Contingencies and Commitments | 9. Contingencies and commitments Lawsuit related to the assets purchase agreements The Company entered into the APA to acquire two properties in Shanghai totaling RMB 233,000,000. Payments of $27,425,644 (RMB 176,150,000) have been made through June 30, 2021. Due to the Seller of the assets is involved in several lawsuits that have restrictions of assets transferring assets under this purchase agreement sentenced by Shanghai local district courts, the Company has decided not to make remaining payments until the asset is free of the restrictions on June 2019. On May 1, 2020, a lawsuit was filed at a district court in Shanghai, China, against the Company and Shanghai Hongfu, by Shanghai Qiao Hong Real Estate, Ltd (i.e. the Seller) and its subsidiaries (the “Plaintiff”) for breach of contract and non-payment of installments pursuant to the APA entered into between the Company and the Plaintiff on April 2, 2018. The Plaintiff is alleging damages of RMB 76,654,000 (approximately $10,842,150), including remaining RMB58 million installments, interest for delayed payment, default penalty, and etc. The District Court ruled the first verdict (the “First Verdict”) on November 18, 2020 in favor of the Plaintiff’s claim - the Company should pay RMB11,140,000 penalty along with the lawsuit fee RMB374,415 and the remaining RMB57,000,000 installments to consummate the APA. On May 27, 2021, Shanghai No. 2 Intermediate Court entered a verdict of the second trial raised in the January 16, 2020 which supported the first verdict in November 18, 2020. The Court ordered the Company to pay to the plaintiff a total of RMB 68,400,000. For years ended June 30, 2021 and 2020, the Company reserved $952,558 and $1,217,240 for the interest expense related to the unpaid balance and penalty. As of June 30, 2021 and 2020, the Company total reserved the $2,314,786 and $1,209,892, respectively, in connection to the lawsuit pursuant to the First Verdict. Four bank accounts owned by Shanghai Hongfu were froze with the cash balance of $638 as of June 30, 2021. Subsequently, the Company received a 2 nd Lianyuangang Acquisition On October 26, 2020, the Company acquired 10% of the issued and outstanding shares (the “Shares”) of Lianyungang Yiheyuan Elderly Services Co., Ltd., a corporation registered in Jiangsu Province, PRC (“LYES”) pursuant to a Securities Purchase Agreement (the “Agreement”). In accordance with the Agreement, HQDA is purchasing the Shares in exchange for 234,845 shares of HQDA’s common stock valued at $1.00 per share, equivalent to 10% of the initial RMB16, 000,000 (approximately USD$2,348,450) registered capital of LYES. LYES operates a unique elderly services business in its local hot spring resort. As of June 30, 2021, due to the Covid-19 epidemic in China and other reasons from LYES, both parties agreed to stop moving forward the acquisition transaction with no harm to any party of this cooperation. The 234,845 shares certificates of HQDA’s common stock not yet issued are in the process of cancellation. Settlement of a Violation of Exchange Act On March 11, 2021, the Company settled a violation of Exchange Act Rule 12b-25 with Securities and Exchange Commission (SEC) for a fine of $50,000. In accordance with the settlement, the Company is obligated to pay the $50,000 fine as follows: $10,000 within 14 days of the entry of the Order, $15,000 within 180 days of the entry of the order, $12,500 within 270 days of the entry of the Order and $12,500 days of the entry of the Order. As of June 30, 2021, $40,000 payable was outstanding toward the settlement. |