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
consolidated financial statements and the related notes thereto as filed with
the SEC and other financial information contained elsewhere in this report.
Except as otherwise indicated by the context, references in this report to "we",
"us", "our", "the Registrant", "our Company", or "the Company" are to China
Health Industries Holdings, Inc. , a Delaware corporation, China Health
Industries Holdings Limited , a limited liability company incorporated under the
laws of Hong Kong , its wholly owned subsidiary in China , 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 to the People's Republic of China ; (ii) "U.S. dollar," "$" and "US$"
are to United States dollars; (iii) "RMB" are to Renminbi Yuan of China ; (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.
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 NMPA-approved medicines, 14 NMPA-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 . 19 We have developed the following products that are derived from hemp and obtained business license to manufacture and sell these products. We have begun 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 and Hemp Polypeptide accounted for 80.4% and 67.7% of the total revenues for the fiscal year of 2020 and 2019, 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 21%, 17%, 15%, 12%, 11%, and 9%, of our total sales, respectively,
for the fiscal year 2020. Although we do not currently sell our products online,
we expect to do so in the future.
2021 Outlook
Overall, we anticipate our total revenues for the year endedJune 30, 2021 versus the year endedJune 30, 2020 to increase by 30% or approximately$3 million , with growth in all categories of our product sales, including the anticipated revenue from Humankind for approximately$11 million , mainly in the sales growth of hemp-based products, and from HLJ Huimeijia for approximately$2 million . The gross profit margin for the year endedJune 30, 2020 is expected to be approximately 70%, and we estimate our overall net profit margin for the year endedJune 30, 2020 to be approximately 30%. There is, however, no assurance that we will reach these projections. The COVID-19 global pandemic has adversely affected our business in a short term. However, in the long term, we endeavor using our expertise to help humankind fight against the pandemic. We sell products such as Hemp Protein Powder and Hemp Polypeptide to help people improve their immune system. As the COVID-19 continues to spread and people's awareness and knowledge of the virus continue to increase, consumers realized that strengthening their own immunity and resistance is among the most effective ways to fight against COVID-19, and consumers will pay more attention to strengthen of physical fitness, and therefore use more protein powder, protein peptides and other health foods. There is significant uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impact on the economy ofChina ,U.S. and the rest of the world and, as such, the extent of the business disruption and the related financial impact cannot be reasonably estimated
at this time. Results of Operations
The following table summarizes the top lines of the results of our operations
for the years ended
June 30, June 30,
2020 2019 Variance %
Revenues $ 9,931,887 $ 9,275,386 $ 656,501 7 %
Humankind 9,891,878 9,203,087 688,791 7 %
HLJ Huimeijia 40,009 72,299 (32,290 ) (45 )%
Cost of Goods Sold $ 2,657,044 $ 2,238,011 $ 419,033 19 %
Humankind 2,610,147 2,118,239 491,908 23 %
HLJ Huimeijia 46,897 119,772 (72,875 ) (61 )%
Gross Profit $ 7,274,843 $ 7,037,375 $ 237,468 3 %
Humankind 7,281,731 7,084,848 196,883 3 %
HLJ Huimeijia (6,888 ) (47,473 ) 40,585 (85 )%
20
Revenue
Total revenues of the Company increased by $656,501 or 7%, for the year ended
June 30, 2020 as compared to the year ended June 30, 2019 . The increase in
revenues was primarily due to an increase of $688,791 or 7% in Humankind's
revenues and a decrease of $32,290 or 45% in HLJ Huimeijia's revenues for the
year ended June 30, 2020 as compared to the year ended June 30, 2019 . The
increase in Humankind's sales revenues was primarily due to discounts on major
products and increased sales to agents.
Our total cost of sales increased by $419,033 or 19% for the year ended June 30,
2020 as compared to the year ended June 30, 2019 . The increase in the overall
cost of sales was attributable to an increase of $491,908 or 23% in Humankind's
cost of sales, in 2020 as compared to the year ended June 30, 2019 . This
increase is mainly due to the increase in sales volume caused by discounts and
promotions, while unit cost remained unchanged and the total cost of sales
increased.
Our gross profit increased by
Sales by Product Line
The following table summarizes a breakdown of our sales by major product line
for the years ended
June 30, 2020 June 30, 2019
Quantity Sales % Quantity Sales %
(Unit) US$ of (Unit) US$ of
Humankind
Propolis and Black Ant
Capsule - - - - - -
Waterlilies Soft Capsule
(Sailuozhi) - - - - - -
Hemp Oil 122,047 $ 4,019,863 40.0 % 111,204 $ 4,589,221 48.7 %
Collagen Peptide 88,643 1,929,616 19.2 % 104,846 2,967,817 31.5 %
Hemp Polypeptide 90,314 2,729,741 27.1 % 28,189 1,162,988 12.3 %
Hemp Protein Powder 69,471 1,339,653 13.3 % 22,217 629,693 6.7 %
HLJ Huimeijia
Natural Hemp Cosmetics 120 1,322 0.0 % 168 1,781 0.0 %
Muskiness Bone Strengthener
Paste 72,164 16,513 0.2 % 95,047 22,689 0.2 %
ShangBiTongDing 529 598 0.0 % 4,221 5,285 0.1 %
Indometacin andFurazolidone Suppositories 2,440 1,928 0.0 %
13,100 9,483 0.1 % Enema Glycerini 8,480 764 0.0 % 48,730 3,265 0.0 % Ge Hong Beriberi Water - - - 44 15 0.0 % Umguentum Acidi Borici Camphoratum - - - - - - Injury and Rheumatism Relieving Paste 33,094 7,428 0.1 % 8,286 3,183 0.0 % Refining GouPi Cream 19,476 5,164 0.1 % 84,953 22,096 0.2 % Natural Hemp supplies - - - 3,470 4,501 0.0 % Total$ 10,052,590 100.0 %$ 9,422,017 100.0 % 21 Operating Expenses
The following table summarizes our operating expenses for the years ended
June 30, June 30,
2020 2019 Variance %
Operating Expenses
Selling, general and administrative $ 1,781,680 $ 1,864,636 $ (82,956 ) (4 )%
Depreciation and amortization 601,068 610,821 (9,753 ) (2 )%
Total Operating Expenses $ 2,382,748 $ 2,475,457 $ (92,709 ) (4 )%
Total operating expenses for the year ended June 30, 2020 declined by $92,709 or
4%, as compared to the corresponding period in 2019. The decrease in operating
expenses was primarily attributable to a decrease of $82,956 or 4% in selling,
general and administrative expenses. The decrease in selling, general and
administrative expenses was mainly due to COVID-19, the Company ceased
production in February 2020 , the employees' salaries decreased, and the related
expenses decreased accordingly. The Company has obtained government approval for
reinstatement and reopened in early March.
Interest Income and Interest Expenses
Interest income was$125,627 for the year endedJune 30, 2020 , as compared to$114,228 for the year endedJune 30, 2019 . This increase of$11,399 , or 10%, was primarily due to the increased deposits in the bank compared with the year
endedJune 30, 2019 .
Interest expense was
Income Taxes Income taxes increased by$82,697 , or 6%, from$1,383,663 for the year endedJune 30, 2019 to$1,466,360 for the year endedJune 30, 2020 . This increase of income tax expense incurred in the fiscal year endedJune 30, 2020 was primarily due to the increase of gross margin.
Net Income (Loss) and Net Income per Share
Net income after provision for income taxes increased to$3,550,610 , an increase of$243,571 for the year endedJune 30, 2020 , as compared to$3,307,039 for the year endedJune 30, 2019 . The increase was primarily due to the increase of gross margin and the decrease of selling, general and administrative.
Net income per share was
Liquidity and Capital Resources
We believe our current working capital position, together with our expected
future cash flows from operations, 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.
22
The following table summarizes our cash and cash equivalents position, our
working capital, and our cash flow activity as of the fiscal years ended
2020 2019
For the years ended June 30 :
Cash and cash equivalent $ 36,072,474 $ 35,507,535
Working capital $ 33,223,104 $ 29,832,774
Inventories, net $ 807,351 $ 857,239 For the years ended
2020 2019
Cash provided by (used in):
Operating activities $ 2,404,978 $ 5,115,385
Investing activities $ (151,969 ) $ (123,995 )
Financing activities $ - $ -
Cash and cash equivalents increased by
Our working capital atJune 30, 2020 was$33,223,104 , compared to working capital of$29,832,774 atJune 30, 2019 . This increase of$3,390,330 or 11% was primarily attributable to the increase of cash and cash equivalents in the amount of$564,939 , increase in accounts receivable in the amount of$2,640,646 , and the increase of advance to suppliers in the amount of$197,031 . Net cash provided by operating activities was$2,404,978 for the year endedJune 30, 2020 , compared to$5,115,385 for the year endedJune 30, 2019 . The decrease of$2,710,407 in the net cash provided by operating activities was primarily attributable to the increase of accounts receivable in the amount of$2,640,646 . Net cash used in investing activities was$151,969 for the year endedJune 30, 2020 , compared to$123,995 for the year endedJune 30, 2019 , primarily due to the decrease of disposal of property, plant and equipment in the amount of$23,750 .
Net cash provided by financing activities was $nil for both years ended
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 or 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 of$7,259,862 as ofJune 30, 2020 , as compared to$6,962,520 as ofJune 30, 2019 , an increase of$297,342 or 4%. The amount of related party debts mainly consists of a loan from Mr.Xin Sun , the CEO of the Company. The loan is unsecured and non-interest bearing and has no fixed terms of repayment. There was no written agreement for the loan. See Note 9.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that are currently material or reasonably likely to be material to our financial position or results of operations.
Critical Accounting Policies and Estimates
We regularly evaluate the accounting policies and estimates that we use to make budgetary and financial statement assumptions. A complete summary of these policies is included in Note 2 to our consolidated financial statements, "Significant Accounting Policies", and is incorporated herein by reference. In general, management's estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.
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