Exhibit 99.1
INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CHANSON INTERNATIONAL HOLDING AND SUBSIDIARIES
TABLE OF CONTENTS
F-1
CHANSON INTERNATIONAL HOLDING AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable | ||||||||
| Inventories | ||||||||
| Deferred offering costs | ||||||||
| Prepaid expenses and other current assets | ||||||||
| | ||||||||
| NON-CURRENT ASSETS: | ||||||||
| Operating lease right-of-use assets | ||||||||
| Property and equipment, net | ||||||||
| Long term security deposits | ||||||||
| Prepayment for the software, equipment and product development | ||||||||
| Long term debt investment | ||||||||
| Long term loan to a third-party | ||||||||
| Long term prepaid expenses | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Short-term bank loan | $ | $ | ||||||
| Accounts payable | ||||||||
| Due to a related party | ||||||||
| Taxes payable | ||||||||
| Deferred revenue | ||||||||
| Operating lease liabilities, current | ||||||||
| Other current liabilities | ||||||||
| | ||||||||
| NON-CURRENT LIABILITIES: | ||||||||
| Operating lease liabilities, non-current | ||||||||
| TOTAL LIABILITIES | | |||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| SHAREHOLDERS’ EQUITY | ||||||||
| Ordinary shares, $ | ||||||||
| Class A ordinary share, $ | ||||||||
| Class B ordinary share, $ | ||||||||
| Additional paid-in capital | ||||||||
| Statutory reserve | ||||||||
| Retained earnings (Accumulated deficit) | ( | ) | ||||||
| Accumulated other comprehensive (loss) income | ( | |||||||
| TOTAL SHAREHOLDERS’ EQUITY | ||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-2
CHANSON INTERNATIONAL HOLDING AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
| For the Six Months Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| REVENUE | $ | $ | ||||||
| COST OF REVENUE | ||||||||
| GROSS PROFIT | ||||||||
| OPERATING EXPENSES | ||||||||
| Selling expenses | ||||||||
| General and administrative expenses | ||||||||
| Total operating expenses | ||||||||
| INCOME FROM OPERATIONS | ||||||||
| OTHER INCOME (EXPENSE) | ||||||||
| Interest income (expense), net | ( | ) | ||||||
| Other (expense) income, net | ( | ) | ||||||
| Income from long term debt investment | ||||||||
| Total other income, net | ||||||||
| INCOME BEFORE INCOME TAX PROVISION | ||||||||
| PROVISION FOR INCOME TAXES | ( | ) | ( | ) | ||||
| NET INCOME | ||||||||
| Foreign currency translation loss | ( | ) | ( | ) | ||||
| TOTAL COMPREHENSIVE LOSS | $ | ( | ) | $ | ( | ) | ||
| $ | $ | |||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-3
CHANSON INTERNATIONAL HOLDING AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
| Ordinary Shares | Additional | Retained
Earnings | Accumulated Other Comprehensive | Total | ||||||||||||||||||||||||||||||||
| Class A Shares | Amount | Class B Shares | Amount | Paid-in Capital | Statutory Reserve | (Accumulated Deficit) | Income (Loss) | Shareholders’ Equity | ||||||||||||||||||||||||||||
| Balance, January 1, 2022 | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||||||||||
| Foreign currency translation loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance, June 30, 2022 | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Balance, January 1, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||||
| Issuance of ordinary shares in initial public offerings, gross | ||||||||||||||||||||||||||||||||||||
| Cost directly related to the initial public offering | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||||||||||
| Foreign currency translation loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance, June 30, 2023 | $ | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-4
CHANSON INTERNATIONAL HOLDING AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the Six Months Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||
| Amortization of operating lease right-of-use assets | ||||||||
| Depreciation | ||||||||
| Property and equipment written down | ||||||||
| Interest income from long term debt investment | ( | ) | ||||||
| Interest income from loan to a third-party | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventories | ( | ) | ||||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Long term security deposits | ( | ) | ||||||
| Long term prepaid expenses | ||||||||
| Accounts payable | ( | ) | ||||||
| Taxes payable | ( | ) | ||||||
| Deferred revenue | ||||||||
| Other current liabilities | ( | ) | ||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Net cash provided by (used in) operating activities | ( | ) | ||||||
| Cash flows from investing activities: | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Payment made for long term debt investment | ( | ) | ||||||
| Advance of loans to third parties | ( | ) | ||||||
| Prepayment for the software, equipment and product development | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Gross proceeds from initial public offerings | ||||||||
| Direct costs disbursed from initial public offerings proceeds | ( | ) | ||||||
| Repayments of short-term bank loans | ( | ) | ||||||
| Payments made to a related party | ( | ) | ( | ) | ||||
| Payments made for deferred offering costs | ( | ) | ||||||
| Prepayment for the related service after listing | ( | ) | ||||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Effect of exchange rate fluctuation on cash and cash equivalents | ( | ) | ( | ) | ||||
| Net decrease in cash and cash equivalents | ( | ) | ( | ) | ||||
| Cash and cash equivalents, beginning of period | ||||||||
| Cash and cash equivalents, end of period | $ | $ | ||||||
| Supplemental cash flow information | ||||||||
| Cash paid for income taxes | $ | $ | ||||||
| Cash paid for interest | $ | $ | ||||||
| Non-cash operating, investing and financing activities | ||||||||
| Payable for purchase of property and equipment | $ | $ | ||||||
| Right of use assets obtained in exchange for operating lease liabilities | $ | $ | ||||||
| Deferred IPO cost offset with additional paid-in capital | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-5
NOTE 1 — ORGANIZATION AND BUSINESS DESCRIPTION
Chanson International Holding (“Chanson
International,” or the “Company”), formerly known as RON Holding Limited, was established under the laws of the Cayman
Islands on July 26, 2019 as a holding company. Chanson International owns
Chanson International, Deen Global, and Jenyd are currently not engaging in any active business operations and merely acting as holding companies.
Xinjiang United Family Trading Co., Ltd. (“Xinjiang
United Family”), is a company incorporated on August 7, 2009 in the People’s Republic of China (the “PRC”), with
a registered capital of RMB
Xinjiang United Family operates a bakery chain in China’s Xinjiang autonomous region under the brand name of “George●Chanson.” The chain currently consists of five directly-owned high-end bakery stores in the City of Urumqi and 34 bakery stores organized as individually-owned businesses known as the United Family Group (each a “UFG entity” and, collectively, the “UFG entities”) in Xinjiang region. The UFG entities are owned by the original shareholders of Xinjiang United Family but operated under a series of contractual agreements signed between the owners of these UFG entities and Xinjiang United Family.
On April 17, 2015, Xinjiang United Family incorporated a wholly-owned subsidiary, George Chanson (NY) Corp. (“Chanson NY”), in the State of New York, which owns and operates Chanson 23rd Street LLC (“Chanson 23rd Street”), a modern European-style café and eatery that specializes in the art of making French-style viennoiseries and pastries in the heart of Manhattan’s Flatiron District. On February 20, 2020, the Company’s Chairman, Mr. Gang Li, formed Chanson 355 Greenwich LLC (“Chanson Greenwich”), a New York limited liability company, and subsequently assigned his membership interests in Chanson Greenwich to Chanson NY on September 28, 2020. After the transfer, Chanson Greenwich became a wholly owned subsidiary of Chanson NY. Chanson Greenwich is another boutique café in Manhattan opened in December 2021. On April 21, 2021, Chanson NY formed a wholly owned subsidiary, Chanson Management LLC, a Delaware limited liability company. On August 5, 2021, Chanson NY formed a wholly owned subsidiary, Chanson 1293 3rd Ave LLC (“Chanson 3rd Ave”), a New York limited liability company. On March 21, 2022, Chanson NY formed a wholly owned subsidiary, Chanson 2040 Broadway LLC (“Chanson Broadway”), a New York limited liability company. Chanson 3rd Ave and Chanson Broadway are another two boutique cafés opened in March 2023 and July 2023, respectively.
Reorganization
In connection with its initial public offering, the Company has undertaken a reorganization of its legal structure (the “Reorganization”). The Reorganization involved the incorporation of Chanson International, Deen Global, and Jenyd, the entry into a Share Transfer Agreement to transfer the ownership interest in Xinjiang United Family from its original shareholders to Jenyd, and the signing of a series of contractual agreements between Xinjiang United Family and the owners of the UFG entities. After the Reorganization, Chanson International became the ultimate holding company of Xinjiang United Family and Xinjiang United Family became the primary beneficiary of the UFG entities through the VIE Agreements, as further discussed below.
Xinjiang United Family entered into a series of contractual arrangements with the owners of the 22 UFG entities on May 2, 2020, and with the owners of three newly established UFG entities in fiscal year 2020, five newly established UFG entities in fiscal year 2021, one newly established UFG entity in fiscal year 2022, and eight newly established UFG entity in fiscal year 2023, respectively. Three of these UFG entities were closed in fiscal year 2021 and two of these UFG entities were closed in fiscal year 2023. These agreements include Exclusive Service Agreements, Pledge Agreements, Call Option Agreements, Operating Rights Proxy and Powers of Attorney Agreements and Spousal Consents (collectively, the “VIE Agreements”). Pursuant to the above VIE Agreements, Xinjiang United Family has the exclusive right to provide the UFG entities with consulting services related to business operations including operational and management consulting services. The VIE Agreements obligate Xinjiang United Family to absorb all of the risk of loss from business activities of these UFG entities and entitle Xinjiang United Family to receive all of their residual returns. In essence, Xinjiang United Family has gained the power to direct activities of the UFG entities that most significantly impact their economic performance, and the right to receive benefits from the UFG entities that could potentially be significant to them. Therefore, the Company believes that Xinjiang United Family has a controlling financial interest in and is the primary beneficiary of the UFG entities and these UFG entities should be considered as Variable Interest Entities (“VIEs”) under the Statement of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810 Consolidation. Hereinafter, the four bakery stores directly owned by Xinjiang United Family and the UFG entities controlled through the VIE Agreements are collectively referred to as the “PRC Stores.”
The Company, together with its wholly-owned subsidiaries are under common control by the same shareholders before and after the Reorganization and therefore the consolidation of the Company and its subsidiaries has been accounted for at historical cost.
F-6
| Name of Entity | Date
of Incorporation |
Place
of Incorporation |
%
of Ownership |
Principal Activities | |||||||
| Chanson International | |||||||||||
| Deen Global | |||||||||||
| Jenyd | |||||||||||
| Xinjiang United Family | |||||||||||
| 34 UFG entities | |||||||||||
| Chanson NY | |||||||||||
| Chanson 23rd Street | |||||||||||
| Chanson Greenwich | |||||||||||
| Chanson Management LLC | |||||||||||
| Chanson 3rd Ave | |||||||||||
| Chanson Broadway | |||||||||||
The VIE contractual arrangements
The UFG entities are controlled by the Company through contractual arrangements in lieu of direct equity ownership by the Company or any of its subsidiaries.
A VIE is an entity that either has a total equity investment that is insufficient to finance its activities without additional subordinated financial support, or whose equity investors lack the characteristics of a controlling financial interest, such as through voting rights, right to receive the expected residual returns of the entity, or obligation to absorb the expected losses of the entity. The variable interest holder, if any, that has a controlling financial interest in a VIE is deemed to be the primary beneficiary of, and must consolidate, the VIE.
Xinjiang United Family is deemed to have a controlling financial interest in and be the primary beneficiary of the UFG entities because it has both of the following characteristics:
| ● | The power to direct activities at the UFG entities that most significantly impact such entities’ economic performance, and |
| ● | The obligation to absorb losses of, and the right to receive benefits from, the UFG entities that could potentially be significant to such entities. |
F-7
Pursuant to the contractual arrangements with the UFG entities, the UFG entities pay service fees equal to all of their net profit after tax payments to Xinjiang United Family. At the same time, Xinjiang United Family is obligated to absorb all of their losses. Such contractual arrangements are designed so that the operation of the UFG entities is for the benefit of Xinjiang United Family and, ultimately, the Company.
Risks associated with the VIE structure
The Company believes that the contractual arrangements with the UFG entities and their respective owners are in compliance with PRC laws and regulations and are legally enforceable. However, uncertainties in the PRC legal system could limit the Company’s ability to enforce such contractual arrangements. If the legal structure and contractual arrangements were found to be in violation of PRC laws and regulations, the PRC government could:
| ● | revoke the business and operating licenses of the Company’s PRC subsidiary and the UFG entities; |
| ● | discontinue or restrict the operations of any related-party transactions between the Company’s PRC subsidiary and the UFG entities; |
| ● | limit the Company’s business expansion in China by way of entering into contractual arrangements; |
| ● | impose fines or other requirements with which the Company’s PRC subsidiary and the UFG entities may not be able to comply; |
| ● | require the Company or the Company’s PRC subsidiary and the UFG entities to restructure the relevant ownership structure or operations; or |
| ● | restrict or prohibit the Company’s use of the proceeds from its public offering to finance the Company’s business and operations in China. |
The Company’s ability to conduct its consulting
services business may be negatively affected if the PRC government were to carry out of any of the aforementioned actions. As a result,
the Company may not be able to consolidate the UFG entities in its unaudited condensed consolidated financial statements as it may lose
the ability to direct activities of the UFG entities and receive economic benefits from the UFG entities. The Company, however, does
not believe such actions would result in the liquidation or dissolution of the Company and its PRC subsidiary and the UFG entities. The
financial position, operation, and cash flow of the UFG entities are material to total assets and liabilities presented on the unaudited
condensed consolidated balance sheets and revenue, expenses, and net income presented on the unaudited condensed consolidated statements
of operations and other comprehensive loss as well as the cash flows from operating, investing, and financing activities presented on
the unaudited condensed consolidated statements of cash flows. The Company did not provide any financial support to the UFG entities
for the six months ended June 30, 2023 and 2022. The Company had no contractual obligation to provide financial support to the VIEs
as of June 30, 2023 and December 31, 2022. The amount of the recognized and unrecognized revenue-producing assets held by the VIEs was
$
June
30, | December 31, 2022 | |||||||
| Current assets | $ | $ | ||||||
| Non-current assets | ||||||||
| Total assets | $ | $ | ||||||
| Current liabilities | $ | $ | ||||||
| Non-current liabilities | ||||||||
| Total liabilities | $ | $ | ||||||
F-8
| For the Six Months Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| Net revenue | $ | $ | ||||||
| Net income | $ | $ | ||||||
Initial Public Offering
On April 3, 2023, the Company closed its initial
public offering (the “IPO”) of
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation and principles of consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities Exchange Commission and have been consistently applied. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the fiscal years ended December 31, 2022 and 2021. Operating results for the six-month period ended June 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.
The accompanying unaudited condensed consolidated financial statements include the financial statements of the Company and its subsidiaries and the VIEs. All intercompany balances and transactions are eliminated upon consolidation.
Uses of estimates
In preparing the unaudited condensed consolidated financial statements in conformity with U.S. GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. These estimates are based on information as of the date of the unaudited condensed consolidated financial statements. Significant estimates required to be made by management include, but are not limited to, the valuation of accounts receivable and inventories, useful lives of property and equipment, the recoverability of long-lived assets, provision necessary for contingent liabilities, realization of deferred tax assets and revenue recognition. Actual results could differ from those estimates.
Cash and cash equivalents
Cash includes currency on hand and deposits held by banks that can be added or withdrawn without limitation. The Company maintains a significant amount of its bank accounts in the PRC. The Company considers all highly liquid investment instruments with an original maturity of three months or less from the date of purchase to be cash equivalents.
F-9
Accounts receivable
Accounts receivable are recognized and carried at original invoiced amount less an estimated allowance for uncollectible accounts.
The Company determines the adequacy of reserves for doubtful accounts based on individual account analysis and historical collection trend. The Company establishes a provision for doubtful receivables when there is objective evidence that the Company may not be able to collect amounts due. The allowance is based on management’s best estimate of specific losses on individual exposures, as well as a provision on historical trends of collections. The provision is recorded against accounts receivable balances, with a corresponding charge recorded in the unaudited condensed consolidated statements of operations and comprehensive loss. Actual amounts received may differ from management’s estimate of credit worthiness and the economic environment. Delinquent account balances are written-off against the allowance for doubtful accounts after management has determined that the likelihood of collection is not probable. As of June 30, 2023 and December 31, 2022, there was no allowance recorded as the Company considers all of the accounts receivable fully collectible.
Leases
The Company follows FASB ASC No. 842, Leases (“Topic 842”). The Company leases office spaces, bakery store facilities, employee dormitories, and a vehicle, which are classified as operating leases in accordance with Topic 842. Under Topic 842, lessees are required to recognize the following for all leases (with the exception of short-term leases, usually with initial term of 12 months or less) on the commencement date: (i) lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (ii) right-of-use (“ROU”) asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.
At the commencement date, the Company recognizes the lease liability at the present value of the lease payments not yet paid, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate for the same term as the underlying lease. The ROU asset is recognized initially at cost, which primarily comprises the initial amount of the lease liability, plus any initial direct costs incurred, consisting mainly of brokerage commissions, less any lease incentives received. All ROU assets are reviewed for impairment annually. There was no impairment for ROU lease assets as of June 30, 2023 and December 31, 2022.
In response to the large volume of anticipated lease concessions to be granted related to the effects of the COVID-19 pandemic, and the resultant expected cost and complexity of applying the lease modification requirements in Topic 842, the FASB issued Staff Q&A—Topic 842 and Topic 840: Accounting for Lease Concessions Related to the Effects of the COVID-19 Pandemic in April 2020 as interpretive guidance to provide clarity in response to the crisis. The FASB staff indicated that it would be acceptable for entities to make an election to account for lease concessions related to the effects of the COVID-19 pandemic consistent with how they would be accounted for as though enforceable rights and obligations for those concessions existed in the original contract. Consequently, for such lease concessions, an entity will not need to reassess each existing contract to determine whether enforceable rights and obligations for concessions exist and an entity can elect to apply or not to apply the lease modification guidance in Topic 842 to those contracts. The election is available for concessions related to the effects of the COVID-19 pandemic that result in the total payments required by the modified contract being substantially the same as or less than total payments required by the original contract.
Due to the COVID-19 pandemic, the Company renegotiated
the leases for some of its PRC stores and New York stores. Based on the nature of the agreements reached with the landlords, the Company
has accounted for rent concessions as if they were part of the enforceable rights and obligations of the existing lease contracts and
did not account for the concessions as lease modifications. As of the date of this report, the Company has received a total of lease
concessions amounting to $
F-10
Inventories
Inventories of the Company consist of ingredient materials, finished goods, packaging materials, and other materials. Inventories are stated at the lower of cost or net realizable value, on a weighted average basis. Costs include the cost of ingredient materials, direct labor, and related production overhead. Any excess of the cost over the net realizable value of each item of inventories is recognized as a provision for diminution in the value of inventories. Net realizable value is the estimated selling price in the normal course of business less any costs to complete and sell products. The Company periodically evaluates inventories for their net realizable value adjustments, and reduces the carrying value of those inventories that are obsolete or in excess of the forecasted usage to their estimated net realizable value based on various factors including aging and expiration dates, as applicable, taking into consideration historical and expected future product sales. For the six months ended June 30, 2023 and 2022, no inventory reserve was recorded because no slow-moving, obsolete, or damaged inventory was identified.
Property and equipment
Property and equipment are stated at cost less
accumulated depreciation and amortization.
| Useful life | ||
| Bakery production equipment | ||
| Office equipment and furniture | ||
| Transportation vehicles | ||
| Leasehold improvement | Lesser of useful life and lease term |
Expenditures for repair and maintenance, which do not materially extend the useful lives of the assets, are charged to expenses as incurred. Expenditures for major renewals and betterments which substantially extend the useful life of assets are capitalized. The cost and related accumulated depreciation of assets retired or sold are removed from the respective accounts, and any gain or loss is recognized in the unaudited condensed consolidated statements of operations and comprehensive loss in other income or expenses.
Impairment of long-lived assets
Long-lived assets with finite lives, primarily property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the estimated cash flows from the use of the asset and its eventual disposition are below the asset’s carrying value, then the asset is deemed to be impaired and written down to its fair value. There were no impairments of these assets as of June 30, 2023 and December 31, 2022.
Revenue recognition
The Company follows ASC 606, Revenue from Contracts with Customers (“ASC 606”), for revenue recognition. ASC 606 establishes principles for reporting information about the nature, amount, timing, and uncertainty of revenue and cash flows arising from an entity’s contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized, as performance obligations are satisfied.
The Company currently generates its revenue through its bakery/café stores as well as through online sales. The Company recognizes revenue from bakery/café sales upon delivery of the related food and other products to the customer and fulfillment of all performance obligations. Revenue is recognized net of any discounts, sales incentives, sales taxes, and value added taxes that are collected from customers and remitted to tax authorities.
F-11
In the PRC Stores, the Company sells membership cards that do not have an expiration date and from which the Company does not deduct non-usage fees from outstanding card balances. Membership cards are reloadable and redeemable at any of the Company’s store locations. Amounts loaded into these cards are initially recorded as deferred revenue. When membership cards are redeemed at stores, the Company recognizes revenue and reduces the deferred revenue. While the Company continues to honor all membership cards presented for payments, management determines the likelihood of redemption to be remote for certain cards with long periods of inactivity (“breakage”), which is five years after the last usage, based upon the Company’s historical redemption patterns. Membership card breakage is recorded as revenue in the unaudited condensed consolidated statements of operations and comprehensive loss. Membership card breakage was immaterial for the six months ended June 30, 2023 and 2022.
In the PRC Stores, the Company maintains a customer loyalty program in which customers earn free cash vouchers when purchasing or reloading membership cards at certain amount. These cash vouchers typically do not expire, except for certain vouchers given out at special occasions, which usually state an expiration date and can only be exchanged for certain seasonal products or specialty cakes. The Company establishes corresponding liabilities in deferred revenue for the membership cards and the free cash vouchers upon issuance. The Company allocates the consideration received proportionately between the membership cards and cash vouchers based on their face values. Revenue is recognized at the allocated amount upon redemption of membership cards and cash vouchers, at which point, the Company delivers products to customers and reduces the deferred revenue. Unredeemed cash vouchers will be recognized as revenue upon their expiration dates, if any, or five years after their issuance if there are no stated expiration dates, when management determines the likelihood of redemption to be remote.
Contract balances and remaining performance obligations
Contract balances typically arise when a difference
in timing between the transfer of control to the customer and receipt of consideration occurs. The Company did not have contract assets
as of June 30, 2023 and December 31, 2022. The Company’s contract liabilities, which are reflected in its unaudited condensed consolidated
balance sheets as deferred revenue of $
Disaggregation of revenue
The Company disaggregates its revenue by geographic areas, as the Company believes it best depicts how the nature, amount, timing, and uncertainty of the revenue and cash flows are affected by economic factors. The Company’s disaggregation of revenue for the six months ended June 30, 2023 and 2022 is disclosed in Note 17 of the unaudited condensed consolidated financial statements.
F-12
Fair value of financial instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level fair value hierarchy prioritizes the inputs used to measure fair value. The hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
| ● | Level 1 — inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. |
| ● | Level 2 — inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted market prices for identical or similar assets in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data. |
| ● | Level 3 — inputs to the valuation methodology are unobservable. |
Unless otherwise disclosed, the fair value of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, prepaid expenses and other current assets, loans to third parties, short-term bank loan, accounts payable, due to a related party, taxes payable, current portion of operating lease liabilities, current and other current liabilities, approximates the fair value of the respective assets and liabilities as of June 30, 2023 and December 31, 2022 based upon the short-term nature of the assets and liabilities. The fair value of longer-term debt investment and loan to a third party, as well as non-current portion of operating lease liabilities approximates their recorded values as their stated interest rates approximate the rates currently available.
Foreign currency translation
The functional currency of the Company’s PRC subsidiary and the UFG entities is the Chinese Yuan (“RMB”) and the functional currency of the Company’s U.S. subsidiaries is the U.S. Dollars (“US$”). RMB amounts in the Company’s unaudited condensed consolidated financial statements have been translated into the reporting currency US$. Assets and liabilities of the Company are translated at the exchange rate at each reporting period end date. Equity is translated at historical rates. Income and expense accounts are translated at the average rate of exchange during the reporting period. The resulting translation adjustments are reported under other comprehensive loss. Because cash flows are translated based on the average translation rate, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheets. Gains and losses resulting from the translations of foreign currency transactions and balances are reflected in the results of operations.
RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into US$ at the rates used in translation.
| For the Six Months Ended June 30, | For the Year Ended December 31, | |||||
| 2023 | 2022 | 2022 | ||||
| Period/Year-end spot rate | US$ | US$ | US$ | |||
| Average rate | US$ | US$ | US$ | |||
F-13
Income taxes
The Company accounts for current income taxes in accordance with the laws of the relevant tax authorities. Deferred income taxes are recognized when temporary differences exist between the tax bases of assets and liabilities and their reported amounts in the unaudited condensed consolidated financial statements. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period including the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
An uncertain tax position is recognized as a
benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination. The amount recognized
is the largest amount of tax benefit that is greater than
The Company’s operating subsidiary in China is subject to the income tax laws of the PRC. The Company’s operating subsidiary in United States is subject to the tax law of the United States. As of June 30, 2023, for the tax years ended December 31, 2018 through December 31, 2022, the Company’s PRC subsidiaries remained open for statutory examination by PRC tax authorities, and for the tax years ended December 31, 2020 through December 31, 2022, the Company’s United States subsidiaries remained open for statutory examination by U.S. tax authorities.
Value added tax (“VAT”)
The Company’s subsidiary Xinjiang United
Family and its three branch offices are general tax payers. The applicable VAT rate is
Warrant accounting
The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480, “Distinguishing Liabilities from Equity” (“ASC 480”) and ASC Topic 815, “Derivatives and Hedging” (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own ordinary shares and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent interim period end date while the warrants are outstanding.
For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of equity at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded as liabilities at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the statements of operations and comprehensive loss.
As the warrants issued upon the initial public offering meet the criteria for equity classification under ASC 815, therefore, the warrants are classified as equity.
F-14
Earnings per share
The Company computes earnings per share (“EPS”) in accordance with ASC 260, Earnings per Share (“ASC 260”). ASC 260 requires companies with complex capital structures to present basic and diluted EPS. Basic EPS is measured as net income divided by the weighted average ordinary shares outstanding for the period. Diluted presents the dilutive effect on a per share basis of potential ordinary shares (e.g., convertible securities, options, and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential ordinary shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS. As of June 30, 2023 and December 31, 2022, there were no dilutive shares.
Comprehensive loss
Comprehensive loss consists of two components, net income and other comprehensive loss. The foreign currency translation loss resulting from the translation of the financial statements expressed in RMB to US$ is reported in other comprehensive loss in the unaudited condensed consolidated statements of operations and comprehensive loss.
Risks and uncertainties
Political and economic risk
The operations of the Company are located in the PRC and United States. Accordingly, the Company’s business, financial condition, and results of operations may be influenced by political, economic, and legal environments in the PRC and United States, as well as by the general state of the PRC and United States economy. The Company’s results may be adversely affected by changes in the political, regulatory, and social conditions in the PRC and United States. Although the Company has not experienced losses from these situations and believes that it is in compliance with existing laws and regulations including its organization and structure disclosed in Note 1, such experience may not be indicative of future results.
Foreign currency exchange risk
A majority of the Company’s revenue and expense transactions are denominated in RMB and most of the Company and its subsidiaries’ assets and liabilities are denominated in RMB. RMB is not freely convertible into foreign currencies. In the PRC, certain foreign exchange transactions are required by law to be transacted only by authorized financial institutions at exchange rates set by the People’s Bank of China (“PBOC”). Remittances in currencies other than RMB by the Company in China must be processed through the PBOC or other China foreign exchange regulatory bodies which require certain supporting documentation in order to effect the remittance.
Credit risk
As of June 30, 2023 and December 31, 2022, $
For the six months ended June 30, 2023 and 2022, the Company’s substantial assets were located in the PRC and the U.S. and the Company’s substantial revenue was derived from its subsidiaries and the UFG entities located in the PRC and the U.S.
Accounts receivable are typically unsecured and derived from revenue earned from customers, thereby exposed to credit risk. The risk is mitigated by the Company’s assessment of its customers’ creditworthiness and its ongoing monitoring of outstanding balances.
F-15
Concentrations
No single customer accounted for more than
As of June 30, 2023, no customer accounted for
more than
For the six months ended June 30, 2023, two suppliers
accounted for
Recent accounting pronouncements
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments — Credit Losses,” which will require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Further, the FASB issued ASU No. 2019-04, ASU 2019-05, ASU 2019-10, ASU 2019-11, and ASU 2020-02 to provide additional guidance on the credit losses standard. The new effective date for SEC filers that are eligible to be smaller reporting companies under the SEC’s definition, as well as private companies and not-for-profit entities is for annual and interim periods in fiscal years beginning after December 15, 2022. Adoption of the ASUs is on a modified retrospective basis. The Company adopted ASU 2016-13 on January 1, 2023, and the adoption of this ASU did not have a material impact on its unaudited condensed consolidated financial statements.
Except for the above-mentioned pronouncement, there are no new recently issued accounting standards that will have material impact on the Company’s unaudited condensed consolidated financial position, statements of operations, and cash flows.
NOTE 3 — LIQUIDITY
As reflected in the unaudited condensed consolidated
financial statements, the Company’s cash provided by operating activities was $
In assessing its liquidity, management monitors
and analyzes the Company’s cash on-hand, its ability to generate sufficient revenue sources and ability to obtain additional financial
support in the future, and its operating and capital expenditure commitments. As of June 30, 2023, the Company had cash of approximately
$
F-16
Currently, the Company is working to improve its liquidity and capital sources primarily through cash flows from operation, debt financing, financial support from its principal shareholder, and the proceeds the Company received from the IPO. In order to fully implement its business plan and sustain continued growth, the Company may also seek equity financing from outside investors when necessary. Based on the current operating plan, management believes that the above-mentioned measures collectively will provide sufficient liquidity for the Company to meet its future liquidity and capital requirement for at least 12 months from the date of the unaudited condensed consolidated financial statements.
NOTE 4 — ACCOUNTS RECEIVABLE, NET
The Company’s accounts receivable primarily include balance generated from selling bakery products to local corporate customers, billed but has not been collected as of the balance sheet dates. Accounts receivable consisted of the following:
June
30, | December 31, 2022 | |||||||
| Accounts receivable | $ | $ | ||||||
| Less: allowance for doubtful accounts | ||||||||
| Accounts receivable, net | $ | $ | ||||||
As of the date of the unaudited condensed consolidated
financial statements, approximately
NOTE 5 — PREPAID EXPENSES AND OTHER CURRENT ASSETS, NET
June
30, | December 31, 2022 | |||||||
| Advance to suppliers (1) | $ | $ | ||||||
| Prepaid expenses (2) | ||||||||
| Other receivables (3) | ||||||||
| Loans to third parties (4) | ||||||||
| Less: allowance for doubtful accounts | ||||||||
| Prepaid expenses and other current assets, net | $ | $ | ||||||
| (1) |
| (2) |
| (3) |
| (4) |
F-17
NOTE 6 — INVENTORIES
June
30, | December 31, 2022 | |||||||
| Ingredient materials | $ | $ | ||||||
| Package and other materials | ||||||||
| Finished goods | ||||||||
| Total inventories | $ | $ | ||||||
NOTE 7 — LONG TERM LOAN TO A THIRD-PARTY
On April 3, 2023, the Company entered a loan
agreement with Liberty Asset Management Capital Limited (the “Borrower”) to lend the Borrower $
NOTE 8 — LEASES
The Company leases office spaces, bakery store
facilities, employee dormitories and a vehicle under non-cancelable operating leases, with terms ranging from
The Company determines whether a contract is or contains a lease at inception of the contract and whether that lease meets the classification criteria of a finance or operating lease. When available, the Company uses the rate implicit in the lease to discount lease payments to present value; however, most of the Company’s leases do not provide a readily determinable implicit rate. Therefore, the Company discounts lease payments based on an estimate of its incremental borrowing rate.
The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
June
30, | December 31, 2022 | |||||||
| ROU lease assets | $ | $ | ||||||
| Operating lease liabilities – current | $ | $ | ||||||
| Operating lease liabilities – non-current | ||||||||
| Total operating lease liabilities | $ | $ | ||||||
F-18
June
30, | December 31, 2022 | |||||||
| Remaining lease term and discount rate: | ||||||||
| Weighted average remaining lease term (years) | ||||||||
| Weighted average discount rate * | % | % | ||||||
| * |
During the six months ended June 30, 2023 and
2022, the Company incurred total operating lease expenses of $
| Remainder of 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| Total lease payments | ||||
| Less: imputed interest | ( | ) | ||
| Present value of lease liabilities | $ |
NOTE 9 — PROPERTY AND EQUIPMENT, NET
June
30, | December 31, 2022 | |||||||
| Bakery production equipment | $ | $ | ||||||
| Automobiles | ||||||||
| Office equipment and furniture | ||||||||
| Leasehold improvements | ||||||||
| Subtotal | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Depreciation expenses were $
F-19
NOTE 10 — PREPAYMENT FOR THE SOFTWARE, EQUIPMENT AND PRODUCT DEVELOPMENT
June
30, | December 31, 2022 | |||||||
| Peblla Inc. (“Peblla”) (a) | $ | $ | ||||||
| Luo and Long General Partner (“Luo and Long”) (b) | ||||||||
| Wisdom Investment Service Inc (“Wisdom”) (c) | ||||||||
| NY West Acupuncture PC (“NY West”) (d) | ||||||||
| Total prepayment for the software, equipment and product development | $ | $ | ||||||
| (a) |
As of June 30, 2023,
|
| Second half of fiscal year 2023 | $ | |||
| First half of fiscal year 2024 | ||||
| Second half of fiscal year 2024 | ||||
| Total | $ |
| (b) |
| (c) |
| (d) |
NOTE 11 — LONG TERM DEBT INVESTMENT
On March 31, 2023, the Company entered into a
five-year agreement with Worthy Credit Limited (“Worthy Credit”), pursuant to which, the Company made payment of $
F-20
NOTE 12 — SHORT-TERM BANK LOANS
On December 23, 2022, Xinjiang United Family
entered into a loan agreement with Huaxia Bank to borrow RMB
The Company incurred interest expenses of $
NOTE 13 — RELATED PARTY TRANSACTIONS
| a. | Due to a related party |
As of June 30, 2023, due to a related party of
$
| b. | Other related party transactions |
Several related parties provided guarantees in connection with the Company’s loan borrowed from Huaxia Bank (see Note 12).
NOTE 14 — TAXES
| (a) | Corporate Income Taxes (“CIT”) |
Cayman Islands
Under the current tax laws of the Cayman Islands, the Company is not subject to tax on its income or capital gains. In addition, no Cayman Islands withholding tax will be imposed upon the payment of dividends by the Company to its shareholders.
British Virgin Islands
Deen Global is incorporated in the BVI as an offshore holding company and is not subject to tax on income or capital gain under the laws of BVI.
Hong Kong
Jenyd is incorporated in Hong Kong and is subject
to profit taxes in Hong Kong at a rate of
F-21
PRC
Under the Enterprise Income Tax (“EIT”)
Law of the PRC, domestic enterprises and Foreign Investment Enterprises (the “FIE”) are usually subject to a unified
The UFG entities are individually-owned businesses,
which are not subject to the EIT Law of the PRC, but the Individual Income Tax. The Measures for Individual Income Tax Calculation of
Individual Industrial and Commercial Households, or the “Measures,” were adopted by the State Administration of Taxation
on December 19, 2014 and promulgated on December 27, 2014, and amended on June 15, 2018. According to Article 7 of the Measures, for
the income from production and operation of individually-owned businesses, the amount of taxable income shall be the balance of the total
income of each tax year after deducting costs, expenses, taxes, losses and other expenditures, and allowable compensation for losses
in previous years. Income tax for an individually-owned business can generally be assessed on an actual basis or a deemed basis, which
the UFG entities apply. Therefore, income tax for the UFG entities is levied as a fixed-rate income tax at
F-22
United States
The Company’s subsidiaries in the U.S.
are subject to a U.S. federal corporate income tax rate of
| For the Six Months Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| Current tax provision | ||||||||
| Cayman Islands | $ | $ | ||||||
| BVI | ||||||||
| Hong Kong | ||||||||
| PRC | ||||||||
| United States | ||||||||
| $ | $ | |||||||
| Deferred tax provision | ||||||||
| Cayman Islands | $ | $ | ||||||
| BVI | ||||||||
| Hong Kong | ||||||||
| PRC | ||||||||
| United States | ||||||||
| Income tax provisions | $ | $ | ||||||
| June 30, 2023 | December 31, 2022 | |||||||
| Net operating loss | $ | $ | ||||||
| Total deferred tax assets | ||||||||
| Valuation allowance | ( | ) | ( | ) | ||||
| Deferred tax assets, net | $ | $ | ||||||
The Company’s operations in the U.S. incurred
a cumulative net operating loss (“NOL”) which may reduce future federal taxable income. As of December 31, 2022, the cumulative
NOL was $
The Company periodically evaluates the likelihood
of the realization of deferred tax assets, and reduces the carrying amount of the deferred tax assets by a valuation allowance to the
extent it believes a portion will not be realized. Management considers new evidence, both positive and negative, that could affect the
Company’s future realization of deferred tax assets including its recent cumulative earnings experience, expectation of future
income, the carry forward periods available for tax reporting purposes and other relevant factors. The Company determined that it is
more likely than not its deferred tax assets could not be realized due to uncertainty on future earnings in the U.S. operations. The
Company provided a
F-23
| For the Six Months Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| Cayman Islands | $ | $ | ||||||
| PRC | ||||||||
| US | ( | ) | ( | ) | ||||
| Total income before income taxes | $ | $ | ||||||
Reconciliation of the differences between the income tax provision computed based on PRC statutory income tax rate and the Company’s actual income tax provision for the six months ended June 30, 2023 and 2022 are as follows:
| For the Six Months Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| Income tax expense computed based on PRC statutory rate | $ | $ | ||||||
| Favorable tax rate and tax exemption impact in PRC entities (a) | ( | ) | ( | ) | ||||
| Effect of rate differential for non-PRC entities | ( | ) | ||||||
| Change in valuation allowance | ||||||||
| Actual income tax provision | $ | $ | ||||||
| (a) |
| (b) | Taxes payable |
June 30, 2023 |
December 31, 2022 |
|||||||
| Income tax recoverable | $ | ( |
) | $ | ( |
) | ||
| Value added tax payable | ||||||||
| Other taxes payable | ||||||||
| Total taxes payable | $ | $ | ||||||
NOTE 15 — SHAREHOLDERS’ EQUITY
Ordinary shares
Chanson International was established under the
laws of the Cayman Islands on July 26, 2019.
F-24
On March 27, 2021, the Company’s shareholders
and board of directors approved
Initial Public Offering
On April 3, 2023, the Company closed its IPO
of
As a result, the Company had
Statutory Reserve
The Company’s PRC subsidiary is required
to make appropriations to certain reserve funds, comprising the statutory surplus reserve and the discretionary surplus reserve, based
on after-tax net income determined in accordance with generally accepted accounting principles of the PRC (“PRC GAAP”). Appropriations
to the statutory surplus reserve are required to be at least
Restricted net assets
The Company’s PRC subsidiary and the UFG
entities are restricted in their ability to transfer a portion of their net assets, equivalent to their statutory reserves and their
share capital to the Company in the form of loans, advances, or cash dividends. The payment of dividends by entities organized in China
is subject to limitations, procedures, and formalities. Regulations in the PRC currently permit payment of dividends only out of accumulated
profits as determined in accordance with accounting standards and regulations in China. As of June 30, 2023 and December 31, 2022, the
total restricted net assets amounted to $
F-25
NOTE 16 — COMMITMENTS AND CONTINGENCIES
Contingencies
From time to time, the Company is a party to various legal actions arising in the ordinary course of business. The Company accrues costs associated with these matters when they become probable and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred. As of June 30, 2023 and December 31, 2022, there were no legal claims and litigation against the Company.
NOTE 17 — SEGMENT REPORTING
In accordance with ASC 280, Segment Reporting, operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker (the “CODM”), or decision making group, in deciding how to allocate resources and in assessing performance. The Company uses the “management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s CODM for making operating decisions and assessing performance as the source for determining the Company’s reportable segments. Management, including the CODM, reviews operation results by locations. Based on management’s assessment, the Company has determined that it has two operating segments, China and the United States.
For
the Six Months Ended | ||||||||||||
| China | United States | Total | ||||||||||
| Revenue | $ | $ | $ | |||||||||
| Cost of revenue | ||||||||||||
| Gross profit | $ | $ | $ | |||||||||
| Net income (loss) | $ | $ | ( | ) | $ | |||||||
| Interest income (expense), net | $ | ( | ) | $ | $ | |||||||
| Provision for income tax | $ | $ | $ | |||||||||
| Depreciation and amortization | $ | $ | $ | |||||||||
| Capital expenditures | $ | $ | $ | |||||||||
| For
the Six Months Ended June 30, 2022 |
||||||||||||
| China | United States |
Total | ||||||||||
| Revenue | $ | $ | $ | |||||||||
| Cost of revenue | ||||||||||||
| Gross profit | $ | $ | $ | |||||||||
| Net income (loss) | $ | $ | ( |
) | $ | |||||||
| Interest expense | ( |
) | ( |
) | ||||||||
| Provision for income tax | ||||||||||||
| Depreciation and amortization | $ | $ | $ | |||||||||
| Capital expenditures | $ | $ | $ | |||||||||
F-26
June 30, 2023 | December 31, 2022 | |||||||
| Total assets: | ||||||||
| China | $ | $ | ||||||
| United States | ||||||||
| Total assets | $ | $ | ||||||
| Total liabilities: | ||||||||
| China | $ | $ | ||||||
| United States | ||||||||
| Total liabilities | $ | $ | ||||||
NOTE 18 — SUBSEQUENT EVENTS
The Company evaluated the subsequent events through October 6, 2023, which is the date of the issuance of these unaudited condensed consolidated financial statements, and concluded that there are no additional subsequent events except disclosed above that would have required adjustment or disclosure in the unaudited condensed consolidated financial statements.
NOTE 19 — CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY
Pursuant to the requirements of Rules 12-04(a),
5-04(c), and 4-08(e)(3) of Regulation S-X, the condensed financial information of the parent company shall be filed when the restricted
net assets of consolidated subsidiaries exceed 25 percent of consolidated net assets as of the end of the most recently completed fiscal
year. The Company performed a test on the restricted net assets of consolidated subsidiaries in accordance with such requirements and
concluded that it was applicable to the Company as the restricted net assets of the Company’s PRC subsidiary and the UFG entities
exceeded
For purposes of the above test, restricted net assets of consolidated subsidiaries and VIEs shall mean that amount of the Company’s proportionate share of net assets of consolidated subsidiaries (after intercompany eliminations) which as of the end of the most recent fiscal year may not be transferred to the parent company by subsidiaries and VIEs in the form of loans, advances, or cash dividends without the consent of a third party.
The condensed financial information of the parent company has been prepared using the same accounting policies as set out in the Company’s unaudited condensed consolidated financial statements except that the parent company used the equity method to account for investment in its subsidiaries and VIEs. Such investment is presented on the condensed balance sheets as “Investment in subsidiaries and VIEs” and the respective profit or loss as “Equity in earnings of subsidiaries and VIEs” on the condensed statements of operations and comprehensive loss.
The footnote disclosures contain supplemental information relating to the operations of the Company and, as such, these statements should be read in conjunction with the notes to the consolidated financial statements of the Company. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted.
The Company did not pay any dividend for the periods presented. As of June 30, 2023 and December 31, 2022, there were no material contingencies, significant provisions for long-term obligations, or guarantees of the Company, except for those which have been separately disclosed in the unaudited condensed consolidated financial statements, if any.
F-27
CHANSON INTERNATIONAL HOLDING
PARENT COMPANY BALANCE SHEETS
June 30, 2023 | December 31, 2022 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | $ | ||||||
| Intercompany receivable | ||||||||
| Total current assets | ||||||||
| Non-current assets | ||||||||
| Long term debt investment | ||||||||
| Long term loan to a third-party | ||||||||
| Loss from investment in subsidiaries | ( | ) | ( | ) | ||||
| Total non-current assets | ( | ) | ||||||
| Total assets | $ | $ | ( | ) | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT) | ||||||||
| LIABILITIES | ||||||||
| Intercompany payable | $ | $ | ||||||
| Total liabilities | ||||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| SHAREHOLDERS’ DEFICIT | ||||||||
| Ordinary shares, $ | ||||||||
| Class A ordinary share, $ | ||||||||
| Class B ordinary share, $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | $ | ( | ) | |||
| Accumulated other comprehensive income | ||||||||
| Total shareholders’ equity (deficit) | $ | ( | ) | |||||
| Total liabilities and shareholders’ equity (deficit) | $ | $ | ( | ) | ||||
F-28
CHANSON INTERNATIONAL HOLDING
PARENT COMPANY STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
| For the Six Months Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| OTHER INCOME | ||||||||
| Interest income | $ | $ | ||||||
| Income from long term debt investment | ||||||||
| EQUITY IN EARNINGS OF SUBSIDIARIES AND VIES | ||||||||
| NET INCOME | ||||||||
| FOREIGN CURRENCY TRANSLATION ADJUSTMENTS | ||||||||
| COMPREHENSIVE INCOME | $ | |||||||
CHANSON INTERNATIONAL HOLDING
PARENT COMPANY STATEMENTS OF CASH FLOWS
| For the Six Months Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net income | $ | |||||||
| Adjustments to reconcile net cash flows from operating activities: | ||||||||
| Interest income from long term debt investment | ( | ) | ||||||
| Interest income from loan to a third party | ( | ) | ||||||
| Equity in earnings of subsidiaries and VIEs | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Payment made for long term debt investment | ( | ) | ||||||
| Advances of loan to a third party | ( | ) | ||||||
| Cash lent to U.S. subsidiary | ( | ) | ||||||
| Cash used in investing activities | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Gross proceeds from initial public offerings | ||||||||
| Direct costs disbursed from initial public offerings proceeds | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| CHANGES IN CASH AND CASH EQUIVALENTS | ||||||||
| CASH AND CASH EQUIVALENTS, beginning of period | ||||||||
| CASH AND CASH EQUIVALENTS, end of period | $ | $ | ||||||
F-29