ITEM
1. CONSOLIDATED FINANCIAL STATEMENTS
HQDA
Elderly Life Network Corp.
(formerly
Hartford Retirement Network Corp.)
Consolidated
Balance Sheets
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September 30,
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June 30,
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2019
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2019
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ASSETS
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Current assets:
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|
|
|
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Cash
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$
|
102,936
|
|
|
$
|
350,734
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|
|
Accounts receivable
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|
|
2,106
|
|
|
|
1,558
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|
|
Other receivable
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|
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302,623
|
|
|
|
404,981
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|
Receivable - related parties
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75,866
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|
|
|
168,958
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|
|
|
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483,531
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|
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926,231
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|
|
|
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|
|
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Deposits
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21,516,591
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|
|
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21,042,068
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Properties and equipment, net
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5,354,093
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|
|
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5,591,839
|
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Capitalized software
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141,434
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|
|
|
146,710
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Total assets
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$
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27,495,649
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$
|
27,706,848
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LIABILITIES
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Current liabilities:
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Accounts payable and accrued liabilities
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$
|
79,539
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|
$
|
112,504
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Unearned revenue
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|
|
28,942
|
|
|
|
18,659
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Payable to related party
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2,940,481
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|
|
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2,207,742
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Total liabilities
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3,048,962
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2,338,905
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Commitments and contingencies – Note 8
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STOCKHOLDERS’ DEFICIT
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Preferred stock: authorized 10,000,000 shares of $0.001 par value; issued and outstanding, none
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—
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—
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Common stock: authorized 200,000,000 shares of $0.001 par value; issued and outstanding, 139,314,416 shares
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139,314
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139,314
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Additional paid-in capital
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29,719,865
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29,719,865
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Accumulated other comprehensive loss
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(1,909,587
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)
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(1,138,433
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)
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Accumulated deficit
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(3,502,905
|
)
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(3,352,803
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)
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Total stockholders’ equity
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24,446,687
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25,367,943
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Total liabilities and stockholders’ equity
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$
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27,495,649
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$
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27,706,848
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(1)
For discussion on the restatements, see notes to consolidated financial statements 2.
The
accompanying notes are an integral part of these consolidated interim financial statements.
HQDA
Elderly Life Network Corp.
(formerly
Hartford Retirement Network Corp.)
Consolidated
Statements of Comprehensive Income (loss)
(Unaudited)
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Three months ended September 30,
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2019
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2018
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As restated (1)
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Revenue
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$
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172,176
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$
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41,782
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Operating costs:
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General and administrative expenses
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250,861
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46,755
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Depreciation and amortization
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37,594
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|
340
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Professional fees
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27,500
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108,862
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Other operating expenses
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5,981
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1,689
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321,936
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157,646
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Operating loss
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(149,760
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)
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(115,864
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)
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Other income (expense):
|
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Interest Income
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—
|
|
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3,571
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Other
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(342
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)
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(113
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)
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Net loss
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$
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(150,102
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)
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$
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(112,406
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)
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Foreign currency translation, net tax
|
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(771,154
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)
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(282,482
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)
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Comprehensive loss
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$
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(921,256
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)
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$
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(394,888
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)
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Earnings per share
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Basic and diluted income (loss) per share
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$
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(0.00
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)
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$
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(0.01
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)
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Weighted average common shares outstanding
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139,314,416
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62,740,452
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(1)
For discussion on the restatements, see notes to consolidated financial statements 2.
The
accompanying notes are an integral part of these consolidated interim financial statements.
HQDA
Elderly Life Network Corp.
(formerly
Hartford Retirement Network Corp.)
Consolidated
Statements of Cash Flows
(Unaudited)
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Three months ended September 30,
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2019
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2018
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As restated (1)
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Cash flow from operating activities
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Net loss
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$
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(150,102
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)
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$
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(112,406
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)
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Adjustments to reconcile loss to net cash used in operating activities:
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Depreciation and amortization
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37,594
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|
|
340
|
|
|
Changes in operating assets and liabilities:
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Increase in account receivable
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(1,527
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)
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—
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Decrease in other receivable
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102,358
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59,102
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Decrease (increase) in related party receivable
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93,092
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(3,659,013
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)
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(Decrease) increase in accounts payable and accrued liabilities
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(32,965
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)
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24,086
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Increase in unearned revenue
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10,283
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9,822
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Increase (decrease) in related party payable
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732,739
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(64,270
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)
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Net cash used in operating activities
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791,472
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(3,742,339
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)
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Cash flow from investing activities
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Advance of loans to a related party
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—
|
|
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|
(4,360,971
|
)
|
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Deposits made for acquisitions
|
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|
(1,141,878
|
)
|
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|
(4,405,933
|
)
|
|
Net cash used in investing activities
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|
|
(1,141,878
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)
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|
(8,766,904
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)
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Cash flow from financing activities
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Issuance of common shares, net
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—
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3,752,350
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Net cash provided by financing activities
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—
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3,752,350
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Effect of exchange rate changes
|
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|
102,608
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|
|
|
(779,128
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)
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Increase (decrease) in cash
|
|
|
(247,798
|
)
|
|
|
(9,536,021
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)
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Cash, beginning
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|
350,734
|
|
|
|
9,701,075
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Cash, ending
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$
|
102,936
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|
|
$
|
165,054
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|
|
Supplemental Disclosures:
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Cash paid for interest
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$
|
—
|
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|
$
|
—
|
|
|
Cash paid for income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
(1)
For discussion on the restatements, see notes to consolidated financial statements 2.
The
accompanying notes are an integral part of these consolidated interim financial statements.
HQDA
Elderly Life Network Corp.
(formerly
Hartford Retirement Network Corp.)
Consolidated
Statements of Changes in Stockholders’ Equity
(Unaudited)
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Share subscriptions
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Accumulated
|
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Number of shares
|
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Capital
|
|
|
Additional paid-in
|
|
|
received in advanced /
|
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Accumulated
|
|
|
other comprehensive
|
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Total stockholders’
|
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|
|
|
issued
|
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|
stock
|
|
|
capital
|
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|
receivable
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|
Deficit
|
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|
income (loss)
|
|
|
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Balance at June 30, 2018 (1)
|
|
|
79,925,000
|
|
|
$
|
79,925
|
|
|
$
|
9,264,384
|
|
|
|
14,921,048
|
|
|
|
(1,529,469
|
)
|
|
|
—
|
|
|
|
22,735,888
|
|
|
Net Loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(112,406
|
)
|
|
|
—
|
|
|
|
(112,406
|
)
|
|
Common shares issued for cash, net
|
|
|
57,203,013
|
|
|
|
57,204
|
|
|
|
18,616,194
|
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
18,673,398
|
|
|
Subscriptions received
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(14,921,048
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(14,921,048
|
)
|
|
Foreign currency translation, net tax
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(882,482
|
)
|
|
|
(882,482
|
)
|
|
Balance at September 30, 2018 (As restated)(1)
|
|
|
137,128,013
|
|
|
$
|
137,129
|
|
|
$
|
27,880,578
|
|
|
$
|
—
|
|
|
$
|
(1,641,875
|
)
|
|
$
|
(882,482
|
)
|
|
$
|
25,493,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2019
|
|
|
139,314,416
|
|
|
$
|
139,314
|
|
|
$
|
29,719,865
|
|
|
|
—
|
|
|
|
(3,352,803
|
)
|
|
|
(1,138,433
|
)
|
|
|
25,367,943
|
|
|
Net Loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(150,102
|
)
|
|
|
—
|
|
|
|
(150,102
|
)
|
|
Foreign currency translation, net tax
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(771,154
|
)
|
|
|
(771,154
|
)
|
|
Balance at September 30, 2019
|
|
|
139,314,416
|
|
|
$
|
139,314
|
|
|
$
|
29,719,865
|
|
|
$
|
—
|
|
|
$
|
(3,502,905
|
)
|
|
$
|
(1,909,587
|
)
|
|
$
|
24,446,687
|
|
(1)
For discussion on the restatements, see notes to consolidated financial statements 2.
The
accompanying notes are an integral part of these consolidated interim financial statements.
|
1.
|
Nature
and Continuance of Operations
|
HQDA
Elderly Life Network Corp. (formerly Hartford Retirement Network Corp.) (the “Company”) was incorporated under the
laws of the State of Nevada on January 21, 2004. In September 2017, the Company acquired Shanghai Hongfu Health Management Ltd,
a company incorporated in the People’s Republic China (“PRC”). Following the acquisition, on April 23, 2018,
the Company changed its name to HQDA Elderly Life Network Corp.
Through
its newly acquired and wholly-owned subsidiary, Shanghai Hongfu Health management Ltd., The Company purchased senior living facilities
and launched a senior living residences business, which, hosts to mostly men and women over the age of 50. The Company intends
to expand its business of owning, leasing and/or operating senior living residences that will provide seniors with a supportive,
home life setting with care and services, including activities of daily living, life enrichment and health and wellness.
The
Company’s consolidated financial statements as of September 30, 2019 and for the three months then ended have been prepared
on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the
normal course of business. The Company reported a net loss of $150,102 and $112,406 for the three months ended September 30, 2019
and 2018, respectively. As of September 30, 2019, it had a negative working capital deficiency of $2,565,431 while it had a negative
working capital deficiency of $1,412,674 at June 30, 2019.
Management
cannot provide assurance that the Company will ultimately achieve profitable operations or become cash flow positive, or raise
additional debt and/or equity capital. Management believes that the Company’s capital resources will not be adequate to
continue operating and maintaining its business strategy for the next 12 months. If the Company is unable to raise additional
capital in the near future, management expects that the Company will need to curtail operations, seek additional capital on less
favorable terms and/or pursue other remedial measures. These consolidated financial statements do not include any adjustments
related to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary
should the Company be unable to continue as a going concern.
Principles
of Consolidation
The
accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted
in the United States of America (GAAP). The Company’s consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary, Shanghai Hongfu Health Management Ltd. All inter-company balances have been eliminated upon consolidation.
The Company’s fiscal year end is June 30.
Foreign
currency translation
The
United States dollar (“USD”) is the Company’s reporting currency. The Company’s wholly owned subsidiary,
Shanghai Hongfu Health Management Ltd. is located in China. The net sales generated and the related expenses directly incurred
from the operations are denominated in local currency, Renminbi (“RMB”). The functional currency of the subsidiary
is generally the same as the local currency.
Assets
and liabilities measured in RMB are translated into USD at the prevailing exchange rates in effect as of the financial statement
date and the related gains and losses, net of applicable deferred income taxes, are reflected in accumulated other comprehensive
income (loss) in its consolidated balance sheets. Income and expense accounts are translated at the average exchange rate for
the period. The Company has not, to the date of these consolidated financial statements, entered into derivative instruments to
offset the impact of foreign currency fluctuations.
Certain
amounts in prior periods have been reclassified to conform with current period presentation.
Recently
issued accounting pronouncements
In
February 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”)
No. 2016-02 (Topic 842) “Leases.” Topic 842 supersedes the lease recognition requirements in Accounting Standards
Codification (“ASC”) Topic 840 “Leases.” Under Topic 842, lessees are required to recognize a right-of-use
asset and a lease liability for substantially all leases. Leases will continue to be classified as either finance or operating.
Topic 842 is effective for annual reporting periods and interim periods within those years beginning after December 15, 2018 with
early adoptions permitted. The Company adopted the new standard July 1, 2019. As part of the adoption of ASU 2016-02, the Company
made an accounting policy election that will not recognizing leases with an initial term of 12 months or less on the consolidated
balance sheet. As of September 30, 2019, the Company only has one month-to-month office lease with monthly rent of $1,020. The
adoption of this new accounting standard did not have an effect on the Company’s consolidated financial statements.
In
June 2016, the FASB issued ASU No. 2016-13 “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses
on Financial Instruments” which requires the measurement and recognition of expected credit losses for financial assets
held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss methodology, which
will result in more timely recognition of credit losses. ASU 2016-13 is effective for annual reporting periods, and interim periods
within those years beginning after December 15, 2019. The Company does not anticipate this amendment to have a significant impact
on the consolidated financial statements.
On
August 28, 2018, the FASB issued ASU No. 2018-13 to improve the effectiveness of disclosures about fair value measurements required
under ASC 820 as part of its disclosure framework project, which has an objective and primary focus to improve the effectiveness
of disclosures in the notes to financial statements. The ASU amends the disclosure requirements for recurring and nonrecurring
fair value measurements by removing, modifying, and adding certain disclosures. The new ASU is effective for fiscal years, and
interim periods within those fiscal years, beginning after December 15, 2019. The Company does not anticipate this amendment to
have a significant impact on its consolidated financial statements.
On
September 4, 2018, the Company completed an issuance of 41,731,867 shares at $0.15 per share for total proceeds of $6,259,780
to a Chinese company by a private placement. Following the completion of the transaction, the Company’s share price went
up to $0.80 per share. At previous auditor’s direction, the Company recorded $27,125,714 of stock-based compensation, which
was the difference between market price and issuance price on financial statements issued as of September 30, 2018 and the three
month period then ended on Form 10-Q filed on November 19, 2018. However, since the private placement agreement was signed in
April 2018 when the share price value was $0.15 and could not be closed until September 2018 when the share price was $0.80, this
should not be a stock-based compensation.
The
Company also recorded $68,613 in expenses for payments made to a vendor for development of the Company’s website for the
three months ended September 30, 2018. This should have been classified as prepaid asset and not an expense. The Company determined
that it would be appropriate to correct those errors.
In
addition, the Company restated certain balance sheet items as of June 30, 2018 on Form 10-K filed on October 25, 2019. The restatement
resulted in balance sheet item adjustments as of September 30, 2018, further affecting a few income statement line items and statement
of cash flows.
Restated
Consolidated Statement of Operations (Adjusted Line Items) as follows:
|
|
|
September 30, 2018
|
|
|
|
|
As previously
reported
|
|
|
As restated
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation
|
|
|
27,125,714
|
|
|
|
-
|
|
|
$
|
27,125,714
|
|
|
Website development
|
|
|
68,613
|
|
|
|
-
|
|
|
|
68,613
|
|
|
Foreign exchange loss (1)
|
|
|
282,482
|
|
|
|
-
|
|
|
|
282,482
|
|
|
Depreciation expense (2)
|
|
|
47,797
|
|
|
|
340
|
|
|
|
47,457
|
|
|
Net impact to net income
|
|
$
|
27,476,809
|
|
|
$
|
340
|
|
|
$
|
27,476,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EPS effect due to restatement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares
|
|
|
|
|
|
|
|
|
|
|
62,740,452
|
|
|
EPS amount increaed
|
|
|
|
|
|
|
|
|
|
|
0.44
|
|
(1):
This amount reclassed to other comprehensive loss.
(2):
Due to reclassification of fixed assets purchased in April 2018 to deposit, see note 4.
|
3.
|
Related
party Transactions
|
Receivable
and Payable
Receivable
from related parties amounted $75,866 and $168,958 at September 30, 2019 and June 30, 2019, respectively. Payable to related parties
amounted to $2,940,481 and $2,207,742 at September 30, 2019 and June 30, 2019, respectively. The related party amounts are mainly
are results of normal operations dealing with companies that owned by the Company’s CEO.
Related
party transactions
On
July 2018, the Company entered a $172,600 (RMB1,185,000) service agreement with one party that is under the common control of
the Company’s CEO to develop the Company’s website and a BBC shopping App. As of September 30, 2019, the project has
not yet finished, the Company capitalized the development cost of the website and App in the amount of $141,434 based on the completion
percentage method. The entire project is expecting to finish by the end of 2019.
During
the three months ended September 30, 2018, the Company advanced a loan amount of $4,360,971(RMB 30,000,000) to Zhonghuaai Wufu
(Shanghai) Hotel Management Ltd. The loan was unsecured, bears interest at 4.35% per annum and due in one year.
Other
During
the three months ended September 30, 2019 and 2018, the Company paid management fees of $31,440 and $24,000, respectively, to
the Company’s Chief Financial Officer. As of September 30, 2019, and June 30, 2019, the Company owed to its Chief Financial
Officer the amounts of $4,722 and $11,958, respectively, included in accrued liabilities. The amounts represent expenses paid
by the Company’s CFO on behalf of the Company.
On
April 2, 2018, the Company entered into an Asset Purchase Agreement (the “APA”) whereby the Company will purchase
land use rights, buildings, construction rights and other property rights located in Shanghai from a third party for a total purchase
price of $36,991,173 (RMB 233,000,0000 at exchange rate of 0.1587), which was its approximate fair value as estimated by a third
party appraisal firm. A summary of fair value of the asset as following:
|
Description
|
|
Location
|
|
Amount (1)
|
|
|
Amount
|
|
|
|
|
|
|
(in dollars)
|
|
|
(in RMB)
|
|
|
Building and building improvements and land use rights (Asset A)
|
|
Shanghai Pudong New Area Zhangjiang Ziwei Rd No. 372 and No. 376.
|
|
|
30,778,879
|
|
|
|
193,870,000
|
|
|
Land use rights (Asset B)
|
|
Shanghai Chongming District San Shuang Gong Lu No. 4797.
|
|
|
6,212,294
|
|
|
|
39,130,000
|
|
|
|
|
|
|
|
36,991,173
|
|
|
|
233,000,000
|
|
(1)
The exchange rate of 0.1587 was used to translate the RMB amounts at purchase date.
As
of September 30, 2019, the Company has paid total of $24,011,121 (RMB 171,000,000). On September 1, 2018, the Company obtained
the full management and operation rights of the senior hotel property and other assets (Property A) located at Shanghai Pudong
New Area pursuant to the Operation Rights Transferring Agreement entered on August 31, 2018 with the seller. Although the Company
has the rights to operate the senior living services of Asset A purchased under this agreement, and is currently generating revenues,
the Company has not received a deed because the seller is involved in several lawsuits that have resulted in rulings to restrict
transferring it by Shanghai local district courts. Therefore, The Company has decided not to make any further payments until the
asset is free of the restrictions. As of September 30, 2019, $18,516,646 payments made for Asset A was recorded as deposit. Further,
the Company consummated the share purchase agreement to acquire the entity – Shanghai Qiaoyuan Information Technology Co.,
Ltd (“SH QYIT”) in November 2018 who holds the land use rights of Property B located on Shanghai Chongming. Asset
B has been transferred to Properties and equipment, net in November 2018. The two acquisitions were accounted for assets
acquisition. As of September 30. 2018, the Company had transferred Asset A to Properties and equipment, net and reminder
payments in payable on the 10-Q filed on November 19, 2018. The Company corrected this error accordingly and the adjustments are
reflected on the statement of operations (depreciation of the Asset A, $47,457) and cash flows for three months ended September
30, 2018 in this report.
On
April 16, 2019 the Company entered into a Business Project Investment Agreement (the “Acquisition Agreement”) with
Palau Asia-Pacific International Aviation and Travel Agency consisting of Palau Asia Pacific Air Management Limited, Global Tourism
Management Limited and Global (Guangzhou) Tourism Service Co., Ltd. (collectively the “Project Company”) pursuant
to which it will acquire 51% of the issued and outstanding capital stock of Project Company for $8,000,000, representing 49% of
the Project Company’s dividend distribution, voting rights and liquidation interest of assets. The Project Company will
remain the main operator of the existing business. The $8,000,000 will be paid as follows: $3,000,000 on or before April 27, 2019;
$2,000,000 on or before June 30, 2019 and $3,000,000 on or before September 30, 2019. As of September 30, 2019, the Company made
a $3,000,000 payment. However, the acquisition was subject to continuing due diligence, negotiation and customary closing conditions,
including completion of an audit. The process of due diligence and audit are still on going. Therefore, additional payments have
been postponed until a satisfactory audit can be delivered and other due diligence has been completed. We cannot be assured that
the transaction will be completed as intended.
|
5.
|
Properties
and Equipment, net
|
|
|
|
September 30,
|
|
|
June 30,
|
|
|
|
|
2019
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
Land use rights and land use rights improvements
|
|
$
|
5,494,475
|
|
|
$
|
5,699,429
|
|
|
Furniture and office equipment
|
|
|
7,381
|
|
|
|
10,039
|
|
|
Accumulated depreciation
|
|
|
(147,763
|
)
|
|
|
(117,629
|
)
|
|
|
|
$
|
5,354,093
|
|
|
$
|
5,591,839
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized software
|
|
$
|
141,434
|
|
|
$
|
146,710
|
|
As
of September 30, 2019, and June 30, 2019, the total issued and outstanding capital stocks was 139,314,416 common shares with a
par value of $0.001 per common share. No additional stock issued during three months ended September 30, 2019.
The
Company operates in one industry segment, being the senior housing and retirement services through its wholly owned subsidiary
in China. As of September 30, 2019, the subsidiary had an amount of $24,448,896 in total assets, excluding inter-company balances,
and it generated $172,176 and $41,782 for the three months ended September 30, 2019 and 2018, respectively, in revenue. There
was no revenue generated from inter-company transactions.
The
Company entered into the APA to acquire two properties in Shanghai totaling RMB 233,000,000. Payments of $24,393,723 (RMB 171,000,000)
have been made through September 30, 2019. The remaining of $8,844,508 (RMB 62,000,000) is due on or before December 31, 2019.
Due to the seller of the asset is involved in several lawsuits that have resulted in rulings to restrict transfer of certain assets
under this purchase agreement by Shanghai local district courts, the Company has decided not to make any further payments until
the asset is free of the restrictions. The Company has no knowledge of when the restrictions will be lifted by the courts.
None.
ITEM
2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
terms “HQDA”, “Company”, “we”, “our”, and “us” refer to HQDA Elderly
Life Network Corp. (formerly Hartford Retirement Network Corp.) unless the context suggests otherwise.
FORWARD-LOOKING
STATEMENTS
This
Quarterly Report on Form 10-Q includes “forward-looking statements” as defined by the Securities and Exchange Commission,
or SEC. We make these forward-looking statements in reliance on the safe harbor protections provided under the Private Securities
Litigation Reform Act of 1995. All statements, other than statements of historical facts, included in this Form 10-Q that address
activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements.
These forward-looking statements are based on assumptions which we believe are reasonable based on current expectations and projections
about future events and industry conditions and trends affecting our business. However, whether actual results and developments
will conform to our expectations and predictions is subject to a number of risks and uncertainties that, among other things, could
cause actual results to differ materially from those contained in the forward-looking statements, including without limitation
the Risk Factors set forth in our Annual Report on Form 10-K for the year ended June 30, 2018 including the following:
|
|
●
|
our
failure to obtain additional financing;
|
|
|
●
|
our
inability to continue as a going concern;
|
|
|
●
|
the
unique difficulties and uncertainties inherent in the business;
|
|
|
●
|
local
and multi-national economic and political conditions, and
|
|
|
●
|
our
common stock.
|
General
HQDA
Elderly Life Network Corp. (formerly Hartford Retirement Network Corp.) (“HQDA” or the “Company”) was
incorporated in the State of Nevada on January 21, 2004. Our principal offices are located at Suite J, 8780 Valley Blvd., Rosemead,
California 91770. Our telephone number is (626) 877-8187.
The
Company has not had any bankruptcy, receivership or similar proceeding since incorporation.
Our
business plan is owning, leasing and/or operating senior living residences that provide seniors with a supportive, home life setting
with care and services, including activities of daily living, life enrichment and health and wellness in certain cities in China.
We also plan to operate a network carrier, providing scheduled air transportation to passengers, travel destination services to
leisure travelers.
The
Senior Living Industry
Through
our newly acquired and wholly-owned subsidiary, Shanghai Hongfu Health management Ltd., we purchased senior living facilities
in April 2018, launched a senior living residences business, which, hosts to mostly men and women over the age of 50. We intend
to expand the business of owning, leasing and/or operating senior living residences that will provide seniors with supportive,
home life setting with care and services, including activities of daily living, life enrichment and health and wellness in China.
The
senior living industry encompasses a broad spectrum of senior living service and care options, which include independent living,
assisted living and skilled nursing care. Our primary focus will be on the independent living services. Independent living is
designed to meet the needs of seniors who choose to live in an environment surrounded by their peers where they receive services
such as housekeeping, meals and activities, but are not reliant on assistance with activities of daily living (for example, bathing,
eating and dressing), although we may offer these services through contracts with third parties.
Our
operating philosophy is to provide services and care which meet the individual needs of its residents, and to enhance their physical
and mental well-being, thereby allowing them to live longer and to “age in place.” These facilities will offer, on
a 24-hour basis, personal, supportive and home health care services appropriate for their residents in a home-like setting, which
allow residents to maintain their independence and quality of life. We predict that the average of the residents at our facilities
will be between 55 and 70.
Our
primary focus will be in China, where we intend to grow and become a leader in senior living facilities. We also will seek to
develop or acquire facilities and manage or cooperate with existing facilities as well. We believe that by concentrating or “clustering”
our facilities in target areas with desirable demographics, can increase the efficiency of our management resources and achieve
broad economies of scale.
The
long-term care industry encompasses a wide continuum of services and residential arrangements for elderly senior citizens. Skilled
nursing facilities provide the highest level of care and are designed for elderly senior citizens who need chronic nursing and
medical attention and are not able to live on their own. Further, skilled nursing facilities tend to be one of the most expensive
alternatives while providing elderly senior citizens with limited independence and a diminished quality of life. On the other
end of the continuum is home-based care, which typically is provided in an individual’s private residence. While this alternative
allows the elderly individual to “age in place” in his or her home and, in certain instances, can provide most of
the services available at a skilled nursing facility, it does not foster any sense of community or the ability to participate
in group activities.
Assisted
living facilities generally are designed to fill the gap in the middle of this continuum. Assisted living facilities have been
described by the Assisted Living Federation of America (“ALFA”) as providing a special combination of housing and
personal, supportive and home health care services designed to respond to the individual needs of those who need, or desire help
with their activities of daily living, including personal care and household management. Services in an assisted living facility
are generally available 24 hours a day to meet the scheduled and unscheduled needs of residents, thereby promoting maximum dignity
and independence.
The
assisted living industry is highly fragmented in China. At present, the industry is characterized by participants who operate
only a limited number of facilities and who frequently can offer only basic assistance with a limited number of activities of
daily living. We intend to be characterized by the following: (i) the ability to offer premium accommodations and a comprehensive
bundle of standard services for a single inclusive monthly fee; (ii) sophisticated, professional management structures and highly
trained employees; (iii) a cost-efficient, user-specific prototype facility; and (iv) experience in providing home health care
services.
Our
facilities will provide services and care which are designed to meet the individual needs of its residents, enhance their physical
and mental well-being and promote a supportive, independent and home-like setting. Most of our facilities will be primarily designed
as premium facilities at which residents receive a comprehensive, bundled package of standard services for a single monthly fee.
We
will strive to combine in our facilities the best aspects of independent living with the protection and safety of assisted living,
with trained staff members who provide 24-hour care and monitoring of every resident. The senior living facilities will be designed
and decorated to have a home-like atmosphere. Residents will be encouraged to furnish their rooms with personal items they have
collected during their lifetime. Our senior living facilities differ from skilled nursing facilities in that our senior living
facilities will not provide the more extensive, and costly, nursing and medical care found in nursing homes.
Aviation
and Travel
In
less than two decades China has grown from travel minnows to the world’s more powerful outbound market. According to China
Tourism Academy, Chinese travelers made a total of 140 million outbound trips in 2018, up 13.5 percent from the previous year’s
129 million. They have spent more than $120 billion, compared to $100 billion in 2017. China has become a main contributor to
the global tourism industry. The China outbound Tourism Research Institute predicts that overseas trips by the Chinese residents
will reach more than 400 million by 2030.
In
April 2019, we entered into a Business Project Investment Agreement (the “Acquisition Agreement”) through our wholly
owned subsidiary with Palau Asia-Pacific International Aviation and Travel Agency consisting of Palau Asia Pacific Air Management
Limited, Global Tourism Management Limited and Global (Guangzhou) Tourism Service Co., Ltd. (collectively the “Project Company”)
pursuant to which we will acquire 51% of the issued and outstanding capital stock of Project Company for $8,000,000, representing
49% of the Project Company’s dividend distribution, voting rights and liquidation interest of assets. The Project Company
currently has 2 scheduled air lines from Macao to Palau, where there is a series of islands in West Pacific Rim and Macao to Cambodia.
Palau is relatively unknown destination for Chinese travelers.
We
control marketing, scheduling, ticketing, pricing and seat inventories. Our mission is to help Chinese leisure travelers experience
Palau and to became a travel company that will provide one stop for all by providing passenger airlines, hotel reservations services
and other excursion activity booking services on Palau. We have completed an initial payment of $3,000,000 of the total $8,000,000
purchase price with remaining payments of $2,000,000 and $3,000,00 due on June 30, 2019 and September 30, 2019, respectively.
However, the acquisition was subject to continuing due diligence, negotiation and customary closing conditions, including completion
of an audit. The process of due diligence and audit are still on going. Therefore, additional payments have been postponed until
a satisfactory audit can be delivered and other due diligence has been completed. We cannot be assured that the transaction will
be completed as intended.
Results
of Operations
|
|
|
Three months ended September 30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
172,176
|
|
|
$
|
41,782
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs:
|
|
|
|
|
|
|
|
|
|
General and administrative cost
|
|
|
250,861
|
|
|
|
46,755
|
|
|
Depreciation and amortization
|
|
|
37,594
|
|
|
|
340
|
|
|
Professional fees
|
|
|
27,500
|
|
|
|
108,862
|
|
|
Other operating cost
|
|
|
5,981
|
|
|
|
1,689
|
|
|
|
|
|
321,936
|
|
|
|
157,646
|
|
|
Operating loss
|
|
$
|
(149,760
|
)
|
|
$
|
(115,864
|
)
|
Three
months ended September 30, 2019 compared to three months ended September 30, 2018
Operating
loss decreased $33,896 in the three months period ended September 30, 2019 as compared to the same period ended in 2018. The increase
was primarily due to an increase of $130,394 in revenue, partially offset by an increase of $164,290 in total operating cost.
The increase in revenue is due to the gradual ramping up of operations at the senior residence since launching in first quarter
of 2019.
The
increases in general and administrative cost and depreciation and amortization expenses are due to the launching of senior living
residence operations beginning of fiscal year 2019 in Shanghai and increase in fixed assets.
Excluding
the non-cash expenses of depreciation and amortization, the operating loss would have been $112,166 and $115,524, for the three
months ended September 30, 2019 and 2018, respectively.
Liquidity
and Capital Resources
At
September 30, 2019, we had cash on hand of $102,936 and liabilities of $3,048,962. We will require additional funding in order
to cover all anticipated administration costs and to proceed with the Asset Purchase Agreement executed on April 2, 2018 and to
seek out additional travel agents for similar contracts. We also intend to provide management services to retirement homes, commercial
properties and apartment buildings in China, which will result in higher administrative costs in the future.
Capital
Expenditures
On
April 2, 2018, we entered into an Asset Purchase Agreement (the “APA”) whereby we purchased land, buildings, and right
to use, construction use rights and other property rights located in Shanghai from a third party. Properties are split into two
groups:
|
|
●
|
Property
A: land use rights and adhesive substance use rights, right to own, and right to operate of the land located in Shanghai Pudong
New Area Zhangjiang Ziwei Rd No. 372 and No. 376.
|
|
|
|
|
|
|
●
|
Property
B: land use right, adhesive substance under construction use rights, right to own, and right to operate of the land located
in Shanghai Chongming District San Shuang Gong Lu No. 4797.
|
We
have agreed to pay the purchase price totaling RMB 233,000,000 in instalments. Payments of $24,393,723 (RMB 171,000,000) have
been made through September 30, 2019 and the remainder of $8,844,508 (RMB62,000,000) is due on or before December 31, 2019. Although
we have the rights to operate the senior living facilities purchased under this agreement, we have not yet received a deed for
Property A because the seller is involved in several lawsuits that have already resulted in rulings to restrict transfer of this
asset by Shanghai local district courts. Therefore, we are not going to make any further payments until this asset is free of
the restrictions.
Employees
At
present, we have 14 employees, other than our current officers and directors, who devote their time as required to our business
operations.
Off-balance
Sheet Arrangements
As
of September 30, 2019, we have no off-balance sheet arrangements that would require disclosure.
Critical
Accounting Policies
Our
interim financial statements are prepared in accordance with accounting principles generally accepted in the United States of
America. Preparing financial statements in accordance with generally accepted accounting principles requires management to make
estimates and assumptions which affect the reported amounts of assets and liabilities and the disclosure of contingent assets
and liabilities at the balance sheet dates, and the recognition of revenues and expenses for the reporting periods. These estimates
and assumptions are affected by management’s application of accounting policies.