UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended September 30, 2020 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from ____________ to ____________ Commission File Number 001-34471 CHINA PHARMA HOLDINGS, INC. (Exact name of registrant as specified in its charter) Nevada (St ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Nevada 75-1564807 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) Title of each class Trading Symbol(s) Name of each exchange on which registered Common Stock CPHI NYSE American FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended June 30, 2020 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF T ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended March 31, 2020 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from ____________ to ____________ Commission File Number 001-34471 CHINA PHARMA HOLDINGS, INC. (Exact name of registrant as specified in its charter) | --- | --- | ...

China Pharma Holdings Inc. (NYSE:CPHI) Q4 2019 Earnings Conference Call March 31, 2020 8:30 AM ET Company Participants Diana Huang - Manager, Investor Relations Zhilin Li - President and Chief Executive Officer and Interim Chief Financial Officer Sam Hsing - Corporate Vice President Conference Call Participants Operator Ladies and gentlemen, thank you for standing by and welcome to the China Pharma Holdings Incorporated FY 2019 Earnings Conference Call. At this time, all participants are in a listen-only mo ...

PART I [Business](index=5&type=section&id=Item%201.%20Business.) China Pharma Holdings develops and markets pharmaceuticals in the PRC, adapting to market reforms and expanding distribution - The company is principally engaged in the development, manufacture, and marketing of pharmaceutical products in the PRC, including dry powder injectables, liquid injectables, tablets, and capsules[11](index=11&type=chunk) - As of December 31, 2019, the company manufactured **19** pharmaceutical products, categorized as basic generics, first-to-market generics, and Modern Traditional Chinese Medicines, plus one comprehensive healthcare product[12](index=12&type=chunk)[14](index=14&type=chunk) - The company's strategy includes promoting existing brands, advancing consistency evaluations for its products to comply with GPO requirements, exploring the comprehensive health products market, and expanding its distribution network[45](index=45&type=chunk)[46](index=46&type=chunk)[47](index=47&type=chunk)[48](index=48&type=chunk) Revenue by Product Category (in millions USD) | Product Category | 2019 | 2018 | Net Change | % Change | | :--- | :--- | :--- | :--- | :--- | | CNS Cerebral & Cardio Vascular | $2.35 | $2.41 | -$0.05 | -2% | | Anti-Viral/ Infection & Respiratory | $6.33 | $6.76 | -$0.43 | -6% | | Digestive Diseases | $0.46 | $0.72 | -$0.26 | -36% | | Other | $1.86 | $2.44 | -$0.58 | -24% | - The company relies on numerous suppliers, with the top three accounting for **22.3%**, **20.6%**, and **5.8%** of raw material purchases in 2019[66](index=66&type=chunk) - The company's intellectual property includes two patents (expiring in **2025** and **2029**) and **17** registered trademarks[77](index=77&type=chunk)[78](index=78&type=chunk) [Risk Factors](index=20&type=section&id=Item%201A.%20Risk%20Factors.) The company faces significant business, operational, and stock risks, including intense competition, regulatory non-compliance, and going concern doubts - The company's auditors have raised substantial doubt about its ability to continue as a going concern due to recurring losses, net current liabilities, and an accumulated deficit[236](index=236&type=chunk) - A material weakness in internal control over financial reporting has been identified, specifically a lack of accounting personnel knowledgeable in U.S. GAAP[233](index=233&type=chunk)[317](index=317&type=chunk) - The business is highly dependent on the PRC market, making it vulnerable to changes in Chinese economic policies, healthcare reforms (like GPO), currency exchange controls, and legal system uncertainties[174](index=174&type=chunk)[175](index=175&type=chunk)[194](index=194&type=chunk) - The company faces intense competition from other pharmaceutical manufacturers, and most of its products are off-patent branded generics, which increases competitive pressure[115](index=115&type=chunk)[120](index=120&type=chunk) - The company relies exclusively on over **1,000** distributors in the PRC for all its revenues, and the top five distributors accounted for **14%** of net revenues in 2019[143](index=143&type=chunk)[144](index=144&type=chunk) - The company's common stock is subject to "penny stock" regulations, which can impose additional sales practice requirements on broker-dealers and may affect liquidity[226](index=226&type=chunk)[227](index=227&type=chunk) [Unresolved Staff Comments](index=43&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments.) As a smaller reporting company, China Pharma Holdings, Inc. is not required to provide information for this item - The company, being a smaller reporting company, is not required to provide information regarding unresolved staff comments[241](index=241&type=chunk) [Properties](index=43&type=section&id=Item%202.%20Properties.) The company owns two production facilities in Haikou, PRC, with land use rights until 2063, and a new facility collateralizes an RMB 80 million loan - The company owns two production facilities in Haikou, Hainan Province, PRC, with a total production area of over **27,000** square meters[243](index=243&type=chunk) - The company holds land use rights for approximately **22,936** square meters of land in the Haikou Bonded Zone, expiring on September **10, 2063**[242](index=242&type=chunk) - An eight-year construction loan facility of **RMB 80 million** is collateralized by the company's new factory and its production line equipment[247](index=247&type=chunk)[248](index=248&type=chunk) [Legal Proceedings](index=44&type=section&id=Item%203.%20Legal%20Proceedings.) The company is not currently aware of any material legal proceedings or claims affecting its business or financial condition - The company is not currently involved in any material legal proceedings[249](index=249&type=chunk) [Mine Safety Disclosures](index=44&type=section&id=Item%204.%20Mine%20Safety%20Disclosures.) This item is not applicable to the company - Mine safety disclosures are not applicable to the company's operations[250](index=250&type=chunk) PART II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=45&type=section&id=Item%205.%20Market%20for%20the%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities.) CPHI common stock trades on NYSE MKT, has never paid dividends, and has 3.825 million securities available for future issuance - The company's common stock trades on the NYSE MKT under the symbol "**CPHI**"[253](index=253&type=chunk) - The company has never paid cash dividends and does not plan to in the foreseeable future[255](index=255&type=chunk) - As of the report date, there were **3,825,000** securities remaining available for future issuance under the company's equity compensation plans[256](index=256&type=chunk) [Selected Financial Data](index=45&type=section&id=Item%206.%20Selected%20Financial%20Data.) As a smaller reporting company, China Pharma Holdings, Inc. is not required to provide selected financial data - The company is not required to provide selected financial data as it qualifies as a "smaller reporting company"[257](index=257&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=46&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations.) Revenue decreased 11.4% to $11.0 million in 2019, resulting in a $20.7 million net loss primarily from a $17.02 million impairment, raising going concern doubts Fiscal Year 2019 vs 2018 Performance | Metric | 2019 | 2018 | | :--- | :--- | :--- | | Revenue | $11.0 million | $12.3 million | | Gross Profit | $1.5 million | $2.0 million | | Gross Margin | 13.6% | 16.0% | | Impairment Loss | $17.02 million | $6.48 million | | Operating Loss | ($20.4 million) | ($10.4 million) | | Net Loss | ($20.7 million) | ($10.8 million) | | Loss per Share | ($0.48) | ($0.25) | - The **11.4%** decrease in revenue was mainly attributed to the impact of the GPO drug procurement policy and stricter drug pricing controls in China[271](index=271&type=chunk) - The company recognized a **$17.02 million** impairment loss in 2019, primarily related to advances made to laboratories for medical formulas that are now unlikely to generate future cash flow[284](index=284&type=chunk) - As of December 31, 2019, cash and cash equivalents were **$1.1 million**. The company's principal source of liquidity is cash from operations, supplemented by advances from the CEO[297](index=297&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=55&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk.) As a smaller reporting company, China Pharma Holdings, Inc. is not required to provide market risk disclosures - The company is not required to provide quantitative and qualitative disclosures about market risk as it qualifies as a "smaller reporting company"[307](index=307&type=chunk) [Financial Statements and Supplementary Data](index=55&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data.) This section references the consolidated financial statements and independent auditor's report, included in the 'F' pages of the annual report - The company's audited consolidated financial statements for the years ended December 31, **2019** and **2018**, are included starting on page **F-1** of the report[308](index=308&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=55&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure.) There were no changes in or disagreements with accountants on accounting and financial disclosure during the reporting period - The company reported no disagreements with its accountants on accounting and financial disclosure[309](index=309&type=chunk) [Controls and Procedures](index=56&type=section&id=Item%209A.%20Controls%20and%20Procedures.) Management concluded disclosure controls were ineffective due to a material weakness in internal control over financial reporting, lacking U.S. GAAP knowledgeable personnel - Management concluded that disclosure controls and procedures were not effective as of December 31, **2019**[312](index=312&type=chunk) - A material weakness was identified in internal control over financial reporting due to a lack of accounting financial reporting personnel knowledgeable in U.S. GAAP[317](index=317&type=chunk) - No changes in internal control over financial reporting occurred during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, internal controls[318](index=318&type=chunk) [Other Information](index=57&type=section&id=Item%209B.%20Other%20Information.) There is no other information to report for this item - The company reported no other information under this item[319](index=319&type=chunk) PART III [Directors, Executive Officers and Corporate Governance](index=58&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance.) This section details the company's leadership, including Zhilin Li as CEO and interim CFO, independent board members, and the audit committee - Zhilin Li, age **67**, serves as the Chairman, President, Chief Executive Officer, and interim Chief Financial Officer[321](index=321&type=chunk)[323](index=323&type=chunk) - The board includes three independent directors: Gene Michael Bennett, Yingwen Zhang, and Baowen Dong[321](index=321&type=chunk)[354](index=354&type=chunk) - The Audit Committee consists of the three independent directors, with Gene Michael Bennett serving as the Chairman and designated "audit committee financial expert"[332](index=332&type=chunk) [Executive Compensation](index=61&type=section&id=Item%2011.%20Executive%20Compensation.) CEO Zhilin Li's total compensation was $241,600 for 2019 and 2018, while independent directors received $6,000 to $16,000 annually Executive Compensation (2018-2019) | Name and Principal Position | Year | Salary ($) | Total Compensation ($) | | :--- | :--- | :--- | :--- | | Zhilin Li (Chairman, CEO, President, interim CFO) | 2019 | 225,600 | 241,600 | | | 2018 | 225,600 | 241,600 | Director Compensation (2019) | Name | Total Compensation ($) | | :--- | :--- | | Heung Mei Tsui | 16,000 | | Gene Michael Bennett | 16,000 | | Yingwen Zhang | 6,037 | | Baowen Dong | 6,037 | [Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters](index=63&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholders%20Matters.) Common stock ownership is highly concentrated, with CEO Zhilin Li owning 23.1% and Director Heung Mei Tsui 21.4%, giving management significant influence Beneficial Ownership (as of March 20, 2020) | Name | Shares Owned | Percentage of Class | | :--- | :--- | :--- | | Zhilin Li (CEO) | 10,050,000 | 23.1% | | Heung Mei Tsui (Director) | 9,312,651 | 21.4% | | All directors and executive officers as a group (5 persons) | 19,362,651 | 44.5% | [Certain Relationships and Related Transactions, and Director Independence](index=64&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence.) The company engaged in related-party transactions, including loans from a director and advances from the CEO, with three independent directors on the board - Director Heung Mei Tsui has provided loans to the company, with an outstanding balance of **$1,354,567** as of December 31, **2019**. The loans bear **1%** annual interest[352](index=352&type=chunk) - The company received net advances of **$667,440** from its Chairperson and CEO, Zhilin Li, during the fiscal year ended December 31, **2019**. A formal loan agreement for **RMB 4.77 million ($691,459)** was executed with an interest rate of **4.35%**[353](index=353&type=chunk) - The board of directors has determined that Messrs. Gene Michael Bennett, Baowen Dong, and Yingwen Zhang are "independent directors"[354](index=354&type=chunk) [Principal Accountant Fees and Services](index=64&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services.) In FY2019, the company incurred $110,000 in audit fees and $6,000 in tax fees from B F Borgers CPA PC, all pre-approved by the Audit Committee Accountant Fees | Fee Type | FY 2019 | FY 2018 | | :--- | :--- | :--- | | Audit Fees | $110,000 | $115,000 | | Tax Fees | $6,000 | $0 | | Audit-Related Fees | $0 | $0 | | All Other Fees | $0 | $0 | PART IV [Exhibits, Financial Statement Schedules](index=65&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules.) This section lists the financial statements and exhibits filed with the annual report, including corporate governance documents and required certifications - This section provides an index of all financial statements and exhibits filed as part of the report[360](index=360&type=chunk)[365](index=365&type=chunk) Financial Statements [Report of Independent Registered Public Accounting Firm](index=69&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) The auditor's report confirms fair presentation but includes a 'Going concern uncertainty' paragraph due to recurring losses, net current liabilities, and accumulated deficit - The auditor's report contains a "Going concern uncertainty" paragraph[369](index=369&type=chunk) - The going concern issue is raised due to recurring losses from operations, net current liabilities, and an accumulated deficit[369](index=369&type=chunk) [Consolidated Financial Statements](index=70&type=section&id=Consolidated%20Financial%20Statements) Consolidated financial statements show total assets decreased to $22.2 million, a net loss of $20.7 million due to impairment, and a net decrease in cash from operations Consolidated Balance Sheets (in thousands USD) | | Dec 31, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $1,075 | $1,187 | | Total Current Assets | $5,579 | $8,747 | | Advances for purchases of intangible assets | $0 | $17,070 | | Property, plant and equipment, net | $16,314 | $19,294 | | **Total Assets** | **$22,235** | **$45,377** | | **Liabilities & Stockholders' Equity** | | | | Total Current Liabilities | $10,045 | $10,051 | | Total Liabilities | $12,998 | $15,179 | | Accumulated deficit | ($25,972) | ($5,270) | | **Total Stockholders' Equity** | **$9,238** | **$30,199** | Consolidated Statements of Operations (in thousands USD) | | Year Ended Dec 31, 2019 | Year Ended Dec 31, 2018 | | :--- | :--- | :--- | | Revenue | $10,924 | $12,331 | | Gross profit | $1,482 | $1,975 | | Impairment loss | $17,015 | $6,479 | | Loss from operations | ($20,408) | ($10,447) | | **Net loss** | **($20,702)** | **($10,750)** | Consolidated Statements of Cash Flows (in thousands USD) | | Year Ended Dec 31, 2019 | Year Ended Dec 31, 2018 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $608 | $1,882 | | Net Cash Used in Investing Activities | ($136) | ($51) | | Net Cash Used in Financing Activities | ($1,729) | ($1,976) | | **Net Decrease in Cash** | **($1,276)** | **($279)** | [Notes to Consolidated Financial Statements](index=74&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Notes provide context on going concern doubts, a $17.0 million impairment loss, related-party transactions, tax carryforwards, concentration risks, and initial COVID-19 impact - Note 1: Management acknowledges that recurring losses, net current liabilities, and an accumulated deficit of **$26.0 million** raise substantial doubt about the company's ability to continue as a going concern[388](index=388&type=chunk) - Note 5: The company recognized an impairment loss of **$17,015,117** in 2019 for advances made to laboratories for the purchase of medical formulas, writing off all remaining advances[434](index=434&type=chunk) - Note 10: The company has significant net operating loss carryforwards for PRC tax purposes (~**$50 million**) and U.S. tax purposes (~**$6.2 million**), but a full valuation allowance has been provided against these deferred tax assets[450](index=450&type=chunk)[452](index=452&type=chunk) - Note 13: The company has significant concentration risk. For 2019, two customers accounted for **49.6%** and **10.7%** of accounts receivable[463](index=463&type=chunk) - Note 14 (Subsequent Events): The outbreak of COVID-19 in China led to a reduced work resumption rate in February and March **2020**, which returned to approximately **90%** by March **25, 2020**[468](index=468&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Nevada 75-1564807 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) Second Floor, No. 17, Jinpan Road Haikou, Hainan Province, China 570216 (Address of principal executive offices) (Zip Code) Title of each class Trading Symbol(s) Name of each exchange on which registered Common Stock CPHI NYSE American FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES ...

China Pharma Holdings Inc. (NYSE:CPHI) Q2 2019 Earnings Conference Call August 15, 2019 8:30 AM ET Company Participants Diana Huang – Manager-Investor Relations Zhilin Li – President and Chief Executive Officer and Interim Chief Financial Officer Sam Hsing – Corporate Vice President Conference Call Participants Operator Ladies and gentlemen, thank you for standing by and welcome to the China Pharma Holdings’ Q2 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. After th ...

[PART I FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents unaudited condensed consolidated financial statements, including balance sheets, statements of operations, stockholders' equity, and cash flows, with notes detailing financial position, performance, and accounting policies [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets decreased from **$45.38 million** to **$43.03 million**, driven by reductions in current assets and property, plant, and equipment, while total liabilities and stockholders' equity also decreased Condensed Consolidated Balance Sheets | ASSETS / LIABILITIES & EQUITY | June 30, 2019 ($) | December 31, 2018 ($) | Change ($) | % Change | |:------------------------------|------------------:|--------------------:|-----------:|---------:| | **ASSETS** | | | | | | Cash and cash equivalents | 1,655,892 | 1,186,587 | 469,305 | 39.55% | | Restricted cash | 503,312 | 1,273,940 | (770,628) | -60.49% | | Trade accounts receivable, net| 680,136 | 916,931 | (236,795) | -25.82% | | Inventory | 4,392,426 | 5,054,975 | (662,549) | -13.11% | | Total Current Assets | 7,687,869 | 8,746,916 | (1,059,047)| -12.11% | | Property, plant and equipment, net | 17,857,438 | 19,294,379 | (1,436,941)| -7.45% | | TOTAL ASSETS | 43,030,370 | 45,377,325 | (2,346,955)| -5.17% | | **LIABILITIES** | | | | | | Total Current Liabilities | 8,983,497 | 10,051,456 | (1,067,959)| -10.62% | | Total Liabilities | 14,062,728 | 15,178,550 | (1,115,822)| -7.35% | | **STOCKHOLDERS' EQUITY** | | | | | | Total Stockholders' Equity | 28,967,642 | 30,198,775 | (1,231,133)| -4.08% | | TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | 43,030,370 | 45,377,325 | (2,346,955)| -5.17% | [Condensed Consolidated Statements of Operations and Comprehensive Loss](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) Revenue decreased by **19.0%** for both three and six-month periods, with gross profit margin significantly declining, resulting in a net loss of **$0.84 million** for the three months and **$1.26 million** for the six months Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) | Metric | Three Months Ended June 30, 2019 ($) | Three Months Ended June 30, 2018 ($) | Six Months Ended June 30, 2019 ($) | Six Months Ended June 30, 2018 ($) | |:-------|-------------------------------------:|-------------------------------------:|-----------------------------------:|-----------------------------------:| | Revenue | 2,569,408 | 3,173,711 | 5,498,681 | 6,789,395 | | Cost of revenue | 2,405,860 | 2,594,230 | 4,678,603 | 5,156,214 | | Gross profit | 163,548 | 579,481 | 820,078 | 1,633,181 | | Total operating expenses | 916,516 | 1,443,884 | 1,907,254 | 2,638,271 | | Loss from operations | (752,968) | (864,403) | (1,087,176) | (1,005,090) | | Net loss | (838,103) | (1,008,049) | (1,255,834) | (1,301,529) | | Basic and diluted loss per share | (0.02) | (0.02) | (0.03) | (0.03) | - Revenue decreased by **19.0%** for both three and six-month periods, primarily due to strict policies controlling hospital medicine spending[103](index=103&type=chunk)[125](index=125&type=chunk) - Gross profit margin significantly declined from **18.3% to 6.4%** for the three months and from **24.1% to 14.9%** for the six months, mainly due to decreased revenue and stable fixed costs[111](index=111&type=chunk)[133](index=133&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) Total stockholders' equity decreased from **$30.20 million** to **$28.97 million**, primarily due to net loss and a negative foreign currency translation adjustment Changes in Stockholders' Equity (Unaudited) | Metric | Balance, January 1, 2019 ($) | Net Loss (3 months ended March 31, 2019) ($) | FX Translation Adj. (3 months ended March 31, 2019) ($) | Balance, March 31, 2019 ($) | Net Loss (3 months ended June 30, 2019) ($) | FX Translation Adj. (3 months ended June 30, 2019) ($) | Balance, June 30, 2019 ($) | |:-------|-----------------------------:|---------------------------------------------:|--------------------------------------------------------:|----------------------------:|--------------------------------------------:|-------------------------------------------------------:|---------------------------:| | Common Stock Amount | 43,580 | - | - | 43,580 | - | - | 43,580 | | Additional Paid-in Capital | 23,590,204 | - | - | 23,590,204 | - | - | 23,590,204 | | Accumulated Deficit | (5,270,358) | (417,731) | - | (5,688,089) | (838,103) | - | (6,526,192) | | Accumulated Other Comprehensive Income | 11,835,349 | - | 835,865 | 12,671,214 | - | (811,164) | 11,860,050 | | Total Stockholders' Equity | 30,198,775 | (417,731) | 835,865 | 30,616,909 | (838,103) | (811,164) | 28,967,642 | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operating activities significantly increased to **$0.93 million**, while cash used in investing and financing activities also rose, resulting in a net increase of **$0.47 million** in cash and cash equivalents Consolidated Statements of Cash Flows (Unaudited) | Cash Flow Activity | Six Months Ended June 30, 2019 ($) | Six Months Ended June 30, 2018 ($) | |:-------------------|-----------------------------------:|-----------------------------------:| | Net Cash Provided by Operating Activities | 931,800 | 124,399 | | Net Cash Used in Investing Activities | (73,538) | (29,982) | | Net Cash Used in Financing Activities | (378,727) | (157,071) | | Effect of Exchange Rate Changes on Cash | (10,230) | (32,033) | | Net (Decrease) Increase in Cash and Cash Equivalents | 469,305 | (94,687) | | Cash and Cash Equivalents at Beginning of Period | 1,186,587 | 2,030,214 | | Cash and Cash Equivalents at End of Period | 1,655,892 | 1,935,527 | - Net cash provided by operating activities significantly increased to **$931,800** for the six months ended June 30, 2019, compared to **$124,399** in the prior year[13](index=13&type=chunk)[147](index=147&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes detail the company's financial health, including a going concern warning, significant accounting policies, and specifics on assets, liabilities, equity, and subsequent events - The company's accumulated deficit of **$6.5 million** and anticipated operating losses raise substantial doubt about its ability to continue as a going concern[15](index=15&type=chunk) - Management plans to enhance sales, strengthen accounts receivable collection, explore strategic alternatives, and use fixed assets as collateral for additional loans to address going concern issues[15](index=15&type=chunk) - The company adopted ASU No. 2016-02, Leases, effective January 1, 2019, recognizing right-of-use assets and lease liabilities with no material impact on operating results or cash flows[42](index=42&type=chunk) [NOTE 1 – ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES](index=8&type=section&id=NOTE%201%20%E2%80%93%20ORGANIZATION%20AND%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note outlines the company's organizational structure, its PRC operating subsidiary, and significant accounting policies covering liquidity, consolidation, estimates, assets, revenue, expenses, and recent pronouncements - The Chairperson, CEO, and Interim CFO advanced **$693,848** to the company in July 2019 for working capital and a **$2.0 million** construction loan payment, indicating reliance on related party liquidity support[15](index=15&type=chunk) - The company's primary operating subsidiary, Hainan Helpson Medical & Biotechnology Co., Ltd (Helpson), manufactures and markets generic and branded pharmaceutical products in the PRC[19](index=19&type=chunk)[22](index=22&type=chunk) - The company adopted ASU No. 2016-02, Leases, effective January 1, 2019, recognizing **$236,055** in right-of-use assets and related lease obligations with no material impact on operating results or cash flows[42](index=42&type=chunk) [NOTE 2 – INVENTORY](index=15&type=section&id=NOTE%202%20%E2%80%93%20INVENTORY) Inventory decreased from **$5.05 million** to **$4.39 million**, with reductions across raw materials, work in process, and finished goods Inventory Composition | Inventory Type | June 30, 2019 ($) | December 31, 2018 ($) | |:---------------|------------------:|--------------------:| | Raw materials | 2,744,150 | 3,148,990 | | Work in process| 427,778 | 493,768 | | Finished goods | 1,220,498 | 1,412,217 | | Total Inventory| 4,392,426 | 5,054,975 | [NOTE 3 – PROPERTY, PLANT AND EQUIPMENT](index=15&type=section&id=NOTE%203%20%E2%80%93%20PROPERTY,%20PLANT%20AND%20EQUIPMENT) Net property, plant and equipment decreased to **$17.86 million** from **$19.29 million**, primarily due to accumulated depreciation, with depreciation expense of **$1.54 million** for the six months Property, Plant and Equipment, Net | Asset Category | June 30, 2019 ($) | December 31, 2018 ($) | |:---------------|------------------:|--------------------:| | Total Gross | 37,090,868 | 37,008,952 | | Less: Accumulated depreciation | (19,233,430) | (17,714,573) | | Net PPE | 17,857,438 | 19,294,379 | - Depreciation expense for the six months ended June 30, 2019, was **$1,535,336**, a decrease from **$1,647,471** in the prior year[52](index=52&type=chunk) [NOTE 4 - INTANGIBLE ASSETS](index=15&type=section&id=NOTE%204%20-%20INTANGIBLE%20ASSETS) Intangible assets, primarily CFDA approved medical formulas, decreased to **$0.23 million** net from **$0.27 million** due to amortization, with an expense of **$40,534** for the six months Intangible Assets, Net | Metric | June 30, 2019 ($) | December 31, 2018 ($) | |:-------|------------------:|--------------------:| | Gross carrying amount | 4,910,563 | 4,909,318 | | Accumulated amortization | (4,684,033) | (4,642,875) | | Net carrying amount | 226,530 | 266,443 | - Amortization expense for intangible assets was **$40,534** for the six months ended June 30, 2019, a decrease from **$66,857** in the prior year[55](index=55&type=chunk) [NOTE 5 – ADVANCES FOR PURCHASES OF INTANGIBLE ASSETS](index=16&type=section&id=NOTE%205%20%E2%80%93%20ADVANCES%20FOR%20PURCHASES%20OF%20INTANGIBLE%20ASSETS) The company has made advances for medical formulas awaiting CFDA production approval, facing increased uncertainties and extended timelines due to new regulations and policy changes in China's pharmaceutical industry - Significant changes in China's pharmaceutical policies and regulations are increasing uncertainties and extending timelines for CFDA production approvals for pipeline products[60](index=60&type=chunk)[61](index=61&type=chunk) - Contracts for medical formulas include a refund right if CFDA approval is not obtained or if the laboratory breaches the contract[62](index=62&type=chunk)[63](index=63&type=chunk) - As of June 30, 2019, the company was obligated to pay approximately **$0.3 million** upon completion of various phases to obtain CFDA production approval for medical formulas[64](index=64&type=chunk) [NOTE 6 – RELATED PARTY TRANSACTIONS](index=18&type=section&id=NOTE%206%20%E2%80%93%20RELATED%20PARTY%20TRANSACTIONS) The company has outstanding payables to related parties, including advances from a board member and the Chairperson, with **$231,252** repaid and an additional **$693,848** loan received from the Chairperson in July 2019 - A board member advanced **$1,354,567** to the company as of June 30, 2019, bearing **1.0%** annual interest[65](index=65&type=chunk) - The Chairperson, CEO, and Interim CFO provided advances totaling **$48,000** as of June 30, 2019, with **$231,252** repaid in the six months ended June 30, 2019[66](index=66&type=chunk) - In July 2019, the Chairperson provided an additional loan of **$693,848** to the company, bearing **4.35%** annual interest and payable within one year[66](index=66&type=chunk)[90](index=90&type=chunk) [NOTE 7 – BANKER'S ACCEPTANCE NOTES PAYABLE](index=18&type=section&id=NOTE%207%20%E2%80%93%20BANKER'S%20ACCEPTANCE%20NOTES%20PAYABLE) Outstanding banker's acceptance notes decreased to **$503,312** from **$1,273,940**, with an equal amount of restricted cash deposited to satisfy these obligations Banker's Acceptance Notes Payable | Metric | June 30, 2019 ($) | December 31, 2018 ($) | |:-------|------------------:|--------------------:| | Outstanding notes | 503,312 | 1,273,940 | | Restricted cash | 503,312 | 1,273,940 | [NOTE 8 – CONSTRUCTION LOAN FACILITY](index=18&type=section&id=NOTE%208%20%E2%80%93%20CONSTRUCTION%20LOAN%20FACILITY) The company has an **RMB 80 million** construction loan facility, with **$148,227** in principal payments made and an additional **RMB 14 million** (approximately **$2.2 million**) paid in July 2019, with remaining payments scheduled through 2021 - The company has an **RMB 80 million** (approximately **$13 million**) construction loan facility, collateralized by its new production facility[68](index=68&type=chunk) - Principal payments of **$148,227** were made during the six months ended June 30, 2019, and an additional **RMB 14 million** (approximately **$2.2 million**) payment was made in July 2019[68](index=68&type=chunk) Construction Loan Facility Principal Payments as of June 30, 2019 | Year | Amount ($) | |:-----|-----------:| | 2019 | 2,181,913 | | 2020 | 2,181,913 | | 2021 | 2,036,453 | | Total| 6,400,279 | [NOTE 9 - LEASES](index=19&type=section&id=NOTE%209%20-%20LEASES) Operating lease costs for office and production facilities were **$46,454** for the six months, with operating lease right-of-use assets of **$184,618** and liabilities of **$186,780** as of June 30, 2019 - Operating lease cost for the six months ended June 30, 2019, was **$46,454**[71](index=71&type=chunk) Operating Lease Liabilities as of June 30, 2019 | Metric | Amount ($) | |:-------|-----------:| | Operating lease right of use assets | 184,618 | | Operating lease liabilities | 186,780 | | Weighted average remaining lease term | 2.02 years | | Weighted average discount rate | 4.75% | [NOTE 10 - INCOME TAXES](index=19&type=section&id=NOTE%2010%20-%20INCOME%20TAXES) The PRC subsidiary is subject to a **25%** enterprise income tax rate, with no income tax expense for the six months, and a **$27.30 million** valuation allowance against deferred tax assets due to uncertainty of realizing significant net operating loss carryforwards - The company's PRC subsidiary is subject to an enterprise income tax rate of **25%**[75](index=75&type=chunk) - As of June 30, 2019, the company had PRC net operating loss carryforwards of approximately **$53.4 million** and U.S. federal NOLs of approximately **$5.8 million**[75](index=75&type=chunk) - A valuation allowance of **$27,295,714** was provided against deferred tax assets as of June 30, 2019, due to uncertainty of realizing all benefits[77](index=77&type=chunk) [NOTE 11 – FAIR VALUE MEASUREMENTS](index=20&type=section&id=NOTE%2011%20%E2%80%93%20FAIR%20VALUE%20MEASUREMENTS) The company measures banker's acceptance notes at cost approximating fair value, with **$20,579** classified under Level 2 of the fair value hierarchy as of December 31, 2018 Fair Value Measurements at December 31, 2018 | Description | Total ($) | Level 1 ($) | Level 2 ($) | Level 3 ($) | |:------------|----------:|------------:|------------:|------------:| | Banker's acceptance notes | 20,579 | - | 20,579 | - | [NOTE 12 - STOCKHOLDERS' EQUITY](index=21&type=section&id=NOTE%2012%20-%20STOCKHOLDERS'%20EQUITY) The company is authorized to issue **95 million** common and **5 million** preferred shares, with **43,579,557** common shares outstanding and **175,000** restricted shares under the 2010 Incentive Plan - The company has **95 million** authorized common shares and **5 million** authorized preferred shares, with **43,579,557** common shares outstanding as of August 12, 2019[5](index=5&type=chunk)[81](index=81&type=chunk) - Under the 2010 Incentive Plan, **175,000** shares of restricted stock were granted and outstanding as of June 30, 2019, with no options outstanding[82](index=82&type=chunk) [NOTE 13 – COMMITMENTS AND CONTINGENCIES](index=22&type=section&id=NOTE%2013%20%E2%80%93%20COMMITMENTS%20AND%20CONTINGENCIES) Operations in the PRC expose the company to significant political, economic, legal, and foreign currency risks, with RMB revenue conversion and remittance requiring PRC government approval - The company's operations in the PRC expose it to risks from political, economic, legal environments, and foreign currency exchange rate fluctuations[87](index=87&type=chunk) - Conversion of RMB into foreign currencies and remittance abroad require PRC government approval[88](index=88&type=chunk) [NOTE 14 – CONCENTRATIONS](index=22&type=section&id=NOTE%2014%20%E2%80%93%20CONCENTRATIONS) Two customers accounted for **49.7%** and **10.7%** of accounts receivable, and two suppliers for **27.7%** and **24.7%** of raw material purchases, indicating significant concentration - For the six months ended June 30, 2019, two customers accounted for **49.7%** and **10.7%** of accounts receivable[89](index=89&type=chunk) - For the six months ended June 30, 2019, two suppliers accounted for **27.7%** and **24.7%** of raw material purchases[89](index=89&type=chunk) [NOTE 15 – SUBSEQUENT EVENTS](index=22&type=section&id=NOTE%2015%20%E2%80%93%20SUBSEQUENT%20EVENTS) On July 8, 2019, the company entered a loan agreement for **$693,848** with its Chairperson, CEO, and Interim CFO, bearing **4.35%** annual interest and payable within one year - On July 8, 2019, the company secured a loan of **$693,848** from its Chairperson, CEO, and Interim CFO, with a **4.35%** annual interest rate, due within one year[90](index=90&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on financial condition and operations, highlighting regulatory challenges, market trends, detailed financial performance, liquidity, capital resources, and critical accounting policies - The company faces sustained pressure from heightened drug registration standards, consistency evaluations, rising clinical trial costs, and increased environmental protection costs in China[94](index=94&type=chunk) - The 'Healthy China 2030 Plan' aims to reduce personal hygiene spending to **28%** by 2020 and **25%** by 2030, promoting generic drugs as a cost-effective solution[100](index=100&type=chunk)[101](index=101&type=chunk) - Management believes cash from operations will be sufficient for working capital and capital expenditures for the next 12 months, but acknowledges potential need for additional financing if plans deviate[146](index=146&type=chunk) [Business Overview & Recent Developments](index=23&type=section&id=Business%20Overview%20%26%20Recent%20Developments) The company faces pressure from stricter drug registration standards, consistency evaluations, and rising costs, with new CFDA regulations causing delays and termination of pipeline products - The company faces sustained pressure from heightened drug registration standards, consistency evaluations, rising clinical trial costs, and increased environmental protection costs[94](index=94&type=chunk) - New CFDA regulations and consistency evaluations have led to delays in product approvals, increased costs, and the termination of certain pipeline products[95](index=95&type=chunk)[96](index=96&type=chunk) [Market Trends](index=24&type=section&id=Market%20Trends) China's pharmaceutical industry is growing steadily, driven by rising healthcare costs, improved insurance, and an aging population, with government policies promoting generic drugs for a large domestic and potential export market - China's national budget for health care increased by **RMB 84 billion** (**2.5%**) in 2018, accounting for **7.3%** of national financial expenditure[98](index=98&type=chunk) - The 'Healthy China 2030 Plan' aims to reduce personal hygiene spending to approximately **28%** of total healthcare expenditures by 2020 and **25%** by 2030[100](index=100&type=chunk) - The promotion of generic drugs as a cost-effective medical solution is expected to increase, offering a huge domestic market and potential for export to overseas markets[101](index=101&type=chunk) [Results of Operations for the Three Months Ended June 30, 2019](index=25&type=section&id=Results%20of%20Operations%20for%20the%20Three%20Months%20Ended%20June%2030,%202019) Revenue decreased by **19.0%** to **$2.6 million** due to policy impacts, gross profit margin fell to **6.4%**, and despite reduced selling and bad debt expenses, R&D increased, resulting in a net loss of **$0.8 million** [Revenue](index=25&type=section&id=Revenue%20(Three%20Months)) Revenue decreased by **19.0%** to **$2.6 million**, mainly due to policies controlling hospital medicine spending, with 'Other' and 'Digestive Diseases' categories experiencing the largest declines - Revenue decreased by **19.0%** to **$2.6 million** for the three months ended June 30, 2019, from **$3.2 million** in the prior year, mainly due to policies controlling hospital medicine spending[103](index=103&type=chunk) Revenue by Product Category (Three Months Ended June 30) | Product Category | 2019 ($M) | 2018 ($M) | Net Change ($M) | % Change | |:-----------------|----------:|----------:|----------------:|---------:| | CNS Cerebral & Cardio Vascular | 0.62 | 0.74 | -0.12 | -16% | | Anti-Viral/ Infection & Respiratory | 1.46 | 1.47 | -0.01 | -1% | | Digestive Diseases | 0.12 | 0.25 | -0.13 | -52% | | Other | 0.40 | 0.72 | -0.32 | -44% | - The 'Anti-Viral/Infection & Respiratory' category increased its share of total sales from **46% to 56%** year-over-year, while 'Other' decreased from **23% to 15%**[108](index=108&type=chunk) [Cost of Revenue](index=27&type=section&id=Cost%20of%20Revenue%20(Three%20Months)) Cost of revenue decreased to **$2.4 million** from **$2.6 million** due to decreased sales, but increased as a percentage of total revenue from **82% to 94%** due to stable fixed costs - Cost of revenue decreased to **$2.4 million** (**94%** of total revenue) for the three months ended June 30, 2019, from **$2.6 million** (**82%** of total revenue) in 2018[110](index=110&type=chunk) - The increase in cost of revenue as a percentage of total revenue was mainly due to the stable nature of fixed costs despite decreased sales[110](index=110&type=chunk) [Gross Profit and Gross Margin](index=27&type=section&id=Gross%20Profit%20and%20Gross%20Margin%20(Three%20Months)) Gross profit decreased to **$0.2 million** from **$0.6 million**, with gross profit margin declining from **18.3% to 6.4%**, primarily due to decreased revenue and a higher fixed cost ratio - Gross profit decreased to **$0.2 million** for the three months ended June 30, 2019, from **$0.6 million** in 2018[111](index=111&type=chunk) - Gross profit margin declined from **18.3% to 6.4%** for the three months ended June 30, 2019, mainly due to decreased revenue and a higher fixed cost ratio[111](index=111&type=chunk) [Selling Expenses](index=27&type=section&id=Selling%20Expenses%20(Three%20Months)) Selling expenses decreased to **$0.5 million** from **$0.7 million**, and as a percentage of total revenue, decreased from **22.6% to 19.7%**, reflecting adjustments in sales practices and healthcare policies - Selling expenses decreased to **$0.5 million** for the three months ended June 30, 2019, from **$0.7 million** in 2018[112](index=112&type=chunk) - Selling expenses as a percentage of total revenue decreased from **22.6% to 19.7%**, driven by adjustments in sales practices and healthcare policies[112](index=112&type=chunk) [General and Administrative Expenses](index=27&type=section&id=General%20and%20Administrative%20Expenses%20(Three%20Months)) General and administrative expenses decreased to **$0.3 million** from **$0.4 million**, but increased as a percentage of total revenues from **11.1% to 13.0%** - General and administrative expenses decreased to **$0.3 million** for the three months ended June 30, 2019, from **$0.4 million** in 2018[113](index=113&type=chunk) - General and administrative expenses as a percentage of total revenues increased from **11.1% to 13.0%** for the three months ended June 30, 2019[113](index=113&type=chunk) [Research and Development Expenses](index=27&type=section&id=Research%20and%20Development%20Expenses%20(Three%20Months)) Research and development expenses increased to **$0.07 million** from **$0.02 million**, attributed to consistency evaluations significantly impacting generic products and pipeline development - Research and development expenses increased to **$0.07 million** for the three months ended June 30, 2019, from **$0.02 million** in 2018[114](index=114&type=chunk) - The increase in R&D expenses is due to consistency evaluations, which are expected to significantly impact generic products and pipeline development[114](index=114&type=chunk) [Bad Debt Expenses](index=27&type=section&id=Bad%20Debt%20Expenses%20(Three%20Months)) Bad debt expenses significantly decreased to **$10,092** from **$350,847**, following an updated policy in Q4 2018 extending credit terms to 180 days, reflecting longer receivable aging in the Chinese pharmaceutical market - Bad debt expenses decreased significantly to **$10,092** for the three months ended June 30, 2019, from **$350,847** in 2018[115](index=115&type=chunk) - The company updated its bad debt allowance policy in Q4 2018, extending credit terms from **90 to 180 days**, reflecting longer receivable aging in the Chinese pharmaceutical market[116](index=116&type=chunk)[117](index=117&type=chunk) Accounts Receivable Aging Distribution (Percentage of Total) | Aging Period | June 30, 2019 | December 31, 2018 | |:-------------|--------------:|------------------:| | 1 - 180 Days | 2.9% | 3.8% | | 180 - 360 Days | 0.7% | 1.2% | | 360 - 720 Days | 0.5% | 0.3% | | > 720 Days | 95.9% | 94.7% | [Loss from Operations](index=29&type=section&id=Loss%20from%20Operations%20(Three%20Months)) Operating loss for the three months ended June 30, 2019, was **$0.8 million**, an improvement from **$0.9 million** in the prior year - Loss from operations for the three months ended June 30, 2019, was **$752,968**, an improvement from **$864,403** in the prior year[10](index=10&type=chunk) [Net Interest Expense](index=29&type=section&id=Net%20Interest%20Expense%20(Three%20Months)) Net interest expense for the three months ended June 30, 2019, was **$0.09 million**, a decrease from **$0.12 million** in the prior year - Net interest expense for the three months ended June 30, 2019, was **$85,135**, a decrease from **$121,056** in the prior year[10](index=10&type=chunk) [Income Tax expense](index=29&type=section&id=Income%20Tax%20expense%20(Three%20Months)) The company reported no income tax expense for the three months ended June 30, 2019, compared to **$0.02 million** in the prior year, with its subsidiary's tax rate remaining at **25%** - No income tax expense was reported for the three months ended June 30, 2019, compared to **$22,590** in the prior year[10](index=10&type=chunk)[121](index=121&type=chunk) [Net Loss](index=30&type=section&id=Net%20Loss%20(Three%20Months)) Net loss for the three months ended June 30, 2019, was **$0.8 million**, an improvement from **$1.0 million** due to expenditure controls offsetting revenue decrease, with basic and diluted loss per share remaining at **$0.02** - Net loss for the three months ended June 30, 2019, was **$838,103**, an improvement from **$1,008,049** in the prior year, due to expenditure controls[10](index=10&type=chunk)[123](index=123&type=chunk) - Basic and diluted loss per share remained at **$0.02** for both periods, with **43,579,557** weighted average shares outstanding[10](index=10&type=chunk)[124](index=124&type=chunk) [Results of Operations for the Six Months Ended June 30, 2019](index=30&type=section&id=Results%20of%20Operations%20for%20the%20Six%20Months%20Ended%20June%2030,%202019) Revenue decreased by **19.0%** to **$5.5 million** due to government policies, gross profit margin declined to **14.9%**, and despite decreased selling, G&A, and bad debt expenses, R&D increased, resulting in a consistent net loss of **$1.3 million** [Revenue](index=30&type=section&id=Revenue%20(Six%20Months)) Revenue decreased by **19.0%** to **$5.5 million** due to government policies, with 'Anti-Viral/Infection & Respiratory' (mainly Cefaclor sales), 'Digestive Diseases', and 'Other' categories experiencing significant declines - Revenue decreased by **19.0%** to **$5.5 million** for the six months ended June 30, 2019, from **$6.8 million** in the prior year, due to government policies on medicine spending[125](index=125&type=chunk) Revenue by Product Category (Six Months Ended June 30) | Product Category | 2019 ($M) | 2018 ($M) | Net Change ($M) | % Change | |:-----------------|----------:|----------:|----------------:|---------:| | CNS Cerebral & Cardio Vascular | 1.07 | 1.25 | -0.18 | -14% | | Anti-Viral/ Infection & Respiratory | 3.32 | 3.81 | -0.49 | -13% | | Digestive Diseases | 0.23 | 0.42 | -0.19 | -45% | | Other | 0.90 | 1.31 | -0.41 | -31% | - The 'Anti-Viral/Infection & Respiratory' category increased its share of total sales from **56% to 60%** year-over-year, while 'Digestive Diseases' and 'Other' categories decreased their shares[130](index=130&type=chunk) [Cost of Revenue](index=31&type=section&id=Cost%20of%20Revenue%20(Six%20Months)) Cost of revenue decreased to **$4.7 million** from **$5.2 million** due to decreased sales, but increased as a percentage of total revenue from **76% to 85%** due to stable fixed costs - Cost of revenue decreased to **$4.7 million** (**85%** of total revenue) for the six months ended June 30, 2019, from **$5.2 million** (**76%** of total revenue) in 2018[131](index=131&type=chunk) - The percentage of cost to revenue increased due to the stable nature of fixed costs, which deteriorated the gross margin when revenue decreased[131](index=131&type=chunk) [Gross Profit and Gross Margin](index=32&type=section&id=Gross%20Profit%20and%20Gross%20Margin%20(Six%20Months)) Gross profit decreased to **$0.8 million** from **$1.6 million**, with gross profit margin declining from **24.1% to 14.9%**, primarily due to decreased sales and stable fixed costs - Gross profit decreased to **$0.8 million** for the six months ended June 30, 2019, from **$1.6 million** in 2018[133](index=133&type=chunk) - Gross profit margin declined from **24.1% to 14.9%** for the six months ended June 30, 2019, due to decreased sales and the impact of stable fixed costs[133](index=133&type=chunk) [Selling Expenses](index=32&type=section&id=Selling%20Expenses%20(Six%20Months)) Selling expenses decreased to **$1.0 million** from **$1.4 million**, and as a percentage of total revenue, decreased from **20.5% to 17.9%** - Selling expenses decreased to **$1.0 million** for the six months ended June 30, 2019, from **$1.4 million** in 2018[134](index=134&type=chunk) - Selling expenses as a percentage of total revenue decreased from **20.5% to 17.9%** for the six months ended June 30, 2019[134](index=134&type=chunk) [General and Administrative Expenses](index=32&type=section&id=General%20and%20Administrative%20Expenses%20(Six%20Months)) General and administrative expenses decreased to **$0.76 million** from **$0.85 million**, but increased as a percentage of total revenues from **12.4% to 13.9%** - General and administrative expenses decreased to **$0.76 million** for the six months ended June 30, 2019, from **$0.85 million** in 2018[135](index=135&type=chunk) - General and administrative expenses as a percentage of total revenues increased from **12.4% to 13.9%** for the six months ended June 30, 2019[135](index=135&type=chunk) [Research and Development Expenses](index=32&type=section&id=Research%20and%20Development%20Expenses%20(Six%20Months)) Research and development expenses increased to **$0.14 million** from **$0.05 million**, primarily due to consistency evaluations for existing products, with no further pipeline product development due to policy changes - Research and development expenses increased to **$0.14 million** for the six months ended June 30, 2019, from **$0.05 million** in 2018, an increase of **$0.09 million**[136](index=136&type=chunk) - The increase in R&D expenses was mainly due to spending on consistency evaluations for current existing products, while pipeline products saw no further development due to policy changes[136](index=136&type=chunk) [Bad Debt Expenses](index=32&type=section&id=Bad%20Debt%20Expenses%20(Six%20Months)) Bad debt expenses decreased to **$0.02 million** from **$0.35 million**, primarily due to improved collection of accounts receivable - Bad debt expenses decreased to **$0.02 million** for the six months ended June 30, 2019, from **$0.35 million** in 2018, a decrease of **$0.33 million**[137](index=137&type=chunk) - The decrease in bad debt expenses was mainly due to improved collection of accounts receivable in the first half of 2019[137](index=137&type=chunk) [Loss from Operations](index=33&type=section&id=Loss%20from%20Operations%20(Six%20Months)) Operating loss for the six months ended June 30, 2019, was **$1.1 million**, an increase from **$1.0 million** in the prior year - Loss from operations for the six months ended June 30, 2019, was **$1.1 million**, compared to **$1.0 million** in the prior year[139](index=139&type=chunk) [Net Interest Expense](index=33&type=section&id=Net%20Interest%20Expense%20(Six%20Months)) Net interest expense for the six months ended June 30, 2019, was **$0.17 million**, a decrease from **$0.25 million** in the prior year - Net interest expense for the six months ended June 30, 2019, was **$0.17 million**, a decrease from **$0.25 million** in 2018[140](index=140&type=chunk) [Income Tax expense](index=33&type=section&id=Income%20Tax%20expense%20(Six%20Months)) The company reported no income tax expense for the six months ended June 30, 2019, compared to **$0.05 million** in the prior year, with its subsidiary's tax rate remaining at **25%** - No income tax expense was reported for the six months ended June 30, 2019, compared to **$0.05 million** in the prior year[141](index=141&type=chunk) [Net Loss](index=34&type=section&id=Net%20Loss%20(Six%20Months)) Net loss for the six months ended June 30, 2019, was **$1.3 million**, consistent with the prior year, as decreased revenue was offset by decreased expenses, with basic and diluted loss per share remaining at **$0.03** - Net loss for the six months ended June 30, 2019, was **$1.3 million**, consistent with the prior year, reflecting an offset of decreased revenue by decreased expenses[142](index=142&type=chunk) - Basic and diluted loss per share remained at **$0.03** for both periods, with **43,579,557** weighted average shares outstanding[144](index=144&type=chunk) [Liquidity and Capital Resources](index=34&type=section&id=Liquidity%20and%20Capital%20Resources) Cash and cash equivalents increased to **$1.7 million**, with cash from operations as the principal liquidity source, believed sufficient for 12 months, though additional financing may be sought, and significant restrictions exist on fund transfers from the PRC subsidiary - Cash and cash equivalents increased to **$1.7 million** (**3.8%** of total assets) at June 30, 2019, from **$1.2 million** (**2.6%** of total assets) at December 31, 2018[145](index=145&type=chunk) - All **$1.7 million** of cash and cash equivalents are considered reinvested indefinitely in the Chinese subsidiary, Helpson, and are not expected to be available for dividends or other payments to the parent company[145](index=145&type=chunk) - PRC regulations require Helpson to allocate at least **10%** of after-tax net income to statutory surplus reserve accounts, restricting dividend distribution to overseas shareholders[149](index=149&type=chunk) [Operating Activities](index=34&type=section&id=Operating%20Activities) Net cash provided by operating activities significantly increased to **$0.9 million** from **$0.1 million**, with net accounts receivable decreasing to **$0.7 million** and total inventory to **$4.4 million** - Net cash provided by operating activities was **$0.9 million** for the six months ended June 30, 2019, compared to **$0.1 million** in 2018[147](index=147&type=chunk) - Net accounts receivable decreased to **$0.7 million** at June 30, 2019, from **$0.9 million** at December 31, 2018[147](index=147&type=chunk) - Total inventory decreased to **$4.4 million** at June 30, 2019, from **$5.1 million** at December 31, 2018[147](index=147&type=chunk) [Investing Activities](index=34&type=section&id=Investing%20Activities) Net cash used in investing activities increased to **$0.07 million** for the six months ended June 30, 2019, compared to **$0.03 million** in the prior year - Net cash used in investing activities was **$0.07 million** for the six months ended June 30, 2019, compared to **$0.03 million** in 2018[147](index=147&type=chunk) [Financing Activities](index=35&type=section&id=Financing%20Activities) Cash flow used in financing activities increased to **$0.4 million** from **$0.2 million**, primarily due to payments to related party payables and scheduled construction loan facility payments - Cash flow used in financing activities was **$0.4 million** for the six months ended June 30, 2019, compared to **$0.2 million** in 2018[148](index=148&type=chunk) - Financing activities included payments to related party payables and scheduled payments of the construction loan facility[148](index=148&type=chunk) [Off-Balance Sheet Arrangements](index=36&type=section&id=Off-Balance%20Sheet%20Arrangements) As of June 30, 2019, the company did not have any off-balance sheet arrangements - The company did not have any off-balance sheet arrangements as of June 30, 2019[151](index=151&type=chunk) [Commitments](index=36&type=section&id=Commitments) As of June 30, 2019, the company was obligated to pay approximately **$0.30 million** to laboratories and service providers for CFDA production approval of medical formulas - As of June 30, 2019, the company had commitments of approximately **$0.30 million** to laboratories and service providers for CFDA production approval of medical formulas[151](index=151&type=chunk) [Critical Accounting Policies](index=36&type=section&id=Critical%20Accounting%20Policies) Management's discussion and analysis are based on U.S. GAAP consolidated financial statements, requiring significant estimates and judgments, with critical accounting policies detailed in Note 1 - Critical accounting policies are discussed in Note 1 to the consolidated financial statements, 'Organization and Significant Accounting Policies'[152](index=152&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=37&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) As a 'smaller reporting company,' the registrant is exempt from providing quantitative and qualitative disclosures about market risk - The company is a 'smaller reporting company' and is not required to provide quantitative and qualitative disclosures about market risk[154](index=154&type=chunk) [Item 4. Controls and Procedures](index=37&type=section&id=Item%204.%20Controls%20and%20Procedures) The CEO and interim CFO concluded that disclosure controls and procedures were not effective due to a material weakness in U.S. GAAP knowledgeable personnel, though management asserts financial statements are fairly stated - The company's disclosure controls and procedures were deemed not effective as of June 30, 2019[156](index=156&type=chunk) - The ineffectiveness is attributed to a material weakness in internal control over financial reporting, specifically a lack of U.S. GAAP knowledgeable accounting personnel[156](index=156&type=chunk) - Despite the material weakness, management concluded that the consolidated financial statements are fairly stated in all material respects in accordance with U.S. GAAP[156](index=156&type=chunk) [Evaluation of Disclosure Controls and Procedures](index=37&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) The CEO and interim CFO concluded that disclosure controls and procedures were not effective due to a material weakness: lack of U.S. GAAP knowledgeable accounting personnel - Disclosure controls and procedures were not effective as of June 30, 2019, due to a material weakness: lack of accounting financial reporting personnel knowledgeable in U.S. GAAP[156](index=156&type=chunk) [Changes in Internal Controls over Financial Reporting](index=37&type=section&id=Changes%20in%20Internal%20Controls%20over%20Financial%20Reporting) No material changes in internal control over financial reporting occurred during the last fiscal quarter - No material changes in internal control over financial reporting occurred during the last fiscal quarter[157](index=157&type=chunk) [PART II OTHER INFORMATION](index=37&type=section&id=PART%20II%20OTHER%20INFORMATION) [Item 6. Exhibits](index=37&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed as part of the Form 10-Q, including a loan agreement with the Chairperson, officer certifications, and XBRL taxonomy documents - Exhibits include a loan agreement with Zhilin Li (Chairperson, CEO, Interim CFO), certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act, and XBRL instance and taxonomy documents[161](index=161&type=chunk)

China Pharma Holdings, Inc. (NYSE:CPHI) Q1 2019 Earnings Conference Call May 15, 2019 8:30 AM ET Company Participants Diana Huang - Investor Relations, Manager Zhilin Li - President and Chief Executive Officer and Interim Chief Financial Officer Sam Hsing - Corporate Vice President Conference Call Participants Operator Ladies and gentlemen, thank you standing by and welcome to China Pharma Holdings Inc. Q1 2019 Earnings Conference Call. At this time, all participants are in listen-only mode. There will be a ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended March 31, 2019 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from ____________ to ____________ Commission File Number 001-34471 CHINA PHARMA HOLDINGS, INC. (Exact name of registrant as specified in its charter) Nevada (Stateo ...