash expense, an increase in advances from customers of $82,874 and a decrease in inventories of $63,957.

For the six months ended June 30, 2017, cash was mainly used to cover our loss of $179,358 and an increase in other receivables of 220,255, which were primarily offset by an add-back of $211,614 of depreciation for non-cash expense, a decrease in advances to suppliers of $148,397.

Net Cash Used In Investing Activities

Net cash used in investing activities was $5,352 for the six months ended June 30, 2018, compared to $115,229 for the six months ended June 30, 2017. For the six months ended June 30, 2018, the cash expenditure of $5,704 was used in purchase of office equipment. For the six months ended June 30, 2017, we expended $158,864 on purchase of vehicles and office equipment.

Net Cash Provided By (Used In) Financing Activities

For the six months ended June 30, 2018, $128,360 of cash was provided by financing activities, compared to $2,035 of cash used in financing activities for the six months ended June 30, 2017. The cash was used to repay Jinghe Zhang and Shenyang Joway for advances made in prior periods.

On May 7, 2007, our operating subsidiary, Joway Shengshi entered into an agreement with Shenyang Joway pursuant to which Joway Shengshi and Shenyang Joway agreed to provide each other with interest-free, unsecured advances for working capital. On May 10, 2007, our subsidiary, Joway Technology and Shenyang Joway entered into an agreement pursuant to which Joway Technology and Shenyang Joway agreed to provide each other with interest-free, unsecured advances for working capital. Pursuant to these agreements, Shenyang Joway advanced an aggregate of $791,701 to Joway Shengshi and Joway Technology through December 31, 2010. We repaid $0 of these advances for the six months ended June 30, 2018 and 2017. As of June 30, 2018, the total unpaid principal balance due Shenyang Joway for advances was $2,201. Shenyang Joway ceased operations at the end of 2009, although it still exists as a legal entity.

On May 10, 2007, one of our operating subsidiaries, Joway Shengshi entered into a cash advance agreement with Mr. Jinghe Zhang, our President, Chief Executive Officer and director. Pursuant to the agreement, Mr. Jinghe Zhang agreed to advance operating capital to Joway Shengshi. These advances are interest free, unsecured and are repayable upon demand. During the period beginning May 17, 2007 (inception of Joway Shengshi) through March 31, 2016, Joway Shengshi received cash advances in the aggregate principal amount of $4,736,754 from Jinghe Zhang of which $4,481,557 has been repaid. For the three months ended June 30, 2018 and 2017, we received $128,360 and repaid $2,035 of advance, respectively. As of June 30, 2018, the total unpaid principal balance due to Mr. Jinghe Zhang for advances made to Joway Shengshi was $255,197.

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STATUTORY RESERVES

Pursuant to the laws and regulations of the PRC, our PRC subsidiaries are required to allocate a portion of their after-tax income to statutory reserves funds. The minimum statutory reserves allocation is 10% of after-tax income until the reserves reach 50% of the entities’ registered capital or members’ equity. The reserve funds are not transferable to us in the form of cash dividends, loans or advances. Thus, the reserve funds are not available for distribution except in liquidation. As of June 30, 2018, we had allocated $354,052 to statutory reserves.

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,

● any retained or contingent interest in assets transferred to an unconsolidated entity or similar arrangement that serves as credit, liquidity or market risk support to that entity for such assets,

● any obligation under a contract that would be accounted for as a derivative instrument, except that it is both indexed to our stock and classified in shareholder equity in our statement of financial position, and

● any obligation arising out of a material variable interest held by us in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to us, or engages in leasing, hedging or research and development services with us.

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.

Basis of Consolidation

The accompanying consolidated financial statements include Joway Health and its wholly owned subsidiaries and controlled VIEs. All significant inter-company accounts and transactions have been eliminated in the consolidation.

Pursuant to Accounting Standards Codification Topic 810 “Consolidation” (“ASC 810”), the Company is required to include in its consolidated financial statements the financial statements of its variable interest entities (“VIEs”). ASC 810 requires a VIE to be consolidated by a company if that company is subject to a majority of the risk of loss for the VIE or is entitled to receive a majority of the VIE’s residual returns. VIEs are those entities in which a company, through contractual arrangements, bears the risk of, and enjoys the rewards normally associated with ownership of the entity, and therefore the company is the primary beneficiary of the entity.

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Based on the various Contractual Agreements, we believe we are able to exercise control over the VIEs, and to obtain the full economic benefits. We believe that the terms of the exclusive option agreement are currently exercisable and legally enforceable under PRC laws and regulations. We also believe that the minimum amount of consideration permitted by the applicable PRC law to exercise the option does not represent a financial barrier or disincentive for us to exercise our rights under the exclusive option agreement. A simple majority vote of our board of directors is required to pass a resolution to exercise our rights under the exclusive option agreement, for which consent of the shareholder of VIEs is not required. Therefore, we believe this gives us the power to direct the activities that most significantly impact VIEs’ economic performance. T We believe that our ability to exercise effective control, together with the consulting service agreements and the equity pledge agreements, give us the rights to receive substantially all of the economic benefits from VIEs in consideration for the services provided by its wholly owned subsidiaries in China. Accordingly, as the primary beneficiary of VIEs and in accordance with U.S. GAAP, Joway Shengshi, Joway Technology, Joway Decoration, and Shengtang Trading, as VIEs of Junhe Consulting, has been consolidated in the Company’s financial statements. Sales from Joway Shengshi, Joway Technology, Joway Decoration, and Shengtang Trading are included in our total sales, their incomes or losses from operations are consolidated with ours, and our net income or loss includes net income or loss from Joway Shengshi, Joway Technology, Joway Decoration, and Shengtang Trading.

Revenue Recognition

We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the purchase price is fixed or determinable and collectability is reasonably assured.

With respect to sales of product to both franchisee and non-franchisee customers, we prepare product shipment upon the receipt of a customer’s purchase order. 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. We recognize revenue when the product is shipped. We do not sell product to any customers with a right of return as defined in ASC 605-15-25-4. Sales are presented net of value added tax (VAT).

We recognize revenue on the sale of our wellness houses under the completed contract method. At the time when we enter into a contract with a customer to build a wellness house, the customer pays a deposit of at least one-half of the sales price. We consider the contract to be completed when all significant costs have been incurred and the customer accepts the project in writing by signing in the appropriate place on the contract. At this time the customer will also pay any remaining balance on the contract. We recognize the full contract revenue at this point. Contract costs consist primarily of materials and labor costs. The construction period of a wellness house generally does not exceed five days.

Accounts Receivable

Accounts receivable are carried at net realizable value. We provide reserves for potential credit losses on accounts receivable. Management reviews the composition of the accounts receivable and analyzes historical bad debts, customer concentrations, customers’ credit worthiness, current economic trends, and changes in customer’s payment patterns to evaluate the adequacy of these reserves.

Inventories

Inventories are stated at the lower of cost, as determined by the specific identification method on contract level (for each individual contract, inventories cost flow is determined by weighted-average method), or the net realizable value, which is determined on selling prices less any further costs expected to be incurred for completion and disposal. Management regularly evaluates the composition of its inventories to identify slow-moving and obsolete inventories to determine whether a valuation allowance is required.

Property, Plant, and Equipment

Property, plant and equipment are stated at cost less accumulated depreciation, and include expenditures that substantially increase the useful lives of existing assets.

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Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Estimated useful lives are as follows:

Building	20 years
Operating Equipment	10 years
Office furniture and equipment	3 or 5 years
Vehicles	10 years

The cost and related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts, and any gain or loss is included in the consolidated statements of income and other comprehensive income. Maintenance, repairs and minor renewals are charged directly to expenses as incurred. Significant renewals and betterment to buildings and equipment are capitalized. Leasehold improvements are depreciated over the lesser of the useful life or the life of the lease.

Recent Accounting Pronouncements

We do not anticipate that the adoption of recently issued accounting pronouncements to have a material effect on our condensed consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Not applicable.

Item 4. Controls and Procedures.

Evaluation of 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 quarterly report. The purpose of this evaluation is to determine if, as of Evaluation Date, our disclosure controls and procedures were operating effectively such that the information, required to be disclosed in our Securities and Exchange Commission (“SEC”) reports (i) was recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) was accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Based on their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of June 30, 2018, our disclosure controls and procedures were not effective, based on the material weakness described below:

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 financial statements and consolidation, are inadequate, and determined to be a material weakness.

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Remediation Initiative

● We have started a training program in the principles and rules of U.S. GAAP, SEC reporting requirements and the application thereof. The program is provided by an independent training institution, for our finance and accounting personnel, including our Chief Financial Officer, Financial Manager and others.

● We are in the process of designing a program to provide ongoing company-wide training regarding the Company’s internal controls, with particular emphasis on our finance and accounting staff.

● In 2011 we established the position of internal audit manager. From September 2011 to July 2012, we hired an internal audit manager who implemented an internal review process over financial reporting to review all recent accounting pronouncements and to verify that the accounting treatments identified in such report have been fully implemented and confirmed by our internal control department. Currently, we are still in the process of seeking for a proper candidate to perform as our internal audit manager.

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.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting for the six months ended June 30, 2018 that materially affected, or were reasonably likely to materially affect our internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

None.

Item 1A. Risk Factors.

As of the date of this filing, there have been no material changes from the risk factors disclosed in Part I, Item 1A (Risk Factors) contained in our Annual Report on Form 10-K for the year ended December 31, 2017. We operate in a changing environment that involves numerous known and unknown risks and uncertainties that could materially affect our operations. The risks, uncertainties and other factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2017 may cause our actual results, performances and achievements to be materially different from those expressed or implied by our forward-looking statements. If any of these risks or events occurs, our business, financial condition or results of operations may be adversely affected.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

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Item 6. Exhibits.

EXHIBIT INDEX

Exhibit No.	Description
31.1	Certification of Chief Executive Officer of Periodic Report pursuant to Rule 13a-14a and Rule 14d-14(a). *
31.2	Certification of Chief Financial Officer of Periodic Report pursuant to Rule 13a-14a and Rule 15d-14(a). *
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350. *
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350. *
101.INS	XBRL Instance Document*
101.SCH	XBRL Schema Document*
101.CAL	XBRL Calculation Linkbase Document*
101.LAB	XBRL Label Linkbase Document*
101.PRE	XBRL Presentation Linkbase Document*
101.DEF	XBRL Definition Linkbase Document*

* Filed herewith

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

DATE: August 14, 2018

Joway Health Industries Group Inc.
By:	/s/ Jinghe Zhang
	Jinghe Zhang
	President and Chief Executive Officer
By:	/s/ Yuan Huang
	Yuan Huang
	Chief Financial Officer

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