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 99.78% and 79.69% for the nine-month periods endedMarch 31, 2021 and 2020, 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 nine months endedMarch 31, 2021 . 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
March 31, March 31,
2021 2020 Variance %
Revenues $ 778,675 $ 2,423,720 $ (1,645,045 ) (67.87 )%
Humankind 778,486 2,421,935 (1,643,449 ) (67.86 )%
HLJ Huimeijia 189 1,785 (1,596 ) (89.41 )%
Cost of Goods Sold $ 292,316 $ 566,692 $ (274,376 ) (48.42 )%
Humankind 291,550 565,409 (273,859 ) (48.44 )%
HLJ Huimeijia 766 1,283 (517 ) (40.30 )%
Gross Profit $ 486,359 $ 1,857,028 $ (1,370,669 ) (73.81 )%
Humankind 486,936 1,856,526 (1,369,590 ) (73.77 )%
HLJ Huimeijia (577 ) 502 (1,079 ) (214.94 )%
Revenue
Total revenues decreased by$1,645,045 or 67.87% for the three months endedMarch 31, 2021 , as compared to the same period in 2020. The decrease in revenues was primarily due to a decrease of$1,643,449 or 67.86% in Humankind's revenues, and a decrease of$1,596 in HLJ Huimeijia's revenues for the three months endedMarch 31, 2021 as compared to the same period in 2020. The decrease in Humankind's sales revenues was primarily due to the discounts we have been offering on our major products sinceApril 2020 and the continuing impacts of COVID-19 pandemic for the three months endedMarch 31, 2021 , which resulted in the decrease of sales volume of Humankind compared to the same period in 2020.
Our total cost of goods sold decreased by
Our gross margin decreased by$1,370,669 or 73.81% for the three months endedMarch 31, 2021 as compared to the same period in 2020. The decrease in gross profit was primarily due to the discounts we offered on our major products, which led to a decrease in the sales unit price while the unit cost remained unchanged. Sales by Product Line
The following table summarizes a breakdown of our sales by major product lines
for the three months ended
March 31, 2021 March 31, 2020
% of % of
Sales US$ Sales Sales US$ Sales
Hemp Derivative Products $ 727,915 92.32 % $ 2,084,249 85.99 %
Health Products 60,367 7.66 % 339,110 13.99 %
Medical Drugs 189 0.02 % 361 0.01 %
Total $ 788,471 100.00 % $ 2,423,720 100.00 %
24
Operating Expenses
The following table summarizes our operating expenses for the three months ended
March 31, March 31,
2021 2020 Variance %
Operating Expenses
Selling, general and administrative $ 166,236 $ 389,009 $ (222,773 ) (57.27 )%
Depreciation and amortization 155,627 145,817 9,810 6.73 %
Total Operating Expenses $ 321,863 $ 534,826 $ (212,963 ) (39.82 )%
Total operating expenses for the three months ended March 31, 2021 were $212,963
or 39.82% lower than those in the corresponding period in 2020. The decrease in
operating expenses was primarily attributable to decrease of $222,773 or 57.27%
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$35,687 for the three months endedMarch 31, 2021 , as compared to$31,801 for the three months endedMarch 31, 2021 . This increase of$3,886 , or 12%, was mainly due to the increased average balance of bank deposits compared with the same period of 2021. Income Taxes Income taxes decreased by$263,091 , or 73%, from$361,094 for the three months endedMarch 31, 2020 to$98,003 for the three months endedMarch 31, 2021 . The decrease in income taxes was mainly due to the decrease of the Company's gross profit in the amount of$1,370,669 , from the gross profit of$1,857,028 for the three months endedMarch 31, 2020 to the gross profit of$486,359 for the three months endedMarch 31, 2021 . 25
Net Income and Net Income Per Share
Net Income was$102,032 for the three months endedMarch 31, 2021 , as compared to$992,722 for the three months endedMarch 31, 2020 . This decrease of$890,690 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$0.0016 for the three months endedMarch 31, 2021 and$0.0151 for the three months endedMarch 31, 2020 , respectively. This decrease was primarily a result of the aforementioned decrease in net profit.
Nine months ended
The following table summarizes the top lines of the results of our operations
for the nine months ended
March 31, March 31,
2021 2020 Variance %
Revenues $ 6,060,473 $ 7,899,632 $ (1,839,159 ) (23.28 )%
Humankind 6,047,070 7,862,018 (1,814,948 ) (23.09 )%
HLJ Huimeijia 13,403 37,614 (24,211 ) (64.37 )%Cost of Goods Sold$ 2,538,429 $ 1,762,098 $ 776,331
44.06 % Humankind 2,484,003 1,721,279 762,724 44.31 % HLJ Huimeijia 54,426 40,819 13,607 33.33 % Gross Profit$ 3,522,044 $ 6,137,534 $ (2,615,490 ) (42.61 )% Humankind 3,563,067 6,140,739 (2,577,672 ) (41.98 )% HLJ Huimeijia (41,023 ) (3,205 ) (37,818 ) (1,179.97 )% Revenue
Total revenues decreased by$1,839,159 or 23.28% for the nine months endedMarch 31, 2021 , as compared to the same period in 2020. The decrease in revenues was primarily caused by a decrease of$1,814,948 or 23.09% in Humankind's revenues, and a decrease of$24,211 in HLJ Huimeijia's revenues for the nine months endedMarch 31, 2021 as compared to the same period in 2020. Although the sales volume increased compared to the same period in 2020, we experienced a decrease in Humankind's sales revenues during the nine months endedMarch 31, 2021 primarily due to discounts we offered on our major products. Our total cost of goods sold increased by$776,331 or 44.06% for the nine months endedMarch 31, 2021 as compared to the same period in 2020. 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 unchanged but the total cost of goods sold increased. Our gross margin decreased by$2,615,490 or 42.61% for the nine months endedMarch 31, 2021 as compared to the same period in 2020. The decrease in gross profit was primarily due to the discounts we offered on our major products, which led to a decrease in the sales unit price while the unit cost remained unchanged. 26 Sales by Product Line
The following table summarizes the breakdown of our sales by major product lines
for the nine months ended
March 31, 2021 March 31, 2020
% of % of
Sales US$ Sales Sales US$ Sales
Hemp Derivative Products $ 5,490,244 89.63 % $ 6,295,569 79.69 %
Health Products 621,693 10.15 % 1,572,186 19.90 %
Medical Drugs 13,403 0.22 % 31,877 0.40 %
Total $ 6,125,340 100.00 % $ 7,899,632 100.00 %
Operating Expenses
The following table summarizes our operating expenses for the nine months ended
March 31, March 31,
2021 2020 Variance %
Operating ExpensesSelling, general and administrative$ 883,527 $ 1,389,300
$ (505,773 ) (36.40 )% Depreciation and amortization 465,767 435,733 30,034 6.89 % Total Operating Expenses$ 1,349,294 $ 1,825,033 $ (475,739 ) (26.07 )% Total operating expenses for the nine months endedMarch 31, 2021 were$475,739 or 26.07% lower than those in the corresponding period in 2020. The decrease in operating expenses was primarily attributable to decrease of$505,773 or 36.40% 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$102,090 for the nine months endedMarch 31, 2021 , as compared to$93,842 for the nine months endedMarch 31, 2020 . This increase of$8,248 , or 9%, was mainly due to the increased average balance of bank deposits compared with the same period of 2021.
Interest expense was $nil for the nine months ended
Income Taxes Income taxes decreased by$512,559 , or 42%, from$1,229,497 for the nine months endedMarch 31, 2020 to$716,938 for the nine months endedMarch 31, 2021 . The decrease in income taxes was mainly due to the decrease of the Company's gross profit in the amount of$2,615,490 , from the gross profit of$6,137,534 for the nine months endedMarch 31, 2020 to the gross profit of$3,522,044 for the nine months endedMarch 31, 2021 .
Net Income and Net Income Per Share
Net income was$1,557,767 for the nine months endedMarch 31, 2021 , as compared to$3,175,880 for the nine months endedMarch 31, 2020 . This decrease of$1,618,113 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$0.0238 for the nine months endedMarch 31, 2021 and$0.0485 for the nine months endedMarch 31, 2020 , respectively. This decrease was primarily a result of the aforementioned decrease in net profit. 27
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
March 31, June 30,
2021 2020
Cash and cash equivalents $ 41,116,145 $ 36,072,474
Working capital $ 38,123,392 $ 33,223,104
Inventories $ 952,042 $ 807,351
For the Nine Months ended
March 31,
2021 2020
Cash provided by (used in):
Operating activities $ 3,089,788 $ 2,253,768
Investing activities $ (13,540 ) $ (152,363 )
Financing activities $ - $ -
For the nine months endedMarch 31, 2021 , our net increase in cash and cash equivalents totaled$5,043,671 , which total was comprised of net cash provided by operating activities in the amount of$3,089,788 , net cash used in investing activities in the amount of$13,540 and the effect of prevailing exchange rates on our cash position of$1,967,423 . For the nine months endedMarch 31, 2020 , our net increase in cash and cash equivalents totaled$1,374,122 , which total was comprised of net cash provided by operating activities in the amount of$2,253,768 , net cash used in financing activities in the amount of$152,363 and the effect of the prevailing exchange rates on our cash position of$1,015,331 .
Our working capital at
Net cash provided by operating activities was$3,089,788 for the nine months endedMarch 31, 2021 , primarily attributable to net income in the amount of$1,557,767 and a decrease of accounts receivable in the amount of$119,103 . The positive effect of exchange rate changes on cash and cash equivalents in the amount of$1,967,423 for the nine months endedMarch 31, 2021 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 6.5518 to 1 as ofJune 30, 2020 andMarch 31, 2021 , respectively, and the average exchange rate from USD to RMB was 6.6788 for the nine months endedMarch 31, 2021 . 28 Net cash provided by operating activities was$2,253,768 for the nine months endedMarch 31, 2020 , primarily attributable from net income of$3,175,880 . Net cash used in investing activities was$152,363 for the nine months endedMarch 31, 2020 , primarily due to expenditures in property, plant and equipment of$133,436 . The negative effect of exchange rate changes on cash and cash equivalents in the amount of$1,015,331 for the nine months endedMarch 31, 2020 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 7.0808 to 1 as ofJune 30, 2019 andMarch 31, 2020 , respectively, and the average exchange rate from USD to RMB was 7.0128 for the nine months endedMarch 31, 2020 . 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$7,927,301 as ofMarch 31, 2021 , as compared to$7,259,862 as ofJune 30, 2020 , an increase of$667,439 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 nine months endedMarch 31, 2021 in the Company's significant accounting policies to those previously disclosed in the annual report on Form 10-K for the fiscal year endedJune 30, 2020 . 29
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