Notes
to Financial Statements
For
the Years Ended July 31, 2020 and 2019
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 and March 23, 2020, HF Int’l Education established a 100% owned subsidiary, Pudong Haojin Childhood
Education Ltd. (“PDHJ”) and Shanghai Hongkou HaiDeFuDe Childcare Co., Ltd.(“HDFD”), respectively, which
was approved to conduct childcare operations in Shanghai, China.
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.
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 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 year ended July 31, 2020 and 2019, 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, current loan receivables, related party receivables,
prepaid and other current receivables, related party payables and other current liabilities. 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 United States 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 USD250,000 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 July 31, 2020 and 2019, nil and $20,083 of the Company’s
cash and cash equivalents held by financial institutions were uninsured, respectively. 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 July 31, 2020 and 2019, 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:
|
|
Years
|
Leasehold
improvements
|
|
Lesser
of lease term or estimated useful life
|
ROU
assets-Finance lease
|
|
Lease
term
|
Furniture
and fixtures
|
|
3-5
|
Office
equipment and vehicles
|
|
3-5
|
Computer
software
|
|
3-5
|
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 business 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, goodwill impairment assessment was performed at interim time and annually. Based
on the assessment results, management determined that $1,006,343 goodwill and $621,963 deferred lease cost were fully impaired
as of July 31, 2020.
Reclassifications
Certain
amounts on the prior-year consolidated balance sheet and consolidated statement of operations were reclassified to conform to
current-year presentation, with no effect on ending stockholders’ equity.
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 year ended July 31, 2020, $12,582 advertising expenses were incurred. No advertising
costs incurred during the year ended July 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 provides 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’s income statements.
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 years ended July 31, 2020 and
2019. The revenue during the year ended July 31, 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 did not have any material unsatisfied performance obligations and contract liabilities as of July
31, 2020.
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. US$29,582 of revenue was derived from
early childhood education classes provided for the year ended July 31, 2020.
|
|
|
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.
|
Unearned
revenue
Unearned
revenue represents revenues collected but not earned as of July 31, 2020. This is primarily composed of tuition collected in advance
from early childhood education services.
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 year ended July 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 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
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 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.
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
on 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:
|
|
Balance
at
July 31, 2019
|
|
|
Adjustments
|
|
|
Balance
at
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.
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 $3,568,185 as of July 31, 2020. 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 July
31, 2020 and 2019, the company had a total of 99,108,000 shares of common stock issued and outstanding.
On
July 3, 2020, an existing investor has signed a subscription agreement with the Company for 1,000,000 shares of common stock (the
“Shares”) priced at $0.02 per share. As of the reporting date, $20,000 subscription was received and the shares are
pending for issuance.
NOTE
4. ACQUISITIONS AND JOINT VENTURES
Acquisition
of HZHF
On
December 28, 2018, the Company acquired Hangzhou Hartford Comprehensive Health Management, Ltd (“HZHF”), 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:
|
|
Identifiable
Assets Acquired
|
|
Cash
and cash equivalents
|
|
|
154
|
|
Other
current assets
|
|
|
37,964
|
|
Property
and equipment, net
|
|
|
4,038
|
|
Deferred
Start-up cost, noncurrent
|
|
|
99,463
|
|
Total
Consideration
|
|
|
141,619
|
|
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 Hangzhou Longjing Qiao Fu Vacation Hotel Co., Ltd. (“HZLJ”)
from Shanghai Qiao Garden Property Management Group, Ltd. 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. The Company classifies the 40 percent ownership
interest held by Shanghai Qiaohong Real Estate Co., Ltd. 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:
|
|
Assets
Acquired and
|
|
|
|
Liabilities
Assumed
|
|
Cash
and cash equivalents
|
|
$
|
15,383
|
|
Accounts
and Other receivables
|
|
|
13,224
|
|
Related
party receivable
|
|
|
22,861
|
|
Property
and Equipment, net
|
|
|
247,940
|
|
Other
assets
|
|
|
699,066
|
|
Goodwill
|
|
|
466,847
|
|
Accounts
payable
|
|
|
(2,671
|
)
|
Related
party payable
|
|
|
(1,232,512
|
)
|
Other
account payable
|
|
|
(28,772
|
)
|
Other
liabilities
|
|
|
(336,051
|
)
|
Noncontrolling
interest
|
|
|
240,613
|
|
Total
consideration *
|
|
$
|
105,928
|
|
*$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
12 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 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”). 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:
|
|
Assets
Acquired and Liabilities Assumed
|
|
Cash
and cash equivalents
|
|
|
35,886
|
|
Accounts
and Other receivables
|
|
|
92,120
|
|
Property
and Equipment, net
|
|
|
6,511
|
|
Related
party receivable
|
|
|
791,445
|
|
Goodwill
|
|
|
573,170
|
|
Other
current payable
|
|
|
(3,126
|
)
|
Related
party payable
|
|
|
(1,073,380
|
)
|
Noncontrolling
interest
|
|
|
(63,911
|
)
|
Total
consideration*
|
|
|
358,715
|
|
*$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. 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.
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:
|
|
Years
ended July 31,
|
|
|
|
2020
|
|
|
2019
|
|
Revenues
|
|
$
|
98,307
|
|
|
$
|
162,424
|
|
Net
Loss
|
|
|
(3,655,069
|
)
|
|
|
(1,010,870
|
)
|
Less:
Net Loss Attributable to
|
|
|
|
|
|
|
|
|
Noncontrolling
Interest
|
|
|
(1,003,700
|
)
|
|
|
(95,380
|
)
|
Net
Loss Attributable to
|
|
|
|
|
|
|
|
|
Hartford
Great Health Corp
|
|
$
|
(2,651,369
|
)
|
|
$
|
(915,490
|
)
|
Weighted average
shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
|
99,108,000
|
|
|
|
99,108,000
|
|
Net loss per
common share:
|
|
|
|
|
|
|
|
|
Basic
and Diluted
|
|
|
(0.03
|
)
|
|
|
(0.01
|
)
|
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. The joint venture was initially 65.0% owned
by HFSH and a totaling 35.0% owned by two noncontrolling shareholders. The JV agreement was not executed due to no sufficient capital
investments injected by the two noncontrolling shareholders. During the year ended on July 31, 2020, HFSH’s ownership has
been slightly decreased to 61.0% from 65.0% because of equity transactions between noncontrolling shareholders. On June 19, 2020,
a board resolution was approved 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. As of July 31, 2020, amount of RMB 10.0 million or $1.4 million of capital were fully injected.
On
July 24, 2019 and March 23, 2020, HF Int’l Education established two wholly owned subsidiaries, Pudong Haojin Childhood
Education Ltd. (“PDHJ”) and Shanghai Hongkou HaiDeFuDe Childcare Co., Ltd. (“HDFD”), respectively, to
provide childcare education services.
Others
On January and February, 2019, HFSH entered
agreements to acquire 85 percent ownership of Shanghai Senior Health Consulting Ltd. (“SH Senior”), 100 percent equity
interest of Shanghai Luo Sheng International Trade Ltd. (“SH Luosheng”), and 55 percent ownership of Shanghai Pasadena
Ltd. (“SH Pasadena”). As of July 31, 2020, these acquisition agreements have not yet taken effective 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 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 the acquisition by transferring the agreement to
an individual with zero price.
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. The purchase price is set at zero. According to the acquisition agreement, HF Int’l Education
agreed to assume approximately RMB 1 million liabilities and RMB 171,000 assets. The acquisition is expecting to consummate by
November 30, 2020.
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 the travel license Qiao Garden Int’l Travel 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.
|
|
July
31, 2020
|
|
|
July
31, 2019
|
|
Cash
and cash equivalents
|
|
$
|
36,604
|
|
|
$
|
269,672
|
|
Restricted
cash, noncurrent
|
|
|
28,673
|
|
|
|
29,052
|
|
Total
cash, cash equivalents and restricted cash shown in the statement of cash flows
|
|
$
|
65,277
|
|
|
$
|
298,724
|
|
NOTE
6. LOAN RECEIVABLE
The
Company loaned $99,870 to a third party, Longsheng Aquatic Products Co., Ltd. The loan bears 6% annum interest rate with three-month
term started on February 14, 2019. On May 12, 2019, the loan had been extended for another year, expires on May 13, 2020. $5,260
and $2,780 of interest income were recognized during the years ended July 31, 2020 and 2019, respectively. The loaned amount and
interest have been fully paid back on June 11, 2020.
The
Company loaned $300,000 to a third party, Hong Kong Hong Tai Int’l Trade Limited (“HK HongTai”). The loan bears
annual interest rate of six percent. The term of loan is six months with expiration date on June 27, 2019. The loan has been fully
paid back on February 5, 2019.
The
Company loaned another $200,000 to HK HongTai on March 4, 2019. The loan bears annual interest rate of six percent with six months
term expiring on September 3, 2019. Subsequently on August 30, 2019, the loan has been extended to September 3, 2020. $10,202
and $6,890 of interest income were recognized during the years ended July 31, 2020 and 2019, respectively. The loan principal
and interest accrued have been fully paid back on June 11, 2020.
NOTE
7. OTHER CURRENT RECEIVABLES
Other
current receivable, amounts of $173,819 and $210,280 as of July 31, 2020 and 2019, respectively, mainly consist of purchase advance,
prepaid rent, employee operating advances and others.
NOTE
8. PROPERTY AND EQUIPMENT, NET
Property
and equipment, net consists of the following at July 31, 2020 and 2019:
|
|
July
31,
|
|
|
July
31,
|
|
|
|
2020
|
|
|
2019
|
|
Leasehold
improvements
|
|
$
|
181,378
|
|
|
$
|
23,366
|
|
Finance
lease assets
|
|
|
269,304
|
|
|
|
272,860
|
|
Furniture
and fixtures
|
|
|
202,241
|
|
|
|
235,360
|
|
Office
equipment and vehicles
|
|
|
112,759
|
|
|
|
68,859
|
|
Construction
in progress
|
|
|
19,326
|
|
|
|
-
|
|
|
|
|
785,008
|
|
|
|
600,445
|
|
Less:
accumulated depreciation and amortization
|
|
|
(317,127
|
)
|
|
|
(346,861
|
)
|
|
|
$
|
467,881
|
|
|
$
|
253,584
|
|
Depreciation
expense for the years ended July 31, 2020 and 2019, was $48,643 and $6,411, respectively.
NOTE
9. OTHER ASSETS
Other
assets consist of the following at July 31, 2020 and 2019:
|
|
July
31, 2020
|
|
|
July
31, 2019
|
|
Other
miscellaneous assets
|
|
$
|
38,688
|
|
|
$
|
-
|
|
Rental
deposits
|
|
|
288,970
|
|
|
|
176,420
|
|
Trademark
|
|
|
1,577
|
|
|
|
-
|
|
Deferred
cost of finance lease
|
|
|
-
|
|
|
|
673,634
|
|
|
|
$
|
329,235
|
|
|
$
|
850,054
|
|
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 year ended July 31, 2020 and 2019 were $21,298 and $7,310, 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. GOODWILL
Our
goodwill was contributed by the acquisitions during 2019. Under the circumstance of the COVID-19 pandemic and slowly economic
recoveries at the cities of Shanghai and Hangzhou, the Company’s business plans have been halted for an indefinite period
of time. Based on the interim assessment of goodwill impairment testing performed, management determined that goodwill was fully
impaired as of January 31, 2020. The following is a roll-forward of goodwill for the years ended July 31, 2020 and 2019:
|
|
|
|
|
HFSH
and Qiao
|
|
|
|
|
|
|
HZHF
& HZLJ
|
|
|
Garden
Int’l
Travel
|
|
|
Total
|
|
Balance at
July 31, 2018
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Acquisitions
|
|
|
466,847
|
|
|
|
573,170
|
|
|
|
1,040,017
|
|
Impairment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Balance
at July 31, 2019
|
|
$
|
466,847
|
|
|
$
|
573,170
|
|
|
$
|
1,040,017
|
|
Acquisitions
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Impairment
|
|
|
(451,732
|
)
|
|
|
(554,611
|
)
|
|
|
(1,006,343
|
)
|
Foreign
Exchange
|
|
|
(15,115
|
)
|
|
|
(18,559
|
)
|
|
|
(33,674
|
)
|
Balance
at July 31, 2020
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
NOTE
11. OTHER CURRENT PAYABLES
The
following is a breakdown of the accounts and other payables as of July 31, 2020 and 2019:
|
|
July
31, 2020
|
|
|
July
31, 2019
|
|
Payable
to Acquiree
|
|
$
|
130,138
|
|
|
$
|
131,856
|
|
Unearned
revenues
|
|
|
75,861
|
|
|
|
-
|
|
Rental
payables
|
|
|
252,154
|
|
|
|
-
|
|
Other
payables
|
|
|
158,966
|
|
|
|
44,000
|
|
|
|
$
|
617,119
|
|
|
$
|
175,856
|
|
Payable
to acquiree is the unpaid consideration for the acquisitions described in Note 4 Acquisitions and Joint Venture.
Rental
payable is accrued for unpaid rent during a process of lease related litigation, see Note 12 Leases.
NOTE
12. 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 July 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 July 31, 2020 and 2019 were as follows:
|
|
July
31, 2020
|
|
|
July
31, 2019
|
|
Assets
|
|
|
|
|
|
|
|
|
Finance
lease right-of-use assets, cost
|
|
$
|
269,304
|
|
|
$
|
272,860
|
|
Less:
accumulated amortization
|
|
|
(64,589
|
)
|
|
|
(58,787
|
)
|
Finance
lease right-of-use assets, net
|
|
|
204,715
|
|
|
|
214,073
|
|
ROU
assets-Operating lease
|
|
|
4,499,693
|
|
|
|
-
|
|
Total
Lease ROU assets
|
|
$
|
4,704,408
|
|
|
$
|
214,073
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Current
Operating Lease liabilities
|
|
$
|
739,352
|
|
|
$
|
-
|
|
Operating
lease liabilities, noncurrent
|
|
|
3,916,259
|
|
|
|
-
|
|
Finance
lease liabilities, noncurrent
|
|
|
336,791
|
|
|
|
336,046
|
|
Total
Lease liabilities
|
|
$
|
4,992,402
|
|
|
$
|
336,046
|
|
The
components of lease cost for the year ended July 31, 2020 was as follows:
|
|
Year
ended
|
|
|
|
July
31, 2020
|
|
Operating
lease cost
|
|
$
|
1,052,961
|
|
Finance
leases:
|
|
|
|
|
Amortization
of ROU assets
|
|
|
6,568
|
|
Interest
on finance lease liabilities
|
|
|
25,195
|
|
Finance
lease cost
|
|
|
31,763
|
|
Total
lease cost
|
|
$
|
1,084,724
|
|
Supplemental
cash flow information for leases for the year ended July 31, 2020 was as follows:
Cash paid
for amounts included in the measurement of lease liabilities:
|
|
|
|
Operating
cash flows from operating leases
|
|
$
|
592,514
|
|
Financing
cash flows from finance leases
|
|
|
19,878
|
|
The
weighted-average remaining lease term and weighted-average discount rate for operating and finance leases at July 31, 2020 was
as follows:
|
|
Operating
Leases
|
|
|
Finance
Leases
|
|
Weighted-average
remaining lease term (years)
|
|
|
4.9
|
|
|
|
31
.0
|
|
Weighted-average
discount rate
|
|
|
8
|
%
|
|
|
8
|
%
|
The
following table reconciles the undiscounted future minimum lease payments for operating and finance leases executed at July 31,
2020:
|
|
Operating
Leases
|
|
|
Finance
Leases
|
|
2021
|
|
$
|
1,106,570
|
|
|
$
|
20,788
|
|
2022
|
|
|
1,185,208
|
|
|
|
21,505
|
|
2023
|
|
|
1,165,492
|
|
|
|
22,222
|
|
2024
|
|
|
1,107,930
|
|
|
|
22,938
|
|
2025
|
|
|
1,026,177
|
|
|
|
23,655
|
|
2026
and thereafter
|
|
|
81,546
|
|
|
|
909,651
|
|
Total
lease payments
|
|
$
|
5,672,923
|
|
|
$
|
1,020,759
|
|
Less
interest
|
|
|
(1,017,312
|
)
|
|
|
(683,968
|
)
|
Present
value of future lease payments
|
|
$
|
4,655,611
|
|
|
$
|
336,791
|
|
Current
Lease liabilities
|
|
|
739,352
|
|
|
|
-
|
|
Noncurrent
Lease liabilities
|
|
|
3,916,259
|
|
|
|
336,791
|
|
NOTE
13. 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 July 31, 2020 and 2019, amount of $703,776 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
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 years ended July 31, 2020 and 2019, $37,676 and $14,099 of interest income were recognized,
respectively.
The
remaining related party receivable of $49,300 and $39,088 as of July 31, 2020 and 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 July 31, 2020 and 2019, amounts of $674,830 and $526,963, are payable to SH Qiaohong, respectively. 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 July 31, 2020 and 2019, amount of $594,965 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
Company had payable balances to Shanghai Oversea Chinese Culture Media Ltd. (“SH Oversea”), a company under common
control, in the amounts of $1,012,650 and $50,808 as of July 31, 2020 and 2019, respectively. The payable is funding support from
SH Oversea for operation, bears no interest and due on demand.
The
remaining related party payable of $92,100 and $146,967 as of July 31, 2020 and 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 July 31, 2020 and 2019, the Company
has $592,106 and $585,146, respectively, short-term and long-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. $14,445 and $3,739 of interest expense were recognized
during the years ended July 31, 2020 and 2019, 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 July 31, 2020 and 2019, the estimated fair value of long-term loan payable were Nil and $584,674, respectively.
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
principle and interest will be due on the maturity dates. As of July 31, 2020, no balance were withdrawn from these two line of
credits by HF Int’l Education.
NOTE
14. NONCONTROLLING INTERESTS
Noncontrolling
interests consisted of the following as of July 31, 2020 and 2019:
Name
of Entity
|
|
%
of Non-
Controlling
Interests
|
|
|
July
31,
2019
|
|
|
Net
loss
|
|
|
Disposal
of
Noncontrolling
interest
|
|
|
Investment
from
Noncontrolling
Interest
|
|
|
Foreign
currency
translation adjustment
|
|
|
July
31, 2020
|
|
HZLJ
|
|
|
40.0
|
%
|
|
$
|
(250,794
|
)
|
|
$
|
(619,980
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(18,294
|
)
|
|
$
|
(889,068
|
)
|
HF
Int’l Education
|
|
|
*39.0
|
%
|
|
|
104,923
|
|
|
|
(365,250
|
)
|
|
|
(12,771
|
)
|
|
|
186,231
|
|
|
|
(1,825
|
)
|
|
|
(88,692
|
)
|
Qiao
Garden Intl Travel
|
|
|
10.0
|
%
|
|
|
64,730
|
|
|
|
(5,699
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
1,240
|
|
|
|
60,271
|
|
Total
|
|
|
|
|
|
$
|
(81,141
|
)
|
|
$
|
(990,929
|
)
|
|
$
|
(12,771
|
)
|
|
$
|
186,231
|
|
|
$
|
(18,879
|
)
|
|
$
|
(917,489
|
)
|
*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, 2018
|
|
|
Net
loss
|
|
|
Contribution
through acquisitions and new subsidiary
|
|
|
Investment
from Noncontrolling Interest
|
|
|
Foreign
currency translation adjustment
|
|
|
July
31, 2019
|
|
HZLJ
|
|
|
40.0
|
%
|
|
$
|
-
|
|
|
$
|
(10,181
|
)
|
|
$
|
(240,613
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(250,794
|
)
|
HF
Int’l Education
|
|
|
41.5
|
%
|
|
|
-
|
|
|
|
(66,409
|
)
|
|
|
171,332
|
|
|
|
-
|
|
|
|
-
|
|
|
|
104,923
|
|
Qiao
Garden Intl Travel
|
|
|
10.0
|
%
|
|
|
-
|
|
|
|
765
|
|
|
|
63,965
|
|
|
|
-
|
|
|
|
-
|
|
|
|
64,730
|
|
Total
|
|
|
|
|
|
$
|
-
|
|
|
$
|
(75,825
|
)
|
|
$
|
(5,316
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(81,141
|
)
|
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 (the “Subtenants”) entered two lease agreements with
Shanghai Longjin Corporate Management Co., Ltd (the “Tenant”) 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 Tenant 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 Tenant was 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. HF Int’l Education entered a new lease agreement with the Landlord directly on June 1, 2020
for the same office spaces with a five-year term. An initial trial is scheduled on November 12, 2020 by the court. The Company
accrued the full amount of rent expense for the period ended May 31, 2020 and the accrued rental payable was $252,154 associated
with the Tenant under the two lease agreements as of July 31, 2020.
On
July 8, 2020, HF Int’l Education entered a book publishing contract with Shanghai Joint Publishing to publish childcare
education books in three series. Pursuant to the contract, HF Int’l Education authorizes Shanghai Joint Publishing to publish
those books as initial publication within two years and commit to purchase total 180,000 books in a total price of RMB 2 million.
HF Int’l Education holds the copyrights of the three series books after internally developed and registered with National
Publishing Agency in the PRC in May 2020. Management decided not to capitalize the internal development cost related to those
books and expensed instead when it occurs for the year ended July 31, 2020. As of July 31, 2020, $86,019 (RMB600,000) was prepaid
toward the contract and the remaining purchase price will be due on December 31, 2020.
NOTE
16. INCOME TAXES
For
the years ended July 31, 2020 and 2019, we recorded income tax expense of $800 and $0, respectively, due to the loss position
for the years since inception.
Hartford
Great Health Corp.’s deferred tax assets, valuation allowance, and change in valuation allowance are as follows:
Period
Ending
|
|
|
Net
NOL carry-forward
|
|
|
NOL
expires
|
|
|
Estimated
tax benefit from NOL and other tax benefits (21%)
|
|
|
Valuation
allowance
|
|
|
Change
in valuation allowance
|
|
|
Net
deferred tax asset
|
|
|
31-Jul-19
|
|
|
$
|
916,816
|
|
|
|
2039
|
|
|
$
|
275,045
|
|
|
$
|
(275,045
|
)
|
|
$
|
(209,045
|
)
|
|
$
|
-
|
|
|
31-Jul-20
|
|
|
$
|
3,568,185
|
|
|
|
2040
|
|
|
$
|
1,070,456
|
|
|
$
|
(1,070,456
|
)
|
|
$
|
(795,411
|
)
|
|
$
|
-
|
|
Income
taxes at the statutory rate are reconciled to reported income tax expense (benefit) as follows:
|
|
2020
|
|
|
2019
|
|
Federal
income tax rate
|
|
|
21.0
|
%
|
|
|
21.0
|
%
|
State
income tax rate
|
|
|
8.8
|
%
|
|
|
8.8
|
%
|
Foreign
tax difference
|
|
|
(4.6
|
)%
|
|
|
(8.6
|
)%
|
GILTI
|
|
|
-
|
%
|
|
|
-
|
%
|
Valuation
allowance
|
|
|
(25.2
|
)%
|
|
|
(21.2
|
)%
|
Others
|
|
|
-
|
%
|
|
|
-
|
%
|
Effective
tax rate
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
At
this time, the Company is unable to determine if it will be able to benefit from its deferred tax asset. There are limitations
on the utilization of net operating loss carry-forwards, including a requirement that losses be offset against future taxable
income, if any. In addition, there are limitations imposed by certain transactions which are deemed to be ownership changes. Accordingly,
a valuation allowance has been established for the entire deferred tax asset. Other temporary differences and estimated permanent
differences are considered immaterial. Open tax years subject to examination by the IRS range from August 1, 2016 to the present.
The Company has no uncertain tax positions.
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 since inception and zero balances of deferred tax assets and liabilities as of the
reporting periods ended. The tax reforms have no significant impacts on the Company.
NOTE
17. 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 July 31, 2020 and revenue generated during the year ended July 31, 2020,
as follows:
|
|
Hospitality
|
|
|
Education
|
|
|
Corporate
and
unallocated
|
|
|
Total
|
|
Revenue
|
|
$
|
68,724
|
|
|
$
|
29,583
|
|
|
$
|
-
|
|
|
$
|
98,307
|
|
Operating
loss
|
|
|
(2,231,236
|
)
|
|
|
(1,088,494
|
)
|
|
|
(179,227
|
)
|
|
|
(3,498,957
|
)
|
Loss
before tax
|
|
|
(2,260,026
|
)
|
|
|
(1,230,479
|
)
|
|
|
(163,764
|
)
|
|
|
(3,654,269
|
)
|
Net
Loss Attributable to
Hartford
Great Health Corp
|
|
|
(1,744,600
|
)
|
|
|
(742,205
|
)
|
|
|
(164,564
|
)
|
|
|
(2,651,369
|
)
|
Total
assets (excluding Intercompany balances)
|
|
|
1,379,590
|
|
|
|
4,855,413
|
|
|
|
53,978
|
|
|
|
6,288,981
|
|
As
of July 31, 2019, the company only operated at 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.
NOTE
18. 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 the following subsequent events to be disclosed.
On
September 17, 2020, the Company has borrowed $25,000, in form of a short-term loan at 5% per annum from a related party.