CHINA PHARMA HOLDINGS INC

Previous wording

In addition, Helpson continues to explore the field of comprehensive healthcare. Comprehensive healthcare is a general concept proposed by the Chinese government according to the development of the times, social needs and changes in disease spectrum. According to the Outline of “Healthy China 2030” issued by Chinese government in October 2016, the total size of China’s health service industry is expected to reach RMB 16 trillion (approximately $2.5 trillion) by 2030. This industry focuses on people’s daily life, aging and diseases, pays attention to all kinds of risk factors and misunderstandings affecting health, calls for self-health management, and advocates the comprehensive care throughout the entire process of life. It covers all kinds of health-related information, products, and services, as well as actions taken by various organizations to meet the health needs. In response to this trend, Helpson launched Noni enzyme, a natural, Xeronine-rich antioxidant food supplement at the end of 2018. It also launched wash-free sanitizers and masks, in 2020, to address the market needs caused by COVID-19 in China. As Chinese government officially terminated its zero-case policy, now the responsibility to protect people from the impact of COVID-19 falls more to the citizens themselves, and masks and sanitizers have been more and more popular due to increasing demand. Helpson has sufficient production capacity for medical masks, surgical masks, KN95 masks, and N95 masks, which meets the personal needs for protection against the epidemic outbreak. Helpson’s N95 medical protective mask has received registration certificate by the end of 2022 and right now has been selling in the mainland China nationwide.

Current wording

In addition, Helpson continues to explore the field of comprehensive healthcare. Comprehensive healthcare is a general concept proposed by the Chinese government according to the development of the times, social needs and changes in disease spectrum. According to the Outline of “Healthy China 2030” issued by Chinese government in October 2016, the total size of China’s health service industry is expected to reach RMB 16 trillion (approximately $2.5 trillion) by 2030. This industry focuses on people’s daily life, aging and diseases, pays attention to all kinds of risk factors and misunderstandings affecting health, calls for self-health management, and advocates the comprehensive care throughout the entire process of life. It covers all kinds of health-related information, products, and services, as well as actions taken by various organizations to meet the health needs. In response to this trend, Helpson launched Noni enzyme, a natural, Xeronine-rich antioxidant food supplement at the end of 2018. It also launched wash-free sanitizers and masks, in 2020, to address the market needs caused by COVID-19 in China. As Chinese government officially terminated its zero-case policy, now the responsibility to protect people from the impact of COVID-19 falls more to the citizens themselves, and masks and sanitizers have been popular since COVID-19. Helpson has sufficient production capacity for medical masks, surgical masks, KN95 masks, and N95 masks, which also meets the personal needs for protection against other respiratory infectious disease. Helpson’s N95 medical protective mask has received registration certificate at the end of 2022 and right now has been selling in the mainland China nationwide.

Previous wording

The most significant revenue decrease in terms of dollar amount was in our “Other” product category, which generated $0.08 million in sales revenue for the three months ended March 31, 2024 compared to $0.36 million for the same period a year ago, a decrease of $0.28 million. This decrease was mainly due to the decrease in sales of Vitamin B6 for Injection due to market volatility.

Current wording

The most significant revenue decrease in terms of dollar amount was in our “Digestive” product category, which generated $0.04 million in sales revenue in the three months ended June 30, 2024 compared to $0.17 million for the same period a year ago, a decrease of $0.13 million. This decrease was mainly due to the decrease in sales of Omeprazole because of the implementation of CP.

Previous wording

Our “Digestive Diseases” product category sales decreased by $0.16 million to $0.04 million for the three months ended March 31, 2024 from $0.20 million for the same period in 2023, which was mainly due to the decrease in sales of Omeprazole that was caused by market volatility.

Current wording

Our “Other” product category sales decreased by $0.08 million to $0.03 million in the three months ended June 30, 2024 from $0.11 million for the same period in 2023, which was mainly due to the decrease in sales of Vitamin B6 for Injection that was caused by the implementation of CP.

Previous wording

Our “Anti-Viral / Infection & Respiratory” product category generated $0.93 million of sales for the three months ended March 31, 2024, compared to $1.00 million in the same period in 2023. This decrease was mainly due to the decrease in sales of Andrographolide, which was caused by market volatility.

Current wording

Our “Anti-Viral/ Infection & Respiratory” product category generated $0.48 million of sales in the three months ended June 30, 2024, compared to $0.47 million in the same period in 2023. This slight change in sales was caused by market volatility.

Previous wording

For the three months ended March 31, 2024, revenue breakdown by product category showed certain changes to that of the same period in 2023. Sales of the “Anti-Viral/Infection & Respiratory” products category represented 54% and 51% of total sales for the three months ended March 31, 2024 and 2023, respectively. The “CNS Cerebral & Cardio Vascular” product category represented 24% and 20% of total revenue for the three months ended March 31, 2024 and 2023, respectively. The “Other” product category represented 7% and 18% of revenues for the three months ended March 31, 2024 and 2023, respectively. The “Digestive Diseases” product category represented 15% and 10% of total revenue for the three months ended March 31, 2024 and 2023, respectively.

Current wording

For the three months ended June 30, 2024, revenue breakdown by product category showed certain changes to that of the same period in 2023. Sales of the “Anti-Viral/Infection & Respiratory” products category represented 52% and 43% of total sales in the three months ended June 30, 2024 and 2023, respectively. The “CNS Cerebral & Cardio Vascular” product category represented 41% and 32% of total revenue in the three months ended June 30, 2024 and 2023, respectively. The “Other” product category represented 3% and 10% of revenues in the three months ended June 30, 2024 and 2023, respectively. The “Digestive Diseases” product category represented 4% and 15% of total revenue in the three months ended June 30, 2024 and 2023, respectively.

Previous wording

For the three months ended March 31, 2024, our cost of revenue was $1.66 million, or 121.2% of total revenue, while cost of revenue was $1.78 million, or 90.9% of total revenue, for the same period in 2023. The increase in the proportion of cost to revenue in this quarter was mainly due to the fact that the amount of fixed cost stayed flat while the revenue decreased.

Current wording

For the three months ended June 30, 2024, our cost of revenue was $1.9 million, or 209.8% of total revenue, while cost of revenue was $1.2 million, or 113.4% of total revenue, for the same period in 2023. The increase in cost in this quarter was mainly because the increase in idle equipment costs due to reduced production, as well as the increased inventory impairments.

Previous wording

Gross loss for the three months ended March 31, 2024 was $0.29 million, as compared to gross profit of $0.18 million during the same period in 2023. For the three months ended March 31, 2024, we had a gross loss margin of 21.2% as compared to a gross profit margin of 9.1% during the same period in 2023.

Current wording

Gross loss for the three months ended June 30, 2024 was $1.01 million, as compared to $0.15 million during the same period in 2023. For the three months ended June 30, 2024, we had a gross loss margin of 109.8% as compared to a gross loss margin of 13.4% during the same period in 2023. The increase in gross loss is triggered by the decrease in the revenue and increase in the cost of revenue as described above.

Previous wording

Our selling expenses for the three months ended March 31, 2024 and 2023 were $0.11 million and $0.14 million, respectively. Selling expenses accounted for 7.9% of the total revenue for the three months ended March 31, 2024, as compared to 7.4% during the same period in 2023. As a result of the adjustment of many policies of healthcare reformation, we had reduced the number of personnel and expenses to efficiently support our sales and the collection of accounts receivable.

Current wording

Our selling expenses for the three months ended June 30, 2024 and 2023 were $0.11 million and $0.17 million, respectively. Selling expenses accounted for 12.0% of the total revenue for the three months ended June 30, 2024, as compared to 15.5% during the same period in 2023. As a result of the adjustment of many policies of healthcare reformation, we had reduced the number of personnel and expenses to efficiently support our sales and the collection of accounts receivable.

Previous wording

Our general and administrative expenses were $0.49 million and $0.42 million for the three months ended March 31, 2024 and 2023, respectively. It accounted for 35.7% and 21.3% of our total revenues for the three months ended March 31, 2024 and 2023, respectively.

Current wording

Our general and administrative expenses were $0.09 million and $0.11 million for the three months ended June 30, 2024 and 2023, respectively. It accounted for 9.9% and 10.2% of our total revenues in the three months ended June 30, 2024 and 2023, respectively.

Previous wording

In general, our normal customer credit or payment terms are 180 days. This has not changed in recent years. Due to the peculiar environment affecting the Chinese pharmaceutical market, deferred payments to pharmaceutical companies by state-owned hospitals and local medicine distributors are common.

Current wording

In general, our normal customer credit or payment terms are 180 days. This has not changed in recent years. Such relatively long credit term is due to the peculiar environment affecting the Chinese pharmaceutical market, as deferred payments by state-owned hospitals to local drug distributors are common, and their deferred payments will indirectly delay the payments from our customers to us. Due to the timeliness requirements of the NMPA for logistics of drug sales, Helpson, like most other pharmaceutical companies in China, sells substantially all the drugs to local drug distributors, certified by GSP (Good Supply Practice), the standard of products supply, which is a standard protocol to control the quality of the products during circulation. These GSP certified distributors then sell the drugs to state-owned hospitals. The GSP certified distributors’ payments to us are usually delayed as they will pay us after they receive payment from the state-owned hospitals. Therefore, as most of our customers are GSP certified distributors, we adopt a unified policy for bad debt allowance reserves for GMP’s customers who are typically GSP certified distributors. As is typical in the Chinese pharmaceutical market, there are no written contracts between the Company and any of its GSP certified distributors requesting the distributors to pay the Company’s account receivable upon their receipt of funds from the distributors’ customers, or state-owned hospitals. Nevertheless, the Company’s customers typically process the payment of the account receivable to the Company upon their receipt of payment from their customers, i.e., the state-owned hospitals, as a matter of implied consensus or industry standard. In the event the length of collection term is deviated from any of the past pattern of any particular customer, the Company will adjust its credit term.

Previous wording

The amount of accounts receivable that was past due (or the amount of accounts receivable that was more than 180 days old) were both $0.02 million as of March 31, 2024 and December 31, 2023, respectively.

Current wording

The amount of accounts receivable that was past due (or the amount of accounts receivable that was more than 180 days old) was $0.06 million and $0.02 million as of June 30, 2024 and December 31, 2023, respectively.

Previous wording

The following table illustrates our accounts receivable aging distribution in terms of percentage of total accounts receivable as of March 31, 2024 and December 31, 2023:

Current wording

The following table illustrates our accounts receivable aging distribution in terms of percentage of total accounts receivable, respective gross accounts receivables as well as the allocated allowance for doubtful accounts as of June 30, 2024 and December 31, 2023:

Previous wording

We recognize bad debt expenses per actual write-offs as well as changes of allowance for doubtful accounts. To the extent that our current allowance for doubtful accounts is higher than that of the previous period, we recognize a bad debt expense for the difference during the current period, and when the current allowance is lower than that of the previous period, we recognize a bad debt credit for the difference. The allowance for doubtful account balances were $13.76 million and $13.79 million as of March 31, 2024 and December 31, 2023, respectively. The changes in the allowances for doubtful accounts during the three months ended March 31, 2024 and 2023 were as follows:

Current wording

We recognize bad debt expenses per actual write-offs as well as changes of allowance for doubtful accounts. To the extent that our current allowance for doubtful accounts is higher than that of the previous period, we recognize a bad debt expense for the difference during the current period, and when the current allowance is lower than that of the previous period, we recognize a bad debt credit for the difference. The allowance for doubtful account balances were $13.7 million and $13.8 million as of June 30, 2024 and December 31, 2023, respectively. The changes in the allowances for doubtful accounts during the three months ended June 30, 2024 and 2023 were as follows:

Previous wording

Our operating loss for the three months ended March 31, 2024 was $0.92 million, compared to an operating loss of $0.40 million during the same period in 2023, which was mainly the result of decreased revenue.

Current wording

Our operating loss for the three months ended June 30, 2024 was $1.4 million, compared to an operating loss of $0.5 million during the same period in 2023. The increase in loss from operation is triggered by the decrease in the revenue and increase in the cost of revenue as described above.

Previous wording

Net Loss for the three months ended March 31, 2024 was $0.96 million, as compared to a net loss of $0.48 million for the same period a year ago. The increase in net loss was mainly the result of decreased revenue in this period.

Current wording

Net Loss for the three months ended June 30, 2024 was $1.4 million, as compared to a net loss of $0.6 million for the same period a year ago. The increase in net loss was mainly the result of increased cost in this period.

Previous wording

Loss per basic and diluted common share were $0.07 for the three months ended March 31, 2024 and $0.29 for the same period in 2023.

Current wording

Loss per basic and diluted common share were $0.09 for the three months ended June 30, 2024 and $0.35 for the same period in 2023.

Previous wording

The number of basic and diluted weighted-average outstanding shares used to calculate loss per share was 13,133,224 and 1,615,757 for the three months ended March 31, 2024 and 2023.

Current wording

The number of basic and diluted weighted-average outstanding shares used to calculate loss per share were 16,124,241 and 1,689,985 for the three months ended June 30, 2024 and 2023.

Previous wording

Gross Profit (Loss) and Gross Profit (Loss) Margin

Current wording

Gross Profit (Loss) and Gross Margin

Previous wording

Reversal Of Allowance For Doubtful Accounts

Current wording

Bad Debt Expense (Reversal of Allowance for Doubtful Accounts)

Previous wording

Our principal source of liquidity is cash generated from operations and bank lines of credit. Currently the Company has not witnessed or expected to encounter any difficulties to refinance those lines of credit this year. As of March 31, 2024, the aggregated advance from our CEO was $1,138,795 for use in operations. Our cash and cash equivalents were $0.84 million, representing 5.2% of our total assets, as of March 31, 2024, as compared to $1.42 million, representing 8.6% of our total assets as of December 31, 2023. All of the $0.84 million of cash and cash equivalents as of March 31, 2024 are considered to be reinvested indefinitely in the Company’s Chinese subsidiary, Helpson and are not expected to be available for payment of dividends or for other payments to its parent company or to its shareholders.

Current wording

Our principal source of liquidity is cash generated from operations and bank lines of credit. Currently the Company has not witnessed or expected to encounter any difficulties to refinance those lines of credit this year. As of June 30, 2024, the aggregated advance from our CEO was $1,140,775 for use in operations. Our cash and cash equivalents were $0.74 million, representing 5.2% of our total assets, as of June 30, 2024, as compared to $1.42 million, representing 8.6% of our total assets as of December 31, 2023. All of the $0.74 million of cash and cash equivalents as of June 30, 2024 are considered to be reinvested indefinitely in the Company’s Chinese subsidiary, Helpson and are not expected to be available for payment of dividends or for other payments to its parent company or to its shareholders.

Previous wording

Although the Company obtained additional lines of credit in 2023, there can be no assurance that the Company will be able to achieve its future strategic goals, including the launch of new products. This raises substantial doubt about the Company’s ability to continue as a going concern. Although our Chairperson and Chief Executive Officer had advanced funds for working capital in 2023, there can be no assurances that this will continue in the future. We may seek additional debt or equity financing as necessary when we believe the market conditions are the most advantageous to us and/or require us to reduce certain discretionary spending, which could have a material adverse effect on our ability to achieve our business objectives. There can be no assurance that any additional financing will be available on acceptable terms, if at all.

Current wording

Although the Company obtained additional lines of credit in three and six months ended June 30, 2023, there can be no assurance that the Company will be able to achieve its future strategic goals, including the launch of new products. This raises substantial doubt about the Company’s ability to continue as a going concern. Although our Chairperson and Chief Executive Officer had advanced funds for working capital in 2023, there can be no assurances that this will continue in the future. We may seek additional debt or equity financing as necessary when we believe the market conditions are the most advantageous to us and/or require us to reduce certain discretionary spending, which could have a material adverse effect on our ability to achieve our business objectives. There can be no assurance that any additional financing will be available on acceptable terms, if at all.

Previous wording

As of March 31, 2024, our net accounts receivable was $0.36 million, compared to $0.50 million as of December 31, 2023.

Current wording

As of June 30, 2024, our net accounts receivable was $0.25 million, compared to $0.50 million as of December 31, 2023.

Previous wording

Total inventories was $3.68 million and $3.73 million as of March 31, 2024 and December 31, 2023, respectively.

Current wording

Total inventory was $2.82 million and $3.73 million as of June 30, 2024 and December 31, 2023, respectively.

Previous wording

There was no cash flow activities under investing activities during the three months ended March 31, 2024, compared to $55,964 generated for the same period in 2023.

Current wording

There was $28,086 used in investing activities during the six months ended June 30, 2024, compared to $60,465 provided by investing activities for the same period in 2023.

Previous wording

Net cash used in operating activities was $0.59 million for the three months ended March 31, 2024, compared to net cash of $1.47 million used in operating activities in the same period in 2023.

Current wording

Net cash provided by financing activities was $0.01 million in the six months ended June 30, 2024; compared to net cash used in financing activities of $0.52 million for the same period in 2023.

Previous wording

According to relevant PRC laws, companies registered in the PRC, including our PRC subsidiary, Helpson, are required to allocate at least ten percent (10%) of their after-tax net income, as determined under the accounting standards and regulations in the PRC, to statutory surplus reserve accounts until the reserve account balances reach fifty percent (50%) of the companies’ registered capital prior to their remittance of funds out of the PRC. Allocations to these reserves and funds can only be used for specific purposes and are not transferrable to the parent company in the form of loans, advances or cash dividends. As of March 31, 2024 and December 31, 2023, Helpson’s net assets totaled $(3,002,966) and $(2,289,000), respectively. Due to the restriction on dividend distribution to overseas shareholders, the amount of Helpson’s net assets that was designated for general and statutory capital reserves, and thus could not be transferred to our parent company as cash dividends, was 50% of Helpson’s registered capital, which was both $8,145,000 as of March 31, 2024 and December 31, 2023, respectively. The amount that Helpson must set aside for the statutory surplus fund accounts exceeds its total net assets at March 31, 2024 and December 31, 2023. There were no allocations to the statutory surplus reserve accounts during the three months ended March 31, 2024.

Current wording

According to relevant PRC laws, companies registered in the PRC, including our PRC subsidiary, Helpson, are required to allocate at least ten percent (10%) of their after-tax net income, as determined under the accounting standards and regulations in the PRC, to statutory surplus reserve accounts until the reserve account balances reach fifty percent (50%) of the companies’ registered capital prior to their remittance of funds out of the PRC. Allocations to these reserves and funds can only be used for specific purposes and are not transferrable to the parent company in the form of loans, advances or cash dividends. As of June 30, 2024 and December 31, 2023, Helpson’s net assets totaled $(4,375,345) and $(2,289,000), respectively. Due to the restriction on dividend distribution to overseas shareholders, the amount of Helpson’s net assets that was designated for general and statutory capital reserves, and thus could not be transferred to our parent company as cash dividends, was 50% of Helpson’s registered capital, which was both $8,145,000 as of June 30, 2024 and December 31, 2023, respectively. The amount that Helpson must set aside for the statutory surplus fund accounts exceeds its total net assets at June 30, 2024 and December 31, 2023. There were no allocations to the statutory surplus reserve accounts during the six months ended June 30, 2024.

Previous wording

The Chinese government also imposes controls on the conversion of RMB into foreign currencies and the remittance of currencies out of China. Our businesses and assets are primarily denominated in RMB. All foreign exchange transactions take place either through the People’s Bank of China or other banks authorized to buy and sell foreign currencies at the exchange rates quoted by the People’s Bank of China. Approval of foreign currency payments by the People’s Bank of China or other regulatory institutions requires the submission of a payment application form together with certain invoices and executed contracts. The currency exchange control procedures imposed by Chinese government authorities may restrict the ability of Helpson, our Chinese subsidiary, to transfer its net assets to our parent company through loans, advances or cash dividends.

Current wording

The Chinese government also imposes controls on the conversion of RMB into foreign currencies and the remittance of currencies out of China. Our businesses and assets are primarily denominated in RMB. All foreign exchange transactions take place either through the People’s Bank of China or other banks authorized to buy and sell foreign currencies at the exchange rates quoted by the People’s Bank of China. Approval of foreign currency payments by the People’s Bank of China or other regulatory institutions requires the submission of a payment application form together with certain invoices and executed contracts. The currency exchange control procedures imposed by Chinese government authorities may restrict Helpson, our Chinese subsidiary, from transferring its net assets to our parent company through loans, advances or cash dividends.