CPHI 10-Q
China Pharma Holdings, Inc. (CPHI)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
For
the quarterly period ended
For the transition period from ____________ to ____________
Commission
File Number
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (IRS Employer | |
| incorporation or organization) | Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
+ (China)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check One):
| Large accelerated filer ☐ | Accelerated filer ☐ |
Smaller reporting company | |
| Emerging growth company |
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. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of May 9, 2023, there were
CHINA PHARMA HOLDINGS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
i
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
CHINA PHARMA HOLDINGS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
1
CHINA PHARMA HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| March 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Banker’s acceptances | ||||||||
| Trade accounts receivable, less allowance for doubtful accounts of $ | ||||||||
| Other receivables, less allowance for doubtful accounts of $ | ||||||||
| Advances to suppliers | ||||||||
| Inventory | ||||||||
| Prepaid expenses | ||||||||
| Total Current Assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Operating lease right of use asset | ||||||||
| Intangible assets, net | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Trade accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Other payables | ||||||||
| Advances from customers | ||||||||
| Borrowings from related parties | ||||||||
| Operating lease liability | ||||||||
| Current portion of lines of credit | ||||||||
| Convertible, redeemable note payable, net of issue discount | ||||||||
| Total Current Liabilities | ||||||||
| Non-current Liabilities: | ||||||||
| Deferred tax liability | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies (Note 9) | ||||||||
| Stockholders’ Equity: | ||||||||
| Preferred stock, $ | ||||||||
| Common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Retained deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income | ||||||||
| Total Stockholders’ Equity | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
CHINA PHARMA HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
(Unaudited)
| For the Three Months | ||||||||
| Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Revenue | $ | $ | ||||||
| Cost of revenue | ||||||||
| Gross profit (loss) | ( | ) | ||||||
| Operating expenses: | ||||||||
| Selling expenses | ||||||||
| General and administrative expenses | ||||||||
| Research and development expenses | ||||||||
| Bad debt benefit | ( | ) | ( | ) | ||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other income (expense): | ||||||||
| Interest income | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Net other expense | ( | ) | ( | ) | ||||
| Loss before income taxes | ( | ) | ( | ) | ||||
| Income tax expense | ||||||||
| Net loss | ( | ) | ( | ) | ||||
| Other comprehensive income - foreign currency translation adjustment | ||||||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | ||
| Loss per share: | ||||||||
| $ | ( | ) | $ | ( | ) | |||
| Weighted average shares outstanding | ||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
CHINA PHARMA HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
| Accumulated | ||||||||||||||||||||||||
| Additional | Other | Total | ||||||||||||||||||||||
| Common Stock | Paid-in | Retained | Comprehensive | Stockholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Income | Equity | |||||||||||||||||||
| Balance, January 1, 2022 | ( | ) | ||||||||||||||||||||||
| Conversions of Note Payable to common stock | ||||||||||||||||||||||||
| Net loss for the period | - | ( | ) | ( | ) | |||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||||
| Balance, March 31, 2022 | ( | ) | ||||||||||||||||||||||
| Accumulated | ||||||||||||||||||||||||
| Additional | Other | Total | ||||||||||||||||||||||
| Common Stock | Paid-in | Retained | Comprehensive | Stockholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Income | Equity | |||||||||||||||||||
| Balance, January 1, 2023 | ( | ) | ||||||||||||||||||||||
| Conversions of Note Payable to common stock | ||||||||||||||||||||||||
| Net loss for the period | - | ( | ) | ( | ) | |||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||||
| Balance, March 31, 2023 | ( | ) | ||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
CHINA PHARMA HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Three Months | ||||||||
| Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Depreciation and amortization | ||||||||
| Bad debt (benefit) | ( | ) | ( | ) | ||||
| Inventory write off | ||||||||
| Changes in assets and liabilities: | ||||||||
| Trade accounts and other receivables | ( | ) | ||||||
| Advances to suppliers | ||||||||
| Inventory | ( | ) | ( | ) | ||||
| Trade accounts payable | ( | ) | ||||||
| Other payables and accrued expenses | ( | ) | ( | ) | ||||
| Advances from customers | ( | ) | ( | ) | ||||
| Prepaid expenses | ( | ) | ( | ) | ||||
| Net Cash Used in Operating Activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities: | ||||||||
| Purchases of property and equipment | ( | ) | ||||||
| Net Cash Provided By (Used In) Investing Activities | ( | ) | ||||||
| Cash Flows from Financing Activities: | ||||||||
| Payments of line of credit | ( | ) | ||||||
| Proceeds from lines of credit | ||||||||
| Borrowings and interest from related party | ||||||||
| Repayments to related party | ( | ) | ||||||
| Net Cash Provided By (Used In) Financing Activities | ( | ) | ||||||
| Effect of Exchange Rate Changes on Cash | ||||||||
| Net Decrease in Cash, Cash Equivalents and Restricted Cash | ( | ) | ( | ) | ||||
| Cash and Cash Equivalents at Beginning of Period | ||||||||
| Cash, Cash Equivalents and Restricted Cash at End of Period | $ | $ | ||||||
| Supplemental Cash Flow Information: | ||||||||
| Cash paid for income taxes | $ | $ | ||||||
| Cash paid for interest | $ | $ | ||||||
| Supplemental Noncash Investing and Financing Activities: | ||||||||
| Accounts receivable collected with banker’s acceptances | $ | $ | ||||||
| Inventory purchased with banker’s acceptances | ||||||||
| Conversions of Note Payable to common stock | ||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
CHINA PHARMA HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2023 AND 2022 (UNAUDITED)
NOTE 1 – ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Operations – China
Pharma Holdings, Inc., a Nevada corporation (the “Company”), owns
Onny acquired
Helpson is 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. All of its operations are conducted in the PRC, where its manufacturing facilities are located. Helpson manufactures pharmaceutical products in the form of dry powder injectables, liquid injectables, tablets, capsules, and cephalosporin oral solutions. The majority of its pharmaceutical products are sold on a prescription basis and all 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.
Liquidity and Going Concern
As of March 31, 2023, the Company had cash and
cash equivalents of $
Pursuant to the requirements of Accounting Standards Codification (ASC) 205-40, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern management must evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. This evaluation initially does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented as of the date the financial statements are issued. When substantial doubt exists under this methodology, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued.
Under ASC 205-40, the strategic alternatives being pursued by the Company cannot be considered probable at this time because none of the Company’s current plans have been finalized at the time of the issuance of these financial statements and the implementation of any such plan is not probable of being effectively implemented as none of the plans are entirely within the Company’s control. Accordingly, substantial doubt is deemed to exist about the Company’s ability to continue as a going concern within one year after the date these financial statements are issued.
6
CHINA PHARMA HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2023 AND 2022 (UNAUDITED)
The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of the uncertainties described above.
Reverse Stock Split – Effective March 6, 2023, the Company implemented a 1-for -10 reverse stock split as more fully discussed in Note 14. All share and per share disclosures have been retroactively restated to reflect the impact of the reverse stock split.
Consolidation and Basis of Presentation – The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and are expressed in United States dollars. The accompanying condensed consolidated financial statements include the accounts and operations of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in the consolidation.
Helpson’s functional currency is the Chinese Renminbi. Helpson’s revenue and expenses are translated into United States dollars at the average exchange rate for the period. Assets and liabilities are translated at the exchange rate as of the end of the reporting period. Gains or losses from translating Helpson’s financial statements are included in accumulated other comprehensive income, which is a component of stockholders’ equity. Gains and losses arising from transactions denominated in a currency other than the functional currency of the entity that is party to the transaction are included in the results of operations.
In the opinion of management, the unaudited interim condensed consolidated financial statements reflect all adjustments of a normal recurring nature that are necessary for a fair presentation of the results for the interim periods presented. All significant intercompany transactions and balances are eliminated on consolidation. However, the results of operations included in such financial statements may not necessary be indicative of annual results. Such financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the Securities and Exchange Commission (the “SEC”) on March 30, 2023 (“2022 Annual Report”).
Accounting Estimates - The methodology used to prepare the Company’s financial statements is in conformity with U.S. GAAP, which requires the management of the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Therefore, actual results could differ from those estimates.
The Company uses the same accounting policies in preparing its quarterly and annual financial statements. Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted.
Loss Per Share - Basic loss per share is calculated by dividing loss available to common stockholders by the weighted-average number of shares of common stock outstanding, excluding unvested stock. Diluted loss per share is computed similar to basic loss per share except that the denominator is increased to include the number of additional shares of common stock that would have been outstanding if the potential common shares, including unvested stock, had been issued and if the additional common shares were dilutive.
The potentially dilutive
common shares related to the convertible, redeemable note payable of
Recent Accounting Pronouncements
From time to time, the FASB or other standards setting bodies issue new accounting pronouncements. Updates to the FASB ASC are communicated through issuance of ASUs. Unless otherwise discussed, the Company believes that the recently issued guidance, whether adopted or to be adopted in the future, is not expected to have a material impact on its consolidated financial statements upon adoption.
7
CHINA PHARMA HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2023 AND 2022 (UNAUDITED)
NOTE 2 – INVENTORY
Inventory consisted of the following:
| March 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Raw materials | ||||||||
| Work in process | ||||||||
| Finished goods | ||||||||
| Total Inventory | $ | $ | ||||||
NOTE 3 – PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
| March 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Permit of land use | $ | $ | ||||||
| Building | ||||||||
| Plant, machinery and equipment | ||||||||
| Motor vehicle | ||||||||
| Office equipment | ||||||||
| Total | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Property, plant and equipment, net | $ | $ | ||||||
Depreciation is computed on a straight-line basis over the estimated useful lives of the assets as follows:
| Asset | Life - years | |
| Permit of land use | ||
| Building | ||
| Plant, machinery and equipment | ||
| Motor vehicle | ||
| Office equipment |
Depreciation relating to office equipment was
included in general and administrative expenses, while all other depreciation was included in cost of revenue. Depreciation expense was
$
NOTE 4 - INTANGIBLE ASSETS
Intangible assets represent the cost of medical formulas approved for production by the NMPA and the intellectual property acquired in November 2022 relative to the creation of an ophthalmic oxygen enriched atomization therapeutic instrument, which has a utility model patent (the “Utility Model Patent”) and applied for an invention patent (the “Invention Patent”) . The Company did not obtain NMPA production approval for any new medical formulas during the three months ended March 31, 2023 and 2022 and no costs were reclassified from advances to intangible assets during the three months ended March 31, 2023 and 2022, respectively.
8
CHINA PHARMA HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2023 AND 2022 (UNAUDITED)
The Company will pay a service fee of
The Company evaluates each approved medical formula for impairment at the date of NMPA approval, when indications of impairment are present and also at the date of each financial statement. The Company’s evaluation is based on an estimated undiscounted net cash flow model, which considers currently available market data for the related drug and the Company’s estimated market share. If the carrying value of the medical formula exceeds the estimated future net cash flows, an impairment loss is recognized for the excess of the carrying value over the fair value of the medical formula, which is determined by the estimated discounted future net cash flows. No impairment loss was recognized during the three months ended March 31, 2023 and 2022.
Intangible assets consisted of NMPA approved medical formulas, a Utility Model Patent and an Invention Patent as follows:
| March 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Gross carrying amount | $ | $ | ||||||
| Accumulated amortization | ( | ) | ( | ) | ||||
| Net carrying amount | $ | $ | ||||||
NOTE 5 – OTHER PAYABLES
Other Payables consisted of the following:
| March 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Compensation payable to officer | $ | $ | ||||||
| Compensation and interest to related parties | ||||||||
| Business taxes and other | ||||||||
| Total Other Payables | $ | $ | ||||||
NOTE 6 – RELATED PARTY TRANSACTIONS
A member of the Company’s board of directors
(“Board”) had previously advanced to the Company an aggregate amount of $
The Company had previously received advances
from its Chairperson, Chief Executive Officer and Interim Chief Financial Officer. Total amounts owed were $
9
CHINA PHARMA HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2023 AND 2022 (UNAUDITED)
NOTE 7 –LINES OF CREDIT
On
June 25, 2021 the Company entered into a new loan bearing an interest rate of
In
September 2021, the Company entered into a line of credit in the amount of RMB
On
September 18, 2021 the Company obtained a line of credit for RMB
Principal payments required for the remaining terms of the loan facility and lines of credit as of March 31, 2023 are as follows:
| Year | Lines of Credit | |||
| 2023 | $ | |||
| $ | ||||
Fair Value of Lines of Credit – Based on the borrowing rates currently available to the Company for bank loans with similar terms and maturities, the carrying amounts of the lines of credit outstanding as of March 31, 2023 and December 31, 2022 approximated their fair values because the underlying instruments bear an interest rate that approximates current market rates.
NOTE 8 – CONVERTIBLE NOTE PAYABLE
On November 17, 2021, the Company entered into a Securities Purchase Agreement (the “Agreement”) pursuant to which the Company issued an unsecured convertible promissory note (the “Note”) to an institutional accredited investor Streeterville Capital, LLC (the “Investor”). The transaction contemplated under the Agreement was closed on November 19, 2021. The Note matured on February 17, 2023. On April 13, 2023 the Company entered into an Amendment (the “Amendment”) with the Investor which extended the maturity date of the Note to May 19, 2024 as further discussed in Note 14.
The Note was originally
convertible into
Interest accrues on the outstanding balance of the Note at 5% per annum compounded daily. Upon the occurrence of an Event of Default as defined in the Note, interest accrues at the lesser of 22% per annum or the maximum rate permitted by applicable law. In addition, upon any Event of Default, the Investor may accelerate the outstanding balance payable under the Note, which will increase automatically upon such acceleration by 15% or 5%, depending on the nature of the Event of Default.
Pursuant to the terms of the Agreement and the Note, the Company must obtain Investor’s consent for certain fundamental transactions such as consolidation, merger with or into another entity (excerpt for a reincorporation merger), disposition of substantial assets, change of control, reorganization or recapitalization. Any occurrence of a fundamental transaction without Investor’s prior written consent will be deemed an Event of Default.
10
CHINA PHARMA HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2023 AND 2022 (UNAUDITED)
Investor
may redeem all or any part the outstanding balance of the Note, subject to $
Total
interest expense for the three months ended March 31, 2023 and 2022 was $
On
January 5, 2023 the Investor delivered its notice of redemption for $
On
January 18, 2023 the Investor delivered its notice of redemption for $
On
March 2, 2023 the Investor delivered its notice of redemption for $
Subsequent to March 31, 2023 the Investor delivered additional notices of redemption as discussed in Note 14.
NOTE 9 - LEASES
The
Company has leases for certain office and production facilities in the PRC which are classified as operating leases. The leases contain
payment terms for fixed amounts. Options to extend are recognized as part of the lease liabilities and recognized as right to use assets
when management estimates to renew the lease. There are no residual value guarantees, no variable lease payments, and no restrictions
or covenants imposed by leases. The discount rate used in measuring the lease liabilities and right of use assets was determined by reviewing
the Company’s incremental borrowing rate at the initial measurement date. For the three months ended March 31, 2023 and 2022, operating
lease cost was $
11
CHINA PHARMA HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2023 AND 2022 (UNAUDITED)
Minimum lease payments for the Company’s operating lease liabilities were as follows for the twelve month periods ended March 31:
| 2023 | $ | |||
| Total undiscounted cash flows | ||||
| Less: Imputed interest | ( | ) | ||
| Less: Operating lease liabilities, current portion | ( | ) | ||
| Operating lease liabilities, net of current portion | $ |
The Company has leases with terms less than one year for certain provincial sales offices that are not material.
NOTE 10 - INCOME TAXES
Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which temporary differences are expected to be recovered or settled. The effect of a change in tax laws or rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
Liabilities are established for uncertain tax positions expected to be taken in income tax returns when such positions are judged to meet the “more-likely-than-not” threshold based on the technical merits of the positions. Estimated interest and penalties related to uncertain tax positions are included as a component of other expenses. Through December 31, 2022, the Company has not identified any uncertain tax positions that it has taken. U.S. income tax returns for the years ended December 31, 2018 through December 31, 2022 and the Chinese income tax return for the year ended December 31, 2022 are open for possible examination.
Under
the current tax law in the PRC, the Company is and will be subject to the enterprise income tax rate of
There was no provision for income taxes for the three months ended March 31, 2023 and 2022, respectively due to continued net losses of the Company.
As
of March 31, 2023, the Company had net operating loss carryforwards for PRC tax purposes of approximately $
U.S.
federal tax legislation, commonly referred to as the Tax Cuts and Jobs Act (the “U.S. Tax Reform”), was signed into law on
December 22, 2017. The U.S. Tax Reform significantly modified the U.S. Internal Revenue Code by, among other things, reducing the
statutory U.S. federal corporate income tax rate from
In
assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation
of future taxable income during the periods in which those differences become deductible or tax loss carry forwards are utilized. Management
considers projected future taxable income and tax planning strategies in making this assessment. Based upon an assessment
of the level of historical taxable income and projections for future taxable income over the periods on which the deferred tax assets
are deductible or can be utilized, management believes it is not likely for the Company to realize all benefits of the deferred tax assets
as of March 31, 2023 and December 31, 2022. Therefore, the Company provided for a valuation allowance against its deferred
tax assets of $
The Company also incurred various other taxes, comprised primarily of business taxes, value-added taxes, urban construction taxes, education surcharges and others. Any unpaid amounts are reflected on the balance sheets as accrued taxes payable.
12
CHINA PHARMA HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2023 AND 2022 (UNAUDITED)
NOTE 11 – FAIR VALUE MEASUREMENTS
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. To measure fair value, a hierarchy has been established which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs. This hierarchy uses three levels of inputs to measure the fair value of assets and liabilities as follows: Level 1 – Quoted prices in active markets for identical assets or liabilities; Level 2 – Observable inputs other than Level 1 including quoted prices for similar assets or liabilities, quoted prices in less active markets, or other observable inputs that can be corroborated by observable market data; and Level 3 – Unobservable inputs supported by little or no market activity for financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.
The Company uses fair value to measure the value of the banker’s acceptance notes it holds at March 31, 2023 and December 31, 2022. The banker’s acceptance notes are recorded at cost which approximates fair value. The Company held the following assets and liabilities recorded at fair value:
| Fair Value Measurements at | ||||||||||||||||
| March 31, | Reporting Date Using | |||||||||||||||
| Description | 2023 | Level 1 | Level 2 | Level 3 | ||||||||||||
| Banker’s acceptance notes | $ | $ | $ | $ | ||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| Fair Value Measurements at | ||||||||||||||||
| December 31, | Reporting Date Using | |||||||||||||||
| Description | 2022 | Level 1 | Level 2 | Level 3 | ||||||||||||
| Banker’s acceptance notes | $ | $ | $ | $ | ||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
NOTE 12 - STOCKHOLDERS’ EQUITY
The
Company is authorized to issue
According
to relevant PRC laws, companies registered in the PRC, including the Company’s PRC subsidiary, Helpson, are required to allocate
at least
Effective March 6, 2023 the Company implemented a 1-for-10 reverse split of its common stock. The reverse stock split was approved by the Company’s Board of Directors through unanimous written consent and the Company’s stockholders at its Annual Meeting for the fiscal year ended on December 31, 2021, which was held on December 27, 2022. Upon the effectiveness of the reverse stock split, every 10 shares of the Company’s issued and outstanding common stock were automatically converted into one share of issued and outstanding common stock. No fractional shares were issued as a result of the reverse stock split. Instead, any fractional shares that resulted from the split were rounded up to the next whole number. The reverse stock split affects all stockholders uniformly and does not alter any stockholder’s percentage interest in the Company’s outstanding common stock, except for adjustments that may result from the treatment of fractional shares. All share and per share amounts have been retroactively restated for all periods presented in the accompanying unaudited condensed consolidated financial statements.
2023 Share Issuances
On
January 5, 2023 the Investor as discussed in Note 8 delivered its notice of redemption for $
13
CHINA PHARMA HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2023 AND 2022 (UNAUDITED)
On
January 18, 2023 the Investor as discussed in Note 8 delivered its notice of redemption for $
On
March 2, 2023 the Investor as discussed in Note 8 delivered its notice of redemption for $
2010 Incentive Plan
On
November 12, 2010, the Company’s Board adopted the Company’s 2010 Incentive Plan (the “Plan”), which was then
approved by stockholders on December 22, 2010. On October 17, 2019, the Board of Directors approved the First Amendment to the 2010 Incentive
Plan (the “Amendment”), pursuant to which the term of the 2010 Incentive Plan was extended to December 31, 2029. The Amendment
was adopted by the stockholders on December 19, 2019. On October 25, 2021, the Board of Directors approved, and on December 27, 2021
our stockholders adopted the Amendment No.2 to the Plan to increase the number of shares of the Common Stock, that are reserved thereunder
by
As of March 31, 2023, there was no remaining unrecognized compensation expense related to stock options or restricted stock grants.
NOTE 13 – RISKS & UNCERTAINTIES
Current vulnerability due to certain concentrations
For the three months ended March 31, 2023, no
customer accounted for more than 10% of sales and
For
the three months ended March 31, 2022, no customer accounted for more than 10% of sales and
Nature of Operations
Impact from the New Coronavirus Global Pandemic (“COVID-19”) - Although the outbreak of COVID-19 since the first quarter 2020 has been under control, and China has returned to normal production and social life in an orderly manner, China is still encountering resurgences in its major cities. For now, these resurgences have not caused material impact to our daily operations, However, we cannot ensure that any future resurgence will not cause substantial influence onto our business. If that happens, any disruption or delay of the Company’s suppliers or customers in the future would likely impact its sales and operating results.
Economic environment - Substantially all of the Company’s operations are conducted in the PRC, and therefore the Company is subject to special considerations and significant risks not typically associated with companies operating in the United States of America. These risks include, among others, the political, economic and legal environments and fluctuations in the foreign currency exchange rate. The Company’s results from operations may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things. The unfavorable changes in global macroeconomic factors may also adversely affect the Company’s operations.
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CHINA PHARMA HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2023 AND 2022 (UNAUDITED)
In addition, all of the Company’s revenue is denominated in the PRC’s currency of Renminbi (RMB), which must be converted into other currencies before remittance out of the PRC. Both the conversion of RMB into foreign currencies and the remittance of foreign currencies abroad require approval of the PRC government.
NOTE 14 – SUBSEQUENT EVENTS
On
April 13, 2023 the Company entered into an Amendment (the “Amendment”) with the Investor which extended the maturity date
of the Convertible Note Payable as discussed in Note 8 to May 19, 2024. As consideration for the extension, the Company agreed to an
extension fee of $
On April 7, 2023 the Investor discussed in Note
8 delivered its notice of redemption for $
On May 1, 2023 the Investor discussed in Note
8 delivered its notice of redemption for $
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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
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 People’s Republic of China (the “PRC”). All of our operations are conducted in the PRC, where our manufacturing facilities are located. 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. We have submitted application documents to NMPA at the end of 2021, and passed the clinical verification of one drug by NMPA in June 2022. We had completed the supplementary documents as required by the NMPA in early November 2022. We had completed the registration inspection and quality standard review by the Institute for Drug Control in February 2023, and are currently undergoing technical review and waiting for on-site verification.
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We have 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. Since “4 + 7” (refers to 11 selected pilot cities, including 4 municipalities and 7 other cities) trial Centralized Procurement (“CP”) activities were initiated in 2018, eight rounds of CP activities have been carried out as of March 31, 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, we need 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. We have 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, we 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 March 31, 2023
Revenue
Revenue increased by 22.2% to $2.0 million for the three months ended March 31, 2023, as compared to $1.6 million for the three months ended March 31, 2022. This increase was mainly due to the recovery of the market, which became active after China eased its pandemic control policies at the end of 2022.
Set forth below are our revenues by product category in millions (USD) for the three months ended March 31, 2023 and 2022:
| Three
Months Ended March 31, | Net | % | ||||||||||||||
| Product Category | 2023 | 2022 | Change | Change | ||||||||||||
| CNS Cerebral & Cardio Vascular | 0.40 | 0.28 | 0.12 | 43 | % | |||||||||||
| Anti-Viral / Infection & Respiratory | 1.01 | 1.05 | -0.04 | -4 | % | |||||||||||
| Digestive Diseases | 0.20 | 0.06 | 0.14 | 233 | % | |||||||||||
| Other | 0.36 | 0.21 | 0.15 | 71 | % | |||||||||||
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The most significant revenue increase in terms of dollar amount was in our “Other” product category, which generated $0.36 million in sales revenue in the three months ended March 31, 2023 compared to $0.21 million for the same period a year ago, an increase of $0.15 million. This increase was mainly due to the increase in sales of masks. With Chinese government officially terminated its zero-case policy at the end of 2022, the responsibility to protect people from the impact of COVID-19 falls more to the citizens themselves, and masks have been more and more popular.
Our “Digestive Diseases” product category sales increased by $0.14 million to $0.20 million in the three months ended March 31, 2023 from $0.06 million for the same period in 2022, which was mainly due to the increase in sales of Omeprazole that was caused by market volatility.
Sales under “CNS Cerebral & Cardio Vascular” product category generated $0.40 million in sales revenue in the three months ended March 31, 2023 compared to $0.28 million for the same period a year ago, which is an increase of $0.12 million. This increase was mainly due to the increase in sales of Candesartan, which was caused by market volatility.
Our “Anti-Viral / Infection & Respiratory” product category generated $1.01 million of sales in the three months ended March 31, 2023, compared to $1.05 million in the same period in 2022. This decrease was mainly due to foreign currency exchange rate volatility.
| Three Months Ended March 31, | ||||||||
| Product Category | 2023 | 2022 | ||||||
| CNS Cerebral & Cardio Vascular | 21 | % | 18 | % | ||||
| Anti-Viral/ Infection & Respiratory | 51 | % | 65 | % | ||||
| Digestive Diseases | 10 | % | 4 | % | ||||
| Other | 18 | % | 13 | % | ||||
For the three months ended March 31, 2023, revenue breakdown by product category showed certain changes to that of the same period in 2022. Sales of the “Anti-Viral/Infection & Respiratory” products category represented 51% and 65% of total sales in the three months ended March 31, 2023 and 2022, respectively. The “CNS Cerebral & Cardio Vascular” product category represented 21% and 18% of total revenue in the three months ended March 31, 2023 and 2022, respectively. The “Other” product category represented 18% and 13% of revenues in the three months ended March 31, 2023 and 2022, respectively. The “Digestive Diseases” product category represented 10% and 4% of total revenue in the three months ended March 31, 2023 and 2022, respectively.
Cost of Revenue
For the three months ended March 31, 2023, our cost of revenue was $1.8 million, or 90.9% of total revenue, while cost of revenue was $1.8 million, or 110.6% of total revenue, for the same period in 2022. The decrease in the proportion of cost to revenue in this quarter was mainly due to the fact that the amount of fixed cost stayed flat while the revenue increased.
Gross Profit (Loss) and Gross Margin
Gross profit for the three months ended March 31, 2023 was $0.2 million, as compared to gross loss of $0.2 million during the same period in 2022. For the three months ended March 31, 2023, we had a gross profit margin of 9.1% as compared to a gross loss margin of 10.6% during the same period in 2022.
Selling Expenses
Our selling expenses for the three months ended March 31, 2023 and 2022 were $0.14 million and $0.18 million, respectively. Selling expenses accounted for 7.4% of the total revenue for the three months ended March 31, 2023, as compared to 11.2% during the same period in 2022. As a result of the adjustment of many policies of healthcare reformation, we had reduced the number of personnel and expenses to efficiently support our sales and the collection of accounts receivable.
18
General and Administrative Expenses
Our general and administrative expenses were $0.42 million and $0.51 million for the three months ended March 31, 2023 and 2022, respectively. It accounted for 21.3% and 32.1% of our total revenues in the three months ended March 31, 2023 and 2022, respectively.
Research and Development Expenses
Our research and development expenses for the three months ended March 31, 2023 were $0.02 million, as compared to $0.05 million in the same period in 2022. Research and development expenses accounted for 1.2% and 3.4% of our total revenues for the three months ended March 31, 2023 and 2022, respectively. These expenditures were mainly for the consistency evaluations of our existing products.
Bad Debt Benefit
Our bad debt benefit for the three months ended March 31, 2023 were $10,036, as compared to $5,521 for the same period in 2022. This change was mainly due to the accelerated rate of receipts of accounts receivable aged within two years of the current period.
In general, our normal customer credit or payment terms are 180 days. This has not changed in recent years. Due to the peculiar environment affecting the Chinese pharmaceutical market, deferred payments to pharmaceutical companies by state-owned hospitals and local medicine distributors are common.
The amount of accounts receivable that was past due (or the amount of accounts receivable that was more than 180 days old) was $0.02 million and $0.03 million as of March 31, 2023 and December 31, 2022, respectively.
The following table illustrates our accounts receivable aging distribution in terms of percentage of total accounts receivable as of March 31, 2023 and December 31, 2022:
| March 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| 1 - 180 Days | 3.06 | % | 2.08 | % | ||||
| 180 - 360 Days | 0.08 | % | 0.10 | % | ||||
| 360 - 720 Days | 0.08 | % | 0.20 | % | ||||
| > 720 Days | 96.78 | % | 97.62 | % | ||||
| Total | 100.00 | % | 100.00 | % | ||||
Our bad debt allowance estimate practice is that we consider accounts receivable balances aged within 180 days current, except for any individual uncollectible account assessed by management. We account for the following respective percentage as bad debt allowance based on age of the accounts receivables: 10% of accounts receivable that is between 180 days and 365 days old, 70% of accounts receivable that is between 365 days and 720 days old, and 100% of accounts receivable that is greater than 720 days old.
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We recognize bad debt expenses per actual write-offs as well as changes of allowance for doubtful accounts. To the extent that our current allowance for doubtful accounts is higher than that of the previous period, we recognize a bad debt expense for the difference during the current period, and when the current allowance is lower than that of the previous period, we recognize a bad debt credit for the difference. The allowance for doubtful account balances were $17.0 million and $16.7 million as of March 31, 2023 and December 31, 2022, respectively. The changes in the allowances for doubtful accounts during the three months ended March 31, 2023 and 2022 were as follows:
| For the Three Months Ended | ||||||||
| March 31, | ||||||||
| 2023 | 2022 | |||||||
| Balance, Beginning of Period | $ | 16,739,527 | $ | 18,312,707 | ||||
| Bad debt expense (benefit) | (10,036 | ) | (5,521 | ) | ||||
| Foreign currency translation adjustment | 226,468 | 77,456 | ||||||
| Balance, End of Period | $ | 16,955,959 | $ | 18,384,642 | ||||
Loss from Operations
Our operating loss for the three months ended March 31, 2023 was $0.4 million, compared to an operating loss of $0.9 million during the same period in 2022.
Net Interest Expense
Net interest expense for the three months ended March 31, 2023 was $0.08 million, as compared to $0.12 million for the same period in 2022.
Net Loss
Net Loss for the three months ended March 31, 2023 was $0.5 million, as compared to a net loss of $1.0 million for the same period a year ago. The decrease in net loss was mainly the result of increased revenue in this period.
Loss per basic and diluted common share were $0.06 for the three months ended March 31, 2023 and $0.22 for the same period in 2022.
The number of basic and diluted weighted-average outstanding shares used to calculate loss per share was 8,078,786 and 4,736,811 for the three months ended March 31, 2023 and 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 March 31, 2023, the aggregated advance from our CEO was $1,142,870 for use in operations. Our cash and cash equivalents were $1.2 million, representing 6.7% of our total assets, as of March 31, 2023, as compared to $2.0 million, representing 11.4% of our total assets as of December 31, 2022. All of the $1.2 million of cash and cash equivalents as of March 31, 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.
The Company 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.
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Although the Company obtained additional lines of credit in 2022, 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 2022, 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 $1.5 million for the three months ended March 31, 2023, compared to net cash of $0.9 million used by operating activities in the same period in 2022.
As of March 31, 2023, our net accounts receivable was $0.5 million, compared to $0.4 million as of December 31, 2022.
Total inventory was $3.8 million and $2.9 million as of March 31, 2023 and December 31, 2022, respectively.
Investing Activities
There was $55,964 used under investing activities during the three months ended March 31, 2023, compared to $1,391 generated for the same period in 2022.
Financing Activities
Cash flow provided by financing activities was $0.52 million in the three months ended March 31, 2023; compared to cash flow used in financing activities of $0.28 million cash used in the same period 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 March 31, 2023 and December 31, 2022, Helpson’s net assets totaled $(199,000) 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 March 31, 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 March 31, 2023 and December 31, 2022. There were no allocations to the statutory surplus reserve accounts during the three months ended March 31, 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 March 31, 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.
21
Item 3. Quantitative and Qualitative Disclosures about Market Risk
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.
Item 4. Controls and Procedures
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 March 31, 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.
22
PART II OTHER INFORMATION
Item 6. Exhibits
The exhibits required by this item are set forth in the Exhibit Index attached hereto.
23
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 thereunto duly authorized.
| CHINA PHARMA HOLDINGS, INC. | |||
| Date: May 12, 2023 | By: | /s/ Zhilin Li | |
| Name: | Zhilin Li | ||
| Title: | President and Chief Executive Officer | ||
| (principal executive officer) | |||
| Date: May 12, 2023 | By: | /s/ Zhilin Li | |
| Name: | Zhilin Li | ||
| Title: | Interim Chief Financial Officer | ||
| (principal
financial officer and principal accounting officer) | |||
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EXHIBIT INDEX
| No. | Description | |
| 10.1 | Amendment to Convertible Promissory Note dated April 13, 2023 (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on April 20, 2023). | |
| 31.1 - | Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 31.2 - | Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 32.1 - | Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 101.INS - | XBRL Instance Document | |
| 101.SCH - | XBRL Taxonomy Extension Schema Document | |
| 101.CAL - | XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF - | XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB - | XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE - | XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104- | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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