When used in this Quarterly Report, the words "may," "will," "expect,"
"anticipate," "continue," "estimate," "project," "intend," and similar
expressions are intended to identify forward-looking statements within the
meaning of Section 27a of the Securities Act and Section 21e of the Exchange Act
regarding events, conditions and financial trends that may affect our future
plans of operations, business strategy, operating results, and financial
position. Persons reviewing this Quarterly Report are cautioned that any
forward-looking statements are not guarantees of future performance and are
subject to risks and uncertainties and actual results may differ materially from
those included within the forward-looking statements as a result of various
factors. Such factors are discussed further below under "Trends and
Uncertainties," and include general economic factors and conditions that may
directly or indirectly impact our financial condition or results of operations.
Overview of Current and Planned Business Operations
Through Sanyi Group, we are engaged in providing wellness services that include
acupressure/reflexology, massage therapy and cupping. We offer various types of
massage therapy, such as Swedish, deep tissue and hot stone oil, among others,
all as discussed in Item 1. Business, of our Annual Report that is available by
Hyperlink in Part II, Item 6 hereof. We primarily rely on our promotional
activities and our shopping centre location in attracting new customers and
maintaining our current customers.
We have identified future partners from strategic cities in China to help us
exploit and expand to the China market for our wellness services in certain
major cities of China, including Guangzhou, Shenzhen, Fujian, Sichuan, Beijing,
Shanghai for fiscal 2023, though these plans are subject to the uncertainties
related to the coronavirus pandemic and are currently on hold.
On March 11, 2020, the World Health Organisation declared the coronavirus
outbreak as a pandemic owing to its rapid spread across the globe. A series of
precautionary and control measures have been and continue to be implemented
across the world by reason of this declaration and the recent furtherance of the
pandemic attributable to variants of the coronavirus outbreak ("Covid-19).
The Australian Government imposed a Movement Control Order ("MCO") through its
Australian Health Protection Principal Committee ("AHPPC") on February 27, 2020.
Following that MCO, it implemented various MCO's to include travel restrictions
and lockdowns to curb the spread of the Covid-19 outbreak in Australia.
Consequently, the MCO's have resulted material adverse effects on Australia's
economy for 2020 and beyond, with variants that continue to pose increased
public exposure around the world. On July 6, 2022, border restrictions for
people travelling to and from Australia were lifted.
We have accounted for the impact of the pandemic and its consequential effects
on our results of operations in our financial statements for the financial
fiscal years ended December 31, 2022, and 2021. The Company has slowly recovered
from the Covid-19 pandemic, and that has resulted in a positive impact on our
performance for the quarter ended December 31, 2022. Our revenue and the profit
for the quarter ended December 31, 2022, has increased significantly as compared
to the quarter ended December 31, 2021.
Results of Operations
Comparison of the quarter ended December 31, 2022, to the quarter ended December
31, 2021
Revenue
For the three months ended December 31, 2022, we had revenue of US$167,657,
compared to the six months ended December 31, 2021, of US$100,840, or an
increase of US$66,817. The increased revenue resulted from the Australian
Government Authority starting to allow occasional people movement and the
removal of Covid-19 lockdowns, allowing our wellness centre to be open for
business. The opening of our centre and the cessation of the lockdown supported
a higher revenue.
Payroll and employee related expense
For the three months ended December 31, 2022, our payroll and employee related
expense was US$45,934, compared to the six months ended December 31, 2021, of
US$36,157, or an increase of US$9,777. The payroll and employee related expense
including superannuation contribution, employee membership fees, labour hiring
costs and staff amenities, which were also greater.
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Amortization Right-of-Use Assets
For the three months ended December 31, 2022, the amortization right-of-use
assets decreased by US$2,752 to US$29,958, compared to the six months ended
September 31, 2021, of US$32,710. This decrease was due to foreign exchange
translation.
General and Administrative Expenses
For the six months ended December 31, 2022, general and administrative expense
increased by US$20,413 to US$30,438, compared to the six months ended December
31, 2021, of US$10,025. The lower expense for December 31, 2021, resulted from
the wellness centre being closed for a much longer period during the Covid-19
pandemic as Australian Government Authority imposed longer and frequent shutdown
periods and restricted people movement. However, the of business activity in the
latter part of fiscal year 2022 had incurred cost associated with its usual
operations, based upon being open for customary hours and periods.
Operating Expenses
For the six months ended December 31, 2022, our operating expenses were
US$106,330, compared to the three months ended December 31, 2021, of US$78,892.
Operating expenses consisted of payroll and employee related expenses,
depreciation on right-of-use assets, and general and administrative expenses.
The increase was primarily a result of the relaxation of the lockdown and other
restrictions of the MCO, which allowed our wellness centre operations to be
fully operational during the three months ended December 31, 2022.
Net Income
For the three months ended December 31, 2022, we had a net income after income
tax of US$64,589, compared to the six months ended December 31, 2021, of
US$44,150. The increase in revenue was directly related to our additional
operating hours during the six months ended December 31, 2022.
Liquidity and Capital Resources
As of December 31, 2022, we had US$146,363 in cash and cash equivalents on hand.
Summary of Significant Accounting Policies
The financial statements of the Company have been prepared in accordance with
generally accepted accounting principles in the United States of America and are
presented in U.S. dollars. The Company's fiscal year end is June 30.
Use of Estimates and Assumptions
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the period. Actual results
could differ from those estimates.
Foreign Currency Translation
The functional currency of our foreign subsidiary is its local currency. Assets
and liabilities of the foreign subsidiary are translated into U.S. dollars at
period-end exchange rates, stockholders' equity is translated at the historical
rates and the consolidated statement of operations and cash flows are translated
at average exchange rates during the reporting periods. Resulting translation
adjustments are recorded in accumulated other comprehensive income, a separate
component of stockholders' equity. A component of accumulated other
comprehensive income will be released into income when the Company executes a
partial or complete sale of an investment in a foreign subsidiary or a group of
assets of a foreign subsidiary considered a business and/or when the Company no
longer holds a controlling financial interest in a foreign subsidiary or group
of assets of a foreign subsidiary considered a business.
Transactions denominated in currencies other than the local currency are
recorded based on exchange rates at the time such transactions arise. Subsequent
changes in exchange rates result in foreign currency transaction gains and
losses that are reflected in results of operations as unrealized (based on
period end translation) and realized (upon settlement of the transactions) and
reported under other general expenses in the consolidated statement of
operations.
19
Fair Value of Financial Instrument
The Company's financial instruments exposed to concentrations of credit risk
consist primarily of cash and cash equivalents. Cash and cash equivalents are
held in several Australian bank accounts and time deposit accounts. We regularly
assesses the level of credit risk we are exposed to and whether there are better
ways of managing credit risk. We invests our cash and cash equivalents with
reputable financial institutions. The Company has not incurred any losses
related to these deposits.
Income Taxes
Potential benefits of income tax losses are not recognized in the accounts until
realization is more likely than not. The Company has adopted ASC 740-10-50
"Accounting for Income Taxes" as of its inception. Pursuant to the standard, the
Company is required to compute tax asset benefits for initial years of operating
losses carried forward.
Recent accounting Pronouncements
ASU 2016-02, Leases (Topic 842). ASC 842 requires companies to generally
recognize operating and financing lease liabilities and corresponding ROU assets
on their balance sheet. Leases will be classified as finance or operating
leases, with classification affecting the pattern and classification of expense
recognition in the consolidated statements of operation. Effective in year 2020,
the Company adopted this new standard prospectively using a modified
retrospective transition approach. The Company elected the package of practical
expedients permitted under the transition guidance of the new standard, which
allowed the Company to carry forward its historical assessment on whether a
contract is or contains a lease, lease classification, and initial direct costs.
Upon adoption in year 2020, the Company recognized ROU assets and lease
liability of $437.2 thousand. The adoption of ASC 842 did not have a material
impact to Company's consolidated statements of operations and cash flows from
operations.
ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of
Credit Losses on Financial Instruments. This standard update, along with
subsequent ASUs, replaces the incurred loss impairment methodology with an
expected credit loss model for which a company recognizes an allowance based on
the estimate of expected credit loss. The Company adopted the standard in year
2020 on a modified retrospective basis. The adoption of the new standard did not
have a material impact on the Company's consolidated financial statements.
In May 2014, the Financial Accounting Standards Board issued Accounting
Standards Update No. 2014-09, Revenue from Contracts with Customers ("ASU
2014-09") or ("ASC Topic 606"), which supersedes nearly all existing revenue
recognition guidance under U.S. GAAP. The new guidance provides a five-step
process for recognizing revenue that depicts the transfer of promised goods or
services to customers in an amount that reflects the consideration to which the
entity expects to be entitled in exchange for those goods or services. The new
guidance also requires expanded qualitative and quantitative disclosures related
to the nature, amount, timing and uncertainty of revenue and cash flows arising
from contracts with customers. The new guidance is effective for public
companies with annual reporting periods beginning after December 31, 2017, and
is to be applied either retrospectively to each prior reporting period presented
or retrospectively with the cumulative effect of initially applying it
recognized at the date of initial adoption. Early adoption is permitted for all
entities but not before the original effective date for public entities. The
Company adopted ASC Topic 606 in year 2019.
The FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic
740), which is intended to simplify various aspects related to accounting for
income taxes. The new standard is effective for the Company in year 2021. The
Company is currently evaluating the impact of the new standard on its
consolidated financial statements and related disclosures but does not expect it
to have a material impact.
Off-Balance Sheet Arrangements
We had no Off-Balance Sheet arrangements during the six-month period ended
December 31, 2022.
Critical Accounting Policies
Concentrations of Credit Risk
The Group's financial instruments exposed to concentrations of credit risk
consist primarily of cash and cash equivalents. Cash and cash equivalents are
held in several Australian bank accounts and time deposit accounts. The Group
regularly assesses the level of credit risk we are exposed to and whether there
are better ways of managing credit risk. The Group invests its cash and cash
equivalents with reputable financial institutions. The Group has not incurred
any losses related to these deposits.
20
Concentration of Major Customer
Our concentration of revenue from customers in our facility that is located in a
shopping centre in Victoria, Australia, makes it reasonably possible that we are
vulnerable to the risk of a long-term adverse impact, especially with the
current rise in variants of this coronavirus that have recently increased public
exposure and the number of reported cases of this virus. As a result,
governments and other authorities around the world continue to implement
significant measures as deemed necessary to control the spread of the virus.
While many of these restrictions have been lifted as the rates of Covid-19
infections have decreased or stabilized and as various vaccines have become more
widely available, a resurgence of Covid-19 and the impact of variants of the
virus that causes Covid-19 may result in the reinstatement of social distancing
measures; business closures; lockdowns; restrictions on operations; quarantines
and travel bans, among other restrictive measures. In addition, any government
mandates that require Covid-19 vaccination or other employee behaviors may
result in employee attrition at the Company or its suppliers or customers and
may create difficulties in satisfying future employment and supply requirements.
Effect of Recent Accounting Pronouncements
The Company has evaluated all recent accounting pronouncements and believes that
none will have a significant effect on the Company's financial statements.
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