CHINA HEALTH INDUSTRIES HOLDINGS, INC. FORWARD LOOKING STATEMENTS
We make certain forward-looking statements in this report. Statements concerning our future operations, prospects, strategies, financial condition, future economic performance (including growth and earnings), demand for our services, and other statements of our plans, beliefs, or expectations, including the statements contained under this caption as well as under captions elsewhere in this document, are forward-looking statements. In some cases, these statements are identifiable through the use of words such as "anticipate", "believe", "estimate", "expect", "intend", "plan", "project", "target", "can", "could", "may", "should", "will", "would", and similar expressions. The forward-looking statements we make are not guarantees of future performance and are subject to various assumptions, risks, and other factors that could cause actual results to differ materially from those suggested by these forward-looking statements. These risks and uncertainties, together with the other risks described from time to time in reports and documents that we file with theSEC should be considered in evaluating forward-looking statements. Because such statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by the forward-looking statements. Indeed, it is likely that some of our assumptions will prove to be incorrect. Our actual results and financial position will vary from those projected or implied in the forward-looking statements and the variances may be material. You are cautioned not to place undue reliance on such forward-looking statements, which reflect our view only as of the date of this report.
Important factors that could cause actual results to differ from those in the forward-looking statements include, without limitation, the following:
? the effect of political conditions, economic conditions, market
conditions, and geopolitical events;
? legislative and regulatory changes that affect our business;
? the availability of funds and working capital; and
? the actions and initiatives of current and potential competitors.
Except as required by applicable laws, regulations, or rules, we do not
undertake any responsibility to publicly release any revisions to these
forward-looking statements to take into account events or circumstances that
occur after the date of this report. Additionally, we do not undertake any
responsibility to update you on the occurrence of any unanticipated events which
may cause actual results to differ from those expressed or implied by any
forward-looking statements.
The following discussion and analysis should be read in conjunction with our
unaudited condensed consolidated financial statements and the related notes
thereto as filed with the
Except as otherwise indicated by the context, references in this report to "we", "us", "our", "the Registrant", "our Company", or "the Company" are toChina Health Industries Holdings, Inc. , aDelaware corporation,China Health Industries Holdings Limited , a limited liability company incorporated under the laws ofHong Kong , its wholly owned subsidiary inChina ,Harbin Humankind Biology Technology Co. Limited ("Humankind"), and indirect wholly owned subsidiary,Heilongjiang Huimeijia Pharmaceutical Co., Ltd. ("HLJ Huimeijia"). Unless the context otherwise requires, all references to (i) the "PRC" and "China" are tothe People's Republic of China ; (ii) "U.S. dollar," "$" and "US$" are toUnited States dollars; (iii) "RMB" are to Renminbi Yuan ofChina ; (iv) "Securities Act" are to the Securities Act of 1933, as amended; and (v) "Exchange Act" are to the Securities Exchange Act of 1934, as amended. 22 Business Overview
Our principal business operations are conducted through our wholly-owned subsidiaries, Humankind and HLJ Huimeijia.
The Company owns a GMP-certified plant and production facilities and has the capacity to produce 21 different CFDA-approved medicines, 14 CFDA-approved health supplement products and 8 hemp derivative products in soft capsule, hard capsule, tablet, granule, oral liquid forms. These products address the needs of some key sectors inChina , including the feminine, geriatric, and children's markets. HLJ Huimeijia was founded onOctober 30, 2003 and its latest GMP certificate is effective untilApril 24, 2023 . HLJ Huimeijia engages in the manufacture and distribution of tincture, ointments, rubber paste, including hormones, topical solution, suppositories, enemas, oral liquids, and liniment, including traditional Chinese medicine extractions. HLJ Huimeijia's predecessor wasHeilongjiang Xue Du Pharmaceutical Co., Ltd. , which established brand recognition in the market through its supply of high-quality drug products. HLJ Huimeijia is a "high and new technology" enterprise that provides the most comprehensive types of topical medical products inHeilongjiang Province , a northeastern province ofChina . We have developed the following products that are derived from hemp and obtained business license to manufacture and sell these products. We began to sell these products sinceMay 2018 . Hemp Oil, Hemp Protein Powder, Hemp Polypeptide and Collagen Peptide are sold through Humankind. Other products are sold through HLJ Huimeijia. The revenue of the Hemp Oil, Hemp Protein Powder, Hemp Polypeptide and Collagen Peptide accounted for 93.35% and 99.06% for the six-month periods endedDecember 31, 2019 and 2018, respectively.
Serial No.
1 Hemp Oil
2 Hemp Protein Powder
3 Hemp Polypeptide
4 Collagen Peptide
5 Natural Hemp Essence Repair Lotion
6 Natural Hemp Revitalizing Essence
7 Natural Hemp Anit-aging Brightening Eye Cream
8 Natural Hemp Frozen Age Nourishing Cream
We sell our products directly to end customers through our own sales personnel
as well as our sales agents, operating primarily in Anhui , Zhejiang , Shanghai ,
Jiangsu , Beijing and Gansu , where most of our revenues are generated. Sales by
agents in Anhui , Zhejiang , Shanghai , Jiangsu , Beijing , and Gansu provinces
accounted for 20%, 16%, 15%, 11%, 11%, and 8%, of our total sales, respectively,
for the six months ended December 31, 2019 . Although we do not currently sell
our products online, we expect to do so in the future.
23
Results of Operations
Three months ended
The following table summarizes the top lines of the results of our operations
for the three months ended
December 31, December 31,
2019 2018 Variance %
Revenues $ 3,421,988 $ 2,714,157 $ 707,831 26.08 %
Humankind 3,413,094 2,684,885 728,209 27.12 %
HLJ Huimeijia 8,894 29,272 (20,378 ) (69.62 )%
Cost of Goods Sold $ 686,510 $ 688,076 $ (1,566 ) (0.23 )%
Humankind 681,982 653,157 28,825 4.41 %
HLJ Huimeijia 4,528 34,919 (30,391 ) (87.03 )%
Gross Profit $ 2,735,478 $ 2,026,081 $ 709,397 35.01 %
Humankind 2,731,112 2,031,728 699,384 34.42 %
HLJ Huimeijia 4,366 (5,647 ) 10,013 (177.32 )%
Revenue
Total revenues increased by $707,831 or 26.08% for the three months ended
December 31, 2019 , as compared to the same period in 2018. The increase in
revenues was primarily due to an increase of $728,209 or 27.12% in Humankind's
revenues mainly due to the increasing demand of Hemp Polypeptide and Hemp
Protein Powder for the three months ended December 31, 2019 compared with the
same period in 2018.
Our total cost of sales decreased by $1,566 or 0.23% for the three months ended
December 31, 2019 as compared to the same period in 2018. The decrease in the
cost of the main business was mainly due to two reasons. Firstly, the revenue in
Humankind increased by $28,825 or 4.41% which was consistent with the change of
sales for the three months ended December 31, 2019 as compared to the same
period in 2018. However, the growth ratio of cost was lower than that of the
revenue because the unit cost of Hemp Polypeptide and Hemp Protein Powder was
lower than the other two hemp products for the three months ended December 31,
2019 compared with the same period in 2018. Secondly, the decrease in HLJ
Huimeijia's cost of sales was consistent with the change of revenue.
Our gross margin increased by $709,397 or 35.01% for the three months ended
December 31, 2019 as compared to the same period in 2018. This change was
consistent with the change of sales and costs in Humankind. The gross margin of
HLJ Huimeijia increased by $10,013 or 177.32% for the three months ended
December 31, 2019 as compared to the same period in 2018. The increase was
primarily due to that HLJ Huimeijia completed a processing transaction for
drying raw materials of traditional Chinese medicine of which the gross margin
was higher during the three months ended December 31, 2019 .
Sales by Product Line
The following table summarizes the breakdown of our sales by major product lines
for the three months ended
December 31, 2019 December 31, 2018
% of % of
Sales US$ Sales Sales US$ Sales
Hemp Derivative Products $ 2,699,705 78.89 % $ 1,746,837 64.36 %
Health Products 713,389 20.85 % 962,144 35.45 %
Medical Drugs 8,894 0.26 % 5,176 0.19 %
Total $ 3,421,988 100.00 % $ 2,714,157 100.00 %
24
Operating Expenses
The following table summarizes our operating expenses for the three months ended
December 31, December 31,
2019 2018 Variance %
Operating Expenses
Selling, general and administrative $ 633,303 $ 406,303 $ 227,000 55.87 %
Depreciation and amortization 150,752 142,758 7,994 5.60 %
Total Operating Expenses $ 784,055 $ 549,061 $ 234,994 42.80 %
Total operating expenses for the three months endedDecember 31, 2019 were$234,992 or 42.80% higher than those in the corresponding period in 2018. The increase in operating expenses was primarily attributable to the increase of$227,000 or 55.87% in selling, general and administrative expenses, which was mainly due to two reasons. Firstly, the output of Huimeijia is small, so the overhead at the amount of$63,944 was recognized as selling, general and administrative for the three months endedDecember 31, 2019 . Secondly, the staff cost increased, which is in line with the increase in revenue for the three months endedDecember 31, 2019 as compared to the same period in 2018.The depreciation and amortization expenses increased by$7,994 or 5.60% for the three months endedDecember 31, 2019 , as compared to the same period in 2018, which was mainly caused by the increase of property, plants and equipment of Humankind used for research and development on new developed products.
Interest Income and Interest Expense
Interest income was$31,293 for the three months endedDecember 31, 2019 , as compared to$26,590 for the three months endedDecember 31, 2018 . This increase of$4,703 , or 17.69%, was mainly due to the increased average balance of bank deposits compared with the same period of 2019.
Interest expense was $nil for the three months ended
Income Taxes
Income taxes increased by
25
Net Income and Net Income Per Share
Net income was
Net income per share was$0.0218 for the three months endedDecember 31, 2019 and$0.0170 for the three months endedDecember 31, 2018 , respectively. This increase was primarily a result of the aforementioned increase in net profit.
Six months ended
The following table summarizes the top lines of the results of our operations
for the six months ended
December 31, December 31,
2019 2018 Variance %
Revenues $ 5,475,912 $ 4,855,982 $ 619,930 12.77 %
Humankind 5,440,083 4,810,393 629,690 13.09 %
HLJ Huimeijia 35,829 45,589 (9,760 ) (21.41 )%
Cost of Goods Sold $ 1,195,406 $ 1,161,817 $ 33,589 2.89 %
Humankind 1,155,870 1,106,433 49,437 4.47 %
HLJ Huimeijia 39,536 55,384 (15,848 ) (28.61 )%
Gross Profit $ 4,280,506 $ 3,694,165 $ 586,341 15.87 %
Humankind 4,284,213 3,703,960 580,253 15.67 %
HLJ Huimeijia (3,707 ) (9,795 ) 6,088 (62.15 )%
Revenue
Total revenues increased by $619,930 or 12.77% for the six months ended December
31, 2019 , as compared to the same period in 2018. The increase in revenues,
mainly due to the increasing demand of Hemp Polypeptide and Hemp Protein Powder,
was primarily due to an increase of $629,690 or 13.09% in Humankind's revenues
for the six months ended December 31, 2019 as compared to the same period in
2018.
Our total cost of sales increased by $33,589 or 2.89% for the six months ended
December 31, 2019 as compared to the same period in 2018. The increased cost of
the main business was mainly due to that the revenue increased for the six
months ended December 31, 2019 as compared to the same period in 2018 . However,
the growth ratio of cost was lower than that of the revenue because the unit
cost of Hemp Polypeptide and Hemp Protein Powder was lower than the other two
hemp products for the six months ended December 31, 2019 compared with thesame period in 2018.
Our gross margin increased by
Sales by Product Line
The following table summarizes the breakdown of our sales by major product lines
for the six months ended
December 31, 2019 December 31, 2018
% of % of
Sales US$ Sales Sales US$ Sales
Hemp Derivative Products $ 4,203,277 76.76 % 3,367,748 69.36 %
Health Products 1,236,806 22.59 % 1,468,071 30.23 %
Medical Drugs 35,829 0.65 % 20,163 0.41 %
Total $ 5,475,912 100.00 % $ 4,855,982 100.00 %
26
Operating Expenses
The following table summarizes our operating expenses for the six months ended
December 31, December 31,
2019 2018 Variance %
Operating Expenses
Selling, general and administrative $ 1,000,291 $ 1,020,295 $ (20,004 ) (1.96 )%
Depreciation and amortization 289,916 284,280 5,636 1.98 %
Total Operating Expenses $ 1,290,207 $ 1,304,575 $ (14,368 ) (1.10 )%
Total operating expenses for the six months ended December 31, 2019 were $14,368
or 1.10% lower than those in the corresponding period in 2018. The decrease in
operating expenses was primarily attributable to the decrease of $20,004 or
1.96% in selling, general and administrative expenses, which was mainly due to
the decrease of staff cost of HLJ Huimeijia and the change exchange rate for the
six months ended December 31, 2019 as compared to the same period in 2018. The
depreciation and amortization expenses increased by $5,636 or 1.98% for the six
months ended December 31, 2019 , as compared to the same period in 2018, which
was mainly caused by the increase of property, plants and equipment of
Humankind used for research and development on new developed products.
Interest Income and Interest Expense
Interest income was$62,041 for the six months endedDecember 31, 2019 , as compared to$54,716 for the six months endedDecember 31, 2018 . This increase of$7,325 , or 13%, was mainly due to the increased average balance of bank deposits compared with the same period of 2019.
Interest expense was
Income Taxes Income taxes increased by$158,693 , or 22%, from$709,710 for the six months endedDecember 31, 2018 to$868,403 for the six months endedDecember 31, 2019 . The increase in income taxes was due to the increase of the Company's income from operations in the amount of$592,370 . 27
Net Income and Net Income Per Share
Net income was$2,183,158 for the six months endedDecember 31, 2019 , as compared to$1,749,481 for the six months endedDecember 31, 2018 . This increase of$433,677 in net profit was primarily attributable to an increase of gross margin.
Net income per share was$0.0333 for the six months endedDecember 31, 2019 and$0.0267 for the six months endedDecember 31, 2018 , respectively. This increase was primarily a result of the aforementioned increase in net profit.
Liquidity and Capital Resources
We believe our current working capital position, together with our expected future cash flows from operations and loans from our major shareholder, will be adequate to fund our operations in the ordinary course of business, anticipated capital expenditures, debt payment requirements, and other contractual obligations for at least the next twelve months. However, this belief is based upon many assumptions and is subject to numerous risks, and there can be no assurance that we will not require additional funding in the future.
The following table summarizes our cash and cash equivalents positions, our
working capital, and our cash flow activities as of
December 31, June 30,
2019 2019
Cash and cash equivalents $ 36,675,831 $ 35,507,535
Working capital $ 31,915,518 $ 29,832,774
Inventories $ 843,076 $ 857,239
For the Six Months ended December 31,
2019 2018
Cash provided by (used in):
Operating activities $ 1,728,466 $ 1,550,548
Investing activities $ (149,845 ) $ (194,764 )
Financing activities $ - $ -
For the six months ended December 31, 2019 , our net increase in cash and cash
equivalents totaled $1,168,296 , which was comprised of net cash provided by
operating activities in the amount of $1,728,466 , net cash used in investing
activities in the amount of $149,845 and the effect of the prevailing exchange
rates on our cash position of $410,325 .
For the six months ended December 31, 2018 , our net increase in cash and cash
equivalents totaled $133,995 , which was comprised of net cash provided by
operating activities in the amount of $1,550,548 , net cash used in investing
activities in the amount of $194,764 and the effect of the prevailing exchange
rates on our cash position of $1,221,789 .
Our working capital at December 31, 2019 was $31,915,518 , compared to our
working capital of $29,832,774 at June 30, 2019 . This increase of $2,082,744 or
6.98% was primarily attributable to the increase of cash and cash equivalents
and accounts receivable in the amount of $1,168,296 and $1,269,754 , respectively
in the six months ended December 31, 2019 .
Net cash provided by operating activities was
Net cash used in investing activities was$149,845 for the six months endedDecember 31, 2019 , primarily due to expenditures in property, plant and equipment of$130,964 . The negative effect of exchange rate changes on cash and cash equivalents in the amount of$410,325 for the six months endedDecember 31, 2019 was mainly a result of the effect of the depreciation of the value of RMB for USD. The exchange rates from USD to RMB were 6.8668 to 1 and 6.9618 to 1 as ofJune 30, 2019 andDecember 31, 2019 , respectively, and the average exchange rate from USD to RMB was 7.0297 for the six months endedDecember 31, 2019 .
28
Net cash provided by operating activities was$1,550,548 for the six months endedDecember 31, 2018 , primarily attributable to an increase of taxes payable in the amount of$360,982 and an increase of amounts due to related parties in the amount of$248,961 . Net cash used in investing activities was$194,764 for the six months endedDecember 31, 2018 , primarily due to a decrease in property, plant and equipment of$112,055 . The negative effect of exchange rate changes on cash and cash equivalents in the amount of$1,221,789 for the six months endedDecember 31, 2018 was mainly a result of the effect of the depreciation of the value of RMB for USD. The exchange rates from USD to RMB were 6.2000 to 1 and 6.8776 to 1 as ofJune 30, 2018 andDecember 31, 2018 , respectively, and the average exchange rate from USD to RMB was 6.8605 for the six months endedDecember 31, 2018 . Other than as described in this report, we have no present agreements or commitments with respect to any material acquisitions of businesses, products, product rights, technologies, or any other material capital expenditures. However, we will continue to evaluate acquisitions of, and/or investments in, products, technologies, capital equipment or improvements, or companies that complement our business and may make such acquisitions and/or investments in the future. Accordingly, we may need to obtain additional sources of capital in the future to finance any such acquisitions and/or investments. We may not be able to obtain such financing on commercially reasonable terms, if at all. Even if we are able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing, or cause substantial dilution for our stockholders, in the case of equity financing. Related Party Debts We had related party debts in the amount of$7,209,075 as ofDecember 31, 2019 , as compared to$6,962,520 as ofJune 30, 2019 , representing an increase of$246,555 or 4%. Our related party debts mainly consist of a loan from Mr.Xin Sun , CEO of the Company. The loan is unsecured, non-interest bearing, and has no fixed terms of repayment. There was no written agreement for the loan. See
Note 8.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that are currently material or reasonably likely to be material to its financial position or results of operations.
Critical Accounting Policies and Estimates
We prepare the unaudited condensed consolidated financial statements in accordance with US GAAP. These accounting principles require us to make judgments, estimates and assumptions on the reported amounts of assets and liabilities at the end of each fiscal period, and the reported amounts of revenues and expenses during each fiscal period. We continually evaluate these judgments and estimates based on our own historical experience, knowledge and assessment of current business and other conditions, our expectations regarding the future based on available information, and assumptions that we believe
to be reasonable.
There have been no material changes during the three months endedDecember 31, 2019 in the Company's significant accounting policies to those previously disclosed in the annual report on Form 10-K for the fiscal year ended June
30,
2019.
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