Joway Health Industries Group Inc - FORM 10-Q

Attached files

Attached files

Joway Health Industries Group Inc Reports

Also read

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

file	filename
EXCEL - IDEA: XBRL DOCUMENT - Joway Health Industries Group Inc	Financial_Report.xls
EX-31.1 - CERTIFICATION - Joway Health Industries Group Inc	dex311.htm
EX-32.1 - CERTIFICATION - Joway Health Industries Group Inc	dex321.htm
EX-32.2 - CERTIFICATION - Joway Health Industries Group Inc	dex322.htm
EX-31.2 - CERTIFICATION - Joway Health Industries Group Inc	dex312.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2011

¨	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)

N/A

(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 x No ¨

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

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

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

The number of shares outstanding of the Issuer’s Common Stock as of August 15, 2011 was 20,018,000 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			19

Item 3. Quantitative and Qualitative Disclosures About Market Risk			29

Item 4. Controls and Procedures			30

PART II - OTHER INFORMATION			30

Item 1. Legal Proceedings			30

Item 1A. Risk Factors

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			30

Item 3. Defaults Upon Senior Securities			31

Item 4. Removed and Reserved			31

Item 5. Other Information			31

Item 6. Exhibits			31

SIGNATURES			32

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

In the opinion of management, the accompanying unaudited 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.

INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)


	Page

Condensed Consolidated Balance Sheets as of June 30, 2011(Unaudited) and December 31, 2010 (Audited)		2

Condensed Consolidated Statements of Operations and Comprehensive Income for the Three and Six Months Ended June 30, 2011 and 2010 (Unaudited)		3

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2011 and 2010 (Unaudited)		4

Notes to Condensed Consolidated Financial Statements		5-18

JOWAY HEALTH INDUSTRIES GROUP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS


	June 30, 2011 (Unaudited)		December 31, 2010 (Audited)
ASSETS

CURRENT ASSETS:
Cash	$	4,262,101	$	5,281,420
Accounts receivable, net		—		9,638
Other receivables		65,271		81,162
Inventories		1,269,392		711,704
Advances to suppliers		352,195		143,609
Prepaid tax		16,817		—
Prepaid expense		39,392		33,884

Total current assets		6,005,168		6,261,417

PROPERTY, PLANT AND EQUIPMENT, net		6,074,771		5,519,711

OTHER ASSETS:
Intangible assets, net		621,222		615,607
Long-term prepaid expenses		206,276		207,621

Total other assets		827,498		823,228


Total assets	$	12,907,437	$	12,604,356


LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES:
Accounts payable	$	185,713	$	305,416
Advances from customers		15,625		1,422
Taxes payable		—		519,726
Salary payable		53,892		—
Other payables		18,068		50,810
Due to related parties		639,514		852,134

Total current liabilities		912,812		1,729,508

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; 20,018,000 and 20,000,000 shares issued and outstanding as of June 30, 2011 and December 31, 2010		20,018		20,000
Additional paid-in-capital		7,343,161		7,316,179
Statutory reserves		336,604		336,604
Retained earnings		3,603,529		2,772,488
Accumulated other comprehensive income		691,313		429,577

Total stockholders’ equity		11,994,625		10,874,848

Total liabilities and stockholders’ equity	$	12,907,437	$	12,604,356

The accompanying notes are an integral part of these financial statements

JOWAY HEALTH INDUSTRIES GROUP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME


	Three months ended June 30,						Six months ended June 30,
	2011			2010			2011			2010
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
REVENUES	$	997,538		$	1,408,090		$	2,696,576		$	2,323,841

COST OF REVENUES		198,743			393,293			554,149			639,488


GROSS PROFIT		798,795			1,014,797			2,142,427			1,684,353

Selling expenses		142,005			114,144			286,314			235,670
General and administrative expenses		538,613			293,885			1,100,048			525,825

OPERATING EXPENSES		680,618			408,029			1,386,362			761,495


INCOME FROM OPERATIONS		118,177			606,768			756,065			922,858


Interest income		1,559			611			3,175			1,175
Other income		15,107			1,027			376,375			1,375
Other expenses		(600	)		(18,604	)		(1,266	)		(26,390	)

OTHER (EXPENSE) INCOME, NET		16,066			(16,966	)		378,284			(23,840	)


INCOME BEFORE INCOME TAXES		134,243			589,802			1,134,349			899,018

INCOME TAXES		80,932			136,138			303,308			211,233


NET INCOME		53,311			453,664			831,041			687,785

OTHER COMPREHENSIVE INCOME:
Foreign currency translation adjustments		190,029			34,445			261,736			35,708


COMPREHENSIVE INCOME	$	243,340		$	488,109		$	1,092,777		$	723,493


NET INCOME PER COMMON SHARE, BASIC AND DILUTED	$	0.00		$	0.02		$	0.04		$	0.04


WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING, BASIC AND DILUTED		20,018,000			18,515,426			20,018,000			18,515,426

The accompanying notes are an integral part of these financial statements

JOWAY HEALTH INDUSTRIES GROUP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


	Six months ended June 30,
	2011			2010
	(Unaudited)			(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	831,041		$	687,785
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation		217,265			145,649
Amortization		9,450			6,255
Stock-based compensation		27,000			—
Changes in operating assets and liabilities:
Accounts receivable, trade		9,638			41,298
Other receivables		15,891			(3,974	)
Due from related parties		—			(4,281	)
Inventories		(557,688	)		(455,605	)
Advances to suppliers		(208,586	)		(97,539	)
Prepaid Expense		(5,508	)		—
Accounts payable		(119,703	)		94,397
Advances from customers		14,203			(235,849	)
Other payable		(6,724	)		17,967
Salary and welfare payable		15,425			33,970
Tax payable		(524,094	)		278,745
Accrued expenses		—			40,419

Net cash provided by (used in) operating activities		(282,390	)		549,237


CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property plant and equipment		(770,980	)		(104,073	)
Purchase of intangible assets		—			(10,621	)

Net cash used in investing activities		(770,980	)		(114,694	)


CASH FLOWS FROM FINANCING ACTIVITIES:
Due to related parties		(212,620	)		(713,804	)

Net cash used in financing activities		(212,620	)		(713,804	)


EFFECT OF EXCHANGE RATE CHANGES ON CASH		246,671			2,858


NET DECREASE IN CASH		(1,019,319	)		(276,403	)

CASH, beginning of period		5,281,420			935,719


CASH, end of period	$	4,262,101		$	659,316


SUPPLEMENTAL DISCLOSURES:

Income taxes paid	$	497,675		$	119,200
Interest paid	$	—		$	—

The accompanying notes are an integral part of these financial statements

JOWAY HEALTH INDUSTRIES GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – ORGANIZATION

The 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 the construction of 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.

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.


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 20,018	86.96% owned by Crystal Globe Limited 13.04% 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 tourmaline 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 Tourmaline Activated Water Machine, Tourmaline Wellness House for family use and Tourmaline Wellness House materials
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

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 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 the shareholders of Joway Shengshi, entered into a Call Option Agreement with the sole shareholder of Crystal Globe (the controlling shareholder of Dynamic Elite), pursuant to which the shareholders of Joway Shengshi have the right to purchase up to 100% of the shares of Crystal Globe at an aggregate price equal to $20,000 over the next three years. The Call Option vests as to 34% of the shares of Crystal Globe on April 2, 2011 and as to 33% on April 2 of 2012 and 2013. As a result, the shareholders of Joway Shengshi will become the indirect beneficial owners of the shares of the Company held by Crystal Globe.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”). The Company’s functional currency is the Chinese Renminbi (“RMB”); however, the accompanying consolidated financial statements have been translated and presented in United States Dollars (“USD”). All significant inter-company transactions and balances have been eliminated. The consolidated financial statements include all adjustments that, in the opinion of management, are necessary to make the financial statements not misleading.

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and the footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring accruals, considered necessary for a fair presentation have been included. Operating results for the six-month period ended June 30, 2011 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2011. The accompanying consolidated financial statements should be read in conjunction with the Company’s form 10-K for the fiscal year ended December 31, 2010 which was filed on April 14, 2011.

Use of Estimates

The preparation of the consolidated financial statements in conformity with generally accepted accounting principles in the United States of America which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made. Actual results could differ from those estimates.

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”, Joway Shengshi, as a VIE of Junhe Consulting, has been consolidated in the Company’s financial statements. Joway Shengshi’s sales are included in the Company’s total sales, its income from operations is consolidated with the Company’s, and the Company’s net income includes all of Joway Shengshi’s net income.

Based on the various Contractual Agreements, the Company is able to exercise control over the VIEs, and to obtain in full the economic benefits. Accordingly, the non–controlling interests have no economic interest in the VIEs.

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,
	2011		2010		2010
Period ended RMB: USD Exchange rate		6.46400		6.80860		6.6118
Average RMB: USD Exchange rate		6.54818		6.83474		6.77875

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.

For the six months ended June 30, 2011 and 2010 foreign currency translation adjustments of $261,736 and $35,708, respectively, have been reported as comprehensive income in the consolidated financial statements.

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 and trade accounts receivable. 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 (formerly Statement of Financial Accounting Standard (“SFAS”) No. 157 Fair Value Measurements) establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as 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.

Cash and Cash Equivalents

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 carried at net realizable value. The Company maintains reserves for potential credit losses on accounts receivable. Management 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 reserves. As of June 30, 2011 and December 31, 2010, respectively, the Company had no allowance for doubtful accounts.

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 valuation allowance is required. As of June 30, 2011 and December 31, 2010, respectively, the Company has no reserves for inventories.

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 $352,195 and $143,609 as of June 30, 2011 and December 31, 2010, 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.

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 (formerly SFAS No. 144 Accounting for the Impairment or Disposal of Long-Lived Assets). 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, 2011 and 2010.

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 $21,538 and $17,273 for the six months ended June 30, 2011 and 2010, respectively, and $9,502 and $8,225 for the three months ended June 30, 2011 and 2010, 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” (formerly SFAS No. 109 Accounting for Income Taxes), which is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. ASC 740 additionally requires the establishment of a valuation allowance to reflect the likelihood of realization of deferred tax assets. Realization of deferred tax assets is dependent upon future earnings, if any, of which the timing and amount are uncertain.

According to ASC 740, the evaluation of a tax position is a two-step process. The first step is to determine whether it is more likely than not that a tax position will be sustained upon examination, including the resolution of any related appeals or litigation based on the technical merits of that position. The second step is to measure a tax position that meets the more-likely-than-not threshold to determine the amount of benefit to be recognized in the financial statements. A tax position is measured at the largest amount of benefit that is greater than 50% likelihood of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent period in which the threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not criteria should be de-recognized in the first subsequent financial reporting period in which the threshold is no longer met. ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosures, and transition.

Subsequent Events

The Company evaluates subsequent events for purposes of recognition or disclosure through the date that the financial statements are issued.

Recently Issued Accounting Pronouncements

In April 2010, the FASB issued ASU 2010-13, Compensation-Stock Compensation (Topic 718) - Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades - a consensus of the FASB Emerging Issues Task Force, or ASU 2010-13. ASU 2010-13 provides amendments to Topic 718 to clarify that an employee share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trades should not be considered to contain a condition that is not a market, performance, or service condition. Therefore, an entity would not classify such an award as a liability if it otherwise qualifies as equity. The amendments in this update do not expand the recurring disclosures required by Topic 718. Disclosures currently required under Topic 718 are applicable to a share-based payment award, including the nature and the term of share-based payment arrangements. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. The adoption of these amendments had no material impact on the Company’s consolidated financial statements.

In April 2010, the FASB issued ASU 2010-17, “Revenue Recognition—Milestone Method “, which updates the guidance currently included under topic 605, Revenue Recognition. ASU 2010-17 provides guidance on defining the milestone and determining when the use of the milestone method of revenue recognition for research or development transactions is appropriate. It provides criteria for evaluating if the milestone is substantive and clarifies that a vendor can recognize consideration that is contingent upon achievement of a milestone as revenue in the period in which the milestone is achieved, if the milestone meets all the criteria to be considered substantive. ASU 2010-17 is effective for milestones achieved in fiscal years, and interim periods within those fiscal years, beginning after June 15, 2010 and should be applied prospectively. The adoption of this standard did not have a material effect on the Company’s consolidated financial statements.

In July 2010, the FASB issued ASU 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses (Topic 310)—Receivables, or ASU 2010- 20. ASU 2010-20 enhances the disclosure requirements about the credit quality and related allowance for credit losses of financing receivables. The Company is currently evaluating the impact of the adoption of ASU 2010-20 on its financial statements.

In December 2010, the Financial Accounting Standards Board (“FASB”) issued accounting standard ASU 2010-28, Intangibles-Goodwill and Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts (a consensus of the FASB Emerging Issues Task Force). ASU 2010-28 provides amendments to Topic 350 that modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. As a result, goodwill impairments may be reported sooner than under current practice. ASU 2010-28 is effective for fiscal years and interim periods within those years, beginning after December 15, 2010, with early adoption not permitted. The provisions of ASC No. 2010-28 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2010 and should be applied prospectively. The adoption of this standard did not have a material effect on the Company’s consolidated financial statements.

In December 2010, FASB issued accounting standard ASU 2010-29, Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations (a consensus of the FASB Emerging Issues Task Force). ASU 2010-29 provides amendments to subtopic 805-10 of the FASB ASC, that requires a public entity to disclose pro forma information for business combinations that occurred in the current reporting period. ASU 2010-29 is effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010, with early adoption permitted. The adoption of this standard did not have a material effect on the Company’s consolidated financial statements.

NOTE 3 – ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following:


	June 30,		December 31,
	2011		2010
Accounts receivable	$	—	$	9,638
Less: Allowance for bad debt		—		—

Accounts receivable	$	—	$	9,638

NOTE 4 – INVENTORIES

Inventories consisted of the following:


	June 30,		December 31,
	2011		2010
Raw materials	$	439,753	$	100,706
Packages		5,704		11,406
Finished goods		802,754		557,251
Goods shipped in transit		—		21,891
Low value consumables		21,181		20,450

Total	$	1,269,392	$	711,704

Goods shipped in transit represent goods on the way from the suppliers to the Company. 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.

NOTE 5 – PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consisted of the following:


	June 30,			December 31,
	2011			2010
Building	$	5,365,723		$	5,245,777
Operating Equipment		320,277			313,118
Office furniture and equipment		215,966			206,821
Vehicles		886,963			250,888

Total		6,788,929			6,016,604
Less: accumulated depreciation		(714,158	)		(496,893	)

Property, plant and equipment, net	$	6,074,771		$	5,519,711

Depreciation expense for the six months ended June 30, 2011 and 2010 amounted to $217,265 and $145,649, respectively, and for the three months ended June 30, 2011 and 2010 amounted to $118,466 and $89,317, respectively.

NOTE 6 – INTANGIBLE ASSETS

Intangible assets consisted of the following:


	June 30,			December 31,
	2011			2010
Land use rights	$	638,623		$	624,347
Other intangible assets		35,298			34,509

Total		673,921			658,856
Less: accumulated amortization		(52,699	)		(43,249	)

Intangible assets, net	$	621,222		$	615,607

Amortization expense of intangible assets for the six months ended June 30, 2011 and 2010 was $9,450 and $6,255, respectively, and for the three months ended June 30, 2011 and 2010 was $5,013 and $3,082, respectively.

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


Estimated amortization expense for the year ending December 31,	Amount
2011	$	16,039
2012	$	16,039
2013	$	16,039
2014	$	16,039
2015	$	16,039
Thereafter	$	535,412

NOTE 7 – RELATED PARTY TRANSACTIONS

Due to related parties consists of the following:


	June 30,		December 31,
	2011		2010
Shenyang Joway Industrial Development Co., Ltd.	$	560,248	$	613,721
Jinghe Zhang		79,266		235,336
Jingyun Chen		—		3,077

Total	$	639,514	$	852,134

From 2007 through June 30, 2011, Shenyang Joway Industrial Development Co., Ltd. (“Shengyang Joway”), an entity controlled by Jinghe Zhang, the Company’s CEO and major stockholder, advanced the Company an aggregate of $791,701. The advances are non-interest bearing and have no specified repayment terms. The Company repaid $53,473 of these advances during the six months ended June 30, 2011.

On December 1, 2009, the Company entered into a license agreement with Jinghe Zhang. Pursuant to the license agreement, the Company has the right to use the trademark “Joway” for a term of nine years and the rights to five patents until the patents’ expiration dates. The Company is not obligated to make any payments under the license agreement.

On May 10, 2007, Joway Shengshi entered into a cash advance agreement with Jinghe Zhang. Pursuant to the agreement, Jinghe Zhang agreed to lend money to Joway Shengshi for use as operating capital. The advances are interest free and unsecured. The agreement is valid throughout Joway Shengshi’s term of operation. During the period from May 17, 2007 (inception of Shengshi Group) through June 30, 2011, Jinghe Zhang made cash advances to Joway Shengshi in the aggregate amount of $4,637,397 and Joway Shengshi has repaid $4,558,131. As of June 30, 2011, the total unpaid principal balance due Jinghe Zhang for advances was $79,266.

On May 10, 2007, Joway Technology entered into a loan agreement with Jinghe Zhang. Pursuant to the loan agreement, Jinghe Zhang agreed to lend money to Joway Technology for operating capital. The loan is interest free and unsecured. The loan agreement is valid throughout Joway Technology’s term of operation. During the period from March 28, 2007 (inception of Joway Technology) through December 31, 2010, Jinghe Zhang made loans to Joway Technology in the aggregate principal amount of $22,031 all of which has been repaid. As of June 30, 2011, the total unpaid principal balance due Jinghe Zhang for advances was $0.

Jingyun Chen is General Manager of Joway Technology and Joway Decoration. In November, 2010, the Company received $3,077 of insurance refund on behalf of Jingyun Chen. On May 4, 2011, the Company paid off $3,077 to Jingyun Chen.

The amount due from related parties are non-interest bearing and have no specified repayment terms.

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 Company’s subsidiary, Joway Decoration, as a wholesale and retail enterprise, is taxed at the income tax rate of 5% of revenue in 2011 (4% in 2010) pursuant to “Measures for Verification Collection of Enterprise Income Tax” issued by the PRC State Administration of Taxation.

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,
	2011			2010
Tax computed at China statutory rates		25	%		25	%
Effect of reduced rate on Joway Decoration (1)		(6	%)		(2	%)
Tax adjustment from China tax authority for 2010 income tax		7	%		0
Effective rate		26	%		23	%

(1)

Pursuant to Measures for Verification Collection of Enterprise Income Tax issued by the PRC State Administration of Taxation, Joway Decoration, as a wholesale and retail enterprise, is subject to taxable income at a verified rate of 5% of revenue (4% for 2010) as a wholesale and retail enterprise.

(2)	The Company’s 2010 Corporate Income Tax Filing in China was reviewed by the PRC tax authority and reduced the Company’s income tax deduction for the 2010 taxable year. As a result, the Company paid additional income tax of $61,635.

As of June 30, 2011 and 2010, the Company had no deferred tax assets or liabilities.

NOTE 9 – STATUTORY RESERVES

Pursuant to the laws and regulations of the PRC, annual income of the Company’s subsidiaries of the Company are 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 reach 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, 2011, the Company had allocated $336,604 to statutory reserves.

NOTE 10 – OTHER INCOME

Other income mainly consists of subsidy income from Tianjin Baodi District Management Committee and short-term investment income.

Joway Shengshi and Joway Decoration are located in Tianjin Baodi District. Pursuant to a series of investment encouragement policies issued by the Tianjin Baodi government, in January 2011 Joway Shengshi and Joway Decoration were rewarded by Tianjin Baodi District Management Committee a total of RMB 2,307,012 (~ US $350,110) for the contribution on tax revenue for the year of 2009 and 2010 in Tianjin Baodi District.

NOTE 11 – SEGMENTS

In 2011 and 2010, the Company operated in three reportable business segments - (1) Healthcare Knitgoods 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, 2011


	Sales		COGS		Gross profit		Income (loss) from operations		Depreciation and amortization		Assets
Healthcare Knitgoods Series	$	627,042	$	91,543	$	535,499	$	52,984	$	77,618	$	273,646
Daily Healthcare and Personal Care Series		130,808		42,488		88,320		-21,830		16,192		158,971
Wellness House and Activated Water Machine Series		239,688		64,712		174,976		87,023		29,669		823,417

Segment Totals	$	997,538	$	198,743	$	798,795		118,177	$	123,479		1,256,034

Other Income (Expense), net								16,066
Income Tax								80,932

Unallocated Assets												11,651,403

Net Income							$	53,311

Total Assets											$	12,907,437

For the three months ended June 30, 2010


	Sales		COGS		Gross profit		Income from operations			Depreciation and amortization		Assets
Healthcare Knitgoods Series	$	874,593	$	189,480	$	685,113	$	430,397		$	57,384	$	424,443
Daily Healthcare and Personal Care Series		320,277		117,847		202,430		105,607			20,987		242,046
Wellness House and Activated Water Machine Series		213,220		85,966		127,254		70,764			14,028		443,890

Segment Totals	$	1,408,090	$	393,293	$	1,014,797		606,768		$	92,399		1,110,379

Other Income (Expense), net								(16,966	)
Income Tax								136,138

Unallocated Assets													8,939,324

Net Income							$	453,664

Total Assets												$	10,049,703

For the six months ended June 30, 2011


	Sales		COGS		Gross profit		Income from operations		Depreciation and amortization		Assets
Healthcare Knitgoods Series	$	1,732,659	$	294,062	$	1,438,597	$	446,101	$	145,674	$	273,646
Daily Healthcare and Personal Care Series		446,593		110,881		335,712		79,900		37,547		158,971
Wellness House and Activated Water Machine Series		517,324		149,206		368,118		230,064		43,494		823,417

Segment Totals	$	2,696,576	$	554,149	$	2,142,427		756,065	$	226,715		1,256,034

Other Income (Expense), net								378,284
Income Tax								303,308

Unallocated Assets												11,651,403

Net Income							$	831,041

Total Assets											$	12,907,437

For the six months ended June 30, 2010


	Sales		COGS		Gross profit		Income from operations			Depreciation and amortization		Assets
Healthcare Knitgoods Series	$	1,440,617	$	305,383	$	1,135,234	$	648,495		$	94,164	$	424,443
Daily Healthcare and Personal Care Series		478,320		140,370		337,950		176,341			31,257		242,046
Wellness House and Activated Water Machine Series		404,904		193,735		211,169		98,022			26,483		443,890

Segment Totals	$	2,323,841	$	639,488	$	1,684,353		922,858		$	151,904		1,110,379

Other Income (Expense), net								(23,840	)
Income Tax								211,233

Unallocated Assets													8,939,324

Net Income							$	687,785

Total Assets												$	10,049,703

NOTE 12 - 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,
	2011		2010		2011		2010

Sales to franchise customers	$	907,021	$	1,222,828	$	2,520,009	$	2,016,731
Sales to non-franchise customers		90,517		185,262		176,567		307,110


Total sales	$	997,538	$	1,408,090	$	2,696,576	$	2,323,841

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

You should read the following discussion and analysis in conjunction with the condensed 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 filed on Form 10-K with the Securities and Exchange Commission on April 14, 2011.

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.

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.

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.

Description of Selected Income Statement Items

Revenues. We generate revenue from sales of our Healthcare Knitgoods 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. We expect administrative expenses to continue to increase as we incur expenses related to costs of compliance with securities laws and other regulations, including increased audit and legal fees and investor relations expenses.

Other (expense) income. Our other (expense) income consists primarily of interest income, subsidy income and other revenue from sales of obsolete equipments.

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. No provision for income taxes in the United States has been made as the Company has no income taxable in the United States. The Company’s PRC subsidiaries expect to use their retained earnings to support their PRC operations, and do not expect to declare any dividends within the foreseeable future.

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,
	2011		2010			2011		2010
REVENUES	$	997,538	$	1,408,090		$	2,696,576	$	2,323,841
COST OF REVENUES		198,743		393,293			554,149		639,488

GROSS PROFIT		798,795		1,014,797			2,142,427		1,684,353
OPERATING EXPENSES		680,618		408,029			1,386,362		761,495

INCOME FROM OPERATIONS		118,177		606,768			756,065		922,858
OTHER (EXPENSE) INCOME, NET		16,066		(16,966	)		378,284		(23,840	)

INCOME BEFORE INCOME TAXES		134,243		589,802			1,134,349		899,018
INCOME TAXES		80,932		136,138			303,308		211,233

NET INCOME	$	53,311	$	453,664		$	831,041	$	687,785

Business Segments

In 2011 and 2010, the Company operated in three reportable business segments - (1) Healthcare Knitgoods, (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, 2011


	Healthcare Knitgoods Series			% of Total			Daily Healthcare and Personal Care Series			% of Total			Wellness House and Activated Water Machine Series			% of Total			Total
REVENUES	$	627,042			62.9	%	$	130,808			13.1	%	$	239,688			24.0	%	$	997,538
COST OF REVENUES		91,543			46.1	%		42,488			21.4	%		64,712			32.6	%		198,743

GROSS PROFIT		535,499			67.0	%		88,320			11.1	%		174,976			21.9	%		798,795
GROSS MARGIN		85.4	%					67.5	%					73.0	%					80.1	%
OPERATING EXPENSES		482,515			70.9	%		110,150			16.2	%		87,953			12.9	%		680,618

INCOME FROM OPERATIONS	$	52,984			44.8	%	$	-21,830			-18.5	%	$	87,023			73.6	%	$	118,177

For the three months ended June 30, 2010


	Healthcare Knitgoods Series			% of Total			Daily Healthcare and Personal Care Series			% of Total			Wellness House and Activated Water Machine Series			% of Total			Total
REVENUES	$	874,593			62.1	%	$	320,277			22.7	%	$	213,220			15.1	%	$	1,408,090
COST OF REVENUES		189,480			48.2	%		117,847			30.0	%		85,966			21.9	%		393,293

GROSS PROFIT		685,113			67.5	%		202,430			19.9	%		127,254			12.5	%		1,014,797
GROSS MARGIN		78.3	%					63.2	%					59.7	%					72.1	%
OPERATING EXPENSES		254,716			62.4	%		96,823			23.7	%		56,490			13.8	%		408,029

INCOME FROM OPERATIONS	$	430,397			70.9	%	$	105,607			17.4	%	$	70,764			11.7	%	$	606,768

For the six months ended June 30, 2011


	Healthcare Knitgoods Series			% of Total			Daily Healthcare and Personal Care Series			% of Total			Wellness House and Activated Water Machine Series			% of Total			Total
REVENUES	$	1,732,659			64.3	%	$	446,593			16.6	%	$	517,324			19.2	%	$	2,696,576
COST OF REVENUES		294,062			53.1	%		110,881			20.0	%		149,206			26.9	%		554,149

GROSS PROFIT		1,438,597			67.1	%		335,712			15.7	%		368,118			17.2	%		2,142,427
GROSS MARGIN		83.0	%					75.2	%					71.2	%					79.4	%
OPERATING EXPENSES		992,496			71.6	%		255,812			18.5	%		138,054			10.0	%		1,386,362

INCOME FROM OPERATIONS	$	446,101			59.0	%	$	79,900			10.6	%	$	230,064			30.4	%	$	756,065

For the six months ended June 30, 2010


	Healthcare Knitgoods Series			% of Total			Daily Healthcare and Personal Care Series			% of Total			Wellness House and Activated Water Machine Series			% of Total			Total
REVENUES	$	1,440,617			62.0	%	$	478,320			20.6	%		404,904			17.4	%	$	2,323,841
COST OF REVENUES		305,383			47.8	%		140,370			22.0	%		193,735			30.3	%		639,488

GROSS PROFIT		1,135,234			67.4	%		337,950			20.1	%		211,169			12.5	%		1,684,353
GROSS MARGIN		78.8	%					70.7	%					52.2	%					72.5	%
OPERATING EXPENSES		486,739			63.9	%		161,609			21.2	%		113,147			14.9	%		761,495

INCOME FROM OPERATIONS	$	648,495			70.3	%	$	176,341			19.1	%		98,022			10.6	%	$	922,858

For The Three Months Ended June 30, 2011 Compared to June 30, 2010

Revenue. For the three months ended June 30, 2011, revenue was $997,538 compared to $1,408,090 for the three months ended June 30, 2010, a decrease of $410,552 or 29.2%. This decrease was mainly attributable to the decrease in revenue from healthcare knit goods segment and daily healthcare and personal care segment. In the first quarter of 2011, we organized various marketing activities, such as New Year Celebration Conference with our franchisees and new product introduction meetings, to promote our products before the Chinese Spring Festival, the best selling season, which significantly increased the sales for the first quarter of 2011 compared to the same period of 2010. However, we believe that as a result of our marketing activities, our franchisees stocked more inventory during the first quarter of 2011, reducing their need to restock during the second quarter, thereby decreasing demand for our products.

Revenue from our healthcare knit goods segment decreased by $247,551, or 28.3% to $627,042 for the three months ended June 30, 2011 from $874,593 for the three months ended June 30, 2010. This decrease was mainly due to a $0.2 million decrease in sales of our mattress products. In addition to the decrease of demand by our franchisees, lower market demand in the summer season also resulted in the decrease in sales of our mattress products.

Revenue from daily healthcare and personal care products decreased by $189,469 or 59.2% to $130,808 for the three months ended June 30, 2011 from $320,277 for the three months ended June 30, 2010. This was primarily due to a decrease in sales of Xin-Nao-Ling Fish Oil Soft Gel by 69%, Zhi-Li-Bao Fish Oil Soft Gel by 73.1% and Tourmaline Sanitary Towels by 44.6%. These three products were newly introduced and best sold in the second quarter of 2010. Although the sales of these three products decreased after the second quarter of 2010, they still are popular products although sales have stabilized at a lower level.

Revenue from wellness houses and activated water machines increased by $26,468 or 12.4% to $239,688 for the three months ended June 30, 2011 from $213,220 for the three months ended June 30, 2010. This increase was mainly due to an increase in sale of Tourmaline Water Machine.

Cost of goods sold. For the three months ended June 30, 2011, cost of goods sold was $198,743 compared to $393,293 for the three months ended June 30, 2010, a decrease of $194,550, or 49.5%. This decrease was mainly due to the decrease in sales.

Cost of goods sold for healthcare knit goods segment decreased to $91,543 for the three months ended June 30, 2011 from $189,480 for the three months ended June 30, 2010, a decrease of $97,937 or 51.7%. This decrease was mainly due to the decrease in cost of Mattress products.

Cost of goods sold for the daily healthcare and personal care segment decreased to $42,488 for the three months ended June 30, 2011 from $117,847 for the three months ended June 30, 2010, a decrease of $75,359 or 63.9%. This decrease was primarily due to the decrease in the cost of Xin-Nao-Ling Fish Oil Soft Gel and Tourmaline Sanitary Towel.

Cost of goods sold for our wellness house and activated water machine segment decreased to $64,712 for the three months ended June 30, 2011 from $85,966 for the three months ended June 30, 2010, a decrease of $21,254 or 24.7%. This decrease was mainly due to the decrease in cost of Wellness House.

Gross profit. Our gross profit decreased by $216,002 or 21.3% to $798,795 for the three months ended June 30, 2011, compared to $1,014,797 for the three months ended June 30, 2010. This decrease was mainly due to the decrease in gross profit for healthcare knit goods segment and daily healthcare and personal care segment. Our gross margin increased from 72.1% for the three months ended June 30, 2010 to 80.1% for the three months ended June 30, 2011. This increase was mainly attributed to the wellness house and activated water machine segments.

Gross profit for the healthcare knit goods segment decreased by $149,614 or 21.8% to $535,499 for the three months ended June 30, 2011 compared to $685,113 for the three months ended June 30, 2010. This decrease was mainly attributable to decreased sales of our mattress products. The gross margins of healthcare knit goods segment increased from 78.3% for the three months ended June 30, 2010 to 85.4% for the three months ended June 30, 2011. This increase was mainly due to our new healthcare knit goods with higher gross margin.

Gross profit of daily healthcare and personal care segment decreased by $114,110 or 56.4% to $88,320 for the three months ended June 30, 2011, compared to $202,430 for the three months ended June 30, 2010. This decrease was primarily due to the decrease in gross profit of our Tourmaline Soap and Tourmaline Waist Protector. While gross margin of daily healthcare and personal care segment increased from 63.2% for the three months ended June 30, 2010 to 67.5% for the three months ended June 30, 2011. This increase was mainly due to our Tourmaline Sock. In 2011, we improved the production technology on our Tourmaline Sock and increased the gross profit of Tourmaline Sock to 85% for the second quarter compared to 71% for the same period of 2010.

Gross profit of the wellness house and activated water machine segments increased by $47,722 or 37.5% to $174,976 for the three months ended June 30, 2011, compared to $127,254 for the three months ended June 30, 2010. This increase was mainly attributed to an increase in sales of Tourmaline Water Machines. The gross margin of our wellness house and activated water machine segments increased from 59.7% for the three months ended June 30, 2010 to 73% for the three months ended June 30, 2011. This increase was mainly attributed to increased sales of Tourmaline Water Machines as a result of a decrease in the purchase price of raw materials

Operating expenses. Our total operating expenses consist of sales and marketing expenses and general and administrative expenses. Our total operating expenses increased by $272,589, or 66.8%, from $408,029 for the three months ended June 30, 2010 to $680,618 for the three months ended June 30, 2011. This increase was mainly due to the increase of audit and attorney fees accompanying by becoming a listed company. Operating expenses for healthcare knit goods segment increased by $227,799 or 89.4% to $482,515 for the three months ended June 30, 2011 from $254,716 for the three months ended June 30, 2010. Operating expenses for daily healthcare and personal care segment increased by $13,327 or 13.8% to $110,150 for the three months ended June 30, 2011 from $96,823 for the three months ended June 30, 2010. Operating expenses for our wellness house and activated water machine segment increased by $31,463 or 55.7% to $87,953 for the three months ended June 30, 2011 from $56,490 for the three months ended June 30, 2010.

Income from operations. As a result of the foregoing, our income from operations was $118,177 for the three months ended June 30, 2011, compared to $606,768 for the three months ended June 30, 2010, a decrease of $488,591. This decrease was mainly due to both the decrease in sales and the increase in operating expenses.

Income taxes. Our income tax expenses decreased from $136,138 for the three months ended June 30, 2010 to $80,932 for the three months ended June 30, 2011. The decrease was primarily due to the decrease in income.

Net income. For the three months ended June 30, 2011, our net income was $53,311 compared to $453,664 for the three months ended June 30, 2010. This decrease was mainly due to Joway Shengshi decreased by 0.4 million.

For The Six Months Ended June 30, 2011 Compared to June 30, 2010

Revenue. For the six months ended June 30, 2011, revenue was $2,696,576 compared to $2,323,841 for the six months ended June 30, 2010, an increase of $372,735 or 16%. This increase was primarily due to our healthcare knit goods segment.

Revenue from healthcare knit goods segment increased by $292,042, or 20.3% to $1,732,659 for the six months ended June 30, 2011 from $1,440,617 for the six months ended June 30, 2010. This increase was mainly due to an increase in sales of our mattress products of $0.2 million, which is our best-selling product category.

Revenue from daily healthcare and personal care products decreased by $31,727 or 6.6% to $446,593 for the six months ended June 30, 2011 from $478,320 for the six months ended June 30, 2010. This was primarily due to decrease in sales of Xin-Nao-Ling Fish Oil Soft Gel and Zhi-Li-Bao Fish Oil Soft Gel. Our Fish Oil Soft Gel products were introduced in 2010 and best sold in 2010. Although the sales of these three products decreased after the second quarter of 2010, they still are popular products and sales have stabilized at a lower level.

Revenue from wellness houses and activated water machines increased by $112,420 or 27.8% to $517,324 for the six months ended June 30, 2011 from $404,904 for the six months ended June 30, 2010. This increase was mainly due to an increase in sale of Tourmaline Water Machine.

Cost of goods sold. For the six months ended June 30, 2011, cost of goods sold was $554,149 compared to $639,488 for the six months ended June 30, 2010, a decrease of $85,339, or 13.3%. This decrease was mainly due to decreased sales in wellness houses and activated water machines segment.

Cost of goods sold for healthcare knit goods segment decreased to $294,062 for the six months ended June 30, 2011 from $305,383 for the six months ended June 30, 2010, a decrease of $11,321 or 3.7%. This decrease was mainly due to the decrease in cost of our Tourmaline Four Set Bedding.

Cost of goods sold for the daily healthcare and personal care segment decreased to $110,881 for the six months ended June 30, 2011 from $140,370 for the six months ended June 30, 2010, a decrease of $29,489 or 21%. This decrease was mainly due to the decrease in cost of Xin-Nao-Ling Fish Oil Soft Gel and Zhi-Li-Bao Fish Oil Soft Gel as a result of a decrease in sales.

Cost of goods sold for our wellness house and activated water machine segment decreased to $149,206 for the six months ended June 30, 2011 from $193,735 for the six months ended June 30, 2010, a decrease of $44,529 or 23%. This decrease was mainly due to the decrease in cost of Wellness House as a result of a decrease in sales.

Gross profit. Our gross profit increased by $458,074 or 27.2% to $2,142,427 for the six months ended June 30, 2011, compared to $1,684,353 for the six months ended June 30, 2010. This increase was primarily attributable to the increase in gross profit for healthcare knit goods segment. In addition, our gross margin increased from 72.5% for the six months ended June 30, 2010 to 79.4% for the six months ended June 30, 2011. This increase was mainly attributed to the wellness house.

Gross profit for the healthcare knit goods segment increased by $303,363 or 26.7% to $1,438,597 for the six months ended June 30, 2011 compared to $1,135,234 for the six months ended June 30, 2010. This increase was mainly attributable to our mattress products. The gross margins of healthcare knit goods segment increased from 78.8% for the six months ended June 30, 2010 to 83% for the six months ended June 30, 2011. This increase was mainly due to our new healthcare knit goods with higher gross margin, such as new Tourmaline Female Undergarment and Tourmaline Wool Quilt.

Gross profit of daily healthcare and personal care segment decreased by $2,238 or 0.7% to $335,712 for the six months ended June 30, 2011, compared to $337,950 for the six months ended June 30, 2010. This decrease was primarily due to our new Tourmaline Soap. While gross margin of daily healthcare and personal care segment increased from 70.7% for the six months ended June 30, 2010 to 75.2% for the six months ended June 30, 2011. This increase was mainly due to our Tourmaline Scarves, which have a higher gross margin of approximately 80%.

Gross profit of the wellness house and activated water machine segments increased by $156,949 or 74.3% to $368,118 for the six months ended June 30, 2011, compared to $211,169 for the six months ended June 30, 2010. This increase was mainly attributed to an increase in sales of Tourmaline Water Machines. The gross margin of our wellness house and activated water machine segments increased from 52.2% for the six months ended June 30, 2010 to 71.2% for the six months ended June 30, 2011. This increase was mainly attributed to increased sales of Tourmaline Water Machines as a result of a decrease in the purchase price of raw materials

Operating expenses. Our total operating expenses consist of sales and marketing expenses and general and administrative expenses. Our total operating expenses increased by $624,867, or 82.1%, from $761,495 for the six months ended June 30, 2010 to $1,386,362 for the six months ended June 30, 2011. This increase was mainly due to the increase of audit and attorney fees and employee salaries. Operating expenses for healthcare knit goods segment increased by $505,757 or 103.9% to $992,496 for the six months ended June 30, 2011 from $486,739 for the six months ended June 30, 2010. Operating expenses for daily healthcare and personal care segment increased by $94,203 or 58.3% to $255,812 for the six months ended June 30, 2011 from $161,609 for the six months ended June 30, 2010. Operating expenses for our wellness house and activated water machine segment increased by $24,907 or 22% to $138,054 for the six months ended June 30, 2011 from $113,147 for the six months ended June 30, 2010.

Income from operations. As a result of the foregoing, our income from operations was $756,065 for the six months ended June 30, 2011, compared to $922,858 for the six months ended June 30, 2010, a decrease of $166,793. This decrease was mainly due to the increase in operating expenses.

Income taxes. Our income tax expenses increased from $211,233 for the six months ended June 30, 2010 to $303,308 for the six months ended June 30, 2011. This increase was primarily due to the increase in income before income tax.

Net income. For the six months ended June 30, 2011, our net income was $831,041 compared to $687,785 for the six months ended June 30, 2010. This increase was mainly due to Joway Shengshi.

Franchising

We enter into franchising agreements to develop retail outlets for our products. The 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,
	2011		2010		2 011		2010
Sales to franchise customers	$	907,021	$	1,222,828	$	2,520,009	$	2,016,731
Sales to non-franchise customers		90,517		185,262		176,567		307,110

Total sales	$	997,538	$	1,408,090	$	2,696,576	$	2,323,841

Liquidity and Capital Resources

Our cash at the beginning of the six months ended June 30, 2011 was $5,281,420 and decreased to $4,262,101 by the end of the six months, a decrease of $1,019,319. We had net working capital of $5,092,356 at June 30, 2011, an increase of $560,447 from $4,531,909 at December 31, 2010.

Our cash flow information summary is as follows:


	For the six months ended June 30,
	2011			2010
Net cash provided by (used in):
Operating activities	$	(282,390	)	$	549,237
Investing activities		(770,980	)		(114,694	)
Financing activities	$	(212,620	)	$	(713,804	)

Net Cash Provided By (Used In) Operating Activities

Net cash used in operating activities was $282,390 for the six months ended June 30, 2011 compared to $549,237 provided by operating activities for the six months ended June 30, 2010. This change was primarily due to a decrease in tax payable of $802,839. For the six months ended June 30, 2011, we paid $497,675 of income tax. For the six months ended June 30, 2010, we only paid $119,200 of income tax.

For the six months ended June 30, 2011, cash was mainly used to purchase materials of $557,688 and pay tax of $524,094, which were primarily offset by cash provided from net income of $831,041 and an add-back of $217,265 of depreciation for non-cash expense.

For the six months ended June 30, 2010, cash was mainly used to purchase materials of $455,605. We also used cash to decrease advances from customers by $235,849. They were primarily offset by cash provided from net income of $687,785, increases in tax payable of $278,745 and an add-back of $145,649 of depreciation for non-cash expense.

Net Cash Used In Investing Activities

Net cash used in investing activities was $770,980 for the six months ended June 30, 2011, compared to $114,694 for the six months ended June 30, 2010. For the six months ended June 30, 2011, we used cash to purchase three vehicles in the amount of $0.6 million compared to $0.1 million in vehicle and operating equipment purchases for the six months ended June 30, 2010.

Net Cash Used In Financing Activities

Net cash used in financing activities was $212,620 for the six months ended June 30, 2011, compared to $713,804 for the six months ended June 30, 2010. For the six months ended June 30, 2011, we paid back $212,620 to Jinghe Zhang, compared to $713,804 paid back to Jinghe Zhang for the six months ended June 30, 2010.

On May 10, 2007, our operating subsidiaries, Joway Shengshi and Joway Technology entered into cash advance agreements with Jinghe Zhang, our President, Chief Executive Officer and director. Pursuant to these agreements, Jinghe Zhang agreed to advance operating capital to Joway Shengshi and Joway Technology. These advances are interest free, unsecured and are repayable upon demand. During the period beginning May 17, 2007 (inception of Joway Shengshi) through June 30, 2011, Joway Shengshi received cash advances in the aggregate principal amount of $4,637,397 from Jinghe Zhang of which $4,558,131 has been repaid. As of June 30, 2011, the total unpaid principal balance due Jinghe Zhang for advances made to Joway Shengshi was $79,266. During the period beginning March 28, 2007 (inception of Joway Technology) through June 30, 2011, Joway Technology received cash advances in the aggregate principal amount of $22,031 from Jinghe Zhang all of which has been repaid. As of June 30, 2011, the total unpaid principal balance due Jinghe Zhang for advances was $0.

The Company has sufficient liquidity to meet the Company’s operating cash needs over the next 12 months if Mr. Zhang were to demand immediate repayment of the remaining balance under these loans and no longer wish to provide future loans to the Company or any of its operating units.

Property, Plant and Equipment

Property, plant and equipment consisted of the following:


	June 30,			December 31,
	2011			2010
Building	$	5,365,723		$	5,245,777
Operating Equipment		320,277			313,118
Office furniture and equipment		215,966			206,821
Vehicles		886,963			250,888

Total		6,788,929			6,016,604
Less: accumulated depreciation		(714,158	)		(496,893	)

Property, plant and equipment, net	$	6,074,771		$	5,519,711

Statutory Reserves

Pursuant to the laws and regulations of the PRC, annual income of the Company’s PRC subsidiaries are 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 after tax income until the reserves reach 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, 2011, the Company had allocated $336,604 to statutory reserve.

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”, Joway Shengshi, as a VIE of Junhe Consulting, have been consolidated in our financial statements. Joway Shengshi’s sales are included in our total sales, its income from operations is consolidated with ours, and our net income includes all of Joway Shengshi’s net income. Based on the various VIE Agreements, we are able to exercise control over the VIEs, and to obtain in full the economic benefits. Accordingly, the non–controlling interests have no economic interest in the VIEs.

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 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. 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 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. 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.

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

In April 2010, the FASB issued ASU 2010-13, Compensation-Stock Compensation (Topic 718) - Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades - a consensus of the FASB Emerging Issues Task Force, or ASU 2010-13. ASU 2010-13 provides amendments to Topic 718 to clarify that an employee share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity's equity securities trades should not be considered to contain a condition that is not a market, performance, or service condition. Therefore, an entity would not classify such an award as a liability if it otherwise qualifies as equity. The amendments in this update do not expand the recurring disclosures required by Topic 718. Disclosures currently required under Topic 718 are applicable to a share-based payment award, including the nature and the term of share-based payment arrangements. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. The adoption of these amendments had no material impact on our consolidated financial statements.

In April 2010, the FASB issued ASU 2010-17, “Revenue Recognition—Milestone Method”, which updates the guidance currently included under topic 605, Revenue Recognition. ASU 2010-17 provides guidance on defining the milestone and determining when the use of the milestone method of revenue recognition for research or development transactions is appropriate. It provides criteria for evaluating if the milestone is substantive and clarifies that a vendor can recognize consideration that is contingent upon achievement of a milestone as revenue in the period in which the milestone is achieved, if the milestone meets all the criteria to be considered substantive. ASU 2010-17 is effective for milestones achieved in fiscal years, and interim periods within those fiscal years, beginning after June 15, 2010 and should be applied prospectively. Early adoption is permitted. The adoption of this standard did not have a material impact on our consolidated financial statements.

In July 2010, the FASB issued ASU 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses (Topic 310)—Receivables, or ASU 2010- 20. ASU 2010-20 enhances the disclosure requirements about the credit quality and related allowance for credit losses of financing receivables. We are currently evaluating the impact of the adoption of ASU 2010-20 on our financial statements.

In December 2010, FASB issued accounting standard ASU 2010-29, Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations (a consensus of the FASB Emerging Issues Task Force). ASU 2010-29 provides amendments to subtopic 805-10 of the FASB ASC that requires a public entity to disclose pro forma information for business combinations that occurred in the current reporting period. ASU 2010-29 is effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010, with early adoption permitted. The adoption of this standard did not have a material effect on the Company’s 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.

In order to assist management in preparing the Company’s financial statements and this Report, our management, on the recommendation of the audit committee, hired an independent accounting firm with knowledge of SEC rules and regulations and reporting requirements. The independent accounting firm assisted management in its review of the Company’s financial statements and this quarterly report. The Company’s disclosure controls also include a formal financial reporting process that includes review by our Chief Executive Officer, Chief Financial Officer, the Audit Committee and the full Board of Directors of financial statements and periodic reports prior to filing with the SEC.

Based on their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of June 30, 2011, our disclosure controls and procedures were effective. In the quarter ended June 30, 2011, the Company has taken the following actions to further strengthen the Company’s disclosure controls:

Undertaken an evaluation of the roles of our existing accounting personnel in an effort to realign the reporting structure of our internal accounting staff in China to test and monitor the implementation of our accounting and internal control procedures.

Continued our practice of a formal financial reporting process that includes review by our Chief Executive Officer, Chief Financial Officer and the audit committee of financial statements and periodic reports prior to filing with the SEC.

Undertaken efforts to increase our accounting and financing personnel resources, by retaining more U.S. GAAP knowledgeable financial professionals.

New Hire of Internal Audit Manager

In order to strengthen our accounting and financial personnel resources, we have hired an Internal Audit Manager with training in U.S. GAAP reporting and knowledge of SEC rules and regulations and reporting requirements applicable to public reporting companies. Our selected qualified candidate accepted the offer on August 9, 2011, and will commence employment at the end of August 2011.

Changes in Internal Control over Financial Reporting.

There were no changes in our internal control over financial reporting for the three months ended June 30, 2011 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

None.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

On June 20, 2011, the Registrant issued 10,000 and 8,000 shares of the Company’s common stock as part of the compensation to its two independent directors, respectively. The Company issued these shares pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended (the “Act”) pursuant to Section 4(2) of the Act as the transaction did not involve a public offering, the directors were accredited investors who had access to information about the Company and their investment, and they took the securities for investment and not resale.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. RESERVED AND REMOVED.

ITEM 5. OTHER INFORMATION.

None.

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.DEF		XBRL Definition Linkbase Document*
101.LAB		XBRL Label Linkbase Document*
101.PRE		XBRL Presentation Linkbase Document*

*	Filed herewith.

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 15, 2011


		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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company