ITEM 1. DESCRIPTION OF BUSINESS.
DH
Enchantment, Inc. is a Nevada holding company with no operations
of its own. DH Enchantment, Inc. conducts its operations through its Hong Kong subsidiary, Ho Shun Yi Limited (“HSY”). HSY
was organized as a private limited liability company on December 5, 2019, in Hong Kong and is a wholly owned subsidiary of DH Investment
Group Limited (“DHIG”). We acquired DHIG on July 26, 2021. HSY is engaged primarily in the sale and distribution of COVID-19
rapid antigen tester sets produced by third parties. HSY commenced operations in Hong Kong in October 2020 and sell its products primarily
in Hong Kong.
Our investors will hold common
stock of DH Enchantment, Inc., the Nevada holding company that has no operations of its own, and not in HSY, the Hong Kong operating company.
This holding company structure presents unique risks as our investors may never directly hold equity interests in our Hong Kong subsidiary.
Holding indirect equity interests in HSY, our Hong Kong subsidiary, is not as effective as holding a direct ownership interest as DH Enchantment,
Inc. will be dependent upon contributions from our subsidiaries to finance the cash flow needs of DH Enchantment, Inc. DH Enchantment,
Inc.’s ability to obtain contributions from its subsidiaries are significantly affected by regulations promulgated by Hong Kong
authorities. Any limitation on the ability of our subsidiaries to transfer cash or assets to us could have a material adverse effect on
our ability to conduct business. As a result, any change in the interpretation of existing rules and regulations or the promulgation of
new rules and regulations that adversely affects our ability to transfer cash or assets may adversely affect our operations and or the
value of our securities, including causing the value of our securities to significantly decline or become worthless. For a detailed description
of the risks facing the Company associated with our structure, please refer to “Risk Factors- Our Hong Kong subsidiary may
be subject to restrictions on paying dividends or making other payments to us, which may restrict its ability to satisfy liquidity requirements,
conduct business and pay dividends to holders of DH Enchantment, Inc.’s common stock.” and more generally, “Risk Factors – Risk Relating to Doing Business in Hong Kong.”
DH Enchantment, Inc. and HSY,
our Hong Kong subsidiary, are not required to obtain permission from Hong Kong or Chinese authorities including the China Securities Regulatory
Commission, or CSRC, or Cybersecurity Administration Committee, or CAC, to operate or to issue securities to foreign investors. In making
this determination, we relied on the opinion of Ravenscroft & Schmierer which is attached as Exhibit 5 to the Amendment No. 6 to the
Registration Statement on Form 10 filed with the Securities and Exchange Commission on June 27, 2022. DH Enchantment, Inc. and HSY are
not subject to permission requirements from any other governmental agencies to approve HSY’s operations. HSY has received all requisite
permissions to operate its business. The business of HSY until now is not subject to cybersecurity review with the Cyberspace Administration
of China, or CAC, given that: (i) HSY’s products and services are offered not directly to individual users but through institutional
customers; (ii) HSY does not possess a large amount of personal information in its business operations. In addition, we believe that HSY
is not subject to merger control review by China’s anti-monopoly enforcement agency due to the level of our revenues and the fact
that we currently do not expect to propose or implement any acquisition of control of, or decisive influence over, any company with revenues
within China of more than RMB400 million. Currently, these statements and regulatory actions have had no impact on HSY’s daily business
operation, our ability to accept foreign investments and the ability of DH Enchantment, Inc. to list its securities on an U.S. or other
foreign exchange. However, in light of the recent statements and regulatory actions by the PRC and Hong Kong government, such as those
related to Hong Kong’s national security, the promulgation of regulations prohibiting foreign ownership of Chinese companies operating
in certain industries, which are constantly evolving, and anti-monopoly concerns, we may be subject to the risks of uncertainty of any
future actions of the PRC government in this regard. For example, if DH Enchantment, Inc. or HSY inadvertently concludes that such approvals
are not required, or if applicable laws, regulations or interpretations change such that we are required to obtain approvals in the future,
or if the PRC government disallows our holding company structure, these actions would likely result in a material change in our operations,
including our ability to continue our existing holding company structure, carry on HSY’s current business, accept foreign investments,
and offer or continue to offer securities of DH Enchantment, Inc. to its investors. These adverse actions would likely cause the value
of DH Enchantment, Inc.’s common stock to significantly decline or become worthless. We may also be subject to penalties and sanctions
imposed by the PRC regulatory agencies, including the Chinese Securities Regulatory Commission, if we fail to comply with such rules and
regulations, which would likely adversely affect the ability of DH Enchantment, Inc.’s securities to continue to trade on the Over-the-Counter
Bulletin Board, which would likely cause the value of its securities to significantly decline or become worthless. For a detailed description
of the risks facing the Company and HSY’s operations in Hong Kong, please refer to “Risk Factors – Risk Factors Relating to Doing Business in Hong Kong.”
Our corporate organization
chart is below.
There are prominent
legal and operational risks associated with our operations being based in Hong Kong which could result in a material change in our operations
and the value of DH Enchantment, Inc.’s securities. We are subject to risks arising from the legal system in China where
there are risks and uncertainties regarding the enforcement of laws including where the Chinese government can change the rules and regulations
in China and Hong Kong, including the enforcement and interpretation thereof, at any time with little to no advance notice and can intervene
at any time with little to no advance notice. By way of example, the PRC government initiated a series of regulatory actions and statements
to regulate business operations in China with little advance notice, including cracking down on illegal activities in the securities market,
enhancing supervision over China-based companies listed overseas using variable interest entity structure, adopting new measures to extend
the scope of cybersecurity reviews, and expanding the efforts in anti-monopoly enforcement. While these regulatory actions and statements
currently do not impact our business or our ability to accept foreign investments or list our securities on a U.S. or foreign exchange,
the Chinese government can change its rules and regulations and the enforcement and interpretation thereof with little to no advance notice.
Such changes in Chinese internal regulatory mandates, such as the M&A rules, Anti-Monopoly Law, and the Data Security Law, may target
the Company's corporate structure and negatively impact our ability to conduct business in Hong Kong, accept foreign investments, or list
on an U.S. or other foreign exchange. These risks may significantly limit or completely hinder our ability to offer or continue to offer
securities to investors and cause the value of such securities to significantly decline or be worthless. Please see “Risk Factors — Risks Relating to Doing Business in Hong Kong.”
The recent joint statement
by the SEC and PCAOB, and the Holding Foreign Companies Accountable Act (HFCAA) all call for additional and more stringent criteria to
be applied to emerging market companies upon assessing the qualification of their auditors, especially the non-U.S. auditors who are not
inspected by the PCAOB. Trading in our securities may be prohibited under the Holding Foreign Companies Accountable Act and the Accelerating
the Holding Foreign Companies Account Act if the PCAOB determines that it cannot inspect or investigate completely our auditor, and that
as a result an exchange may determine to delist our securities. On June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign
Companies Accountable Act which would reduce the number of consecutive non-inspection years required for triggering the prohibitions under
the HFCAA from three years to two thus reducing the time before our securities may be prohibited from trading or being delisted. Our auditor
is not subject to the determinations announced by the PCAOB on December 16, 2021. However, in the event the Malaysian authorities subsequently
take a position disallowing the PCAOB to inspect our auditor, then we would need to change our auditor to avoid having our securities
delisted. Please see “Risk Factors- The Holding Foreign Companies Accountable Act requires the Public Company Accounting Oversight
Board (PCAOB) to be permitted to inspect the issuer's public accounting firm within three years. This three- year period will be shortened
to two years if the Accelerating Holding Foreign Companies Accountable Act is enacted. There are uncertainties under the PRC Securities
Law relating to the procedures and requisite timing for the U.S. securities regulatory agencies to conduct investigations and collect
evidence within the territory of the PRC. If the U.S. securities regulatory agencies are unable to conduct such investigations, they may
suspend or de-register DH Enchantment, Inc.’s registration with the SEC and delist its securities from applicable trading market
within the US.”
We are organized under the
laws of the State of Nevada as a holding company that conducts its business through a number of subsidiaries organized under the laws
of foreign jurisdictions such as Hong Kong and the British Virgin Islands. This may have an adverse impact on the ability of U.S. investors
to enforce a judgment obtained in U.S. Courts against these entities, or to effect service of process on the officers and directors managing
the foreign subsidiaries.
We reported a net loss of
$385,877 and $442,982 for the years ended March 31, 2023 and 2022, respectively. We had current assets of $15,220 and current liabilities
of $837,080 as of March 31, 2023. As of March 31, 2022, our current assets and current liabilities were $121,433 and $479,067, respectively.
We have prepared our financial statements for the years ended March 31, 2023 and 2022 assuming that we will continue as a going concern.
Our continuation as a going concern is dependent upon the continuing financial support from our stockholders. Our sources of capital in
the past have included the sale of equity securities, which include common stock sold in private transactions and short-term and long-term
debts.
Our sources of capital in
the past have included the sale of equity securities, which include common stock sold in private transactions to our executive officers
or existing shareholders, capital leases and short-term and long-term debts. We expect to finance future acquisitions through a combination
of the foregoing. While we believe that existing shareholders and our officers and directors will continue to provide the additional cash
to make acquisitions and to meet our obligations as they become due or that we will obtain external financing, there can be no assurance
that we will be able to raise such additional capital resources on satisfactory terms. We believe that our current cash and other sources
of liquidity discussed below are adequate to support operations for at least the next 12 months.
History
DH Enchantment, Inc. was incorporated
in the state of Nevada on July 9, 2004, under the name Amerivestors, Inc. On March 3, 2009, we changed our name to Gust Engineering &
Speed Production, Inc. and on October 27, 2009, we changed our name to Energy Management International, Inc. On August 11, 2012, we changed
our name to DH Enchantment, Inc., our current name.
Since inception to 2018, the
Company posted periodic reports on the OTCMarkets website under the alternative reporting standard with the 12/31/2010 Quarterly Report
being the last report. Thereafter, the Company ceased reporting and failed to file its Annual list due July 31, 2019 with the Nevada Secretary
of State. This resulted in the revocation of the Company’s corporate charter.
In November, 2020, Barbara
McIntyre Bauman in her capacity as a stockholder of the Company applied for custodianship of the Company with the District Court sitting
in Clark County, Nevada (the “Court”) to revive the Company. Ms. Bauman was ultimately appointed by the Court to serve as
custodian of the Company on January 11, 2021. Ms. Bauman served as the custodian until April 19, 2021, when Ms. Bauman’s motion
to terminate custodianship of the Company was granted by the Court. A copy of the court records relating to the application and termination
of custodianship of the Company are attached as Exhibit 99.1 hereto.
In connection with serving
as the custodian, Ms. Bauman was appointed to serve as the sole executive officer and director of the Company effective January 11, 2021.
Ms. Bauman subsequently returned the Company to Good Standing Status with the Nevada Secretary of State and caused the Company to re-commence
posting periodic reports on the OTC Markets website under the alternative reporting standard. On March 2, 2021, the Company issued to
Ms. Bauman 400,000,000 shares of common stock for repayment of related party debt totaling $6,610. On February 22, 2021, the Company issued
to Ms. Bauman 3,500,000 shares of Series A Preferred Stock, for repayment of the related party debt totaling $4,403. These debts were
incurred in connection with reviving and maintaining the Company.
On May 13, 2021, Ms. Bauman
sold 400,000,000 shares of the Company’s common stock and 3,500,000 shares of the Company’s Series A Preferred Stock to Sally
Kin Yi LO and Daily Success Development Ltd. for aggregate consideration of Three Hundred Forty Thousand Dollars ($340,000). In connection
with the acquisition, Ms. Bauman resigned from her positions as Chief Executive Officer and Chief Operating Officer and Sally Kin Yi LO
was appointed to serve as our Chief Executive Officer, Chief Financial Officer, Secretary and director. It is our understanding that the
purchasers are not U.S. Persons within the meaning of Regulations S. Accordingly, the Shares are being sold pursuant to the exemption
provided by Section 4(a)(2) of the Securities Act of 1933, as amended, Regulation D and Regulation S promulgated thereunder.
Effective July 1, 2021, Daily
Success Development Limited converted 520,000 shares of its Series A Preferred Stock into 41,600,000 shares of Common Stock. As a result,
Daily Success Development Limited holds 468,000,000 Common Shares (56.30%) and 1,755,000 Series A Preferred Shares (56.30%).
Effective July 1, 2021, Sally
Lo converted 280,000 shares of its Series A Preferred Stock into 22,400,000 shares of Common Stock. As a result, Sally Lo holds 252,000,000
Common Shares (30.31%) and 945,000 Series A Preferred Shares (30.29%).
Acquisition of DH Investment
Group Limited (“DHIG”), Our Testing Business
On July 26, 2021, we acquired
all of the issued and outstanding shares of DH Investment Group Limited, a limited liability company organized under the laws of the British
Virgin Islands (“DHIG”), from its shareholders Sally Lo and Daily Success Development Limited in exchange for 100,000 shares
of our Series B Preferred Stock. DHIG operates its COVID-19 antigen testing business through its wholly owned subsidiary Ho Shun Yi Limited,
a limited liability company organized under the laws of Hong Kong. In connection with the acquisition, each of Sally Lo and Daily Success
Development Limited received 35,000 and 65,000 shares of our Series B Convertible Preferred Stock, respectively. Each one (1) shares of
the Series B Convertible Preferred Stock is convertible ten (10) shares of our Common Stock. The Company relied on the exemption from
registration pursuant to Section 4(2) of, and Regulation D and/or Regulation S promulgated under the Act in selling the Company’s
securities to the shareholders of DHIG.
Prior to the Share Exchange,
the Company was considered as a shell company due to its nominal assets and limited operation. The transaction will be treated as a recapitalization
of the Company.
The Share Exchange between
the Company and DHIC on July 26, 2021, is deemed a merger of entities under common control for which Miss Sally Kin Yi LO is the common
director and shareholder of both the Company and DHIG. Under the guidance in ASC 805 for transactions between entities under common control,
the assets, liabilities and results of operations, are recognized at their carrying amounts on the date of the Share Transfer, which required
the retrospective combination of the Company and DHIG for all periods presented.
As a result of our acquisition
of DHIG, we entered into the COVID-19 antigen testing business. We intend to make additional acquisitions in the same industry and hope
to expand into other territories such as China. We also hope to make opportunistic acquisitions in other industries in the future, regardless
of whether such industries relate to the COVID-19 antigen testing business.
On June 29, 2021, the Board
of Directors of the Company approved the designation of 10,000,000 shares of Series B Convertible Preferred Stock which took effect immediately.
On August 12, 2021, our Board of Directors authorized and approved the amendment and restatement of our Articles of Incorporation to:
(i) change our name to DH Enchantment Inc.; and (ii) amend the powers, rights and designation of the Series A Convertible Preferred Stock;
and (iii) effectuate a 5:1 reverse split, all of which are subject to final authorization by FINRA.
Market Overview
Ho Shun Yi Limited’s Business
Our operating subsidiary,
Ho Shun Yi Limited (“HSY”) is engaged primarily in the sale and distribution of COVID-19 rapid antigen tester sets. HSY is
one of the authorized commercial distributors of the INDICAID COVID-19 Rapid Antigen Test in the Hong Kong market. HSY commenced operations
in Hong Kong in October 2020 and sells its tester sets primarily in Hong Kong. HSY is a wholly owned subsidiary of DH Investment Group
Limited (“DHIG”).
The INDICAID COVID-19 Rapid
Antigen Test is developed and manufactured in Hong Kong. We believe that HSY’s INDICAID product constitutes approximately 90% of
the rapid antigen tests used in Hong Kong. The INDICAID product can provide a COVID-19 testing result in approximately 20 minutes. The
INDICAID product does not replace the formal nucleic acid testing, but we believe HSY’s quick pre-screening product may provide
officials with the information necessary to decrease the time of community closure, while lowering the risk of virus spread.
We are actively seeking partnerships
with distributors in other countries to expand the INDICAID product into additional markets. Since the INDICAID product is considered
a hygienic product, we believe that HSY’s product will be subject to much simpler import regulations. We also hope to make opportunistic
acquisitions in other industries in the future, regardless of whether such industries relate to the COVID-19 antigen testing business.
Our sources of capital in
the past have included the sale of equity securities, which include common stock sold in private transactions to our executive officers
or existing shareholders, capital leases and short-term and long-term debts. We expect to finance future acquisitions through a combination
of the foregoing. While we believe that existing shareholders and our officers and directors will continue to provide the additional cash
to make acquisitions and to meet our obligations as they become due or that we will obtain external financing, there can be no assurance
that we will be able to raise such additional capital resources on satisfactory terms. We believe that our current cash and other sources
of liquidity discussed below are adequate to support operations for at least the next 12 months.
Product
Images of HSY’s product
are shown below:
Sales and Marketing.
HSY’s main customers
are major distributors of personal hygiene products into the market. The distributors handle all retail market channels, which minimize
our sales and marketing costs. Similar model will be applied when expanding to other overseas markets.
Major Customers.
All of HSY’s major customers
are located in Hong Kong. During the years ended March 31, 2023 and 2022, the following customer accounted for 10% or more of our total
net revenues:
| |
Year ended March 31, 2023 | | |
March 31, 2023 | |
Customer | |
Revenues | | |
Percentage of revenues | | |
Accounts receivable | |
Superb Health Pharmacy | |
$ | 2,615 | | |
| 17% | | |
$ | – | |
Bennett Management Group Limited | |
| 2,615 | | |
| 17% | | |
| – | |
Victoria Dispensary | |
| 2,233 | | |
| 15% | | |
| – | |
Victoria Hub Capital | |
| 2,126 | | |
| 14% | | |
| – | |
Livesmart Rehab Shop (QE) | |
| 1,829 | | |
| 12% | | |
| – | |
| |
$ | 11,418 | | |
| 75% | | |
$ | – | |
| |
Year ended March 31, 2022 | | |
March 31, 2022 | |
Customer | |
Revenues | | |
Percentage of revenues | | |
Accounts receivable | |
Uni-Alliance Limited | |
$ | 97,515 | | |
| 18% | | |
$ | 5,618 | |
Generally, HSY is not a party
to any long-term agreements with its customers. From time to time, HSY may enter into long term contracts with major customers and subcontract
the performance of the contract to corresponding network partner according to the price and area.
Major Vendors.
For the years ended March
31, 2023 and 2022, the following vendor represented more than 10% of the Company’s cost of revenues.
Vendor name | |
Year ended March 31, 2023 | | |
March 31, 2023 | |
| |
Cost of revenues | | |
Percentage of cost of revenues | | |
Accounts payable | |
Phase Scientific International Limited | |
$ | 6,040 | | |
| 91% | | |
$ | – | |
Vendor name | |
Year ended March 31, 2022 | | |
March 31, 2022 | |
| |
Cost of revenues | | |
Percentage of cost of revenues | | |
Accounts payable | |
Phase Scientific International Limited | |
$ | 403,568 | | |
| 92% | | |
$ | – | |
Seasonality.
HSY’s business is highly
dependent upon the COVID-19 pandemic in Hong Kong and China. Since the COVID-19 pandemic has been under control, we will diversify the
product types to meet with the seasonal influenza for the interest of public health.
CORPORATE INFORMATION
Our principal executive and
registered offices are located at Unit A, 13/F, Gee Luen Factory Building, 316-318 Kwun Tong Road, Kowloon, Hong Kong, telephone number
+852 2621 3288. Our website it located at https://indicaid-hoshunyi.com/.
INTELLECTUAL PROPERTY AND PATENTS
We expect to rely on, trade
secrets, copyrights, know-how, trademarks, license agreements and contractual provisions to establish our intellectual property rights
and protect our brand and services. These legal means, however, afford only limited protection and may not adequately protect our rights.
Litigation may be necessary in the future to enforce our intellectual property rights, protect our trade secrets or determine the validity
and scope of the proprietary rights of others. Litigation could result in substantial costs and diversion of resources and management
attention.
In addition, the laws of Hong
Kong and the PRC may not protect our brand and services and intellectual property to the same extent as U.S. laws, if at all. We may be
unable to fully protect our intellectual property rights in these countries.
We intend to seek the widest
possible protection for significant product and process developments in our major markets through a combination of trade secrets, trademarks,
copyrights and patents, if applicable. We anticipate that the form of protection will vary depending upon the level of protection afforded
by the particular jurisdiction. We expect that our revenue will be derived principally from our operations in Hong Kong and China where
intellectual property protection may be limited and difficult to enforce. In such instances, we may seek protection of our intellectual
property through measures taken to increase the confidentiality of our findings.
We intend to register trademarks
as a means of protecting the brand names of our companies and products. We intend protect our trademarks against infringement and also
seek to register design protection where appropriate.
We rely on trade secrets and
unpatentable know-how that we seek to protect, in part, by confidentiality agreements. We expect that, where applicable, we will require
our employees to execute confidentiality agreements upon the commencement of employment with us. We expect these agreements to provide
that all confidential information developed or made known to the individual during the course of the individual's relationship with us
is to be kept confidential and not disclosed to third parties except in specific limited circumstances. The agreements will also provide
that all inventions conceived by the individual while rendering services to us shall be assigned to us as the exclusive property of our
company. There can be no assurance, however, that all persons who we desire to sign such agreements will sign, or if they do, that these
agreements will not be breached, that we would have adequate remedies for any breach, or that our trade secrets or unpatentable know-how
will not otherwise become known or be independently developed by competitors.
COMPETITION
HSY’s INDICAID product
has been endorsed and used by the Hong Kong government and is currently well established with user communities. As such HSY’s competition
in the COVID-19 rapid antigen test market is currently limited. HSY’s competitive landscape may be significantly altered if new
testing technology is introduced into the market by third parties. HSY may face some prospective competitors when it expands to overseas
markets, that have greater financial resources, broader product and service offerings, longer operating histories, larger customer base
and greater brand recognition, or if they are controlled or subsidized by foreign governments, which will enable them to raise capital
and enter into strategic relationships more easily. We believe that HSY competes on the basis of a number of factors, including business
model, operational capabilities, pricing and service quality.
EMPLOYEES AND CONSULTANTS
HSY has the following full
time employees and consultants located at Hong Kong as set forth below:
Executive officers | |
| 1 | |
Operation | |
| – | |
Sale and marketing | |
| 2 | |
Administration Staff | |
| – | |
Total | |
| | |
HSY is required to contribute
to the pension fund for all eligible employees in Hong Kong between the ages of eighteen and sixty five. HSY is required to contribute
a specified percentage of the participant’s income based on his or her age and wage level. For the years ended March 31, 2023 and
2022, the pension contributions by HSY were $0 and $2,504, respectively. HSY has not experienced any significant labor disputes or any
difficulties in recruiting staff for its operations.
GOVERNMENT AND INDUSTRY REGULATIONS
Through HSY, our business
is located in Hong Kong and is subject to the laws and regulations of Hong Kong governing businesses concerning, in particular labor,
occupational safety and health, contracts, tort and intellectual property. Furthermore, HSY needs to comply with the rules and regulations
of Hong Kong governing the data usage and regular terms of service applicable to its potential customers or clients. As the information
of HSY’s potential customers or clients is preserved in Hong Kong, HSY needs to comply with the Hong Kong Personal Data (Privacy)
Ordinance.
If PRC authorities reinterpret
PRC laws to apply to Hong Kong companies, HSY may become subject to the laws and regulations of China governing businesses in general,
including labor, occupational safety and health, contracts, tort and intellectual property. We may also become subject to foreign exchange
regulations might limit our ability to convert foreign currency into Renminbi or Hong Kong Dollars, acquire any other PRC companies, establish
VIEs in the PRC, or make dividend payments from any future WFOEs to us.
Hong Kong
The INDICAID COVID-19 Rapid
Antigen Test product is endorsed by the Hong Kong government and is used by all government tests, but since the product is still consider
new, accuracy of the product may still be challenged and may face future regulatory requirements.
The Employment Ordinance is
the main piece of legislation governing conditions of employment in Hong Kong since 1968. It covers a comprehensive range of employment
protection and benefits for employees, including Wage Protection, Rest Days, Holidays with Pay, Paid Annual Leave, Sickness Allowance,
Maternity Protection, Statutory Paternity Leave, Severance Payment, Long Service Payment, Employment Protection, Termination of Employment
Contract, Protection Against Anti-Union Discrimination. In addition, every employer must take out employees’ compensation insurance
to protect the claims made by employees in respect of accidents occurred during the course of their employment.
An employer must also comply
with all legal obligations under the Mandatory Provident Fund Schemes Ordinance, (CAP485). These include enrolling all qualifying employees
in MPF schemes and making MPF contributions for them. Except for exempt persons, employer should enroll both full-time and part-time employees
who are at least 18 but under 65 years of age in an MPF scheme within the first 60 days of employment. The 60-day employment rule does
not apply to casual employees in the construction and catering industries. Pursuant to the said Ordinance, we are required to make MPF
contributions for our Hong Kong employees once every contribution period (generally the wage period within 1 month). Employers and employees
are each required to make regular mandatory contributions of 5% of the employee’s relevant income to an MPF scheme, subject to the
minimum and maximum relevant income levels. For a monthly-paid employee, the minimum and maximum relevant income levels are $1,547 and
$3,846, respectively.
China
Recently, China has increased
scrutiny and oversight of PRC companies seeking foreign investment or to list their securities overseas. The PRC has also been deepening
their reach influence on Hong Kong to more closely align Hong Kong with the policies and governance of the PRC. Depending upon the political
climate, HSY may also in the future become subject to the laws and regulations of China governing businesses in general, including labor,
occupational safety and health, contracts, tort and intellectual property. We may also become subject to foreign exchange regulations
might limit our ability to convert foreign currency into Renminbi, acquire PRC companies, or limit the ability of HSY to make dividend
payments to DH Enchantment, Inc.
Regulations on Tax
PRC Corporate Income Tax
The PRC corporate income tax,
or CIT, is calculated based on the taxable income determined under the applicable CIT Law and its implementation rules, which became effective
on January 1, 2008 and amended on February 24, 2017 and December 29, 2018 respectively. The CIT Law imposes a uniform corporate income
tax rate of 25% on all resident enterprises in China, including foreign-invested enterprises.
Uncertainties exist with respect
to how the CIT Law applies to the tax residence status of the Company and our offshore subsidiaries. Under the CIT Law, an enterprise
established outside of China with a “de facto management body” within China is considered a “resident enterprise,”
which means that it is treated in a manner similar to a Chinese enterprise for corporate income tax purposes. Although the implementation
rules of the CIT Law define “de facto management body” as a managing body that exercises substantive and overall management
and control over the production and business, personnel, accounting books and assets of an enterprise, the only official guidance for
this definition currently available is set forth in Circular 82 issued by the State Administration of Taxation, which provides guidance
on the determination of the tax residence status of a Chinese-controlled offshore incorporated enterprise, defined as an enterprise that
is incorporated under the laws of a foreign country or territory and that has a PRC enterprise or enterprise group as its primary controlling
shareholder. Although the Company does not have a PRC enterprise or enterprise group as our primary controlling shareholder and is therefore
not a Chinese-controlled offshore incorporated enterprise within the meaning of Circular 82, in the absence of guidance specifically applicable
to us, we have made reference to the guidance set forth in Circular 82 to evaluate the tax residence status of the Company and our subsidiaries
organized outside the PRC.
According to Circular 82,
a Chinese-controlled offshore incorporated enterprise will be regarded as a PRC tax resident by virtue of having a “de facto management
body” in China and will be subject to PRC corporate income tax on its worldwide income only if all of the following criteria are
met:
|
· |
the primary location of the day-to-day operational management is in the PRC; |
|
· |
decisions relating to the enterprise’s financial and human resource matters are made or are subject to approval by organizations or personnel in the PRC; |
|
· |
the enterprise’s primary assets, accounting books and records, company seals, and board and shareholders meeting minutes are located or maintained in the PRC; and |
|
· |
50% or more of voting board members or senior executives habitually reside in the PRC. |
Currently, our Hong Kong entities
are not considered entities inside China and therefore not deemed to be a PRC resident enterprise for PRC tax purposes as defined above.
However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with
respect to the interpretation of the term “de facto management body.” As all of our management members are based in Hong Kong,
it remains unclear how the tax residency rule will apply to our case. If the PRC tax authorities determine that DH Enchantment, Inc. or
any of its subsidiaries outside of China is a PRC resident enterprise for PRC enterprise income tax purposes, then DH Enchantment, Inc.
or such subsidiary could be subject to PRC tax at a rate of 25% on its world-wide income, thus materially reducing our net income. In
addition, we will also be subject to PRC enterprise income tax reporting obligations. Furthermore, if the PRC tax authorities determine
that we are a PRC resident enterprise for enterprise income tax purposes, gains realized on the sale or other disposition of our ordinary
shares may be subject to PRC tax, at a rate of 10% in the case of non-PRC enterprises or 20% in the case of non-PRC individuals (in each
case, subject to the provisions of any applicable tax treaty), if such gains are deemed to be from PRC sources. It is unclear whether
non-PRC shareholders of DH Enchantment, Inc. would be able to claim the benefits of any tax treaties between their country of tax residence
and the PRC in the event that we are treated as a PRC resident enterprise. Any such tax may reduce the returns on your investment in DH
Enchantment, Inc.’s common stock.
Value-Added Tax and
Business Tax
The Provisional Regulations
of the PRC on Value-added Tax (“VAT”) were promulgated by the State Council on December 13, 1993 and came into effect on January
1, 1994 which were subsequently amended on November 10, 2008, February 6, 2016 and November 19, 2017. The Detailed Rules for the Implementation
of the Provisional Regulations of the PRC on Value-added Tax (Revised in 2011) were promulgated by the Ministry of Finance and the State
Administration of Taxation (“SAT”) on 28 October 2011 and came into effect on November 1, 2011 (collectively, the “VAT
Law”). According to the VAT Law, all enterprises and individuals engaged in the sale of goods, the provision of processing, repair
and replacement services, and the importation of goods within the territory of the PRC must pay value-added tax. For general VAT taxpayers
selling or importing goods other than those specifically listed in the VAT Law, the VAT rate is 17%. Starting from April 1, 2019, the
VAT rate for revenue generated from providing products was changed from 16% into 13%. VAT is reported as a deduction of revenue when incurred.
Entities that are VAT general taxpayers are allowed to offset qualified input VAT paid to suppliers against their output VAT liabilities.
Net VAT balance between input VAT and output VAT is recorded in taxes payable.
On March 23, 2016, the Ministry
of Finance and the SAT jointly issued the Circular on Full Implementation of Business Tax to Value-added Tax Reform which has been partially
repealed on July 1, 2017 and January 1, 2018, confirms that business tax would be completely replaced by VAT from May 1, 2016.
Regulations Relating
to Foreign Exchange and Dividend Distribution
Foreign Exchange Regulations
The principal regulations
governing foreign currency exchange in China are the Foreign Exchange Administration Regulations. Under the PRC foreign exchange regulations,
payments of current account items, such as profit distributions and trade and service-related foreign exchange transactions, may be made
in foreign currencies without prior approval from the State Administration of Foreign Exchange (“SAFE”) by complying with
certain procedural requirements. By contrast, approval from or registration with appropriate government authorities is required where
RMB is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of foreign currency-denominated
loans or foreign currency is to be remitted into China under the capital account, such as a capital increase or foreign currency loans
to PRC subsidiaries. Our operating currency is the Hong Kong Dollar. If PRC authorities reinterpret foreign exchange regulations to include
the Hong Kong Dollar, then we may become subject to the regulations affecting foreign exchange and dividend distributions as set forth
herein.
In November 2012, SAFE promulgated
the Circular of Further Improving and Adjusting Foreign Exchange Administration Policies on Foreign Direct Investment. Pursuant to this
circular, the opening of various special purpose foreign exchange accounts, such as pre-establishment expense accounts, foreign exchange
capital accounts and guarantee accounts, the reinvestment of RMB proceeds by foreign investors in the PRC, and remittance of foreign exchange
profits and dividends by a foreign-invested enterprise to its foreign shareholders no longer require the approval or verification of SAFE,
and multiple capital accounts for the same entity may be opened in different provinces, which was not possible previously. In addition,
SAFE promulgated the Circular on Printing and Distributing the Provisions on Foreign Exchange Administration over Domestic Direct Investment
by Foreign Investors and the Supporting Documents in May 2013, which specifies that the administration by SAFE or its local branches over
direct investment by foreign investors in the PRC shall be conducted by way of registration and banks shall process foreign exchange business
relating to the direct investment in the PRC based on the registration information provided by SAFE and its branches.
Additionally, pursuant to
the Notice of the State Administration of Foreign Exchange on Further Simplifying and Improving the Direct Investment related Foreign
Exchange Administration Policies (“SAFE Notice No. 13”), which was promulgated on February 13, 2015 and became effective on
June 1, 2015, the foreign exchange registration in relation to foreign direct investment shall be directly reviewed and handled by qualified
banks in accordance with SAFE Notice No. 13, and SAFE and its branches shall perform indirect regulation over the foreign exchange registration
via qualified banks.
We typically do not need to
use our offshore foreign currency to fund HSY’s Hong Kong operations. In the event we need to do so, we may be required to apply
to obtain the relevant approvals of, registration or filing with SAFE and other PRC government authorities as necessary.
On August 29, 2008, SAFE issued
the Circular on the Relevant Operating Issues Concerning the Improvement of the Administration of the Payment and Settlement of Foreign
Currency Capital of Foreign-Invested Enterprises, or SAFE Circular 142. Pursuant to SAFE Circular 142, RMB resulting from the settlement
of foreign currency capital of a foreign-invested enterprise must be used within the business scope as approved by the applicable government
authority and cannot be used for domestic equity investment, unless it is otherwise approved. Documents certifying the purposes of the
settlement of foreign currency capital into RMB, including a business contract, must also be submitted for the settlement of the foreign
currency. In addition, SAFE strengthened its oversight of the flow and use of RMB capital converted from foreign currency registered capital
of a foreign-invested company. The use of such RMB capital may not be altered without SAFE’s approval, and such RMB capital may
not be used to repay RMB loans if such loans have not been used. Violations of SAFE Circular 142 could result in severe monetary fines
or penalties. There are no costs associated with applying for registration or approval of loans or capital contributions with or from
relevant PRC governmental authorities, other than nominal processing charges. Under PRC laws and regulations, the PRC governmental authorities
are required to process such approvals or registrations or deny our application within a prescribed time period, which is usually less
than 90 days. The actual time taken, however, may be longer due to administrative delays. If we are required to obtain these registrations
or approvals, we cannot assure you that we will be able to obtain these government registrations or approvals on a timely basis, if at
all, with respect to HSY’s operations in Hong Kong. If we fail to receive such registrations or approvals, our ability to use the
proceeds from our funds to capitalize HSY’s Hong Kong operations may be negatively affected, which could materially and adversely
affect our liquidity and ability to fund and expand our business.
SAFE Circular 37
SAFE promulgated the Circular
on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore Investment and Financing and Roundtrip Investment
through Special Purpose Vehicles, or SAFE Circular 37, on July 4, 2014, which replaced the former circular commonly known as “SAFE
Circular 75” promulgated by SAFE on October 21, 2005. SAFE Circular 37 requires PRC residents to register with local branches of
SAFE in connection with their direct establishment or indirect control of an offshore entity, for the purpose of overseas investment and
financing, with such PRC residents’ legally owned assets or equity interests in domestic enterprises or offshore assets or interests,
referred to in SAFE Circular 37 as a “special purpose vehicle.” SAFE Circular 37 further requires amendment to the registration
in the event of any significant changes with respect to the special purpose vehicle, such as increase or decrease of capital contributed
by PRC individuals, share transfer or exchange, merger, division or other material event. In the event that a PRC shareholder holding
interests in a special purpose vehicle fails to fulfill the required SAFE registration, the PRC subsidiaries of that special purpose vehicle
may be prohibited from making profit distributions to the offshore parent and from carrying out subsequent cross-border foreign exchange
activities, and the special purpose vehicle may be restricted in its ability to contribute additional capital into its PRC subsidiary.
Furthermore, failure to comply with the various SAFE registration requirements described above could result in liability under PRC law
for evasion of foreign exchange controls. On February 13, 2015, SAFE Notice No. 13 was promulgated, pursuant to which the aforementioned
registration shall be conducted with and handled by qualified banks.
We have notified substantial
beneficial owners of our ordinary shares who we know are PRC residents of their filing obligation, and to the best of our knowledge, those
shareholders whom we know are PRC residents have completed the registration or will carry out the registration as required under SAFE
Circular 37. However, we may not be aware of the identities of all our beneficial owners who are PRC residents. In addition, we do not
have control over our beneficial owners and cannot assure you that all of our PRC resident beneficial owners will comply with SAFE Circular
37. The failure of our beneficial owners who are PRC residents to register or amend their SAFE registrations in a timely manner pursuant
to SAFE Circular 37 or the failure of future beneficial owners of our company who are PRC residents to comply with the registration procedures
set forth in SAFE Circular 37 may subject such beneficial owners or our PRC subsidiaries to fines and legal sanctions. Failure to register
or amend the registration may also limit our ability to contribute additional capital to any PRC subsidiaries or receive dividends or
other distributions from PRC subsidiaries or other proceeds from disposal of any PRC subsidiaries, or we may be penalized by SAFE.
Share Option Rules
Under the Administration Measures
on Individual Foreign Exchange Control issued by the PBOC on December 25, 2006, all foreign exchange matters involved in employee share
ownership plans and share option plans in which PRC citizens participate require approval from SAFE or its authorized branch. Pursuant
to SAFE Circular 37, PRC residents who participate in share incentive plans in overseas non-publicly-listed companies may submit applications
to SAFE or its local branches for the foreign exchange registration with respect to offshore special purpose companies. In addition, under
the Notices on Issues concerning the Foreign Exchange Administration for Domestic Individuals Participating in Share Incentive Plans of
Overseas Publicly-Listed Companies, or the Share Option Rules, issued by SAFE on February 15, 2012, PRC residents who are granted shares
or share options by companies listed on overseas stock exchanges under share incentive plans are required to (i) register with SAFE or
its local branches, (ii) retain a qualified PRC agent, which may be a PRC subsidiary of the overseas listed company or another qualified
institution selected by the PRC subsidiary, to conduct the SAFE registration and other procedures with respect to the share incentive
plans on behalf of the participants, and (iii) retain an overseas institution to handle matters in connection with their exercise of share
options, purchase and sale of shares or interests and funds transfers.
Regulation of Dividend
Distributions
The principal laws, rules
and regulations governing dividend distributions by foreign-invested enterprises in the PRC are the Company Law of the PRC, as amended,
the Wholly Foreign-owned Enterprise Law and its implementation regulations, the Chinese-foreign Cooperative Joint Venture Law and its
implementation regulations, and the Chinese-foreign Equity Joint Venture Law and its implementation regulations. Under these laws, rules
and regulations, foreign-invested enterprises may pay dividends only out of their accumulated profit, if any, as determined in accordance
with PRC accounting standards and regulations. Both PRC domestic companies and wholly-foreign owned PRC enterprises are required to set
aside a general reserve of at least 10% of their after-tax profit, until the cumulative amount of such reserve reaches 50% of their registered
capital. A PRC company is not permitted to distribute any profits until any losses from prior fiscal years have been offset. Profits retained
from prior fiscal years may be distributed together with distributable profits from the current fiscal year.
Near-Term Requirements For
Additional Capital
We believe that we will require
approximately $1-2 million over the next 12 months and approximately $1-2 million for the twelve month period beyond such initial 12 month
period to implement our business plan. For the immediate future, we intend to finance our business expansion efforts through loans from
existing shareholders or financial institutions.
Available
Information
Access to all of our Securities
and Exchange Commission (“SEC”) filings, including our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”), is provided, free of charge, as soon as reasonably practicable after such reports
are electronically filed with, or furnished to, the SEC.
Pacific Stock Transfer, located at 6725 Via Austi
Pkwy, Suite 300, Las Vegas 89119, telephone number (702) 361-3033, serves as our stock transfer agent.
ITEM 1A. Risk Factors.
Risks Related to HSY’s Business and Industry
HSY sells and distributes
one single product and its product, the INDICAID COVID-19 Rapid Antigen Test, is new and may be subject to challenge as new technologies
and COVID-19 variants develop.
HSY is one of the authorized
Hong Kong distributors of the INDICAID COVID-19 Rapid Antigen Test which is endorsed by the Hong Kong government and used by its agencies.
The test, however, is relatively new, and given the rise of multiple COVID-19 variants, the accuracy of HSY’s product may be adversely
affected and challenged. If new technologies or other testing products are developed which provide better accuracy and efficiency or lower
costs, our market dominance and financial results may be materially and adversely affected.
Our plan to expand into
additional markets may be affected by global government health policies.
Our overseas expansion plan
is highly dependent upon the policies of regional governments regarding the need for quick pre-screening tests of COVID-19. If regional
governments determine that the urgency for community test and detection of COVID-19 carriers has abated, the need for HSY’s product
may correspondingly be reduced. As such our financial results may be adversely affected.
We are indebted to certain
of our executive officers and directors in the approximate amount of US$78,968.
As of March 31, 2023, we are
indebted to Sally Lo, our executive officers and directors, in an approximate amount of $78,968. We may not be able to generate sufficient
cash flow to repay these loans. If we issue additional securities as repayment, our shareholders may experience significant dilution.
Additionally, loan repayment before achievement of profitability may cause us to delay implementing our business plans to expand.
We are also subject
to other risks and uncertainties that affect many other businesses, including:
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increasing costs, the volatility of costs and funding requirements and other legal mandates for employee benefits, especially pension and healthcare benefits; |
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the increasing costs of compliance with federal, state and foreign governmental agency mandates (including the Foreign Corrupt Practices Act) and defending against inappropriate or unjustified enforcement or other actions by such agencies; |
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the impact of any international conflicts on the U.S. and global economies in general, the transportation industry or us in particular, and what effects these events will have on our costs or the demand for our services; |
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any impacts on our business resulting from new domestic or international government laws and regulation; |
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market acceptance of our new service and growth initiatives; |
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the impact of technology developments on our operations and on demand for our services; |
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governmental underinvestment in transportation infrastructure, which could increase our costs and adversely impact our service levels due to traffic congestion or sub-optimal routing of our vehicles; |
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widespread outbreak of an illness or any other communicable disease, or any other public health crisis; and |
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availability of financing on terms acceptable to our ability to maintain our current credit ratings, especially given the capital intensity of our operations. |
If we are unable to
protect the confidentiality of our trade secrets, our business and competitive position would be harmed.
We may rely on trade secrets,
including unpatented know-how, technology and other proprietary information, to maintain our competitive position. However, trade secrets
are difficult to protect. We limit disclosure of such trade secrets where possible but we also seek to protect these trade secrets, in
part, by entering into non-disclosure and confidentiality agreements with parties who do have access to them, such as our employees, contract
manufacturers, consultants, advisors and other third parties. Despite these efforts, any of these parties may breach the agreements and
may unintentionally or willfully disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate
remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive
and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or
unwilling to protect trade secrets. Moreover, if any of our trade secrets were to be lawfully obtained or independently developed by a
competitor, we would have no right to prevent them, or those to whom they communicate it, from using that technology or information to
compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor, our competitive position
would be harmed.
Risks Related to Our Finances and Capital Requirements
We will need additional
funding and may be unable to raise capital when needed, which would force us to delay any business expansions or acquisitions.
Our business plan contemplates
the expansion of our operations through organic means and through acquisitions or investments in additional complementary businesses,
products and technologies. While we currently have no commitments or agreements relating to any of these types of transactions, we do
not generate sufficient revenue from operations to finance expansion or acquisition needs. We expect to finance such future cash needs
through public or private equity offerings, debt financings or corporate collaboration and licensing arrangements, as well as through
interest income earned on cash and investment balances. We cannot be certain that additional funding will be available on acceptable terms,
or at all. If adequate funds are not available, we may be required to delay, reduce the scope of or eliminate one or more of our development
programs or our commercialization efforts.
Raising additional capital
may cause dilution to our existing stockholders, restrict our operations or require us to relinquish proprietary rights.
Until such time, if ever,
as we can generate substantial revenue, we expect to finance our cash needs through a combination of equity offerings, debt financings,
grants and license and development agreements in connection with any collaborations. To the extent that we raise additional capital through
the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include
liquidation or other preferences that adversely affect your rights as a stockholder. Debt financing and preferred equity financing, if
available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring
additional debt, making capital expenditures or declaring dividends.
If we raise additional funds
through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish
valuable rights to HSY’s technologies, future revenue streams, research programs or product candidates or grant licenses on terms
that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required
to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market
product candidates that we would otherwise prefer to develop and market ourselves.
Risks Relating to Doing Business in Hong Kong.
The PRC government has
significant oversight and discretion over the conduct of a Hong Kong company’s business operations, may exert control over any offering
of securities conducted overseas and/or foreign investment in China-based issuers, may intervene or influence HSY’s operations at
any time, and may limit or completely hinder our ability to offer or continue to offer securities to investors, which could result in
a material change in our operations and/or cause the value of such securities to significantly decline or be worthless, as the government
deems appropriate to further regulatory, political and societal goals.
The PRC government may intervene
or influence HSY’s operations at any time with little to no advanced notice, which could result in a material change in our operations
and/or the value of DH Enchantment, Inc.’s common stock. For example, the PRC government has recently published new policies that
significantly affected certain industries such as the education and internet industries, and we cannot rule out the possibility that it
will in the future release regulations or policies regarding any industry that could adversely affect the business, financial condition
and results of operations of our company. Furthermore, the PRC government has also recently indicated an intent to exert more oversight
and control over securities offerings and other capital markets activities that are conducted overseas and foreign investment in China-based
companies. Any such action, once taken by the PRC government, could significantly limit or completely hinder DH Enchantment, Inc.’s
ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or in extreme
cases, become worthless.
Recently, the PRC government
initiated a series of regulatory actions and statements to regulate business operations in China with little advance notice, including
cracking down on illegal activities in the securities market, enhancing supervision over China-based companies listed overseas using variable
interest entity structure, adopting new measures to extend the scope of cybersecurity reviews, and expanding the efforts in anti-monopoly
enforcement. We believe HSY is not subject to cybersecurity review with the Cyberspace Administration of China, or CAC, given that: (i)
HSY’s products and services are offered not directly to individual users but through our institutional customers; (ii) we do not
possess a large amount of personal information in our business operations; and (iii) data processed in HSY’s business does not have
a bearing on national security and thus may not be classified as core or important data by the authorities. See also “Risk Factors
- We may become subject to a variety of laws and regulations in the PRC regarding privacy, data security, cybersecurity, and data protection.
We may be liable for improper use or appropriation of personal information provided by our customers.”
We believe that HSY is not
subject to merger control review by China’s anti-monopoly enforcement agency due to the level of our revenues and the fact that
we currently do not expect to propose or implement any acquisition of control of, or decisive influence over, any company with revenues
within China of more than RMB400 million. Currently, these statements and regulatory actions have had no impact on HSY’s daily business
operation, our ability to accept foreign investments and list the securities of DH Enchantment, Inc. on an U.S. or other foreign exchange.
Since these statements and regulatory actions are new, it is highly uncertain how soon legislative or administrative regulation making
bodies will respond and what existing or new laws or regulations or detailed implementations and interpretations will be modified or promulgated,
if any, and the potential impact such modified or new laws and regulations will have on HSY’s daily business operation, our ability
to accept foreign investments and list the securities DH Enchantment, Inc. on an U.S. or other foreign exchange.
We face the risk that
changes in the policies of the PRC government could have a significant impact upon the business we may be able to conduct in the Hong
Kong and the profitability of such business.
Through HSY, our business
and assets are primarily located in Hong Kong. Accordingly, economic, political and legal developments in Hong Kong and the PRC will significantly
affect our business, financial condition, results of operations and prospects. Policies of the PRC government can have significant effects
on economic conditions in Hong Kong. While we believe that the PRC will continue to strengthen its economic and trading relationships
with foreign countries and that business development in the PRC will continue to follow market forces, we cannot assure you that this
will be the case. Our interests may be adversely affected by changes in policies by the PRC government, including:
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changes in laws, regulations or their interpretation especially with respect to application of PRC tax, labor, currency restriction and other laws to Hong Kong operations; |
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confiscatory taxation or changes in taxation; |
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Currency revaluations or restrictions on currency conversion, imports or sources of supplies, or ability to continue as a for-profit enterprise; |
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expropriation or nationalization of private enterprises; and |
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the allocation of resources. |
Substantial uncertainties
and restrictions with respect to the political and economic policies of the PRC government and PRC laws and regulations could have a significant
impact upon the business that HSY may be able to conduct in Hong Kong and accordingly on the results of our operations and financial condition.
HSY’s business operations
may be adversely affected by the current and future political environment in the PRC. The PRC government has exercised and continues to
exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. We expect the
Hong Kong and PRC legal systems to rapidly evolve in the near future with the Hong Kong legal system becoming closer aligned with legal
system in China. There is a risk that the PRC government will intervene or influence our operations at any time, including exerting more
oversight and control over companies operating in Hong Kong and the PRC, offerings conducted overseas and or foreign investment in Hong
Kong and PRC based issuers, which could result in a material change in our operations and or the value of our common stock. These actions
may be reflected in the changing interpretations and enforcement of many laws, regulations and rules in Hong Kong and the PRC that may
not always be uniform and with little to no advance notice. HSY’s business operations and its ability to operate in Hong Kong, and
DH Enchantment, Inc’s ability offer or continue to offer securities to investors and continue to invest in Hong Kong and or PRC
based issuers may be harmed by these changes in laws and regulations, including those relating to taxation, import and export tariffs,
healthcare regulations, environmental regulations, land use and property ownership rights, and other matters. Accordingly, government
actions in the future, including any decision not to continue to support recent economic reforms and to return to a more centrally planned
economy or regional or local variations in the implementation of economic policies, could have a significant effect on economic conditions
in Hong Kong or particular regions thereof, and could limit or completely hinder DH Enchantment, Inc.’s ability to offer or continue
to offer securities to investors or require us to divest ourselves of any interest we then hold in Hong Kong properties or joint ventures.
Any such actions (including divesture or similar actions) could result in a material adverse effect on us and on your investment in DH
Enchantment, Inc. and could cause the value of DH Enchantment, Inc.’s securities and your investment in DH Enchantment, Inc.’s
securities to significantly decline or be worthless.
There are substantial uncertainties
regarding the interpretation and application of PRC laws and regulations, including, but not limited to, the laws and regulations governing
our business. Only after 1979 did the Chinese government begin to promulgate a comprehensive system of laws that regulate economic affairs
in general, deal with economic matters such as foreign investment, corporate organization and governance, commerce, taxation and trade,
as well as encourage foreign investment in China. Although the influence of the law has been increasing, China has not developed a fully
integrated legal system and recently enacted laws and regulations may not sufficiently cover all aspects of economic activities in China.
Also, because these laws and regulations are relatively new, and because of the limited volume of published cases and their lack of force
as precedents, interpretation and enforcement of these laws and regulations involve significant uncertainties. New laws and regulations
that affect existing and proposed future businesses may also be applied retroactively. In addition, there have been constant changes and
amendments of laws and regulations over the past 30 years in order to keep up with the rapidly changing society and economy in China.
Because government agencies and courts that provide interpretations of laws and regulations and decide contractual disputes and issues
may change their interpretation or enforcement very rapidly with little advance notice at any time, we cannot predict the future direction
of Chinese legislative activities with respect to either businesses with foreign investment or the effectiveness on enforcement of laws
and regulations in China. The uncertainties, including new laws and regulations and changes of existing laws, as well as, may cause possible
problems to foreign investors.
Although the PRC government
has been pursuing economic reform policies for more than two decades, the PRC government continues to exercise significant control over
economic growth in the PRC through the allocation of resources, controlling payments of foreign currency, setting monetary policy and
imposing policies that impact particular industries in different ways. We cannot assure you that the PRC government will continue
to pursue policies favoring a market oriented economy or that existing policies will not be significantly altered, especially in the event
of a change in leadership, social or political disruption, or other circumstances affecting political, economic and social life in the
PRC.
The Holding Foreign
Companies Accountable Act requires the Public Company Accounting Oversight Board (PCAOB) to be permitted to inspect the issuer's public
accounting firm within three years. This three-year period will be shortened to two years if the Accelerating Holding Foreign Companies
Accountable Act is enacted. There are uncertainties under the PRC Securities Law relating to the procedures and requisite timing for the
U.S. securities regulatory agencies to conduct investigations and collect evidence within the territory of the PRC. If the U.S. securities
regulatory agencies are unable to conduct such investigations, they may suspend or de-register DH Enchantment, Inc.’s registration
with the SEC and delist its securities from applicable trading market within the US.
The Holding Foreign Companies
Accountable Act (HFCAA) was signed into law on December 18, 2020, and requires Auditors of publicly traded companies to submit to regular
inspections every three years to assess such auditors’ compliance with applicable professional standards. On June 22, 2021, the
U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act which, if passed by the U.S. House of Representatives and
signed into law, would reduce the number of consecutive non-inspection years required for triggering the prohibitions under the HFCAA
from three years to two, thus reducing the time before DH Enchantment, Inc.’s securities may be prohibited from trading or delisted.
On September 22, 2021, the PCAOB adopted rules to create a framework for the PCAOB to use when determining, as contemplated under the
HFCAA, whether it is unable to inspect or investigate completely registered public accounting firms located in a foreign jurisdiction
because of a position taken by one or more authorities in that jurisdiction. On December 2, 2021, the SEC adopted amendments to finalize
rules implementing the submission and disclosure requirements in the HFCAA. The rules apply to registrants that the SEC identifies as
having filed an annual report with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction
and that the PCAOB is unable to inspect or investigate completely because of a position taken by an authority in a foreign jurisdiction.
On December 16, 2021, the PCAOB issued a report on its determinations that it is unable to inspect or investigate completely PCAOB-registered
public accounting firms headquartered in China or Hong Kong because of positions taken by PRC and Hong Kong authorities in those jurisdictions.
The PCAOB has made such designations as mandated under the HFCAA. Pursuant to each annual determination by the PCAOB, the SEC will, on
an annual basis, identify issuers that have used non-inspected audit firms and thus are at risk of such suspensions in the future.
Our Auditor is based in Kuala
Lumpur, Malaysia and is subject to PCAOB inspection. It is not subject to the determinations announced by the PCAOB on December 16, 2021.
However, in the event the Malaysian authorities subsequently take a position disallowing the PCAOB to inspect our auditor, then we would
need to change our auditor. Furthermore, due to the recent developments in connection with the implementation of the HFCAA, we cannot
assure you whether the SEC or other regulatory authorities would apply additional and more stringent criteria to us after considering
the effectiveness of our auditor’s audit procedures and quality control procedures, adequacy of personnel and training, or sufficiency
of resources, geographic reach or experience as it relates to the audit of our financial statements. The requirement in the HFCAA that
the PCAOB be permitted to inspect the issuer’s public accounting firm within two or three years, may result in the delisting of
our securities from applicable trading markets in the U.S, in the future if the PCAOB is unable to inspect our accounting firm at such
future time.
According to Article 177 of
the Securities Law of the PRC (“Article 177”), overseas securities regulatory authorities are prohibited from engaging in
activities pertaining to investigations or evidence collection directly conducted within the territories of the PRC, and Chinese entities
or individuals are further prohibited from providing documents and information in connection with securities business activities to any
organizations and/or persons abroad without the prior consent of the securities regulatory authority of the State Council and the competent
departments of the State Council. As of the date of this prospectus, we are not aware of any implementing rules or regulations which have
been published regarding application of Article 177.
We believe Article 177 is
only applicable where the activities of overseas authorities constitute a direct investigation or evidence collection by such authorities
within the territory of the PRC. In the event that the U.S. securities regulatory agencies carry out an investigation on us such as an
enforcement action by the Department of Justice, the SEC or other authorities, such agencies’ activities will constitute conducting
an investigation or collecting evidence directly within the territory of the PRC and accordingly fall within the scope of Article 177.
In that case, the U.S. securities regulatory agencies may have to consider establishing cross-border cooperation with the securities regulatory
authority of the PRC by way of judicial assistance, diplomatic channels or establishing a regulatory cooperation mechanism with the securities
regulatory authority of the PRC. However, there is no assurance that the U.S. securities regulatory agencies will succeed in establishing
such cross-border cooperation in this particular case and/or establish such cooperation in a timely manner.
Furthermore, as Article 177
is a recently promulgated provision, it remains unclear as to how it will be interpreted, implemented or applied by the Chinese Securities
Regulatory Commission or other relevant government authorities. As such, there are uncertainties as to the procedures and requisite timing
for the U.S. securities regulatory agencies to conduct investigations and collect evidence within the territory of the PRC. The HFCAA
requires the PCAOB be permitted to inspect the issuer's public accounting firm within three years. This three-year period will be shortened
to two years if the Accelerating Holding Foreign Companies Accountable Act is enacted. If the U.S. securities regulatory agencies are
unable to conduct such investigations, there exists a risk that they may determine to suspend or de-register DH Enchantment, Inc.’s
registration with the SEC and may also delist its securities from applicable trading markets within the US.
Adverse regulatory developments
in China may subject us to additional regulatory review, and additional disclosure requirements and regulatory scrutiny to be adopted
by the SEC in response to risks related to recent regulatory developments in China may impose additional compliance requirements for companies
like us with Hong Kong-based operations, all of which could increase our compliance costs, subject us to additional disclosure requirements.
The recent regulatory developments
in China, in particular with respect to restrictions on China-based companies raising capital offshore, may lead to additional regulatory
review in China over our financing and capital raising activities in the United States. In addition, we may be subject to industry-wide
regulations that may be adopted by the relevant PRC authorities, which may have the effect of limiting HSY’s service offerings,
restricting the scope of HSY’s operations in Hong Kong, or causing the suspension or termination of HSY’s business operations
in Hong Kong entirely, all of which will materially and adversely affect our business, financial condition and results of operations.
We may have to adjust, modify, or completely change HSY’s business operations in response to adverse regulatory changes or policy
developments, and we cannot assure you that any remedial action adopted by us can be completed in a timely, cost-efficient, or liability-free
manner or at all.
HSY may become subject
to a variety of laws and regulations in the PRC regarding privacy, data security, cybersecurity, and data protection. HSY may be liable
for improper use or appropriation of personal information provided by HSY’s customers.
While HSY is currently not
subject to the laws and regulations in the PRC regarding privacy, data security, cybersecurity, and data protection, there can be no assurance
that such laws will continue to be inapplicable to HSY in the future as these laws and regulations are continuously evolving and developing.
The scope and interpretation of the laws that are or may be applicable to HSY are often uncertain and may be conflicting, particularly
with respect to foreign laws. In particular, there are numerous laws and regulations regarding privacy and the collection, sharing, use,
processing, disclosure, and protection of personal information and other user data. Such laws and regulations often vary in scope, may
be subject to differing interpretations, and may be inconsistent among different jurisdictions.
We expect to obtain information
about various aspects of HSY’s operations as well as regarding HSY’s employees and third parties. HSY also maintains information
about various aspects of its operations as well as regarding its employees. The integrity and protection of HSY’s customer, employee
and company data is critical to HSY’s business. HSY’s customers and employees expect that it will adequately protect their
personal information. HSY is required by applicable laws to keep strictly confidential the personal information that we collect, and to
take adequate security measures to safeguard such information.
The PRC Criminal Law, as amended
by its Amendment 7 (effective on February 28, 2009) and Amendment 9 (effective on November 1, 2015), prohibits institutions, companies
and their employees from selling or otherwise illegally disclosing a citizen’s personal information obtained during the course of
performing duties or providing services or obtaining such information through theft or other illegal ways. On November 7, 2016, the Standing
Committee of the PRC National People’s Congress issued the Cyber Security Law of the PRC, or Cyber Security Law, which became effective
on June 1, 2017.
Pursuant to the Cyber Security
Law, network operators must not, without users’ consent, collect their personal information, and may only collect users’ personal
information necessary to provide their services. Providers are also obliged to provide security maintenance for their products and services
and shall comply with provisions regarding the protection of personal information as stipulated under the relevant laws and regulations.
The Civil Code of the PRC
(issued by the PRC National People’s Congress on May 28, 2020 and effective from January 1, 2021) provides main legal basis for
privacy and personal information infringement claims under the Chinese civil laws. PRC regulators, including the Cyberspace Administration
of China, MIIT, and the Ministry of Public Security have been increasingly focused on regulation in the areas of data security and data
protection.
The PRC regulatory requirements
regarding cybersecurity are constantly evolving. For instance, various regulatory bodies in China, including the Cyberspace Administration
of China, the Ministry of Public Security and the SAMR, have enforced data privacy and protection laws and regulations with varying and
evolving standards and interpretations. In April 2020, the Chinese government promulgated Cybersecurity Review Measures, which came into
effect on June 1, 2020. According to the Cybersecurity Review Measures, operators of critical information infrastructure must pass a cybersecurity
review when purchasing network products and services which do or may affect national security.
In November 2016, the Standing
Committee of China’s National People’s Congress passed China’s first Cybersecurity Law (“CSL”), which became
effective in June 2017. The CSL is the first PRC law that systematically lays out the regulatory requirements on cybersecurity and data
protection, subjecting many previously under-regulated or unregulated activities in cyberspace to government scrutiny. The legal consequences
of violation of the CSL include penalties of warning, confiscation of illegal income, suspension of related business, winding up for rectification,
shutting down the websites, and revocation of business license or relevant permits. In April 2020, the Cyberspace Administration of China
and certain other PRC regulatory authorities promulgated the Cybersecurity Review Measures, which became effective in June 2020. Pursuant
to the Cybersecurity Review Measures, operators of critical information infrastructure must pass a cybersecurity review when purchasing
network products and services which do or may affect national security. On September 1, 2021, the Standing Committee of the NPC adopted
the PRC Data Security Law which sets forth the data security protection obligations for entities and individuals handling personal data,
including that no entity or individual may acquire such data by stealing or other illegal means, and the collection and use of such data
should not exceed the necessary limits. On February 15, 2022, the Measures for Cybersecurity Review issued by the Cyberspace Administration
of China in July 2021 became effective (the “2021 Measures”). The 2021 Measures required that, in addition to “operator
of critical information infrastructure,” any “data processor” carrying out data processing activities that affect or
may affect national security should also be subject to cybersecurity review, and further elaborated the factors to be considered when
assessing the national security risks of the relevant activities, including, among others, (i) the risk of core data, important data or
a large amount of personal information being stolen, leaked, destroyed, and illegally used or exited the country; and (ii) the risk of
critical information infrastructure, core data, important data or a large amount of personal information being affected, controlled, or
maliciously used by foreign governments after listing abroad. Article 7 of the 2021 Measures states that “Where any network platform
operator who possesses the personal information of more than one million users seeks foreign listings (“国外上市”),
it shall file an application with the Office of Cybersecurity Review for cybersecurity review.” The cybersecurity review will also
investigate the potential national security risks from overseas IPOs.
We believe that HSY is not
subject to the cybersecurity review by the CAC under the 2021 Measures, given that: (i) HSY does not possess a large amount of personal
information in its business operations; and (ii) data processed in HSY’s business does not have a bearing on national security and
thus may not be classified as core or important data by the authorities. In making this determination, we relied on the legal opinion
of Ravenscroft & Schmierer. However, there remains uncertainty as to how the 2021 Measures will be interpreted or implemented and
whether the PRC regulatory agencies, including the CAC, may adopt new laws, regulations, rules, or detailed implementation and interpretation
related to the 2021 Measures. If any such new laws, regulations, rules, or implementation and interpretation comes into effect, we will
take all reasonable measures and actions to comply and to minimize the adverse effect of such laws on us. The costs of compliance with,
and other burdens imposed by, CSL and any other cybersecurity and related laws may limit the use and adoption of HSY’s products
and services and could have an adverse impact on its business.
We cannot assure you that
PRC regulatory agencies, including the CAC, would take the same view as we do, and there is no assurance that we can fully or timely comply
with such laws. In the event that HSY is subject to any mandatory cybersecurity review and other specific actions required by the CAC,
we face uncertainty as to whether any clearance or other required actions can be timely completed, or at all. Given such uncertainty,
HSY may be further required to suspend or shut down its relevant business, cease the trading of DH Enchantment, Inc.’s securities
on the OTC Markets or face other penalties, which could materially and adversely affect our business, financial condition, and results
of operations. We do not know what additional regulations will be adopted or how such regulations will affect us and the trading of DH
Enchantment, Inc.’s securities on the OTC Markets.
Under the PRC enterprise
income tax law, we may be classified as a “PRC resident enterprise”, which could result in unfavorable tax consequences to
us and DH Enchantment, Inc.’s shareholders and have a material adverse effect on our results of operations and the value of your
investment.
Under the PRC enterprise income
tax law that became effective on January 1, 2008, an enterprise established outside the PRC with “de facto management bodies”
within the PRC is considered a “resident enterprise” for PRC enterprise income tax purposes and is generally subject to a
uniform 25% enterprise income tax rate on its worldwide income. On April 22, 2009, the State Administration of Taxation, or the SAT, issued
the Notice Regarding the Determination of Chinese-Controlled Overseas Incorporated Enterprises as PRC Tax Resident Enterprise on the Basis
of De Facto Management Bodies, or SAT Circular 82, which provides certain specific criteria for determining whether the “de facto
management body” of a PRC-controlled enterprise that is incorporated offshore is located in China. Further to SAT Circular 82, on
August 3, 2011, the SAT issued the Administrative Measures of Enterprise Income Tax of Chinese-Controlled Offshore Incorporated Resident
Enterprises (Trial), or SAT Bulletin 45, which became effective on September 1, 2011, to provide more guidance on the implementation of
SAT Circular 82.
According to SAT Circular
82, an offshore incorporated enterprise controlled by a PRC enterprise or a PRC enterprise group will be considered a PRC tax resident
enterprise by virtue of having its “de facto management body” in China and will be subject to PRC enterprise income tax on
its worldwide income only if all of the following conditions are met: (a) the senior management and core management departments in
charge of its daily operations function have their presence mainly in the PRC; (b) its financial and human resources decisions are
subject to determination or approval by persons or bodies in the PRC; (c) its major assets, accounting books, company seals, and
minutes and files of its board and shareholders’ meetings are located or kept in the PRC; and (d) not less than half of the
enterprise’s directors or senior management with voting rights habitually reside in the PRC. SAT Bulletin 45 further clarifies the
resident status determination, post-determination administration as well as competent tax authorities.
Although SAT Circular 82 and
SAT Bulletin 45 only apply to offshore incorporated enterprises controlled by PRC enterprises or PRC enterprise group instead of those
controlled by PRC individuals or foreigners, the determination criteria set forth therein may reflect SAT’s general position on
how the term “de facto management body” could be applied in determining the tax resident status of offshore enterprises, regardless
of whether they are controlled by PRC enterprises, individuals or foreigners.
We believe that none of our
entities outside of China is a PRC resident enterprise for PRC tax purposes even if the standards for “de facto management body”
prescribed in the SAT Circular 82 are applicable to us. However, the tax resident status of an enterprise is subject to determination
by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body.”
If the PRC tax authorities determine that we or any of our subsidiaries outside of China is a PRC resident enterprise for enterprise income
tax purposes, we may be subject to PRC enterprise income on our worldwide income at the rate of 25%, which could materially reduce our
net income. In addition, we will also be subject to PRC enterprise income tax reporting obligations.
Although dividends paid by
one PRC tax resident to another PRC tax resident should qualify as “tax-exempt income” under the enterprise income tax law,
we cannot assure you that dividends by our Hong Kong subsidiary to our British Virgin Islands holding company or Nevada holding company
will not be subject to a 10% withholding tax, as the PRC foreign exchange control authorities, which enforce the withholding tax on dividends,
and the PRC tax authorities have not yet issued guidance with respect to the processing of outbound remittances to entities that are treated
as resident enterprises for PRC enterprise income tax purposes.
Non-PRC resident holders of
DH Enchantment, Inc.’s common stock may also be subject to PRC withholding tax on dividends paid by us and PRC tax on gains realized
on the sale or other disposition of common stock, if such income is sourced from within the PRC. The tax would be imposed at the rate
of 10% in the case of non-PRC resident enterprise holders and 20% in the case of non-PRC resident individual holders. In the case of dividends,
we would be required to withhold the tax at source. Any PRC tax liability may be reduced under applicable tax treaties or similar arrangements.
Although our holding companies are incorporated in Nevada and the British Virgin Islands, it remains unclear whether dividends received
and gains realized by non-PRC resident holders of DH Enchantment, Inc.’s common stock will be regarded as income from sources within
the PRC if we are classified as a PRC resident enterprise. Any such tax will reduce the returns on your investment in DH Enchantment,
Inc.’s common stock.
We cannot assure you that
the PRC tax authorities will not, at their discretion, adjust any capital gains and impose tax return filing and withholding or tax payment
obligations with respect to any internal restructuring, and our Hong Kong subsidiary may be requested to assist in the filing. Any PRC
tax imposed on a transfer of our shares not through a public stock exchange, or any adjustment of such gains would cause us to incur additional
costs and may have a negative impact on the value of your investment in DH Enchantment, Inc.
We face uncertainty
with respect to indirect transfers of equity interests in PRC resident enterprises by their non-PRC holding companies.
We face uncertainties regarding
the reporting on and consequences of private equity financing transactions involving the transfer of shares in Dh Enchantment, Inc. by
non-resident investors. In February 2015, the SAT issued the Bulletin on Issues of Enterprise Income Tax on Indirect Transfers of
Assets by Non-PRC Resident Enterprises, or SAT Bulletin 7, as amended in 2017. Pursuant to this bulletin, an “indirect transfer”
of assets, including equity interests in a PRC resident enterprise, by non-PRC resident enterprises may be re-characterized and treated
as a direct transfer of PRC taxable assets, if such arrangement does not have a reasonable commercial purpose and was established for
the purpose of avoiding payment of PRC enterprise income tax. As a result, gains derived from such indirect transfer may be subject to
PRC enterprise income tax. According to SAT Bulletin 7, “PRC taxable assets” include assets attributed to an establishment
in China, immovable properties located in China, and equity investments in PRC resident enterprises, in respect of which gains from their
transfer by a direct holder, being a non-PRC resident enterprise, would be subject to PRC enterprise income taxes. When determining whether
there is a “reasonable commercial purpose” of the transaction arrangement, features to be taken into consideration include:
whether the main value of the equity interest of the relevant offshore enterprise derives from PRC taxable assets; whether the assets
of the relevant offshore enterprise mainly consist of direct or indirect investment in China or if its income mainly derives from China;
whether the offshore enterprise and its subsidiaries directly or indirectly holding PRC taxable assets have real commercial nature which
is evidenced by their actual function and risk exposure; the duration of existence of the business model and organizational structure;
the replicability of the transaction by direct transfer of PRC taxable assets; and the tax situation of such indirect transfer and applicable
tax treaties or similar arrangements. In respect of an indirect offshore transfer of assets of a PRC establishment, the resulting gain
is to be included with the enterprise income tax filing of the PRC establishment or place of business being transferred, and would consequently
be subject to PRC enterprise income tax at a rate of 25%. Where the underlying transfer relates to the immovable properties located in
China or to equity investments in a PRC resident enterprise, which is not related to a PRC establishment or place of business of a non-resident
enterprise, a PRC enterprise income tax of 10% would apply, subject to available preferential tax treatment under applicable tax treaties
or similar arrangements, and the party who is obligated to make the transfer payments has the withholding obligation. SAT Bulletin 7 does
not apply to transactions of sale of shares by investors through a public stock exchange where such shares were acquired from a transaction
through a public stock exchange.
There is uncertainty as to
the application of SAT Bulletin 7. We face uncertainties as to the reporting and other implications of certain past and future transactions
where PRC taxable assets are involved, such as offshore restructuring, sale of the shares in our offshore subsidiaries or investments.
We may be subject to filing obligations or taxed if we are a transferor in such transactions, and may be subject to withholding obligations
if we are a transferee in such transactions under SAT Bulletin 7. For transfer of shares in us by investors that are non-PRC resident
enterprises, our Hong Kong subsidiary may be requested to assist in the filing under SAT Bulletin 7. As a result, we may be required to
expend valuable resources to comply with SAT Bulletin 7 or to request the relevant transferors from whom we purchase taxable assets to
comply with these circulars, or to establish that we should not be taxed under these circulars, which may have a material adverse effect
on our financial condition and results of operations.
The M&A Rules and
certain other PRC regulations may make it more difficult for us to pursue growth through acquisitions.
The Regulations on Mergers
and Acquisitions of Domestic Companies by Foreign Investors, or the M&A Rules, adopted by six PRC regulatory agencies in 2006 and
amended in 2009, and some other regulations and rules concerning mergers and acquisitions established complex procedures and requirements
for acquisition of Chinese companies by foreign investors, including requirements in some instances that the Ministry of Commerce of the
PRC be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise.
Moreover, the Anti-Monopoly Law promulgated by the Standing Committee of the National People’s Congress, which became effective
in 2008, requires that transactions which are deemed concentrations and involve parties with specified turnover thresholds must be cleared
by the Ministry of Commerce before they can be completed. In addition, the security review rules issued by the Ministry of Commerce and
became effective in September 2011 specify that mergers and acquisitions by foreign investors that raise “national defense
and security” concerns and mergers and acquisitions through which foreign investors may acquire de facto control over domestic enterprises
that raise “national security” concerns are subject to strict review by the Ministry of Commerce, and the rules prohibit any
activities attempting to bypass a security review, including by structuring the transaction through a proxy or contractual control arrangement.
In the future, we may pursue
potential strategic acquisitions that are complementary to HSY’s business and operations. Complying with the requirements of the
above-mentioned regulations and other rules to complete such transactions could be time-consuming, and any required approval processes,
including obtaining approval or clearance from the Ministry of Commerce, may delay or inhibit our ability to complete such transactions,
which could affect our ability to expand HSY’s business or maintain HSY’s market share. Furthermore, according to the M&A
Rules, if a PRC entity or individual plans to merger or acquire its related PRC entity through an overseas company legitimately incorporated
or controlled by such entity or individual, such a merger and acquisition will be subject to examination and approval by the Ministry
of Commerce. The application and interpretations of M&A Rules are still uncertain, and there is possibility that the PRC regulators
may promulgate new rules or explanations requiring that we obtain approval of the Ministry of Commerce for our completed or ongoing mergers
and acquisitions. There is no assurance that we can obtain such approval from the Ministry of Commerce for our mergers and acquisitions,
and if we fail to obtain those approvals, we may be required to suspend our acquisition and be subject to penalties. Any uncertainties
regarding such approval requirements could have a material adverse effect on our business, results of operations and corporate structure.
Furthermore, the M&A Rules,
among other things, purport to require that an offshore special purpose vehicle controlled directly or indirectly by PRC domestic companies
or individuals and formed for purposes of overseas listing through acquisition of PRC domestic interests obtain the approval of the CSRC
prior to the listing and trading of such special purpose vehicle’s securities on an overseas stock exchange. The CSRC has not issued
any definitive rules or interpretations concerning whether offerings such as this offering are subject to the CSRC approval procedures
under the M&A Rules. Although we are of the position that we are not required to obtain approval from the CSRC under the M&A Rules
for listing and trading of DH Enchantment, Inc.’s securities after the consummation of the Business Combination, uncertainties still
exist as to how the M&A Rules will be interpreted and implemented and the opinion stated above is subject to any new laws, rules and
regulations or detailed implementations and interpretations in any form relating to the M&A Rules.
PRC regulations relating
to offshore investment activities by PRC residents may limit our Hong Kong subsidiary’s ability to increase their registered capital
or distribute profits to us or otherwise expose us to liability and penalties under PRC law.
The State Administration of
Foreign Exchange (“SAFE”) promulgated the Circular on Relevant Issues Relating to PRC Resident’s Investment and Financing
and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37, in July 2014 that requires PRC residents or entities
to register with SAFE or its local branch in connection with their establishment or control of an offshore entity established for the
purpose of overseas investment or financing. In addition, such PRC residents or entities must update their SAFE registrations when the
offshore special purpose vehicle undergoes material events relating to any change of basic information (including change of such PRC residents
or entities, name and operation term), increases or decreases in investment amount, transfers or exchanges of shares, or mergers or divisions.
SAFE Circular 37 is issued
to replace the Circular on Relevant Issues Concerning Foreign Exchange Administration for PRC Residents Engaging in Financing and Roundtrip
Investments through Overseas Special Purpose Vehicles. If DH Enchantment, Inc.’s shareholders who are PRC residents or entities
do not complete their registration with the local SAFE branches, our Hong Kong subsidiary may be prohibited from distributing their profits
and proceeds from any reduction in capital, share transfer or liquidation to us, and we may be restricted in our ability to contribute
additional capital to our Hong Kong subsidiary. Moreover, failure to comply with SAFE registration described above could result in liability
under PRC laws for evasion of applicable foreign exchange restrictions.
However, we may not be informed
of the identities of all the PRC residents or entities holding direct or indirect interest in us, nor can we compel DH Enchantment, Inc.’s
shareholders to comply with the requirements of SAFE Circular 37. As a result, we cannot assure you that all of DH Enchantment, Inc.’s
shareholders who are PRC residents or entities have complied with, and will in the future make or obtain any applicable registrations
or approvals required by, SAFE Circular 37. Failure by such shareholders to comply with SAFE Circular 37, or failure by DH Enchantment,
Inc.to amend the foreign exchange registrations of its Hong Kong subsidiary, if applicable, could subject us to fines or legal sanctions,
restrict our overseas or cross-border investment activities, limit our Hong Kong subsidiary’s ability to make distributions or pay
dividends to us or affect our ownership structure, which could adversely affect our business and prospects. For a detailed description
of the potential government regulations facing the Company and our operations in Hong Kong, please refer to “Government and Industry
Regulations – Regulations Relating to Foreign Exchange and Dividend Distribution.”
PRC regulation of loans
to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay or prevent
us from using the proceeds we receive from offshore financing activities to make loans to or make additional capital contributions to
our Hong Kong subsidiary, which could materially and adversely affect our liquidity and our ability to fund and expand business.
Any transfer of funds by DH
Enchantment, Inc.to our Hong Kong subsidiary, either as a shareholder loan or as an increase in registered capital, may become subject
to approval by or registration or filing with relevant governmental authorities in China. According to the relevant PRC regulations on
foreign-invested enterprises in China, capital contributions to PRC subsidiaries are subject to the approval of or filing with the Ministry
of Commerce in its local branches and registration with a local bank authorized by SAFE. It is unclear if Hong Kong subsidiaries will
be deemed a PRC subsidiary. If Hong Kong subsidiaries are deemed to be PRC subsidiaries, (i) any foreign loan procured by our Hong
Kong subsidiary will be required to be registered with SAFE or its local branches or filed with SAFE in its information system; and (ii) our
Hong Kong subsidiary will not be able to procure loans which exceed the difference between their total investment amount and registered
capital or, as an alternative, only procure loans subject to the calculation approach and limitation as provided in the People’s
Bank of China Notice No. 9 (“PBOC Notice No. 9”). We may not be able to obtain these government approvals or complete
such registrations on a timely basis, if at all, with respect to future capital contributions or foreign loans by us to our Hong Kong
subsidiary, if required. If we fail to receive such approvals or complete such registration or filing, our ability to use the proceeds
we receive from our offshore financing activities and to capitalize our Hong Kong operations may be negatively affected, which could adversely
affect our liquidity and ability to fund and expand HSY’s business. There is, in effect, no statutory limit on the amount of capital
contribution that we can make to our Hong Kong subsidiary. This is because there is no statutory limit on the amount of registered capital
for our Hong Kong subsidiary, and we are allowed to make capital contributions to our Hong Kong subsidiary by subscribing for their initial
registered capital and increased registered capital, provided that the Hong Kong subsidiary complete the relevant filing and registration
procedures.
The Circular on Reforming
the Administration of Foreign Exchange Settlement of Capital of Foreign-Invested Enterprises, or SAFE Circular 19, effective as of June 1,
2015, as amended by Circular of the State Administration of Foreign Exchange on Reforming and Regulating Policies on the Control over
Foreign Exchange Settlement under the Capital Account, or SAFE Circular 16, effective on June 9, 2016, allows FIEs to settle their
foreign exchange capital at their discretion, but continues to prohibit FIEs from using the Renminbi fund converted from their foreign
exchange capitals for expenditure beyond their business scopes, and also prohibit FIEs from using such Renminbi fund to provide loans
to persons other than affiliates unless otherwise permitted under its business scope. If Safe Circulars 16 and 19 are interpreted to apply
to the Hong Kong Dollar, our ability to use Hong Kong Dollars converted from the net proceeds from our offshore financing activities to
fund the establishment of new entities in Hong Kong, to invest in or acquire any other Hong Kong or PRC companies may be limited, which
may adversely affect our business, financial condition and results of operations.
Because our holding
company structure creates restrictions on the payment of dividends or other cash payments, our ability to pay dividends or make other
payments is limited.
DH Enchantment, Inc. is a
holding company whose primary assets are its ownership of the equity interests in its subsidiaries. DH Enchantment, Inc. conducts no other
business and, as a result, it depends entirely upon its subsidiaries’ earnings and cash flow to meet cash and financing requirements.
If DH Enchantment, Inc. decides in the future to pay dividends or make other payments, as a holding company, its ability to pay dividends
and meet other obligations depends upon the receipt of dividends or other payments from its operating subsidiaries. Its subsidiaries and
projects may be restricted in their ability to pay dividends, make distributions or otherwise transfer funds to DH Enchantment, Inc. prior
to the satisfaction of other obligations, including the payment of operating expenses or debt service, appropriation to reserves prescribed
by laws and regulations, covering losses in previous years, restrictions on the conversion of local currency into U.S. dollars or other
hard currency, completion of relevant procedures with governmental authorities or banks and other regulatory restrictions, as applicable.
Under the applicable PRC laws and regulations, foreign-invested enterprises in China may pay dividends only out of their accumulated profits,
if any, determined in accordance with PRC accounting standards and regulations. In addition, a foreign-invested enterprise in China is
required to set aside a portion of its after-tax profit to fund specific reserve funds prior to payment of dividends. In particular, at
least 10% of its after-tax profits based on PRC accounting standards each year is required to be set aside towards its general reserves
until the accumulative amount of such reserves reach 50% of its registered capital. These reserves are not distributable as cash dividends.
If future dividends are paid in RMB, fluctuations in the exchange rate for the conversion of any of these currencies into U.S. dollars
may adversely affect the amount received by U.S. stockholders upon conversion of the dividend payment into U.S. dollars. For a detailed
description of the potential government regulations facing the Company associated with our operations in Hong Kong and on restrictions
on payments from our subsidiaries, please refer to “Government and Industry Regulations –China and “Transfers
of Cash to and From our Subsidiaries.” We do not presently have any intention to declare or pay dividends in the future.
You should not purchase shares of our common stock in anticipation of receiving dividends in future periods.
Our Hong Kong subsidiary
may be subject to restrictions on paying dividends or making other payments to us, which may restrict its ability to satisfy liquidity
requirements, conduct business and pay dividends to holders of DH Enchantment, Inc.’s common stock.
DH Enchantment, Inc. isa holding
company incorporated in Nevada. It relies on dividends from its Hong Kong subsidiary for its cash and financing requirements, such as
the funds necessary to service any debt it may incur. Current PRC regulations permit PRC subsidiaries to pay dividends to foreign parent
companies only out of their accumulated after-tax profits upon satisfaction of relevant statutory condition and procedures, if any, determined
in accordance with Chinese accounting standards and regulations. In addition, PRC subsidiaries are required to set aside at least 10%
of their accumulated profits each year, if any, to fund certain reserve funds until the total amount set aside reaches 50% of its registered
capital. Furthermore, if PRC subsidiaries and their subsidiaries incur debt on their own behalf in the future, the instruments governing
the debt may restrict their ability to pay dividends or make other payments to the foreign parent company, which may restrict the ability
of the foreign parent company to satisfy its liquidity requirements. If such restrictions on dividend and other payments are interpreted
to apply to Hong Kong entities, our ability to rely on payments from our Hong Kong subsidiary will be adversely affected.
In addition, the Enterprise
Income Tax Law of the PRC, or the PRC EIT Law, and its implementation rules provide that withholding tax rate of 10% will be applicable
to dividends payable by Chinese companies to non-PRC-resident enterprises unless otherwise exempted or reduced according to treaties or
arrangements between the PRC central government and governments of other countries or regions where the non-PRC-resident enterprises are
incorporated. For a detailed description of the potential government regulations facing the Company and HSY’s operations in Hong
Kong, please refer to “Government and Industry Regulations – Regulations Relating to Foreign Exchange and Dividend Distribution.”
Governmental control
of currency conversion may limit our ability to utilize revenues effectively and affect the value of your investment.
The PRC government imposes
controls on the convertibility of the Renminbi into foreign currencies and, in certain cases, the remittance of currency out of China.
Approval from or registration with appropriate government authorities is required where Renminbi is to be converted into foreign currency
and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. In light of the flood
of capital outflows of China in 2016 due to the weakening Renminbi, the PRC government has imposed more restrictive foreign exchange policies
and stepped up scrutiny of major outbound capital movement including overseas direct investment. More restrictions and substantial vetting
process are put in place by SAFE to regulate cross-border transactions falling under the capital account. If any of our shareholders regulated
by such policies fail to satisfy the applicable overseas direct investment filing or approval requirement timely or at all, it may be
subject to penalties from the relevant PRC authorities. The PRC government may at its discretion further restrict access in the future
to foreign currencies for current account transactions.
We receive substantially all
of our revenues in Hong Kong Dollars. Under our current corporate structure, our Nevada holding company may rely on dividend payments
from our Hong Kong subsidiary to fund any cash and financing requirements that we may have. If the PRC government expands its currency
controls to include the Hong Kong Dollar, we will be required to obtain SAFE approval to use cash generated from the operations of our
Hong Kong subsidiary and consolidated affiliated entities to pay off their respective debt in a currency other than Hong Kong Dollar or
Renminbi owed to entities outside China, or to make other capital expenditure payments outside China in a currency other than Renminbi
or the Hong Kong Dollar. We may be prevented from obtaining sufficient foreign currencies to satisfy our foreign currency demands. As
a result, we may not be able to pay dividends in foreign currencies to its shareholders. For a detailed description of the potential government
regulations facing the Company and the offering associated with HSY’s operations in Hong Kong, please refer to “Government
and Industry Regulations – Regulations Relating to Foreign Exchange and Dividend Distribution.”
Failure to comply with
PRC regulations regarding the registration requirements for employee stock ownership plans or share option plans may subject the PRC plan
participants or us to fines and other legal or administrative sanctions.
Pursuant to SAFE Circular
37, PRC residents who participate in share incentive plans in overseas non-publicly-listed companies may submit applications to SAFE or
its local branches for the foreign exchange registration with respect to offshore special purpose companies. In the meantime, our directors,
executive officers and other employees who are PRC citizens or who are non-PRC residents residing in the PRC for a continuous period of
not less than one year, subject to limited exceptions, and who have been granted incentive share awards by us, may follow the Notices
on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas Publicly-Listed
Company, or 2012 SAFE notices, promulgated by the SAFE in 2012. Pursuant to the 2012 SAFE notices, PRC citizens and non-PRC citizens who
reside in China for a continuous period of not less than one year who participate in any stock incentive plan of an overseas publicly
listed company, subject to a few exceptions, are required to register with SAFE through a domestic qualified agent, which could be the
PRC subsidiaries of such overseas listed company, and complete certain other procedures. In addition, an overseas entrusted institution
must be retained to handle matters in connection with the exercise or sale of stock options and the purchase or sale of shares and interests.
Our executive officers and other employees who are PRC citizens or who reside in the PRC for a continuous period of not less than one
year and who have been granted options will be subject to these regulations. It is unclear if these regulations will be expanded to include
Hong Kong residents or citizens. Failure to complete the SAFE registrations may subject them to fines, and legal sanctions and may also
limit our ability to contribute additional capital into our Hong Kong subsidiary and limit our Hong Kong subsidiary’s ability to
distribute dividends to us if Hong Kong residents or citizens are covered under these PRC regulations. We also face regulatory uncertainties
that could restrict our ability to adopt additional incentive plans for our directors, executive officers and employees under PRC law.
The SAT has issued certain
circulars concerning employee share options and restricted shares. Under these circulars, employees working in China who exercise share
options or are granted restricted shares will be subject to PRC individual income tax. It is unclear whether these regulations will be
expanded in the future to cover HSY’s employees in Hong Kong. Our Hong Kong subsidiary may become obligated to file documents related
to employee share options or restricted shares with relevant tax authorities and to withhold individual income taxes of those employees
who exercise their share options. If our employees fail to pay or we fail to withhold their income taxes according to relevant laws and
regulations, we may face sanctions imposed by the tax authorities or other PRC governmental authorities.
If we become directly
subject to the recent scrutiny, criticism and negative publicity involving U.S.-listed Chinese companies, we may have to expend significant
resources to investigate and resolve the matter which could harm our business operations, stock price and reputation and could result
in a loss of your investment in our stock, especially if such matter cannot be addressed and resolved favorably.
Recently, U.S. public companies
that have substantially all of their operations in Hong Kong and China have been the subject of intense scrutiny, criticism and negative
publicity by investors, financial commentators and regulatory agencies, such as the SEC. Much of the scrutiny, criticism and negative
publicity has centered around the effects of US-China governmental policies and political climate, financial and accounting irregularities
and mistakes, a lack of effective internal controls over financial accounting, inadequate corporate governance policies or a lack of adherence
thereto and, in many cases, allegations of fraud. As a result of the scrutiny, criticism and negative publicity, the publicly traded stock
of many U.S. listed Chinese companies has sharply decreased in value and, in some cases, has become virtually worthless. Many of these
companies are now subject to shareholder lawsuits and SEC enforcement actions, and are conducting internal and external investigations
into the allegations. It is not clear what effect this sector-wide scrutiny, criticism and negative publicity will have on our Company,
our business and DH Enchantment, Inc.’s stock price. If we become the subject of any unfavorable allegations, whether such allegations
are proven to be true or untrue, we will have to expend significant resources to investigate such allegations and/or defend our company.
This situation will be costly and time consuming and distract our management from growing our company. If such allegations are not proven
to be groundless, our company and business operations will be severely negatively affected and your investment in DH Enchantment, Inc.’s
stock could be rendered worthless.
Investors may experience
difficulties in effecting service of legal process, enforcing foreign judgments or bringing original actions in Hong Kong based upon U.S.
laws, including the federal securities laws or other foreign laws against us or our management.
All of our current operations
are conducted in Hong Kong through HSY. DH Enchantment, Inc., is a holding company that conducts no operations. Moreover, most of our
current directors and officers are nationals or residents of Hong Kong. All or a substantial portion of the assets of these persons are
located outside the United States and in the Hong Kong. As a result, it may not be possible to effect service of process within the United
States or elsewhere outside Hong Kong upon these persons. In addition, uncertainty exists as to whether the courts of Hong Kong would
recognize or enforce judgments of U.S. courts obtained against us or such officers and/or directors predicated upon the civil liability
provisions of the securities laws of the United States or any state thereof, or be competent to hear original actions brought in Hong
Kong against us or such persons predicated upon the securities laws of the United States or any state thereof.
Risks Relating to Securities Markets and Investment
in Our Stock
There is presently none
and there may not ever be an active market for DH Enchantment, Inc.’s Common Stock. There are restrictions on the transferability
of these securities.
There currently is no market
for DH Enchantment, Inc.’s Common Stock and, except as otherwise described herein, we have no plans to file any registration statement
or otherwise attempt to create a market for the shares. Even if an active market develops for the shares, Rule 144, which provides for
an exemption from the registration requirements under the Securities Act under certain conditions, requires, among other conditions, a
holding period prior to the resale (in limited amounts) of securities acquired in a non-public offering without having to satisfy the
registration requirements under the Securities Act. There can be no assurance that we will fulfill any reporting requirements in the future
under the Exchange Act or disseminate to the public any current financial or other information concerning us, as is required by Rule 144
as part of the conditions of its availability.
DH Enchantment, Inc.’s
common stock is subject to the “penny stock” rules of the SEC and the trading market in DH Enchantment, Inc.’s securities
is limited, which makes transactions in DH Enchantment, Inc.’s stock cumbersome and may reduce the value of an investment in DH
Enchantment, Inc.’s stock.
Under U.S. federal securities
legislation, DH Enchantment, Inc.’s common stock will constitute "penny stock". Penny stock is any equity security that
has a market price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt,
the rules require that a broker or dealer approve a potential investor's account for transactions in penny stocks, and the broker or dealer
receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.
In order to approve an investor's account for transactions in penny stocks, the broker or dealer must obtain financial information and
investment experience objectives of the person, and make a reasonable determination that the transactions in penny stocks are suitable
for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions
in penny stocks. The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prepared by
the Commission relating to the penny stock market, which, in highlight form sets forth the basis on which the broker or dealer made the
suitability determination. Brokers may be less willing to execute transactions in securities subject to the “penny stock”
rules. This may make it more difficult for investors to dispose of DH Enchantment, Inc.’s common stock and cause a decline in the
market value of DH Enchantment, Inc.’s stock. Disclosure also has to be made about the risks of investing in penny stocks in both
public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative,
current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions.
Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information
on the limited market in penny stocks.
Our insiders beneficially
own a significant portion of DH Enchantment, Inc.’s stock, and accordingly, may have control over stockholder matters, our business
and management.
As of the date of this prospectus,
each of Sally Lo, our sole executive officer and director, and Daily Success Development Limited, our major stockholder, holds 252,00,000
and 468,000,000 shares of our common stock, respectively, representing approximately 30.31% an 56.30%, respectively, of DH Enchantment
Inc.’s issued and outstanding common stock, for an aggregate amount of 720,000,000 shares of DH Enchantment, Inc.’s common
stock, or approximately 86.61% of DH Enchantment, Inc.’s issued and outstanding shares of common stock. In addition, Ms. Lo and
Daily Success Development Limited also own approximately 86.54% of DH Enchantment, Inc.’s issued and outstanding Series A Convertible
Preferred Stock and 100% of DH Enchantment, Inc.’s issued and outstanding Series B Convertible Preferred Stock. As a result,
our management team and major stockholder will have significant influence to:
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Elect or defeat the election of our directors; |
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Amend or prevent amendment of our articles of incorporation or bylaws; |
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effect or prevent a merger, sale of assets or other corporate transaction; and |
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affect the outcome of any other matter submitted to the stockholders for vote. |
Moreover, because of the significant ownership
position held by our insiders, new investors may not be able to effect a change in our business or management, and therefore, shareholders
would have no recourse as a result of decisions made by management. In addition, sales of significant amounts of shares held by our insiders,
or the prospect of these sales, could adversely affect the market price of DH Enchantment, Inc.’s common stock. Our insiders’
stock ownership may discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of us, which
in turn could reduce DH Enchantment, Inc.’s stock price or prevent DH Enchantment, Inc.’s stockholders from realizing a premium
over DH Enchantment, Inc.’s stock price.
State securities laws
may limit secondary trading, which may restrict the states in which and conditions under which you can sell the shares covered by this
registration statement.
Secondary trading in DH Enchantment,
Inc.’s common stock will not be possible in any state until the common stock is qualified for sale under the applicable securities
laws of the state or there is confirmation that an exemption, such as listing in certain recognized securities manuals, is available for
secondary trading in the state. If we fail to register or qualify, or to obtain or verify an exemption for the secondary trading of, the
common stock in any particular state, the common stock could not be offered or sold to, or purchased by, a resident of that state. In
the event that a significant number of states refuse to permit secondary trading in DH Enchantment, Inc.’s common stock, the liquidity
for the common stock could be significantly impacted thus causing you to realize a loss on your investment.
The Company does not intend
to seek registration or qualification of its shares of common stock in any State or territory of the United States. Aside from a “secondary
trading” exemption, other exemptions under state law and the laws of US territories may be available to holders of DH Enchantment,
Inc.’s common stock.
Anti-takeover effects
of certain provisions of Nevada state law hinder a potential takeover of our company.
Though not now, in the future
DH Enchantment, Inc. may become subject to Nevada's control share law. A corporation is subject to Nevada's control share law if it has
more than 200 stockholders, at least 100 of whom are stockholders of record and residents of Nevada, and it does business in Nevada or
through an affiliated corporation. The law focuses on the acquisition of a “controlling interest” which means the ownership
of outstanding voting shares sufficient, but for the control share law, to enable the acquiring person to exercise the following proportions
of the voting power of the corporation in the election of directors:
(i) one-fifth or more but
less than one-third, (ii) one-third or more but less than a majority, or (iii) a majority or more. The ability to exercise such voting
power may be direct or indirect, as well as individual or in association with others.
The effect of the control
share law is that the acquiring person, and those acting in association with it, obtains only such voting rights in the control shares
as are conferred by a resolution of the stockholders of the corporation, approved at a special or annual meeting of stockholders. The
control share law contemplates that voting rights will be considered only once by the other stockholders. Thus, there is no authority
to strip voting rights from the control shares of an acquiring person once those rights have been approved. If the stockholders do not
grant voting rights to the control shares acquired by an acquiring person, those shares do not become permanent non-voting shares. The
acquiring person is free to sell its shares to others. If the buyers of those shares themselves do not acquire a controlling interest,
their shares do not become governed by the control share law.
If control shares are accorded
full voting rights and the acquiring person has acquired control shares with a majority or more of the voting power, any stockholder of
record, other than an acquiring person, who has not voted in favor of approval of voting rights is entitled to demand fair value for such
stockholder's shares.
In addition to the control
share law, Nevada has a business combination law which prohibits certain business combinations between Nevada corporations and “interested
stockholders” for three years after the “interested stockholder” first becomes an “interested stockholder,”
unless the corporation's board of directors approves the combination in advance. For purposes of Nevada law, an "interested stockholder"
is any person who is (i) the beneficial owner, directly or indirectly, of ten percent or more of the voting power of the outstanding voting
shares of the corporation, or (ii) an affiliate or associate of the corporation and at any time within the three previous years was the
beneficial owner, directly or indirectly, of ten percent or more of the voting power of the then outstanding shares of the corporation.
The definition of the term “business combination” is sufficiently broad to cover virtually any kind of transaction that would
allow a potential acquirer to use the corporation's assets to finance the acquisition or otherwise to benefit its own interests rather
than the interests of the corporation and its other stockholders.
The effect of Nevada's business
combination law is to potentially discourage parties interested in taking control of our company from doing so if it cannot obtain the
approval of our board of directors.
Because we do not intend
to pay any cash dividends on DH Enchantment, Inc.’s common stock, DH Enchantment, Inc.’s stockholders will not be able to
receive a return on their shares unless they sell them. We intend to retain any future earnings to finance the development and
expansion of our business. We do not anticipate paying any cash dividends on DH Enchantment, Inc.’s common stock in the foreseeable
future. Unless we pay dividends, DH Enchantment, Inc.’s stockholders will not be able to receive a return on their shares unless
they sell them. Stockholders may never be able to sell shares when desired. Before you invest in DH Enchantment, Inc.’s securities,
you should be aware that there are various risks. You should consider carefully these risk factors, together with all of the other information
included in this annual report before you decide to purchase DH Enchantment, Inc.’s securities. If any of the following risks and
uncertainties develop into actual events, our business, financial condition or results of operations could be materially adversely affected.
DH Enchantment, Inc.’s
stock may be subject to substantial price and volume fluctuations due to a number of factors, many of which are beyond our control and
may prevent our stockholders from reselling DH Enchantment, Inc.’s common stock at a profit. The market prices for
securities of penny stock companies may be volatile and may fluctuate substantially due to many factors, including:
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market conditions in the economy as a whole; |
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price and volume fluctuations in the overall stock market; |
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announcements of the introduction of new products and services by us or our competitors; |
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actual fluctuations in our quarterly operating results, and concerns by investors that such fluctuations may occur in the future; |
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deviations in our operating results from the estimates of securities analysts or other analyst comments; |
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additions or departures of key personnel; |
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legislation, including measures affecting e-commerce or infrastructure development; and |
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developments concerning current or future strategic collaborations |