Attached files
| file | filename |
|---|---|
| EX-32.1 - Hartford Great Health Corp. | ex32-1.htm |
| EX-31.2 - Hartford Great Health Corp. | ex31-2.htm |
| EX-31.1 - Hartford Great Health Corp. | ex31-1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: January 31, 2021
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ____ to ________
Commission File Number: 000-54439
HARTFORD
GREAT HEALTH CORP.
(Exact Name of Registrant as Specified in its Charter)
Nevada
(State or other jurisdiction of incorporation or organization)
51-0675116
(I.R.S. Employer Identification Number)
8832 Glendon Way, Rosemead, California 91770
(Address of Principal Executive Offices) (Zip Code)
Registrant’s telephone number including area code: (626)321-1915
Former name, former address, and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [_]
Indicate by checkmark whether the registrant is a large accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer [_] | Accelerated filer [_] |
| Non-accelerated filer [_] | Smaller reporting company [X] |
| Emerging growth company [X] |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [_]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [_] No [X]
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Common stock, par value $0.001 par value | HFUS | OTC Markets Group |
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 100,108,000 shares of common stock outstanding as of March 17, 2021.
Index
| 2 |
CONDENSED CONSOLIDATED BALANCE SHEETS
| January 31, 2021 | July 31, 2020 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | 24,108 | $ | 36,604 | ||||
| Prepaid and other current receivables | 256,129 | 173,819 | ||||||
| Related party receivable | 30,495 | 753,076 | ||||||
| Inventory | 325,522 | - | ||||||
| Total Current Assets | 636,254 | 963,499 | ||||||
| Non-Current Assets | ||||||||
| Restricted cash, noncurrent | 26,686 | 28,673 | ||||||
| Property and equipment, net | 577,674 | 467,881 | ||||||
| Goodwill | 72,145 | - | ||||||
| ROU assets - operating lease | 5,435,757 | 4,499,693 | ||||||
| Other assets | 382,710 | 329,235 | ||||||
| Total Noncurrent Assets | 6,494,972 | 5,325,482 | ||||||
| TOTAL ASSETS | $ | 7,131,226 | $ | 6,288,981 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities | ||||||||
| Related party loan and payables | $ | 3,850,503 | $ | 2,966,651 | ||||
| Current operating lease liabilities | 1,030,290 | 739,352 | ||||||
| Other current payable | 1,324,399 | 617,119 | ||||||
| Total Current Liabilities | 6,205,192 | 4,323,122 | ||||||
| Lease liabilities, noncurrent | 5,030,186 | 4,253,050 | ||||||
| TOTAL LIABILITIES | 11,235,378 | 8,576,172 | ||||||
| Commitments and contingencies (Note 15) | - | - | ||||||
| Stockholders’ Equity | ||||||||
| Preferred stock - $0.001 par value, 5,000,000 shares authorized, No shares issued and outstanding | - | - | ||||||
| Common stock - $0.001 par value, 300,000,000 shares authorized, 100,108,000 and 99,108,000 shares outstanding as of January 31, 2021 and July 31, 2020, respectively | 100,108 | 99,108 | ||||||
| Additional paid-in capital | 2,173,521 | 2,154,521 | ||||||
| Accumulated deficit | (4,737,003 | ) | (3,568,185 | ) | ||||
| Accumulated other comprehensive loss | (243,716 | ) | (55,146 | ) | ||||
| Noncontrolling interest | (1,397,062 | ) | (917,489 | ) | ||||
| Total Stockholders’ Deficit | (4,104,152 | ) | (2,287,191 | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 7,131,226 | $ | 6,288,981 | ||||
The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.
| 3 |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three months ended | Six months ended | |||||||||||||||
| January 31, | January 31, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Service revenues | $ | 102,925 | $ | 25,684 | $ | 182,312 | $ | 55,909 | ||||||||
| Cost of revenues | 78,450 | 19,698 | 119,278 | 39,037 | ||||||||||||
| Gross Profit | 24,475 | 5,986 | 63,034 | 16,872 | ||||||||||||
| Operating expenses | ||||||||||||||||
| Depreciation and amortization | 15,482 | 9,680 | 34,623 | 19,232 | ||||||||||||
| Selling, general and administrative | 977,348 | 465,667 | 1,654,972 | 895,278 | ||||||||||||
| Goodwill impairment | - | 991,803 | - | 991,803 | ||||||||||||
| Total Operating Expenses | 992,830 | 1,467,150 | 1,689,595 | 1,906,313 | ||||||||||||
| Operating Loss | (968,355 | ) | (1,461,164 | ) | (1,626,561 | ) | (1,889,441 | ) | ||||||||
| Other Income (Expense) | ||||||||||||||||
| Interest (expense) income, net | (3,005 | ) | 4,072 | (3,827 | ) | 7,985 | ||||||||||
| Gain on disposal of subsidiary | 104,317 | - | 104,317 | - | ||||||||||||
| Other income (expense), net | 895 | (1,101 | ) | 1,573 | (250 | ) | ||||||||||
| Other income, net | 102,207 | 2,971 | 102,063 | 7,735 | ||||||||||||
| Loss before income taxes | (866,148 | ) | (1,458,193 | ) | (1,524,498 | ) | (1,881,706 | ) | ||||||||
| Income Tax Expense | - | 800 | 800 | 800 | ||||||||||||
| Net Loss | (866,148 | ) | (1,458,993 | ) | (1,525,298 | ) | (1,882,506 | ) | ||||||||
| Less: net loss attributable to noncontrolling Interest | (222,087 | ) | (314,498 | ) | (356,480 | ) | (398,017 | ) | ||||||||
| Net Loss Attributable to Hartford Great Health Corp | $ | (644,061 | ) | $ | (1,144,495 | ) | $ | (1,168,818 | ) | $ | (1,484,489 | ) | ||||
| Net loss per common share: | ||||||||||||||||
| Basic and Diluted | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.01 | ) | ||||
| Weighted average shares outstanding: | ||||||||||||||||
| Basic and diluted | 99,847,130 | 99,108,000 | 99,477,565 | 99,108,000 | ||||||||||||
The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.
| 4 |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
| Three months ended | Six months ended | |||||||||||||||
| January 31, | January 31, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Net Loss | $ | (644,061 | ) | $ | (1,144,495 | ) | $ | (1,168,818 | ) | $ | (1,484,489 | ) | ||||
| Other Comprehensive income (loss), net of income tax | ||||||||||||||||
| Foreign currency translation adjustments | (141,125 | ) | (16,006 | ) | (249,581 | ) | (61,226 | ) | ||||||||
| Total other comprehensive loss | (141,125 | ) | (16,006 | ) | (249,581 | ) | (61,226 | ) | ||||||||
| Less: total other comprehensive loss attributable to noncontrolling interest | (32,799 | ) | - | (61,011 | ) | - | ||||||||||
| Total Other Comprehensive Loss Attributable to Hartford Great Health Corp | (108,326 | ) | (16,006 | ) | (188,570 | ) | (61,226 | ) | ||||||||
| Total Comprehensive Loss | $ | (752,387 | ) | $ | (1,160,501 | ) | $ | (1,357,388 | ) | $ | (1,545,715 | ) | ||||
The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.
| 5 |
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
| Accumulated | Total | |||||||||||||||||||||||||||
| Common Stock | Additional Paid - in | Accumulated | Other Comprehensive | Noncontrolling | Stockholders’ Equity | |||||||||||||||||||||||
| Shares | Amount | Capital | (Deficit) | loss | Interest | (Deficit) | ||||||||||||||||||||||
| Balance, July 31, 2020 | 99,108,000 | $ | 99,108 | $ | 2,154,521 | $ | (3,568,185 | ) | $ | (55,146 | ) | $ | (917,489 | ) | $ | (2,287,191 | ) | |||||||||||
| Net (loss) | - | - | - | (1,168,818 | ) | - | (356,480 | ) | (1,525,298 | ) | ||||||||||||||||||
| Issuance of common stock | 1,000,000 | 1,000 | 19,000 | - | - | - | 20,000 | |||||||||||||||||||||
| Disposal of subsidiary | - | - | - | - | - | (62,082 | ) | (62,082 | ) | |||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | (188,570 | ) | (61,011 | ) | (249,581 | ) | ||||||||||||||||||
| Balance, January 31, 2021 (unaudited) | 100,108,000 | $ | 100,108 | $ | 2,173,521 | $ | (4,737,003 | ) | $ | (243,716 | ) | $ | (1,397,062 | ) | $ | (4,104,152 | ) | |||||||||||
| Accumulated | Total | |||||||||||||||||||||||||||
| Common Stock | Additional Paid - in | Accumulated | Other Comprehensive | Noncontrolling | Stockholders’ Equity | |||||||||||||||||||||||
| Shares | Amount | Capital | (Deficit) | loss | Interest | (Deficit) | ||||||||||||||||||||||
| Balance, July 31, 2019 | 99,108,000 | $ | 99,108 | $ | 2,154,521 | $ | (916,816 | ) | $ | (6,392 | ) | $ | (81,141 | ) | $ | 1,249,280 | ||||||||||||
| Net (loss) | - | - | - | (1,484,489 | ) | - | (398,017 | ) | (1,882,506 | ) | ||||||||||||||||||
| Disposal of noncontrolling interest | - | - | - | - | - | (15,636 | ) | (15,636 | ) | |||||||||||||||||||
| Contribution from noncontrolling interest | - | - | - | - | - | 7,208 | 7,208 | |||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | (61,226 | ) | - | (61,226 | ) | |||||||||||||||||||
| Balance, January 31, 2020 (unaudited) | 99,108,000 | $ | 99,108 | $ | 2,154,521 | $ | (2,401,305 | ) | $ | (67,618 | ) | $ | (487,586 | ) | $ | (702,880 | ) | |||||||||||
The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.
| 6 |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Six months ended | ||||||||
| January 31, | ||||||||
| 2021 | 2020 | |||||||
| (Restated) | ||||||||
| Cash flows from operating activities: | ||||||||
| Net loss including noncontrolling interests | $ | (1,525,298 | ) | $ | (1,882,506 | ) | ||
| Adjustments to reconcile net loss including noncontrolling interests to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 34,623 | 19,232 | ||||||
| Gain on disposal of subsidiary, excluding noncontrolling interest | (43,505 | ) | - | |||||
| Gain on disposal of noncontrolling interest | (60,812 | ) | (4,981 | ) | ||||
| Loss on disposal of property and equipment | 749 | - | ||||||
| Goodwill impairment | - | 991,803 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid and Other current receivables | (52,614 | ) | 197,910 | |||||
| Inventory | (294,976 | ) | - | |||||
| Other assets | (50,288 | ) | (42,681 | ) | ||||
| Related party receivables and payables | 21,190 | 79,978 | ||||||
| Other current payable | 543,930 | 158,367 | ||||||
| Operating lease assets and liabilities | 95,006 | (19,395 | ) | |||||
| Other liabilities | 13,345 | - | ||||||
| Net cash (used in) operating activities | (1,318,650 | ) | (502,273 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Cash proceeds from Acquisitions | 27,497 | - | ||||||
| Cash used in Acquisitions | (14,972 | ) | - | |||||
Cash of the subsidiary disposed | (30,116 | ) | - | |||||
| Purchases of property and equipment | (98,267 | ) | (205,758 | ) | ||||
| Net cash (used in) investing activities | (115,858 | ) | (205,758 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Contribution from noncontrolling interest | - | 7,104 | ||||||
| Proceeds from issuance of common stock | 20,000 | - | ||||||
| Additions of related party notes payable | 70,000 | - | ||||||
| Principal payments on finance lease | (21,710 | ) | (19,891 | ) | ||||
| Advances from related parties | 1,345,843 | 507,028 | ||||||
| Net cash provided by financing activities | 1,414,133 | 494,241 | ||||||
| Effect of exchange rate changes on cash | 5,892 | (5,723 | ) | |||||
| Net change in Cash, cash equivalents and restricted cash | (14,483 | ) | (219,513 | ) | ||||
| Cash, cash equivalents and restricted cash at beginning of period | 65,277 | 298,724 | ||||||
| Cash, cash equivalents and restricted cash at end of period | $ | 50,794 | $ | 79,211 | ||||
| Supplemental Cash Flow Information | ||||||||
| Interest paid | $ | - | $ | - | ||||
| Income taxes paid | $ | 800 | $ | 800 | ||||
| Non-cash investing and financing activities: | ||||||||
| Payable to acquiree | $ | 10,462 | $ | - | ||||
| Investment return through three-party settlement | $ | 753,354 | $ | - | ||||
The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.
| 7 |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies is presented to assist in understanding the Company’s financial statements. The financial statements and notes are the responsibility of the Company’s management. These accounting policies conform to accounting principles generally accepted in the United States of America (“US GAAP”) and have been consistently applied in the preparation of the financial statements. This disclosure should be read in conjunction with our audited financial statements for the year ended July 31, 2020, including footnotes, contained in our Annual Report on Form 10-K,
Organization
Hartford Great Health Corp. was originally incorporated in the State of Nevada on April 2, 2008 under the name PhotoAmigo, Inc. It changed its name to Hartford Great Health Corp. on August 22, 2018 and since then we have been engaged in activities to formulate and implement our business plans.
Through its wholly owned subsidiary - Hangzhou Hartford Comprehensive Health Management, Ltd (“HZHF) and HZHF’s 60 percent owned subsidiary - Hangzhou Longjing Qiao Fu Vacation Hotel Co., Ltd. (“HZLJ”) and through Shanghai Hartford Comprehensive Health Management, Ltd. (“HFSH”) and its 90 percent owned subsidiary - Shanghai Qiao Garden International Travel Agency (“Qiao Garden Int’l Travel”), the Company engages in hospitality industry in China. Qiao Garden Int’l Travel was disposed on December 31, 2020, see note 4 Acquisitions, Joint Ventures and Deconsolidation.
The Company started to operate in early childhood education services in Hartford International Education Technology Co., Ltd (“HF Int’l Education”), a 75.5% ownership subsidiary of HFSH on March 2019. On July 24, 2019 and March 23, 2020, HF Int’l Education established two 100% owned subsidiaries, Pudong Haojin Childhood Education Ltd. (“PDHJ”) and Shanghai Hongkou HaiDeFuDe Childcare Co., Ltd.(“HDFD”), respectively, to engage the early childhood education service under the brand name of “HaiDeFuDe” in Shanghai, China. On July 20, 2020, HF Int’l Education entered an agreement with two individuals to acquire the whole ownership of Shanghai Gelinke Childcare Education Center (“Gelinke”).
Basis of Presentation
The consolidated financial statements include the accounts of Hartford Great Health Corp, its wholly-owned subsidiaries and subsidiaries in which it has a controlling interest. The Company reports noncontrolling interests of the consolidated entities as a component of equity separate from the Company’s equity. All material inter-company transactions between and among the Company and its consolidated subsidiaries have been eliminated in the consolidation. The Company’s net income (loss) excludes income (loss) attributable to the noncontrolling interests.
Use of Estimates
The preparation of financial statements in conformity with US GAAP requires the Company’s management to make estimates and assumptions that affect the amounts of assets and liabilities, the identification and disclosure of impaired assets and contingent liabilities at the date of the financial statements, and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.
Reclassifications
Certain amounts on the prior-year consolidated balance sheet, consolidated statement of operations and cash flows were reclassified to conform to current-year presentation, with no effect on ending stockholders’ equity.
| 8 |
Revenue Recognition
The Company adopted ASC Topic 606 Revenue from Contracts with Customers (“Topic 606) on August 1, 2018, applying the modified retrospective method to all contracts that were not completed as of August 1, 2018. The Company is building up its core business upon the completion of multiple acquisitions on March 2019 and impact of COVID-19 pandemic, limited operations occurred during the three months and six months ended January 31, 2021 and 2020. The revenue during the three months and six months ended January 31, 2021 and 2020, was mainly generated from HZLJ and HF Int’l Education.
Revenue is recognized when control of promised goods or services is transferred to our customers in an amount of consideration to which we expect to be entitled to in exchange for those goods or services. We follow the five steps approach for revenue recognition under Topic 606: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) we satisfy a performance obligation.. Billings to customers for which services are not rendered are considered deferred revenue. ASC 606 has no material impacts on the Company’s financial positions. The Company’s revenue is recognized when it satisfies a single performance obligation by transferring control of its products or providing services to a customer. The Company’s general payment terms are short-term in duration. The Company does not have significant financing components or payment terms. The Company recorded unearned revenue, amount of $236,007 and $75,861 as of January 31, 2021 and July 31, 2020, respectively.
| a. | Early childhood education services: HF Int’l Education generates revenue from childhood education classes provided to its customers. The educational services consist of parent-child and bilingual childcare classes. Each contract of educational classes is accounted for as a single performance obligation which is satisfied proportionately over the service period. Tuition fee is generally collected in advance and is initially recorded as deferred revenue. Refunds are provided to parents if they decide within the trial period that they no longer want to take the class. After the trial period, if a parent withdraws from a class, usually only that unearned portion of the fee is available to be returned. |
| b. | Hospitality services: HZLJ generates revenue primarily from the room rentals, sale of food and beverage and other miscellaneous hospitality services. The Company recognizes room rental and services daily as services are provided. Under ASC 606, the pattern and timing of recognition of income from hotel facility is consistent with the prior accounting model. |
Recent Accounting Pronouncements.
Recently adopted accounting pronouncements
In January 2017, the FASB issued ASU No. 2017-04, “Intangibles and Other (Topic 350): Simplifying the Test for Goodwill Impairment”, which eliminates the requirement to calculate the implied fair value of goodwill, but rather requires an entity to record an impairment charge based on the excess of a reporting unit’s carrying value over its fair value. This amendment is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company early adopted ASU No. 2017-04 on January 31, 2020. Management determined the goodwill generated from HZLJ and HFSH acquisition was fully impaired as of January 31, 2020.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”. ASU No. 2016-02 requires the recognition of lease assets and lease liabilities on the balance sheet for leases classified as operating leases under previous guidance. The accounting for finance leases (capital leases) was substantially unchanged. The original guidance required application on a modified retrospective basis with adjustments to the earliest comparative period presented. In August 2018, the FASB issued ASU No. 2018-11, “Targeted Improvements to ASC 842,” which included an option to not restate comparative periods in transition and elect to use the effective date of ASU No. 2016-02 as the date of initial application, which the Company elected. As a result, the consolidated balance sheet prior to August 1, 2019 was not restated, and continues to be reported under previous guidance that did not require the recognition of operating lease liabilities and corresponding lease assets on the consolidated balance sheet. The cumulative effect of the changes made to our Condensed Consolidated Balance Sheet at August 1, 2019 for the adoption of the new lease standard was as follows:
| 9 |
| Balance at | Balance at | |||||||||||
| July 31, 2019 | Adjustments | August 1, 2019 | ||||||||||
| Assets: | ||||||||||||
| Prepaid and Other current receivables | 386,700 | (74,197 | ) | 312,503 | ||||||||
| ROU assets-Operating lease | — | 4,185,827 | 4,185,827 | |||||||||
| Liabilities: | ||||||||||||
| Current Operating Lease liabilities | — | 651,424 | 651,424 | |||||||||
| Operating lease liabilities | — | 3,481,229 | 3,481,229 | |||||||||
The adoption of ASU No. 2016-02 had an immaterial impact on the Company’s Consolidated Statement of Operation and Consolidated Statement of Cash Flows for the year ended July 31, 2020. In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard, which allowed the Company to carry forward the historical lease classification, not reassess prior conclusions related to expired or existing contracts that are or that contain leases, and not reassess the accounting for initial direct costs. Operating leases with a term of 12 months or less will not be recorded on the Consolidated Balance Sheet. Additional information and disclosures required by ASU No. 2016-02 are contained in Note 12 Leases.
Recently issued accounting pronouncements not yet adopted
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses”. The standard, including subsequently issued amendments (ASU 2018-19, ASU 2019-04, ASU 2019-05, ASU 2019-10 and ASU 2019-11), requires a financial asset measured at amortized cost basis, such as accounts receivable and certain other financial assets, to be presented at the net amount expected to be collected based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. In November 2019, the FASB issued ASU No. 2019-10 to postpone the effective date of ASU No. 2016-13 for public business entities eligible to be smaller reporting companies defined by the SEC to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is evaluating the impact of this guidance on its consolidated financial statements.
NOTE 2. GOING CONCERN
The accompanying financial statements were prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of obligations in the normal course of business. However, Hartford Great Health Corp. has incurred losses since inception, resulting in an accumulated deficit of $4,737,003 as of January 31, 2021. These conditions raise substantial doubt about the ability of Hartford Great Health Corp. to continue as a going concern.
In view of these matters, continuation as a going concern is dependent upon several factors, including the availability of debt or equity funding upon terms and conditions acceptable to Hartford Great Health Corp., and ultimately achieving profitable operations. Management believes that Hartford Great Health Corp.’s business plan provides it with an opportunity to continue as a going concern. However, management cannot provide assurance that Hartford Great Health Corp. will meet its objectives and be able to continue in operation.
The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of Hartford Great Health Corp. to continue as a going concern.
| 10 |
NOTE 3. RESTATEMENTS
On February 18, 2021, the Company has concluded that the Company’s previously reported unaudited consolidated statements of cash flows for the six and nine months ended January 31, 2020 and April 30, 2020 incorrectly presented some funding support from related parties under operating activities, upon reflection and further analysis, which would be more accurate to be accounted for financing activities.
Restated Consolidated Statement of Cash Flow (adjusted line items):
| For the Six Months Ended January 31, 2020 | ||||||||||||
| As previously reported | As restated | Changes | ||||||||||
| Cash flows from operating activities: | ||||||||||||
| Related party receivables and payables | 587,006 | 79,978 | 507,028 | |||||||||
| Net cash (used in) operating activities | 4,755 | (502,273 | ) | 507,028 | ||||||||
| Cash flows from financing activities: | ||||||||||||
| Advances from related parties | - | 507,028 | (507,028 | ) | ||||||||
| Net cash (used in) provided by financing activities | (12,787 | ) | 494,241 | (507,028 | ) | |||||||
| For the Nine Months Ended April 30, 2020 | ||||||||||||
| As previously reported | As restated | Changes | ||||||||||
| Cash flows from operating activities: | ||||||||||||
| Related party receivables and payables | 695,432 | 74,011 | 621,421 | |||||||||
| Net cash provided by (used in) operating activities | 2,036 | (619,385 | ) | 621,421 | ||||||||
| Cash flows from financing activities: | ||||||||||||
| Advances from related parties | - | 621,421 | (621,421 | ) | ||||||||
| Net cash (used in) provided by financing activities | (12,744 | ) | 608,677 | (621,421 | ) | |||||||
NOTE 4. ACQUISITIONS, JOINT VENTURES AND DECONSOLIDATION
Joint Venture – HF Int’l Education
On March 22, 2019, HFSH entered into a joint venture agreement (the “JV agreement”) with Shanghai Jingyu Education Tech Ltd. (“SH Jingyu”) and one individual investor, to form a new entity - HF Int’l Education to provide childcare education services. HFSH initially owned 65.0% ownership HF Int’l Education, which has been decreased to 61.0% from 65.0% during the year ended on July 31, 2020 because of equity transactions between noncontrolling shareholders. On June 19, 2020, the board of HF Int’l Education decided to increase registered capital to RMB10 million from RMB5 million, and three out of four noncontrolling shareholders gave up the subscription rights. As a result, HFSH holds 75.5% of HF Int’l Education and totaling 24.5% equity held by noncontrolling shareholders. The new equity structure became effective upon the approval of the local government on September 10, 2020.
Operation result of HF Int’l Education are included in the Company’s consolidated financial statements commencing on the formation date. The Company classifies the ownership interest held by other four parties as “Noncontrolling interest” on the consolidated balance sheet.
Acquisition of Gelinke
On July 20, 2020, HF Int’l Education entered an agreement with two individuals to acquire the whole ownership of Shanghai Gelinke Childcare Education Center (“Gelinke”). The intent behind the acquisition is to expand the company’s early childhood education services. The results of operations of the acquired entities are included in the Company’s consolidated financial statements commencing on the acquisition date. The Company has recorded an allocation of purchase price to Gelinke’s tangible and identifiable intangible assets acquired and liabilities assumed based on their fair value at the acquisition date. The Company accounted the acquisition transaction in accordance with FASB ASC 805, Business Combinations, under acquisition accounting method. The related transaction costs were immaterial and included in General and administrative expenses in the accompanying consolidated statements of operations. The preliminary calculation of purchase price and purchase price allocation is as follows:
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| Assets Acquired and Liabilities Assumed | ||||
| Cash and cash equivalents | 1,809 | |||
| Restricted Cash | 25,009 | |||
| Prepaid and Other current receivables | 4,696 | |||
| Property and Equipment, net | 4,294 | |||
| Unearned revenue | (78,696 | ) | ||
| Goodwill | 67,712 | |||
| Total consideration* | 24,824 | |||
*$10,462 (RMB70,000) payable to the acquiree plus $14,362 (RMB100,000) cash payment totaled $24,824 consideration for the acquisition.
Goodwill is mainly attributable to synergies expected from the acquisition of license, list of customers and teacher workforce.
Other Acquisitions
On January and February 2019, HFSH entered agreements to acquire 85 percent ownership of Shanghai Senior Health Consulting Ltd. (“SH Senior”) and 55 percent ownership of Shanghai Pasadena Ltd. (“SH Pasadena”). On December 31, 2020, HFSH withdraw from the two acquisition agreements. No penalty is resulted from the withdrawn.
On January 2019, HFSH entered agreements to acquire 100 percent equity interest of Shanghai Luo Sheng International Trade Ltd. (“SH Luosheng”), As of January 31, 2021, the agreement has not yet taken effective as no consideration has been paid toward those acquisitions. The agreement will be executed when the Company is financially ready to move forward, and the purchase price will be calculated based on the net assets of each entity on execute dates. There was no penalty levied or to be levied due to delayed execution or inexecution.
During May and June 2019, the Company entered an agreement and a supplemental agreement to acquire 60 percent equity interest of Shanghai Ren Lai Ren Wang Restaurant Co., Ltd. (“SH RLRW”). The acquisition agreement has not yet taken effective as no consideration has been paid towards the acquisition. On June 12, 2020, the company withdraw from the acquisition by transferring the agreement to an individual with zero price.
Disposal of subsidiary
On December 31, 2020, HFSH disposed its 90 percent owned subsidiary - Qiao Garden Intel Travel to an individual (the “Disposal”). The individual is a relative of the CEO, Qiao Garden Int’l Travel became a related party after deconsolidation. The operation results, assets and liabilities, and cash flows of Qiao Garden Int’l Travel were deconsolidated from the Company’s consolidated financial statements effective on December 31, 2020. The Disposal of Qiao Garden was consummated through a three-party settlement among HFSH, SH Qiaohong and Qiao Garden Intl Travel (the “Three-Party Settlement”): the original investment RMB 4.5 million plus RMB 0.5 million investment income were agreed to withdrawn from Qiao Garden Intel Travel and settled with a payable due to SH Qiaohong at SHHF, who was a debtor of Qiao Garden Intel Travel, see Note 13, Related Party Transactions.
Net assets (liabilities) disposed of:
| Net assets (liabilities) disposed of: | ||||
| Cash and cash equivalents | 172 | |||
| Restricted cash | 29,944 | |||
| Related party receivable | 782,224 | |||
| Related party payable | (98,615 | ) | ||
| Other current payable | (3,876 | ) | ||
| Noncontrolling interest | (60,812 | ) | ||
| Net assets of the subsidiary, excluding noncontrolling interest | 649,037 | |||
| Consideration | 753,354 | |||
| Gain on disposal of the subsidiary | (104,317 | ) | ||
| Gain on disposal of noncontrolling interest | (60,812 | ) | ||
| Gain on disposal of the subsidiary, excluding noncontrolling interest | (43,505 | ) | ||
Net inflow / (outflow) of cash and cash equivalents in respect of the disposal subsidiary:
| Cash and cash equivalents | (172 | ) | ||
| Restricted cash | (29,944 | ) | ||
| Cash and cash equivalents deconsolidated | (30,116 | ) |
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NOTE 5. RESTRICTED CASH
The Company early adopted Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires that restricted cash be included with cash and cash equivalents when reconciling the beginning of year and end of year total amounts shown on the statements of cash flows. The restricted cash is collateral required by the local government in China for business operation certificate Gelinke holds.
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the balance sheets that sum to the total of the same such amounts shown in the statements of cash flows.
January 31, 2021 (unaudited) | January 31, 2020 (unaudited) | |||||||
| Cash and cash equivalents | $ | 24,108 | $ | 50,379 | ||||
| Restricted cash, noncurrent | 26,686 | 28,832 | ||||||
| Total cash, cash equivalents and restricted cash shown in the statement of cash flows | $ | 50,794 | $ | 79,211 | ||||
NOTE 6. PREPAID AND OTHER CURRENT RECEIVABLES
Prepaid and other current receivable, amounts of $256,129 and $173,819 as of January 31, 2021 and July 31, 2020, respectively, mainly consist of purchase advance, prepaid rent, employee operating advances and others.
NOTE 7. INVENTORY
Inventory mainly consists of books, the early childhood education materials. Inventory is stated at the lower of cost or net realizable value. As of January 31, 2021 and July 31, 2020, inventory balance was $325,522 and nil, respectively.
NOTE 8. PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the following at January 31, 2021 and July 31, 2020:
| January 31, | July 31, | |||||||
| 2021 (unaudited) | 2020 | |||||||
| Leasehold improvements | $ | 196,831 | $ | 181,378 | ||||
| Finance lease assets | 292,248 | 269,304 | ||||||
| Furniture and fixtures | 236,585 | 202,241 | ||||||
| Office equipment and vehicles | 138,609 | 112,759 | ||||||
| Construction in progress | 93,523 | 19,326 | ||||||
| 957,796 | 785,008 | |||||||
| Less: accumulated depreciation and amortization | (380,122 | ) | (317,127 | ) | ||||
| $ | 577,674 | $ | 467,881 | |||||
Depreciation expense for the three months and six months ended January 31, 2021 were $15,482 and $34,623, respectively.
Depreciation expense for the three months and six months ended January 31, 2020 were $4,311 and $8,576, respectively.
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NOTE 9. OTHER ASSETS
Other assets consist of the following at January 31, 2021 and July 31, 2020:
| January 31, 2021 (unaudited) | July 31, 2020 | |||||||
| Other miscellaneous assets | $ | 37,231 | $ | 40,265 | ||||
| Rental deposits | 345,479 | 288,970 | ||||||
| Deferred cost of finance lease | - | - | ||||||
| $ | 382,710 | $ | 329,235 | |||||
During 2019 HZLJ acquisition, the cost of obtaining the finance lease of the land use rights and hotel building at HZLJ, in the amount of $879,800 (RMB 6 million) was recognized as Other Assets and subject for amortization over the remaining lease term, 41 years commenced on October 2010. The amortization is computed using the straight-line method over the remaining lease term. Amortization expense of deferred cost of finance lease for the three months and six months ended October 31, 2019 were $5,369 and $10,656, respectively. Given the impact of COVID-19 pandemic and the unfavorable operation results, management determined that the deferred cost of finance lease was fully impaired as of July 31, 2020 and $621,963 impairment cost was recorded for the year ended July 31, 2020.
NOTE 10. OTHER CURRENT PAYABLE
The following is a breakdown of the accounts and other payables as of January 31, 2021 and July 31, 2020:
| January 31, 2021 (unaudited) | July 31, 2020 | |||||||
| Payable to acquirees | $ | 152,115 | $ | 130,138 | ||||
| Unearned revenue | 236,007 | 75,861 | ||||||
| Rental payables | 505,718 | 252,154 | ||||||
| Accrued payroll | 122,939 | 48,534 | ||||||
| Payable to publisher | 140,021 | - | ||||||
| Other payables | 167,599 | 110,432 | ||||||
| $ | 1,324,399 | $ | 617,119 | |||||
Payable to acquirees is the unpaid consideration for the acquisitions during 2019 and 2020. Rental payable is accrued for unpaid rent.
NOTE 11. STOCKHOLDERS’ EQUITY
On July 3, 2020, the Company entered a subscription agreement of 1,000,000 shares of common stock (the “Shares”) with a significant shareholder of the Company priced at $0.02 per share. $20,000 subscription was received, and the shares were issued on November 24, 2020. Given the trade volume and level of activities of HFUS stock in the market is very low, for which the market is considered inactive, therefore the quoted market price might not be the best indication of fair value pursuant to ASC 820-10-35, thus, management concluded that the Shares was issued at the fair market value.
NOTE 12. LEASES
At the inception of a contract, the Company assesses whether the contract is, or contains, a lease. Leases are classified as either finance leases or operating leases based on criteria in Accounting Standards Codification (“ASC”) 842. Operating leases are included in ROU assets-Operating lease, Current Operating Lease liabilities and Operating lease liabilities, finance leases are included in Property and Equipment and Other Liabilities in the condensed Consolidated Balance Sheet.
Right-of-use (“ROU”) assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As the lease did not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in China market. ROU assets also include any lease payments made and exclude lease incentives. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for operating leases, consisting of lease payments, is recognized on a straight-line basis over the lease term. Lease expense for finance leases consists of the amortization of the ROU asset on a straight-line basis over the asset’s estimated useful life and interest expense is calculated using the amortized cost basis.
As of January 31, 2021, the Company has multiple operating leases for office spaces and a finance lease of land and hotel building. Our operating leases have remaining lease terms ranging from two years to six years, with various term extensions available. Our finance lease has remaining lease term of thirty-one years. The Company has elected not to recognize ROU assets and lease liabilities for short-term operating leases that have a term of twelve months or less.
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On June 2018 and January 2019, HFSH and HF Int’l Education entered two lease agreements with Shanghai Longjin Corporate Management Co., Ltd (the “Sublessor”) to lease office spaces (the “Subleases”). HFSH and HF Int’l Education received Notices of Lease Termination from the Sublessor for late payments on April 13, 2020 and filed a civil lawsuit against the Sublessor on July 10, 2020 (see Note 15). And the original lease agreement entered between the Sublessor and the landlord of the office building (the “Landlord”) was terminated by the Landlord on June 1, 2020 due to payment default. The two sublease agreements entered with the Sublessor was terminated on June 1, 2020 and approximately $921,000 ROU and $891,000 lease liability associated with the two Subleases as of May 31, 2020 were eliminated and $29,000 other expenses was recognized as a result. HF Int’l Education entered a new lease agreement with the Landlord on June 1, 2020 for the same office spaces with a five-year term.
On September 1, 2020, Gelinke entered a five-year new lease agreement at the same location upon the completion of the acquisition. Approximately $1.20 million ROU and $1.28 million lease liability were recorded associated with the new lease as of January 31, 2021.
HZHF terminated its original office lease on January 6, 2021. Approximately $287,000 ROU and $258,000 lease liability associated with the original lease agreement were eliminated. On January 9, 2021, HFHZ entered into a two-year new lease with smaller space at the same property. Approximately $49,000 ROU and $37,000 lease liability were recorded associated with the new lease as of January 31, 2021.
The finance lease was obtained through HZLJ acquisition on March 22, 2019. On October 1, 2010, HZLJ took over the lease of the land and hotel building for 41 years. Finance lease right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease.
Lease-related assets and liabilities on January 31, 2021 and July 31, 2020 were as follows:
| January 31, 2021 | July 31, | |||||||
| (Unaudited) | 2020 | |||||||
| Assets | ||||||||
| Finance lease right-of-use assets, cost | $ | 292,248 | $ | 269,304 | ||||
| Less: accumulated amortization | (73,656 | ) | (64,589 | ) | ||||
| Finance lease right-of-use assets, net | 218,592 | 204,715 | ||||||
| ROU assets-Operating lease | 5,435,757 | 4,499,693 | ||||||
| Total Lease ROU assets | $ | 5,654,349 | $ | 4,704,408 | ||||
| Liabilities | ||||||||
| Current Operating Lease liabilities | $ | 1,030,290 | $ | 739,352 | ||||
| Operating lease liabilities, noncurrent | 4,673,393 | 3,916,259 | ||||||
| Finance lease liabilities, noncurrent | 356,793 | 336,791 | ||||||
| Total Lease liabilities | $ | 6,060,476 | $ | 4,992,402 | ||||
The components of lease cost for the three months and six months ended January 31, 2021 and 2020 was as follows:
| Three months ended January 31, | Six months ended January 31, | |||||||||||||||
| 2021 (Unaudited) | 2020 (Unaudited) | 2021 (Unaudited) | 2020 (Unaudited) | |||||||||||||
| Operating lease cost | $ | 344,638 | $ | 259,589 | $ | 690,351 | $ | 463,159 | ||||||||
| Finance leases: | ||||||||||||||||
| Amortization of ROU assets | 1,852 | 1,675 | 3,564 | 3,302 | ||||||||||||
| Interest on finance lease liabilities | 7,206 | 6,426 | 13,867 | 12,668 | ||||||||||||
| Finance lease cost | 9,058 | 8,101 | 17,431 | 15,970 | ||||||||||||
| Total lease cost | $ | 353,696 | $ | 267,690 | $ | 707,782 | $ | 479,129 | ||||||||
Supplemental cash flow information for leases for the six months ended January 31, 2021 and 2020 was as follows:
| | Six months ended January 31, | |||||||
| 2021 (Unaudited) | 2020 (Unaudited) | |||||||
| Operating cash flows paid for operating leases | $ | 300,344 | $ | 327,895 | ||||
| Financing cash flows paid for finance leases | 21,710 | 19,891 | ||||||
The weighted-average remaining lease term and weighted-average discount rate for operating and finance leases at January 31, 2021 was as follows:
| Operating Leases | Finance Leases | |||||||
| Weighted-average remaining lease term (years) | 4.6 | 30.5 | ||||||
| Weighted-average discount rate | 8 | % | 8 | % | ||||
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The following table reconciles the undiscounted future minimum lease payments for operating and finance leases executed at January 31, 2021:
| Operating Leases | Finance Leases | |||||||
| 2021 (excluding the six-month ended January 31, 2020) | $ | 719,693 | $ | - | ||||
| 2022 | 1,524,724 | 23,337 | ||||||
| 2023 | 1,476,547 | 24,115 | ||||||
| 2024 | 1,544,011 | 24,893 | ||||||
| 2025 | 1,456,653 | 25,671 | ||||||
| 2026 and thereafter | 117,082 | 987,148 | ||||||
| Total lease payments | $ | 6,838,710 | $ | 1,085,164 | ||||
| Less interest | (1,135,027 | ) | (728,371 | ) | ||||
| Present value of future lease payments | $ | 5,703,683 | $ | 356,793 | ||||
| Current Lease liabilities | 1,030,290 | - | ||||||
| Noncurrent Lease liabilities | 4,673,393 | 356,793 | ||||||
NOTE 13. RELATED PARTY TRANSACTIONS
Related Party Receivables
As of January 31, 2021 and July 31, 2020, amount of $0 and $703,776, respectively, is due from Shanghai Qiaohong Real Estate Co., Ltd. (“SH Qiaohong”), the noncontrolling interest of Longjing. The balance was acquired through HFSH acquisition. HFSH lent the amount to SH Qiaohong for two years on June 21, 2018 bearing annual interest of six percent. On August 1, 2020, the loan has been extended to July 31, 2022. For the three months and six months ended January 31, 2021, $9,778 and $18,374 of interest income were recognized, respectively. For the three months and six months ended January 31, 2020, $9,549 and $18,953 of interest income were recognized, respectively.
The remaining related party receivable of $30,495 and $49,300 as of January 31, 2021 and July 31, 2020, respectively, represents the operating advances made to the affiliates which are managed by the same management team. These advances do not bear interest and are considered due on demand.
Related Party Payables
As of January 31, 2021 and July 31, 2020, amounts of $402,344 and $674,830, are payable to SH Qiaohong, respectively. Majority of the balance at July 31, 2020 was part of the liability assumed through HFSH acquisition, under its 90 percent owned entity, Qiao Garden Intl Travel. This payable balance does not bear interest and due on demand. During the six months ended January 31, 2021, HFSH obtained approximately $387,000 funding support from SH Qiaohong for operation, bears no interest and due on demand.
As of January 31 2021 and July 31, 2020, amount of $622,316 and $594,965, respectively, is payable to Shanghai Qiao Garden Property Management Group (“Qiao Garden Group”), an entity managed by the same management team. The balance was part of the liability assumed through HZLJ acquisition. This payable balance does not bear interest and is considered due on demand.
HFSH had payable balances to Shanghai Oversea Chinese Culture Media Ltd. (“SH Oversea”), an entity managed by the same management team, in the amounts of $2,095,074 and $1,012,650 as of January 31, 2021 and July 31, 2020, respectively. The payable is funding support from SH Oversea for operation, bears no interest and due on demand.
From September 2020 to January 2021, the Company borrowed several notes in a total amount of $70,000, in form of a short-term loan at 5% per annum from a related party, Hartford Hotel Investment Inc. an entity managed by the same management team. $770 and $926 of interest expense were recognized during the three months and six months ended January 31, 2021, respectively. The unpaid principal and interest will be due on the maturity date.
As of January 31, 2021 and July 31, 2020, the Company has $650,508 and $592,106, respectively, short-term payable to Shanghai DuBian Assets Management Ltd. (“Dubian”), which is owned by the Company’s CEO’s relative. The payable balance was assumed from the acquisition transaction. On April 30, 2019, both parties entered a long-term agreement to convert the payable to a long-term debt, with expiration date on April 30, 2021, bearing approximately 2.5 percent of annual interest. $3,909 and $7,658 of interest expense were recognized during the three months and six months ended January 31, 2021, respectively. $3,661 and $ 7,267 of interest expense were recognized during the three and six months ended January 31, 2020, respectively. The unpaid principal and interest will be due on the maturity date. This loan payable is not exposed to market risk due to the stable and fixed interest rates in accordance with the loan agreements.
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The remaining related party payable of $9,335 and $92,100 as of January 31, 2021 and July 31, 2020, respectively, represents the unpaid portion of operating advances made to the Company by affiliates which are managed by the same management team. These advances do not bear interest and are considered due on demand.
Three-Party Settlement Agreement
On December 31, 2020, a Three-Party Settlement agreement among HFSH, SH Qiaohong and Qiao Garden Intl Travel was entered. Pursuant to the agreement, around $721,000 (RMB$5,031,699) payable due to SH Qiaohong under HFSH was settled with the receivable due from the same related party under Qiao Garden Intel Travel through withdrawal of 90% ownership of Qiao Garden Intl Travel HFSH owned. Total RMB5.0 million including the original investment RMB 4.5 million was withdrawn from Qiao Garden Intel Travel, and $104,317 (RMB697,000) gain on disposal was recognized as of January 31, 2021.
Other Related Party Transactions
Office space at Rosemead, CA is provided to Hartford Great Health Corp. at no cost by the sole executive officer. No provision for these costs has been included in these financial statements as the amounts are not material.
On September 30, 2019, HF Int’l Education entered two debt agreements with the related parties, SH Qiao Hong and SH Oversea. Each debt agreement provides a line of credit up to RMB9.0 million with two-year term, bearing 3.0% annum interest rate. The unpaid principal and interest will be due on the maturity dates. As of January 31, 2021, no balance was withdrawn from the two line of credits by HF Int’l Education.
NOTE 14. NONCONTROLLING INTERESTS
Noncontrolling interests consisted of the following as of January 31, 2021 and 2020:
| Name of Entity | % of Non-Controlling Interests | July 31, 2020 | Net loss | Disposal of subsidiary | Foreign currency translation adjustment | January 31, 2021 | ||||||||||||||||||
| HZLJ | 40.0 | % | $ | (889,068 | ) | $ | (25,874 | ) | $ | - | $ | (41,781 | ) | $ | (956,723 | ) | ||||||||
| HF Int’l Education | 24.5 | %* | (88,692 | ) | (332,417 | ) | - | (19,230 | ) | (440,339 | ) | |||||||||||||
| Qiao Garden Intl Travel | 10.0 | % | 60,271 | 1,811 | (62,082 | ) | - | - | ||||||||||||||||
| Total | $ | (917,489 | ) | $ | (356,480 | ) | $ | (62,082 | ) | $ | (61,011 | ) | $ | (1,397,062 | ) | |||||||||
*90% equity of SHHZJ, a limited partnership and 10% shareholder of HF Int’l Education, is held by Mr. Song, CEO of the Company on behalf of an unrelated individual. However, HF Int’l Education does not have the obligation to absorb losses of SHHZJ or a right to receive benefits from SHHZJ that could potentially be significant to SHHZJ, thus, SHHZJ is not considered a VIE of HF Int’l Education.
| Name of Entity | % of Non-Controlling Interests | July 31, 2019 | Net loss | Disposal of Noncontrolling interest | Investment from Noncontrolling Interest | January 31, 2020 (unaudited) | ||||||||||||||||||
| HZLJ | 40.0 | % | $ | (250,794 | ) | $ | (220,231 | ) | $ | - | $ | - | $ | (471,025 | ) | |||||||||
| HF Int’l Education | 41.5 | % | 104,923 | (170,233 | ) | (15,636 | ) | 7,208 | (73,738 | ) | ||||||||||||||
| Qiao Garden Intl Travel | 10.0 | % | 64,730 | (7,553 | ) | - | - | 57,177 | ||||||||||||||||
| Total | $ | (81,141 | ) | $ | (398,017 | ) | $ | (15,636 | ) | $ | 7,208 | $ | (487,586 | ) | ||||||||||
NOTE 15. COMMITMENTS AND CONTINGENCIES
There has been below material contractual obligations and other commitments except the lease commitments disclosed in Note 12 Leases.
On June 2018 and January 2019, HFSH and HF Int’l Education entered two lease agreements with Shanghai Longjin Corporate Management Co., Ltd (the “Sublessor”) to lease some office spaces. On April 13, 2020, HFSH and HF Int’l Education received Notices of Lease Termination from the Tenant for late payments. HFSH and HF Int’l Education then filed a civil case against the Sublessor for over-charged rent fees because of fictitious office size and requested refund in the total amount approximately $481,000 (RMB3.3 million) till July 10, 2020. The Sublessor was further in default under the lease agreements due to its lease agreement with the landlord of the office properties (the “Landlord”) was terminated on June 1, 2020 by the Landlord. The litigation documents have been serviced through public announcement to the Sublessor. The district court expects to have a ruling sometime in June 2021.
The Company accrued the full amount of rent expense for the period ended May 31, 2020 and the accrued rental payable was $159,613 and $147,082 associated with the Sublessor under the two lease agreements as of January 31, 2021 and July 31, 2020, respectively. HF Int’l Education entered a new lease agreement with the Landlord on June 1, 2020 for the same office spaces in a five-year term.
| 17 |
NOTE 16. SEGMENT INFORMATION
The Company currently operates in following industry segments: hospitality (hotel and travel agency) and early childhood education industry in China.
Segment information on assets as of January 31, 2021 and revenue generated during the six months ended January 31, 2021, as follows:
| Hospitality | Education | Corporate and unallocated | Total | |||||||||||||
| Revenue | $ | 47,126 | $ | 135,186 | $ | - | $ | 182,312 | ||||||||
| Operating loss | (184,974 | ) | (1,357,144 | ) | (84,443 | ) | (1,626,561 | ) | ||||||||
| Loss before tax | (82,321 | ) | (1,356,807 | ) | (85,370 | ) | (1,524,498 | ) | ||||||||
| Net Loss Attributable to Hartford Great Health Corp | (58,259 | ) | (1,024,389 | ) | (86,170 | ) | (1,168,818 | ) | ||||||||
| Total assets (excluding Intercompany balances) | 391,550 | 6,703,103 | 36,573 | 7,131,226 | ||||||||||||
Segment information on assets as of January 31, 2020 and revenue generated during the six months ended January 31, 2020, as follows:
| Corporate and | ||||||||||||||||
| Hospitality | Education | unallocated | Total | |||||||||||||
| Revenue | $ | 44,386 | $ | 11,523 | $ | — | $ | 55,909 | ||||||||
| Operating loss | (1,368,260 | ) | (410,199 | ) | (110,982 | ) | (1,889,441 | ) | ||||||||
| Operating loss before tax | (1,720,904 | ) | (59,015 | ) | (101,787 | ) | (1,881,706 | ) | ||||||||
| Net Loss attributable to Hartford Great Health Corp | (1,117,444 | ) | (264,458 | ) | (102,587 | ) | (1,484,489 | ) | ||||||||
| Total assets (excluding Intercompany balances) | 1,846,219 | 3,397,315 | 1,032,656 | 6,276,190 | ||||||||||||
NOTE 17. SUBSEQUENT EVENTS
In accordance with ASC 855, “Subsequent Events”, the Company has evaluated subsequent events through the date of issuance of these unaudited financial statements and has noted subsequent event disclosed below.
On February 19, 2021, the Company borrowed several notes in a total amount of $30,000, in form of a short-term loan at 5% per annum from a related party.
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Forward-Looking Statements
This Form 10-Q contains or incorporates by reference “forward-looking statements,” as that term is used in federal securities laws, about our financial condition, results of operations and business. These statements include, among others:
| - | statements concerning the benefits that we expect will result from our business activities and results of business development that we contemplate or have completed, such as increased revenues; and statements of our expectations, beliefs, future plans and strategies, anticipated developments and other matters that are not historical facts. These statements may be made expressly in this document or may be incorporated by reference to other documents that we will file with the SEC. You can find many of these statements by looking for words such as “believes,” “expects,” “anticipates,” “estimates” or similar expressions used in this report or incorporated by reference in this report. |
These forward-looking statements are subject to numerous assumptions, risks and uncertainties that may cause our actual results to be materially different from any future results expressed or implied in those statements. Because the statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied. We caution you not to put undue reliance on these statements, which speak only as of the date of this report. Further, the information contained in this document or incorporated herein by reference is a statement of our present intention and is based on present facts and assumptions, and may change at any time and without notice, based on changes in such facts or assumptions.
Item 2. Management’s Discussion and Analysis or Plan of Operation Overview
This discussion updates our business plan for the six-month periods ending January 31, 2021. It also analyzes our financial condition at January 31, 2021 and compares it to our financial condition at July 31, 2020. This discussion and analysis should be read in conjunction with our audited financial statements for the year ended July 31, 2020, including footnotes, contained in our Annual Report on Form 10-K, and with the unaudited financial statements for the interim period ended January 31, 2021, including footnotes, which are included in this quarterly report.
Overview of the Business
Hartford Great Health Corp. was originally incorporated in the State of Nevada on April 2, 2008 under the name PhotoAmigo, Inc. It changed its name to Hartford Great Health Corp. on August 22, 2018 and since then we have been engaged in activities to formulate and implement our business plan as set forth below.
Ability to continue as a “going concern”.
The independent registered public accounting firms’ reports on our financial statements as of July 31, 2020 and 2019, includes a “going concern” explanatory paragraph that describes substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to the factors prompting the explanatory paragraph are discussed in the financial statements, including footnotes thereto.
Plan of Operation
As of January 31, 2021, the company has issued a total of 100,108,000 shares of common stock. On December 11th, 2018, 96,090,000 shares of common stock were issued at the price of $0.02 per share to raise an additional $1,921,800 in capital. On November 24, 2020, the Company issued additional 1,000,000 shares of common stock to a significant shareholder of the Company at $0.02 per share.
On December 28, 2018, the Company acquired Hangzhou Hartford Comprehensive Health Management, Ltd (“HZHF”). On March 22, 2019, the Company acquired 60 percent of Hangzhou Longjing Qiao Fu Vacation Hotel Co., Ltd. (“HZLJ”). On March 20, 2019, the Company acquired Shanghai Hartford Comprehensive Health Management, Ltd. (“HFSH”) with 90 percent of Shanghai Qiao Garden International Travel Agency (“Qiao Garden Int’l Travel”), which was disposed on December 31, 2020, and formed a joint venture entity, Hartford International Education Technology Co., Ltd (“HF Int’l Education”).
The subsidiary of HFUS in Shanghai (HFSH) advances operating funds from two related party entities, SH Qiao Hong and SH Oversea Chinese Culture Media Ltd. The main purpose of the funding is to invest in Hartford International Education Technology (Shanghai) Co., Ltd. (HF Int’l Education). Upon signing of supplemental agreement, HFUS currently holds 75.5% ownership of HF Int’l Education and maintains control over HF Int’l Education. On July 24, 2019, HF Int’l Education established a 100% owned subsidiary, Pudong Haojin Childhood Education Ltd. (“PDHJ”). On October 28, 2019, PDHJ had its childhood education center opened. On March 23, 2020, HF Int’l Education established Shanghai Hongkou HaiDeFuDe Childcare Co., Ltd.(“HDFD”) and was approved the business license to conduct childcare operations in Shanghai, China. On July 20, 2020, HF Int’l Education entered an agreement with two individuals to acquire the whole ownership of Shanghai Gelinke Childcare Education Center (“Gelinke”).
HF Int’l Education has developed an enhanced model of childcare franchise management program and registered a new brand name, “HaiDeFuDe”. HF Int’l Education has recruited a team of knowledgeable childcare teachers to develop series of independent textbooks designed to targeted age of young children and register for the copyrights for these textbooks in September of 2020. Recently, HF Int’l Education has begun marketing and promoting the enhanced model of franchise operation and management packaged program, under “HaiDeFuDe” brand, to an initial of 50 franchisees throughout different regions of China. To achieve that, HF Int’l Education has incorporated existing market resources throughout other major cities and provinces in China. The promotion of HF Int’l Education franchise operation and management model is expected to attract other childcare education centers to join the “HaiDeFuDe” brand, and HF Int’l Education expects to generate revenue from franchise and management fees. Due to continued market uncertainties during the pandemic, we have reduced our revenue projection again from our last disclosure. We will run a special franchise promotion after the ease of restrictions caused by the pandemic. There will be a great reduction in franchise fees for the first twenty childcare center that join our brand. In doing so, the Company expect to generate a revised revenue of RMB4,000,000 by the end of 2021.
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Results of Operations – Three months ended January 31, 2021 Compared to Three months ended January 31, 2020.
Revenue and Cost of revenue: We recognized $102,925 and $25,684 revenue in the three months ended January 31, 2021 and 2020, respectively. Cost of revenue increased to $78,450 for the three months ended January 31, 2021, compared to $19,698 during the comparable period of 2020. The revenue was mainly generated from two industry segments, the hospitality housing in HZLJ and childhood education care services in HF Int’l Education. The other business lines with limited operations have not generated revenue yet.
Operating Expenses: Operating expenses decreased to $992,830 for the three months ended January 31, 2021, compared to $1,467,150 during the comparable period of 2020. During the three months ended January 31, 2021, the decrease of $474,320 was resulted from the decrease of Goodwill impairment by $991,803, offset by the increase of the selling, general and administrative expenses by $511,681, and the increase of depreciation and amortization expenses by $5,802. The increase of selling, general and administrative expenses was mainly resulted from the expenses incurred in the new operating subsidiaries in China for childcare education business development, including lease cost. The company’s major business plans were halted as a result of COVID-19 pandemic. Management determined that the goodwill generated from acquisition was fully impaired as of January 31, 2020.
Other Income (Expense): Other income, net increased to $102,207 for the three months ended January 31, 2021, compared to $2,971 of income for the corresponding period of 2020. Other income for the three months ended January 31, 2021 was mainly resulted from the gain on disposal of subsidiary, see note 4 Acquisitions, Joint Ventures and Deconsolidation.
Net Loss Attributable to Noncontrolling Interest: For the three months ended January 31, 2021, we recorded a net loss attributable to noncontrolling interest of $222,087 compared to $314,498 for the corresponding period of 2020. The loss was allocated based on the ownership percentage of noncontrolling interest, which was mainly acquired through the acquisitions and Joint Ventures.
Net Loss Attributable to Hartford Great Health Corp: We recorded a net loss of $644,061 or $(0.01) per share for the three months ended January 31, 2021, compared to a net loss of $1,144,495 or $(0.01) per share for the three months ended January 31, 2020, a decrease in loss of $500,434 due to the factors discussed above.
Results of Operations – The Six Months Ended January 31, 2021 Compared to Six Months Ended January 31, 2020.
Revenue: We recognized $182,312 and $55,909 revenue in the six months ended January 31, 2021 and 2020, respectively. Cost of revenue increased to $ 119,278 for the six months ended January 31, 2021, compared to $39,037 during the comparable period of 2020. The revenue was mainly generated from two industry segments, the hospitality housing in HZLJ and childhood education care services in HF Int’l Education. The other business lines with limited operations have not generated revenue yet.
Operating Expenses: Operating expenses decreased to $1,689,595 for the six months ended January 31, 2021, compared to $1,906,313 during the comparable period of 2020. During the six months ended January 31, 2021, The decrease of $216,718 was resulted from the decrease of Goodwill impairment by $991,803, offset by the increase of the selling, general and administrative expenses by $759,694 and the increase of depreciation and amortization expenses by $15,391. The increase of selling, general and administrative expenses was mainly resulted from the expenses incurred in the new operating subsidiaries in China for childcare education business development, including lease cost. The company’s major business plans were halted as a result of COVID-19 pandemic. Management determined that the goodwill generated from acquisition was fully impaired as of January 31, 2020.
Other Income (Expense): Other income, net increased to $102,063 for the six months ended January 31, 2021, compared to $7,735 of income for the corresponding period of 2020. Other income for the six months ended January 31, 2021 was mainly resulted from the gain on disposal of subsidiary, see note 4 Acquisitions, Joint Ventures and Deconsolidation.
Net Loss Attributable to Noncontrolling Interest: For the six months ended January 31, 2021, we recorded a net loss attributable to noncontrolling interest of $356,480 compared to $398,017 for the corresponding period of 2020. The loss was allocated based on the ownership percentage of noncontrolling interest, which was mainly acquired through the acquisitions and Joint Ventures.
Net Loss Attributable to Hartford Great Health Corp: We recorded a net loss of $1,168,818 or $(0.01) per share for the six months ended January 31, 2021, compared to a net loss of $1,484,489 or $(0.01) per share for the six months ended January 31, 2020, a decrease in losses of $315,671 due to the factors discussed above.
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Liquidity and Capital Resources
As of January 31, 2021, we had a working capital deficit of $5,568,938 comprised of current assets of $636,254 and current liabilities of $6,205,192. This represents an increase of $2,209,315 in the working capital deficit from the July 31, 2020 amount of $3,359,623.
During the six months ended January 31, 2021, our working capital deficit increased primarily because the additional advances from related parties for business operating and the increase of rental payables.
We believe that our funding requirements for the next twelve months will be in excess of $800,000. We are currently seeking for further funding through related parties’ loan and finance.
On December 11, 2018, the Company sold 96,090,000 shares of its common stock (the “Shares”) to 15 individuals. The selling price was $0.02 per share for an aggregate of $1,921,800. All 15 investors executed subscription agreements. As of April 30, 2019, all proceeds have collected. Twelve of the 15 investors are Chinese citizens and purchased the shares in China. Due to the strict monitoring of China’s foreign exchange investment policy, funds are not able to be transferred directly to HFUS. As a result, amount of $657,000 were collected in RMB from the Chinese investors. The Shares were sold in a private placement pursuant to an exemption from registration in accordance with Section 4(2) and/or Regulation S under the Securities Act of 1933, as amended. The Shares are all restricted shares and accordingly all stock certificates evidencing the Shares have been affixed with the appropriate legend restricting sales and transfers.
On July 3, 2020, the Company signed a subscription agreement to one of the current investors, selling 1,000,000 shares of common stock (the “Shares”) priced at $0.02 per share. The stock shares were issued on November 24, 2020.
We will seek additional financing in the form of debt or equity. There is no assurance that we will be able to obtain any needed financing on favorable terms, or at all, or that we will find qualified purchasers for the sale of our stock. Any sales of our securities would dilute the ownership of our existing investors.
Cash Flows – Six months ended January 31, 2021 Compared to Six months ended January 31, 2020 (As restated)
Operating Activities
During the six months ended January 31, 2021, $1,318,650 used in operating activities as compared to $502,273 used in the operations during the six months ended January 31, 2020. During the six months ended January 31, 2021, we recorded loss including noncontrolling interests of $1,525,298, incurred non-cash depreciation of $34,623, gain on disposal of subsidiary of $104,317, prepaid and other current receivables increased by $52,614, inventory increased by $294,976, other assets increased by $50,288, other current payable increased by $543,930, related party payables net with receivables increased by $21,190, other liabilities increased by $13,345 and operating lease liabilities net with operating lease assets increased by $95,006 as a result from the adoption of new lease guidance ASU No. 2016-02.
During the six months ended January 31, 2020, we recorded losses including noncontrolling interests of $1,882,506 , incurred non-cash depreciation of $19,232, disposal of noncontrolling interest of $4,981 , goodwill impairment loss of $991,803, prepaid and other current receivables decreased by $197,910, other assets increased by $42,681, other current payable increased by $158,367, and related party payables net with receivables increased by $79,978, operating lease liabilities net with operating lease assets decreased by $19,395 as a result from the adoption of new lease guidance ASU No. 2016-02.
Investing activities
Cash used in investing activities was $115,858 for the six months ended January 31, 2021 as compared to $205,758 used for the corresponding period in 2020. During six months ended January 31, 2021, HF Int’l Education acquired a new entity, Gelinke with cash net inflow of $12,525 , HFSH disposed its 90 percent owned subsidiary - Qiao Garden Intel Travel with cash net outflow of $30,116, see note 4 Acquisitions, Joint Ventures and Deconsolidation., and Property and equipment purchases of $98,267.
During the six months ended January 31, 2020, $205,758 of property and equipments have been purchased by HF Int’l Education’s subsidiaries to provide childcare education services.
Financing activities
Cash provided by financing activities was $1,414,133 for the six months ended January 31, 2021 as compared to $ 494,241 cash provided by financing activities for the six months ended January 31, 2020. The cash flows provided by financing activities for the six months ended January 31, 2021 was primarily attributable to $1,345,843 funding support from related parties, $70,000 notes payable from one related party, $20,000 proceeds from stock issuance, offset by $21,710 finance lease principal payment.
The cash flows provided by financing activities for the six months ended January 31, 2020 was primarily attributable to $507,028 funding support from related parties, $7,104 contribution received from noncontrolling interest shareholder to the joint venture entity HF Int’l Education, offset by $19,891 finance lease principal payment.
Future Capital Expenditures
On January 2019, HFSH entered an agreement to acquire 100 percent equity interest of Shanghai Luo Sheng International Trade Ltd. (“SH Luosheng”). As of January 31, 2021, the agreement has not yet taken effective as no consideration has been paid toward those acquisitions. The agreement will be executed when the Company is financially ready to move forward, and the purchase price will be calculated based on the net assets of each entity on execute dates. There was no penalty levied or to be levied due to delayed execution or inexecution of this agreement.
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Off-Balance Sheet Arrangements
As of and subsequent to January 31, 2021, we have no off-balance sheet arrangements.
Contractual Commitments
As of January 31, 2021, we have no other material contractual commitments except the office building and property leases which are included Note 12 Leases.
Critical Accounting Policies
Our significant accounting policies are disclosed in Note 1 of the footnotes to our unaudited financial statements above. There have been no other changes in our critical accounting policies since our most recent audit dated July 31, 2020.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
An evaluation was performed under the supervision of our management, including our Chief Executive Officer and Chief Financial Officer (principal financial officer), of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this Quarterly Report. Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that, as of January 31, 2021, our disclosure controls and procedures were not effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms due to material weaknesses in our internal controls described below.
Management’s Report on Internal Control over Financial Reporting
Management’s assessment identified several material weaknesses in our internal control over financial reporting. These material weaknesses include the following:
| ● | The Company has yet established an internal control system over financial reporting, including sufficient and thorough financial reporting procedures, competence accounting personnel and a well written accounting policies manual under US GAAP in place. |
Changes in Internal Control
During the six months period ended January 31, 2021, there has been no change in internal control within the Company.
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On April 13, 2020, HFSH and HF International Education received Notices of Lease Termination from the sub-lessor. HFSH and HF International Education then filed a civil case against the sub-lessor for return the over-charged rent expense because of fictitious office size, approximately $483,000 (RMB3.3 million). The sublease agreement was terminated on June 1, 2020. HF International Education entered a new lease agreement with the original landlord on June 1, 2020. The litigation documents have been serviced through public announcement to the plaintiff. The Hongkou district court will hold a hearing for the case. However, the accumulated court cases in recent months have postpone the hearing for the case. The district court expects a ruling sometime in June of 2021.
We were not subject to any other legal proceedings during the six months ended January 31, 2021 and are not currently subject to any legal proceedings, and to the best of our knowledge, no such proceeding is threatened, the results of which would have a material impact on our results of operation or financial condition. Nor, to the best of our knowledge, are any of our officers or directors involved in any legal proceedings in which we are an adverse party.
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Mine Safety Disclosures
Not applicable to our Company.
Not applicable to our Company.
The following exhibits are filed with or incorporated by referenced in this report:
31.1* Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Lianyue Song.
31.2* Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Sheng-Yih Chang
101 Interactive Data Files
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In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| HARTFORD GREAT HEALTH CORP. | ||
| Date: March 17, 2021 | By: | /s/ LIANYUE SONG |
| Lianyue Song | ||
| Chief Executive Officer | ||
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