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 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 99.75% and 93.35% for the six-month periods endedDecember 31, 2020 and 2019, respectively. Serial No.Name 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 BrighteningEye 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%, 12%, 12%, and 9% of our total sales, respectively, for the six months endedDecember 31, 2020 . 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,
2020 2019 Variance %
Revenues $ 3,089,716 $ 3,421,988 $ (332,272 ) (9.71 )%
Humankind 3,088,499 3,413,094 (324,595 ) (9.51 )%
HLJ Huimeijia 1,217 8,894 (7,677 ) (86.32 )%
Cost of Goods Sold $ 1,294,333 $ 686,510 $ 607,823 88.54 %
Humankind 1,290,003 681,982 608,021 89.15 %
HLJ Huimeijia 4,330 4,528 (198 ) (4.37 )%
Gross Profit $ 1,795,383 $ 2,735,478 $ (940,095 ) (34.37 )%
Humankind 1,798,496 2,731,112 (932,616 ) (34.15 )%
HLJ Huimeijia (3,113 ) 4,366 (7,479 ) (171.30 )%
Revenue
Total revenues decreased by $332,272 or 9.71% for the three months ended
December 31, 2020 , as compared to the same period in 2019. The decrease in
revenues was primarily due to a decrease of $324,595 or 9.51% in Humankind's
revenues, and a decrease of $7,677 in HLJ Huimeijia's revenues for the three
months ended December 31, 2020 as compared to the same period in 2019. The
decrease in Humankind's sales revenues was primarily due to the discounts we
offered on our major products, while the sales volume increased compared to the
same period in 2019. The decrease in HLJ Huimeijia's sales revenues was
primarily due to the outbreak of COVID-19 pandemic, which resulted in the cease
of production of HLJ Huimeijia.
Our total cost of goods sold increased by $607,823 or 88.54% for the three
months ended December 31, 2020 as compared to the same period in 2019. This
increase was mainly due to the increase in sales volume caused by the discounts
and promotions we offered during this period, while unit cost remained and the
total cost of goods sold increased.
Our gross margin decreased by $940,095 or 34.37% for the three months ended
December 31, 2020 as compared to the same period in 2019. The decrease in gross
profit was primarily due to the discounts we offered on our major products,
which led to a decrease in the sales unit price while the unit cost remained
unchanged.
Sales by Product Line
The following table summarizes a breakdown of our sales by major product lines
for the three months ended
December 31, 2020 December 31, 2019
Quantity % of Quantity % of
(Unit) Sales US$ Sales (Unit) Sales US$ Sales
Humankind
Hemp Oil 51,329 $ 1,070,558 34.29 % 35,948 $ 1,474,698 42.24 %
Collagen Peptide 26,545 332,184 10.64 % 25,885 730,237 20.92 %
Hemp Polypeptide 45,876 958,210 30.70 % 22,165 1,107,209 31.72 %
Hemp Protein Powder 60,773 759,458 24.33 % 13,306 175,059 5.01 %
HLJ Huimeijia
Muskiness Bone
Strengthener Paste 1,480 336 0.01 % 3,309 1,293 0.04 %
Dampness dispelling
pain ointment 975 296 0.01 % 3,222 999 0.03 %
Refining Cream
dogskin 800 146 0.01 % 1,530 402 0.01 %
Indometacin and
Furazolidone
Suppositories 1,645 438 0.01 % 3,551 871 0.02 %
ShangBiTongDing - - - % 40 147 0.01 %
Total 189,423 $ 3,121,626 100.00 % 108,956 $ 3,490,915 100.00 %
24
Operating Expenses
The following table summarizes our operating expenses for the three months ended
December 31, December 31,
2020 2019 Variance %
Operating Expenses
Selling, general and administrative $ 516,959 $ 633,303 $ (116,344 ) (18.37 )%
Depreciation and amortization 152,268 150,752 1,516 1.01 %
Total Operating Expenses $ 669,227 $ 784,055 $ (114,828 ) (14.65 )%
Total operating expenses for the three months endedDecember 31, 2020 were$114,828 or 14.65% lower than those in the corresponding period in 2019. The decrease in operating expenses was primarily attributable to decrease of$116,344 or 18.37% in selling, general and administrative expenses. The decrease in selling, general and administrative expenses was mainly due to lower staff cost.
Interest Income and Interest Expense
Interest income was$34,300 for the three months endedDecember 31, 2020 , as compared to$31,293 for the three months endedDecember 31, 2019 . This increase of$3,007 , or 10%, 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$211,154 , or 38%, from$555,896 for the three months endedDecember 31, 2019 to$344,742 for the three months endedDecember 31, 2020 . The decrease in income taxes was mainly due to the decrease of the Company's gross profit in the amount of$940,095 , from the gross profit of$2,735,478 for the three months endedDecember 31, 2019 to the gross profit of$1,795,383 for the three months endedDecember 31, 2020 . 25
Net Income and Net Income Per Share
Net Income was$816,043 for the three months endedDecember 31, 2020 , as compared to$1,426,584 for the three months endedDecember 31, 2019 . This decrease of$610,541 in net income was primarily attributable to a decrease of gross margin. Revenue section mentioned the gross profit decreased due to the discounts we offered on our major products with the unchanged unit cost. The decrease of gross profits further caused the decrease in the net income. Net Income per share was$0.0125 for the three months endedDecember 31, 2020 and$0.0218 for the three months endedDecember 31, 2019 , respectively. This decrease was primarily a result of the aforementioned decrease 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,
2020 2019 Variance %
Revenues $ 5,281,798 $ 5,475,912 $ (194,114 ) (3.54 )%
Humankind 5,268,584 5,440,083 (171,499 ) (3.15 )%
HLJ Huimeijia 13,214 35,829 (22,615 ) (63.12 )%
Cost of Goods Sold $ 2,246,113 $ 1,195,406 $ 1,050,707 87.90 %
Humankind 2,192,453 1,155,870 1,036,583 89.68 %
HLJ Huimeijia 53,660 39,536 14,124 35.72 %
Gross Profit $ 3,035,685 $ 4,280,506 $ (1,244,821 ) (29.08 )%
Humankind 3,076,131 4,284,213 (1,208,082 ) (28.20 )%
HLJ Huimeijia (40,446 ) (3,707 ) (36,739 ) 991.07 %
Revenue
Total revenues decreased by $194,114 or 3.54% for the six months ended December
31, 2020 , as compared to the same period in 2019. The decrease in revenues was
primarily caused by a decrease of $171,499 or 3.15% in Humankind's revenues, and
a decrease of $22,615 in HLJ Huimeijia's revenues for the six months ended
December 31, 2020 as compared to the same period in 2019. The decrease in
Humankind's sales revenues was primarily due to discounts we offered on our
major products while the sales volume increased compared to the same periodin 2019.
Our total cost of goods sold increased by$1,050,707 or 87.90% for the six months endedDecember 31, 2020 as compared to the same period in 2019. This increase was mainly due to the increase in sales volume caused by the discounts and promotions we offered during this period, while unit cost remained and the total cost of goods sold increased. Our gross margin decreased by$1,244,821 or 29.08% for the six months endedDecember 31, 2020 as compared to the same period in 2019. The decrease in gross profit was primarily due to the discounts we offered on our major products, which led to a decrease in the sales unit price while the unit cost remained unchanged. 26 Sales by Product Line
The following table summarizes the breakdown of our sales by major product lines
for the six months ended
December 31, 2020 December 31, 2019
Quantity % of Quantity % of
(Unit) Sales US$ Sales (Unit) Sales US$ Sales
Humankind
Hemp Oil 89,333 1,829,053 34.27 % 57,501 2,337,103 42.16 %
Collagen Peptide 45,677 561,326 10.52 % 44,927 1,253,654 22.61 %
Hemp Polypeptide 82,952 1,698,239 31.82 % 32,543 1,328,057 23.95 %
Hemp Protein Powder 100,480 1,235,037 23.14 % 21,261 595,377 10.74 %
HLJ Huimeijia
Muskiness Bone
Strengthener Paste 39,481 5,326 0.10 % 34,533 8,398 0.15 %
Dampness dispelling
pain ointment 19,638 2,735 0.05 % 33,059 7,700 0.14 %
Refining Cream
dogskin 15,850 2,120 0.04 % 17,103 4,554 0.08 %
Indometacin and
Furazolidone
Suppositories 21,335 3,033 0.06 % 37,906 2,455 0.04 %
ShangBiTongDing - - - 519 611 0.01 %
Enema Glycerini and
Essence repair liquid - - - 2,580 6,930 0.12 %
Total 414,746 $ 5,336,869 100.00 % 281,932 $ 5,544,839 100.00 %
Operating Expenses
The following table summarizes our operating expenses for the six months ended
December 31, December 31,
2020 2019 Variance %
Operating Expenses
Selling, general and administrative $ 717,291 $ 1,000,291 $ (283,000 ) (28.29 )%
Depreciation and amortization 310,140 289,916 20,224 6.98 %
Total Operating Expenses $ 1,027,431 $ 1,290,207 $ (262,776 ) (20.37 )%
Total operating expenses for the six months ended December 31, 2020 were
$262,776 or 20.37% lower than those in the corresponding period in 2019. The
decrease in operating expenses was primarily attributable to decrease of
$283,000 or 28.29% in selling, general and administrative expenses. The decrease
in selling, general and administrative expenses was mainly due to the lower
staff cost.
Interest Income and Interest Expense
Interest income was$66,403 for the six months endedDecember 31, 2020 , as compared to$62,041 for the six months endedDecember 31, 2019 . This increase of$4,362 , or 7%, was mainly due to the increased average balance of bank deposits compared with the same period of 2020.
Interest expense was $nil for the six months ended
Income Taxes Income taxes decreased by$249,468 , or 29%, from$868,403 for the six months endedDecember 31, 2019 to$618,935 for the six months endedDecember 31, 2020 . The decrease in income taxes was mainly due to the decrease of the Company's gross profit in the amount of$1,244,821 , from the gross profit of$4,280,506 for the six months endedDecember 31, 2019 to the gross profit of$3,035,685 for the six months endedDecember 31, 2020 . 27
Net Income and Net Income Per Share
Net income was$1,455,735 for the six months endedDecember 31, 2020 , as compared to$2,183,158 for the six months endedDecember 31, 2019 . This decrease of$727,423 in net income was primarily attributable to a decrease of gross margin. Revenue section mentioned the gross profit decreased due to the discounts we offered on our major products with the unchanged unit cost. The decrease of gross profits further caused the decrease in the net income.
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 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,
2020 2020
Cash and cash equivalents $ 40,666,095 $ 36,072,474
Working capital $ 37,978,619 $ 33,223,104
Inventories $ 982,064 $ 807,351
For the
Six Months ended
December 31,,
2020 2019
Cash provided by (used in):
Operating activities
For the six months endedDecember 31, 2020 , our net increase in cash and cash equivalents totaled$ 4,593,621 , which total was comprised of net cash provided by operating activities in the amount of$2,462,504 , net cash used in investing activities in the amount of$11,366 and the effect of prevailing exchange rates on our cash position of$2,142,483 . For the six months endedDecember 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 . Our working capital atDecember 31, 2020 was$37,978,619 , compared to working capital of$33,223,104 atJune 30, 2020 . This increase of$4,755,515 or 14% was primarily attributable to the increase of cash and cash equivalents in the amount of$4,593,621 . Net cash provided by operating activities was$2,462,504 for the six months endedDecember 31, 2020 , primarily attributable to net income in the amount of$1,455,735 and a decrease of accounts receivable in the amount of$529,591 . The positive effect of exchange rate changes on cash and cash equivalents in the amount of$2,142,483 for the six months endedDecember 31, 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 6.5250 to 1 as ofJune 30, 2020 andDecember 31, 2020 , respectively, and the average exchange rate from USD to RMB was 6.7741 for the six months endedDecember 31, 2020 . 28
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 . 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$7,899,586 as ofDecember 31, 2020 , as compared to$7,259,862 as ofJune 30, 2020 , an increase of$639,724 or 9%. 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 endedDecember 31, 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.
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