HQDA HQDA Elderly Life Network Corporation (CE)

ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The terms “HQDA”, “Company”, “we”, “our”, and “us” refer to HQDA Elderly Life Network Corp. (formerly Hartford Retirement Network Corp.) unless the context suggests otherwise.

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes “forward-looking statements” as defined by the Securities and Exchange Commission, or SEC. We make these forward-looking statements in reliance on the safe harbor protections provided under the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, included in this Form 10-Q that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements. These forward-looking statements are based on assumptions which we believe are reasonable based on current expectations and projections about future events and industry conditions and trends affecting our business. However, whether actual results and developments will conform to our expectations and predictions is subject to a number of risks and uncertainties that, among other things, could cause actual results to differ materially from those contained in the forward-looking statements, including without limitation the Risk Factors set forth in our Annual Report on Form 10-K for the year ended June 30, 2018 including the following:

General

We were an exploration stage company until May 2017, at which time we transitioned to a senior retirement solutions company focusing on senior housing and retirement services and products.

On January 20, 2008, we allowed its interest in the Sobeski Lake Gold Property Claims to expire. The Sobeski Lake Gold property consisted of three mineral claims located in the Red Lake Mining District, in the province of Ontario, Canada. We had originally acquired our interest in the property by making a cash payment of $3,500 on June 16, 2004 to Dan Patrie Exploration Ltd. the registered owners of the property.

On January 8, 2008, we acquired, through our wholly owned subsidiary, Dynamic Gravel Holdings Ltd., a 100% interest in two gravel claims called the Northern Gravel Claims and Super Mammoth Gravel Claims (together the “Super Mammoth Gravel Project”) situated on tidewater for $25,000. The Super Mammoth Gravel Project was acquired by way of a purchase agreement. Mr. Farshad Shirvani has been paid CDN$25,000.

On April 27, 2017, we dissolved its wholly owned subsidiary, Dynamic Gravel Holdings Ltd. as part of the Stock Purchase Agreement (the “Agreement”) dated April 4, 2017, between Tim Coupland and Brian Game, our former principal stockholders (the “Sellers”) and Hartford International Retirement Network, Inc. (the “Buyer”), pursuant to which, among other things, the Sellers agreed to sell to the Buyer, and the Buyer agreed to purchase from Sellers, a total of 5,185,000 shares of Common Stock beneficially owned by the Sellers (the “Purchase Shares”). The Purchase Shares represented approximately 52.1% of our issued and outstanding shares of Common Stock.

In connection with the transactions contemplated by the Agreement, the Board appointed Lianyue Song, Aaron Schottelkorb and Fuming Lin to fill vacancies on the Company’s Board of Directors caused by resignations of Messer’s’ Coupland, Game and Burylo.

On May 11, 2017, we entered into a Memorandum of Understanding for Senior Holiday Service Cooperation with Shanghai Qiao Garden International Travel Agency (“Travel Agent”), superseded by a Retirement Vacation Services Agreement executed by the parties on August 25, 2017 (collectively referred to as the “Agreement”). We are engaged in the business of providing hotel rooms at favorable rates to travelers to Los Angeles from China.

On May 18, 2017, we sold its Northern Gravel Claims and the Super Mammoth Gravel Claims for $1 to the Company’s former officer and a former director to focus its efforts on new business venture in senior retirement services and products in China.

The Senior Living Industry

On August 31, 2018, the our wholly-owned subsidiary entered into an agreement with Shanghai Qiao Hong Real Estate, Ltd. (“SQHR”) to manage an apartment building owned by SQHR located in Pudong New Area District Shanghai, China. The apartment building has 130 one-bedroom apartments and caters to mostly men and women over the age of 50.

We intend to enter the business of owning, leasing and/or operating senior living residences that will provide seniors with supportive, home life setting with care and services, including activities of daily living, life enrichment and health and wellness.

The senior living industry encompasses a broad spectrum of senior living service and care options, which include independent living, assisted living and skilled nursing care. We intend to concentrate on the independent living services.

Our operating philosophy is to provide services and care which meet the individual needs of its residents, and to enhance their physical and mental well-being, thereby allowing them to live longer and to “age in place.” These facilities will offer, on a 24-hour basis, personal, supportive and home health care services appropriate for their residents in a home-like setting, which allow residents to maintain their independence and quality of life. We predict that the average of the residents at the Company’s facilities will be between 55 and 70.

Our primary focus will be in China, where we intend to grow and become a leader in assisted living facilities. We also will seek to develop or acquire facilities in other Southeast Asian countries. We believe that by concentrating or “clustering” our facilities in target areas with desirable demographics, we can increase the efficiency of our management resources and achieve broad economies of scale.

The long-term care industry encompasses a wide continuum of services and residential arrangements for elderly senior citizens. Skilled nursing facilities provide the highest level of care and are designed for elderly senior citizens who need chronic nursing and medical attention and are not able to live on their own. Further, skilled nursing facilities tend to be one of the most expensive alternatives while providing elderly senior citizens with limited independence and a diminished quality of life. On the other end of the continuum is home-based care, which typically is provided in an individual’s private residence. While this alternative allows the elderly individual to “age in place” in his or her home and, in certain instances, can provide most of the services available at a skilled nursing facility, it does not foster any sense of community or the ability to participate in group activities.

Assisted living facilities generally are designed to fill the gap in the middle of this continuum. Assisted living facilities have been described by the Assisted Living Federation of America (“ALFA”) as providing a special combination of housing and personal, supportive and home health care services designed to respond to the individual needs of those who need, or desire help with their activities of daily living, including personal care and household management. Services in an assisted living facility are generally available 24 hours a day to meet the scheduled and unscheduled needs of residents, thereby promoting maximum dignity and independence.

The assisted living industry is highly fragmented. However, we believe that substantial industry consolidation is underway. At present, the industry is characterized by participants who operate only a limited number of facilities and who frequently can offer only basic assistance with a limited number of activities of daily living. We intend to be characterized by the following: (i) the ability to offer premium accommodations and a comprehensive bundle of standard services for a single inclusive monthly fee; (ii) sophisticated, professional management structures and highly trained employees; (iii) a cost-efficient, user-specific prototype facility; and (iv) experience in providing home health care services.

Our facilities will provide services and care which are designed to meet the individual needs of its residents, enhance their physical and mental well-being and promote a supportive, independent and home-like setting. Most of our facilities will be primarily designed as premium facilities at which residents receive a comprehensive, bundled package of standard services for a single monthly fee.

We will strive to combine in our facilities the best aspects of independent living with the protection and safety of assisted living, with trained staff members who provide 24-hour care and monitoring of every resident. The assisted living facilities will be designed and decorated to have a home-like atmosphere. Residents will be encouraged to furnish their rooms with personal items they have collected during their lifetime.

Our assisted living facilities differ from skilled nursing facilities in that our assisted living facilities will not provide the more extensive, and costly, nursing and medical care found in nursing homes. Assisted living facilities differ from continuing care retirement communities in that, among other things, residents of assisted living facilities are not obligated to purchase frequently expensive lifetime contracts for residential living and care.

The long-term care industry is highly competitive, and we expect that the assisted living business in particular will become more competitive in the future. We will compete with numerous other companies providing similar long-term care alternatives such as home health agencies, life care at home, community-based service programs, retirement communities and convalescent facilities. Nursing facilities that provide long-term care services are also a potential source of competition for us. Providers of assisted living communities compete for residents primarily on the basis of quality of care, price, reputation, physical appearance of the facilities, services offered, family preferences, physical referrals, and locations. Almost all of our competitors will be significantly larger us and have, or may obtain, greater financial resources than those currently available to us.

Three months ended March 31, 2019 compared to three months ended March 31, 2018

Operating loss increased $1,055,307 in the three months period ended March 31, 2019 as compared to the same period ended in 2018. The increase was primarily due to an increase of $234,693 of general and administrative cost, $324,748 of depreciation and amortization expense and $565,405 of professional fees, partially offset by an increase of $80,090 in revenue. The increases in general and administrative cost and depreciation and amortization expenses are due to the launching of senior living residence operations beginning of fiscal year 2019 in Shanghai.

The increase in professional fees are primarily due to the acquisition cost incurred during the three months period ended March 31, 2019 for the Acquisition Agreement with Palau Asia-Pacific International Aviation and Travel Agency, which the purchase agreement was signed in April 2019.

Excluding the non-cash expenses of depreciation and amortization, and professional fees, which were mainly used for acquisitions, the operating loss would have been $186,334 for the three months ended March 31, 2019.

Nine months ended March 31, 2019 compared to nine months ended March 31, 2018

Operating loss increased $1,278,400 in the nine months period ended March 31, 2019 compared to the same period ended in 2018. The increase was primarily due to an increase of $413,977 of general and administrative cost, $435,151 of depreciation and amortization expense and $559,570 of professional fees, partially offset by an increase of $302,554 in revenue. The increases in general and administrative cost and depreciation and amortization expenses are due to the launching of senior living residence operations beginning of fiscal year 2019 in Shanghai.

The increase in professional fees in the nine months period ended March 31, 2019 compared to the same period in 2018 is primarily due to the acquisition cost related to the Acquisition Agreement with Palau Asia-Pacific International Aviation and Travel Agency and acquisition and cost related to the APA in Shanghai, China.

Excluding the non-cash expenses of depreciation and amortization, and professional fees, which were mainly used for acquisitions, the operating loss would have been $384,226 for the nine months ended March 31, 2019.

Liquidity and Capital Resources

At March 31, 2019, we had cash on hand of $361,534 and liabilities of $13,089,945 consisting of accounts payable and accrued liabilities of $204,838, share subscription funds to be returned of $2,007,606 and payables for purchase of properties of $10,877,501.

We will require additional funding in order to cover all anticipated administration costs and to proceed with the Retirement Vacation Services Agreement executed on August 25, 2017 and the Asset Purchase Agreement executed on April 2, 2018 and to seek out additional travel agents for similar contracts. We also intend to provide management services to retirement homes, commercial properties and apartment buildings in China, which will result in higher administrative costs in the future.

Capital Expenditures

On April 2, 2018, we entered into an Asset Purchase Agreement (the “APA”) whereby we purchased land, buildings, and right to use, construction use rights and other property rights located in Shanghai from a third party. Properties are split into two groups:

We have agreed to pay the purchase price totaling RMB 233,000,000 in instalments. Payments of $23,841,100 (RMB 160,000,000) have been made through March 31, 2019 and the remainder of $10,877,501 (RMB73,000,000) is due on or before December 31, 2019.

Employees

At present, we have 14 employees, other than our current officers and directors, who devote their time as required to our business operations.

Off-balance Sheet Arrangements

As of March 31, 2019, we have no off-balance sheet arrangements that would require disclosure.

Critical Accounting Policies

Our interim financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. Preparing financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions which affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the balance sheet dates, and the recognition of revenues and expenses for the reporting periods. These estimates and assumptions are affected by management’s application of accounting policies.