This discussion updates our business plan for the three-month periods ending
October 31, 2020. It also analyzes our financial condition at October 31, 2020
and compares it to our financial condition at July 31, 2020. This discussion and
analysis 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, and with the unaudited financial statements for the interim
period ended October 31, 2020, including footnotes, which are included in this
quarterly report.
Overview of the Business
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 plan as set forth below.
Ability to continue as a "going concern".
The independent registered public accounting firms' reports on our financial
statements as of July 31, 2020 and 2019, includes a "going concern" explanatory
paragraph that describes substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to the factors
prompting the explanatory paragraph are discussed in the financial statements,
including footnotes thereto.
Plan of Operation
As of October 31, 2020, the company has issued a total of 99,108,000 shares of
common stock. On December 11th, 2018, 96,090,000 shares of common stock were
issued at the price of $0.02 per share to raise an additional $1,921,800 in
capital.
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") with 90 percent of 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").
The subsidiary of HFUS in Shanghai (HFSH) plans to borrow operating funds from
two related party entities, SH Qiao Hong and SH Oversea Chinese Culture Media
Ltd. The purpose of the loans is to invest in Hartford International Education
Technology (Shanghai) Co., Ltd. (HF Int'l Education). Upon signing of
supplemental agreement, HFUS currently holds 75.5% ownership of HF Int'l
Education and maintains control over HF Int'l Education. On July 24, 2019, HF
Int'l Education established a 100% owned subsidiary, Pudong Haojin Childhood
Education Ltd. ("PDHJ"). On October 28, 2019, PDHJ had its childhood education
center opened. On March 23, 2020, HF Int'l Education established Shanghai
Hongkou HaiDeFuDe Childcare Co., Ltd.("HDFD") and was approved the business
license to conduct childcare operations 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").
HF Int'l Education has developed an enhanced model of childcare franchise
management program and registered a new brand name, "HaiDeFuDe". HF Int'l
Education has recruited a team of knowledgeable childcare teachers to develop
series of independent textbooks designed to targeted age of young children and
register for the copyrights for these textbooks in September of 2020. Recently,
HF Int'l Education has begun marketing and promoting the enhanced model of
franchise operation and management packaged program, under "HaiDeFuDe" brand, to
an initial of 50 franchisees throughout different regions of China. To achieve
that, HF Int'l Education has incorporate existing market resources throughout
other major cities and provinces in China. The promotion of HF Int'l Education
franchise operation and management model is expected to attract other childcare
education centers to join the "HaiDeFuDe" brand, and HF Int'l Education expects
to generate revenue from franchise and management fees. Due to the market
uncertainties during the pandemic, we have reduced our revenue projection from
our last disclosure. We expect to generate approximately RMB 600,000 in revenue
by the end of 2020 and reach approximately RMB12 million in revenue from 20
franchisees by the end of 2021.
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Results of Operations - Three Months Ended October 31, 2020 Compared to Three
Months Ended October 31, 2019.
Revenue and Cost of revenue: We recognized $79,387 and $64,516 revenue in the
three months ended October 31, 2020 and 2019, respectively. Cost of revenue
increased to $40,828 for the three months ended October 31, 2020, compared to
$19,339 during the comparable period of 2019. The revenue was mainly generated
from two industry segments, the hospitality housing in HZLJ and childhood
education care services in HF Int'l Education. The other business lines with
limited operations have not generated revenue yet.
Operating Expenses: Operating expenses increased to $696,765 for the three
months ended October 31, 2020, compared to $439,163 during the comparable period
of 2019. During the three months ended October 31, 2020, selling, general and
administrative expenses increased by $248,013, and depreciation and amortization
expenses increased by $9,589. The increase of operating expenses was mainly
resulted from the expenses incurred in the new operating subsidiaries in China
for childcare education business development, including lease cost.
Other Income (Expense): Other expense, net increased to $144 for the three
months ended October 31, 2020, compared to $4,764 of income for the
corresponding period of 2019. Other income for the three months ended October
31, 2019 was mainly resulted from interest income of loan receivables.
Net Loss Attributable to Noncontrolling Interest: For the three months ended
October 31, 2020, we recorded a net loss attributable to noncontrolling interest
of $134,393 compared to $83,519 for the corresponding period of 2019. The loss
was allocated based on the ownership percentage of noncontrolling interest,
which was mainly acquired through the acquisitions and Joint Ventures.
Net Loss Attributable to Hartford Great Health Corp: We recorded a net loss of
$524,757 or $(0.01) per share for the three months ended October 31, 2020,
compared to a net loss of $305,703 or $(0.00) per share for the three months
ended October 31, 2019, an increase in loss of $219,054 due to the factors
discussed above.
Liquidity and Capital Resources
As of October 31, 2020, we had a working capital deficit of $4,367,285 comprised
of current assets of $1,341,869 and current liabilities of $5,709,154. This
represents an increase of $1,007,662 in the working capital deficit from the
July 31, 2020 amount of $3,359,623.
During the three months ended October 31, 2020, our working capital deficit
increased primarily because the additional advances from related parties for
business operating.
We believe that our funding requirements for the next twelve months will be in
excess of $1,900,000. We are currently seeking for further funding through
related parties' loan and finance.
On December 11, 2018, the Company sold 96,090,000 shares of its common stock
(the "Shares") to 15 individuals. The selling price was $0.02 per share for an
aggregate of $1,921,800. All 15 investors executed subscription agreements. As
of April 30, 2019, all proceeds have collected. Twelve of the 15 investors are
Chinese citizens and purchased the shares in China. Due to the strict monitoring
of China's foreign exchange investment policy, funds are not able to be
transferred directly to HFUS. As a result, amount of $657,000 were collected in
RMB from the Chinese investors. The Shares were sold in a private placement
pursuant to an exemption from registration in accordance with Section 4(2)
and/or Regulation S under the Securities Act of 1933, as amended. The Shares are
all restricted shares and accordingly all stock certificates evidencing the
Shares have been affixed with the appropriate legend restricting sales and
transfers.
On July 3, 2020, the Company signed a subscription agreement to one of the
current investors, selling 1,000,000 shares of common stock (the "Shares")
priced at $0.02 per share. The stock shares were issued on November 24, 2020.
We will seek additional financing in the form of debt or equity. There is no
assurance that we will be able to obtain any needed financing on favorable
terms, or at all, or that we will find qualified purchasers for the sale of our
stock. Any sales of our securities would dilute the ownership of our existing
investors.
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Cash Flows - Three months ended October 31, 2020 (As restated) Compared to Three
months ended October 31, 2019 (As restated)
Operating Activities
During the three months ended October 31, 2020, $505,572 used in operating
activities as compared to $370,309 used in the operations during the three
months ended October 31, 2019. During the three months ended October 31, 2020,
we recorded loss including noncontrolling interests of $659,150 , incurred
non-cash depreciation of $19,141, prepaid and other current receivables
increased by $21,729, inventory increased by $87,962, other assets decreased by
$87,026, other current payable increased by $75,127, related party payables net
with receivables increased by $12,607, and operating lease liabilities net with
operating lease assets increased by $62,101 as a result from the adoption of new
lease guidance ASU No. 2016-02.
During the three months ended October 31, 2019, we recorded losses including
noncontrolling interests of $389,222, incurred non-cash depreciation of $9,552,
prepaid and other current receivables decreased by $13,367, other assets
decreased by $29,985, other current payable increased by $25,792, related party
payables net with receivables decreased by $50,495, other liabilities decreased
by $38,612, and operating lease liabilities net with operating lease assets
increased by $29,324 as a result from the adoption of new lease guidance ASU No.
2016-02.
Investing activities
Cash provided by investing activities was $12,264 for the three months ended
October 31, 2020 as compared to $74,283 used for the corresponding period in
2019. During the three months ended October 31, 2020, HF Int'l Education
acquired a new entity, Gelinke with cash net inflow of $12,264, see Note 4
Acquisitions and Joint Ventures.
During the three months ended October 31, 2019, HF Int'l Education's subsidiary
- PDHJ was grand opened to provide childcare education services. Property and
equipment have been added to this new entity.
Financing activities
Cash provided by financing activities was $510,187 for the three months ended
October 31, 2020 as compared to $294,322 cash provided by financing activities
for the three months ended October 31, 2019. The cash flows provided by
financing activities for the three months ended October 31, 2020 was primarily
attributable to $506,288 funding support from related parties, $25,156 notes
payable with interest offset by $21,257 finance lease principal payment. The
notes payable was borrowed from one related party with 5% annual interest rate.
See Note 13 Related Party Transactions.
Cash flows provided by financing activities for the three months ended October
31, 2019 was primarily attributable to $307,012 funding support from related
parties, $7,049 contribution received from noncontrolling interest owners to the
joint venture entity HF Int'l Education, offset by $19,739 finance lease
principal payment.
Future Capital Expenditures
On January and February 27, 2019, HFSH entered an agreement with Shanghai Qiao
Garden Property Management Group to acquire 85 percent ownership of Shanghai
Senior Health Consulting Ltd. ("SH Senior"). On January 28, 2019, HFUS entered
an agreement to acquire 100 percent equity interest of Shanghai Luo Sheng
International Trade Ltd. ("SH Luosheng"). On February 24, 2019, HFSH entered an
agreement to acquire 55 percent ownership of Shanghai Pasadena Ltd. ("SH
Pasadena"). As of October31, 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 the execute date. There was no penalty levied or to be levied due
to delayed execution or no-execution of those agreements.
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Off-Balance Sheet Arrangements
As of and subsequent to October 31, 2020, we have no off-balance sheet
arrangements.
Contractual Commitments
As of October 31, 2020, we have no other material contractual commitments except
the office building and property leases which are included Note 12 Leases.
Critical Accounting Policies
Our significant accounting policies are disclosed in Note 1 of the footnotes to
our unaudited financial statements above. There have been no other changes in
our critical accounting policies since our most recent audit dated July 31,
2020.
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