This discussion updates our business plan for the three-month periods ending
October 31, 2021. It also analyzes our financial condition at October 31, 2021
and compares it to our financial condition at July 31, 2021. This discussion and
analysis should be read in conjunction with our audited financial statements for
the year ended July 31, 2021, including footnotes, contained in our Annual
Report on Form 10-K, and with the unaudited financial statements for the interim
period ended October 31, 2021, 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, 2021 and 2020, 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
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"), which was disposed on December 31,
2020, and formed a joint venture entity, Hartford International Education
Technology Co., Ltd ("HF Int'l Education").
The subsidiary of HFUS in Shanghai (HFSH) advances operating funds from two
related party entities, SH Qiao Hong and SH Oversea Chinese Culture Media Ltd.
The main purpose of the funding is to invest in Hartford International Education
Technology (Shanghai) Co., Ltd. (HF Int'l Education). Upon signing of
supplemental agreement, HFUS 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"). During the board
meeting, SH Jingyu and another noncontrolling shareholders also sold a total of
14.5% equity at zero value to HFSH. As a result, HFSH currently holds 90% of HF
Int'l Education and a total of 10% equity is held by two individual
noncontrolling shareholders.
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. Since
then, 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 incorporated 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 continued market uncertainties during the pandemic, the board of HFSH
adopted a new management approach to ease cash flow and reduce operation loss.
In March 2021, HF Int'l Education entered agreements with a third party,
Hartford Health Management (Shanghai), Co. Ltd. ("HFHM"). HFHM purchased seven
education & intellectual property copy rights and ten "HaiDeFuDe" registered
trademarks from HF Int'l Education for a total amount of RMB1.2M and RMB1.0M,
respectively. In June 2021, HF Int'l Education and its three subsidiaries
entered license agreements with HFHM for the rights to use the intellectual
Properties (the "IPs") HFHM owns. The IPs cover in the license agreements are
four sets of curriculum structure designed and fifteen trademarks including
"HaiDeFuDe" registered trademarks purchased from HF Int'l Education. As a
return, on a monthly basis, HF Int'l Education and its subsidiaries pays 90% of
its tuition revenue generated to HFHM as license usage fee.
After further ease of restrictions from the pandemic, the Company will re-run
special franchise promotion. There will be a great reduction in franchise fees
for the first twenty childcare center that join "HaiDeFuDe" brand. In doing so,
the Company expects to generate revenue of RMB16,000,000 from 50 franchisees by
the end of 2022.
17
Results of Operations - Three Months Ended October 31, 2021 Compared to Three
Months Ended October 31, 2020.
Revenue: We recognized $169,812 and $79,387 revenue in the three months ended
October 31, 2021 and 2020, respectively. 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 Cost and Expenses: Cost of revenue increased to $335,004 for the three
months ended October 31, 2021, compared to $133,948 during the comparable period
of 2020. The increase of Cost of revenue was mainly due to the license fees paid
to HFHM and rent cost of HDFD's operating facility, see note 14. Operating
expenses decreased to $507,759 for the three months ended October 31, 2021,
compared to $603,645 during the comparable period of 2020. During the three
months ended October 31, 2021, selling, general and administrative expenses
decreased by $104,964, and depreciation and amortization expenses increased by
$9,078.
Other Income (Expense): Other income, net increased to $24,791 for the three
months ended October 31, 2021, compared to $144 of expenses for the
corresponding period of 2020. Other income for the three months ended October
31, 2021 was mainly resulted from sublease income offset by interest expenses.
Net Loss Attributable to Noncontrolling Interest: For the three months ended
October 31, 2021, we recorded a net loss attributable to noncontrolling interest
of $66,628 compared to $134,393 for the corresponding period of 2020. 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
$581,532 or $(0.01) per share for the three months ended October 31, 2021,
compared to a net loss of $524,757 or $(0.01) per share for the three months
ended October 31, 2020, an increase in loss of $56,775 due to the factors
discussed above.
Liquidity and Capital Resources
As of October 31, 2021, we had a working capital deficit of $7,583,285 comprised
of current assets of $973,585 and current liabilities of $8,556,870.
This represents an increase of $656,140 in the working capital deficit from the
July 31, 2021 amount of $6,927,145.
During the three months ended October 31, 2021, 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.
As of October 31, 2021, the company has issued a total of 100,108,000 shares of
common stock. On December 11, 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 November 24, 2020, the Company issued additional 1,000,000 shares of
common stock to a significant shareholder of the Company at $0.02 per share.
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.
18
Cash Flows - Three months ended October 31, 2021 Compared to Three months ended
October 31, 2020
Operating Activities
During the three months ended October 31, 2021, $412,091 used in operating
activities as compared to $505,572 used in the operations during the three
months ended October 31, 2020. During the three months ended October 31, 2021,
we recorded loss including noncontrolling interests of $648,160 , incurred
non-cash depreciation of $28,219 , prepaid and other current receivables
decreased by $116,580, other assets decreased by $74,757, other current payable
increased by $35,152 , contract liabilities increased by $55,881, related party
payables net with receivables decreased by $123,017, and operating lease
liabilities net with operating lease assets increased by $39,003 as a result
from the adoption of new lease guidance ASU No. 2016-02.
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, contract liabilities
increased by $75,203, 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.
Investing activities
Cash used in investing activities was $127,928 for the three months ended
October 31, 2021 as compared to $12,264 cash provided by investing activities
for the corresponding period in 2020. During the three months ended October 31,
2021, the cash used in investing activities was primarily due to the expenditure
of leasehold improvements in HF Int'l Education.
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.
Financing activities
Cash provided by financing activities was $529,995 for the three months ended
October 31, 2021 as compared to $510,187 cash provided by financing activities
for the three months ended October 31, 2020. The cash flows provided by
financing activities for the three months ended October 31, 2021 was primarily
attributable to $469,995 funding support from related parties, $60,000 proceeds
of notes payable. The notes payable was borrowed from one related party with 5%
annual interest rate. See Note 12 Related Party Transactions.
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.
Future Capital Expenditures
In January 2019, HFSH entered agreements to acquire 100 percent equity interest
of Shanghai Luo Sheng International Trade Ltd. ("SH Luosheng"). As of October
31, 2021, the agreement has not yet taken effect as no consideration has been
paid toward this acquisition. The agreement 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.
19
Off-Balance Sheet Arrangements
As of and subsequent to October 31, 2021, we have no off-balance sheet
arrangements.
Contractual Commitments
As of October 31, 2021, we have no other material contractual commitments except
the office building and property leases which are included Note 10 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,
2021.
© Edgar Online, source Glimpses