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. 21 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 . 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 cosmetics are sold through HLJ Huimeijia. The revenue of the Hemp Oil, Hemp Protein Powder, Hemp Polypeptide and Collagen Peptide accounted for 99.46% and 98.69% for the three-month periods endedSeptember 30, 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
Our business is conducted through our sales agents and sales personnel. We sell our products directly to end customers through our own sales personnel as well as our sales agents, operating primarily inAnhui ,Zhejiang ,Shanghai ,Jiangsu ,Beijing andGansu , where most of our revenues are generated. Sales by agents inAnhui ,Zhejiang ,Shanghai ,Jiangsu ,Beijing , andGansu provinces accounted for 22%, 18%, 16%, 13%, 12%, and 9% of our total sales, respectively, for the three months endedSeptember 30, 2020 . Although we do not currently sell our products online, we expect to do so in the future. 22 Results of Operations
Three months ended
The following table summarizes the top lines of the results of our operations
for the three months ended
September 30, September 30,
2020 2019 Variance %
Revenues $ 2,192,082 $ 2,053,924 $ 138,158 6.73 %
Humankind 2,180,085 2,026,989 153,096 7.55 %
HLJ Huimeijia 11,997 26,935 (14,938 ) (55.46 )%
Cost of Goods Sold $ 951,780 $ 508,896 $ 442,884 87.03 %
Humankind 902,450 473,888 428,562 90.44 %
HLJ Huimeijia 49,330 35,008 14,322 40.91 %
Gross Profit $ 1,240,302 $ 1,545,028 $ (304,726 ) (19.72 )%
Humankind 1,277,635 1,553,101 (275,466 ) (17.74 )%
HLJ Huimeijia (37,333 ) (8,073 ) (29,260 ) 362.44 %
Revenue
Total revenues increased by $138,158 or 6.73% for the three months ended
September 30, 2020 , as compared to the same period in 2019. The increase in
revenues was primarily due to an increase of $153,096 or 7.55% in Humankind's
revenues, offset by a decrease of $14,938 in HLJ Huimeijia's revenues for the
three months ended September 30, 2020 as compared to the same period in 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 $442,884 or 87.03% for the three months
ended September 30, 2020 as compared to the same period in 2019. This increase
was mainly due to the increase in sales volume caused by discounts and
promotions, while unit cost remained unchanged and the total cost of sales
increased.
Our gross margin decreased by
Sales by Product Line
The following table summarizes a breakdown of our sales by major product lines
for the three months ended
September 30, 2020 September 30, 2019
Quantity % of Quantity % of
(Unit) Sales US$ Sales (Unit) Sales US$ Sales
Humankind
Hemp Oil 38,004 $ 758,495 34.23 % 21,553 $ 862,405 41.99 %
Collagen Peptide 19,132 229,142 10.34 % 19,042 523,417 25.48 %
Hemp Polypeptide 37,076 740,029 33.41 % 10,378 220,848 10.75 %
Hemp Protein Powder 39,707 475,579 21.47 % 7,955 420,318 20.46 %
HLJ Huimeijia
Muskiness Bone
Strengthener Paste 38,001 4,990 0.23 % 1,440 7,105 0.35 %
Dampness dispelling
pain ointment 18,663 2,439 0.11 % 840 6,701 0.33 %
Refining Cream
dogskin 15,050 1,974 0.09 % 1,800 4,152 0.20 %
Indometacin and
Furazolidone
Suppositories 19,690 2,595 0.12 % 2,400 1,584 0.08 %
ShangBiTongDing - - - % 120 464 0.02 %
Enema Glycerini - - - % 1,140 559 0.03 %
Essence repair liquid - - - % 1,440 6,371 0.31 %
Total 225,323 $ 2,215,243 100.00 % 68,108 $ 2,053,924 100.00 %
23
Operating Expenses
The following table summarizes our operating expenses for the three months ended
September 30, September 30,
2020 2019 Variance %
Operating Expenses
Selling, general and administrative $ 200,332 $ 366,988 $ (166,656 ) (45.41 )%
Depreciation and amortization 157,872 139,164 18,708 13.44 %
Total Operating Expenses $ 358,204 $ 506,152 $ (147,948 ) (29.23 )%
Total operating expenses for the three months endedSeptember 30, 2020 were$147,948 or 29.23% lower than those in the corresponding period in 2019. The decrease in operating expenses was primarily attributable to decrease of$166,656 or 45.44% in selling, general and administrative expenses. The decrease in selling, general and administrative expenses was mainly due to the decrease of legal & professional fee and audit fee for the three months endedSeptember 30, 2020 as compared to the same period in 2019.
Interest Income and Interest Expense
Interest income was$32,103 for the three months endedSeptember 30, 2020 , as compared to$30,748 for the three months endedSeptember 30, 2019 . This increase of$1,355 , or 4%, was mainly due to the increased average balance of bank deposits compared with the same period of 2020.
Interest expense was $nil for the three months ended
Income Taxes Income taxes decreased by$38,314 , or 12%, from$312,507 for the three months endedSeptember 30, 2019 to$274,193 for the three months endedSeptember 30, 2020 . The decrease in income taxes was mainly due to the decrease of the Company's gross profit in the amount of$304,726 , from the gross profit of$1,545,028 for the three months endedSeptember 30, 2019 to the gross profit of$1,240,302 for the three months endedSeptember 30, 2020 . 24
Net Income and Net Income Per Share
Net Income was
Net Income per share was$0.0098 for the three months endedSeptember 30, 2020 and$0.0115 for the three months endedSeptember 30, 2019 , respectively. This decrease was primarily a result of the aforementioned decrease 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
September 30, June 30,
2020 2020
Cash and cash equivalents $ 38,718,648 $ 36,072,474
Working capital $ 35,463,841 $ 33,223,104
Inventories $ 838,404 $ 807,351
For the
Three Months ended
September 30,
2020 2019
Cash provided by (used in):
Operating activities
For the three months endedSeptember 30, 2020 , our net increase in cash and cash equivalents totaled$2,646,174 , which total was comprised of net cash provided by operating activities in the amount of$1,117,379 , net cash used in investing activities in the amount of$145 and the effect of prevailing exchange rates on our cash position of$1,528,940 . For the three months endedSeptember 30, 2019 , our net decrease in cash and cash equivalents totaled$526,183 , which total was comprised of net cash provided by operating activities in the amount of$951,467 , net cash used in investing activities in the amount of$103,258 and the effect of prevailing exchange rates on our cash position of$1,374,392 . Our working capital atSeptember 30, 2020 was$35,463,841 , compared to working capital of$33,223,104 atJune 30, 2020 . This increase of$2,240,737 or 6.74% was primarily attributable to the increase of cash and cash equivalents in
the amount of$2,646,174 . Net cash provided by operating activities was$1,117,379 for the three months endedSeptember 30, 2020 , primarily attributable to net income in the amount of$639,692 and a decrease of accounts receivable in the amount of$241,625 . The positive effect of exchange rate changes on cash and cash equivalents in the amount of$1,528,940 for the three months endedSeptember 30, 2020 was mainly a result of the effect of the valuation of the RMB against the USD on the significant amount of cash and cash equivalents held by the Company in RMB. The exchange rates from USD to RMB were 7.0650 to 1 and 6.7896 to 1 as ofJune 30, 2020 andSeptember 30, 2020 , respectively, and the average exchange rate from USD to RMB was 6.9153 for the three months endedSeptember 30, 2020 . 25
Net cash provided by operating activities was$951,467 for the three months endedSeptember 30, 2019 , primarily attributable to net income in the amount of$756,574 and a decrease of accounts receivable in the amount of$114,918 . Net cash used in investing activities was$103,258 for the three months endedSeptember 30, 2019 , primarily due to expenditures in property, plant and equipment of$108,529 . The negative effect of exchange rate changes on cash and cash equivalents in the amount of$1,374,392 for the three months endedSeptember 30, 2019 was mainly a result of the effect of the valuation of the RMB against the USD on the significant amount of cash and cash equivalents held by the Company in RMB. The exchange rates from USD to RMB were 6.8668 to 1 and 7.1477 to 1 as ofJune 30, 2019 andSeptember 30, 2019 , respectively, and the average exchange rate from USD to RMB was 7.0150 for the three months endedSeptember 30, 2019 . 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$7,567,727 as ofSeptember 30, 2020 , as compared to$7,259,862 as ofJune 30, 2020 , an increase of$307,865 or 4%. Our related party debts mainly consist of a loan from Mr.Xin Sun , the 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 endedSeptember 30, 2020 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, 2020. 26
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