HFUS Hartford Great Health Corporation (PK)

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.

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.

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”) and its 90 percent owned subsidiary - Shanghai Qiao Garden International Travel Agency (“Qiao Garden Int’l Travel”), and formed a joint venture entity, Hartford International Education Technology Co., Ltd (“HF Int’l Education”) at the same month. On July 24, 2019, HF Int’l Education established a 100% owned subsidiary, Pudong Haojin Childhood Education Ltd. (“PDHJ”).

Basis of Presentation: The accompanying unaudited Condensed Consolidated Financial Statements were prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information. Certain information and disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. Accordingly, these Condensed Consolidated Financial Statements should be read in conjunction with our audited consolidated financial statements and the related notes included in our Annual Report filed with the Securities and Exchange Commission ("SEC") on November 14, 2019. The year-end condensed balance sheet was derived from our audited consolidated financial statements. Our unaudited interim Condensed Consolidated Financial Statements include, in the opinion of management, all adjustments, consisting of normal and recurring items, necessary for the fair statement of the Condensed Consolidated Financial Statements. The operating results for the six months ended January 31, 2020 are not necessarily indicative of the results expected for the full year ending July 31, 2020.

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.

Foreign Currency: The accounts of the Company’s foreign subsidiaries are translated in accordance with FASB ASC 830. Foreign currency transaction gains and losses are recognized in other expense, net, at the time they occur. Net foreign currency exchange gains or losses resulting from the translation of assets and liabilities of foreign subsidiaries whose functional currency is not the U.S. dollar are recorded as a part of accumulated other comprehensive loss in stockholders’ equity. The Company does not undertake hedging transactions to cover its foreign currency exposure.

Comprehensive Income (loss): For the three and six months ended January 31, 2020, the Company included its foreign currency translation gain or loss as part of its comprehensive income (loss).

Fair value measurement: Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Accounting Standard Codification (“ASC”) 820, Fair Value Measurements and Disclosures (“ASC 820”), describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value, which are the following:

Level 1 - Quoted prices in active markets for identical assets or liabilities or funds.

Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, current loan receivable, related party receivable, prepaid and other current receivable, accounts payable, related party payable and other current payable. The carrying amounts of afore-mentioned accounts approximate fair value because of their short-term nature.

Cash and Cash Equivalents: The Company maintains cash with banks in the USA and China. Should any bank holding cash become insolvent, or if the Company is otherwise unable to withdraw funds, the Company would lose the cash with that bank; however, the Company has not experienced any losses in such accounts and believes it is not exposed to any significant risks on its cash in bank accounts. In China, a depositor has up to RMB500,000 insured by the People’s Bank of China Financial Stability Bureau (“FSD”). In the United States, the standard insurance amount is $250,000 per depositor in a bank insured by the Federal Deposit Insurance Corporation (“FDIC”).

Financial instruments that potentially subject the Company to significant concentrations of credit risk are cash and cash equivalents and accounts receivable. As of January 31, 2020, none of the Company’s cash and cash equivalents held by financial institutions was uninsured. With respect to accounts receivable, the Company generally does not require collateral and does not have an allowance for doubtful accounts.

Loans and Receivables: The Company evaluates the collectability of its receivables based on a number of factors. In circumstances where the Company becomes aware of a specific customer’s or borrower’s inability to meet its financial obligations to the Company, a specific reserve for bad debts is estimated and recorded, which reduces the recognized receivable to the estimated amount the Company believes will ultimately be collected. As of January 31, 2020, all balances are collectable based on management’s assessment.

Property and equipment, net: Property and equipment, net, are stated at cost. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets. The estimated useful lives of property and equipment are as follows:

Expenditures for repairs and maintenance are charged to expense as incurred.

Goodwill and Long-lived Assets: Goodwill, which represents the excess of the purchase price over the fair value of identifiable net assets acquired, is not amortized, in accordance with Accounting Standards Codification (ASC) 350, Intangibles—Goodwill and Other. ASC 350 requires that goodwill be tested for impairment at the reporting unit level on an annual basis and between annual tests, if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant portion of a reporting unit.

The Company has the option to assess goodwill for possible impairment by performing a qualitative analysis to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. A quantitative assessment is performed if the qualitative assessment results in a more-likely-than-not determination or if a qualitative assessment is not performed. The quantitative assessment considers whether the carrying amount of a reporting unit exceeds its fair value, in which case an impairment charge is recorded to the extent that the reporting unit’s carrying value exceeds its fair value. The Company’s goodwill was generated from the acquisitions during the year ended July 31, 2019. We currently have two reporting units - Hospitality and Early Childhood Education. Given the impact of COVID-19 pandemic and the unfavorable operation results, an interim goodwill impairment assessment is performed as of January 31, 2020. Based on the assessment result, management determined that the goodwill was fully impaired as of January 31, 2020.

Business Combinations: If an acquired set of activities and assets is capable of being operated as a business consisting of inputs and processes from the viewpoint of a market participant, the assets acquired and liabilities assumed are a business. Business combinations are accounted for using the acquisition method of accounting, which requires an acquirer to recognize the assets acquired and the liabilities assumed at the acquisition date measured at their fair values as of that date. Fair value determinations are based on discounted cash flow analyses or other valuation techniques. In determining the fair value of the assets acquired and liabilities assumed in a material acquisition, the Company may utilize appraisals from third party valuation firms to determine fair values of some or all of the assets acquired and liabilities assumed, or may complete some or all of the valuations internally. In either case, the Company takes full responsibility for the determination of the fair value of the assets acquired and liabilities assumed. The value of goodwill reflects the excess of the fair value of the consideration conveyed to the seller over the fair value of the net assets received. Acquisition-related costs that the Company incurs to affect a business combination are expensed in the periods in which the costs are incurred.

Noncontrolling interest: The Company adopted ASC 810, Noncontrolling Interests in Consolidated Financial Statements—an Amendment of Accounting Research Bulletin No. 51, as of January 1, 2009. ASC 810 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. ASC 810 also establishes reporting requirements that provide sufficient disclosures that clearly identify and distinguish between the interest of the parent and the interests of the noncontrolling owner.

Advertising costs: Advertising costs are expensed as incurred. During the three months and six months ended January 31, 2020, $ 3,154 and $ 9,118 advertising expenses were incurred, respectively. No advertising costs incurred during the three and six months ended January 31, 2019.

Income Taxes: The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, Accounting for Income Taxes. The asset and liability method provide that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.

On December 22, 2017, the President of the United States signed into law the Tax Reform Act. The Tax Reform Act permanently reduces the U.S. corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018. In addition, the 2017 Tax Act also creates a new requirement that certain income (i.e., Global Intangible Low-Taxed Income (“GILTI”)) earned by controlled foreign corporations (“CFCs”) must be included in the gross income of the CFCs’ U.S. shareholder income. The tax law in PRC applies an income tax rate of 25% to all enterprises. The Company’s subsidiary does not receive any preferential tax treatment from local government.

The Company has been in loss position for years and zero balances of tax provisions, deferred tax assets and liabilities as of the reporting periods ended. The tax reforms have no significant impacts on the Company.

Revenue Recognition: The Company is still under restructuring and synergizing its core business upon the completion of multiple acquisitions, limited operations occurred during the three and six months ended January 31, 2020 and 2019. The revenue during the three and six months ended January 31, 2020 was mainly generated from HZLJ and HF Int’l Education. HZLJ generates revenue primarily from the room rentals, sale of food and beverage and other miscellaneous operating income. HF Int’l Education generates revenue from childhood education services. 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 did not have any material unsatisfied performance obligations and contract liabilities as of January 31, 2020.

Income (Loss) Per Share: Basic earnings per share include no dilution and are computed by dividing net income (or loss) by the weighted- average number of shares outstanding during the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of the Company, assuming the issuance of an equivalent number of common shares pursuant to options, warrants, or convertible debt arrangements. Diluted earnings per share are not shown for periods in which the Company incurs a loss because it would be anti-dilutive. Similarly, potential common stock equivalents are not included in the calculation if the effect would be anti-dilutive. No potentially dilutive debt or equity securities were issued or outstanding during the three and six months ended January 31, 2020 or 2019.

Recent Accounting Pronouncements:

Recently issued accounting pronouncements not yet adopted

In December 2019, the FASB issued Accounting Standards Update (“ASU”) 2019-12, “Simplifying the Accounting for Income Taxes”, as part of its simplification initiative to reduce the cost and complexity in accounting for income taxes. ASU 2019-12 removes certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 also amends other aspects of the guidance to help simplify and promote consistent application of GAAP. The guidance is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the impact of ASU 2019-12 on its financial position, results of operations and liquidity.

In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.” ASU No. 2018-13 removes certain disclosure requirements related to the fair value hierarchy, modifies existing disclosure requirements related to measurement uncertainty and adds new disclosure requirements. ASU No. 2018-13 disclosure requirements include disclosing the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. ASU No. 2018-13 is effective for the Company within those fiscal years beginning on December 15, 2019, with early adoption permitted. Certain disclosures in the new guidance will need to be applied on a retrospective basis and others on a prospective basis. The Company does not expect that the adoption of ASU No. 2018-13 will have a material impact on its financial position, results of operations and liquidity.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. The accounting standard changes the methodology for measuring credit losses on financial instruments and the timing when such losses are recorded. ASU No. 2016-13 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. Early adoption is permitted for fiscal years, and interim periods within those years, beginning after December 15, 2018. The Company does not expect that the adoption of ASU No. 2016-13 will have a material impact on its financial position, results of operations and liquidity.

Recently adopted accounting pronouncements

In February 2018, the FASB issued ASU No. 2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220)”, which amends the previous guidance to allow for certain tax effects “stranded” in accumulated other comprehensive income, which are impacted by the Tax Cuts and Jobs Act (the “Tax Reform Act”) , to be reclassified from accumulated other comprehensive income into retained earnings. This amendment pertains only to those items impacted by the new tax law and will not apply to any future tax effects stranded in accumulated other comprehensive income. This standard is effective for fiscal years beginning after December 15, 2018 and allows for early adoption. The adoption of ASU No. 2018-02 did not have an impact on the Company’s financial position, results of operations and liquidity.

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 when we tested goodwill impairment as of January 31, 2020. Management determined the goodwill 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:

The adoption of ASU No. 2016-02 had an immaterial impact on the Company’s condensed Consolidated Statement of Operation and condensed Consolidated Statement of Cash Flows for the six months ended January 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 11 Leases.

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.'s operations has incurred losses since inception, resulting in an accumulated deficit of $ 2,401,305 and $916,816 as of January 31, 2020 and July 31, 2019, respectively. The Company’s operation provided cash flow of $4,755 for the six months ended January 31, 2020 and negative cash flow of $80,779 for the six months ended January 31, 2019. 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.

NOTE 3. STOCKHOLDERS' EQUITY

Preferred Stock

The Company is authorized to issue 5,000,000 shares of preferred stock with a par value of $0.001 per share. No shares of preferred stock have been issued or outstanding since Inception (April 2, 2008).

Common Stock

The Company is authorized to issue 300,000,000 shares of common stock with a par value of $0.001 per share. On December 11, 2018, 96,090,000 shares of common stock were issued at the price of $0.02 per share to raise $1,921,800 capital in cash. As of January 31, 2020 and July 31, 2019, the company has issued a total of 99,108,000 shares of common stock.

NOTE 4. ACQUISITIONS AND JOINT VENTURES

Acquisition of HZHF

On December 28, 2018, the Company acquired HZHF from an unrelated individual, an entity located at Hangzhou, China. The operation results of HZHF are included in the Company’s consolidated financial statements commencing on the acquisition date. The Company has recorded an allocation of the purchase price to the Company’s identifiable assets acquired based on their fair value at the acquisition date. No business inputs, process and workforce have been acquired through the transaction. The Company accounted the transaction in accordance with the Asset Acquisitions guidance, a subsection of FASB ASC 805, Business Combinations. The related transaction costs were immaterial.

The calculation of purchase price and purchase price allocation is as following:

Right after the transaction was consummated, the Company fully expensed the deferred start-up cost in accordance with US GAAP.

Acquisition of HZLJ

On March 22, 2019, HZHF acquired 60 percent ownership interest of HZLJ from Shanghai Qiao Garden Property Management Group, Ltd (“Qiao Garden Group”), an affiliate on which the Company’s management has significant influence. The acquisition expands the Company's capabilities in the travel and health management sectors as the hotel is located within walking distance of local tea farms and a protected nature preserve.

The results of operations of the acquired subsidiary are included in the Company’s consolidated financial statements commencing on the acquisition date. The Company has recorded an allocation of the purchase price to the Company’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 Company classifies the 40 percent ownership interest held by Shanghai Qiaohong Real Estate Co., Ltd., a related party, as "Noncontrolling interest" on the Consolidated Balance Sheet. The related transaction costs were immaterial and included in General and administrative expenses in the accompanying Consolidated Statements of Operations. The calculation of purchase price and purchase price allocation is as follows:

*$16,537 payable due from HZLJ waived by HFHZ plus $89,891 (RMB600,000) cash payment totaled $105,928 consideration for the acquisition.

Goodwill is mainly attributable to synergies expected from the acquisition in hospitality industry and assembled workforce. Other assets and other liabilities are related to the deferred cost of obtaining the finance lease and the finance lease liabilities (see Note 11 Lease). Related party payable consisted the unpaid portion of operating advances made to HZLJ by the affiliates which are under common control by the same management. Amount of $595,939 were due to Qiao Garden Group, which originally owned 60% of HZLJ. And amount of $596,348 were advanced from Shanghai DuBian Assets Management Ltd., which is controlled by the same management. These advances do not bear interest and are considered due on demand. Property and Equipment, net mainly consists of ROU assets, Furniture and fixtures and office equipment.

Acquisition of HFSH

On March 20, 2019, the Company acquired HFSH and its 90 percent owned subsidiary - Shanghai Qiao Garden International Travel Agency (“Qiao Garden Intl Travel”) from an unrelated individual. The original intent behind the acquisition was to use the travel agency to manage travel and lodging arrangements between China and the US for Chinese members of the anti-aging stem-cell treatment program. 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 the purchase price to the Company’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 Company classifies the un-acquired 10 percent ownership interest as "Noncontrolling interest" on the consolidated balance sheet. The related transaction costs were immaterial and included in General and administrative expenses in the accompanying consolidated statements of operations. The calculation of purchase price and purchase price allocation is as follows:

*$223,477 payable due to HFHZ waived plus $135,238 (RMB907,737) cash payment totaled $358,715 consideration for the acquisition.

Goodwill is mainly attributable to synergies expected from the acquisition of travel agency license and assembled workforce. Amount of $677,463 related party receivable is due from Shanghai Qiaohong Real Estate Co., Ltd. (“SH Qiaohong”), owning 40 percent equity interest of HZLJ. HFSH loaned the amount to SH Qiaohong for two years on June 21, 2018, the related party loan bears annual interest of six percent. The balance will be paid back by June 30, 2020. Amount of $109,355 is due from one of the directors for business trips and business developing expenses and the amount is going to be reimbursed or paid back within three months. The remaining related party receivable are the operating advances made to multiple companies which are under common control by the same management. These advances do not bear interest and are considered due on demand. Related party payable consisted the unpaid portion of operating advances made to HFSH by the affiliates which are under common control by the same management. These advances do not bear interest and are considered due on demand. The majority advances, amount of $990,665 were from SH Qiaohong. HFSH used the amount for start-up expense and acquisition of 90 percent ownership of Qiao Garden Intl Travel acquisition.

Joint Venture – HF Int’l Education

Effective on March 22, 2019, HFSH entered into a joint venture agreement with SH Jingyu and one individual investor, to form a new entity Hartford International Education Technology Co., Ltd (“HF Int’l Education”) to provide childcare education services. The joint venture is owned 65% by HFSH, 20% by SH Jingyu and 15% by another individual investor. On July 11, 2019, another agreement has been entered by HFSH, SH Jingyu, the individual investor and another new investor, Shanghai Hao Zhong Ji Educational Tech LLP (“SHHZJ”). Based on this agreement, the joint venture is owned 58.5% by HFSH, 18% by SH Jingyu, 10% by SHHZJ and 13.5% by the individual investor. On December 26, 2019, the individual investor disposed 2.5% ownership to HFSH and 11% ownership to another two new individual investors. A new ownership agreement has been entered between HFSH, SH Jingyu, SHHZJ and two new individuals. Based on the new agreement, the ownership of joint venture was further changed to: 61.0% by HFSH and 39% by four noncontrolling shareholders in total. HFSH is responsible for the overall development and operation of HF Int’l Education. As a result, HFSH has the majority voting interest with primary beneficiary. The results of operations of HF Int’l Education are included in the Company’s consolidated financial statements commencing on the formation date. The Company classifies the 39.0% ownership interest held by other four parties as "Noncontrolling interest" on the consolidated balance sheet. The registered capital for HF Intl Education is RMB 5 million. As of January 31, 2020, amount of RMB 3.5 million or USD 497,715 capital were injected and the remaining of RMB 1.5 million or USD 223,089 is to be contributed by the shareholders. On July 24, 2019, HF Int’l Education established a wholly owned subsidiary, Pudong Haojin Childhood Education Ltd. (“PDHJ”) to provide childcare education services.

Pro Forma Information

The following unaudited pro forma information has been prepared for illustrative purposes only, assumes that the acquisition occurred on August 1, 2018 and includes pro forma adjustments related to the noncontrolling interest allocation and the issuance of 96,090,000 common shares to finance the acquisitions. The unaudited pro forma results have been prepared based on estimates and assumptions, which we believe are reasonable; however, they are not necessarily indicative of the consolidated results of operations had the acquisition occurred on August 1, 2018, or of future results of operations. The unaudited pro forma results are as follows:

Others

On January 27, 2019, HFSH entered an agreement with Shanghai Qiao Garden Property Management Group to acquire 85 percent ownership of Shanghai Senior Health Consulting Ltd. (“SH Senior”). On January 28, 2019, HFUS entered an agreement to acquire 100 percent equity interest of Shanghai Luo Sheng International Trade Ltd. (“SH Luosheng”). On February 24, 2019, HFSH entered an agreement to acquire 55 percent ownership of Shanghai Pasadena Ltd. (“SH Pasadena”). 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”). As of January 31, 2020, these acquisition agreements have not yet taken effect as no consideration has been paid toward those acquisitions. These agreements 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 the execute date. There was no penalty levied or to be levied due to delayed execution or no-execution of those agreements.

NOTE 5. RESTRICTED CASH

The restricted cash is collateral required by the local government in China for Qiao Garden Int’l Travel, acquired with its parent company HFSH on March 20, 2019, to maintain its business certificate.

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. ASU-2016-18 is effective for the years beginning after December 31, 2019, with early adoption permitted. The Company early adopted the provision of ASU 2016-18.

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.

NOTE 6. LOAN RECEIVABLES, CURRENT AND NONCURRENT

The Company loaned $99,870 to a third party, Longsheng Aquatic Products Co., Ltd. The loan bears annual interest rate of six percent. The term of loan started from February 14, 2019 and extended for one more year to May 13, 2020 on May 12, 2019. $1,531 and $ 3,063 of interest income were recognized during the three months and six months ended January 31, 2020, respectively. Total interest receivable of $5,843 and $2,780 were accrued as of January 31, 2020 and July 31, 2019, respectively.

The Company loaned $300,000 to a third party, Hong Kong Hong Tai Int’l Trade Limited. The loan bears annual interest rate of six percent. The term of loan is six months till June 27, 2019. On February 5, 2019, the loan has been fully paid back with $1,923 interest charges.

The Company loaned another $200,000 to Hong Kong Hong Tai Int’l Trade Limited. The loan bears annual interest rate of six percent. The term of loan started from March 4, 2019 and extended to September 3, 2020 on August 30, 2019. $3,067 and $6,133 of interest income were recognized during the three months and six months ended January 31, 2020, respectively. Total interest receivable of $11,100 and $4,967 were accrued as of January 31, 2020 and July 31, 2019, respectively.

Loan receivables are not exposed to market risk due to the stable and fixed interest rates in accordance with the loan agreements. The estimated fair value of long-term loan receivable was approximately $0 and $204,561 as of January 31, 2020 and July 31, 2019, respectively.

Depreciation expense for the three and six months ended January 31, 2020 were $ 4,311 and $ 8,576, respectively. Depreciation expense for the three and six months ended January 31, 2019 were both of $84.

The cost of obtaining the finance lease of the land use rights and hotel building at HZLJ, which was acquired by the Company on March 22, 2019, in the amount of $879,800 (RMB 6 million) was recognized as Other Assets and subject for amortization over the lease term, 41 years commenced on October 2010. The amortization is computed using the straight-line method over the lease term. Amortization expense of deferred cost of finance lease for the three and six months ended January 31, 2020 was $5,369 and $10,656, respectively. Amortization expense of deferred cost of finance lease for the three and six months ended January 31, 2019 was $0.

The future amortization schedule for the other assets related to the cost of obtaining the finance lease as of January 31, 2020 is as following:

NOTE 9. GOODWILL

Our goodwill was contributed by the acquisitions during 2019. Under the circumstance of the COVID-19 pandemic and slowly economic recoveries at Shanghai and Hangzhou city, the Company’s business plans have been halted for an indefinite period of time. Based on the interim assessment of goodwill impairment performed, management determined that goodwill was fully impaired as of January 31, 2020. The following is a roll-forward of goodwill for the year ended July 31, 2019 and for the six months ended January 31, 2020:

Payable to acquiree is the unpaid consideration for the acquisitions described in Note 4 Acquisitions and Joint Venture.

NOTE 11. LEASES

At the inception of a contract, the Company assesses whether the contract is, or contains, a lease. The Company’s assessment is based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether the Company obtains the right to substantially all the economic benefit from the use of the asset throughout the term, and (3) whether the Company has the right to direct the use of the asset. 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, 2020, 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-two 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.

The finance lease was obtained through HZLJ acquisition on March 22, 2019 (See Note 4 Acquisitions and Joint Venture). On October 1, 2010, HZLJ leased 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 at January 31, 2020 and July 31, 2019 were as follows:

The components of lease cost for the three and six months ended January 31, 2020 was as follows:

Supplemental cash flow information for leases for the six months ended January 31, 2020 was as follows:

The weighted-average remaining lease term and weighted-average discount rate for operating and finance leases at January 31, 2020 was as follows:

The following table reconciles the undiscounted future minimum lease payments for operating and finance leases executed at January 31, 2020:

NOTE 12. RELATED PARTY TRANSACTIONS

Equity Transactions

On October 2018, the Company refunded $1,429 of the additional paid in capital to the former CFO.

On December 11, 2018, the Company sold 96,090,000 shares of its common stock to various investors, including 54,040,000 shares sold to its Officers and Directors with proceeds of $1,080,800. The whole amount of proceeds has been collected.

Related Party Receivables

As of January 31, 2020 and July 31, 2019, amount of $688,660 and $674,524, 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 loaned the amount to SH Qiaohong for two years on June 21, 2018 bearing annual interest of six percent. The balance will be paid back by June 30, 2020. $9,549 and $18,953 of interest income were recognized during the three and six months ended January 31, 2020.

The remaining related party receivable of $49,789 and $39,088 as of January 31, 2020 and July 31, 2019, 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.

On October 2018, the Company borrowed $30,000 from a potential investor to fund the Company's ongoing activities. It was an indefinite short-term loan with no interest bearing. The loan was paid back by the Company in the following quarter.

Related Party Payables

As of January 31, 2020 and July 31, 2019, amount of $678,574 and $526,963, respectively, is payable to SH Qiaohong. Majority of the balance was part of the liability assumed through HFSH acquisition. This payable balance does not bear interest and due on demand.

As of January 31, 2020 and July 31, 2019, amount of $598,267 and $602,821, 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.

The remaining related party payable of $659,155 and $197,775 as of January 31, 2020 and July 31, 2019, respectively, represents the unpaid portion of operating advances made to the Company by following affiliates which are managed by the same management team. These advances do not bear interest and are considered due on demand.

As of January 31, 2020 and July 31, 2019, the Company has $588,099 and $585,146, respectively, long-term payable to Shanghai DuBian Assets Management Ltd., 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 long term debt, which expires on April 30, 2021, bearing approximately 2.5 percent of annual interest. $3,661 and $ 7,267 of interest expense were recognized during the three and six months ended January 31, 2020, respectively. The unpaid principle 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. As of January 31, 2020 and July 31, 2019, the estimated fair value of long term loan payable was approximately $587,525 and $584,674, respectively.

Other Related Party Transactions

Office space is provided to Hartford Great Health Corp. at no additional 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 a long-term debt agreement with a related party, SH Qiao Hong. The debt agreement provides a line of credit up to RMB9.0 million and expires on September 30, 2021, bearing approximately 3.0 percent of annual interest. The unpaid principle and interest will be due on the maturity date.

On September 30, 2019, HF Int’l Education entered another long-term debt agreement with a related party, Shanghai Oversea Chinese Culture Media Ltd. The debt agreement provides a line of credit up to RMB 5.0 million and expires on September 30, 2021, bearing approximately 3.0 percent of annual interest. The unpaid principle and interest will be due on the maturity date.

As of January 31, 2020, no balance has been borrowed from these two related parties by HF Int’l Education.

NOTE 13. COMMITMENTS

There has been no material contractual obligations and other commitments except the lease commitments disclosed in Note 11 Leases.

NOTE 14. 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, 2020 and revenue generated during the six months ended January 31, 2020, as follows:

As of July 31, 2019, the company only operated in hospitality industry in China. The subsidiary had an amount of $2,547,989 in total assets, excluding inter-company balances, and it generated $56,174 in revenue. There was no revenue generated from inter-company transactions.