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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

________________

 

FORM 10-Q

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended December 31, 2023

 

 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ____________to____________

 

Commission File No. 333-207099

 

Arem Pacific Corporation

(Exact name of the issuer as specified in its charter)

 

Delaware   26-2124961
(State or Other Jurisdiction of incorporation or organization)   (I.R.S. Employer I.D. No.)

 

271 Blackburn Road

Mount Waverly

Victoria, Australia 3149

(Address of Principal Executive Offices)

 

+(61) 393955324

(Registrant Telephone Number)

 

The Registrant does not have any securities registered pursuant to Section 12(b) of the Exchange Act.

 

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.  Yes x No o

 

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 such files).  Yes x No o

 

Indicate by check mark whether the Registrant is a large, accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large, accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer o Accelerated filer o
Non-accelerated filer x Smaller reporting company x
  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. o

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o No x

 

 

1 

 

 

 

APPLICABLE ONLY TO CORPORATE ISSUERS

 

Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of the latest practicable date.

 

The number of shares outstanding of each of the Registrant’s classes of common equity, as of the latest practicable date:

 

Common Capital Voting Stock, $0.000001 par value per share   373,950,544 shares
Class   Outstanding as of February 8, 2024

 

REFERENCES

 

In this Quarterly Report, references to the “Registrant,” “Arem Pacific Corporation,” “Arem,” the “Company,” “we,” “our,” “us” and words of similar import, refer to Arem Pacific Corporation, a Delaware corporation, which is the Registrant, and our wholly-owned subsidiaries, Arem Pacific Corporation, an Arizona corporation (“Arem Pacific Arizona”), formed on July 11, 2007; and Sanyi Group Pty. Ltd., an entity organized on September 28, 2005, under the Corporations Act of 2001 of Australia (“Sanyi Group”).

 

FORWARD LOOKING STATEMENTS

 

This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In some cases, you can identify forward-looking statements by the following words: “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “ongoing,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would,” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. Forward-looking statements are not a guarantee of future performance or results and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on information available at the time the statements are made and involve known and unknown risks, uncertainties and other factors that may cause our results, levels of activity, performance or achievements to be materially different from the information expressed or implied by the forward-looking statements in this Quarterly Report. We cannot assure you that the forward-looking statements in this Quarterly Report will prove to be accurate, and therefore, prospective investors are encouraged not to place undue reliance on forward-looking statements. You should carefully read this Quarterly Report completely, and it should be read and considered with all other historical reports and registration statements filed by us with the United States Securities and Exchange Commission (the “SEC”), including, but not limited to the risk factors outlined in our comprehensive 10-K Annual Report referenced below in the “Explanatory Note,” which are contained in Part I, Item 1A. Risk Factors, thereof. Other than as required by law, we undertake no obligation to update or revise these forward-looking statements, even though our situation may change in the future.

 

 

 

 

2 

 

 

 

Arem Pacific Corporation

FORM 10-Q

December 31, 2023

INDEX

 

  Page No.
PART I – FINANCIAL INFORMATION  
Item 1.     Financial Statements & Footnotes 3
Item 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations 18
Item 3.     Quantitative and Qualitative Disclosures About Market Risk 21
Item 4.     Controls and Procedures 21
   
PART II – OTHER INFORMATION  
Item 1.     Legal Proceedings 24
Item 1A.  Risk Factors 24
Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds 24
Item 3.     Defaults Upon Senior Securities 24
Item 4.     Mine Safety Disclosures 24
Item 5.     Other Information 24
Item 6.     Exhibits 25
   
SIGNATURES 26

 

PART I - FINANCIAL STATEMENTS

 

December 31, 2023

Table of Contents

 

Condensed Consolidated Balance Sheets as of December 31, 2023 (unaudited), and June 30, 2023 4
Condensed Consolidated Statements of Operations for the three months and six months ended December 31, 2023 and 2022 (unaudited) 5
Condensed Consolidated Statements of Stockholders' Deficit for the six months ended December 31, 2023 (unaudited) 6
Condensed Consolidated Statements of Cash Flows for the six months ended December 31, 2023, and 2022 (unaudited) 7
Notes to Condensed Consolidated Financial Statements (unaudited) 8

 

 

 

 

 

3 

 

 

 

Arem Pacific Corporation

Condensed Consolidated Balance Sheets

 

     

As of

December 31, 2023

  

As of

June 30, 2023

 
   Note  (Unaudited)   (Audited) 
      US$   US$ 
Assets             
Cash and cash equivalents  4   56,062    43,394 
Other assets  5   20,623    19,988 
Other receivables  6   31,691    13,685 
Total current assets      108,376    77,067 
              
Plant and equipment, net  7            
Right-of-use assets  8   153,882    182,744 
Total non-current assets      153,882    182,744 
Total assets      262,258    259,811 
              
Liabilities and Stockholders’ Deficit             
Liabilities             
Accrued and other liabilities  9   73,238    80,486 
Borrowings  10   16,439    9,303 
Lease liability  8   62,325    63,601 
Total current liabilities      152,002    153,390 
              
Lease liability  8   119,552    151,513 
Total non-current liability      119,552    151,513 
Total liabilities      271,554    304,903 
              
Capital commitments  14          
Contingencies  15          
              
              
Stockholders’ deficit             
Common stock, $0.000001 par value, 500,000,000 shares authorized, 373,950,544 shares issued and outstanding as of December 31, 2023, and June 30, 2023, respectively  11   356    356 
Additional paid in capital      157,150    157,150 
Other comprehensive losses  12   (7,161)   (9,312)
Accumulated losses      (159,641)   (193,286)
Total Stockholders’ deficit      (9,296)   (45,092)
Total liabilities and Stockholders’ deficit      262,258    259,811 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

4 

 

 

 

Arem Pacific Corporation

Condensed Consolidated Statements of Operations

(Unaudited)

  

                                     
     

For the Three Months Ended

December 31,

  

For the Six Months Ended

December 31,

 
   Note  2023   2022   2023   2022 
      US$   US$   US$   US$ 
Revenue      81,333    90,130    162,210    167,657 
                        
Operating expenses                       
Payroll and employee related expenses      25,256    21,536    54,186    45,934 
Amortization on right-of-use assets      16,469    14,681    31,150    29,958 
General and administrative expenses      20,291    22,678    40,592    30,438 
Total operating expenses      62,016    58,895    125,928    106,330 
                        
Income from operations      19,317    31,235    36,282    61,327 
                        
Interest expenses      (1,638)   (2,173)   (3,421)   (4,548)
Other income                        7,722 
Interest income      779    86    784    88 
Total other income/(expenses)      (859)   (2,087)   (2,637)   3,262 
                        
Income from continuing operations before income tax expenses      18,458    29,148    33,645    64,589 
Income tax expenses  12                        
Net income after income tax expense for the period      18,458    29,148    33,645    64,589 
                        
Other comprehensive income                       
Exchange differences arising on translation of foreign operations      2,792    6,193    2,151    (503)
Other comprehensive (loss)/income      2,792    6,193    2,151    (503)
                        
Total comprehensive income for the period      21,250    35,341    35,796    64,086 
                        
Net income per share                       
Basic and diluted      0.00005683    0.00009451    0.00009572    0.00017138 
Weighted average number of common stock outstanding                       
Basic and diluted      373,950,544    373,950,544    373,950,544    373,950,544 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

 

5 

 

 

 

Arem Pacific Corporation

Condensed Consolidated Statements of Stockholders’ Deficit

(Unaudited)

  

                                     
   Common Stock                 
   Shares   Amount  

Additional Paid

in Capital

   Other Comprehensive Loss  

Accumulated

Losses

   Total Deficit 
       US$   US$   US$   US$   US$ 
Balance as of
June 30, 2023
  373,950,544   356   157,150   (9,312)  (193,286)  (45,092)
Income after income tax expense for the period  —                    33,645   33,645 
Other comprehensive income  —               2,151        2,151 
Total comprehensive income for the period  —               2,151   33,645   35,796 
Balance as of
December 31, 2023
  373,950,544   356   157,150   (7,161)  (159,641)  (9,296)

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

 

 

6 

 

 

 

Arem Pacific Corporation

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

                 
  

For the Six Months Ended

December 31

 
   2023   2022 
   US$   US$ 
         
Cash flows from operating activities:          
Profit before tax   33,645    64,589 
Adjustments to reconcile net income to net cash provided by operating activities:          
Amortization of right-of-use asset   31,150    29,958 
Net changes in operating assets and liabilities:          
(Increase) in other receivables   (18,641)   (1,646)
(Decrease)/increase in accrued and other liabilities   (7,248)   3,052 
Decrease in lease liability   (33,237)   (41,781)
Net cash generated by operating activities   5,669    54,172 
Cash flows from financing activity          
Proceeds from borrowings   7,136    6,416 
Net cash generated from financing activity   7,136    6,416 
Net increase in cash and cash equivalents   12,805    60,588 
Cash and cash equivalents at the beginning of period   43,394    116,963 
Exchange difference on translation of foreign operations   (137)   3,983 
Cash and cash equivalents at the end of period   56,062    181,534 
           
Supplemental cash flow information          
Interest income   784    88 
Supplemental non-cash flows information          
Lease liability arising from obtaining right-of-use asset   3,421    2,173 

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

7 

 

 

 

Arem Pacific Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

For The Quarterly Period Ended December 31, 2023

 

1.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

1.1         Nature of Operations

 

Our current corporate structure is depicted below:

 

Arem Pacific Corporation

(a Delaware corporation)

100% owned

Arem Pacific Corporation

(an Arizona corporation)

100% owned

Sanyi Group Pty. Ltd.

an Australian corporation

 

Arem Pacific Corporation (Delaware), sometimes referred to as the “Company” below, has been focusing its business on the operation of an Oriental holistic health wellness center located in Australia (Victoria) through its wholly-owned subsidiary Sanyi Group Pty. Ltd. (“Sanyi Group”). Sanyi Group operates one wellness center in Victoria, Australia.

 

Unless the context indicates otherwise, the term “Group” as used herein includes the Company and Sanyi Group.

 

1.2         Basis of Accounting

 

The accompanying consolidated financial statements include the accounts of our wholly-owned subsidiary Sanyi Group Pty Ltd which is a company domiciled in Australia. These consolidated financial statements have been prepared in accordance with the accounting principles generally accepted in the United States (“GAAP”) and Regulation S-X published by the U.S. Securities and Exchange Commission (the “SEC”). All intercompany accounts and transactions have been eliminated. The Group has evaluated events or transactions through the date of issuance of this report in conjunction with the preparation of these consolidated financial statements. All amounts presented are in US dollars, unless otherwise noted.

 

The consolidated financial statements, except for cash flow information, have been prepared on an accrual basis and are based on historical costs, modified, where applicable, by the measurement at fair value of selected non-current assets, financial assets and financial liabilities. The amounts presented in the consolidated financial statements have been rounded to the nearest dollar.

 

1.3         Going Concern Basis

 

These consolidated financial statements have been prepared on a going concern basis, which assumes the Group will continue its operations in the foreseeable future and that the Group will be able to realize its assets and discharge its liabilities in the normal course of operations. The Group had net current liabilities as of December 31, 2023 of US$43,626. As of December 31, 2023, the Group had a negative net stockholders’ deficit of US$9,296, and accumulated losses of US$159,641.

 

The Group believes that there are reasonable grounds to support the fact that it will be able to pay its debts as and when they become due and payable. In forming this opinion, the Group has considered the following factors:

 

  (i) As of December 31, 2023, US$16,439 of the outstanding debts were owed to Xin Jin, a significant shareholder and an officer of the Group, and the sole Director of the Group.

 

  (ii) The Group has received a Letter of Support from Xin Jin, in which he offers to provide continuing financial support to Sanyi Group to enable it to cover its liabilities as and when they become due and payable for a period of not less than twelve (12) months from the date of the financial statements. The loan of $16,439 as of December 31, 2023, to Sanyi Group, will not be required to be paid without giving at least thirteen (13) months’ notice.

 

If the Group is unable to continue as a going concern, it may be required to realize its assets and extinguish its liabilities outside of the ordinary course of business, and at amounts different from those stated in the consolidated financial statements. The consolidated financial statements do not include adjustments relating to the recoverability and classification of recorded asset amounts or to the amounts and classification of liabilities that might be necessary should the Group not continue as a going concern.

 

8 

 

 

 

Arem Pacific Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

For The Quarterly Period Ended December 31, 2023

 

1.4         Use of Estimates

 

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

1.5         Foreign Currency Translation

 

The functional currency of our foreign subsidiary is its local currency. Assets and liabilities of the foreign subsidiary are translated into U.S. dollars at period-end exchange rates, stockholders’ equity is translated at the historical rates and the consolidated statement of operations and cash flows are translated at average exchange rates during the reporting periods. Resulting translation adjustments are recorded in accumulated other comprehensive income, a separate component of stockholders’ equity. A component of accumulated other comprehensive income will be released into income when the Group executes a partial or complete sale of an investment in a foreign subsidiary or a group of assets of a foreign subsidiary considered a business and/or when the Group no longer holds a controlling financial interest in a foreign subsidiary or group of assets of a foreign subsidiary considered a business.

 

Transactions denominated in currencies other than the local currency are recorded based on exchange rates at the time such transactions arise. Subsequent changes in exchange rates result in foreign currency transaction gains and losses that are reflected in results of operations as unrealized (based on period end translation) and realized (upon settlement of the transactions) and reported under other general expenses in the consolidated statement of operations.

 

1.6          Cash and Cash Equivalents and Concentration of Credit Risk

 

The Group considers all highly liquid short-term investments with original maturities of three months or less at the date of acquisition to be cash equivalents. The carrying value of cash and cash equivalents approximates fair value due to the short-term nature of these instruments.

 

The Group's financial instruments exposed to concentrations of credit risk consist primarily of cash and cash equivalents. Cash and cash equivalents are held in several Australian bank accounts and time deposit accounts. The Group regularly assesses the level of credit risk we are exposed to and whether there are better ways of managing credit risk. The Group invests its cash and cash equivalents with reputable financial institutions. The Group has not incurred any losses related to these deposits.

 

1.7          Other Receivables

 

Other receivables represent amounts that the Group has paid in advance of receiving benefits or services. Other receivables include tax recoverable from the Australian Taxation Office and prepayments. Prepayments are recognized as an expense over the general contractual period.

 

1.8          Plant and Equipment

 

Plant and equipment are recorded at cost. Costs of renewal and improvements that substantially extend the useful lives of assets are capitalized. Maintenance and repair costs are expensed when incurred. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets as detailed below:

 

  Furniture and fittings 5 years
  Office equipment 10 years
  Computers 2 years
  Motor vehicles 5 years
  Plant and equipment 3 years
  Lease improvements 3 years

 

Derecognition

An item of plant and equipment is derecognized upon disposal or when no further economic benefits are expected from its use or disposal.

 

 

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Arem Pacific Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

For The Quarterly Period Ended December 31, 2023

 

1.9         Leases

 

The Group assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

 

As lessee

 

The Group applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The Group recognizes lease liabilities representing the obligations to make lease payments and right-of-use assets representing the right to use the underlying leased assets.

 

Right-of-use asset

 

The Group recognizes right-of-use asset at the commencement date of the lease (i.e. the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognized, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets.

 

If ownership of the leased asset transfers to the Group at the end of the lease term or the cost reflects the exercise of a purchase option, depreciation is calculated using the estimated useful life of the asset. The right-of-use assets are also subject to impairment. The accounting policy for impairment is disclosed in Key Judgements.

 

Lease liability

 

At the commencement date of the lease, the Group recognizes lease liability measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating the lease, if the lease term reflects the Group exercising the option to terminate. Variable lease payments that do not depend on an index or a rate are recognized as expenses (unless they are incurred to produce inventories) in the period in which the event or condition that triggers the payment occurs.

 

In calculating the present value of lease payments, the Group uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments (e.g. changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset.

 

1.10      Payables

 

Other payables represent liabilities for goods and services provided to the Group prior to the end of the financial year which are unpaid. They are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). Otherwise they are presented as non-current liabilities.

 

Other payables are initially recognized at fair value and subsequently carried at amortized cost using the effective interest method.

 

1.11     Provisions

 

Provisions are recognized when the Group has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result and that outflow can be reliably measured. Provisions are measured using the best estimate of the amounts required to settle the obligation at the end of the reporting period.

 

10 

 

 

 

Arem Pacific Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

For The Quarterly Period Ended December 31, 2023

 

1.12      Loans and Borrowings

 

All loans and borrowings are initially recognized at cost, being the fair value of the consideration received net of issue costs associated with the borrowing.

 

After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized cost using the effective interest method. Amortized cost is calculated by taking into account any issue costs, and any discount or premium on settlement.

 

The Group’s current liabilities include a loan from a significant shareholder which is not interest bearing. The shareholder has provided a letter of support to Sanyi Group, which states that the loan to the Group will not be recalled without giving at least thirteen (13) months’ notice. This loan is not evidenced by a promissory note.

 

Loans are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least twelve (12) months after the reporting date.

 

1.13      Revenue Recognition

 

Revenue is measured at the fair value of the consideration received or receivable after taking into account any discounts.

 

The Group derives revenue primarily through the provision of therapeutic health services from its Oriental holistic health centers. Revenue is recognized when persuasive evidence of an arrangement exists, the services have been rendered to customers, the pricing is fixed or determinable and collection is reasonably assured. This is generally based on the completion of services provided to the customers at the Oriental holistic health centers and settlement of the transactions either by cash or credit card payments.

 

Interest revenue is recognized using the effective interest method, which for floating rate financial assets is the rate inherent in the instrument. Dividend revenue is recognized when the right to receive a dividend has been established.

 

All revenue is stated net of the amount of goods and services tax.

 

1.14      Income Tax

 

Taxes payable is based on taxable profit for the period which excludes items of income or expense that are taxable or deductible in other periods. Taxable profit also excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted as of the balance sheet date.

 

Deferred income tax expense is calculated using the liability method in accordance with ASC 740 Income Taxes. Deferred tax assets and liabilities are classified as non-current in the balance sheet and are measured based on the difference between the carrying value of assets and liabilities for financial reporting and their tax basis when such differences are considered temporary in nature. Temporary differences related to intercompany profits are deferred using the buyer’s tax rate. Deferred tax assets are reviewed for recoverability every balance sheet date, and the amount probable of recovery is recognized.

 

Deferred income tax expense represents the change in deferred tax asset and liability balances during the periods discussed except for the deferred tax related to items recognized in other comprehensive income or resulting from a business combination or disposal. Changes resulting from amendments and revisions in tax laws and tax rates are recognized when the new tax laws or rates become effective or are substantively enacted. Uncertain tax positions are recognized in the financial statements based on management’s expectations.

 

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities, when they are related to income taxes levied by the same taxation authority, and when the Group intends to settle its current tax assets and liabilities on a net basis.

 

Deferred taxes are not provided on undistributed earnings of subsidiaries when the timing of the reversal of this temporary difference is controlled by the Group and is not expected to happen in the foreseeable future. This is applicable for the majority of the Group’s subsidiaries.

 

 

11 

 

 

 

Arem Pacific Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

For The Quarterly Period Ended December 31, 2023

 

1.15     Goods and Services Tax (“GST”)

 

Revenues, expenses and assets are recognized net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Taxation Office (“ATO”).

 

Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the ATO is included with other receivables or payables in the statement of financial position.

 

Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities, which are recoverable from or payable to the ATO, are presented as operating cash flows included in receipts from customers or payments to suppliers.

 

1.16      Earnings per Common Share

 

Basic earnings per common share is computed by dividing income or losses available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per common share is computed similar to basic net income or losses per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if all the potential common shares, warrants and stock options had been issued and of the additional common shares were dilutive. Diluted earnings (loss) per common share is based on the assumption that all dilutive convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method for the outstanding options and the if-converted method for the outstanding convertible preferred shares. Under the treasury stock method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the periods discussed. Under the if–converted method, convertible outstanding instruments are assumed to be converted into common stock at the beginning of the period (or at the time of issuance, if later).

 

1.17      Accumulated Total Comprehensive Income (Loss)

 

Comprehensive income (loss) is presented net of applicable income taxes in the accompanying consolidated statements of stockholders' deficit and comprehensive income (loss). Other comprehensive income (loss) is comprised of revenues, expenses, gains, and losses that under GAAP are reported as separate components of stockholders' deficit instead of net income (loss).

 

2.      Critical Accounting Estimates and Judgements

 

The sole Director evaluates estimates and judgements incorporated into the consolidated financial statements based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the Group.

 

Key Estimates

 

  (i) Useful lives

 

The Group determines the estimated useful lives and related depreciation and amortization charges for its plant and equipment. The useful lives could change significantly as a result of technical innovations or some other event. The depreciation and amortization charge will increase where the useful lives are less than previously estimated lives, or technically obsolete or non-strategic assets that have been abandoned or sold will be written off or written down.

 

  (ii) Income tax

 

The Group is subject to income tax in the jurisdictions in which it operates. Significant judgement is required in determining the provision for income tax. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. The Group recognizes liabilities for anticipated tax audit issues based on the Group's current understanding of the tax law. Where the final tax outcome of these matters is different from the carrying amounts, such differences will impact the current and deferred tax provisions in the period in which such determination is made.

 

 

12 

 

 

 Arem Pacific Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

For The Quarterly Period Ended December 31, 2023

 

2.      Critical Accounting Estimates and Judgements (Continued)

 

Key Estimates (Continued)

 

  (iii) Fair value measure of shares issued

 

The calculation of the fair value of shares issued requires significant estimates to be made in regard to several variables. The estimations made are subject to variability that may alter the overall fair value determined.

 

Key Judgements

 

  (i) Provision for impairment of receivables

 

The provision for impairment of receivables assessment requires a degree of estimation and judgement. The level of provision is assessed by taking into account the recent sales experience, the ageing of receivables, historical collection rates and specific knowledge of the individual debtors’ financial position.

 

  (ii) Impairment

 

The Group assessed that no indicators of impairment existed at the reporting date and as such no impairment testing was performed.

 

 3.      Segment Information

 

The consolidated entity operates predominantly in one industry and one geographical segment, those being Oriental holistic health services and Australia, respectively.

 

4.      Cash and Cash Equivalents

 

Cash at the end of the financial periods as shown in the statement of cash flows is reconciled to items in the consolidated balance sheets as follows:

 

   December 31, 2023   June 30, 2023 
   US$   US$ 
         
Cash at bank  31,560   23,614 
Petty Cash  24,502   19,780 
Cash and Cash Equivalents  56,062   43,394 

 

5.      Other Asset

 

   December 31, 2023   June 30, 2023 
   US$   US$ 
         
Current        
Deposits paid  20,623   19,988 

 

6.      Other Receivables

 

   December 31, 2023   June 30, 2023 
   US$   US$ 
         
Current        
Prepayment  7,867   7,626 
Refundable from the Australian Taxation Office  23,824   6,059 
Other Receivables, Current   31,691   13,685 

 

13 

 

 

 

Arem Pacific Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

For The Quarterly Period Ended December 31, 2023

 

7.      Plant and Equipment

 

 

 

Furniture

and fittings

  

Office

equipment

   Computers  

Motor

Vehicles

  

Plant and

equipment

  

Lease

Improvements

   Total 
At cost                            
Balance as of June 30, 2023  32,686   584   9,107   31,803   13,056   72,112   159,348 
Effect of foreign currency exchange difference  1,035   19   288   1,007   413   2,284   5,046 
Balance as of December 31, 2023  33,721   603   9,395   32,810   13,469   74,396   164,394 
                             
Accumulated depreciation                            
Balance as of June 30, 2023  32,686   584   9,107   31,803   13,056   72,112   159,348 
Effect of foreign currency exchange difference  1,035   19   288   1,007   413   2,284   5,046 
Balance as of December 31, 2023  33,721   603   9,395   32,810   13,469   74,396   164,394 
                             
Net book value                            
As of June 30, 2023                                   
As of December 31, 2023                                   

 

8.      LEASES

 

Group as a lessee

 

The Group has lease contract for land and building. The Group’s obligations under these leases are secured by the lessor’s title to the leased assets. The Group is restricted from assigning and subleasing the leased assets.

 

  (a) Right-of-use assets

 

   Shop lot 
   US$ 
Cost    
Balance as of June 30, 2023  429,596 
Effect of foreign currency exchange difference  2,288 
Balance as of December 31, 2023  431,884 
     
Accumulated amortization    
Balance as of June 30, 2023  246,852 
Amortization  31,150 
Balance as of December 31, 2023  278,002 
     
Net carrying amount    
As of June 30, 2023  182,744 
As of December 31, 2023  153,882 

 

 

14 

 

 

 

Arem Pacific Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

For The Quarterly Period Ended December 31, 2023 

 

8.      LEASES (Continued)

 

  (b) Lease liability

 

The carrying amounts of lease liability is as follows:

 

   December 31, 2023   June 30, 2023 
   US$   US$ 
Current        
Lease liability  62,325   63,601 
         
Non Current        
Lease liability  119,552   151,513 
Operating Lease Liabilities  181,877   215,114 

 

9.      Accrued and Other Liabilities

 

   December 31, 2023   June 30, 2023 
   US$   US$ 
Current        
Payroll liabilities  4,411   5,694 
Other payables  68,827   74,792 
Accrued and Other Liabilities   73,238   80,486 

 

The other payables represent GST, audit fees and professional fees. The other payables are non-interest bearing and are normally settled within 30 to 60 days term.

 

10.      Borrowings

 

   December 31, 2023   June 30, 2023 
   US$   US$ 
Loan from related party        
Current        
Balance as of beginning of period/year  9,303   9,625 
Advances  6,841   41 
Effect of foreign currency exchange difference  295   (363)
Balance as of end of period/year  16,439   9,303 

 

The loan balance above is an unsecured loan from Xin Jin, a significant shareholder and an officer of the Group and its sole Director. The loan is non-trade in nature, non-interest bearing and repayable on demand.

 

11.      Share capital

  

   December 31, 2023   June 30, 2023 
   US$   US$ 
Issued and fully paid ordinary shares:        
At beginning / end of period / year  356   356 

 

The holders of ordinary shares are entitled to receive dividends as and when declared by the Group. All ordinary shares carry one vote per share without restrictions. The ordinary shares have no par value.

 

15 

 

 

 

Arem Pacific Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

For The Quarterly Period Ended December 31, 2023

 

12.      Other Comprehensive Loss

 

   December 31, 2023   June 30, 2023 
   US$   US$ 
         
Foreign currency translation reserve  (7,161)  (9,312)

 

13.      Income Tax Expense

  

    December 31, 2023     December 31, 2022  

 

 

  US$     US$  
(a)       The components of tax expense comprise:            
Current tax            
- Australia              
- US              
Total              

 

(b)      The following is a reconciliation of the Group’s total income tax expense to the income before income taxes for the period/years ended:            
Profit before income tax provision   33,645     64,589  
Income tax computed at statutory tax rate   10,094     19,377  
Recoupment of prior year tax losses at previously brought to account   (10,094 )   (19,377 )
Consolidated income tax expense        

 

14.      Capital Commitments

 

There was no capital expenditure as of December 31, 2023.

 

15.      Contingencies

 

From time to time, the Group is involved in routine litigation that arises in the ordinary course of business. There are no pending significant legal proceedings to which the Group is a party for which management believes the ultimate outcome would have a material adverse effect on the Group’s financial position.

 

16.      Related Party Transactions

 

  (a) Parent entity

 

The ultimate parent entity which exercises control over the Group is Arem Pacific Corporation.

 

  (b) Subsidiary

 

Sanyi Group is a wholly-owned subsidiary of the Company and is incorporated in Australia.

 

  (c) Outstanding balances with related parties

 

The following balances are outstanding at reporting date in relation to transactions with related parties:

 

    December 31, 2023     June 30, 2023  
    US$     US$  
Loan from related party   16,439     9,303  

 

The loan balance above is an unsecured loan from Xin Jin, a significant shareholder and the CEO, CFO and the sole director of the Group. The loan is non-trade, non-interest bearing and repayable on demand.

 

16 

 

 

 

Arem Pacific Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

For The Quarterly Period Ended December 31, 2023

 

17.      Events After the Reporting Period

 

There has not arisen in the interval between the end of the financial period and the date of these financial statements any other item, transaction or event of a material and unusual nature likely, in the opinion of the Management of the Group, to affect significantly the operation of the Group, the results of those operations, or the state of affairs of the Group, in future financial years.

 

 

 

 

 

17 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

When used in this Quarterly Report, the words “may,” “will,” “expect,” “anticipate,” “continue,” “estimate,” “project,” “intend,” and similar expressions are intended to identify forward-looking statements within the meaning of Section 27a of the Securities Act and Section 21e of the Exchange Act regarding events, conditions and financial trends that may affect our future plans of operations, business strategy, operating results, and financial position.  Persons reviewing this Quarterly Report are cautioned that any forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties and actual results may differ materially from those included within the forward-looking statements as a result of various factors. Such factors are discussed further below under “Trends and Uncertainties,” and include general economic factors and conditions that may directly or indirectly impact our financial condition or results of operations.

 

Overview of Current and Planned Business Operations

 

Through Sanyi Group, we are engaged in providing wellness services that include acupressure/reflexology, massage therapy and cupping. We offer various types of massage therapy, such as Swedish, deep tissue and hot stone oil, among others, all as discussed in Item 1. Business, above. We primarily rely on our promotional activities and our shopping center location to attract new customers and maintain our current customers.

 

We have identified future partners from strategic cities in China to help us expand to the Chinese market for our wellness services in the major cities of China, including Guangzhou, Shenzhen, Fujian, Sichuan, Beijing, and Shanghai for fiscal year 2024, though these plans are subject to the uncertainties related to the coronavirus pandemic and are currently on hold.

 

Results of Operations

 

Comparison of the quarter ended December 31, 2023, to the quarter ended December 31, 2022

 

Revenue

 

For the six months ended December 31, 2023, we had revenue of US$162,210, compared to the six months ended December 31, 2022, with revenue of US$167,657, or a decrease of US$5,447. There are not many changes compared to the previous year’s results as the business operation hours are the same as the previous year’s.

 

Payroll and employee related expense

 

For the six months ended December 31, 2023, our payroll and employee related expenses were US$54,186, compared to the six months ended December 31, 2022, with expenses of US$45,934, or an increase of US$8,252. The payroll and employee related expenses include superannuation contributions and employee membership fees. Hiring costs and staff amenities were also higher in 2023. The headcount fluctuated between weeks as due to higher customer demand, the Company would occasionally hire temporary staffers to fill needed roles.

 

Amortization Right-of-Use Asset

 

For the six months ended December 31, 2023, the amortization right-of-use assets increased by US$1,192 to US$31,150, compared to the six months ended December 31, 2022, with an increase of US$29,958. This increase was due to foreign exchange translation.

 

18 

 

 

General and Administrative Expenses

 

For the six months ended December 31, 2023, general and administrative expenses increased from US$30,438 to US$40,592, compared to the six months ended December 31, 2022, with an increase of US$10,154. The increase in expenses resulted from consultant fees charged for customer surveys and staff training amounting to US$26,317. Staff training conducted when new part time staff join. 

 

Operating Expenses

 

For the six months ended December 31, 2023, our operating expenses were US$125,928, compared to the six months ended December 31, 2022, with operating expenses of US$106,330. The increase in operating expenses resulted from consultant fees charged for customer surveys and staff training amounting to US$26,317.

 

Net Income

For the six months ended December 31, 2023, we had net income after income tax of US$33,645, compared to the six months ended December 31, 2022, with net income after tax of US$64,589. The increase in general and administrative expenses and reduction in other income affected our profit during the six months ended December 31, 2023.

 

Liquidity and Capital Resources

 

On December 31, 2023, we had net current liabilities of US$43,626 (June 30, 2023 net current liabilities of US$76,323) and accumulated losses of US$159,641 (June 30, 2023 accumulated losses US$193,286), and of that date, the Group had shown a capital deficiency of US$9,296 (June 30, 2023 capital deficiency of US$45,092). We reported an after-tax profit of US$33,645 for the six months ended December 31, 2023 (December 31, 2022 after tax profit was US$64,589).

 

The Group has received a Letter of Support from Xin Jin, in which he offers to provide continuing financial support to Sanyi Group to enable it to cover its liabilities as and when they become due and payable for a period of not less than twelve (12) months from the date of the financial statements. The loan of $16,439 as of December 31, 2023, to Sanyi Group, will not be required to be paid without giving at least thirteen (13) months’ notice.

 

Summary of Significant Accounting Policies

The financial statements of the Group have been prepared in accordance with generally accepted accounting principles in the United States of America and are presented in U.S. dollars. The Group’s fiscal year end is June 30.

 

Use of Estimates and Assumptions

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make 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 revenues and expenses during the period. Actual results could differ from those estimates.

 

Foreign Currency Translation

The functional currency of our foreign subsidiary is its local currency. Assets and liabilities of the foreign subsidiary are translated into U.S. dollars at period-end exchange rates, stockholders’ equity is translated at the historical rates and the consolidated statement of operations and cash flows are translated at average exchange rates during the reporting periods. Resulting translation adjustments are recorded in accumulated other comprehensive income, a separate component of stockholders’ equity. A component of accumulated other comprehensive income will be released into income when the Group executes a partial or complete sale of an investment in a foreign subsidiary or a group of assets of a foreign subsidiary considered a business and/or when the Group no longer holds a controlling financial interest in a foreign subsidiary or group of assets of a foreign subsidiary considered a business.

 

Transactions denominated in currencies other than the local currency are recorded based on exchange rates at the time such transactions arise. Subsequent changes in exchange rates result in foreign currency transaction gains and losses that are reflected in results of operations as unrealized (based on period end translation) and realized (upon settlement of the transactions) and reported under other general expenses in the consolidated statement of operations.

 

Fair Value of Financial Instruments

The Group’s financial instruments exposed to concentrations of credit risk consist primarily of cash and cash equivalents. Cash and cash equivalents are held in several Australian bank accounts and time deposit accounts. We regularly assess the level of credit risk we are exposed to and whether there are better ways of managing credit risk. We invest our cash and cash equivalents with reputable financial institutions. The Group has not incurred any losses related to these deposits.

 

19 

 

 

Income Taxes  

Potential benefits of income tax losses are not recognized in the accounts until realization is more likely than not. The Group has adopted ASC 740-10-50 “Accounting for Income Taxes” as of its inception. Pursuant to the standard, the Group is required to compute tax asset benefits for initial years of operating losses carried forward.

 

Basic and Diluted Net Income Per Share

The Group computes net income (loss) per share in accordance with ASC 260-10-4-5, “Earnings per Share.” The standard requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of common shares outstanding (denominator) during the periods discussed. Diluted EPS gives effect to all dilutive potential common shares outstanding during the periods discussed, including stock options, using the treasury stock method, and convertible preferred stock, using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential common shares if their effect is anti-dilutive.

 

Recent accounting Pronouncements

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” and issued subsequent amendments within ASU 2021-01 and ASU 2022-06 (collectively, including ASU 2020-04, “ASC 848”) in January 2021 and December 2022 respectively. ASC 848 provides optional expedients and exceptions for applying U.S. GAAP on contract modifications and hedge accounting to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform, if certain criteria are met. These optional expedients and exceptions provided in ASC 848 are effective for us from January 1, 2020 through December 31, 2024. We have elected the optional expedients for certain existing interest rate swaps that are designated as cash flow hedges, which did not have a material impact on the financial position, results of operations and cash flows. We are evaluating the effects, the adoption of the new standard did not have a material impact on the Group’s consolidated financial statements.

 

In October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers”, which provides guidance on the acquirer’s accounting for acquired revenue contracts with customers in a business combination. The amendments require an acquirer recognizes and measures contract assets and contract liabilities acquired in a business combination at the acquisition date in accordance with ASC 606 as if it had originated the contracts. This guidance also provides certain practical expedients for acquirers when recognizing and measuring acquired contract assets and contract liabilities from revenue contracts in a business combination. The new guidance is required to be applied prospectively to business combinations occurring on or after the date of adoption. This guidance is effective for us for the year ending June 30, 2024 and interim reporting periods during the year ending June 30, 2024. Early adoption is permitted. We are evaluating the effects, the adoption of the new standard did not have a material impact on the Group’s consolidated financial statements.

 

In June 2022, the FASB issued ASU 2022-03, “Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions”, which clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The amendments also clarify that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. This guidance also requires certain disclosures for equity securities subject to contractual sale restrictions. The new guidance is required to be applied prospectively with any adjustments from the adoption of the amendments recognized in earnings and disclosed on the date of adoption. This guidance is effective for us for the year ending June 30, 2025 and interim reporting periods during the year ending June 30, 2025. Early adoption is permitted. We are evaluating the effects, the adoption of the new standard did not have a material impact on the Group’s consolidated financial statements.

 

In September 2022, the FASB issued ASU 2022-04, “Liabilities—Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations”, which require a buyer in a supplier finance program disclose qualitative and quantitative information about the supplier finance program. The amendments do not affect the recognition, measurement, or financial statement presentation of obligations covered by supplier finance programs. The new guidance is required to be applied retrospectively to each period in which a balance sheet is presented, except for the amendment on rollforward information, which should be applied prospectively. This guidance is effective for us for the year ending June 30, 2024 and interim reporting periods during the year ending June 30, 2024. Early adoption is permitted. We are evaluating the effects, the adoption of the new standard did not have a material impact on the Group’s consolidated financial statements.

 

Off-Balance Sheet Arrangements

 

We had no Off-Balance Sheet arrangements during the six-month period ended December 31, 2023.

 

20 

 

 

Critical Accounting Policies

 

Concentrations of Credit Risk

 

The Group’s financial instruments exposed to concentrations of credit risk consist primarily of cash and cash equivalents. Cash and cash equivalents are held in several Australian bank accounts and time deposit accounts. The Group regularly assesses the level of credit risk we are exposed to and whether there are better ways of managing credit risk. The Group invests its cash and cash equivalents with reputable financial institutions. The Group has not incurred any losses related to these deposits.

 

Concentration of Major Customers

 

Our concentration of revenue from customers in our facility that is located in a shopping center in Victoria, Australia, makes it reasonably possible that we are vulnerable to the risk of a long-term adverse impact, especially with the current rise in variants of the coronavirus that have recently increased public exposure and the number of reported cases of this virus. As a result, governments and other authorities around the world continue to implement significant measures as deemed necessary to control the spread of the virus. While many of these restrictions have been lifted as the rates of Covid-19 infections have decreased or stabilized and as various vaccines have become more widely available, a resurgence of Covid-19 and the impact of variants of the virus that causes Covid-19 may result in the reinstatement of social distancing measures; business closures; lockdowns; restrictions on operations; quarantines and travel bans, among other restrictive measures. In addition, any government mandates that require Covid-19 vaccination or other employee behaviors may result in employee attrition at the Group or its suppliers or customers and may create difficulties in satisfying future employment and supply requirements.

 

Effect of Recent Accounting Pronouncements

 

The Group has evaluated all recent accounting pronouncements and believes that none will have a significant effect on the Group’s financial statements.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

 

Not required.

 

Item 4. Controls and Procedures.

 

Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act that are designed to ensure that material information relating to us is made known to the officers who certify our financial reports and to other members of senior management and the Board of Directors. These disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports that are filed or submitted under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness, as of December 31, 2023, of our disclosure controls and procedures. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of December 31, 2023.

 

21 

 

 

Management’s Annual Report on Internal Control Over Financial Reporting

 

Our management is responsible for establishing and maintaining effective internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Internal control over financial reporting is a process designed by, or under the supervision of our Chief Executive Officer and our Chief Financial Officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal controls over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records, which in reasonable detail, accurately and fairly reflect the transactions and disposition of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made in accordance with authorizations of management and directors of the issuer; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on our consolidated financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

As required by Section 404 of the Sarbanes-Oxley Act of 2002 and related rules as promulgated by the SEC, our management assessed the effectiveness of our internal control over the financial reporting as of December 31, 2023, using criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment, our management concluded that our internal control over financial reporting was not effective as of December 31, 2023, and continue to be ineffective, due to the following material weaknesses:

 

  · lack of sufficient accounting personnel qualified in US GAAP and SEC reporting; and

 

  · insufficient accounting staff, which results in a failure to segregate duties sufficiently to ensure a timely and proper preparation and review of the financial statements.

 

We have taken steps to remediate the material weaknesses in our internal control over financial reporting practicable by:

 

  · hiring additional internal staff familiar with US GAAP and SEC reporting. In the past couple of years, we have made offers to hire accounting personnel familiar with US GAAP and SEC reporting experience, but as of yet have been unable to hire a suitable candidate. We now plan to hire a professional recruitment agency to assist us in the identification and selection of appropriate candidates.

 

  · enhancing staff awareness of laws and regulations by conducting more trainings.

 

  · hiring sufficient staff to adequately segregate responsibilities and ensure timely preparation of financial statements; and providing training to our accounting personnel on US GAAP, SEC reporting and other regulatory requirements regarding the preparation of financial statements. Our financial personnel attended US GAAP and SEC reporting training sessions organized by an international accounting firm. We plan to hold similar US GAAP and SEC reporting training on a regular basis.

 

Although we have increased the training provided to accounting personnel relating to US GAAP and SEC reporting to partially address the foregoing material weaknesses, we do not believe such weaknesses have been remediated, and we can provide no assurance that they will be remediated in a timely manner.

 

We believe that we are taking the steps necessary for remediation of the material weaknesses identified above, and we will continue to monitor the effectiveness of these steps and to make any changes that our management deems appropriate.

 

This Quarterly Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.  Management’s report is not subject to attestation by our registered public accounting firm pursuant to rules of the SEC that permit us to satisfy these requirements by providing the management’s report only.

 

Changes in Internal Control Over Financial Reporting

 

With the exception of commencing the process of implementing the foregoing steps to resolve the weaknesses in our internal controls, there have been no changes in internal control over financial reporting during the fiscal quarter ended December 31, 2023.

 

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Limitations on the Effectiveness of Controls

 

Our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of the control system must reflect that there are resource constraints and that the benefits must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.  Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

 

 

 

 

 

 

 

 

 

 

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PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings

 

None.

 

Item 1A. Risk Factors

 

Not required of smaller reporting companies like us; however, see Part I, Item 1A. Risk Factors, of our 10-K Annual Report for the fiscal year ended June 30, 2023 (see the caption “Explanatory Note” at the forepart of this Quarterly Report), which Annual Report can be accessed by Hyperlink in Part II, Item 6 hereof, for a list of “Risk Factors.”

 

Furthermore, our business operations could be impacted by the current world health crisis related to the Covid-19 pandemic. See the caption “COVID-19 PANDEMIC” at the forepart of our 10-K Annual Report for the fiscal year ended June 30, 2023, for additional information about the Covid-19 pandemic, including the world-wide declaration of the Covid-19 pandemic by the World Health Organization (“WHO”), and current information about the pandemic restrictions in Australia and China.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

None; not applicable.

 

Item 3. Defaults upon Senior Securities

 

None; not applicable.

 

Item 4. Mine Safety Disclosure

 

Not applicable.

 

Item 5. Other Information 

 

None; not applicable.

 

 

 

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Item 6. Exhibits

 

Exhibit

Number

  Description of Exhibit   Filing
3(i)   Restated Certificate of Incorporation   Filed with our Annual Report for the year ended June 30, 2022, filed on November 21, 2022, and incorporated herein by reference.
3(ii)   Amended and Restated Bylaws   Filed with our Annual Report for the year ended June 30, 2022, filed on November 21, 2022, and incorporated herein by reference.
31.1   Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002   Filed herewith.
31.2   Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002   Filed herewith
32   Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002   Filed herewith
101.INS   XBRL Instance Document    
101.SCH   XBRL Taxonomy Extension Schema    
101.CAL   XBRL Taxonomy Extension Calculation Linkbase    
101.DEF   XBRL Taxonomy Extension Definition Linkbase    
101.LAB   XBRL Taxonomy Extension Label Linkbase    
101.PRE   XBRL Taxonomy Extension Presentation Linkbase    

 

Exhibits incorporated by reference:

 

Annual Report on Form 10-K for the year ended June 30, 2023, and filed with the SEC on October 16, 2023.

 

 

 

 

 

 

 

 

 

 

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SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) 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.

 

      Arem Pacific Corporation
         
Date: February 9, 2024   By: /s/ Xin Jin
        Xin Jin
        President, Chief Financial Officer and Sole Director

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

 

Date: February 9, 2024   By: /s/ Xin Jin
        Xin Jin
        President, Chief Financial Officer and Sole Director

 

 

 

 

 

 

 

 

 

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