U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x	Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of 1934

	For the quarterly period ended: September 30, 2019

¨	Transition Report under Section 13 or 15(d) of the Exchange Act

	For the Transition Period from ________to __________

Commission File Number: 333-229777

Jufeel International Group

(Exact Name of Registrant as Specified in its Charter)

Wyoming		82-3002644
(State of other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification Number)

85 Jinshui East Road19/F, Tower 3, Yabao
Zhengzhou, Henan Province, PRC		450000
(Address of principal executive offices)		(Zip Code)

Registrant’s Phone: +86 (371) 53626656

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.

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 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 “small reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	x	Smaller reporting company	x
		Emerging Growth Company	x

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

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

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

Title of

each class

Trading

Symbol(s)

Name of each exchange

on which registered

N/A

As of November 14, 2019, the issuer has 28,030,010 shares of common stock issued and outstanding.

TABLE OF CONTENTS

		Page

PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements	F-1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operation	3
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	9
Item 4.	Controls and Procedures	9

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	10
Item 1A.	Risk Factors	10
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	10
Item 3.	Defaults Upon Senior Securities	10
Item 4.	Mine Safety Disclosures	10
Item 5.	Other Information	10
Item 6.	Exhibits	11

Table of Contents

ITEM 1. FINANCIAL STATEMENTS

JUFEEL INTERNATIONAL GROUP

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019

Condensed Consolidated Balance Sheets as of September 30, 2019 (unaudited) and December 31, 2018 (audited)		F-2
Condensed Consolidated Statements of Income and Comprehensive Income for the nine months ended September 30, 2019 and 2018 (unaudited)		F-3
Condensed Consolidated Statements of Changes in Shareholders’ Equity for the nine months ended September 30, 2019 and 2018 (unaudited)		F-4
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018 (unaudited)		F-5
Notes to Unaudited Condensed Consolidated Financial Statements		F-6

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Jufeel International Group and Subsidiaries

Condensed Consolidated Balance Sheets

(Amounts in US$)

	September 30,			December 31,
	2019			2018
	(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	257,167		$	4,914,748
Accounts receivable, net		602,986			3,606,660
Loans to third parties		-			823,231
Other receivables, net		75,951			166,307
Prepayments		1,084,244			1,048,188
Inventories		2,969,715			2,109,088
Deferred inventory costs		85,536			1,391,066
Total current assets		5,075,599			14,059,288
Non-current assets
Property, plant and equipment, net		32,754,378			26,710,049
Land use right, net		2,150,025			2,252,211
Equipment related prepayment		1,221,436			376,938
Long term investment		8,483,083			-
Long term prepayments and other non-current assets		2,009,587			2,171,508
Total non-current assets		46,618,509			31,510,706
Total assets	$	51,694,108		$	45,569,994

Liabilities and Equity
Current Liabilities
Income tax payable	$	2,476,751		$	2,096,155
Accounts payable		851,218			1,557,386
Advanced payments from customers		4,793,754			2,764,860
Deferred revenue		565,160			3,546,584
Amount due to related parties		4,589,712			1,751,914
Liability under credit facility		848,308			874,228
Other taxes payables		2,896,083			2,231,903
Accrued expenses and other liabilities		1,444,175			1,508,819
Total current liabilities		18,465,161			16,331,849
Total non-current liabilities		-			-
Total liabilities		18,465,161			16,331,849

Shareholders’ Equity
Common stock (No par value, Unlimited number authorized, 28,030,010 shares issued and outstanding as of September 30, 2019 and December 31, 2018)		-			-
Additional paid in capital		7,057,676			7,057,676
Statutory reserve		1,811,576			1,811,576
Retained earnings		25,772,207			20,787,143
Accumulated other comprehensive loss		(1,853,621	)		(836,958	)
Total Jufeel International Group’s shareholders’ equity		32,787,838			28,819,437
Non-controlling interests		441,109			418,708
Total Shareholders’ Equity		33,228,947			29,238,145
Total liabilities and shareholders’ equity	$	51,694,108		$	45,569,994

See accompanying notes to the condensed consolidated financial statements.

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Jufeel International Group and Subsidiaries

Condensed Consolidated Statements of Income and Comprehensive Income

(Unaudited)

(Amounts in US$)

	Nine Months Ended			Nine Months Ended
	September 30,			September 30,
	2019			2018
Net revenue
Product sales to third parties	$	8,585,617		$	12,526,306
Product sales to related parties		-			17,636
Service revenue with third parties		5,677,616			-
Total net revenue		14,263,233			12,543,942

Cost of revenue
Cost of product sales – third parties		3,472,567			3,797,430
Cost of product sales – related parties		-			5,346
Cost of service revenue		21,105			-
Total cost of revenue		3,493,672			3,802,776
Gross profit		10,769,561			8,741,166

Operating expenses:
Selling and marketing expenses		827,778			206,624
General and administrative expenses		2,868,354			3,706,187
Research and development expenses		921,140			703,939
Total operating expenses		4,617,272			4,616,750

Income from Operations		6,152,289			4,124,416

Other (expense) income		(54,999	)		35,577

Income before income taxes		6,097,290			4,159,993
Income tax expense		1,076,300			767,049
Net income		5,020,990			3,392,944
Net (income) loss attributable to non-controlling interests		(35,926	)		156,844
Net income attributable to Jufeel International Group.	$	4,985,064		$	3,549,788

Net income	$	5,020,990		$	3,392,944
Other comprehensive income
Foreign currency translation loss, net of nil income taxes		(1,016,663	)		(1,455,006	)
Comprehensive income	$	4,004,327		$	1,937,938
Comprehensive (income) loss attributable to non-controlling interests		(22,401	)		173,986
Comprehensive income attributable to Jufeel International Group	$	3,981,926		$	2,111,924

Earnings per share-basic and diluted
	$	0.18		$	0.13
Weighted average number of common stock outstanding-basic and diluted
Basic and diluted		28,030,010			28,030,010

See accompanying notes to the condensed consolidated financial statements.

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Jufeel International Group and Subsidiaries

Unaudited Condensed Consolidated Statements of Changes in Shareholders’ Equity

(Amounts in US$)

Nine months ended September 30, 2019

			Attributable to Jufeel International Group’s Shareholders’ Equity
	Common Stock		Additional paid in capital		Statutory reserves		Retained earnings		Accumulated other comprehensive income (loss)			Non-controlling Interests			Total Equity
Balance, January 1, 2019		28,030,010	$	7,057,676	$	1,811,576	$	20,787,143	$	(836,958	)	$	418,708		$	29,238,145
Net income		-		-		-		4,985,064		-			35,926			5,020,990
Foreign currency translation adjustment		-		-		-		-		(1,016,663	)		(13,525	)		(1,030,188	)
Balance, September 30, 2019		28,030,010	$	7,057,676	$	1,811,576	$	25,772,207	$	(1,853,621	)	$	441,109		$	33,228,947

Nine months ended September 30, 2018

			Attributable to Jufeel International Group’s Shareholders’ Equity
	Common Stock		Additional paid in capital		Statutory reserves		Retained earnings		Accumulated other comprehensive income (Loss)			Non-controlling Interests			Total Equity
Balance, January 1, 2018		28,030,010	$	7,057,676	$	1,779,412	$	15,634,756	$	558,264		$	505,295		$	25,535,403
Net income		-		-		-		3,549,788		-			(156,844	)		3,392,944
Foreign currency translation adjustment		-		-		-		-		(1,455,006	)		(17,142	)		(1,472,148	)
Balance, September 30, 2018		28,030,010	$	7,057,676	$	1,779,412	$	19,184,544	$	(896,742	)	$	331,309		$	27,456,199

See accompanying notes to the condensed consolidated financial statements.

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Jufeel International Group and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Nine Months Ended			Nine Months Ended
	September 30,			September 30,
	2019			2018
Cash Flows From Operating Activities
Net income	$	5,020,990		$	3,392,944
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense		438,762			248,985
Amortization expense		130,260			136,668
Deferred income tax		-			(17,552	)
Reversal of allowance for doubtful accounts		-			(8,393	)
Loss on disposal of property and equipment		3,951			-
Changes in operating assets and liabilities:
Accounts receivable		2,989,202			6,580,771
Other receivables		88,151			725,469
Prepayments		(69,276	)		655,111
Amount due from related parties		-			-
Inventories		(952,624	)		(1,145,006	)
Deferred inventory costs		1,304,642			1,630,183
Long term prepayments and other non-current assets		-			(192,962	)
Accounts payable		(681,060	)		(91,605	)
Income taxes payable		456,876			(1,112,981	)
Deferred revenue		(2,968,080	)		(6,697,888	)
Advanced payments from customers		2,178,243			(2,411,206	)
Amount due to related parties		493,457			1,401,996
Other taxes payable		753,664			(1,105,194	)
Accrued expenses and other current liabilities		29,938			(133,801	)
Net cash provided by operating activities		9,217,096			1,855,539

Cash Flows From Investing Activities
Purchases of property, plant and equipment		(8,423,703	)		(7,775,057	)
Payment of investment		(8,753,852	)		-
Loan to a third party		-			(5,498,836	)
Repayment of loans from third parties		824,321			4,325,444
Net cash used in investing activities		(16,353,234	)		(8,948,449	)

Cash Flows From Financing Activities
Borrowing from a related party		2,480,258			-
Net cash provided by financing activities		2,480,258			-

Effect of exchange rate fluctuation on cash and cash equivalents		(1,701	)		(451,306	)

Net decrease in cash and cash equivalents		(4,657,581	)		(7,544,216	)
Cash and cash equivalents, beginning of period		4,914,748			16,391,266
Cash and cash equivalents, end of period	$	257,167		$	8,847,050

Supplemental disclosure information:
Cash paid for income tax expense	$	599,175		$	1,897,582
Cash paid for interest expense	$	39,392		$	-
Supplemental disclosure of non-cash investing and financing activities:
Purchase of property and equipment financed by other payables	$	345,317		$	208,936

See accompanying notes to the condensed consolidated financial statements.

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Jufeel International Group and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

(Amounts in US$ unless otherwise noted)

NOTE 1. DESCRIPTION OF BUSINESS AND ORGANIZATION

Organization and description of business

Jufeel International Group (the “Company” or “Jufeel Wyoming”) was incorporated on July 27, 2017 under the laws of the state of Wyoming, United States of America. Through the reorganization as described below, Jufeel Wyoming ultimately merged with Jufeel International Group Nevada (“Jufeel Nevada”) (formerly Bros Holding Company). The shareholders of Jufeel Nevada became the shareholders of Jufeel Wyoming on a one-for-one basis and Jufeel Wyoming became the ultimate holding company of Jufeel Holdings Co., Ltd. (“Jufeel Holdings”), Ivan International Biology Limited. (“Ivan International”), and Kaifeng Ivan King Biotechnology Co., Ltd. (“Ivan King” or “WFOE”).

Jufeel Holdings was established in the British Virgin Islands (“BVI”) on May 10, 2017 by a third party on behalf of Mr. Rongxuan Zhang, the founder, president, chairman and the controlling shareholder of the Company (“Mr. Zhang”). On May 16, 2017, the third party transferred all the shares to Mr. Zhang for no consideration. On August 22, 2017, Mr. Zhang transferred all the shares to Jufeel Wyoming.

Ivan International was established as an investment holding company by a third party in Hong Kong Special Administrative Region of the People’s Republic of China (the “PRC”) on April 23, 2015. On June 7, 2017, the shares of Ivan International were transferred to Mr. Zhang for $1,200. On the same day, Jufeel Holdings signed a shareholding entrustment agreement with Mr. Zhang to state that Mr. Zhang holds the equity interest in Ivan International on behalf of Jufeel Holding. As a result, Jufeel Holdings holds 100% equity interest in Ivan International. On October 27, 2017 the official transfer of shares of Ivan International to Jufeel Holdings was completed.

Ivan King was established as a wholly foreign owned enterprise on August 9, 2017 in Kaifeng, the PRC by Ivan International. Ivan King is principally engaged in providing related technical supports and business consulting services to Kaifeng Jufeel Biotech Co, Ltd. (“Kaifeng Jufeel”).

Kaifeng Jufeel was incorporated on August 5, 2011 and registered in Kaifeng, Henan Province, under the laws of the PRC with a principal office in Zhengzhou, Henan. Kaifeng Jufeel was 49% owned by Mr. Zhang and 51% owned by Henan Jufeel Technology Group Co., Ltd. (“Henan Jufeel”), an entity owned by Mr. Zhang, before September 23, 2016. From September 23, 2016 to October 24, 2017, Mr. Zhang contributed 32.5% of the equity interests of Kaifeng Jufeel to certain shareholders (see Note 17 for details). After the contribution, Mr. Zhang owns 67.5% of the equity interests of Kaifeng Jufeel.

Hainan Zhongchen Biological Engineering Co, Ltd. (“Hainan Zhongchen”), was incorporated on July 3, 2001 in Haikou, Hainan Province, under the laws of the PRC by former independent third parties. In 2012, the 70% ownership interest of Hainan Zhongchen was sold to Jufeel Technology and Trading Co., Ltd., a company which was controlled by Mr. Zhang, for $3,103,133 and Mr. Zhang became the ultimate controlling shareholder of Hainan Zhongchen. In October 2016, the 70% ownership interest of Hainan Zhongchen owned by Jufeel Technology and Trading Co., Ltd. was transferred to Kaifeng Jufeel. As a result, the transfer of the 70% ownership interest was accounted as business combination under common control.

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Suzhou Yihuotong E-business Co, Ltd (“Suzhou Yihuotong”) was incorporated on August 10, 2016 registered in Suzhou, Jiangsu Province, under the laws of the PRC, a wholly owned subsidiary of Kaifeng Jufeel.

Wuxi Jufeel PMAS Life Technology Co, Ltd (“Wuxi Jufeel”) was incorporated on October 11, 2016 registered in Suzhou, Jiangsu Province, under the laws of the PRC. The shareholders Mrs. Zhang Yi, Henan Jufeel and Mr. Lu Dajie hold 70%, 10% and 20% of Wuxi Jufeel’s ownership interest, respectively. On the same day, Mrs. Zhang Yi and Henan Jufeel signed a share entrustment agreement with Kaifeng Jufeel to state that they hold the equity interest in Wuxi Jufeel on behalf of Kaifeng Jufeel. In this regard, Kaifeng Jufeel owns 80% equity interest in Wuxi Jufeel. As a result, Kaifeng Jufeel consolidates Wuxi Jufeel and there is a 20% non-controlling interests in Wuxi Jufeel.

Changzhou Jufeel PMAS Aloe Biotechnology Co, Ltd. (“Changzhou Jufeel”) was incorporated on May 23, 2017 registered in Changzhou, Jiangsu Province, under the laws of the PRC, Kaifeng Jufeel owns 70%, and Wuxi Jufeel owns 30% of its equity interests.

Reorganization

On January 14, 2017, Jufeel Nevada was purchased by a third party on behalf of Mr. Zhang for $120,000 and then transferred to Mr. Zhang on February 27, 2017 for no consideration. In February 2017, Jufeel Nevada effected a 1-for-500 reverse split of its common stock. As a result of the reverse split, there were 200,010 common shares issued and outstanding, of which 170,000 were beneficially owned by Mr. Zhang and 30,010 shares were owned by the former shareholders. The 30,010 shares owned by the former shareholders have been presented as outstanding as of the beginning of the earliest period presented. In July 2017, Jufeel Nevada reorganized as a holding company, incorporating three tiers of Oklahoma subsidiaries (Jufeel Interim Corporation (“Jufeel Interim”), Jufeel International Group, Inc. (“Jufeel Oklahoma”), Bros Holding Company and Jufeel Wyoming). In August 2017, Jufeel Nevada merged into Jufeel Interim, and then merged into Bros Holding Company, with Bros Holding Company as the surviving entity. Bros Holding Company was sold to a non-affiliated third party, and later dissolved on November 3, 2017. On August 22, 2017, Jufeel Oklahoma merged into Jufeel Wyoming in order to change its domicile to Wyoming, with Jufeel Wyoming as the surviving entity.

Effective on August 22, 2017, shareholders of Kaifeng Jufeel and Ivan King or WOFE entered into a series of contractual agreements (“VIE Agreements” which are described below). As a result, the Company, through its wholly owned subsidiaries Ivan King, identify Kaifeng Jufeel as a variable interest entity (or “VIE”) and has been determined to be the primary beneficiary of Kaifeng Jufeel. Accordingly, the Company consolidates Kaifeng Jufeel’s operations, assets and liabilities.

As a part of the holding company reorganization, on September 15, 2017 and October 24, 2017, Jufeel Wyoming issued 27,830,000 additional shares to Mr. Zhang and employees, service providers and cooperation partners of the Company. The issuance of these shares represented interests for each holders in Kaifeng Jufeel prior to the reorganization. Following the issuances, Mr. Zhang owns, either directly or through entities controlled by him, approximately 18,892,943 shares, or 67.4% of the Company’s common stock. On October 25, 2017, the reorganization was completed.

Immediately before and after the Reorganization, the ultimate owners’ equity interests of Kaifeng Jufeel were almost identical of those of the Company. Accordingly, the Reorganization is accounted for as a legal reorganization of the entities under common control in a manner akin to a pooling of interest as if the Company, through its wholly owned subsidiaries, had been in existence and been the primary beneficiary of the VIE throughout the periods presented in the consolidated financial statements.

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The VIE arrangements:

On August 22, 2017, Ivan King, Kaifeng Jufeel, and the shareholders of Kaifeng Jufeel have entered into a series of contractual agreements in order to enable the Company to (1) have power to direct the activities that most significantly affects the economic performance of Kaifeng Jufeel, and (2) receive the economic benefits of Kaifeng Jufeel that could be significant to Kaifeng Jufeel. The Company is fully and exclusively responsible for the management of Kaifeng Jufeel, assumes all of risk of losses of Kaifeng Jufeel and has the exclusive right to exercise all voting rights of Kaifeng Jufeel’s shareholder. Therefore, the Company is considered the primary beneficiary of Kaifeng Jufeel and has consolidated Kaifeng Jufeel’s assets, liabilities, results of operations, and cash flows in the accompanying consolidated financial statements.

Agreements that transfer economic benefits to Ivan King

Business Operations Agreement. Pursuant to the terms of a business operations agreement dated August 22, 2017, between Ivan King and the shareholders of Kaifeng Jufeel (the “Business Operations Agreement”), Kaifeng Jufeel and their shareholders agreed to entrust the operations and management of its business to Ivan King. According to the Business Operations Agreement, Ivan King possesses the full and exclusive right to manage Kaifeng Jufeel’s operations, assets and personnel, and Kaifeng Jufeel shall pledge to Ivan King all of its assets, including accounts receivable, and the latter has the obligation to guarantee all of the obligations of the former. The Business Operations Agreement has a ten year term but may be terminated earlier if (i) the parties mutually agree to terminate the agreement; (ii) the dissolution of Kaifeng Jufeel; or (iii) Ivan King acquires all of the assets or equity of Kaifeng Jufeel (as more fully described below under “Exclusive Option Agreement”).

Exclusive Consulting and Service Agreement. Pursuant to the terms of an exclusive consulting and service agreement dated August 22, 2017, between Ivan King and Kaifeng Jufeel (the “Service Agreement”), Ivan King is the exclusive technology consulting service provider to Kaifeng Jufeel. Kaifeng Jufeel agreed to pay Ivan King all fees payable for technology which may be developed or owned by Ivan King. The Service Agreement shall remain in effect for ten years or until (i) the parties mutually agree to terminate the agreement; (ii) the dissolution of Kaifeng Jufeel; or (iii) Ivan King acquires Kaifeng Jufeel (as more fully described below under “Exclusive Option Agreement”).

Agreements that provide Ivan King effective control over Kaifeng Jufeel

Shareholder’s Voting Proxy Agreement. Pursuant to the terms of certain shareholder’s voting proxy agreements dated August 22, 2017, between Ivan King and each of the shareholders of Kaifeng Jufeel (the “Shareholder’s Voting Proxy Agreement”), the shareholders of Kaifeng Jufeel irrevocably appointed Ivan King as their proxy to exercise on such shareholders’ behalf all of their voting rights as shareholders pursuant to PRC law and the Articles of Association of Kaifeng Jufeel, including the appointment and election of directors of Kaifeng Jufeel. The Shareholder’s Voting Proxy Agreement has a term of 10 years and will be mutually extended on each 10-year anniversary; provided, that in the event of the termination of the Business Operations Agreement, the Shareholder’s Voting Proxy Agreements will automatically terminate.

Exclusive Equity Option Agreement. Pursuant to the terms of an exclusive option agreement dated August 22, 2017, between Ivan King, Kaifeng Jufeel, and the shareholders of Kaifeng Jufeel (the “Exclusive Option Agreement”), the shareholders of Kaifeng Jufeel granted Ivan King (or its designee) an irrevocable and exclusive purchase option (the “Option”) to acquire Kaifeng Jufeel’s equity interests and/or remaining assets, but only to the extent that the acquisition does not violate limitations imposed by PRC law on such transactions. The Option is exercisable at any time at Ivan King’s discretion so long as such exercise and subsequent acquisition of Kaifeng Jufeel does not violate PRC law. The consideration for the exercise of the Option shall be the registered capital of Kaifeng Jufeel. Ivan King may transfer all rights and obligations under the Exclusive Option Agreements to a third party. The Exclusive Option Agreement may be terminated by Ivan International if its exercise becomes prohibited by law.

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Equity Interest Pledge Agreement. Pursuant to the terms of an equity interest pledge agreement dated August 22, 2017, between Ivan King and the shareholders of Kaifeng Jufeel (the “Pledge Agreement”), the shareholders of Kaifeng Jufeel pledged all of their equity interests in Kaifeng Jufeel to Ivan King including the proceeds thereof, to guarantee all of Ivan King’s rights and benefits under the Business Operations Agreement, the Exclusive Option Agreements, and the Shareholder’ Voting Proxy Agreements. Prior to termination of the Pledge Agreement, the pledged equity interests cannot be transferred without Ivan King’s prior written consent. The Pledge Agreements may be terminated only upon the written agreement of the parties, and expire two years after the last to terminate of any of the other named agreements.

Risks in relation to the VIE structure

The Company believes that the contractual arrangements with its VIE and their respective shareholders are in compliance with PRC laws and regulations and are legally enforceable. However, uncertainties in the PRC legal system could limit the Company’s ability to enforce the contractual arrangements. If the legal structure and contractual arrangements were found to be in violation of PRC laws and regulations, the PRC government could:

·	revoke the business and operating licenses of the Company’s PRC subsidiary and VIE;

·	discontinue or restrict the operations of any related-party transactions between the Company’s PRC subsidiary and VIE;

·	limit the Group’s business expansion in China by way of entering into contractual arrangements;

·	impose fines or other requirements with which the Company’s PRC subsidiary and VIE may not be able to comply;

·	require the Company or the Company’s PRC subsidiary and VIE to restructure the relevant ownership structure or operations; or

·	restrict or prohibit the Company’s use of the proceeds of the additional public offering to finance the Group’s business and operations in China.

The Company’s ability to conduct its business may be negatively affected if the PRC government were to carry out of any of the aforementioned actions. As a result, the Company may not be able to consolidate its VIE in its consolidated financial statements as it may lose the ability to exert effective control over the VIE and their respective shareholders and it may lose the ability to receive economic benefits from the VIE. The Company, however, does not believe such actions would result in the liquidation or dissolution of the Company, its PRC subsidiary or its VIE.

The interests of the shareholders of the VIE may diverge from that of the Company and that may potentially increase the risk that they would seek to act contrary to the contractual terms, for example by influencing the VIE not to pay the service fees when required to do so. The Company cannot assure that when conflicts of interest arise, shareholders of the VIE will act in the best interests of the Company or that conflicts of interests will be resolved in the Company’s favor. Currently, the Company does not have existing arrangements to address potential conflicts of interest the shareholders of the VIE may encounter in its capacity as beneficial owners and directors of the VIE, on the one hand, and as beneficial owners and directors of the Company, on the other hand. The Company believes the shareholders of the VIE will not act contrary to any of the contractual arrangements and the exclusive option agreements provide the Company with a mechanism to remove the current shareholders of the VIE should they act to the detriment of the Company. The Company relies on certain current shareholders of the VIE to fulfill their fiduciary duties and abide by laws of the PRC and act in the best interest of the Company. If the Company cannot resolve any conflicts of interest or disputes between the Company and the shareholders of the VIE, the Company would have to rely on legal proceedings, which could result in disruption of its business, and there is substantial uncertainty as to the outcome of any such legal proceedings.

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Total assets and liabilities presented on the Company’s consolidated balance sheets and revenue, expense and net income presented on consolidated statements of income and comprehensive income as well as the cash flow from operating, investing and financing activities presented on the consolidated statements of cash flows are substantially the financial position, operation and cash flow of the Company’s VIE and its subsidiaries. The Company has not provided any financial support to Kaifeng Jufeel for the nine months ended September 30, 2019 and year ended December 31, 2018. The assets and liabilities of the consolidated VIE as of September 30, 2019 and December 31, 2018 are listed below:

	September 30,		December 31,
	2019		2018
	(unaudited)
Current assets	$	4,300,813	$	13,250,570
Non-current assets		46,618,509		31,510,706
Total assets	$	50,919,322	$	44,761,276
Current liabilities	$	17,454,590	$	16,061,399
Non-current liabilities		-		-
Total liabilities	$	17,454,590	$	16,061,399

Details of the subsidiaries and VIE of the Company are set out below:

	Date of incorporation	Place of incorporation	Percentage of ownership	Principal activities
Wholly owned subsidiaries
Jufeel Holdings	May 10, 2017	British Virgin Islands	100%	Investment holding
Ivan International	April 23, 2015	Hong Kong	100%	Investment holding
Ivan King	August 09, 2017	PRC	100%	Consultancy service
Variable Interest Entity (“VIE”)
Kaifeng Jufeel	August 05, 2011	PRC	VIE	Aloe product and distributorship sales
VIE’s subsidiaries
Hainan Zhongchen	July 03, 2001	PRC	70% owned by Kaifeng Jufeel	Aloe material production and sales
Suzhou Yihuotong	August 10, 2016	PRC	100% owned by Kaifeng Jufeel	Aloe product sales
Wuxi Jufeel	October 11, 2016	PRC	80% owned by Kaifeng Jufeel	Aloe product production and sales
Changzhou Jufeel	May 23, 2017	PRC	70% owned by Kaifeng Jufeel and 30% owned by Wuxi Jufeel	Aloe product production and sales

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NOTE 2. SUMMARIES OF SIGNIFICANT ACCOUNTING POLICIES

Basis of preparation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and have been consistently applied.

Principles of consolidation

The consolidated financial statements include the financial statements of the Company, its subsidiaries and its VIE. All inter-company transactions and balances have been eliminated upon consolidation.

Non-controlling interests represent the equity interests in the subsidiaries of the VIE that are not attributable, either directly or indirectly, to the Company.

Use of estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Management makes these estimates using the best information available at the time the estimates are made; however actual results could differ from those estimates. Significant items subject to such estimates and assumptions include allowance for doubtful accounts, valuation of inventory and fair value of equity interests contribution from shareholders, valuation allowance for deferred tax assets and recoverability of carrying amount and the estimated useful lives of long-lived assets.

Cash and cash equivalents

Cash and cash equivalents consist of cash on hand, cash in bank with no restrictions, as well as highly liquid investments which are unrestricted as to withdrawal or use, and which have remaining maturities of three months or less when initially purchased.

Allowance for doubtful accounts

The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing receivables. The Company determines the allowance based on aging data, historical collection experience, customer specific facts and economic conditions. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

The Company usually receives customer payments in advance and only gives one month credit terms to several customers with long term cooperation history. The allowance for doubtful accounts as of September 30, 2019 and December 31, 2018 was $68,939 and $74,145, respectively.

Inventory

The Company values its inventories at the lower of cost or net realizable value.

Where there is evidence that the utility of inventories, in their disposal in the ordinary course of business, will be less than cost, whether due to physical deterioration, obsolescence, changes in price levels, or other causes, the inventories are written down to net realizable value. Any idle facility costs or excessive spoilage are recorded as current period charges.

Hainan Zhongchen used weighted average method for its finished goods and first in first out method for other inventories. Wuxi Jufeel and Changzhou Jufeel used weighted average for inventories. Kaifeng Jufeel used first in first out method for inventories.

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Deferred inventory costs

The Company has not recognized revenue for the part of the inventory delivered where the collectability was not reasonably assured for the nine months ended September 30, 2019 and year ended December 31, 2018 and recognized deferred inventory costs for the delivered inventories as the costs related directly to contracts. The costs are expected to be recovered when the Company collects from its customers. The deferred inventory costs will be charged to the cost of revenue when collections are made from its customers and revenue is recognized.

Property, plant and equipment

Property and equipment are recorded at cost less accumulated depreciation with no residual value. Depreciation for financial reporting purposes is provided using the straight-line method over the estimated useful lives of the assets:

Buildings		20 years
Machinery and equipment		3-11 years
Furniture and office equipment		3-10 years
Motor vehicles		4-8 years
Leasehold improvements		Shorter of estimated useful life (10 to 20 years) or remaining lease terms

When office equipment and electronic devices are retired or otherwise disposed of, resulting gain or loss is included in net income or loss in the year of disposition for the difference between the net book value and proceeds received thereon. Maintenance and repairs which do not improve or extend the expected useful lives of the assets are charged to expenses as incurred.

Leasehold improvements are amortized using the straight-line method over the shorter of the estimated useful life of the asset or the remaining lease term. Construction in progress is related to the construction or development of property (including land) and equipment that have not yet been placed in service for our intended use. Depreciation for equipment commences once it is placed in service and depreciation for buildings and amortization of leasehold improvements commences once they are ready for our intended use. Construction in progress represents capital expenditures for direct costs of construction or acquisition and design fees incurred, and the interest expenses directly related to the construction. Capitalization of these costs ceases and the construction in progress is transferred to the appropriate category of property, plant and equipment when substantially all the activities necessary to prepare the assets for their intended use are completed. Construction in progress is not depreciated.

Long-term investment

The Company’s investment in equity securities and other ownership interests (except those accounted for under the equity method of accounting or those that resulted in consolidation of the investee), i.e. investments in investee companies that are not consolidated, and over which the Company does not exercise significant influence, are accounted for in accordance with ASC Topic 321: “Investments-Equity securities”. The Company generally owns less than 20% interest in the voting securities of these investee companies. In accordance with ASC 321-10-35-2, the Company chooses to measure these investments which do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the Company and records the carrying value of these investments as “Long-term investment” in the Company’s consolidated balance sheets.

Revenue recognition

On January 1, 2019, the Company adopted ASC Topic 606, “Revenue from Contracts with Customers”, applying the modified retrospective method. The adoption didn’t result in a material adjustment to the retained earnings as of January 1, 2019.

In accordance with ASC Topic 606, revenues are recognized when control of the promised goods or services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. In determining when and how much revenue is recognized from contracts with customers, the Company performs the following five-step analysis: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; (5) recognize revenue when (or as) the entity satisfies a performance obligation.

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The Company’s contract with customers do not include significant financing component and any variable consideration.

The Company does not believe that significant management judgements are involved in revenue recognition, but the amount and timing of the Company’s revenues could be different for any period if management made different judgments or utilized different estimates. Generally, the Company recognizes revenue under ASC Topic 606 for each type of its performance obligation at a point in time as follows:

The sales of aloe products are derived principally from providing aloe products to customers, including both distributors/agents and enterprise customers.

(a) Distributors/Agents: The Company recognizes revenue upon the delivery of products to distributors/agents, which is when the goods delivered to the users or the designated address and it is probable that the Company will collect the payments. When it is not probable that the Company will collect the payments, the revenue will not be recognized until payments are collected. Discounts provided were recorded as deduction of net sales.

(b) Enterprise customers: For enterprise customers, the Company recognized revenue when the goods delivered to the user or the designated address agreed by both parties with collection of the payments from these customers. When the Company cannot conclude it is probable that it will collect substantially all of the consideration to which it will be entitled in exchange for goods, the Company does not expect to accept a lower amount of the consideration that the customers are obligated to pay. Thus, no contract identified. All collections received after the costs are fully recovered are reflected as income. The Company deferred the recognition of revenue with deferred inventory cost of $85,536 and $1,391,066 as of September 30, 2019 and December 31, 2018, respectively, for the related cost of inventory already delivered where the collections of payment from the enterprise customers are not reasonably assured. The Company recorded accounts receivable of $565,160 and $3,546,584 as the Company had the legal right to claim on the proceeds from the enterprise customers and with credit to deferred revenue in the same amount as of September 30, 2019 and December 31, 2018, respectively.

The service revenue are derived from providing brand services to the health centers including but not limited to providing trainings, brand promotion, health related education seminars, etc. Also the Company will sell the Company’s branded products to the health centers at premium price. Revenue is recognized ratably over the period the service is provided and, as such, the Company considers the services to have been delivered.

Taxes that have been assessed by governmental authorities and that are directly imposed on revenue-producing transactions between the Company and its customers, including value-added, and tax surcharge, are presented on a net basis (excluded from net sales).

Income taxes

The provision for income taxes is determined using the asset and liability approach of accounting for income taxes. Under this approach, the provision for income taxes represents income taxes paid or payable (or received or receivable) for the current year plus the change in deferred taxes during the year. Deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid, and result from differences between the financial and tax bases of the Company’s assets and liabilities and are adjusted for changes in tax rates and tax laws when enacted.

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Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. In evaluating the need for a valuation allowance, management considers all potential sources of taxable income, including income available in carryback periods, future reversals of taxable temporary differences, projections of taxable income, and income from tax planning strategies, as well as all available positive and negative evidence. Positive evidence includes factors such as a history of profitable operations, projections of future profitability within the carryforward period, including from tax planning strategies, and the Company’s experience with similar operations. Existing favorable contracts and the ability to sell products into established markets are additional positive evidence. Negative evidence includes items such as cumulative losses, projections of future losses, or carryforward periods that are not long enough to allow for the utilization of a deferred tax asset based on existing projections of income. Deferred tax assets for which no valuation allowance is recorded may not be realized upon changes in facts and circumstances, resulting in a future charge to establish a valuation allowance.

Tax benefits related to uncertain tax positions taken or expected to be taken on a tax return are recorded when such benefits meet a more likely than not threshold. Otherwise, these tax benefits are recorded when a tax position has been effectively settled, which means that the statute of limitation has expired or the appropriate taxing authority has completed their examination even though the statute of limitations remains open. Interest and penalties related to uncertain tax positions are recognized as part of the provision for income taxes and are accrued beginning in the period that such interest and penalties would be applicable under relevant tax law until such time that the related tax benefits are recognized.

Value added taxes (“VAT”)

The Company was subject to VAT at the rate of 17% on sales of its products (before May 1, 2018), and 11% on sales of the agricultural products (before May 1, 2018) and at the rate of 6% of its membership revenue. The PRC government has announced VAT reduction, which was effected in May 2018. Therefore, on and after May 1, 2018, the Company is subject to VAT at the rate of 16% on sales of its products, and 10% on sales of the agricultural products and at the rate of 6% of its membership revenue. In 2019, the PRC government has announced another round of VAT reduction, which was effected from April 2019. Therefore, on and after April 1, 2019, the Company is subject to VAT at the rate of 13% on sales of its products, and 10% on sales of the agricultural products and at the rate of 6% of its service revenue, which the Company issued service fee VAT invoices though service fees are recognized. The Company is also subject to surcharges, which includes urban maintenance and construction taxes and additional education fees on VAT payable in accordance with PRC law. The surcharges are at the rate of 12% of the VAT payable, depending on which tax jurisdiction the Company’s PRC operating subsidiaries and the VIE operate in.

Related parties

A party is considered to be related to the Company if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. A party which can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests is also a related party.

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Earnings per share

Companies are required to present basic and diluted EPS. Basic EPS is measured as net income divided by the weighted average common stock outstanding for the period. Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential common stock (e.g., convertible securities, options and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential common stock that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS.

The following table sets forth the computation of basic and diluted earnings per share for the nine months ended September 30, 2019 and 2018:

	Nine months ended September 30,
	2019		2018
	(Unaudited)		(Unaudited)
Numerator:
Net income attributable to Jufeel International Group	$	4,985,064	$	3,549,788
Denominator:
Weighted-average shares outstanding basic and diluted:
-Common stock issued and outstanding		28,030,010		28,030,010
Basic and diluted earnings per share	$	0.18	$	0.13

Fair Value Measurements

As of September 30, 2019 and December 31, 2018, none of the Company’s nonfinancial assets or liabilities was measured at fair value on a nonrecurring basis.

The carrying values of the Company’s financial assets and liabilities, including cash and cash equivalents, accounts receivables and accounts payable, are a reasonable estimate of fair value because of the short period of time between the origination of such instruments and their expected realization and if applicable, their stated interest rate approximates current rates available.

Recently issued accounting standards

In February 2018, the FASB issued guidance to address the income tax accounting treatment of the tax effects within other comprehensive income due to the enactment of the Tax Cuts and Jobs Act (the “Act”). This guidance allows entities to elect to reclassify the tax effects of the change in the income tax rates from other comprehensive income to retained earnings. The guidance is effective for periods beginning after December 15, 2018 although early adoption is permitted. The Company has evaluated and concluded that there was no impact on its consolidated financial position and results of operations.

In March 2018, the FASB issued ASU 2018-05: “Income Taxes (Topic 740)-Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118”. The amendments in this ASU add various SEC paragraphs pursuant to the issuance of SEC Staff Accounting Bulletin No. 118, which expresses the view of the staff regarding application of Topic 740, Income Taxes, in the reporting period that includes December 22, 2017 – the date on which the Tax Cuts and Jobs Act was signed into law. The Company has evaluated and concluded that there was no impact on its consolidated financial position and results of operations.

In June 2018, the FASB issued ASU 2018-07: “Compensation – Stock Compensation (Topic 718) – Improvements to Nonemployee Share-Based Payment Accounting”. This ASU expands the scope of Topic 718, Compensation—Stock Compensation (which currently only includes share-based payments to employees) to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned. This ASU supersedes Subtopic 505-50, Equity—Equity-Based Payments to Nonemployees. The amendments in this ASU are effective for public companies for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. For all other companies, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, but no earlier than a company’s adoption date of Topic 606, Revenue from Contracts with Customers. The Company does not currently expect the adoption of the amendment to have a material impact on its consolidated financial position and results of operations.

In July 2018, the FASB issued ASU 2018-09: “Codification improvements”. The amendments represent changes to clarify, correct errors in, or make minor improvements to the Codification, eliminating inconsistencies and providing clarifications in current guidance. The amendments in this ASU include those made to: Income Statement-Reporting Comprehensive Income-Overall; Debt-Modifications and Extinguishments; Distinguishing Liabilities from Equity-Overall; Compensation-Stock Compensation-Income Taxes; Business Combinations-Income Taxes; Derivatives and Hedging-Overall; Fair Value Measurement-Overall; Financial Services-Brokers and Dealers-Liabilities; and Plan Accounting-Defined Contribution Pension Plans-Investments-Other. The amendments are effective for all entities for annual periods beginning after December 15, 2018. The effectiveness of this update is not expected to have a significant effect on the Company’s consolidated financial position or results of operations.

In February 25, 2016, the Financial Accounting Standard Board (“FASB”) issued Accounting Standards Update (ASU) 2016-02, Leases (Topic 842). It requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. Public business entities should apply the amendments in ASU 2016-02 for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years (i.e., January 1, 2019, for a calendar year entity). Early application is permitted for all public business entities and all nonpublic business entities upon issuance. The Company (as an EGC) that is taking advantage of the extended transition period offered to private entities would apply this for fiscal years beginning after December 15, 2019. The Company is currently evaluating the impact of adopting ASU 2016-02 on its consolidated financial statements.

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In July 2018, the FSAB issued ASU 2018-10 ASC Topic 842: “Codification Improvements to Leases” The amendments are to address stakeholders’ questions about how to apply certain aspects of the new guidance in Accounting Standards Codification (ASC) 842, Leases. The clarifications address the rate implicit in the lease, impairment of the net investment in the lease, lessee reassessment of lease classification, lessor reassessment of lease term and purchase options, variable payments that depend on an index or rate and certain transition adjustments. The amendments in ASC Topic 842 are effective for EGC for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. While early application is permitted, including adoption in an interim period, the Company has not elected to early adopt. The Company is currently evaluating the impact of this accounting standard update on its consolidated financial statements.

In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842). This update provides entities with an additional (and optional) transition method to adopt the new leases standard. Under this method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Consequently, the prior comparative period’s financials will remain the same as those previously presented. Entities that elect this optional transition method must provide the disclosures that were previously required. The Company is evaluating the effect this new guidance will have on our consolidated financial statements and related disclosures.

In March 2019, the FASB issued ASU 2019-01: “Leases (Topic 842)-Codification Improvements”. The amendments in this ASU (1) reinstate the exception in Topic 842 for lessors that are not manufacturers or dealers, specifically, those lessors will use their cost, reflecting any volume or trade discounts that may apply, as the fair value of the underlying asset. However, if significant time lapses between the acquisition of the underlying asset and lease commencement, those lessors will be required to apply the definition of fair value (exit price) in Topic 820; (2) address the concerns of lessors within the scope of Topic 942 about where “principal payments received under leases” should be presented, specifically, lessors that are depository and lending institutions within the scope of Topic 942 will present all “principal payments received under leases” within investing activities; and (3) clarify the Board’s original intent by explicitly providing an exception to the paragraph 250-10-50-3 interim disclosure requirements in the Topic 842 transition disclosure requirements. The effective date of the amendments in this ASU is for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years for any of the following: 1. A public business entity; 2. A not-for-profit entity that has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market; and 3. An employee benefit plan that files financial statements with the U.S. Securities and Exchange Commission (SEC). For all other entities, the effective date is for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early application is permitted. An entity should early apply the amendments as of the date that it first applied Topic 842, using the same transition methodology in accordance with paragraph 842-10-65-1(c). The Company is evaluating the effect this new guidance will have on its consolidated financial statements and related disclosures.

No other recently issued accounting standards are expected to have a material effect on the financial position, results of operations or cash flows of the Company.

NOTE 3. SIGNIFICANT RISKS

Foreign currency risk

The Company’s operations are located in the PRC. Accordingly, the Company’s business, financial condition, and results of operations may be influenced by the political, economic, and legal environments in the PRC, as well as by the general state of the PRC economy. The Company’s operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment, and foreign currency exchange. The Company’s results may be adversely affected by changes in the political, regulatory and social conditions in the PRC, and by changes in governmental policies or interpretations with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation, among other things.

Credit risk

Credit risk is one of the most significant risks for the Company’s business. Credit risk exposures arise principally in lending activities which is an off-balance sheet financial instrument.

Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivables. The Company places its cash and cash equivalents with financial institutions, which management believes are of high-credit ratings and quality.

The Company conducts credit evaluations of customers and generally does not require collateral or other security from its customers.

Concentration risk

Under PRC regulations, each bank account is insured by People’s bank of China with the maximum amount of RMB 500,000 (approximately US$72,852). The cash and cash equivalents balance held in the PRC bank accounts was $251,842 and $4,907,519 as of September 30, 2019 and December 31, 2018, respectively.

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For the nine months ended September 30, 2019 and 2018, most of the Company’s assets were located in the PRC and all of the Company’s revenues were derived from the PRC.

One third party customer accounted for 21% of the sales for the nine months ended September 30, 2019. Two third party customers accounted for 39% and 28% of the sales for the nine months ended September 30, 2018, respectively. As of September 30, 2019, three customers accounted for 35%, 23%, and 11% of the Company’s accounts receivable, respectively.

NOTE 4. LOANS TO THIRD PARTIES

	September 30,		December 31,
	2019		2018
	(unaudited)
Loan to third party A	$	-	$	648,386
Loan to third party B		-		174,845
Loans to third parties	$	-	$	823,231

As of December 31, 2018, loans to third parties represented operating loans to cooperation partners. Loans to third parties had been collected in February 2019.

NOTE 5. OTHER RECEIVABLES, NET

	September 30,			December 31,
	2019			2018
	(unaudited)
Staff advance	$	10,248		$	135,258
Others		68,710			34,148
Other receivables		78,958			169,406
Allowance		(3,007	)		(3,099	)
Other receivables, net	$	75,951		$	166,307

NOTE 6. PREPAYMENTS

	September 30,		December 31,
	2019		2018
	(unaudited)
Prepayments for inventory purchase	$	954,607	$	1,027,544
Prepaid service fee and others		129,637		20,644
Prepayment	$	1,084,244	$	1,048,188

NOTE 7. INVENTORIES

	September 30,		December 31,
	2019		2018
	(unaudited)
Raw materials	$	201,606	$	119,222
Packaging materials		282,652		297,995
Finished goods		2,289,518		1,419,121
Work in progress		195,939		272,750
Inventories	$	2,969,715	$	2,109,088

As of September 30, 2019, the balance of finished goods mainly represent a major product and other three new products launched in 2018 and 2019.

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NOTE 8. PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment consists of the following:

	September 30,			December 31,
	2019			2018
	(unaudited)
Buildings	$	2,652,206		$	2,733,242
Machinery and equipment		2,480,170			2,458,479
Furniture and office Equipment		572,662			538,281
Motor vehicles		381,594			393,254
Leasehold improvements		690,615			711,716
		6,777,247			6,834,972
Less: accumulated depreciation		(2,343,149	)		(2,042,794	)
		4,434,098			4,792,178
Add: construction in process		28,320,280			21,917,871
Property, plant and equipment, net	$	32,754,378		$	26,710,049

Depreciation expense for the nine months ended September 30, 2019 and 2018 was $438,762 and $248,985 respectively.

Construction in progress represented the Company’s new factory and office building in Kaifeng, Henan Province and building improvement in Changzhou, Jiangsu Province. The main construction work of factory and office building in Kaifeng were completed and it is expected to be placed in service in 2020 when the work on the interior of the building are completed.

The Company has not obtained all required construction permits in accordance with Article 64 of the Urban and Rural Planning Law in China, however, the Company has received a waiver letter from local government that the Company would be not subject to any penalty for the construction.

As of September 30, 2019, one floor of the office in Changzhou Jufeel, which was recorded in buildings with the carrying value of $1,404,840 was pledged against a credit facility from Jiangnan Rural Commercial Bank (see Note 13).

NOTE 9. LONG-TERM INVESTMENT

The Company entered into the agreement to invest in a private equity fund as a limited partner with the amount of $8,483,083 on August 01, 2019 and paid the entire amount to the private equity fund. The Company recorded the amount as long-term investment.

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NOTE 10. EQUIPMENT RELATED PREPAYMENTS

As of September 30, 2019, equipment related prepayment represented prepayments related to the equipment purchase in Kaifeng Jufeel and Hainan Zhongchen.

NOTE 11. LONG TERM PREPAYMENTS AND OTHER NON-CURRENT ASSETS

Long term prepayments and other non-current assets mainly consist of prepaid farmland lease of the Company.

	September 30, 2019		December 31, 2018
	(unaudited)

Prepaid farmland lease	$	1,813,573	$	1,962,580
Deferred tax assets (see Note 15)		-		-
Others		196,014		208,928
Long term prepayments and other non-current assets	$	2,009,587	$	2,171,508

Amortization expense for prepaid farmland lease for the nine months ended September 30, 2019 and 2018 was $93,719 and $98,528, respectively.

As of September 30, 2019 and December 31, 2018, others mainly consisted of long-term deposit for office lease.

NOTE 12. OTHER CURRENT LIABILITIES

	September 30,		December 31,
	2019		2018
	(unaudited)
Employee reimbursement payables	$	113,627	$	95,764
Rental payables		92,962		122,256
Construction related payables		334,636		328,441
Farmland lease payable		740,121		762,735
Others		162,829		199,623
Accrued expenses and other liabilities	$	1,444,175	$	1,508,819
Other taxes payables	$	2,896,083	$	2,231,903

Other taxes payables are mainly consisted of VAT payable (see Note 2(l)).

NOTE 13. LIABILITY UNDER LINE OF CREDIT

In September 2018, the general manager of Changzhou Jufeel, signed a credit facility agreement on behalf of the Company in the amount of RMB12,052,100 (or $1,756,047) with Jiangnan Rural Commercial Bank with a three-year term from September 2018 to September 2021. He entered a written agreement with Changzhou Jufeel that the loan will be used for the Company’s operation needs. The credit facility was guaranteed by Changzhou Jufeel and the general manager’s spouse (sister of the Company’s CEO). In addition, one floor of the office in Changzhou Jufeel with the carrying value of $1,404,840 was pledged against the credit facility. At the end of September 2018, a loan with the principal amount of RMB6,000,000 (or $874,228) with and annual interest rate of 6% was borrowed by the general manager of Changzhou Jufeel from Jiangnan Rural Commercial Bank under this credit facility. The loan period was from September 2018 to September 2019 and was extended to September 2020. The proceeds from the loan was used to pay to a vendor of Changzhou Jufeel on its behalf in October 2018. In December 2018, due to the Company not being satisfied with the quality of the aloe powder, the purchase agreement was cancelled, and the vendor returned the RMB6,000,000 (or $874,228) to Changzhou Jufeel. The interest related to the loan has been paid by the general manager from October 2018 to September 2019 and accrued by the Company. Changzhou Jufeel repaid him all interest of the loan from the inception of the loan and Changzhou Jufeel shall return RMB 6,000,000 principal to him for payment to the bank at the expiration date of his loan with Jiangnan Rural Commercial Bank.

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NOTE 14. RELATED PARTY BALANCE AND TRANSACTIONS

a. Balances

Amount due to related parties:

	September 30,		December 31,
	2019		2018
	(unaudited)
Henan Jufeel Technology Investment Co., Ltd. (i) (a)	$	4,426,953	$	1,593,931
Mr. Zhang (b)		152,944		157,617
General manager of Wuxi Jufeel (holds 20% ownership interest of Wuxi Jufeel (b))		9,815		366
Amount due to related parties	$	4,589,712	$	1,751,914

(a) The balance due to Henan Jufeel Technology Investment Co., Ltd. mainly consisted of an advance received by Hainan Zhongchen for aloe products purchase net of its payments made on behalf of Kaifeng Jufeel and Jufeel Wyoming.

(b) These balances were mainly advance to the Company for operating capital.

(i) This Company is under common control of Mr. Zhang.

b. Transactions

	Nine months ended September 30,
	2019		2018
	(unaudited)		(unaudited)
Related parties advance to the Company for operation (1)	$	201,668	$	2,320,006
Lease from related parties (2)	$	290,286	$	282,770
Borrowings from a related party (3)	$	2,480,258	$	-
Payment on behalf of a related party in daily operation (4)		-	$	1,096,684
Sales to related parties (5)		-	$	17,636

1. Related parties advance to the Company for operation

During nine months ended September 30, 2019 and 2018, the related parties advance to the Company for operation in the amount of $201,668 and $2,320,006, respectively.

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2. Lease from related parties

Starting from 2015, the Company leased two floors of an office building from Mr. Zhang and Mrs. Guo Li. The contract periods were from September 2015 with annual rental of approximately $282,018 and renewed in September 2019. The lease agreement is expected to be renewed annually.

Starting from the year ended December 31, 2015, the Company leased four vehicles from Mr. Zhang. The contract term was from January 1, 2015 to December 31, 2016 with the annual rental of approximately $105,030 and renewed in January 2019. The lease agreement is expected to be renewed when expire.

Expense recorded under these leases during the nine months ended September 30, 2019 and 2018 were $290,286 and $282,770 respectively.

3. Borrowings from a related party

During nine months ended September 30, 2019 and 2018, the Company borrowed from a related party in the amount of $2,480,258 and $nil, respectively.

4. Payment on behalf of a related party in daily operation

During the nine months ended September 30, 2019 and 2018, Ivan King paid on behalf of a related party for daily operating expenses the amount of $nil and $1,096,684, respectively..

5. Sales to related parties

During the nine months ended September 30, 2019 and 2018, the Company product sales to Henan Jufeel Technology Investment Co., Ltd and other related parties totaled $nil and $17,636, respectively.

6. Guarantee provided to a related party

As of September 30, 2019, one floor of the office in Changzhou Jufeel with the carrying value of $1,404,840 was pledged against the credit facility borrowed by the general manager of Changzhou Jufeel from Jiangnan Rural Commercial Bank. The credit facility was guaranteed by Changzhou Jufeel (see note 13).

NOTE 15. TAXATION

Income Tax

The Company was incorporated in Wyoming, United States of America and it is a holding company and does not conduct any substantial operation on its own.

On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (“TCJA” or the “Act”) (which is commonly referred to as “U.S. tax reform”). The Act significantly changes U.S. corporate income tax laws including but not limited to reducing the U.S. corporate income tax rate to 21% beginning in 2018 and imposing a one-time mandatory tax on previously deferred foreign earnings and a new tax on global intangible low-taxed income (“GILTI”) effective for tax years of non-U.S. corporations beginning after December 31, 2017.

As a result of tax reform, the Company determined that a portion of its current undistributed foreign earnings is no longer deemed reinvested indefinitely by its non-U.S. subsidiaries. The Company did not record a provisional tax charge related to the one-time transition tax as there were no cumulative positive earnings and profits from its foreign subsidiaries.

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Effective January 1, 2018, the Company is subject to the new GILTI tax rules. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of controlled foreign corporations (“CFCs”), subject to the possible use of foreign tax credits and a deduction equal to 50 percent to offset the income tax liability, subject to some limitations. Under U.S. GAAP, the Company is allowed to make an accounting policy choice of either treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current period expense when incurred (the “period cost method”) or factoring such amounts into the Company’s measurement of its deferred taxes (the “deferred method”). The Company has evaluated whether it has additional provision amount resulted by the GILTI inclusion on current earnings and profits of its CFCs. The Company has made an accounting policy choice of treating taxes due on future U.S. inclusions in taxable amount related to GILTI as a current period expense when incurred.

On December 22, 2017, the Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740, Income Taxes. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. The Company completed the assessment of the income tax effect of the Tax Act and there were no adjustments recorded to the provisional amounts.

The Company has evaluated and concluded that there was no impact on its consolidated financial position and results of operations. The Company’s U.S. deferred tax assets have been remeasured using the new statutory rate of 21%.

Jufeel Holdings Co., Ltd. was incorporated in the British Virgin Islands (“BVI”). Under the current law of the BVI, Jufeel Holdings Co., Ltd is not subject to tax on income or capital gains. Additionally, upon payments of dividends by Jufeel Holdings Co., Ltd to its shareholders, no BVI withholding tax will be imposed.

Ivan International Biology Limited was incorporated in Hong Kong and does not conduct any substantial operations on its own. No provision for Hong Kong profits tax has been made in the financial statements as Ivan International Biology Limited has no assessable profits. Additionally, upon payments of dividends by Ivan International Biology Limited to its shareholders, no Hong Kong withholding tax will be imposed.

The Company’s PRC operating subsidiaries and VIE, being incorporated in the PRC, are governed by the income tax law of the PRC and is subject to PRC enterprise income tax (“EIT”). The EIT rate of PRC is 25%, which applies to both domestic and foreign invested enterprises.

In August 2015, Kaifeng Jufeel was approved by the related PRC governmental authorities as a High and New Technology Enterprise, which enabled the entity, as approved by the local tax authorities of Kaifeng, Henan province, the PRC, to enjoying the favorable statutory tax rate of 15% in years ended December 31, 2015, 2016 and 2017. Kaifeng Jufeel has renewed the High and New Technology Enterprise qualification and has been approved by the local tax authorities in December 2018 and still enjoy the 15% favorable tax rate for the years ending December 31, 2018, 2019 and 2020. Therefore, for the nine months ended September 30, 2019 and 2018, the applicable income tax rate of Kaifeng Jufeel Biotech Co, Ltd. was 15%.

In accordance with PRC Tax Administration Law on the Levying and Collection of Taxes, the PRC tax authorities generally have up to five years to assess underpaid tax plus penalties and interest for PRC entities’ tax filings. In the case of tax evasion, which is not clearly defined in the law, there is no limitation on the tax years open for investigation. Accordingly, the PRC entities remain subject to examination by the tax authorities based on the above.

For the nine months ended September 30, 2019 and 2018, the Company’s income tax expense (benefit) consisted of:

	Nine months ended		Nine months ended
	September 30, 2019		September 30, 2018
	(unaudited)		(unaudited)
Current income tax	$	1,076,300	$	784,601
Deferred income tax		-		(17,552	)
	$	1,076,300	$	767,049

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A reconciliation of the income tax expenses determined at the PRC statutory corporate income tax rate to the Company’s effective income tax expenses is as follows:

	Nine months ended September 30, 2019			Nine months ended September 30, 2018
	(unaudited)			(unaudited)

Income before income taxes	$	6,097,290		$	4,159,993
PRC statutory tax rate		25	%		25	%
Income tax expense computed at PRC tax rate		1,524,323			1,039,998
Reconciling items:
Effect of preferential tax rate		(495,531	)		(523,067	)
Non-deductible expenses		2,411			86,664
Changes in valuation allowance		45,097			163,454
Effective income tax expense	$	1,076,300		$	767,049

Deferred Tax

The Company’s deferred tax assets were as follows:

	September 30, 2019			December 31, 2018
	(unaudited)
Tax effect of net operating losses carried forward	$	440,181		$	410,004
Allowance for doubtful accounts and inventory impairment		16,526			16,554
Valuation allowance		(456,707	)		(426,558	)
Deferred tax assets, net	$	-		$	-

Movement of valuation allowance:

	September 30, 2019			December 31, 2018
	(unaudited)
Balance at beginning of the period	$	426,558		$	431,503
Current period movement		45,097			38,315
Foreign currency translation adjustments		(14,948	)		(43,260	)
Balance at end of the period	$	456,707		$	426,558

There were no uncertain tax positions as of September 30, 2019 and December 31, 2018 and the Company does not believe that this will change over the next twelve months.

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NOTE 16. SEGMENT REPORTING

The Company follows ASC Topic 280 “Segment Reporting”, which requires that companies disclose segment data based on how management makes decisions about allocating resources to segments and evaluating their performance. Reportable operating segments include components of an entity about which separate financial information is available and which operating results are regularly reviewed by the chief operating decision maker (“CODM”), the Company’s Chief Executive Officer, to make decisions about resources to be allocated to the segment and assess each operating segment’s performance.

Based on management’s assessment, the Company has determined that it has two operating segments which are Aloe product sales and Aloe material sales. These two operating segments are also identified as reportable segments. The accounting policies of the segments are the same as those described in the summary of significant accounting policies.

For the nine months ended September 30, 2019 (unaudited)

Aloe product sales

Aloe material sales

Inter- segment and reconciling item

Total

Revenues

$ 16,111,323

$ 1,944,746

$ (3,792,836 )

$ 14,263,233

Cost of revenue

5,250,370

1,235,733

(2,992,431 )

3,493,672

Total operating expenses

3,172,450

619,402

(58,460 )

3,733,392

Unallocated corporate expenses

-

-

-

883,880

Operating (loss) income

7,688,503

89,611

(741,945 )

6,152,289

Net (loss) income

7,036,863

83,039

(741,945 )

5,020,990

Segment assets

54,174,694

3,562,193

(6,817,565 )

50,919,322

Unallocated assets

774,786

Total assets – September 30, 2019

$ 54,174,694

$ 3,562,193

$ (6,817,565 )

$ 51,694,108

For the nine months ended September 30, 2018 (unaudited)

	Aloe product sales		Aloe material sales			Inter- segment and reconciling item			Total
Revenues	$	12,944,887	$	1,545,204		$	(1,946,149	)	$	12,543,942
Cost of revenue		4,334,334		1,235,550			(1,767,108	)		3,802,776
Total operating expenses		2,958,742		782,531			(12,367	)		3,728,906
Unallocated corporate expenses		-		-			-			887,844
Operating (loss) income		5,651,811		(472,877	)		(166,674	)		4,124,416

Net (loss) income	$	4,931,674	$	(492,198	)	$	(166,674	)	$	3,392,944

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NOTE 17. COMMITMENT

A. Operating lease

The Company leases vehicle, factory and office premises under various non-cancelable operating lease agreements, with an option to renew the lease. The rental expense for the nine months ended September 30, 2019 and 2018 was $828,638 and $959,879, respectively. All leases are on a fixed repayment basis. None of the leases include contingent rentals. Minimum future commitments under these agreements as of September 30, 2019 are as follows:

	Lease Commitment
	(unaudited)
Three months ending December 31,
2019	$	262,002
Year ending December 31,
2020		836,383
2021		98,895
2022		36,760
2023		36,760
2024		36,760
Thereafter		659,324
Total	$	1,966,884

B. Capital commitments

As of September 30, 2019, the Company’s capital commitments contracted but not yet reflected in the consolidated financial statements amounted to $6,147,515, which mainly related to the construction for new factory and office building. It will be financed by the Company’s cash flow generate by operating activities.

The Company has no significant pending litigation as of September 30, 2019.

NOTE 18. SUBSEQUENT EVENTS

The Company evaluates subsequent events and transactions through the date the financial statements were issued, and has determined that there are no events that are material to the financial statements.

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

Except for the historical information, the following discussion contains forward-looking statements that are subject to risks and uncertainties. Forward looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control and many of which, with respect to future business decisions, are subject to change. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward-looking statements made by, or on our behalf. Words such as “anticipate,” “estimate,” “plan,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions are used to identify forward-looking statements. We disclaim any obligation to update forward-looking statements. We caution you not to put undue reliance on any forward-looking statements, which speak only as of the date of this report. Our discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and related notes and with the understanding that our actual future results may be materially different from what we currently expect.

Our discussion and analysis of our financial condition and results of operations relates to our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the consolidation, revenue recognition, income taxes and uncertain tax positions, computation of net loss per share, determination of net accounts receivable, and determination of functional currencies represent critical accounting policies that reflect the more significant judgments and estimates used in the preparation of our consolidated financial statements.

Our future operating results are subject to many variables, including:

·	Continued consumer acceptance of our products,

·	Protection of our proprietary rights to our products and processes

·	Political and trade relations between the PRC and the USA, and our consequent ability to expand sales into the United States

·	Economic conditions in the PRC, which are dependent upon many economic and political factors,

·	Development and governmental approvals of our pharmaceutical products,

·	Maintaining and obtaining new permits and approvals for our products in the PRC and abroad

·	Our ability to obtain additional financing; and

·	Other risks which we identify in future filings with the SEC.

Any or of all our forward-looking statements in this report and in any other public statements we make may turn out to be wrong. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. Consequently, no forward-looking statement can be guaranteed. In addition, we undertake no responsibility to update any forward-looking statement to reflect events or circumstances which occur after the date of this report.

Overview

We are a bio-tech company that cultivates, processes, researches, innovates, and manufactures for sale aloe vera and aloe vera based products in mainland China. During nine months ended September 30, 2019, our net sales increased 14% from $12,543,942 to $14,263,233 compared to nine months ended September 30, 2018 because the Company enhanced cash collection from the enterprise customer sales by tightening its credit sales to the enterprise customers. Also, the Company entered into several agreements with customers to provide healthcare related consulting services beginning in the second quarter of 2019, which required the customers to make advance payments for the whole service period. We expect that sales will continue to increase in 2019 as a result of signing more customers. Our sales for the nine months ended September 30, 2019 included:

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·	$715,939 in sales of raw product (5.0%)
·	$7,869,678 in sales of branded products (55.2%)
·	$5,677,616 in service revenue (39.8%)

We began selling our health and beauty product line in 2016, and have added 10 more new products for 2017, including five new PMAS supplements, four new aloe laundry and household products, and one advanced PMAS supplement in 2018.

We conduct all our operations in China where there is a strong manufacturing base and a rapidly growing consumer market. Our access to China’s supply of low-cost skilled labor, raw materials, machinery and facilities enables us to price our products competitively.

We have grown significantly since we commenced our operations in 2011. We rent our main 1,900 square meter cultivation and processing center in Hainan province developed our website and mobile sales app, and hired over 140 employees. A 75,334.5 square meter plant which will be used as office, processing center and warehouse in Kaifeng is under renovation and expect to be put in use by the end of 2019. We first became profitable in 2016, as net loss of $652,768 in 2015 increased to net income of $5,508,596 in 2016.

Factors Affecting Our Results of Operations

Our operating results are affected by prevailing general conditions in the PRC consumer industry, including China’s economic performance and the PRC regulatory environment governing our industry. Our operating results may also be affected by our ability to compete effectively with other industry players and our ability to control our operating costs and expenses. In addition, our operating results are affected by the following company-specific factors:

·	Continued consumer acceptance of our products. Our revenues depend on the market continuing to accept our aloe vera products.

·	Protection of our proprietary rights to our products and processes.

·	Distributor fees and agreements. Our distribution model includes revenues from exclusive distributor membership agreements that require our distributors to pay a membership fee in exchange for the exclusive right to sell our products in a defined geographic area.

·	Pricing and revenue sharing. Our revenues depend on our ability to obtain favorable prices for our products and maintain favorable revenue sharing agreements.

·	Revenue mix. Our success depends on our ability to develop a diverse mix of revenues from product and exclusive distributor memberships.

·	Research and Development. To expand our product line and markets, we have invested significant resources in research and development to build our product line. We expect our research and development expenses will continue to increase as we endeavor to develop attractive products for our increasing base of health-conscious customers.

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CRITICAL ACCOUNTING POLICIES AND MANAGEMENT ESTIMATES

See Note 2 to the Consolidated Financial Statements included herewith.

RESULTS OF OPERATIONS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

The following is a discussion of our results of operations during the nine months ended September 30, 2019 and 2018 of Jufeel International Group and Subsidiaries (the “Company”), in US Dollars (“$”):

Net revenue

The net revenue was $14,263,233 for the nine months ended September 30, 2019, compared to $12,543,942 for the nine months ended September 30, 2018. The increase in net revenue was $1,719,291, representing a 14% increase. The increase in revenue during the nine months ended September 30, 2019 was mainly due to the following reasons: (i) the Company enhanced its cash collection from the enterprise customers in the nine months ended September 30, 2019; and (ii) the Company started to provide healthcare related services including but not limited to trainings, brand promotion, health-related education seminars to customers and developed new customers in the second quarter of 2019. We anticipate that sales will continue to increase in 2019 as a result of signing more customers for our aloe product sales and healthcare services.

Cost of revenue

Total cost of revenue was $3,493,672 for the nine months ended September 30, 2019, compared to $3,802,776 for the nine months ended September 30, 2018. The decrease in cost of revenue was $309,104, which was the result of less aloe products delivered during the nine months ended September 30, 2019 as the Company expanded the healthcare service in 2019.

Gross profit

As a result of the foregoing, our gross profit was $10,769,561 for the nine months ended September 30, 2019, compared with $8,741,166, for the nine months ended September 30, 2018. Our overall gross margin was 76% for the nine months ended September 30, 2019 and remained stable when comparing with the nine months ended September 30, 2018.

Operating Expenses

Total operating expenses were $4,617,272 for the nine months ended September 30, 2019, compared to $4,616,750 for the nine months ended September 30, 2018. The increase in operating expenses was $522. This was mainly attributable to increase in selling and marketing expenses of $621,154 and research and development expenses of $217,201, offset by a decrease in general and administrative expenses of $837,833.

Selling and Marketing Expenses

Selling and marketing expenses mainly consist of rental of the exhibition center, advertising and promotional expenditures, salary and benefits expenses, sales commissions and travel expenses for the sales staff. During the nine months ended September 30, 2019, the selling and marketing expenses mainly consisted of rental expenses of 455,803, freight of $206,447 and other expenses of $165,528.

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Selling and marketing expenses were $827,778 for the nine months ended September 30, 2019, compared to $206,624 for the nine months ended September 30, 2018. The increase in sales and marketing expenses from the nine months ended September 30, 2018 to the nine months ended September 30, 2019 was $621,154, representing a 301% increase. The selling and marketing expenses increased mainly due to increase in expenses related to rental of the exhibition center during the nine months ended September 30, 2019 of $455,803, and there was no such exhibition center rental expenses incurred during the nine months ended September 30, 2018.

General and Administrative Expenses

General and administrative expenses mainly consist of salary and benefits, professional service fees, and office rental. During the nine months ended September 30, 2019, the general and administrative expenses mainly consisted of staff related cost of $822,984, professional service fees of $563,841.

General and administrative expenses were $2,868,354 for the nine months ended September 30, 2019, compared to $3,706,187 for the nine months ended September 30, 2018. The decrease of general and administrative expenses from the nine months ended September 30, 2018 to the nine months ended September 30, 2019 was $837,833, representing a 23% decrease. The general and administrative expenses decreased mainly due to decrease of professional service fees by $373,824 when comparing with the nine months ended September 30, 2018. Also, it attribute to decrease of office related expenses by $271,358 as the Company enhanced the cost control on daily expenses.

Research and Development Expenses

Research and development expenses mainly consist of costs associated with research and development in new products and enhancement of existing products.

Research and development expenses were $921,140 for the nine months ended September 30, 2019, compared to $703,939 for the nine months ended September 30, 2018. The increase in research and development expenses from the nine months ended September 30, 2018 to the nine months ended September 30, 2019 was $217,201, representing a 31% increase. The increase was mainly due an increase in the Company’s outsourced research and development expenses and cooperation research expenses.

Income from Operations

As a result of the foregoing, we had income from operations for the nine months ended September 30, 2019 of $6,152,289, compared to $4,124,416 for the nine months ended September 30, 2018.

Other Expenses/Income

Other expenses totaled $54,999 for the nine months ended September 30, 2019, compared to other income of $35,577 for the nine months ended September 30, 2018 due to interest expenses incurred during the nine months ended September 30, 2019 and subsidy income received during the nine months ended September 30, 2018.

Income Tax Expense

Our PRC operating subsidiaries and VIE, being incorporated in the PRC, are governed by the income tax law of the PRC and are subject to PRC enterprise income tax. The EIT rate of PRC is 25%, which applies to both domestic and foreign invested enterprises. Kaifeng Jufeel was approved by the related PRC governmental authorities as a High and New Technology Enterprise, which enabled the entity, as approved by the local tax authorities of Kaifeng, Henan province, PRC, to enjoy the favorable statutory tax rate of 15% in years ended December 31, 2015, 2016 and 2017. Kaifeng Jufeel has renewed the High and New Technology Enterprise qualification and has been approved by the local tax authorities in December 2018 and will have the 15% favorable tax rate for the years ending December 31, 2018, 2019 and 2020. Income tax expense was $1,076,300 for the nine months ended September 30, 2019, compared to $767,049 for the nine months ended September 30, 2018.

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Net income

For the nine months ended September 30, 2019, we had net income of $5,020,990, compared to $3,392,944 for the nine months ended September 30, 2018. The increase in net income was due to an increase in income from operations for the nine months ended September 30, 2019, as mentioned above.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2019, the Company had $257,167 in cash and cash equivalents. The Company had capital commitments of $6,147,515, and a lease commitment of $1,966,884 as of September 30, 2019, of which $942,377 was incurred within one year. The Company had negative cash flow of $4,657,581 for the nine months ended September 30, 2019. The Company’s principal sources of liquidity have been cash provided by operating activities.

The Company intends to meet its cash requirements for the next 12 months through cash generated from its operations and from the credit facility with Jiangnan Rural Commercial Bank, of which approximately $900,000 to be used for the Company’s operation needs. The Company will focus on improving operational efficiency and cost reductions, developing its core cash-generating business and enhancing marketing efficiency. Actions include developing proposed new products with higher margins, developing enterprise customers with larger demands, and suspending the purchase of the production equipment if required.

The Company has signed service contracts with several enterprise customers in 2019 for healthcare related consulting services and received RMB 60 million ($8,850,000) service fees as of September 30, 2019. In addition, our newly opened health centers will mainly sell the Company’s aloe vera products. The Company believes with more clients developed in 2019, the Company’s sales will increase which will generate more working capital to the Company. Therefore, the available cash and cash equivalents and the cash provided by operating activities, together with the above measures, the Company should be able to meet presently anticipated cash needs for at least the next 12 months. If the Company encounters unforeseen circumstances that place constraints on its capital resources, management will be required to take various measures to conserve liquidity, which could include, but not necessarily be limited to, suspending the equipment purchase for new factories under construction and delaying its expansion plans and controlling overhead expenses. Management cannot provide any assurance that the Company will be able to raise additional capital if needed.

Cash Generating Ability

We believe we will continue to generate strong cash flow from our aloe product sales, which, along with our available cash, will provide sufficient liquidity and financial flexibility.

Our cash flows for the nine months ended September 30, 2019 and 2018 are summarized below:

	Nine months ended			Nine months ended
	September 30, 2019			September 30, 2018

Net cash provided by operating activities	$	9,217,096		$	1,855,539
Net cash used in investing activities		(16,353,234	)		(8,948,449	)
Net cash provided by financing activities		2,480,258			-
Effect of exchange rate change on cash and cash equivalents		(1,701	)		(451,306	)
Net decrease in cash and cash equivalents		(4,657,581	)		(7,544,216	)
Cash and cash equivalents at beginning of period		4,914,748			16,391,266
Cash and cash equivalents, ending balance	$	257,167		$	8,847,050

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Net Cash Provided by Operating Activities

For the nine months ended September 30, 2019, $9,217,096 net cash provided by operating activities was primarily attributable to our net income of $5,020,990, adjusted by non-cash items of depreciation and amortization of $569,022. Also, it was attributable to advanced payments from customers increased by $2,178,243, accounts receivable decreased by $2,989,202 offset by deferred revenue decreased by $2,968,080 and inventories increased by $952,624.

For the nine months ended September 30, 2018, 1,855,539 net cash provided by operating activities was primarily attributable to our net income of $3,392,944, adjusted by non-cash items of depreciation and amortization of $385,653. Also, it was attributable to accounts receivable having decreased by $6,580,771, deferred inventory costs decreased by $1,630,183, and amount due to related parties increased by $1,401,996 offset by income tax payable decreased by $1,112,981, advance payments from customers decreased by $2,411,206, deferred revenue decreased by $6,697,888 and inventories increased by $1,145,006.

Net Cash Used in Investing Activities

For the nine months ended September 30, 2019, net cash used in investing activities of $16,353,234 was primarily the result of purchase of property, plant and equipment of $8,423,703, payment of long term investment of $8,753,852, offset by repayment of loans from third parties of $824,321.

For the nine months ended September 30, 2018, net cash used in investing activities of $8,948,449 was primarily the result of purchase of property, plant and equipment of $7,775,057, loans to third parties of $5,498,836, offset by repayment of loan from a third party of $4,325,444.

Net Cash Provided by Financing Activities

For the nine months ended September 30, 2019, net cash provided by financing activities was $2,480,258 as a result of loans from a related party.

For the nine months ended September 30, 2018, net cash provided by financing activities was $nil.

OFF-BALANCE SHEET ARRANGEMENTS

In September 2018, the general manager of Changzhou Jufeel, signed a credit facility agreement in the amount of RMB12,052,100 (or $1,756,047) with Jiangnan Rural Commercial Bank with a three-year term from September 2018 to September 2021. He entered a written agreement with Changzhou Jufeel that the loan will be used for Changzhou Jufeel’s operational needs. The credit facility was guaranteed by Changzhou Jufeel and the general manager’s spouse (sister of CEO). In addition, one floor of the office in Changzhou Jufeel with the carrying value of $1,404,840 was pledged against the credit facility. At the end of September 2018, a loan with the principal amount of RMB6,000,000 (or $874,228) with and annual interest rate of 6% was borrowed by the general manager of Changzhou Jufeel from Jiangnan Rural Commercial Bank under this credit facility. The loan period was from September 2018 to September 2019 and was extended to September 2020. The proceeds from the loan was used to pay to a vendor of Changzhou Jufeel on its behalf in October 2018. In December 2018, due to the Company not being satisfied with the quality of the aloe powder, the purchase agreement was cancelled, and the vendor returned the RMB 6,000,000 (or $874,228) to Changzhou Jufeel. The interests related to the loan has been paid by him from October 2018. Changzhou Jufeel repaid him all interests of the loan from inception of the loan and Changzhou Jufeel shall return RMB 6,000,000 principal to him at the expiration date of his loan with Jiangnan Rural Commercial Bank.

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Contractual Obligations

As a smaller reporting company, we are not required to provide the information requested by paragraph (a)(5) of this Item.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

See Note 2 to the Consolidated Financial Statements included herewith.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a smaller reporting company, we are not required to provide the information requested by this Item.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15 under the Securities Exchange Act of 1934 (the “1934 Act”), as of September 30, 2019, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer (our principal executive officer) and our Chief Financial Officer (our principal financial officer), who concluded, that because of the material weakness in our internal control over financial reporting (“ICFR”) described below, our disclosure controls and procedures were not effective as of September 30, 2019.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during the nine-month period ended September 30, 2019 that have materially affected, or are reasonable likely to materially affect, our internal control over financial reporting.

Inherent Limitations of Controls

Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and all fraud. Controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or deterioration in the degree of compliance with the policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

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PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company is not currently a party to any legal proceedings. From time to time the Company and its subsidiaries and affiliates are subject to litigation and arbitration claims incidental to its business. Such claims may not be covered by its insurance coverage, and even if they are, if claims against the Company and its subsidiaries are successful, they may exceed the limits of applicable insurance coverage.

ITEM 1A. RISK FACTORS

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item. However, our current risk factors are set forth in our amended registration statement on Form S-1 as filed with the SEC on October 22, 2019.

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

There were no sales of unregistered equity securities during the covered time period.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5. OTHER INFORMATION

Please refer to the Company’s amended Current Report on Form 8-K regarding the appointment of Marc P. Palker, as the new CFO of the Company as filed with the Securities and Exchange Commission on August 20, 2019.

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ITEM 6. EXHIBITS

The following documents are included or incorporated by reference as exhibits to this report:

Exhibit Number		Description

3.1		Articles of Incorporation (1)

3.2		Bylaws (1)

10.1		Business Operations Agreement (1)

10.2		Exclusive Consulting and Service Agreement (1)

10.3		Shareholder’s Voting Proxy Agreement (1)

10.4		Exclusive Equity Option Agreement (1)

10.5		Equity Interest Pledge Agreement (1)

10.6		Renewal Agreement of Plant Facility Leasing Agreement between Zhonghuajianong Enterprise Group Co., Ltd. and Hainan Zhongchen Biological Engineering Co., Ltd. dated September 11, 2015 (English Translation). (1)

10.7		Factory Lease Contract between Niu Xiaoxu and Hainan Zhongchen Biological Engineering Co., Ltd dated December 13, 2016 (English Translation). (1)

10.8		Lease Agreement between Fang Qiujin and Kaifeng Jufeel Biotechnology Co., Ltd. dated December 25, 2015 (English Translation). (1)

10.9		Office Rental Agreement between Guo Li and Kaifeng Jufeel Biotechnology Co., Ltd. dated August 29, 2018 (English Translation). (1)

10.10		Office Rental Agreement between Rongxuan Zhang and Kaifeng Jufeel Biotechnology Co., Ltd. dated August 29, 2018 (English Translation). (1)

10.11		Shanghai Lease Contract between Shanghai Guangtian Real Estate Development Co., Ltd. and Kaifeng Jufeel Biotechnology Co., Ltd. (English Translation). (1)

10.12		Farmland Lease Agreement between Yangqin Economic Cooperative, Bocai District, Fushan Town, Chengmai County and Hainan Zhongchen Industrial Co., Ltd. dated January 22, 2001. (English Translation). (1)

10.13		Farmland Lease Agreement between Duncha Village Group of Duncha Village Committee, Fushan Town Chengmai County and Hainan Zhongchen Biological Engineering Co., Ltd. dated June 18, 2013 (English Translation). (1)

10.14		Supplementary Agreement to Farmland Lease Agreement between Duncha Village Group of Duncha Village Committee, Fushan Town Chengmai County and Hainan Zhongchen Biological Engineering Co., Ltd. dated November 7, 2018 (English Translation). (1)

10.15		Farmland Lease Agreement between Yingtou Economic Cooperative, Yanfeng Town, Qiongshan City and Hainan Zhongchen Industrial Co., Ltd. dated September 23, 1999 (English Translation). (1)

10.16		Employment Agreement between Kaifeng Jufeel Biotechnology Co., Ltd. and Zhang Rongxuan dated May 6, 2018 (English Translation). (1)

10.17		Employment Agreement between Kaifeng Jufeel Biotechnology Co., Ltd. and Fu Wenxing dated October 1, 2016 (English Translation). (1)

10.18		Employment Agreement between Kaifeng Jufeel Biotechnology Co., Ltd. and Lin Bao dated February 22, 2018 (English Translation). (1)

10.19		Employment Agreement between Kaifeng Jufeel Biotechnology Co., Ltd. and Chen Lei dated October 1, 2016 (English Translation). (1)

10.20		Employment Agreement between Kaifeng Jufeel Biotechnology Co., Ltd. and Ren Aizhen dated December 13, 2016 (English Translation). (1)

10.21		Agreement between Jufeel International Group and MPP Associates, Inc., dated August 8, 2019 (2)

10.22		Strategic Cooperation Framework Agreement (3)

10.23		Zhongfu Fund Subscription Contract (4)

31.1		Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

31.2		Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

32.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**

(1) Incorporated by reference from the Company’s registration statement on Form S-1, filed on February 21, 2019.

(2) Incorporated by reference from the Company’s registration statement on Form S-1, filed on October 22, 2019.

(3) Incorporated by reference from the Company’s current report on Form 8-K, filed on July 11, 2019.

(4) Incorporated by reference from the Company’s current report on Form 8-K, filed on August 1, 2019.

*Filed herewith.

**Furnished and not filed herewith.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	JUFEEL INTERNATIONAL GROUP

Date: November 14, 2019	By:	/s/ Rongxuan Zhang
		Rongxuan Zhang
		President and Director
		(principal executive officer)

Date: November 14, 2019	By:	/s/ Marc P. Palker
		Marc P. Palker
		Chief Financial Officer
		(principal financial and accounting officer)

	Aloe product sales		Aloe material sales		Inter- segment and reconciling item			Total
Revenues	$	16,111,323	$	1,944,746	$	(3,792,836	)	$	14,263,233
Cost of revenue		5,250,370		1,235,733		(2,992,431	)		3,493,672
Total operating expenses		3,172,450		619,402		(58,460	)		3,733,392
Unallocated corporate expenses		-		-		-			883,880
Operating (loss) income		7,688,503		89,611		(741,945	)		6,152,289

Net (loss) income		7,036,863		83,039		(741,945	)		5,020,990
Segment assets		54,174,694		3,562,193		(6,817,565	)		50,919,322
Unallocated assets									774,786
Total assets – September 30, 2019	$	54,174,694	$	3,562,193	$	(6,817,565	)	$	51,694,108

Jufeel International Group 10-Q