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Share Name | Share Symbol | Market | Type |
---|---|---|---|
China Health Industries Holdings Inc (QB) | USOTC:CHHE | OTCMarkets | Common Stock |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 1.13 | 0.3018 | 1.10 | 0.00 | 21:00:16 |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
(Amendment No.1)
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
(Exact name of Registrant as specified in its Charter)
(State or other jurisdiction of incorporation) |
(Commission File No.) | (IRS Employer Identification No.) |
People’s Republic of
(Address of principal executive offices) (Zip Code)
(Registrant’s Telephone Number)
Not Applicable
(Former name or address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Not Applicable | Not Applicable | Not Applicable |
Indicate by check mark whether the registrant
is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR 230.405) or Rule 12b-2 of the Securities Exchange
Act of 1934 (17 CFR 240.12b-2)
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Explanatory Note
1
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Businesses Acquired.
In accordance with Item 9.01(a) of Form 8-K, unaudited financial statements of HempCan for the three months ended September 30, 2023 and 2022 are filed as exhibit 99.1 to this Current Report on Form 8-K/A and are incorporated herein by reference. Audited consolidated financial statements of HempCan as of June 30, 2023 and 2022, and for the years ended June 30, 2023 and 2022 are filed as Exhibit 99.2 to this Current Report on Form 8-K/A and are incorporated in their entirety herein by reference.
(b) Pro Forma Financial Information.
In accordance with Item 9.01(b) of Form 8-K, the unaudited pro forma condensed combined financial information of the Company, giving effect to the Transaction, which includes the unaudited pro forma condensed combined balance sheet as of September 30, 2023 and the unaudited pro forma condensed combined statements of operations for the year ended June 30, 2023 and for the three months ended September 30, 2023, is filed as Exhibit 99.3 to this Current Report on Form 8-K/A and is incorporated herein by reference.
The unaudited pro forma financial information included in this Current Report on Form 8-K/A has been presented for informational purposes only, as required by the disclosure requirements of Form 8-K, and is not necessarily indicative of the actual financial position or results of operations that the Company would have realized had the companies been combined as of the dates or during the periods presented, nor is it intended to be indicative of any anticipated combined financial position or future results of operations that the Company may achieve after the Transaction.
(d) Exhibits.
Exhibit No. | Description | |
99.1 | Unaudited Financial Statements for the Three Months ended September 30, 2023 and 2022 of Heilongjiang Hempcan Pharmaceuticals Co., Ltd. | |
99.2 | Audited Financial Statements for the Fiscal Years Ended June 30, 2023 and 2022 of Heilongjiang Hempcan Pharmaceuticals Co., Ltd. | |
99.3 | Unaudited Pro Forma Condensed Combined Financial Statements as of and for the Three Months Ended September 30, 2023 and the Year Ended June 30, 2023 of China Health Industries Holdings, Inc. | |
104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). |
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
CHINA HEALTH INDUSTRIES HOLDINGS, INC. | ||
Date: May 16, 2024 | By: | /s/ Xin Sun |
Name: | Xin Sun | |
Title: | Chief Executive Officer and Chief Financial Officer (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer) |
3
Exhibit 99.1
HEILONGJIANG HEMPCAN PHARMACEUTICALS CO., LTD.
UNAUDITED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
HEILONGJIANG HEMPCAN PHARMACEUTICALS CO., LTD.
TABLE OF CONTENTS
Page | ||
Unaudited Condensed Financial Statements | ||
Unaudited Condensed Balance Sheets | 2 | |
Unaudited Condensed Statements of Operations and Comprehensive Loss | 3 | |
Unaudited Condensed Statements of Stockholders’ Equity | 4 | |
Unaudited Condensed Statements of Cash Flows | 5 | |
Notes to Unaudited Condensed Financial Statements | 6-14 |
1
HEILONGJIANG HEMPCAN PHARMACEUTICALS CO., LTD.
CONDENSED BALANCE SHEETS
IN US DOLLARS
September
30, 2023 | June 30, 2023 | |||||||
(Unaudited) | (Audited) | |||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 4,542 | $ | 10,459 | ||||
Prepayment and other current assets | 9,968 | 16,028 | ||||||
Advances to suppliers, net | 1,371 | 1,379 | ||||||
Total current assets | $ | 15,881 | $ | 27,866 | ||||
Total assets | $ | 15,881 | $ | 27,866 | ||||
LIABILITIES AND EQUITY | ||||||||
Current liabilities | ||||||||
Short-term loans | $ | 34,265 | $ | 34,477 | ||||
Accounts payable | 349 | 351 | ||||||
Other payables and accrued expenses | 10,020 | 8,406 | ||||||
Amounts due to related parties | 47,045 | 43,522 | ||||||
Total current liabilities | $ | 91,679 | $ | 86,756 | ||||
Equity | ||||||||
Additional paid-in capital | 179,661 | 179,661 | ||||||
Accumulated deficit | (250,548 | ) | (233,157 | ) | ||||
Accumulated other comprehensive loss | (4,911 | ) | (5,394 | ) | ||||
Total stockholders’ deficit | $ | (75,798 | ) | $ | (58,890 | ) | ||
Total liabilities and equity | $ | 15,881 | $ | 27,866 |
The accompanying notes are an integral part of these unaudited condensed financial statements.
2
HEILONGJIANG HEMPCAN PHARMACEUTICALS CO., LTD.
CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
IN US DOLLARS
(UNAUDITED)
For the Three Months Ended | ||||||||
September 30, | September 30, | |||||||
2023 | 2022 | |||||||
REVENUE | $ | - | $ | - | ||||
COST OF REVENUE | - | - | ||||||
GROSS PROFIT | - | - | ||||||
OPERATING EXPENSES | ||||||||
General and administrative expenses | 17,044 | 56,284 | ||||||
Total operating expenses | 17,044 | 56,284 | ||||||
LOSS FROM OPERATIONS | (17,044 | ) | (56,284 | ) | ||||
OTHER INCOME/(EXPENSES) | ||||||||
Interest income | 2 | 73 | ||||||
Bank charges | (349 | ) | (2 | ) | ||||
Total other (expenses)/ income, net | (347 | ) | 71 | |||||
LOSS BEFORE INCOME TAXES | (17,391 | ) | (56,213 | ) | ||||
Provision for income taxes | - | - | ||||||
NET LOSS | (17,391 | ) | (56,213 | ) | ||||
Foreign currency translation gain | 483 | 90 | ||||||
COMPREHENSIVE LOSS | $ | (16,908 | ) | $ | (56,123 | ) |
The accompanying notes are an integral part of these unaudited condensed financial statements.
3
HEILONGJIANG HEMPCAN PHARMACEUTICALS CO., LTD.
CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY
IN US DOLLARS
(UNAUDITED)
Additional Paid-in | Accumulated | Statutory | Accumulated Other Comprehensive | Total | ||||||||||||||||
Capital | deficit | Reserve | loss | (Deficit) | ||||||||||||||||
Balance, June 30, 2022 | $ | 179,661 | $ | (139,167 | ) | $ | - | $ | (6,672 | ) | $ | 33,822 | ||||||||
Net loss | - | (56,213 | ) | - | - | (56,213 | ) | |||||||||||||
Other comprehensive loss - Translation adjustment | - | - | - | 90 | 90 | |||||||||||||||
Balance, September 30, 2022 | $ | 179,661 | $ | (195,380 | ) | $ | - | $ | (6,582 | ) | $ | (22,301 | ) | |||||||
Balance, June 30, 2023 | $ | 179,661 | $ | (233,157 | ) | $ | - | $ | (5,394 | ) | $ | (58,890 | ) | |||||||
Net loss | - | (17,391 | ) | - | - | (17,391 | ) | |||||||||||||
Other comprehensive loss - Translation adjustment | - | - | - | 483 | 483 | |||||||||||||||
Balance, September 30, 2023 | $ | 179,661 | $ | (250,548 | ) | $ | - | $ | (4,911 | ) | $ | (75,798 | ) |
The accompanying notes are an integral part of these unaudited condensed financial statements.
4
HEILONGJIANG HEMPCAN PHARMACEUTICALS CO., LTD.
CONDENSED STATEMENTS OF CASH FLOWS
IN US DOLLARS
(UNAUDITED)
For the Three Months Ended | ||||||||
September 30, | September 30, | |||||||
2023 | 2022 | |||||||
Cash Flows from Operating Activities | ||||||||
Net loss from operations | $ | (17,391 | ) | $ | (56,213 | ) | ||
Changes in operating assets and liabilities, | ||||||||
Prepayment and other current assets | (6,005 | ) | 29 | |||||
Accruals and other current payables | 1,677 | (8,483 | ) | |||||
Amounts due to related parties | 3,816 | 4,989 | ||||||
Taxes payable | - | 7 | ||||||
Net cash used in operating activities | (5,893 | ) | (59,671 | ) | ||||
Cash Flows from Investing Activities | ||||||||
Net cash (used in)/provided by investing activities | - | - | ||||||
Cash Flows from Financing Activities | ||||||||
Net cash (used in)/provided by financing activities | - | - | ||||||
Effect of exchange rate changes on cash and cash equivalents | (24 | ) | (7,387 | ) | ||||
Net decrease in cash and cash equivalents | (5,917 | ) | (67,058 | ) | ||||
Cash and cash equivalents, beginning balance | 10,459 | 164,075 | ||||||
Cash and cash equivalents, closing balance | 4,542 | 97,017 | ||||||
Supplemental cash flow information | ||||||||
Cash paid for income taxes | $ | - | $ | - | ||||
Cash paid for interest expenses | $ | - | $ | - |
The accompanying notes are an integral part of these financial statements.
5
HEILONGJIANG HEMPCAN PHARMACEUTICALS CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
Note 1 - ORGANIZATION AND NATURE OF OPERATIONS
Heilongjiang HempCan Pharmaceuticals Co., Ltd. (“HempCan” or the “Company”) was incorporated on May 22, 2019 in accordance with PRC laws, has been engaging in Research Development, production and marketing of innovative drugs as well as medical devices and functional food. HempCan commits itself to providing an innovative treatment to patients by developing a treatment approach with combination of anticancer, immune improvement and pain relief. In addition, HempCan also cooperates with universities and individual advisors to develop new products and new technique. Currently, HempCan owns two anticancer drugs and holds the business permit to plant hemp, hemp seed growing, cannabidiol (CBD) extraction and deep processing for other hemp products.
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
This summary of the Company’s significant accounting policies is presented to assist in understanding the Company’s financial statements. The financial statements and notes are representations of the Company’s management (“Management”), which is responsible for the integrity and objectivity of the financial statements and notes. The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). The financial statements of the Company reflect the principal activities of the Company.
Fair Value of Financial Instruments
The provisions of accounting guidance, FASB ASC Topic 820 that applies to the Company requires all entities to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized on the balance sheet, for which it is practicable to estimate fair value, and defines fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties.
Fair Value Measurements
FASB ASC Topic 820, “Fair Value Measurements and Disclosures”, clarifies the definition of fair value for financial reporting, establishes a framework for measuring fair value, and requires additional disclosures about the use of fair value measurements.
Various inputs are considered when determining the fair value of the Company’s debt. The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in these securities. These inputs are summarized in the three broad levels listed below:
Level 1 – | observable market inputs that are unadjusted quoted prices for identical assets or liabilities in active markets. |
Level 2 – | other significant observable inputs, including quoted prices for similar securities, interest rates, credit risk, etc. |
Level 3 – | significant unobservable inputs, including the Company’s own assumptions in determining the fair value of investments. |
6
The carrying value of financial assets and liabilities recorded at fair value is measured on a recurring or a nonrecurring basis. Financial assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when a significant event occurs. The Company had no financial assets or liabilities carried and measured on a nonrecurring basis during the reporting periods. Financial assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial statement is prepared. The Company had no financial assets or liabilities carried and measured on a recurring basis during the reporting periods.
The availability of inputs observable in the market varies from instrument to instrument and depends on a variety of factors, including the type of instrument, whether the instrument is actively traded, and other characteristics particular to the transaction. For many financial instruments, pricing inputs are readily observable in the market, the valuation methodology used is widely accepted by market participants, and the valuation does not require significant discretion of Management. For other financial instruments, pricing inputs are less observable in the market and may require judgment of Management.
Translation of Foreign Currencies
HempCan maintain books and accounting records in PRC currency “Renminbi” (“RMB”), which has been determined as the functional currency.
Transactions denominated in currencies other than the functional currencies are recorded at the exchange rates prevailing on the date of the transactions, as quoted by the Federal Reserve Board. Foreign currency exchange gains and losses resulting from these transactions are included in operations.
HempCan’s financial statements are translated into the reporting currency, the United States Dollar (“USD”). Assets and liabilities of the above entities are translated at the prevailing exchange rate at each reporting period end date. Contributed capital accounts are translated using the historical rate of exchange when capital is injected. Income and expense accounts are translated at the average rate of exchange during the reporting period. Translation adjustments resulting from the translation of these financial statements are reflected as accumulated other comprehensive income in shareholders’ equity.
Use of Estimates and Assumptions
The preparation of financial statements in conformity with US GAAP requires Management to make estimates and judgments that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities on the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Management bases its estimates and judgments on historical experience and on various other assumptions and information that are believed to be reasonable under the circumstances. Estimates and assumptions of future events and their effects cannot be perceived with certainty and, accordingly, these estimates may change as new events occur, as more experience is acquired, as additional information is obtained, and as the Company’s operating environment changes. Significant estimates and assumptions by Management include, among others, advances to suppliers and deferred taxes. While Management believes that the estimates and assumptions used in the preparation of the financial statements are appropriate, actual results could differ from those estimates. Estimates and assumptions are periodically reviewed and the effects of revisions are reflected in the financial statements in the period they are determined to be necessary.
7
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and Cash in Bank, which are unrestricted as to withdrawal. As of September 30, 2023 and June 30, 2023, the Company had cash and cash equivalents were $4,542 and $10,459, respectively.
Advances to Suppliers
The Company periodically makes advances to certain vendors for purchases of raw materials or to service providers for services relating to food processing service, and records these payments as advances to suppliers. As of September 30, 2023 and June 30, 2023, advances to suppliers amounted to $1,371 and $1,379, respectively.
Revenue Recognition
The Company recognizes revenue at the amount to which it expects to be entitled when control of the products or services is identified in any contract and transferred to its customers. Control is generally transferred when the Company has a present right to payment and title and the significant risks and rewards of ownership of products or services are transferred to its customers while performance obligation are completed. For most of the Company’s products net sales, control transfers when products are shipped and transaction price are determined. The majority of the Company’s revenue relates to the sale of inventory to customers, and revenue is recognized when control of the products or services is transferred to its customers that reflects the performance obligations are properly allocated with transaction price and satisfied in the contract. Given the nature of the Company’s business and the applicable rules guiding revenue recognition, the Company’s revenue recognition practices do not contain estimates that materially affect the results of operations. The Company records revenue at the discounted selling price and allows its customers to return products for exchange or credit subject to certain limitations. A provision for such returns is recorded based upon historical experience. There has been no provision recorded for returns based upon historical experience for the three months ended September 30, 2023 and 2022, respectively.
Cost of Goods Sold
Cost of goods sold consists primarily of the costs of raw materials, direct labor, rental costs of equipment and costs associated with the manufacturing process.
Income Taxes
The Company adopts FASB ASC Topic 740, “Income Taxes,” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. A valuation allowance is established for deferred tax assets if it is more likely than not that these items will either expire before the Company is able to realize the benefits or that future deductibility is uncertain.
8
Under ASC 740, a tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The evaluation of a tax position is a two-step process. The first step is to determine whether it is more-likely-than-not that a tax position will be sustained upon examination, including the resolution of any related appeals or litigations based on the technical merits of that position. The second step is to measure a tax position that meets the more-likely-than-not threshold to determine the amount of benefit to be recognized in the financial statements. A tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent period in which the threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not criteria should be de-recognized in the first subsequent financial reporting period in which the threshold is no longer met. Penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the year incurred. GAAP also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosures and transition.
As a result of the implementation of FIN 48 (ASC 740-10), the Company undertook a comprehensive review of its portfolio of tax positions in accordance with recognition standards established by FIN 48 (ASC 740-10). The Company recognized no material adjustments to liabilities or stockholders’ equity as a result of the implementation. The adoption of FIN 48 did not have a material impact on the Company’s financial statements.
The application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. Tax laws and regulations themselves are subject to change as a result of changes in fiscal policy, changes in legislation, the evolution of regulations and court rulings. Therefore, the actual liability may be materially different from the Company’s estimates, which could result in the need to record additional tax liabilities or potentially reverse previously recorded tax liabilities or deferred tax asset valuation allowance.
Enterprise Income Tax
Under the Provisional Regulations of the PRC Concerning Income Tax on Enterprises promulgated by the PRC (the “EIT Law”), income tax is payable by enterprises at a rate of 25% of their taxable income.
Value Added Tax
The Provisional Regulations of the PRC Concerning Value Added Tax promulgated by the State Council came into effect on January 1, 1994. Under these regulations and the Implementing Rules of the Provisional Regulations of the PRC Concerning Value Added Tax, value added tax (“VAT”) is imposed on goods sold in, or imported into, the PRC and on processing, repair and replacement services provided within the PRC.
VAT payable in the PRC is charged on an aggregated basis at a rate of from 3% to 13% in the three months ended September 30, 2023 and 2022 (depending on the type of goods involved) on the full price collected for the goods sold. As of September 30, 2023 and June 30, 2023, VAT payables were $Nil and $Nil, respectively.
9
Concentrations of Business and Credit Risks
All of the Company’s manufacturing is located in the PRC. There can be no assurance that the Company will be able to successfully continue to manufacture its products and failure to do so would have a material adverse effect on the Company’s financial position, results of operations and cash flows. Moreover, the success of the Company’s operations is subject to numerous contingencies, some of which are beyond management’s control. These contingencies include general economic conditions, prices of raw materials, competition, governmental and political conditions, and changes in regulations. Since the Company is dependent on trade in the PRC, the Company is subject to various additional political, economic and other uncertainties. Among other risks, the Company’s operations will be subject to the risks of restrictions on transfer of funds, domestic customs, changing taxation policies, foreign exchange restrictions, and political and governmental regulations. The Company operates in China, which may give rise to significant foreign currency risks from fluctuations and the degree of volatility of foreign exchange rates between U.S. dollars and the Chinese currency RMB. The results of operations denominated in foreign currency are translated at the average rate of exchange during the reporting periods.
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments (ASU 2016-13). The main objective of the standard is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. In issuing this standard, the FASB is responding to criticism that today’s guidance delays recognition of credit losses. The standard will replace today’s “incurred loss” approach with an “expected loss” model. The new model, referred to as the current expected credit loss (“CECL”) model, will apply to: (1) financial assets subject to credit losses and measured at amortized cost, and (2) certain off-balance sheet credit exposures. The standard is applicable to loans, accounts receivable, trade receivables, and other financial assets measured at amortized cost, loan commitments and certain other off-balance sheet credit exposures, debt securities (including those held-to-maturity) and other financial assets measured at fair value through other comprehensive income, and beneficial interests in securitized financial assets. The CECL model does not apply to available-for-sale debt securities. For available-for-sale debt securities with unrealized losses, entities will measure credit losses in a manner similar to what they do today, except that the credit losses will be recognized as allowances rather than reductions in the amortized cost of the securities. Accordingly, the new methodology will be utilized when assessing the Company’s financial instruments for impairment. As a result, entities will recognize improvements to estimated credit losses immediately in earnings rather than as interest income over time, as they do today. The ASU also simplifies the accounting model for purchased credit-impaired debt securities and loans. ASU 2016-13 also expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for loan and lease losses. ASU 2016-13 is effective for years beginning after December 15, 2019, including interim periods within those fiscal years under a modified retrospective approach. Early adoption is permitted for the periods beginning after December 15, 2018. The Company adopted the guidance from July 1, 2020. The Company finalized its analysis and the adoption of this guidance has no material impact on the Company’s financial statements and its internal controls over financial reporting.
10
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) – Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (ASU 2018-13), which modifies the disclosure requirements on fair value measurements, including removing the requirement to disclose (1) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, (2) the policy for timing of transfers between levels and (3) the valuation processes for Level 3 fair value measurements. ASU 2018-13 also added new disclosures including the requirement to disclose (a) the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and (b) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. ASU 2018-13 is effective for fiscal years (and interim reporting periods within those years) beginning after December 15, 2019 and early adoption is permitted. This standard will only impact the disclosures pertaining to fair value measurements. The Company adopted the guidance from July 1, 2020. The Company finalized its analysis and the adoption of this guidance has no material impact on the Company’s financial statements and its internal controls over financial reporting.
NOTE 3 - ADVANCES TO SUPPLIERS, NET
The advances to suppliers, net consisted of the following:
September 30, 2023 | June 30, 2023 | |||||||
Advances to suppliers | $ | 1,371 | $ | 1,379 | ||||
Less: Allowance for doubtful accounts | - | - | ||||||
Total advances to suppliers, net | $ | 1,371 | $ | 1,379 |
Advances to suppliers consist of mainly payments to vendors for purchase of raw materials or to service providers for services relating to food processing service.
Note 4 – PREPAYMENTS AND OTHER CURRENT ASSETS
Prepayments and other current assets consist of the following:
September 30, 2023 | June 30, 2023 | |||||||
Prepaid rents | $ | - | $ | 6,005 | ||||
Prepaid service fee | 9,786 | 9,846 | ||||||
Employee social security | 182 | 177 | ||||||
Total prepayments and other current assets | $ | 9,968 | $ | 16,028 |
11
NOTE 5 - SHORT-TERM LOANS
Short-term loans of the Company consisted of the following:
September 30, 2023 | ||||||||||
Principle Amount | Annual Interest Rate | Contract term | ||||||||
US$ | ||||||||||
China Construction Bank | $ | 34,265 | 3.95 | % | 2023.05.18-2024.05.18 |
On May 18, 2023, the Company signed a loan contract with China Construction Bank, the loan amount is RMB 250,000 ($34,265), term for this loan is May 18, 2023 to May 18, 2024 with borrowing interest rate of 3.95% and unsecured.
NOTE 6 - OTHER PAYABLES AND ACCRUED EXPENSES
The other payables and accrued expenses consisted of the following:
September 30, 2023 | June 30, 2023 | |||||||
Other payable | $ | 6,853 | $ | 6,895 | ||||
Wages payable | 3,167 | 1,511 | ||||||
Total other payables and accrued expenses | $ | 10,020 | $ | 8,406 |
NOTE 7 - AMOUNT DUE TO RELATED PARTIES
(a) Nature of Relationships with Related Parties:
Name | Relationship with the Company | |
Mr. Xin Sun | Chief Executive Officer (“CEO”), the legal representative of the Company | |
Harbin Yuanma Technology Co., Ltd. | An entity controlled by one of the shareholders of the Company |
(b) Due to Related Parties
September 30, 2023 | June 30, 2023 | |||||||
Mr. Xin Sun | $ | 3,339 | $ | 10,579 | ||||
Harbin Yuanma Technology Co., Ltd. | 43,706 | 32,943 | ||||||
Total due to related parties | $ | 47,045 | $ | 43,522 |
As of September 30, 2023 and June 30, 2023, the balance due to related parties mainly consisted of advances from the Company’s related parties for daily operating funds purposes and leasing production equipment during the Company’s normal course of business. These advances are unsecured, interest free , and due on demand.
12
NOTE 8 - INCOME TAXES
(a) Corporate income taxes
Under the EIT Law, the standard EIT rate is 25%. The PRC subsidiaries of the Company are subject to PRC income taxes on an entity basis on income arising in or derived from the tax jurisdiction in which they operate.
The provision for income taxes of the Company consisted of the following for the three months ended September 30, 2023 and 2022:
For the Three Months Ended | ||||||||
September 30, | ||||||||
2023 | 2022 | |||||||
Current provision: | ||||||||
PRC | $ | - | $ | - | ||||
Total current provision | - | - | ||||||
Deferred provision: | ||||||||
PRC | - | - | ||||||
Total deferred provision | - | - | ||||||
Total provision for income taxes | $ | - | $ | - |
The deferred tax assets of the Company were $Nil and $Nil as of September 30, 2023 and June 30, 2023.
(b) Value-Added Tax
The Provisional Regulations of the PRC Concerning Value Added Tax promulgated by the State Council came into effect on January 1, 1994. Under these regulations and the Implementing Rules of the Provisional Regulations of the PRC Concerning Value Added Tax, value added tax (“VAT”) is imposed on goods sold in, or imported into, the PRC and on processing, repair and replacement services provided within the PRC.
VAT payable in the PRC is charged on an aggregated basis at a rate of from 3% to 13% in the three months ended September 30, 2023 and 2022 (depending on the type of goods involved) on the full price collected for the goods sold. As of September 30, 2023 and June 30, 2023, VAT payables were $Nil and $Nil, respectively.
(c) Taxes Payable
As of September 30, 2023 and June 30, 2023, Taxes payable were $Nil and $Nil, respectively.
13
NOTE 9 - SHAREHOLDER’S EQUITY
Statutory Reserve
The Company is required to make appropriations to reserve funds, comprising the statutory surplus reserve and discretionary surplus reserve, based on after-tax net income determined in accordance with generally accepted accounting principles of the US (US GAAP). Appropriations to the statutory surplus reserve are required to be at least 10% of the after-tax net income determined in accordance with US GAAP until the reserve is equal to 50% of the entities’ registered capital. Appropriations to the discretionary surplus reserve are made at the discretion of the board of directors. As of September 30, 2023 and June 30, 2023, the balance of the required statutory reserves was both $Nil.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
The Company’s assets are located in the PRC and revenues are derived from operations in the PRC.
In terms of industry regulations and policies, the economy of the PRC has been transitioning from a planned economy to market oriented economy. Although in recent years the Chinese government has implemented measures emphasizing the utilization of market forces for economic reforms, the reduction of state ownership of productive assets and the establishment of sound corporate governance in business enterprises, a substantial portion of productive assets in the PRC is still owned by the Chinese government. For example, all land is state owned and leased to business entities or individuals through the government’s granting of Land Use Rights. The granting process is typically based on government policies at the time of granting and can be lengthy and complex. This process may adversely affect the Company’s future manufacturing expansions. The Chinese government also exercises significant control over the PRC’s economic growth through the allocation of resources and providing preferential treatment to particular industries or companies. Uncertainties may arise with changing of governmental policies and measures.
The Company faces a number of risks and challenges not typically associated with companies in North America and Western Europe, since its assets exist solely in the PRC, and its revenues are derived from its operations therein. The PRC is a developing country with an early stage market economic system, overshadowed by the state. Its political and economic systems are very different from the more developed countries and are in a state of change. The PRC also faces many social, economic and political challenges that may produce major shocks, instabilities and even crises, in both its domestic arena and in its relationships with other countries, including the United States. Such shocks, instabilities and crises may in turn significantly and negatively affect the Company’s performance.
The Company had no rental commitment as of September 30, 2023 and June 30, 2023.
NOTE 11 - SUBSEQUENT EVENTS
The Company has evaluated subsequent events from the balance sheet date through the date the financial statements were issued and determined that there are no additional items to disclose.
14
Exhibit 99.2
HEILONGJIANG HEMPCAN PHARMACEUTICALS CO., LTD.
AUDITED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2023 AND 2022
TABLE OF CONTENTS
1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of China Health Industries Holdings, Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying balance sheets of Heilongjiang HempCan Pharmaceuticals Co., Ltd. (the “Company”) as of June 30, 2022 and 2023, and the related statements of operations and comprehensive loss, and shareholders’ equity, and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2022 and 2023, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
Explanatory Paragraph-Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As disclosed in Note 2 to the financial statements, the Company had an accumulated deficit of $233,157. The Company incurred net loss of $93,990 for year ended June 30, 2023. The cash used in operating activities were $183,093 for the year ended June 30, 2023. The Company has accumulated loss since inception which raise doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provides a reasonable basis for our opinion.
Critical Audit Matter
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ Assentsure PAC
We have served as the Company’s auditors since 2023.
Singapore
May 16, 2024
2
HEILONGJIANG HEMPCAN PHARMACEUTICALS CO., LTD.
BALANCE SHEETS
IN US DOLLARS
June 30, 2023 | June 30, 2022 | |||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 10,459 | $ | 164,075 | ||||
Prepayments and other current assets | 16,028 | 10,691 | ||||||
Advances to suppliers, net | 1,379 | 8,134 | ||||||
Total current assets | $ | 27,866 | $ | 182,900 | ||||
Total assets | $ | 27,866 | $ | 182,900 | ||||
LIABILITIES AND EQUITY | ||||||||
Current liabilities | ||||||||
Short-term loans | $ | 34,477 | $ | - | ||||
Accounts payable | 351 | 380 | ||||||
Other payables and accrued expenses | 8,406 | 16,143 | ||||||
Amounts due to related parties | 43,522 | 131,425 | ||||||
Taxes payable | - | 1,130 | ||||||
Total current liabilities | $ | 86,756 | $ | 149,078 | ||||
Equity | ||||||||
Additional paid-in capital | 179,661 | 179,661 | ||||||
Accumulated deficit | (233,157 | ) | (139,167 | ) | ||||
Accumulated other comprehensive loss | (5,394 | ) | (6,672 | ) | ||||
Total stockholders’ (deficit) equity | $ | (58,890 | ) | $ | 33,822 | |||
Total liabilities and equity | $ | 27,866 | $ | 182,901 |
The accompanying notes are an integral part of these financial statements.
3
HEILONGJIANG HEMPCAN PHARMACEUTICALS CO., LTD.
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
IN US DOLLARS
For the year Ended June 30, | ||||||||
2023 | 2022 | |||||||
REVENUE | $ | 73,361 | $ | 151,234 | ||||
COST OF REVENUE | 68,325 | 129,438 | ||||||
GROSS PROFIT | 5,036 | 21,797 | ||||||
OPERATING EXPENSES | ||||||||
General and administrative expenses | 98,930 | 28,934 | ||||||
Total operating expenses | 98,930 | 28,934 | ||||||
LOSS FROM OPERATIONS | (93,894 | ) | (7,138 | ) | ||||
OTHER INCOME/(EXPENSES) | ||||||||
Interest income | 172 | 17 | ||||||
Bank charges | (268 | ) | (96 | ) | ||||
Total other expenses, net | (96 | ) | (79 | ) | ||||
LOSS BEFORE INCOME TAXES | (93,990 | ) | (7,217 | ) | ||||
Provision for income taxes | - | - | ||||||
NET LOSS | (93,990 | ) | (7,217 | ) | ||||
Foreign currency translation gain/(loss) | 1,278 | (1,263 | ) | |||||
COMPREHENSIVE LOSS | $ | (92,712 | ) | $ | (5,954 | ) |
The accompanying notes are an integral part of these financial statements.
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HEILONGJIANG HEMPCAN PHARMACEUTICALS CO., LTD.
STATEMENTS OF STOCKHOLDERS’ EQUITY
IN US DOLLARS
Additional Paid-in | Accumulated | Statutory | Accumulated
Other Comprehensive | Total Stockholders’ (deficit) | ||||||||||||||||
Capital | deficit | Reserve | loss | equity | ||||||||||||||||
Balance, June 30, 2021 | $ | 179,661 | $ | (131,950 | ) | - | $ | (5,409 | ) | $ | 42,302 | |||||||||
Net loss | - | (7,217 | ) | - | - | (7,217 | ) | |||||||||||||
Other comprehensive loss - Translation adjustment | - | - | - | (1,263 | ) | (1,263 | ) | |||||||||||||
Balance, June 30, 2022 | $ | 179,661 | $ | (139,167 | ) | $ | - | $ | (6,672 | ) | $ | 33,822 | ||||||||
Net loss | - | (93,990 | ) | - | - | (93,990 | ) | |||||||||||||
Other comprehensive income - Translation adjustment | - | - | - | 1,278 | 1,278 | |||||||||||||||
Balance, June 30, 2023 | $ | 179,661 | $ | (233,157 | ) | $ | - | $ | (5,394 | ) | $ | (58,890 | ) |
The accompanying notes are an integral part of these financial statements.
5
HEILONGJIANG HEMPCAN PHARMACEUTICALS CO., LTD.
STATEMENTS OF CASH FLOWS
IN US DOLLARS
For the years Ended June 30 | ||||||||
2023 | 2022 | |||||||
Cash Flows from Operating Activities | ||||||||
Net loss from operations | $ | (93,990 | ) | $ | (7,217 | ) | ||
Changes in operating assets and liabilities | ||||||||
Prepayments and other current assets | (6,418 | ) | 3,842 | |||||
Advances to suppliers | 6,397 | 855 | ||||||
Accounts payables | - | (27,490 | ) | |||||
Other payables and accrued expenses | (6,783 | ) | 9,004 | |||||
Amounts due from related parties | - | 39,037 | ||||||
Amounts due to related parties | (81,211 | ) | 136,366 | |||||
Taxes payable | (1,089 | ) | 1,173 | |||||
Net cash (used in)/provided by operating activities | (183,093 | ) | 155,570 | |||||
Cash Flows from Financing Activity | ||||||||
Proceeds from short-term bank loans | 35,953 | - | ||||||
Net cash provided by financing activity | 35,953 | - | ||||||
Effect of exchange rate changes on cash and cash equivalents | (6,476 | ) | (6,166 | ) | ||||
Net (decrease)/increase in cash and cash equivalents | (153,616 | ) | 149,404 | |||||
Cash and cash equivalents, beginning balance | 164,075 | 14,671 | ||||||
Cash and cash equivalents, closing balance | 10,459 | 164,075 | ||||||
Supplemental cash flow information | ||||||||
Cash paid for income taxes | $ | - | $ | - | ||||
Cash paid for interest expenses | $ | - | $ | - |
The accompanying notes are an integral part of these financial statements.
6
HEILONGJIANG HEMPCAN PHARMACEUTICALS CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
Note 1 - ORGANIZATION AND NATURE OF OPERATIONS
Heilongjiang HempCan Pharmaceuticals Co., Ltd. (“HempCan” or the “Company”) was incorporated on May 22, 2019 in accordance with PRC laws, has been engaging in Research Development, production and marketing of innovative drugs as well as medical devices and functional food. HempCan commits itself to providing an innovative treatment to patients by developing a treatment approach with combination of anticancer, immune improvement and pain relief. In addition, HempCan also cooperates with universities and individual advisors to develop new products and new technique. Currently, HempCan owns two anticancer drugs and holds the business permit to plant hemp, hemp seed growing, cannabidiol (CBD) extraction and deep processing for other hemp products.
Note 2 - Going concern
As indicated in the financial statements, the Company had a net loss of approximately $93,990 for the year ended June 30, 2023; and negative working capital of approximately $58,890 as of June 30, 2023. Management of the Company has considered whether there is substantial doubt about the Company’s ability to continue as a going concern due to the significant recurring operating losses in 2023 and 2022. In addition, the major shareholder of the Company pledged to give financial support to continue the Company’s operations if they have cash issues. In assessing the Company’s liquidity, management monitors and analyzes its cash on hand and its operating expenses, and existing regulatory obligations and commercial commitments.
The financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The major shareholder of the Company has pledged to give financial support for the Company’s operations in China, there can be assurance that this support will be sufficient to enable the Company to continue as a going concern.
Note 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
This summary of the Company’s significant accounting policies is presented to assist in understanding the Company’s financial statements. The financial statements and notes are representations of the Company’s management (“Management”), which is responsible for the integrity and objectivity of the financial statements and notes. The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). The financial statements of the Company reflect the principal activities of the Company.
Fair Value of Financial Instruments
The provisions of accounting guidance, FASB ASC Topic 820 that applies to the Company requires all entities to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized on the balance sheet, for which it is practicable to estimate fair value, and defines fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties.
Fair Value Measurements
FASB ASC Topic 820, “Fair Value Measurements and Disclosures”, clarifies the definition of fair value for financial reporting, establishes a framework for measuring fair value, and requires additional disclosures about the use of fair value measurements.
Various inputs are considered when determining the fair value of the Company’s debt. The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in these securities. These inputs are summarized in the three broad levels listed below:
Level 1 – | observable market inputs that are unadjusted quoted prices for identical assets or liabilities in active markets. |
Level 2 – | other significant observable inputs, including quoted prices for similar securities, interest rates, credit risk, etc. |
Level 3 – | significant unobservable inputs, including the Company’s own assumptions in determining the fair value of investments. |
The carrying value of financial assets and liabilities recorded at fair value is measured on a recurring or a nonrecurring basis. Financial assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when a significant event occurs. The Company had no financial assets or liabilities carried and measured on a nonrecurring basis during the reporting periods. Financial assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial statement is prepared. The Company had no financial assets or liabilities carried and measured on a recurring basis during the reporting periods.
The availability of inputs observable in the market varies from instrument to instrument and depends on a variety of factors, including the type of instrument, whether the instrument is actively traded, and other characteristics particular to the transaction. For many financial instruments, pricing inputs are readily observable in the market, the valuation methodology used is widely accepted by market participants, and the valuation does not require significant discretion of Management. For other financial instruments, pricing inputs are less observable in the market and may require judgment of Management.
Translation of Foreign Currencies
HempCan maintain books and accounting records in PRC currency “Renminbi” (“RMB”), which has been determined as the functional currency.
7
Transactions denominated in currencies other than the functional currencies are recorded at the exchange rates prevailing on the date of the transactions, as quoted by the Federal Reserve Board. Foreign currency exchange gains and losses resulting from these transactions are included in operations.
HempCan’s financial statements are translated into the reporting currency, the United States Dollar (“USD”). Assets and liabilities of the above entities are translated at the prevailing exchange rate at each reporting period end date. Contributed capital accounts are translated using the historical rate of exchange when capital is injected. Income and expense accounts are translated at the average rate of exchange during the reporting period. Translation adjustments resulting from the translation of these financial statements are reflected as accumulated other comprehensive income in shareholders’ equity.
Use of Estimates and Assumptions
The preparation of financial statements in conformity with US GAAP requires Management to make estimates and judgments that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities on the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Management bases its estimates and judgments on historical experience and on various other assumptions and information that are believed to be reasonable under the circumstances. Estimates and assumptions of future events and their effects cannot be perceived with certainty and, accordingly, these estimates may change as new events occur, as more experience is acquired, as additional information is obtained, and as the Company’s operating environment changes. Significant estimates and assumptions by Management include, among others, advances to suppliers and deferred taxes. While Management believes that the estimates and assumptions used in the preparation of the financial statements are appropriate, actual results could differ from those estimates. Estimates and assumptions are periodically reviewed and the effects of revisions are reflected in the financial statements in the period they are determined to be necessary.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and Cash in Bank which are unrestricted as to withdrawal. As of June 30, 2023 and 2022, the Company had cash equivalents were $10,459 and $164,075, respectively.
Advances to Suppliers
The Company periodically makes advances to certain vendors for purchases of raw materials or to service providers for services relating to food processing service, and records these payments as advances to suppliers. As of June 30, 2023 and 2022, advances to suppliers amounted to $1,379 and $8,134, respectively.
Revenue Recognition
The Company recognizes revenue at the amount to which it expects to be entitled when control of the products or services is identified in any contract and transferred to its customers. Control is generally transferred when the Company has a present right to payment and title and the significant risks and rewards of ownership of products or services are transferred to its customers while performance obligation are completed. For most of the Company’s products net sales, control transfers when products are shipped and transaction price are determined. The majority of the Company’s revenue relates to the sale of inventory to customers, and revenue is recognized when control of the products or services is transferred to its customers that reflects the performance obligations are properly allocated with transaction price and satisfied in the contract. Given the nature of the Company’s business and the applicable rules guiding revenue recognition, the Company’s revenue recognition practices do not contain estimates that materially affect the results of operations. The Company records revenue at the discounted selling price and allows its customers to return products for exchange or credit subject to certain limitations. A provision for such returns is recorded based upon historical experience. There has been no provision recorded for returns based upon historical experience for the year ended June 30, 2023 and 2022, respectively.
8
Cost of Goods Sold
Cost of goods sold consists primarily of the costs of raw materials, direct labor, rental costs of equipment and costs associated with the manufacturing process.
Income Taxes
The Company adopts FASB ASC Topic 740, “Income Taxes,” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. A valuation allowance is established for deferred tax assets if it is more likely than not that these items will either expire before the Company is able to realize the benefits or that future deductibility is uncertain.
Under ASC 740, a tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The evaluation of a tax position is a two-step process. The first step is to determine whether it is more-likely-than-not that a tax position will be sustained upon examination, including the resolution of any related appeals or litigations based on the technical merits of that position. The second step is to measure a tax position that meets the more-likely-than-not threshold to determine the amount of benefit to be recognized in the financial statements. A tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent period in which the threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not criteria should be de-recognized in the first subsequent financial reporting period in which the threshold is no longer met. Penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the year incurred. GAAP also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosures and transition.
As a result of the implementation of FIN 48 (ASC 740-10), the Company undertook a comprehensive review of its portfolio of tax positions in accordance with recognition standards established by FIN 48 (ASC 740-10). The Company recognized no material adjustments to liabilities or stockholders’ equity as a result of the implementation. The adoption of FIN 48 did not have a material impact on the Company’s financial statements.
The application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. Tax laws and regulations themselves are subject to change as a result of changes in fiscal policy, changes in legislation, the evolution of regulations and court rulings. Therefore, the actual liability may be materially different from the Company’s estimates, which could result in the need to record additional tax liabilities or potentially reverse previously recorded tax liabilities or deferred tax asset valuation allowance.
9
Enterprise Income Tax
Under the Provisional Regulations of the PRC Concerning Income Tax on Enterprises promulgated by the PRC (the “EIT Law”), income tax is payable by enterprises at a rate of 25% of their taxable income.
Value Added Tax
The Provisional Regulations of the PRC Concerning Value Added Tax promulgated by the State Council came into effect on January 1, 1994. Under these regulations and the Implementing Rules of the Provisional Regulations of the PRC Concerning Value Added Tax, value added tax (“VAT”) is imposed on goods sold in, or imported into, the PRC and on processing, repair and replacement services provided within the PRC.
VAT payable in the PRC is charged on an aggregated basis at a rate of from 3% to 13% in the years ended June 30, 2023 and 2022 (depending on the type of goods involved) on the full price collected for the goods sold. As of June 30, 2023 and 2022, VAT payables were $Nil and $1,117, respectively.
Concentrations of Business and Credit Risks
All of the Company’s manufacturing is located in the PRC. There can be no assurance that the Company will be able to successfully continue to manufacture its products and failure to do so would have a material adverse effect on the Company’s financial position, results of operations and cash flows. Moreover, the success of the Company’s operations is subject to numerous contingencies, some of which are beyond management’s control. These contingencies include general economic conditions, prices of raw materials, competition, governmental and political conditions, and changes in regulations. Since the Company is dependent on trade in the PRC, the Company is subject to various additional political, economic and other uncertainties. Among other risks, the Company’s operations will be subject to the risks of restrictions on transfer of funds, domestic customs, changing taxation policies, foreign exchange restrictions, and political and governmental regulations. The Company operates in China, which may give rise to significant foreign currency risks from fluctuations and the degree of volatility of foreign exchange rates between U.S. dollars and the Chinese currency RMB. The results of operations denominated in foreign currency are translated at the average rate of exchange during the reporting periods.
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments (ASU 2016-13). The main objective of the standard is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. In issuing this standard, the FASB is responding to criticism that today’s guidance delays recognition of credit losses. The standard will replace today’s “incurred loss” approach with an “expected loss” model. The new model, referred to as the current expected credit loss (“CECL”) model, will apply to: (1) financial assets subject to credit losses and measured at amortized cost, and (2) certain off-balance sheet credit exposures. The standard is applicable to loans, accounts receivable, trade receivables, and other financial assets measured at amortized cost, loan commitments and certain other off-balance sheet credit exposures, debt securities (including those held-to-maturity) and other financial assets measured at fair value through other comprehensive income, and beneficial interests in securitized financial assets. The CECL model does not apply to available-for-sale debt securities. For available-for-sale debt securities with unrealized losses, entities will measure credit losses in a manner similar to what they do today, except that the credit losses will be recognized as allowances rather than reductions in the amortized cost of the securities. Accordingly, the new methodology will be utilized when assessing the Company’s financial instruments for impairment. As a result, entities will recognize improvements to estimated credit losses immediately in earnings rather than as interest income over time, as they do today. The ASU also simplifies the accounting model for purchased credit-impaired debt securities and loans. ASU 2016-13 also expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for loan and lease losses. ASU 2016-13 is effective for years beginning after December 15, 2019, including interim periods within those fiscal years under a modified retrospective approach. Early adoption is permitted for the periods beginning after December 15, 2018. The Company adopted the guidance from July 1, 2020. The Company finalized its analysis and the adoption of this guidance has no material impact on the Company’s financial statements and its internal controls over financial reporting.
10
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) – Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (ASU 2018-13), which modifies the disclosure requirements on fair value measurements, including removing the requirement to disclose (1) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, (2) the policy for timing of transfers between levels and (3) the valuation processes for Level 3 fair value measurements. ASU 2018-13 also added new disclosures including the requirement to disclose (a) the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and (b) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. ASU 2018-13 is effective for fiscal years (and interim reporting periods within those years) beginning after December 15, 2019 and early adoption is permitted. This standard will only impact the disclosures pertaining to fair value measurements. The Company adopted the guidance from July 1, 2020. The Company finalized its analysis and the adoption of this guidance has no material impact on the Company’s financial statements and its internal controls over financial reporting.
NOTE 4 - ADVANCES TO SUPPLIERS, NET
The advances to suppliers, net consisted of the following:
June 30, 2023 | June 30, 2022 | |||||||
Advances to suppliers | $ | 1,379 | $ | 8,134 | ||||
Less: Allowance for doubtful accounts | - | - | ||||||
Total advances to suppliers, net | $ | 1,379 | $ | 8,134 |
Advances to suppliers consist of mainly payments to vendors for purchase of raw materials or to service providers for services relating to food processing service.
Note 5 – PREPAYMENTS AND OTHER CURRENT ASSETS
Prepayments and other current assets consist of the following:
June 30, 2023 | June 30, 2022 | |||||||
Prepaid rents | $ | 6,005 | $ | - | ||||
Prepaid service fee | 9,846 | 10,661 | ||||||
Employee social security | 177 | 30 | ||||||
Total prepayments and other current assets | $ | 16,028 | $ | 10,691 |
NOTE 6 - SHORT-TERM LOANS
Short-term loans of the Company consisted of the following:
Jun 30, 2023 | ||||||||||||
Principle Amount | Annual Interest Rate | Contract term | ||||||||||
US$ | ||||||||||||
China Construction Bank | $ | 34,477 | 3.95 | % | 2023.05.18-2024.5.18 |
On May 18, 2023, the Company signed a loan contract with China Construction Bank, the loan amount is RMB 250,000 ($34,477), term for this loan is May 18, 2023 to May 18, 2024 with borrowing interest rate of 3.95% and unsecured.
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NOTE 7 - OTHER PAYABLES AND ACCRUED EXPENSES
The other payables and accrued expenses consisted of the following:
June 30, 2023 | June 30, 2022 | |||||||
Other payable | $ | 6,895 | $ | 7,465 | ||||
Wages payable | 1,511 | 8,678 | ||||||
Total other payables and accrued expenses | $ | 8,406 | $ | 16,143 |
NOTE 8 - AMOUNT DUE TO RELATED PARTIES
(a) Nature of Relationships with Related Parties:
Name | Relationship with the Company | |
Mr. Xin Sun | Chief Executive Officer (“CEO”), the legal representative of the Company | |
Harbin Yuanma Technology Co., Ltd. | An entity controlled by one of the shareholders of the Company |
(b) Due to Related Parties
June 30, 2023 | June 30, 2022 | |||||||
Mr. Xin Sun | $ | 10,579 | $ | 70,513 | ||||
Harbin Yuanma Technology Co., Ltd. | 32,943 | 60,913 | ||||||
Total due to related parties | $ | 43,522 | $ | 131,425 |
As of June 30, 2023 and 2022, the balance due to related parties mainly consisted of advances from the Company’s related parties for daily operating funds purposes and leasing production equipment during the Company’s normal course of business. These advances are unsecured, non-interest bearing, and due on demand.
NOTE 9 - INCOME TAXES
(a) Corporate income taxes
Under the EIT Law, the standard EIT rate is 25%. The PRC subsidiaries of the Company are subject to PRC income taxes on an entity basis on income arising in or derived from the tax jurisdiction in which they operate.
The provision for income taxes of the Company consisted of the following for the year ended June 30, 2023 and 2022:
For the year Ended | ||||||||
June 30, | ||||||||
2023 | 2022 | |||||||
Current provision: | ||||||||
PRC | $ | - | $ | - | ||||
Total current provision | - | - | ||||||
Deferred provision: | ||||||||
PRC | - | - | ||||||
Total deferred provision | - | - | ||||||
Total provision for income taxes | $ | - | $ | - |
The deferred tax assets of the Company were $Nil and $Nil for the year ended June 30, 2023 and 2022.
12
(b) Value-Added Tax
The Provisional Regulations of the PRC Concerning Value Added Tax promulgated by the State Council came into effect on January 1, 1994. Under these regulations and the Implementing Rules of the Provisional Regulations of the PRC Concerning Value Added Tax, value added tax (“VAT”) is imposed on goods sold in, or imported into, the PRC and on processing, repair and replacement services provided within the PRC.
VAT payable in the PRC is charged on an aggregated basis at a rate of from 3% to 13% in the years ended June 30, 2023 and 2022 (depending on the type of goods involved) on the full price collected for the goods sold. As of June 30, 2023 and 2022, VAT payables were $Nil and $1,117, respectively.
Taxes Payable
Taxes payable consisted of the following:
June 30, | June 30, | |||||||
2023 | 2022 | |||||||
Value added tax payable | $ | - | $ | 1,117 | ||||
City and supplement taxes | - | 13 | ||||||
Total tax payable | $ | - | $ | 1,130 |
NOTE 10 EQUITY
Statutory Reserve
The Company is required to make appropriations to reserve funds, comprisings the statutory surplus reserve and discretionary surplus reserve, based on after-tax net income determined in accordance with generally accepted accounting principles of the US (US GAAP). Appropriations to the statutory surplus reserve are required to be at least 10% of the after-tax net income determined in accordance with US GAAP until the reserve is equal to 50% of the entities’ registered capital. Appropriations to the discretionary surplus reserve are made at the discretion of the board of directors. As of June 30, 2023 and 2022, the balance of the required statutory reserves was both $Nil.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
The Company’s assets are located in the PRC and revenues are derived from operations in the PRC.
In terms of industry regulations and policies, the economy of the PRC has been transitioning from a planned economy to market oriented economy. Although in recent years the Chinese government has implemented measures emphasizing the utilization of market forces for economic reforms, the reduction of state ownership of productive assets and the establishment of sound corporate governance in business enterprises, a substantial portion of productive assets in the PRC is still owned by the Chinese government. For example, all land is state owned and leased to business entities or individuals through the government’s granting of Land Use Rights. The granting process is typically based on government policies at the time of granting and can be lengthy and complex. This process may adversely affect the Company’s future manufacturing expansions. The Chinese government also exercises significant control over the PRC’s economic growth through the allocation of resources and providing preferential treatment to particular industries or companies. Uncertainties may arise with changing of governmental policies and measures.
The Company faces a number of risks and challenges not typically associated with companies in North America and Western Europe, since its assets exist solely in the PRC, and its revenues are derived from its operations therein. The PRC is a developing country with an early stage market economic system, overshadowed by the state. Its political and economic systems are very different from the more developed countries and are in a state of change. The PRC also faces many social, economic and political challenges that may produce major shocks, instabilities and even crises, in both its domestic arena and in its relationships with other countries, including the United States. Such shocks, instabilities and crises may in turn significantly and negatively affect the Company’s performance.
The Company had no rental commitment as of June 30, 2023 and 2022.
NOTE 12 - SUBSEQUENT EVENTS
The Company has evaluated subsequent events from the balance sheet date through the date the financial statements were issued and determined that there are no additional items to disclose.
13
Exhibit 99.3
CHINA HEALTH INDUSTRIES HOLDINGS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
Introduction
On June 27, 2023 (the “Signing Date”), China Health Industries Holdings, Inc. (the “Company” or “China Health”), a corporation incorporated under the laws of the State of Delaware, through its wholly-owned subsidiary, Harbin Humankind Biology Technology Co., Limited (“Humankind”), entered into certain equity transfer agreements (collectively, the “Agreements”) with Mr. Xin Sun and Mr. Kai Sun (collectively, the “Sellers”). Pursuant to the Agreements, the Humankind agrees to purchase from the Sellers and the Sellers agreed to transfer to Humankind 99% and 1% of the equity interests (the “Acquisition”) of Heilongjiang HempCan Pharmaceuticals Co., Ltd. (“HempCan”), for a consideration of RMB292,050,000 (approximately $40,507,365) and RMB2,950,000 (approximately $409,165) respectively, totaling RMB295 million (approximately $40,916,530) (collectively, the “Purchase Prices”). On December 1, 2023, the Company closed the Acquisition. The transfer of the equity interests of HempCan from the Sellers to Humankind and the changes of business registration have been completed. Mr. Xin Sun is China Health’s Chairman, sole director and sole executive officer and Mr. Kai Sun is Mr. Xin Sun’s younger brother.
The following unaudited pro forma condensed combined financial information is presented to illustrate the estimated pro forma effect of the Acquisition.
The unaudited pro forma condensed combined financial information presented has been prepared in accordance with Article 11 of Regulation S-X, Pro Forma Financial Information, as amended by the SEC’s final rule, Release No.33-10786 “Amendments to Financial Disclosures about Acquired and Disposed Businesses.” Release No.33-10786 replaces the pro forma adjustment criteria with simplified requirements to depict the accounting for the transaction (“Transaction Accounting Adjustments”) and the option to present the reasonably estimable synergies and other transaction effects that have occurred or are reasonably expected to occur (“Management’s Adjustments”). The Company has elected not to present Management’s Adjustments and has only presented Transaction Accounting Adjustments in the following unaudited pro forma condensed combined financial information.
The unaudited pro forma condensed combined balance sheet as of September 30, 2023, together with the unaudited pro forma condensed combined statements of operations for the year ended June 30, 2023 and for the three months ended September 30, 2023 presented herein gives effect to the Acquisition as if the transaction had occurred at the beginning of such periods and includes certain adjustments that are directly attributable to the transaction which are expected to have a continuing impact on the Company, and are factually supportable, as summarized in the accompanying notes and assumptions.
1
The pro forma adjustments and allocation of the Purchase Price are based on management’s current estimates of the fair value of the assets to be acquired and liabilities to be assumed, and are based on currently available information, including preliminary work performed by independent valuation specialists.
As of the date hereof, we have completed the detailed valuation analysis and calculations necessary to arrive at final estimates of the fair market value of the assets of HempCan acquired and the liabilities assumed and the related allocations of the Purchase Price.
Assumptions and estimates underlying the unaudited pro forma adjustments set forth in the unaudited pro forma condensed combined financial statements are described in the accompanying notes below.
The unaudited pro forma condensed combined financial information and accompanying notes are based on, and should be read in conjunction with, (i) the historical audited consolidated financial statements of the Company and accompanying notes for the year ended June 30, 2023, included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2023; and the historical unaudited consolidated financial statements of the Company and accompanying notes for the period ended September 30, 2023, included in the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, and (ii) the historical audited financial statements of HempCan and accompanying notes included for the year ended June 30, 2023, and the historical unaudited financial statements of HempCan and accompanying notes for the three months period ended September 30, 2023, each of which are filed as Exhibits 99.1 and 99.2, respectively, with the Current Report on Form 8-K/A.
The following unaudited pro forma condensed combined financial statements are provided for illustrative purposes only and are based on currently available information and assumptions that we believe are reasonable under the circumstances. They purport to represent what our actual consolidated results of operations or the consolidated financial position would have been had the Acquisition been completed on the dates indicated, or on any other date, nor are they necessarily indicative of our future consolidated results of operations or consolidated financial position as a result of the Acquisition.
2
CHINA HEALTH INDUSTRIES HOLDINGS, INC.
UNAUDITED PROFOMA CONDENSED COMBINE BALANCE SHEETS
AS OF SEPTEMBER 30, 2023
IN US DOLLARS
China Health | HempCan | Pro Forma Adjustments | Note | Pro Forma Combined | ||||||||||||||||
ASSETS | ||||||||||||||||||||
Current assets | ||||||||||||||||||||
Cash and cash equivalents | $ | 12,468 | $ | 4,542 | $ | - | $ | 17,010 | ||||||||||||
Inventory | 2,330 | - | - | 2,330 | ||||||||||||||||
Prepayment and other current asset | 6,172 | 9,968 | - | 16,140 | ||||||||||||||||
Advances to suppliers | 201,741 | 1,371 | - | 203,112 | ||||||||||||||||
Prepaid investment funds | 40,433,114 | - | (40,433,114 | ) | (a) | - | ||||||||||||||
Total current assets | $ | 40,655,825 | $ | 15,881 | $ | (40,433,114 | ) | $ | 238,592 | |||||||||||
Property, plants and equipment, net | 2,624,012 | - | - | 2,624,012 | ||||||||||||||||
Intangible assets, net | 951,467 | - | - | 951,467 | ||||||||||||||||
Construction in progress | 417,518 | - | - | 417,518 | ||||||||||||||||
Total assets | $ | 44,648,822 | $ | 15,881 | $ | (40,433,114 | ) | $ | 4,231,589 | |||||||||||
LIABILITIES AND EQUITY | ||||||||||||||||||||
Current liabilities | ||||||||||||||||||||
Short-term bank loans | $ | - | $ | 34,265 | $ | - | $ | 34,265 | ||||||||||||
Accounts payable and accrued expenses | 285,182 | 349 | - | 285,531 | ||||||||||||||||
Other payables | 101,433 | 6,853 | - | 108,286 | ||||||||||||||||
Advances from customers | 164,713 | - | - | 164,713 | ||||||||||||||||
Related party debts | 5,161,097 | 47,045 | - | 5,208,142 | ||||||||||||||||
Wages payable | 103,390 | 3,167 | - | 106,557 | ||||||||||||||||
Taxes payable | 145,030 | - | - | 145,030 | ||||||||||||||||
Total current liabilities | $ | 5,960,845 | $ | 91,679 | $ | - | $ | 6,052,524 | ||||||||||||
Equity | ||||||||||||||||||||
Common stock, ($0.0001 par value per share, 300,000,000 shares authorized, 65,539,737 and 65,539,737 shares issued and outstanding as of September 30, 2023) | 6,554 | - | - | 6,554 | ||||||||||||||||
Additional paid-in capital | 521,987 | 179,661 | (179,661 | ) | (a) | 521,987 | ||||||||||||||
Accumulated other comprehensive income | (2,984,796 | ) | (4,911 | ) | - | (2,989,707 | ) | |||||||||||||
Statutory reserves | 38,679 | - | - | 38,679 | ||||||||||||||||
Merger reserve | - | - | (40,253,453 | ) | (a) | (40,253,453 | ) | |||||||||||||
Retained earnings | 41,105,553 | (250,548 | ) | - | 40,855,005 | |||||||||||||||
Total stockholders’ equity | $ | 38,687,977 | $ | (75,798 | ) | $ | (40,433,114 | ) | $ | (1,820,935 | ) | |||||||||
Total liabilities and equity | $ | 44,648,822 | $ | 15,881 | $ | (40,433,114 | ) | $ | 4,231,589 |
3
CHINA HEALTH INDUSTRIES HOLDINGS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2023
IN US DOLLARS
China Health | HempCan | Pro Forma Adjustments | Note | Pro Forma Combined | ||||||||||||||
REVENUE | $ | 38,300 | $ | - | $ | - | $ | 38,300 | ||||||||||
COST OF REVENUE | 38,300 | - | - | 38,300 | ||||||||||||||
GROSS PROFIT | - | - | - | - | ||||||||||||||
OPERATING EXPENSES | ||||||||||||||||||
Selling, general and administrative expenses | 89,443 | 17,044 | - | 106,487 | ||||||||||||||
Depreciation and amortization expenses | 94,514 | - | - | 94,514 | ||||||||||||||
Total operating expenses | 183,957 | 17,044 | - | 201,001 | ||||||||||||||
LOSS FROM OPERATIONS | (183,957 | ) | (17,044 | ) | - | (201,001 | ) | |||||||||||
OTHER INCOME/(EXPENSES) | ||||||||||||||||||
Interest income | 1,804 | 2 | - | 1,806 | ||||||||||||||
Interest expenses | (1 | ) | - | - | (1 | ) | ||||||||||||
Bank charges | (200 | ) | (349 | ) | - | (549 | ) | |||||||||||
Total other income, net | 1,603 | (347 | ) | - | 1,256 | |||||||||||||
LOSS BEFORE INCOME TAXES | (182,354 | ) | (17,391 | ) | - | (199,745 | ) | |||||||||||
Provision for income taxes | - | - | - | - | ||||||||||||||
NET LOSS | (182,354 | ) | (17,391 | ) | - | (199,745 | ) | |||||||||||
Foreign currency translation adjustment | (239,238 | ) | 483 | - | (238,755 | ) | ||||||||||||
COMPREHENSIVE LOSS | $ | (421,592 | ) | $ | (16,908 | ) | $ | - | $ | (438,500 | ) | |||||||
Net loss per share: | ||||||||||||||||||
Basic & diluted earnings per share | $ | (0.0028 | ) | $ | - | $ | - | $ | (0.0030 | ) | ||||||||
Weighted average shares outstanding: | ||||||||||||||||||
Basic & diluted weighted average shares outstanding | 65,539,737 | - | - | 65,539,737 |
4
CHINA HEALTH INDUSTRIES HOLDINGS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 2023
IN US DOLLARS
China Health | HempCan | Pro Forma Adjustments | Note | Pro Forma Combined | ||||||||||||||
REVENUE | $ | 111,579 | $ | 73,361 | $ | - | $ | 184,940 | ||||||||||
COST OF REVENUE | 111,359 | 68,325 | - | 179,684 | ||||||||||||||
GROSS PROFIT | 220 | 5,036 | - | 5,256 | ||||||||||||||
OPERATING EXPENSES | ||||||||||||||||||
Selling, general and administrative expenses | 1,285,313 | 98,930 | - | 1,384,243 | ||||||||||||||
Depreciation and amortization expenses | 557,508 | - | - | 557,508 | ||||||||||||||
Total operating expenses | 1,842,821 | 98,930 | - | 1,941,751 | ||||||||||||||
LOSS FROM OPERATIONS | (1,842,601 | ) | (93,894 | ) | - | (1,936,495 | ) | |||||||||||
OTHER INCOME/(EXPENSES) | ||||||||||||||||||
Interest income | 113,615 | 172 | - | 113,787 | ||||||||||||||
Interest expenses | 1,320,791 | - | - | 1,320,791 | ||||||||||||||
Bank charges | (577 | ) | (268 | ) | - | (845 | ) | |||||||||||
Total other income, net | 1,433,829 | (96 | ) | - | 1,433,733 | |||||||||||||
LOSS BEFORE INCOME TAXES | (408,772 | ) | (93,990 | ) | - | (502,762 | ) | |||||||||||
Provision for income taxes | - | - | - | - | ||||||||||||||
NET LOSS | (408,772 | ) | (93,990 | ) | - | (502,762 | ) | |||||||||||
Foreign currency translation adjustment | (3,284,378 | ) | 1,278 | - | (3,281,100 | ) | ||||||||||||
COMPREHENSIVE LOSS | $ | (3,693,150 | ) | $ | (92,712 | ) | $ | - | $ | (3,785,862 | ) | |||||||
Net loss per share: | ||||||||||||||||||
Basic & diluted earnings per share | $ | (0.0062 | ) | $ | - | $ | - | $ | (0.0077 | ) | ||||||||
Weighted average shares outstanding: | ||||||||||||||||||
Basic & diluted weighted average shares outstanding | 65,539,737 | - | - | 65,539,737 |
5
Note 1. Basis of Pro Forma Presentation
The unaudited pro forma condensed combined financial statements are derived from the historical consolidated financial statements of the Company. The unaudited pro forma condensed combined financial statements are prepared as a business combination using the purchase accounting method.
The unaudited pro forma condensed combined balance sheet as of September 30, 2023, together with the unaudited pro forma condensed combined statements of operations for the year ended June 30, 2023 and for the three months ended September 30, 2023 presented herein gives effect to the Acquisition as if the transaction had occurred at the beginning of such periods and includes certain adjustments that are directly attributable to the transaction which are expected to have a continuing impact on the Company, and are factually supportable, as summarized in the accompanying notes and assumptions.
Note 2. Accounting Policies
The unaudited pro forma condensed combined financial statements have been prepared using the same accounting policies as those adopted by the HempCan in the preparation of the consolidated financial statements of the Company for the year ended June 30, 2023 and for the three months ended September 30, 2023 (the “Relevant Periods”). The combined financial statements have been prepared in accordance with the United States of America (“US GAAP”).
Note 3. Preliminary Purchase Consideration and Purchase Price Allocation
We have engaged a third-party valuation company to assist us with valuation of the HempCan’s assets and liabilities. The detailed valuation necessary to estimate the fair value of the assets acquired and liabilities assumed accordingly, according to the investigation by the assessors, it is believed that the unit market situation, industry conditions, customer network, business development strategy, and other data of HempCan are clear. The value of this aspect is difficult to manifest in the asset-based approach and market approach. Therefore, in conjunction with the purpose of this assessment and the characteristics of the assessed entity, the total equity value of the evaluated unit company’s shareholders included in the assessment scope is assessed using the income approach, accordingly, the assessed value of the total equity of shareholders of HempCan is RMB320,007,500 (approximately $44,172,476).
6
Through amiable negotiation, the Purchase Price, as provided in the Agreements, provides for the Sellers RMB295 million (approximately $40,916,530) in cash consideration.
Cash- Xin Sun | $ | 40,507,365 | ||
Cash-Kai Sun | 409,165 | |||
Total consideration | $ | 40,916,530 |
The table below represents the discounted statement of overall income of HempCan based on valuation report:
Discounted Statement of Overall Income
$’000
Description/Year | 2023 June-December | 2024 | 2025 | 2026 | 2027 | 2028 to permanent | ||||||||||||||||||
Future Income | $ | 1,226 | $ | 2,819 | $ | 3,383 | $ | 4,228 | $ | 5,497 | $ | 5,490 | ||||||||||||
Time Period in Sequence | 0.08 | 1.08 | 2.08 | 3.08 | 4.08 | |||||||||||||||||||
Discount Rate | 10.24 | % | 10.24 | % | 10.24 | % | 10.24 | % | 10.24 | % | 10.24 | % | ||||||||||||
Discount Factor | 0.9922 | 0.9901 | 0.8165 | 0.7406 | 0.6718 | 5.6187 | ||||||||||||||||||
Present Value | $ | 1,216 | 2,537 | 2,762 | 3,132 | 3,693 | 30,886 | |||||||||||||||||
Sub-total | $ | 44,226 |
Future Income
HempCan is primarily involved in six aspects: the production and sale of anti-cancer drugs, technology and processes, medical devices, functional foods, patents, and health and wellness business. These areas constitute the sales income of the company. Taking into account the above analysis, the future annual business scale is forecasted to determine HempCan’s annual operating income for each upcoming year.
HempCan’s operating costs refer to the actual expenses incurred in conducting its primary business activities. These costs primarily include various departmental expenses such as office expenses, depreciation expenses, utilities, personnel wages, employee benefits, travel expenses, transportation costs, communication expenses, and other costs directly associated with the primary business operations.
7
Time Period in Sequence
During the evaluation, based on a comprehensive analysis of the HempCan’s income cost structure, capital structure, capital expenditures, investment returns, and risk level, and considering macroeconomic policies, industry cycles, and other factors influencing the company’s entry into a stable period, a reasonable forecast period is determined. The assumed income period is considered to be indefinite. The forecast period is divided into two stages: the first stage is from June 1, 2023, to December 31, 2027; the second stage is from January 1, 2028, onward indefinitely. It is assumed that the expected income beyond 2027 will remain stable at the 2027 income level.
Discount Rate
In this evaluation, the weighted average cost of capital (WACC) is used as the discount rate.
Note 4. Adjustments to Unaudited Pro Forma Condensed Combined Financial Statements
The unaudited pro forma condensed combined financial information has been prepared to illustrate the effect of the Acquisition and has been prepared for informational purposes only and are not intended to indicate the results of future operations or the financial position of either company.
The historical financial statements have been adjusted in the unaudited pro forma condensed combined financial information to give pro forma effect to events that are directly attributable to the Acquisition, factually supportable, and with respect to the statements of operations, expected to have a continuing impact on the results of the Company.
The following items are presented as reclassifications in the unaudited pro forma condensed combined financial statements:
Adjustment includes prepayment for business acquisition of HempCan made in advance as the consideration of US$40,916,530 and the elimination of the historical additional paid-in capital, accumulated other comprehensive loss and retained earnings.
8
Cover |
Dec. 01, 2023 |
---|---|
Cover [Abstract] | |
Document Type | 8-K/A |
Amendment Flag | true |
Amendment Description | On July 3, 2023, China Health Industries Holdings, Inc. (the “Company”) filed a Current Report on Form 8-K (the “First Report”) with the Securities and Exchange Commission (the “Commission”) with respect to certain stock transfer agreements (the “Agreements”) entered into by and among Harbin Humankind Biology Technology Co., Limited (“Humankind”), a wholly owned subsidiary of the Company, Mr. Xin Sun and Mr. Kai Sun (collectively, the “Sellers”) regarding the of Heilongjiang HempCan Pharmaceuticals Co., Ltd. (“HempCan”). Pursuant to the Agreements, the Company paid the Sellers an aggregate cash consideration of RMB295 million (approximately $40,916,530) in exchange for 100% equity ownership of HempCan (the “Transaction”). On December 1, 2023, the Company filed a Current Report on Form 8-K (the “Second Report”) with the Commission to disclose the closing of the Transaction as described in the First Report. The First Report, the Second Report, and the English translation of the Agreements filed as Exhibit 10.1 and Exhibit 10.2 in the Second Report are incorporated herein by reference. |
Document Period End Date | Dec. 01, 2023 |
Entity File Number | 000-51060 |
Entity Registrant Name | CHINA HEALTH INDUSTRIES HOLDINGS, INC. |
Entity Central Index Key | 0001309057 |
Entity Tax Identification Number | 86-0827216 |
Entity Incorporation, State or Country Code | DE |
Entity Address, Address Line One | 3199-1 Longxiang Road, Songbei District |
Entity Address, City or Town | Harbin City, Heilongjiang Province |
Entity Address, Country | CN |
Entity Address, Postal Zip Code | 150028 |
City Area Code | 86-451 |
Local Phone Number | 88100688 |
Written Communications | false |
Soliciting Material | false |
Pre-commencement Tender Offer | false |
Pre-commencement Issuer Tender Offer | false |
Entity Emerging Growth Company | false |
1 Year China Health Industries (QB) Chart |
1 Month China Health Industries (QB) Chart |
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