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
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 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. 19 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 . 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. 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 0.00% and 0.00% for the three-month periods endedSeptember 30, 2022 and 2021, 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 model is to 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
used to be generated. Because of COVID-19 affect influence and the
"Transformation of the Company", we did not sell our product to sales agents for
the three months ended September 30, 2022 . Humankind is using existing materials
to research and develop hemp related products. Humankind decided to transform
the primary business to Cannabidiol ("CBD") extractive project, following the
government's guidance in expanding the use of hemps into cosmetics, food, or
daily uses. The Company will also receive the government's sponsorship in R&D
expenses to support the company research in CBD aspect, including various
industrial and biological application. However, by the end of fiscal year 2022,
the support guidelines had not been published. Although the research process is
slow and unpredictable due to the zero-case policy and periodic quarantines
caused by COVID-19 resurgence, we expect the CBD extractive project to start
generating revenue and finally balance our investment in the hemp related
products by 2024 ("Transformation").
20
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,
2022 2021 Variance %
Revenues $ - $ 266 $ (266 ) -100.00 %
Humankind - - -
HLJ Huimeijia - 266 (266 ) -100.00 %
Cost of Goods Sold $ - $ 1,744 $ (1,744 ) -100.00 %
Humankind - - -
HLJ Huimeijia - 1,744 (1,744 ) -100.00 %
Gross Profit $ - $ (1,478 ) $ 1,478 -100.00 %
Humankind - - -
HLJ Huimeijia - (1,478 ) 1,478 -100.00 %
Revenue
Total revenues decreased by $266 or 100.00% for the three months ended September
30, 2022 , as compared to the same period in 2021. The decrease in Humankind's
sales revenues was primarily due to Humankind's enterprise Transformation and
COVID-19 resurgence. Humankind is using existing materials to research and
develop hemp related products. Humankind decided to transform the primary
business to Cannabidiol ("CBD") extractive project, following the government's
guidance in expanding the use of hemps into cosmetics, food, or daily uses. The
Company will also receive the government's sponsorship in R&D expenses to
support the company research in CBD aspect, including various industrial and
biological application. However, by the end of fiscal year 2022, the support
guidelines had not been published. Although the research process is slow and
unpredictable due to the zero-case policy and periodic quarantines caused by
COVID-19 resurgence, we expect the CBD extractive project to start generating
revenue and finally balance our investment in the hemp related products by
2024
("Transformation").
Our total cost of goods sold decreased by $1,744 or 100.00% for the three months
ended September 30, 2022 as compared to the same period in 2021. The decrease in
Humankind's sales revenues was primarily due to Humankind's enterprise
Transformation, also sales were not smooth because of factory shut down under
COVID-19. Our gross margin decreased by $1,478 or 100.00% for the three months
ended September 30, 2022 as compared to the same period in 2021. This change was
consistent with the change of sales and costs in HLJ Huimeijia and Humankind.
The decrease in Humankind's sales revenues was primarily due to Humankind's
enterprise Transformation, also sales were not smooth because of factory shut
down under COVID-19.
Sales by Product Line
The following table summarizes a breakdown of our sales by major product lines
for the three months ended
September 30, 2022 September 30, 2021
Quantity % of Quantity % of
(Unit) Sales US$ Sales (Unit) Sales US$ Sales
Humankind
Hemp Oil - $ - - % - $ - - %
Collagen Peptide - - - % - - - %
Hemp Polypeptide - - - % - - - %
Hemp Protein Powder - - - % - - - %
HLJ Huimeijia
Muskiness Bone Strengthener
Paste - - - % 223 18 6.87 %
Dampness dispelling pain
ointment - - - % 1,852 152 57.05 %
Refining Cream dogskin - - - % 788 65 24.28 %
Indometacin and Furazolidone
Suppositories - - - % 383 31 11.80 %
ShangBiTongDing - - - % - - - %
Enema Glycerini - - - % - - - %
Essence repair liquid - - - % - - - %
Total - $ - - % 3,246 $ 266 100.00 %
21
Operating Expenses
The following table summarizes our operating expenses for the three months ended
September 30, September 30,
2022 2021 Variance %
Operating Expenses
Selling, general and administrative$ 334,846 $ 255,073 $ 79,773 31.27 % Depreciation and amortization 155,877
179,950 (24,073 ) (13.38 )% Total Operating Expenses$ 490,723 $ 435,023 $ 55,700 12.80 %
Total operating expenses for the three months endedSeptember 30, 2022 were$55,700 or 12.80% higher than those in the corresponding period in 2021. The increase in operating expenses was primarily attributable to increase of$79,773 or 31.27% in selling general and administrative expenses, which is mainly due to non-production expense and the legal and professional fee which increased due to the exchange rate.
Interest Income and Interest Expense
Interest income was$34,483 for the three months endedSeptember 30, 2022 , as compared to$41,034 for the three months endedSeptember 30, 2021 . This decrease of$6,551 , or 15.96% was mainly due to the decreased average balance of bank deposits compared with the same period of 2022 with 2021.
Interest expense was $nil for the three months ended
compared to $nil for the three months ended
Income Taxes
Income taxes decreased by
months ended
2022
profits before income taxes.
22
Net Income and Net Income Per Share
Net loss was$456,445 for the three months endedSeptember 30, 2022 , as compared to$21,387 net loss for the three months endedSeptember 30, 2021 . This increase of$435,058 in net loss was primarily attributable to the decrease of other income, net of$481,302 .
Net loss per share was
respectively. This increase was primarily a result of the aforementioned
increase in net loss.
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
30, 2022
September 30, June 30,
2022 2022
Cash and cash equivalents $ 42,120,164 $ 44,789,999
Working capital $ 35,129,591 $ 37,652,693
Inventories $ 469,101 $ 521,229
For the
Three Months ended
September 30,
2022 2021
Cash provided by (used in):
Operating activities $ (17,534 ) $ 2,279,612
Investing activities $ - $ -
Financing activities $ - $ -
For the three months endedSeptember 30, 2022 , our net decrease in cash and cash equivalents totaled$2,669,835 , which total was comprised of net cash provided by operating activities in the amount of$(17,534) and the effect of prevailing exchange rates on our cash position of$(2,652,301) . For the three months endedSeptember 30, 2021 , our net increase in cash and cash equivalents totaled$1,594,933 , which total was comprised of net cash provided by operating activities in the amount of$2,279,612 , and the effect of prevailing exchange rates on our cash position of$(684,679) . Our working capital atSeptember 30, 2022 was$35,129,591 , compared to working capital of$37,652,693 atJune 30, 2022 . This decrease of$2,523,102 or 6.70% was primarily attributable to the decrease of cash and cash equivalents$2,669,835 . Net cash used in operating activities was$17,534 for the three months endedSeptember 30, 2022 , primarily attributable to net loss in the amount of$456,445 with adjustments of$155,877 of depreciation and amortization expenses, a decrease of account receivable in the amount of$1,646,539 and a decrease of amount due to related parties in the amount of$1,616,525 , which offset by the increase of advance from customers in the amount of$ 1,058,083 . The negative effect of exchange rate changes on cash and cash equivalents in the amount of 2,652,301 for the three months endedSeptember 30, 2022 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 6.6981 to 1 and 7.1135 to 1 as ofJune 30, 2022 andSeptember 30, 2022 , respectively, and the average exchange rate from USD to RMB was 6.8520 for the three months endedSeptember 30, 2022 . 23 Net cash provided by operating activities was$2,279,612 for the three months endedSeptember 30, 2021 , primarily attributable to net loss in the amount of$21,387 with adjustments of$210,060 of depreciation and amortization expenses, a decrease of accounts receivable in the amount of$1,646,538 , increase of amounts due to related parties in the amount of$813,111 which offset by the decrease of accounts payables and accrued expenses in the amount of$471,032 . The negative effect of exchange rate changes on cash and cash equivalents in the amount of$684,679 for the three months endedSeptember 30, 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 6.4566 to 1 and 6.4434 to 1 as ofJune 30, 2021 andSeptember 30, 2021 , respectively, and the average exchange rate from USD to RMB was 6.4699 for the three months endedSeptember 30, 2021 . 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$5,619,063 as ofSeptember 30, 2022 , as compared to$6,759,761 as ofJune 30, 2022 , a decrease of$1,140,698 or 16.87%. 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, 2022 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,
2022.
24
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