| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE
2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis
of Presentation and Principles of Consolidation The
accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the
United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission
(“SEC”). The accompanying consolidated financial statements include the financial statements of the Company, and its wholly
owned subsidiaries. All inter-company balances and transactions are eliminated upon consolidation. Non-controlling
interests Non-controlling
interests represent minority shareholders’ 25 49 Uses
of estimates In
preparing the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America
(“US GAAP”), management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during
the reporting period. These estimates are based on information as of the date of the consolidated financial statements. Significant estimates
required to be made by management include, but are not limited to, the allowance for estimated uncollectible receivables, realizability
of advance to suppliers, inventory valuations, useful lives of property, plant and equipment, intangible assets, the recoverability of
long-lived assets, provision necessary for contingent liabilities, fair value of stock-based compensation, revenue recognition and realization
of deferred tax assets. The inputs into the Company’s judgments and estimates consider the economic implications of COVID-19 on
the Company’s critical and significant accounting estimates. Actual results could differ from those estimates. Risks
and Uncertainties The
main operation of the Company is located in the PRC. Accordingly, the Company’s business, financial condition, and results of operations
may be influenced by political, economic, and legal environments in the PRC, as well as by the general state of the PRC economy. The
Company’s results may be adversely affected by changes in the political, regulatory and social conditions in the PRC. Although
the Company has not experienced losses from these situations and believes that it is in compliance with existing laws and regulations
including its organization and structure disclosed in Note 1, this may not be indicative of future results. The
development and commercialization of natural and healthy extracts and compounds products is highly competitive, and the industry currently
is characterized by rapidly changing technologies, significant competition and a strong emphasis on intellectual property. The Company
may face competition with respect to its current and future pharmaceutical product candidates from major pharmaceutical companies in
China. Since
March 2023, the Company has recovered from the COVID-19 pandemic. However, the Company’s operations may be further affected by
the ongoing outbreak of COVID-19 pandemic, A COVID-19 resurgence could negatively affect the execution of customer contracts, the collection
of customer payments, or disruption of the Company’s supply chain. The continued uncertainties associated with COVID-19 may cause
the Company’s revenue and cash flows to underperform in the next 12 months. The extent of the future impact of COVID-19 is still
highly uncertain and cannot be predicted as of the date the Company’s consolidated financial statements are released. Cash Cash
includes currency on hand and deposits held by banks that can be added or withdrawn without limitation. The Company maintains most
of its bank accounts in the PRC. Cash balances in bank accounts in PRC are insured by the PRC regulation and are not insured by the
Federal Deposit Insurance Corporation (see Note 16) Accounts
receivable, net The
Company determines the adequacy of reserves for doubtful accounts based on individual account analysis and historical collection trend.
The Company establishes a provision for doubtful receivables when there is objective evidence that the Company may not be able to collect
amounts due. The allowance is based on management’s best estimate of specific losses on individual exposures, as well as a provision
on historical trends of collections. Actual amounts received may differ from management’s estimate of credit worthiness and the
economic environment. Delinquent account balances are written-off against the allowance for doubtful accounts after management has determined
that the collection is not probable, Nil Nil 99,528 13,004 13,337 BON
NATURAL LIFE LIMITED AND SUBSIDIARIES NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS NOTE
2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Advances
to Suppliers, net Advances
to suppliers consist of balances paid to suppliers for inventory raw materials and construction materials associated with the Company’s
construction-in-progress projects that have not been provided or received. Advances to suppliers are reviewed periodically to determine
whether their carrying value has become impaired. The Company considers the assets to be impaired if the collectability of the advance
becomes doubtful. The Company uses the aging method to estimate the allowance for unrealizable balances. In addition, at each reporting
date, the Company generally determines the adequacy of allowance for doubtful accounts by evaluating all available information, and then
records specific allowances for those advances based on the specific facts and circumstances. As of September 30, 2023 and 2022, no Inventories,
net Inventories
are stated at net realizable value using weighted average method. Costs include the cost of raw materials, freight, direct labor and
related production overhead. Any excess of the cost over the net realizable value of each item of inventories is recognized as a provision
for diminution in the value of inventories. Net realizable value is the estimated selling price in the normal course of business less
any costs to complete and sell products. The Company evaluates inventories on a quarterly basis for its net realizable value adjustments,
and reduces the carrying value of those inventories that are obsolete or in excess of the forecasted usage to their estimated net realizable
value based on various factors including aging, expiration dates, as applicable, taking into consideration historical and expected future
product sales. The Company recorded inventory reserve of $ 1,079 6,869 Short-term
investments The
Company’s short-term investments consist of wealth management financial products purchased from PRC banks, which can be redeemed
at any time. The banks invest the Company’s fund in certain financial instruments including money market funds, bonds or mutual
funds, with floating interest rates. The carrying values of the Company’s short-term investments approximate fair value because
of their short-term maturities. The interest earned is recognized in the consolidated statements of income and comprehensive income over
the contractual term of these investments. As of September 30, 2023 and 2022, short-term investments consisted of the following: SCHEDULE OF SHORT-TERM INVESTMENT
September 30, 2023 September 30, 2022
Beginning balance $ - $ 1,703,314
Add: purchase wealth management financial products 65 5,097,816
Less: proceeds received upon maturity of short-term investments - (6,776,385 )
Foreign currency translation adjustments - (24,745 )
Ending balance of short-term investments $ 65 $ - BON
NATURAL LIFE LIMITED AND SUBSIDIARIES NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS NOTE
2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Investment
income generated from short-term investments amounted to Nil 20,343 565 Fair
value of financial instruments Fair
value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. A three-level fair value hierarchy prioritizes the inputs used to measure fair value. The
hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of
inputs used to measure fair value are as follows:
● Level
1 — inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in
active markets.
● Level
2 — inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets,
quoted market prices for identical or similar assets in markets that are not active, inputs other than quoted prices that are observable
and inputs derived from or corroborated by observable market data.
● Level
3 — inputs to the valuation methodology are unobservable. Unless
otherwise disclosed, the fair value of the Company’s cash, short-term investment, accounts receivable, inventories, advance to
suppliers, prepaid expenses and other current assets, accounts payable, short-term bank loans, accrued expenses and other current liabilities,
taxes payable and due to related parties, approximate the fair value of the respective assets and liabilities as of September 30, 2023
and 2022 based upon the short-term nature of the assets and liabilities. The
Company believes that the carrying amount of long-term loans approximates fair value at September 30, 2023 and 2022 based on the terms
of the borrowings and current market rates as the rates of the borrowings are reflective of the current market rates. Property,
plant and equipment, net Property,
plant and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization of property and
equipment is provided using the straight-line method over their expected useful lives, as follows: SCHEDULE OF USEFUL LIVES OF PROPERTY, PLANT AND EQUIPMENT
Useful
life
Buildings 20
Machinery
and equipment 5 10
Automobiles 8
Office
and electric equipment 3 5 Expenditures
for maintenance and repairs, which do not materially extend the useful lives of the assets, are charged to expense as incurred. Expenditures
for major renewals and betterments which substantially extend the useful life of assets are capitalized. The cost and related accumulated
depreciation of assets retired or sold are removed from the respective accounts, and any gain or loss is recognized in the consolidated
statements of income and comprehensive income in other income or expenses. Construction-in-Progress
(“CIP”) Construction-in-progress
represents property and buildings under construction and consists of construction expenditures, equipment procurement, and other direct
costs attributable to the construction. Construction-in-progress is not depreciated. Upon completion and ready for intended use, construction-in-progress
is reclassified to the appropriate category within property, plant and equipment. BON
NATURAL LIFE LIMITED AND SUBSIDIARIES NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS NOTE
2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Intangible
assets, net The
Company’s intangible assets primarily include two land use rights. A land use right in the PRC represents an exclusive right to
occupy, use and develop a piece of land during the contractual term of the land use right. The cost of a land use right is usually paid
in one lump sum at the date the right is granted. The prepayment usually covers the entire period of the land use right. The lump sum
advance payment is capitalized and recorded as land use right and then charged to expense on a straight-line basis over the period of
the right, which is normally 50 The
Company acquired the first land use right of 4.1 acres located at Tongchuan City, Shaanxi Province of China at cost of approximately
$ 0.2 8.2 0.3 Impairment
of long-lived Assets Long-lived
assets, such as property, plant and equipment, land use rights and long-term investment, are reviewed for impairment when events or changes
in circumstances indicate that the carrying value of such assets may not be recoverable. Recoverability of a long-lived asset or asset
group to be held and used is measured by a comparison of the carrying amount of an asset or asset group to the estimated undiscounted
future cash flows expected to be generated by the asset or asset group. If the carrying value of an asset or asset group exceeds its
estimated undiscounted future cash flows, an impairment charge is recognized by the amount that the carrying value exceeds the estimated
fair value of the asset or asset group. Fair value is determined through various valuation techniques including discounted cash flow
models, quoted market values and third-party independent appraisals, as considered necessary. Assets to be disposed are reported at the
lower of carrying amount or fair value less costs to sell, and are no longer depreciated. No Leases ASC
842 requires that lessees recognize ROU assets and lease liabilities calculated based on the present value of lease payments for all
lease agreements with terms that are greater than twelve months. ASC 842 distinguishes leases as either a finance lease or an operating
lease that affects how the leases are measured and presented in the statement of operations and statement of cash flows. For
operating leases, the Company calculated ROU assets and lease liabilities based on the present value of the remaining lease payments
as of the date of adoption. There were no changes in the Company’s capital lease portfolio, which are now titled “finance
leases” under ASC 842. Upon
the adoption of the new guidance on October 1, 2020, the Company recognized operating lease right of use assets and operating lease liabilities
of approximately $ 0.2 BON
NATURAL LIFE LIMITED AND SUBSIDIARIES NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS NOTE
2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Foreign
Currency Translation The
functional currency for Bon Natural is the U.S Dollar (“US$”). Tea Essence uses Hong Kong dollar as its functional currency.
However, Bon Natural, and Tea Essence currently only serve as the holding companies and did not have active operations as of September
30, 2023. The Company operates its business through its subsidiaries in the PRC as of September 30, 2023. The functional currency of
the Company’s subsidiaries is the Chinese Yuan (“RMB”). The Company’s consolidated financial statements have
been translated into US$. Assets
and liabilities accounts are translated using the exchange rate at each reporting period end date. Equity accounts are translated at
historical rates. Income and expense accounts are translated at the average rate of exchange during the reporting period. The resulting
translation adjustments are reported under other comprehensive income. Gains and losses resulting from the translations of foreign currency
transactions and balances are reflected in the results of operations. The
RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions.
No representation is made that the RMB amounts could have been, or could be, converted into US$ at the rates used in translation. The
following table outlines the currency exchange rates that were used in creating the consolidated financial statements: SCHEDULE OF CURRENCY EXCHANGE RATES
September 30, 2023 September 30, 2022 September 30, 2021
Period-end spot rate US$ 1 7.2960 US$ 1 7.1135 US$ 1 6.4580
Average rate US$ 1 7.0533 US$ 1 6.5532 US$ 1 6.5095 Revenue
recognition To
determine revenue recognition for contracts with customers, the Company performs the following five steps : (i) identify the contract(s)
with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable
consideration to the extent that it is probable that a significant future reversal will not In
accordance to ASC 606, the Company recognizes revenue when it transfers its goods and services to customers in an amount that reflects
the consideration to which the Company expects to be entitled in such exchange. The Company accounts for the revenue generated from sales
of its products to its customers, in which the Company is acting as a principal in these transactions, is subject to inventory risk,
has latitude in establishing prices, and is responsible for fulfilling the promise to provide customers the specified goods. All of the
Company’s contracts have single performance obligation as the promise is to transfer the individual goods to customers, and there
are no other separately identifiable promises in the contracts. The
Company’s revenue streams are recognized at a point in time when title and risk of loss passes and the customer accepts the goods,
which generally occurs at delivery. The Company’s products are sold with no right of return and the Company does not provide other
credits or sales incentive to customers. The Company’s sales are net of value added tax (“VAT”) and business tax and
surcharges collected on behalf of tax authorities in respect of product sales. BON
NATURAL LIFE LIMITED AND SUBSIDIARIES NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS NOTE
2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Contract
Assets and Liabilities Payment
terms are established on the Company’s pre-established credit requirements based upon an evaluation of customers’ credit.
The Company did not have contract assets as of September 30, 2023 and 2022. The
Company’s contract liability primarily relates to unsatisfied performance obligations when payment has been received from customers
before the Company’s products are delivered, and are recorded as deferred revenue on the consolidated balance sheets. Costs of
fulfilling customers’ purchase orders, such as shipping, handling and delivery, which occur prior to the transfer of control, are
recognized in selling, general and administrative expense when incurred. Deferred revenue amounted to $ 106,514 188,745 1,096,101 133,533 1,080,178 403,399 Disaggregation
of Revenues The
Company disaggregates its revenue from contracts by product types, as the Company believes it best depicts how the nature, amount, timing
and uncertainty of the revenue and cash flows are affected by economic factors. The Company’s disaggregation of revenues for the
years ended September 30, 2023, 2022 and 2021 are disclosed in Note 18 of the consolidation financial statements. Research
and development expenses The
Company expenses all internal research and development costs as incurred, which primarily comprise employee costs, internal and external
costs related to execution of studies, including manufacturing costs, facility costs of the research center, and amortization and depreciation
to intangible assets and property, plant and equipment used in the research and development activities. For the years ended September
30, 2023, 2022 and 2021, research and development expense were approximately $ 298,469 424,558 249,050 Selling,
General and Administrative Expenses Selling
expenses represents primarily costs of payroll, benefits, commissions for sales representatives and advertising expenses. General and
administrative expenses represent primarily payroll and benefits costs for administrative employees, rent and operating costs of office
premises, depreciation and amortization of office facilities, professional fees and other administrative expenses. Advertising
expense Advertising
expenses primarily relate to promotion of the Company’s brand name and products through outdoor billboards and social media such
as Weibo and WeChat. Advertising expenses are included in selling expenses in the consolidated statements of income and comprehensive
income. Advertising expenses amounted to $ 11,344 41,578 25,397 Government
subsidies Government
subsidies primarily relate to local government’s cash award to High and New Technology Enterprises (“HNTEs”) to encourage
entrepreneurship and stimulate local economy. Such awards are granted on a case-by-case basis by local government. The Company’s
subsidiary, Xi’an App-chem was approved as a HNTE and received government subsidy in the form of export sales refund and cash awards
based on annual financial performance. BON
NATURAL LIFE LIMITED AND SUBSIDIARIES NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS NOTE
2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) The
Company recognizes government subsidies as other operating income when they are received because they are not subject to any past or
future conditions, there are no performance conditions or conditions of use, and they are not subject to future refunds. Government subsidies
received and recognized as other operating income totaled $ 25,415 1,306,627 449,972 Income
taxes The
Company accounts for current income taxes in accordance with the laws of the relevant tax authorities. Deferred income taxes are recognized
when temporary differences exist between the tax bases of assets and liabilities and their reported amounts in the consolidated financial
statements. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period including the enactment date. Valuation allowances are established, when necessary,
to reduce deferred tax assets to the amount expected to be realized. An
uncertain tax position is recognized only if it is “more likely than not” that the tax position would be sustained in a tax
examination. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination.
For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. Penalties and interest incurred
related to underpayment of income tax are classified as income tax expense in the period incurred. As of September 30, 2023, the Company
had income tax payable of $ 1,041,862 The
Company’s subsidiaries in China are subject to the income tax laws of the PRC. No significant income was generated outside the
PRC for the years ended September 30, 2023, 2022 and 2021. As of September 30, 2023 and 2022, all of the Company’s tax returns
of its PRC subsidiaries remain open for statutory examination by PRC tax authorities. Value
added tax (“VAT”) Sales
revenue represents the invoiced value of goods, net of VAT. The VAT is based on gross sales price and VAT rates range up to 17% (starting
from May 1, 2018, VAT rate was lowered to 16%, and starting from April 1, 2019, VAT rate was further lowered to 13%) 1,338,800 For
export sales, VAT is not imposed on gross sales price, and the VAT related to purchasing raw materials is refunded after the export is
completed. BON
NATURAL LIFE LIMITED AND SUBSIDIARIES NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS NOTE
2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Employee
Defined Contribution Plan The
Company’s subsidiaries in the PRC participate in a government-mandated multi-employer defined contribution plan pursuant to which
pension, work-related injury benefits, maternity insurance, medical insurance, unemployment benefit and housing fund are provided to
eligible full-time employees. The relevant labor regulations require the Company’s subsidiaries in the PRC to pay the local labor
and social welfare authorities monthly contributions based on the applicable benchmarks and rates stipulated by the local government.
The contributions to the plan are expensed as incurred. Employee social security and welfare benefits included as expenses in the accompanying
consolidated statements of income and comprehensive income amounted to $ 93,190 80,150 54,189 Share
Based Compensation The
Company accounts for share-based payment awards exchanged for services at the estimated grant date fair value of the award. The Company
issued 570,000 633,333 Nil 36,000 22,436 29,600 37,500 The
Company estimates the fair value of stock option grants using the Black-Scholes option pricing model and the assumptions used in calculating
the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application
of management’s judgment. Expected
Term - The expected term of options represents the period that the Company’s stock-based awards are expected to be outstanding
based on the simplified method, which is the half-life from vesting to the end of its contractual term. Expected
Volatility - The Company computes stock price volatility over expected terms based on its historical common stock trading prices. Risk-Free
Interest Rate - The Company bases the risk-free interest rate on the benchmark interest rate for loans from financial institutions provided
by the People’s Bank of China with an equivalent remaining term. Expected
Dividend - The Company has never declared or paid any cash dividends on its common shares and does not plan to pay cash dividends in
the foreseeable future, and, therefore, uses an expected dividend yield of zero in its valuation models. BON
NATURAL LIFE LIMITED AND SUBSIDIARIES NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS NOTE
2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Earnings
per Share The
Company computes earnings per share (“EPS”) in accordance with ASC 260, “Earnings per Share” (“ASC 260”).
ASC 260 requires companies with complex capital structures to present basic and diluted EPS. Basic EPS is measured as net income divided
by the weighted average common shares outstanding for the period. Diluted presents the dilutive effect on a per share basis of potential
common shares (e.g., convertible securities, options and warrants) as if they had been converted at the beginning of the periods presented,
or issuance date, if later. Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or
decrease loss per share) are excluded from the calculation of diluted EPS. For the years ended September 30, 2023, 58,507 35,290 36,000 101,200 The
following table sets forth the computation of basic and diluted earnings per share for the years ended September 30, 2023, 2022 and 2021: SCHEDULE OF EARNINGS PER SHARE
2023 2022 2021
For the Years ended September 30,
2023 2022 2021
Numerator:
Net income attributable to ordinary shareholders $ 4,595,982 $ 6,237,488 $ 4,590,803
Denominator:
Weighted-average number of ordinary shares outstanding – basic 9,139,600 8,360,774 6,615,833
Outstanding options 58,507 35,290 35,967
Outstanding warrants - - 54,435
Potentially dilutive shares from outstanding options and warrants 58,507 35,290 90,402
Weighted-average number of ordinary shares outstanding – diluted 9,198,107 8,396,064 6,706,235
Earnings per share – basic $ 0.50 $ 0.75 $ 0.69
Earnings per share – diluted $ 0.50 $ 0.74 $ 0.68 Comprehensive
income Comprehensive
income consists of two components, net income and other comprehensive income (loss). The foreign currency translation gain or loss resulting
from translation of the financial statements expressed in RMB to US$ is reported in other comprehensive income (loss) in the consolidated
statements of income and comprehensive income. Statement
of Cash Flows In
accordance with ASC 230, “Statement of Cash Flows”, cash flows from the Company’s operations are formulated based upon
the local currencies. As a result, amounts related to assets and liabilities reported on the consolidated statements of cash flows will
not necessarily agree with changes in the corresponding balances on the consolidated balance sheets BON
NATURAL LIFE LIMITED AND SUBSIDIARIES NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS NOTE
2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Recent
Accounting Pronouncements In
June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), which requires entities to measure all expected
credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and
supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial
assets measured at amortized cost. ASU 2016-13 was subsequently amended by ASU 2018-19, ASU 2019-04, ASU 2019-05, ASU 2019-10 and ASU
2020-02. For public entities, ASU 2016-13 and its amendments are effective for fiscal years, and interim periods within those fiscal
years, beginning after December 15, 2019. For all other entities, this guidance and its amendments will be effective for fiscal years
beginning after December 15, 2022, including interim periods within those fiscal years. Early application will be permitted for all entities
for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently evaluating
the effects of the guidance on the Company’s consolidated financial statements and related disclosures. In
October 2020, the FASB issued ASU 2020-10, “Codification Improvements to Subtopic 205-10, presentation of financial statements”.
The amendments in this Update improve the codification by ensuring that all guidance that requires or provides an option for an entity
to provide information in the notes to financial statements is codified in the disclosure section of the codification. That reduce the
likelihood that the disclosure requirement would be missed. ASU 2020-10 is effective for the Company for annual and interim reporting
periods beginning January 1, 2022. Early application of the amendments is permitted for any annual or interim period for which financial
statements are available to be issued. The amendments in this Update should be applied retrospectively. An entity should apply the amendments
at the beginning of the period that includes the adoption date. The Company is currently evaluating the impact of this new standard on
Company’s consolidated financial statements and related disclosures. BON
NATURAL LIFE LIMITED AND SUBSIDIARIES NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS |
