NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This
summary of significant accounting policies is presented to assist in understanding the Company’s financial statements. The
financial statements and notes are the responsibility of the Company’s management. These accounting policies conform to
accounting principles generally accepted in the United States of America (“US GAAP”) and have been consistently applied
in the preparation of the financial statements. This disclosure should be read in conjunction with our audited financial statements
for the year ended July 31, 2020, including footnotes, contained in our Annual Report on Form 10-K,
Organization
Hartford
Great Health Corp. was originally incorporated in the State of Nevada on April 2, 2008 under the name PhotoAmigo, Inc. It changed
its name to Hartford Great Health Corp. on August 22, 2018 and since then we have been engaged in activities to formulate and
implement our business plans.
Through
its wholly owned subsidiary - Hangzhou Hartford Comprehensive Health Management, Ltd (“HZHF) and HZHF’s 60 percent
owned subsidiary - Hangzhou Longjing Qiao Fu Vacation Hotel Co., Ltd. (“HZLJ”) and through Shanghai Hartford Comprehensive
Health Management, Ltd. (“HFSH”) and its 90 percent owned subsidiary - Shanghai Qiao Garden International Travel Agency
(“Qiao Garden Int’l Travel”), the Company engages in hospitality industry in China.
The
Company started to operate in early childhood education services in Hartford International Education Technology Co., Ltd (“HF
Int’l Education”), a 75.5% ownership subsidiary of HFSH on March 2019. On July 24, 2019 and March 23, 2020, HF Int’l
Education established two 100% owned subsidiaries, Pudong Haojin Childhood Education Ltd. (“PDHJ”) and Shanghai Hongkou
HaiDeFuDe Childcare Co., Ltd.(“HDFD”), respectively, to engage the early childhood education service under the brand
name of “HaiDeFuDe” in Shanghai, China. On July 20, 2020, HF Int’l Education entered an agreement with two individuals
to acquire the whole ownership of Shanghai Gelinke Childcare Education Center (“Gelinke”).
Basis
of Presentation
The
consolidated financial statements include the accounts of Hartford Great Health Corp, its wholly-owned subsidiaries and subsidiaries
in which it has a controlling interest. The Company reports noncontrolling interests of the consolidated entities as a component
of equity separate from the Company’s equity. All material inter-company transactions between and among the Company and
its consolidated subsidiaries have been eliminated in the consolidation. The Company’s net income (loss) excludes income
(loss) attributable to the noncontrolling interests.
Use
of Estimates
The
preparation of financial statements in conformity with US GAAP requires the Company’s management to make estimates and assumptions
that affect the amounts of assets and liabilities, the identification and disclosure of impaired assets and contingent liabilities
at the date of the financial statements, and the reported amounts of expenses during the reporting period. Actual results could
differ from those estimates.
Reclassifications
Certain
amounts on the prior-year consolidated balance sheet, consolidated statement of operations and cash flows were reclassified to
conform to current-year presentation, with no effect on ending stockholders’ equity.
Revenue
Recognition
The
Company adopted ASC Topic 606 Revenue from Contracts with Customers (“Topic 606) on August 1, 2018, applying the modified
retrospective method to all contracts that were not completed as of August 1, 2018. The Company is building up its core business
upon the completion of multiple acquisitions on March 2019 and impact of COVID-19 pandemic, limited operations occurred during
the three months ended October 31, 2020 and 2019. The revenue during the three months ended October 31, 2020 and 2019, 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 October
31, 2020 and 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.
|
|
|
b.
|
Hospitality
services: HZLJ generates revenue primarily from the room rentals, sale of food and beverage and other miscellaneous hospitality
services. The Company recognizes room rental and services daily as services are provided. Under ASC 606, the pattern and timing
of recognition of income from hotel facility is consistent with the prior accounting model.
|
Recent
Accounting Pronouncements.
Recently
adopted accounting pronouncements
In
January 2017, the FASB issued ASU No. 2017-04, “Intangibles and Other (Topic 350): Simplifying the Test for Goodwill Impairment”,
which eliminates the requirement to calculate the implied fair value of goodwill, but rather requires an entity to record an impairment
charge based on the excess of a reporting unit’s carrying value over its fair value. This amendment is effective for annual
or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company
early adopted ASU No. 2017-04 on January 31, 2020. Management determined the goodwill generated from HZLJ and HFSH acquisition
was fully impaired as of January 31, 2020.
In
February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”. ASU No. 2016-02 requires the recognition of
lease assets and lease liabilities on the balance sheet for leases classified as operating leases under previous guidance. The
accounting for finance leases (capital leases) was substantially unchanged. The original guidance required application on a modified
retrospective basis with adjustments to the earliest comparative period presented. In August 2018, the FASB issued ASU No. 2018-11,
“Targeted Improvements to ASC 842,” which included an option to not restate comparative periods in transition and
elect to use the effective date of ASU No. 2016-02 as the date of initial application, which the Company elected. As a result,
the consolidated balance sheet prior to August 1, 2019 was not restated, and continues to be reported under previous guidance
that did not require the recognition of operating lease liabilities and corresponding lease assets on the consolidated balance
sheet. The cumulative effect of the changes made to our Condensed Consolidated Balance Sheet at August 1, 2019 for the adoption
of the new lease standard was as follows:
|
|
Balance at
|
|
|
|
|
|
Balance at
|
|
|
|
July
31, 2019
|
|
|
Adjustments
|
|
|
August
1, 2019
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
Prepaid
and Other current receivables
|
|
|
386,700
|
|
|
|
(74,197
|
)
|
|
|
312,503
|
|
ROU assets-Operating
lease
|
|
|
—
|
|
|
|
4,185,827
|
|
|
|
4,185,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Operating
Lease liabilities
|
|
|
—
|
|
|
|
651,424
|
|
|
|
651,424
|
|
Operating lease
liabilities
|
|
|
—
|
|
|
|
3,481,229
|
|
|
|
3,481,229
|
|
The
adoption of ASU No. 2016-02 had an immaterial impact on the Company’s Consolidated Statement of Operation and Consolidated
Statement of Cash Flows for the year ended July 31, 2020. In addition, the Company elected the package of practical expedients
permitted under the transition guidance within the new standard, which allowed the Company to carry forward the historical lease
classification, not reassess prior conclusions related to expired or existing contracts that are or that contain leases, and not
reassess the accounting for initial direct costs. Operating leases with a term of 12 months or less will not be recorded on the
Consolidated Balance Sheet. Additional information and disclosures required by ASU No. 2016-02 are contained in Note 12
Leases.
Recently
issued accounting pronouncements not yet adopted
In
June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses”. The standard, including subsequently
issued amendments (ASU 2018-19, ASU 2019-04, ASU 2019-05, ASU 2019-10 and ASU 2019-11), requires a financial asset measured at
amortized cost basis, such as accounts receivable and certain other financial assets, to be presented at the net amount expected
to be collected based on relevant information about past events, including historical experience, current conditions, and reasonable
and supportable forecasts that affect the collectability of the reported amount. In November 2019, the FASB issued ASU No. 2019-10
to postpone the effective date of ASU No. 2016-13 for public business entities eligible to be smaller reporting companies defined
by the SEC to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company
is evaluating the impact of this guidance on its consolidated financial statements.
NOTE
2. GOING CONCERN
The
accompanying financial statements were prepared on a going concern basis, which contemplates the realization of assets and the
satisfaction of obligations in the normal course of business. However, Hartford Great Health Corp. has incurred losses since inception,
resulting in an accumulated deficit of $4,092,942 as of October 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. RESTATEMENTS
On February 18, 2021, the Company has
concluded that the Company’s previously reported unaudited consolidated statements of cash flows for the three months ended
October 31, 2020 and 2019 incorrectly presented some funding support from related parties under operating activities, upon reflection
and further analysis, which would be more accurate to be accounted for financing activities.
Restated Consolidated Statement of
Cash Flow (adjusted line items):
|
|
For
the three months ended October 31, 2020
|
|
|
|
As
previously reported
|
|
|
As
restated
|
|
|
Change
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party receivables and payables
|
|
|
518,895
|
|
|
|
12,607
|
|
|
|
506,288
|
|
Net cash provided by (used in) operating activities
|
|
|
716
|
|
|
|
(505,572
|
)
|
|
|
506,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances from related parties
|
|
|
-
|
|
|
|
506,288
|
|
|
|
(506,288
|
)
|
Net cash provided by financing activities
|
|
|
3,899
|
|
|
|
510,187
|
|
|
|
(506,288
|
)
|
|
|
For
the three months ended October 31, 2019
|
|
|
|
As
previously reported
|
|
|
As
restated
|
|
|
Change
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party receivables and payables
|
|
|
256,517
|
|
|
|
(50,495
|
)
|
|
|
307,012
|
|
Net cash (used in) operating activities
|
|
|
(63,297
|
)
|
|
|
(370,309
|
)
|
|
|
307,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances from related parties
|
|
|
-
|
|
|
|
307,012
|
|
|
|
(307,012
|
)
|
Net cash (used in) provided by financing activities
|
|
|
(12,690
|
)
|
|
|
294,322
|
|
|
|
(307,012
|
)
|
NOTE 4. ACQUISITIONS AND JOINT
VENTURES
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 the remaining 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 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, PDHJ and HDFD, respectively,
to provide childcare education services under the brand name of “HaiDeFuDe” in Shanghai City, China.
Acquisition
of Gelinke
On
July 20, 2020, HF Int’l Education entered an agreement with two individuals to acquire the whole ownership of Shanghai Gelinke
Childcare Education Center (“Gelinke”). The intent behind the acquisition is to expand the company’s early childhood
education services. The results of operations of the acquired entities are included in the Company’s consolidated financial
statements commencing on the acquisition date. The Company has recorded an allocation of purchase price to Gelinke’s tangible
and identifiable intangible assets acquired and liabilities assumed based on their fair value at the acquisition date. The Company
accounted the acquisition transaction in accordance with FASB ASC 805, Business Combinations, under acquisition accounting method.
The related transaction costs were immaterial and included in General and administrative expenses in the accompanying consolidated
statements of operations. The preliminary calculation of purchase price and purchase price allocation is as follows:
|
|
Assets Acquired and Liabilities
Assumed
|
|
Cash and cash equivalents
|
|
|
1,809
|
|
Restricted Cash
|
|
|
25,009
|
|
Prepaid and Other current receivables
|
|
|
4,696
|
|
Property and Equipment, net
|
|
|
4,294
|
|
Unearned revenue
|
|
|
(78,696
|
)
|
Goodwill
|
|
|
67,712
|
|
Total consideration*
|
|
|
24,824
|
|
*$10,462
(RMB70,000) payable to the acquiree plus $14,362 (RMB100,000) cash payment totaled $24,824 consideration for the acquisition.
Goodwill
is mainly attributable to synergies expected from the acquisition of license, list of customers and teacher workforce.
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 October 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.
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 and business
operation certificate Gelinke holds.
The
following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the balance sheets that
sum to the total of the same such amounts shown in the statements of cash flows.
|
|
October
31, 2020
|
|
|
October
31, 2019
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
Cash and cash equivalents
|
|
$
|
29,190
|
|
|
$
|
116,240
|
|
Restricted cash,
noncurrent
|
|
|
55,506
|
|
|
|
28,414
|
|
Total cash, cash
equivalents and restricted cash shown in the statement of cash flows
|
|
$
|
84,696
|
|
|
$
|
144,654
|
|
NOTE
6. PREPAID AND OTHER CURRENT RECEIVABLES
Prepaid
and other current receivable, amounts of $200,515 and $173,819 as of October 31, 2020 and July 31, 2020, respectively, mainly
consist of purchase advance, prepaid rent, employee operating advances and others.
NOTE
7. INVENTORY
Inventory
mainly consists of books, the early childhood education materials. Inventory is stated at the lower of cost or net realizable
value. As of October 31 and July 31, 2020, inventory balance was $317,157 and nil, respectively.
NOTE
8. PROPERTY AND EQUIPMENT, NET
Property
and equipment, net consists of the following at October 31, 2020 and July 31, 2020:
|
|
October 31,
|
|
|
July 31,
|
|
|
|
2020
|
|
|
2020
|
|
|
|
(unaudited)
|
|
|
|
|
Leasehold improvements
|
|
$
|
189,077
|
|
|
$
|
181,378
|
|
Finance lease assets
|
|
|
280,735
|
|
|
|
269,304
|
|
Furniture and fixtures
|
|
|
210,823
|
|
|
|
202,241
|
|
Office equipment and vehicles
|
|
|
148,200
|
|
|
|
112,759
|
|
Construction
in progress
|
|
|
19,399
|
|
|
|
19,326
|
|
|
|
|
848,234
|
|
|
|
785,008
|
|
Less: accumulated
depreciation and amortization
|
|
|
(376,359
|
)
|
|
|
(317,127
|
)
|
|
|
$
|
471,875
|
|
|
$
|
467,881
|
|
Depreciation
expense for the three months ended October 31, 2020 and 2019 were $19,141 and $4,265, respectively.
NOTE
9. OTHER ASSETS
Other
assets consist of the following at October 31, 2020 and July 31, 2020:
|
|
October
31, 2020
|
|
|
July
31, 2020
|
|
|
|
(unaudited)
|
|
|
|
|
Other miscellaneous assets
|
|
$
|
38,047
|
|
|
$
|
38,688
|
|
Rental deposits
|
|
|
204,183
|
|
|
|
288,970
|
|
Trademark
|
|
|
1,644
|
|
|
|
1,577
|
|
Deferred cost
of finance lease
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
243,874
|
|
|
$
|
329,235
|
|
During
2019 HZLJ acquisition, the cost of obtaining the finance lease of the land use rights and hotel building at HZLJ, in the amount
of $879,800 (RMB 6 million) was recognized as Other Assets and subject for amortization over the remaining lease term, 41 years
commenced on October 2010. The amortization is computed using the straight-line method over the remaining lease term. Amortization
expense of deferred cost of finance lease for the three months ended October 31, 2019 were $5,287. Given the impact of COVID-19
pandemic and the unfavorable operation results, management determined that the deferred cost of finance lease was fully impaired
as of July 31, 2020 and $621,963 impairment cost was recorded for the year ended July 31, 2020.
NOTE
10. OTHER CURRENT PAYABLE
The
following is a breakdown of the accounts and other payables as of October 31, 2020 and July 31, 2020:
|
|
October
31, 2020
|
|
|
July 31,
2020
|
|
|
|
(unaudited)
|
|
|
|
|
Payable to Acquirees
|
|
$
|
135,661
|
|
|
$
|
130,138
|
|
Unearned revenue
|
|
|
151,064
|
|
|
|
75,861
|
|
Rental payables
|
|
|
323,728
|
|
|
|
252,154
|
|
Other payables
|
|
|
408,339
|
|
|
|
158,966
|
|
|
|
$
|
1,018,792
|
|
|
$
|
617,119
|
|
Payable
to acquirees is the unpaid consideration for the acquisitions during 2019 and 2020. Rental payable is accrued for unpaid rent.
Other
payables at October 31, 2020 mainly consist of $209,230 payable to vendor, Shanghai Joint Publishing. 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 expensed the development cost of the copy rights when it occurs during the year ended July 31,
2020. As of October 31, 2020, total 180,000 books, amount of $298,900 were received and recorded as Inventory. The remaining $209,230
payable is due on December 31, 2020 per the contract term.
NOTE
11. STOCKHOLDERS’ EQUITY
On
July 3, 2020, the Company entered a subscription agreement of 1,000,000 shares of common stock (the “Shares”) with
a significant shareholder of the Company priced at $0.02 per share. $20,000 subscription was received, and the shares were issued
on November 24, 2020.
NOTE
12. LEASES
At
the inception of a contract, the Company assesses whether the contract is, or contains, a lease. Leases are classified as
either finance leases or operating leases based on criteria in Accounting Standards Codification (“ASC”) 842.
Operating leases are included in ROU assets-Operating lease, Current Operating Lease liabilities and Operating lease
liabilities, finance leases are included in Property and Equipment and Other Liabilities in the condensed Consolidated
Balance Sheet.
Right-of-use
(“ROU”) assets and liabilities are recognized at the lease commencement date based on the present value of lease payments
over the lease term. As the lease did not provide an implicit rate, the Company uses its incremental borrowing rate based on the
information available at the lease commencement date in China market. ROU assets also include any lease payments made and exclude
lease incentives. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company
will exercise that option. Lease expense for operating leases, consisting of lease payments, is recognized on a straight-line
basis over the lease term. Lease expense for finance leases consists of the amortization of the ROU asset on a straight-line basis
over the asset’s estimated useful life and interest expense is calculated using the amortized cost basis.
As
of October 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-one years. The Company has elected not to recognize ROU assets and lease liabilities
for short-term operating leases that have a term of twelve months or less.
On June 2018 and January 2019, HFSH and HF
Int’l Education entered two lease agreements with Shanghai Longjin Corporate Management Co., Ltd (the “Sublessor”)
to lease office spaces (the “Subleases”). HFSH and HF Int’l Education received Notices of Lease Termination
from the Sublessor for late payments on April 13, 2020 and filed a civil lawsuit against the Sublessor on July 10, 2020 (see Note
15). And the original lease agreement entered between the Sublessor and the landlord of the office building (the “Landlord”)
was terminated by the Landlord on June 1, 2020 due to payment default. The two sublease agreements entered with the Sublessor
was terminated on June 1, 2020 and approximately $921,000 ROU and $891,000 lease liability associated with the two Subleases as
of May 31, 2020 were eliminated and $29,000 other expenses was recognized as a result. HF Int’l Education entered a new
lease agreement with the Landlord on June 1, 2020 for the same office spaces with a five-year term.
On September 1, 2020, Gelinke entered
a five-year new lease agreement at the same location upon the completion of the acquisition. Approximately $1.21 million ROU
and $1.26 million lease liability were recorded associated with the new lease as of October 31, 2020.
The
finance lease was obtained through HZLJ acquisition on March 22, 2019. On October 1, 2010, HZLJ took over the lease of the land
and hotel building for 41 years. Finance lease right-of-use assets represent the Company’s right to use an underlying asset
for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease.
Lease-related
assets and liabilities on October 31, 2020 and July 31, 2020 were as follows:
|
|
October
31, 2020
|
|
|
July
31, 2020
|
|
|
|
(unaudited)
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Finance lease right-of-use
assets, cost
|
|
$
|
280,735
|
|
|
$
|
269,304
|
|
Less: accumulated
amortization
|
|
|
(69,043
|
)
|
|
|
(64,589
|
)
|
Finance lease right-of-use assets, net
|
|
|
211,692
|
|
|
|
204,715
|
|
ROU assets-Operating
lease
|
|
|
5,696,692
|
|
|
|
4,499,693
|
|
Total Lease ROU
assets
|
|
$
|
5,908,384
|
|
|
$
|
4,704,408
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Current Operating Lease liabilities
|
|
$
|
1,033,849
|
|
|
$
|
739,352
|
|
Operating lease liabilities, noncurrent
|
|
|
4,888,686
|
|
|
|
3,916,259
|
|
Finance lease
liabilities, noncurrent
|
|
|
336,076
|
|
|
|
336,791
|
|
Total Lease liabilities
|
|
$
|
6,258,611
|
|
|
$
|
4,992,402
|
|
The
components of lease cost for the three months ended October 31, 2020 and 2019 was as follows:
|
|
Three months ended October
31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
Operating lease cost
|
|
$
|
345,713
|
|
|
$
|
203,570
|
|
Finance leases:
|
|
|
|
|
|
|
|
|
Amortization of ROU assets
|
|
|
1,712
|
|
|
|
1,627
|
|
Interest on finance
lease liabilities
|
|
|
6,661
|
|
|
|
6,242
|
|
Finance lease
cost
|
|
|
8,373
|
|
|
|
7,869
|
|
Total lease cost
|
|
$
|
354,086
|
|
|
$
|
211,439
|
|
Supplemental
cash flow information for leases for the three months ended October 31, 2020 and 2019 was as follows:
|
|
Three months ended October
31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
Operating cash flows paid
for operating leases
|
|
$
|
54,230
|
|
|
$
|
122,782
|
|
Financing cash flows paid for finance
leases
|
|
|
21,257
|
|
|
|
19,739
|
|
The
weighted-average remaining lease term and weighted-average discount rate for operating and finance leases at October 31, 2020
was as follows:
|
|
Operating
Leases
|
|
|
Finance
Leases
|
|
Weighted-average remaining
lease term (years)
|
|
|
4.8
|
|
|
|
30.8
|
|
Weighted-average discount rate
|
|
|
8
|
%
|
|
|
8
|
%
|
The
following table reconciles the undiscounted future minimum lease payments for operating and finance leases executed at October
31, 2020:
|
|
Operating
Leases
|
|
|
Finance
Leases
|
|
2021 (excluding the three-month
ended October 31, 2020)
|
|
$
|
1,080,361
|
|
|
$
|
-
|
|
2022
|
|
|
1,549,358
|
|
|
|
22,418
|
|
2023
|
|
|
1,528,805
|
|
|
|
23,165
|
|
2024
|
|
|
1,483,184
|
|
|
|
23,912
|
|
2025
|
|
|
1,399,269
|
|
|
|
24,659
|
|
2026 and thereafter
|
|
|
112,468
|
|
|
|
948,260
|
|
Total lease payments
|
|
$
|
7,153,445
|
|
|
$
|
1,042,414
|
|
Less interest
|
|
|
(1,230,910
|
)
|
|
|
(706,338
|
)
|
Present value
of future lease payments
|
|
$
|
5,922,535
|
|
|
$
|
336,076
|
|
Current Lease liabilities
|
|
|
1,033,849
|
|
|
|
-
|
|
Noncurrent Lease liabilities
|
|
|
4,888,686
|
|
|
|
336,076
|
|
NOTE
13. RELATED PARTY TRANSACTIONS
Related
Party Receivables
As
of October 31 and July 31, 2020, amount of $743,615 and $703,776, respectively, is due from Shanghai Qiaohong Real Estate
Co., Ltd. (“SH Qiaohong”), the noncontrolling interest of Longjing. The balance was acquired through HFSH acquisition.
HFSH lent the amount to SH Qiaohong for two years on June 21, 2018 bearing annual interest of six percent. On August 1, 2020,
the loan has been extended to July 31, 2022. For the three months ended October 31, 2020 and 2019, $9,778 and $9,404 of interest
income were recognized, respectively.
The
remaining related party receivable of $51,392 and $49,300 as of October 31, 2020 and July 31, 2020, respectively, represents the
operating advances made to the affiliates which are managed by the same management team. These advances do not bear interest and
are considered due on demand.
Related
Party Payables
As
of October 31 and July 31, 2020, amounts of $757,273 and $674,830, 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 October 31 and July 31, 2020, amount of $613,044 and $594,965, respectively, is payable to Shanghai Qiao Garden Property
Management Group (“Qiao Garden Group”), an entity managed by the same management team. The balance was part of the
liability assumed through HZLJ acquisition. This payable balance does not bear interest and is considered due on demand.
The
Company had payable balances to Shanghai Oversea Chinese Culture Media Ltd. (“SH Oversea”), an entity managed by the
same management team, in the amounts of $1,571,751 and $1,012,650 as of October 31, 2020 and July 31, 2020, respectively. The
payable is funding support from SH Oversea for operation, bears no interest and due on demand.
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, Hartford
Hotel Investment Inc. an entity managed by the same management team. $156 of interest expense was recognized during the three
months ended October 31, 2020. The unpaid principal and interest will be due on the maturity date.
The
remaining related party payable of $68,386 and $92,100 as of October 31, 2020 and July 31, 2020, respectively, represents the
unpaid portion of operating advances made to the Company by affiliates which are managed by the same management team.
These advances do not bear interest and are considered due on demand.
As
of October 31 and July 31, 2020, the Company has $621,059 and $592,106, respectively, short-term payable to Shanghai DuBian Assets
Management Ltd. (“Dubian”), which is owned by the Company’s CEO’s relative. The payable balance was assumed
from the acquisition transaction. On April 30, 2019, both parties entered a long-term agreement to convert the payable to a long-term
debt, with expiration date on April 30, 2021, bearing approximately 2.5 percent of annual interest. $3,749 and $3,606 of interest
expense were recognized during the three months ended October 31, 2020 and 2019, respectively. The unpaid principal and
interest will be due on the maturity date. This loan payable is not exposed to market risk due to the stable and fixed interest
rates in accordance with the loan agreements.
Other
Related Party Transactions
Office
space at Rosemead, CA is provided to Hartford Great Health Corp. at no cost by the sole executive officer. No provision for these
costs has been included in these financial statements as the amounts are not material.
On
September 30, 2019, HF Int’l Education entered two debt agreements with the related parties, SH Qiao Hong and SH Oversea.
Each debt agreement provides a line of credit up to RMB9.0 million with two-year term, bearing 3.0% annum interest rate. The unpaid
principal and interest will be due on the maturity dates. As of October 31, 2020, no balance was withdrawn from
the two line of credits by HF Int’l Education.
NOTE
14. NONCONTROLLING INTERESTS
Noncontrolling
interests consisted of the following as of October 31, 2020 and 2019:
Name of Entity
|
|
%
of Non-Controlling Interests
|
|
|
July
31, 2020
|
|
|
Net
loss
|
|
|
Investment
from
Noncontrolling Interest
|
|
|
Foreign
currency translation adjustment
|
|
|
October
31, 2020
(unaudited)
|
|
HZLJ
|
|
|
40.0
|
%
|
|
$
|
(889,068
|
)
|
|
$
|
(11,398
|
)
|
|
$
|
-
|
|
|
$
|
(24,151
|
)
|
|
$
|
(924,617
|
)
|
HF Int’l Education
|
|
|
24.5
|
%
|
|
|
(88,692
|
)
|
|
|
(123,951
|
)
|
|
|
-
|
|
|
|
(5,703
|
)
|
|
|
(218,346
|
)
|
Qiao Garden Intl
Travel
|
|
|
10.0
|
%
|
|
|
60,271
|
|
|
|
956
|
|
|
|
-
|
|
|
|
1,642
|
|
|
|
62,869
|
|
Total
|
|
|
|
|
|
$
|
(917,489
|
)
|
|
$
|
(134,393
|
)
|
|
$
|
-
|
|
|
$
|
(28,212
|
)
|
|
$
|
(1,080,094
|
)
|
*90%
equity of SHHZJ, a limited partnership and 10% shareholder of HF Int’l Education, is held by Mr. Song, CEO of the Company
on behalf of an unrelated individual. However, HF Int’l Education does not have the obligation to absorb losses of SHHZJ
or a right to receive benefits from SHHZJ that could potentially be significant to SHHZJ, thus, SHHZJ is not considered a VIE
of HF Int’l Education.
Name
of Entity
|
|
%
of Non-Controlling Interests
|
|
|
July
31, 2019
|
|
|
Net
loss
|
|
|
Investment
from Noncontrolling Interest
|
|
|
Foreign
currency translation adjustment
|
|
|
October
31, 2019
(unaudited)
|
|
HZLJ
|
|
|
40.0
|
%
|
|
$
|
(250,794
|
)
|
|
$
|
(17,943
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(268,737
|
)
|
HF Int’l Education
|
|
|
41.5
|
%
|
|
|
104,923
|
|
|
|
(66,240
|
)
|
|
|
7,104
|
|
|
|
-
|
|
|
|
45,787
|
|
Qiao Garden Intl
Travel
|
|
|
10.0
|
%
|
|
|
64,730
|
|
|
|
664
|
|
|
|
-
|
|
|
|
-
|
|
|
|
65,394
|
|
Total
|
|
|
|
|
|
$
|
(81,141
|
)
|
|
$
|
(83,519
|
)
|
|
$
|
7,104
|
|
|
$
|
-
|
|
|
$
|
(157,556
|
)
|
NOTE
15. COMMITMENTS AND CONTINGENCIES
There
has been below material contractual obligations and other commitments except the lease commitments disclosed in Note 12
Leases.
On
June 2018 and January 2019, HFSH and HF Int’l Education entered two lease agreements with Shanghai Longjin Corporate
Management Co., Ltd (the “Sublessor”) to lease some office spaces. On April 13, 2020, HFSH and HF
Int’l Education received Notices of Lease Termination from the Tenant for late payments. HFSH and HF Int’l
Education then filed a civil case against the Sublessor for over-charged rent fees because of fictitious office size
and requested refund in the total amount approximately $481,000 (RMB3.3 million) till July 10, 2020. The Sublessor was further
in default under the lease agreements due to its lease agreement with the landlord of the office properties (the
“Landlord”) was terminated on June 1, 2020 by the Landlord. As the litigation documents were failed delivering
to the Sublessor, the case is currently servicing through public announcement. After the expiration of the public
announcement period (i.e. 60 days), a court hearing will be held for the case.
The
Company accrued the full amount of rent expense for the period ended May 31, 2020 and the accrued rental payable was $153,325
and $147,082 associated with this Tenant under the two lease agreements as of October 31 and July 31, 2020, respectively. HF
Int’l Education entered a new lease agreement with the Landlord on June 1, 2020 for the same office spaces in a
five-year term.
NOTE
16. SEGMENT INFORMATION
The
Company currently operates in following industry segments: hospitality (hotel and travel agency) and early childhood education
industry in China.
Segment
information on assets as of October 31, 2020 and revenue generated during the three months ended October 31, 2020, as follows:
|
|
Hospitality
|
|
|
Education
|
|
|
Corporate
and
unallocated
|
|
|
Total
|
|
Revenue
|
|
$
|
32,794
|
|
|
$
|
46,593
|
|
|
$
|
-
|
|
|
$
|
79,387
|
|
Operating loss
|
|
|
(97,826
|
)
|
|
|
(505,921
|
)
|
|
|
(54,459
|
)
|
|
|
(658,206
|
)
|
Loss before tax
|
|
|
(97,814
|
)
|
|
|
(505,921
|
)
|
|
|
(54,615
|
)
|
|
|
(658,350
|
)
|
Net Loss Attributable to Hartford Great
Health Corp
|
|
|
(87,372
|
)
|
|
|
(381,970
|
)
|
|
|
(55,415
|
)
|
|
|
(524,757
|
)
|
Total assets (excluding Intercompany
balances)
|
|
|
1,426,445
|
|
|
|
6,403,378
|
|
|
|
49,296
|
|
|
|
7,879,119
|
|
Segment
information on assets as of October 31, 2019 and revenue generated during the three months ended October 31, 2019, as follows:
|
|
|
|
|
|
|
|
Corporate
and
|
|
|
|
|
|
|
Hospitality
|
|
|
Education
|
|
|
unallocated
|
|
|
Total
|
|
Revenue
|
|
$
|
26,857
|
|
|
$
|
37,659
|
|
|
$
|
—
|
|
|
$
|
64,516
|
|
Operating loss
|
|
|
(167,896
|
)
|
|
|
(159,616
|
)
|
|
|
(66,474
|
)
|
|
|
(393,986
|
)
|
Operating loss before tax
|
|
|
(167,730
|
)
|
|
|
(159,616
|
)
|
|
|
(61,876
|
)
|
|
|
(389,222
|
)
|
Net Loss Attributable to Hartford Great
Health Corp
|
|
|
(125,622
|
)
|
|
|
(118,205
|
)
|
|
|
(61,876
|
)
|
|
|
(305,703
|
)
|
Total assets (excluding Intercompany
balances)
|
|
|
2,868,817
|
|
|
|
3,491,432
|
|
|
|
1,073,137
|
|
|
|
7,433,386
|
|
NOTE
17. SUBSEQUENT EVENTS
In
accordance with ASC 855, “Subsequent Events”, the Company has evaluated subsequent events through the date
of issuance of these unaudited financial statements and has noted subsequent event disclosed below.
From November 2020 to February 2021, the
Company borrowed several notes in a total amount of $75,000, in form of a short-term loan at 5% per annum from a related party.
On December 31, 2020, HFSH entered an agreement
with SH Qiaohong and Qiao Garden Intl Travel and settled around $721,000 (RMB$5,031,699) receivable and payable with the same
related party, SH Qiaohong.
On December 31, 2020, HFSH disposed its
90 percent owned subsidiary - Qiao Garden Intel Travel to an individual with zero price.
On December 31, 2020, HFSH withdraw from
the two acquisition agreements entered on early 2019, which were to acquire 85 percent ownership of SH Senior and 55 percent ownership
of SH Pasadena Ltd. No penalty is resulted from the withdrawn.
Forward-Looking
Statements
This
Form 10-Q contains or incorporates by reference “forward-looking statements,” as that term is used in federal securities
laws, about our financial condition, results of operations and business. These statements include, among others:
-
|
statements
concerning the benefits that we expect will result from our business activities and results of business development that we
contemplate or have completed, such as increased revenues; and statements of our expectations, beliefs, future plans and strategies,
anticipated developments and other matters that are not historical facts. These statements may be made expressly in this document
or may be incorporated by reference to other documents that we will file with the SEC. You can find many of these statements
by looking for words such as “believes,” “expects,” “anticipates,” “estimates”
or similar expressions used in this report or incorporated by reference in this report.
|
These
forward-looking statements are subject to numerous assumptions, risks and uncertainties that may cause our actual results to be
materially different from any future results expressed or implied in those statements. Because the statements are subject to risks
and uncertainties, actual results may differ materially from those expressed or implied. We caution you not to put undue reliance
on these statements, which speak only as of the date of this report. Further, the information contained in this document or incorporated
herein by reference is a statement of our present intention and is based on present facts and assumptions, and may change at any
time and without notice, based on changes in such facts or assumptions.