Happiness Biotech Group Limited Announces Financial Results for the Six Months Ended September 30, 2019

Happiness Biotech Group Limited (the "Company" or Nasdaq: HAPP), an innovative China-based nutraceutical and dietary supplements producer, today announced its unaudited financial results for the six months ended September 30, 2019. The financial results has been filed in a 6-K with the U.S. Securities and Exchange Commission (the "SEC") on January 10, 2020.

Financial Highlights for the six months ended September 30, 2019:

• Sales for the six months ended September 30, 2019, were $31.36 million, relatively stable compared with $31.43 million in the prior year period.
• Operating income was $9.82 million for the six months ended September 30, 2019, a slight decrease of 5.4% from the prior year period due to increases in general and administrative fees incurred for brand advertisement.
• The Company reported $8.42 million of net income attributable to common shareholders, or $0.37 per basic and diluted share in the six months ended September 30, 2019, compared to net income attributable to common shareholders of $8.80 million, or $0.38 per basic and diluted share, in the comparative period.

Mr. Xuezhu Wang, Chief Executive Officer of Happiness Biotech, commented, "We are pleased to announce our financial results for the six months ended September 30, 2019. We have experienced a relatively stable half year in 2019 while we have continued the efforts to open new Experience Stores. As previously announced, we have opened the 31^st Experience Store in December and we will continue to open more in the last fiscal quarter. The margin decreases slightly mainly due to our increased marketing expenses and new store expansion. However, we are confident that we will be rewarded with higher margin and revenue after a sizable network of experience stores being established."

Financial Results for the six months ended September 30, 2019 compared with the six months ended September 30, 2018

Revenues

We generated revenues primarily from manufacture and sales of nutraceutical and dietary supplements made of Lucidum spore powder and others.

The following table presents an overview of our sales from our product lines for the six months ended September 30, 2019 and 2018 respectively:

As of September 30, 2019, we marketed and sold approximately 32 kinds of nutraceutical and dietary supplements products with "Blue Caps" approved by State Food and Drug Administration of PRC ("SFDA") encompassing over 200 distributors in 27 different provinces and 30 experience stores in China.

Lucidum spore powder products: Our sales from Lucidum spore powder products have grown heavily in the six months ended September 30, 2019, increased by $1,691,230 or 18.3%, to $10,948,813. This rise was mainly attributed to the more intensive marketing activities of Lucidum spore power products and the growth of sales from experience stores.

Cordyceps mycelia products: Compared with the prior year, it accounts for 15.0% of our total revenues of the six months ended September 30, 2019. The revenues generated from sales of Cordyceps mycelia products dropped from18.3% due to heavier competition in traditional nutrition market and lower retail prices of Cordycepts mycelia products.

Ejiao solution products months: The sales of Ejiao solution products accounted for 13.7% and 15% of revenue recognized during the six months ended September 30, 2019 and 2018, respectively. As compared with the six months ended September 30, 2018, our sales of Ejiao solution products months decreased slightly by $409,798, or 1.3% for the six months ended September 30, 2019. The decrease of Ejiao products was mainly due to pricing competition in traditional nutrition market.

Other products: The sales of other products accounted for 17.1% and 15.6% of revenue recognized during the six months ended September 30, 2019 and 2018, respectively. Our sales of other products increased by $453,879, or 9.2% for the six months ended, September 30, 2019. This growth is primarily attributable to increase of sales volume of our newly promoted Lucidum enriched products, such as Lucidum snake oil cream.

Cost of Revenue 

Cost of revenue decreased by $54,648, or 0.4%, from $15,586,713 for the six months ended September 30, 2018 to $15,532,065 for the six months ended September 30, 2019. Gross margins are relatively stable for six months period ended September 30, 2019 compared to that for the six months period ended September 30, 2018; amounted to be 50.5% and 50.4% for the six months ended September 30, 2019 and 2018, respectively.

Selling and Marketing Expenses

The selling expenses increased from $3,320,375 for the six months ended September 30, 2018 to $3,593,053 for the six months ended September 30, 2019, representing an increase of $272,678, or 8.2%. The increase was primarily due to increases in commercial and advertising cost strengthening our brands during the six months ended September 30, 2019.

General and Administrative Expenses

The general and administrative expenses increased from $970,036 for the six months ended September 30, 2018 to $1,275,679 for the six months ended September 30, 2019, representing an increase of $305,643, or 31.5%. The increase was primarily due to increases in professional fees incurred for brand advertisement.

Research and Development Expenses

The research and development expenses were relatively stable comparing these two reporting periods. These expenses were $1,172,894 and $1,134,505 for the six months ended September 30, 2018 and for the six months ended September 30, 2019 respectively.

Income from Operations

The income from operations decreased from $10,383,186 for the six months ended September 30, 2018 to $9,822,244 for the six months ended September 30, 2019, representing a decrease of $560,942, or 5.4%. The decrease was primarily due to increases in general and administrative fees incurred for brand advertisement.

Income Tax

We incurred income tax expense of $1,484,154 for the six months ended September 30, 2019, representing a decrease of $72,846 or 4.7%, compared to $1,554,000 for the six months ended September 30, 2018. Our effective income tax rates for the six months ended September 30, 2019 and 2018 were 15.0%.

Net income

As a result of the foregoing, net income for the six months ended September 30, 2019 was $8,423,297 representing a decrease of $381,523, or 4.3% from $8,804,820 for the six months ended September 30, 2018.Net margin was 26.9% for the six months ended September 30. 2019 and 28% for the six months ended September 30, 2018.

Liquidity and Capital Resources

As of September 30, 2019 and March 31, 2019, we had cash and cash equivalents of $23,832,048 and $14,800,772 respectively. We did not have any other short-term investments.

As of September 30, 2019 and March 31, 2019, our current assets were approximately $59.5 million and $54.8 million, respectively, and our current liabilities were approximately $5.1 million and $4.7 million, respectively.

Net cash provided by operations for the six months ended September 30, 2019 was $8,943,354 and net cash provided by operations for the six months ended September 30, 2018 was $5,101,977.

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