# China Pharma Holdings, Inc.: Form 10-Q for the period ended Sep 30, 2023

- Company: [China Pharma Holdings, Inc.](/companies/cphi.md) (CIK 1106644)
- Form: 10-Q
- Filed: 2023-11-13
- Accepted by EDGAR: Nov 13, 2023, 16:05 ET
- Period: 2023-09-30
- Accession: 0001213900-23-086100
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1106644/000121390023086100/f10q0923_chinapharma.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1106644/000121390023086100/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $1.8m | us-gaap:Revenues |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $4.9m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $2.0m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $5.1m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2023-07-01 to 2023-09-30 | −$233.2k | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-01-01 to 2023-09-30 | −$201.9k | us-gaap:GrossProfit |
| Research and development | 3 months, 2023-07-01 to 2023-09-30 | $45.8k | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2023-01-01 to 2023-09-30 | $92.5k | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | −$713.5k | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | −$1.6m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $66.2k | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $283.3k | us-gaap:InterestExpense |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | −$777.6k | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | −$1.8m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | −$0.06 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | −$0.18 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | −$0.06 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | −$0.18 | us-gaap:EarningsPerShareBasic |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | −$677.4k | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Cash and equivalents | at 2023-09-30 | $1.4m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $5.8m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $15.4m | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $7.1m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $9.2m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-09-30 | $6.1m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 28,740 characters.

The statements contained in this report with respect to our financial condition, results of operations and business that are not historical facts are forward-looking statements. Forward-looking statements can be identified by the use of forward-looking terminology, such as “anticipate,” “believe,” “expect,” “plan,” “intend,” “seek,” “estimate,” “project,” “could,” or the negative thereof or other variations thereon, or by discussions of strategy that involve risks and uncertainties. Management wishes to caution the readers that any such forward-looking statements contained in this report reflect our current beliefs with respect to future events and involve known and unknown risks, uncertainties and other factors, including, but not limited to, economic, competitive, regulatory, technological, key employees, and general business factors affecting our operations, markets, growth, services, products, licenses and other factors, some of which are described in this report and some of which are discussed in our other filings with the Securities and Exchange Commission (the “SEC”). These forward-looking statements are only estimates or predictions. No assurances can be given regarding the achievement of future results, as actual results may differ materially as a result of risks facing our company, and actual events may differ from the assumptions underlying the statements that have been made regarding anticipated events.

These risk factors should be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue. All written and oral forward-looking statements made in connection with this report that are attributable to our company or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. Given these uncertainties, we caution investors not to unduly rely on our forward-looking statements. We do not undertake any obligation to review or confirm analysts’ expectations or estimates or to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events, except as required by applicable law or regulation.

### Business Overview & Recent Developments

China Pharma Holding Inc. (“China Pharma”) is not a Chinese operating company but a Nevada holding company. All of our operations are conducted in the PRC through Hainan Helpson Medical & Biotechnology Co., Ltd (“Helpson”), our wholly owned subsidiary incorporated under the laws of the People’s Republic of China (the “PRC”), where our manufacturing facilities are located. China Pharma, collectively with Helpson, are referred to as “We”, “Our”, “Us”, or the “Company”. We are principally engaged in the development, manufacture and marketing of pharmaceutical products for human use in connection with a variety of high-incidence and high-mortality diseases and medical conditions prevalent in the PRC. We manufacture pharmaceutical products in the form of dry powder injectables, liquid injectables, tablets, capsules, and cephalosporin oral solutions. The majority of our pharmaceutical products are sold on a prescription basis and all of them have been approved for at least one or more therapeutic indications by the National Medical Products Administration (the “NMPA”, formerly China Food and Drug Administration, or CFDA) based upon demonstrated safety and efficacy.

China’s consistency evaluation of generic drugs continues to proceed in 2023. We have always taken the task of promoting the consistency evaluation as a top priority, and worked on them actively. However, for each drug’s consistency evaluation, due to the continuous dynamic changes of the detailed consistency evaluation policies, market trends, expected investments, and expected returns of investment (“ROI”), the whole industry, including us, has been making slow progresses in terms of the consistency evaluation. One of our flagship products, Candesartan tablets, a hypertension product, has passed generic-drug-consistency-evaluation in early August 2023.

Helpson has taken a more cautious and flexible attitude towards initiating and progressing any project for existing products’ consistency evaluation to cope with the changing macro environment of drug sales in China. In 2018, relevant Chinese authorities decided to implement trial Centralized Procurement (“CP”) activities in 11 selected pilot cities (including 4 municipalities and 7 other cities), since then, nine rounds of CP activities have been carried out as of November 6, 2023, which significantly reduced the price of the drugs that won the bids. In addition, the consistency evaluation has been adopted as one of the qualification standards for participating in the CP activities. As a result, Helpson needs to balance at least the two factors above (namely, the investment of financial resources and time to obtain the qualification of CP, and the sharp decline in the price of drugs included in CP) before making decisions for any products.

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

We will continue to optimize our product structure and actively respond to the current health needs of human beings.

### Results of operations for the three months ended September 30, 2023

#### Revenue

Revenue was $1.8 million for the three months ended September 30, 2023, as compared to $2.0 million in the same period 2022.

Set forth below are our revenues by product category in millions (USD) for the three months ended September 30, 2023 and 2022, respectively:

| Product Category | Three Months Ended September 30, 2023 | 2022 | Net% Change | Change |
| --- | ---: | ---: | ---: | ---: |
| CNS Cerebral & Cardio Vascular | 0.37 | 0.51 | -0.14 | -27% |
| Anti-Viral/ Infection & Respiratory | 0.63 | 1.03 | -0.40 | -39% |
| Digestive Diseases | 0.65 | 0.12 | 0.53 | 442% |
| Other | 0.15 | 0.30 | -0.15 | -50% |

Our “Digestive Diseases” product category generated $0.65 million in the three months ended September 30, 2023, as compared to 0.12 million in the same period last year, which represented an increase of $0.53 million. This increase was mainly due to the increase in sales of Omeprazole due to market fluctuation.

The revenue of our “Anti-Viral/ Infection & Respiratory” product category was $0.63 million in the three months ended September 30, 2023, as compared to 1.03 million in the same period last year, which represented a decrease of $0.40 million. This decrease was mainly due to the decrease in sales of Roxithromycin Dispersible Tablet because of the increasing negative impact from the implementation of centralized procurement.

Our “CNS Cerebral & Cardio Vascular” product category generated $0.37 million in sales revenue in the three months ended September 30, 2023 compared to $0.51 million for the same period last year, which represented a decrease of $0.14 million. This decrease was mainly due to the decrease in sales of Ozagrel Sodium for Injection due to market fluctuation.

“Others” product category generated $0.15 million in sales revenue in the three months ended September 30, 2023 compared to $0.30 million for the same period last year, which represented a decrease of $0.15 million. This decrease was mainly due to the decrease in sales of Vitamin B6 for Injection due to market volatility.

| Product Category | Three Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| CNS Cerebral & Cardio Vascular | 21% | 26% |
| Anti-Viral/ Infection & Respiratory | 35% | 53% |
| Digestive Diseases | 36% | 6% |
| Other | 8% | 15% |

20

For the three months ended September 30, 2023, revenue breakdown by product category showed certain changes to that of the same period in 2022. Sales of the “CNS Cerebral & Cardio Vascular” product category represented 21% and 26% of total revenue in the three months ended September 30, 2023 and 2022, respectively. The “Anti-Viral/Infection & Respiratory” products category represented 35% and 53% of total sales in the three months ended September 30, 2023 and 2022, respectively. The “Digestive Diseases” product category represented 36% and 6% of total revenue in the three months ended September 30, 2023 and 2022, respectively. The “Other” product category represented 8% and 15% of revenues in the three months ended September 30, 2023 and 2022, respectively.

#### Cost of Revenue

For the three months ended September 30, 2023, our cost of revenue was $2.0 million, or 113% of total revenue, comparing to $2.1 million, or 104% of total revenue, for the same period in 2022. The increase in cost of revenues in the three months ended September 30, 2023 was mainly because that the cost of the product portfolios sold in this quarter is higher than that in the same period last year.

#### Gross loss and Gross Loss Margin

Gross loss for the three months ended September 30, 2023 was $0.23 million, as compared to $0.14 million during the same period in 2022. Our gross loss margin in the three months ended September 30, 2023 was 13% as compared to 7% during the same period in 2022.

#### Selling Expenses

Our selling expenses for the three months ended September 30, 2023 and 2022 were $0.21 million and $0.26 million, respectively. Selling expenses accounted for 11.5% of the total revenue in the three months ended September 30, 2023, as compared to 13.2% during the same period in 2022.

#### General and Administrative Expenses

Our general and administrative expenses were $0.24 million and $0.28 million for the three months ended September 30, 2023 and 2022, respectively. General and administrative expenses accounted for 13.7% and 14.1% of our total revenues in the three months ended September 30, 2023 and 2022, respectively.

#### Research and Development Expenses

Our research and development expenses for the three months ended September 30, 2023 were $0.05 million, as compared to $0.09 million in the same period in 2022. Research and development expenses accounted for 2.5% and 4.5% of our total revenues in the three months ended September 30, 2023 and 2022, respectively. These expenditures were mainly used for the consistency evaluations of our existing products.

#### Bad Debt Benefit

Our bad debt benefit for the three months ended September 30, 2023 was $18,212, as compared to $73,836 for the same period in 2022.

The amount of net accounts receivable that was past due (or the amount of accounts receivable that was more than 180 days old) was both $0.03 million as of September 30, 2023 and December 31, 2022, respectively.

The following tables illustrates our accounts receivable aging distribution in terms of percentage of total accounts receivable, respective gross accounts receivables as well as the allocated allowance for doubtful accounts as of September 30, 2023 and December 31, 2022:

|  | September 30, 2023 | December 31, 2022 |
| --- | ---: | ---: |
| 1 - 180 Days | 2.0% | 2.1% |
| 180 - 360 Days | 0.2% | 0.1% |
| 360 - 720 Days | 0.1% | 0.2% |
| \> 720 Days | 97.7% | 97.6% |
| Total | 100.0% | 100.0% |

|  | Gross Accounts Receivable Amount December 31, 2022 | September 30, 2023 | Allocated Allowance for Doubtful Accounts December 31, 2022 | September 30, 2023 |
| --- | ---: | ---: | ---: | ---: |
| 1-180 Days | 391,046.24 | 338,269.45 | - | 0 |
| 180-360 Days | 26,662.04 | 30,128.66 | 2,666.20 | 3,012.87 |
| 360-720 Days | 21,628.33 | 11,782.56 | 15,139.83 | 8,247.79 |
| Over 720 Days | 16,721,720.98 | 16,202,771.13 | 16,721,720.98 | 16,202,771.13 |
| Total | 17,161,057.58 | 16,582,951.80 | 16,739,527.01 | 16,216,031.79 |

Since the fourth quarter of 2018, our bad debt allowance estimate has been updated to a policy which requires no allowance of accounts receivable recognized that is within 180 days old, 10% of accounts receivable that is between 180 days and 360 days old, 70% of accounts receivable that is between 360 days and 720 days old, and 100% of accounts receivable that is greater than 720 days old.

Our allowance for doubtful accounts as a percentage of accounts receivable was 97.8% and 97.4% as of September 30, 2023 and 2022, respectively. The increase of 0.2% is due to a higher percentage of accounts receivable over 720 days old.

We conduct analysis and review on accounts receivables for customers on a specific, per-customer basis in the fourth fiscal quarter of each fiscal year. For customers (i) whose business license has been cancelled or expired; (ii) whose key business certificates such as GSP (Good Supply Practice) license have been invalid or revoked; (iii) who have no ability to continue operations, or (iv) who are encountering other issues that lead to accounts receivable unrecoverable, the receivable will be written-off as per the resolution of our Board of Directors.

We recognize bad debt expenses per actual write-offs as well as changes of allowance for doubtful accounts. To the extent that our current allowance for doubtful accounts is higher than that of the previous period, we recognize a bad debt expense for the difference during the current period, and, when the current allowance is lower than that of the previous period, we recognize a bad debt benefit for the difference. The allowance for doubtful accounts was $16.2 million as of September 30, 2023 and $16.7 million as of December 31, 2022. The changes in the allowances for doubtful accounts during the three months ended September 30, 2023 and 2022 were as follows:

|  | For the Three Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Balance, Beginning of Period | $16,125,255 | $17,384,884 |
| Bad debt expense (benefit) | (18,212) | (73,836) |
| Foreign currency translation adjustment | 106,989 | (881,932) |
| Balance, End of Period | $16,214,032 | $16,429,116 |

Our bad debt benefit for the three months ended September 30, 2023 was $18,212, as compared to $73,836 for the same period last year.

#### Loss from Operations

Our operating loss for the three months ended September 30, 2023 and 2022 was both $0.7 million.

#### Net Interest Expense

Net interest expense was $0.06 million for the three months ended September 30, 2023 and $0.10 million for the same period in 2022.

#### Net Loss

Net loss was both $0.8 million for the three months ended September 30, 2023 and 2022, respectively.

Loss per basic and diluted common share was $0.06 for the three months ended September 30, 2023, as compared to $0.16 for the three months ended September 30, 2022.

The number of basic and diluted weighted-average outstanding shares used to calculate loss per share was 13,216,345 for the three months ended September 30, 2023, and 5,002,851 for the three months ended September 30, 2022.

### Results of operations for the nine months ended September 30, 2023

### Revenue

Revenue was $4.9 million and $5.2 million for the nine months ended September 30, 2023 and 2022, respectively.

Set forth below are our revenues by product category in millions (USD) for the nine months ended September 30, 2023 and 2022, respectively:

| Product Category | Nine Months Ended September 30, 2023 | 2022 | Net% Change | Change |
| --- | ---: | ---: | ---: | ---: |
| CNS Cerebral & Cardio Vascular | 1.12 | 1.35 | -0.23 | -17% |
| Anti-Viral/ Infection & Respiratory | 2.11 | 2.77 | -0.66 | -24% |
| Digestive Diseases | 1.02 | 0.29 | 0.73 | 252% |
| Other | 0.62 | 0.77 | -0.15 | -19% |

Sales in our “Digestive Diseases” product category generated $1.02 million in the nine months ended September 30, 2023, as compared to $0.29 million in the nine months ended September 30, 2022. This increase was mainly due to the increase in sales of Omeprazole due to market fluctuation.

The most significant revenue decrease in terms of dollar amount was in our “Anti-Viral/ Infection & Respiratory” product category, which generated $2.11 million in sales revenue in the nine months ended September 30, 2023 compared to $2.77 million in the same period last year, a decrease of $0.66 million. This decrease was mainly due to sales decrease of Roxithromycin Dispersible Tablet because of the lower need in the third quarter due to the significant hoarding of drugs in the first quarter of 2023.

Our “CNS Cerebral & Cardio Vascular” product category generated $1.12 million in sales revenue in the nine months ended September 30, 2023, compared to $1.35 million in the same period last year, which represented a decrease of $0.23 million that was mainly caused by decrease in sales of Ozagrel Sodium for Injection.

Sales in “Other” product category generated $0.62 and $0.77 million in sales revenue in the nine months ended September 30, 2023 and 2022, respectively. The decrease was mainly caused by the decrease in sales of Vitamin B6 for Injection due to market volatility.

| Product Category | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| CNS Cerebral & Cardio Vascular | 23% | 26% |
| Anti-Viral/ Infection & Respiratory | 43% | 53% |
| Digestive Diseases | 21% | 6% |
| Other | 13% | 15% |

For the nine months ended September 30, 2023, revenue breakdown by product category showed certain changes to that of the same period in 2022. Sales in the “CNS Cerebral & Cardio Vascular” category represented 23% and 26% of total revenue for the nine months ended September 30, 2023 and 2022, respectively. The “Anti-Viral/Infection & Respiratory” products category represented 43% and 53% of total sales for the nine months ended September 30, 2023 and 2022, respectively. The “Digestive Diseases” category represented 21% and 6% of total revenue for the nine months ended September 30, 2023 and 2022. And the “Other” category represented 13% and 15% of revenues for the nine months ended September 30, 2023 and 2022, respectively.

### Cost of Revenue

For the nine months ended September 30, 2023, our cost of revenue was $5.1 million, or 104.2% of total revenue, comparing to $5.7 million, or 110.4% of total revenue, for the same period in 2022.

### Gross Loss and Gross Loss Margin

Gross loss for the nine months ended September 30, 2023 was $0.2 million, compared to $0.5 million in the same period in 2022. Our gross loss margin in the nine months ended September 30, 2023 was 4.2% compared to 10.4% in the same period in 2022.

### Selling Expenses

Our selling expenses for the nine months ended September 30, 2023 and 2022 were $0.5 million and $0.7 million, respectively. Selling expenses accounted for 10.7% of the total revenue in the nine months ended September 30, 2023 compared to 13.6% in the same period in 2022.

### General and Administrative Expenses

Our general and administrative expenses were $0.78 million for the nine months ended September 30, 2023, as compared to $1.06 million in the same period in 2022. Our general and administrative expenses accounted for 16.0% and 20.5% of our total revenues in the nine months ended September 30, 2023 and 2022, respectively.

### Research and Development Expenses

Our research and development expenses for the nine months ended September 30, 2023 and 2022 were $0.09 million and $0.16 million, respectively, representing a decrease of $0.07 million compared to the same period of last year.

### Bad Debt Benefit

Our bad debt benefit was $24,201 for the nine months ended September 30, 2023, and $83,715 for the nine months ended September 30, 2022.

The changes in the allowances for doubtful accounts during the nine months ended September 30, 2023 and 2022 were as follows:

|  | For the Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Balance, Beginning of Period | $16,739,527 | $18,312,707 |
| Bad debt expense (benefit) | (24,201) | (83,715) |
| Foreign currency translation adjustment | (501,294) | (1,799,876) |
| Balance, End of Period | $16,214,032 | $16,429,116 |

Our bad debt benefit for the nine months ended September 30, 2023 was $24,201, as compared to $83,715 for the same period last year.

### Loss from Operations

Our operating loss for the nine months ended September 30, 2023 was $1.6 million, compared to $2.4 million in the same period in 2022.

### Net Interest Expense

Net interest expense for the nine months ended September 30, 2023 was $0.28 million, compared to $0.33 million for the same period in 2022.

### Net Loss

Net loss for the nine months ended September 30, 2023 was $1.8 million, as compared to net loss of $2.7 million for the nine months ended September 30, 2022. The decrease in net loss for the nine months ended September 30, 2023 was mainly due to the decrease in cost and expenses. For the nine months ended September 30, 2023, loss per basic and diluted common share was $0.18, compared to loss per basic and diluted common share of $0.56 for the nine months ended September 30, 2022.

The number of basic and diluted weighted-average outstanding shares used to calculate loss per share was 10,422,589 for the nine months ended September 30, 2023, and 4,863,818 for the nine months ended September 30, 2022.

### Liquidity and Capital Resources

Our principal source of liquidity is cash generated from operations, bank lines of credit and the Convertible Note Payable. Currently the Company has not witnessed or expected to encounter any difficulties to refinance those lines of credit this year. As of September 30, 2023, the aggregated advance from our CEO was $1,109,453 for use in operations. Our cash and cash equivalents were $1.37 million, representing 8.9% of our total assets, as of September 30, 2023, as compared to $2.03 million, representing 11.4% of our total assets as of December 31, 2022. All of the $1.37 million of cash and cash equivalents as of September 30, 2023 are considered to be reinvested indefinitely in the Company’s Chinese subsidiary, Helpson, and are not expected to be available for payment of dividends or for other payments to its parent company or to its shareholders.

The Company obtained various lines of credit in details described under Note 7 to its unaudited condensed consolidated financial statements contained in this report which is incorporated by reference herein.

China Pharma issued a convertible note to an institutional accredited investor as disclosed in Note 8 to the condensed consolidated financial statements contained in this report which is incorporated by reference herein.

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

### Operating Activities

Net cash used by operating activities was $0.68 million for the nine months ended September 30, 2023, compared to $0.99 million in the same period in 2022.

As of September 30, 2023, our net accounts receivable was $0.4 million, remained flat to $0.4 million as of December 31, 2022.

Total inventory was $3.8 million and $2.9 million as of September 30, 2023 and December 31, 2022, respectively.

### Investing Activities

There was $6,990 used in investing activities during the nine months ended September 30, 2023, compared to $429,232 for the same period in 2022.

### Financing Activities

Cash flow provided by financing activities was $0.04 million in the nine months ended September 30, 2023; compared to cash flow used in financing activities of $1.10 million for the same period in 2022.

According to relevant PRC laws, companies registered in the PRC, including our PRC subsidiary, Helpson, are required to allocate at least ten percent (10%) of their after-tax net income, as determined under the accounting standards and regulations in the PRC, to statutory surplus reserve accounts until the reserve account balances reach fifty percent (50%) of the companies’ registered capital prior to their remittance of funds out of the PRC. Allocations to these reserves and funds can only be used for specific purposes and are not transferrable to the parent company in the form of loans, advances or cash dividends. As of September 30, 2023 and December 31, 2022, Helpson’s net assets totaled (1,732,000) and $(190,000), respectively. Due to the restriction on dividend distribution to overseas shareholders, the amount of Helpson’s net assets that was designated for general and statutory capital reserves, and thus could not be transferred to our parent company as cash dividends, was 50% of Helpson’s registered capital, which was both $8,145,000 as of September 30, 2023 and December 31, 2022, respectively. The amount that Helpson must set aside for the statutory surplus fund accounts exceeds its total net assets at September 30, 2023 and December 31, 2022. There were no allocations to the statutory surplus reserve accounts during the nine months ended September 30, 2023.

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

### Off-Balance Sheet Arrangements

As of September 30, 2023, we did not have any off-balance sheet arrangements.

### Critical Accounting Policies

Management’s discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles. Our financial statements reflect the selection and application of accounting policies which require management to make significant estimates and judgments. The discussion of our critical accounting policies contained in Note 1 to our consolidated financial statements, “Organization and Significant Accounting Policies”, is incorporated herein by reference.

## Market risk

As filed, 139 characters.

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this item.

## Controls and procedures

As filed, 2,569 characters.

### Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and interim Chief Financial Officer, evaluated the effectiveness of our “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 (the “Exchange Act”) Rules 13a-15(e) or 15d-15(e)) as of the end of the period covered by this quarterly report. Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act (a) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and (b) is accumulated and communicated to management, including our Chief Executive Officer and interim Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives as described above. Based on this evaluation, our Chief Executive Officer and interim Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of September 30, 2023 to satisfy the objectives for which they are intended. This was due to the material weakness in our internal control over financial reporting, with respect to our lack of accounting financial reporting personnel who were knowledgeable in U.S. GAAP, as disclosed in our annual report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on March 30, 2023. Notwithstanding the aforementioned material weakness, management has concluded that our condensed consolidated financial statements included in this report are fairly stated in all material respects in accordance with U.S. GAAP for each period presented herein.

### Changes in Internal Controls over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Filed Nov 13, 2023.
Source: SEC EDGAR, the filing index for accession 0001213900-23-086100. Last ingested by Listed: Oct 30, 2026, 16:51 ET. No prices; not investment advice.