The following discussion and analysis were prepared to supplement information
contained in the accompanying financial statements and is intended to explain
certain items regarding the financial condition as of July 31, 2022, and the
results of operations for the years ended July 31, 2022, and 2021. It should be
read in conjunction with the audited financial statements and notes thereto
contained in this 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, 2022 and 2021, 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 July 31, 2022, 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.
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 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"). 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 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 was expected to attract other childcare
education centers to join the "HaiDeFuDe" brand, and HF Int'l Education expected
to generate revenue from franchise and management fees.
9
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 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 20% of its tuition
revenue generated to HFHM as license usage fee.
However, due to China's continual of zero-Covid policy implementation this year
as well as Covid-19 lockdown for over two months in Greater Shanghai, childcare
and childhood education center were forced to halt operations; therefore, the
Company decides to divert its plan from childcare and childhood educational
development industry. In the near future, the company is looking into wholesale
distribution of herbal supplement health products in China.
Liquidity and Capital Resources
As of July 31, 2022, we had negative working capital of $7,652,192 comprised of
current assets of $814,727 and current liabilities of $8,466,919. This
represents a decrease of $2,103,600 in the working capital balance from the July
31, 2021 negative amount of $5,548,592. During the year-ended July 31, 2022, our
working capital deficit increased primarily because additional advances from
related parties for business operating.
We believe that our funding requirements for the next twelve months will be in
excess of $150,000. 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 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.
Cash Flows - Year Ended July 31, 2022 Compared to Year Ended July 31, 2021
Operating Activities
During the year ended July 31, 2022, $860,832 used in operating activities
compared to $2,381,575 used in the operations during the year ended July 31,
2021.
During the year ended July 31, 2022, we recorded losses including noncontrolling
interests of $1,772,582 , incurred non-cash depreciation of $122,065 , prepaid
and other current receivables decreased by $225,428 , inventory decreased by
$5,327 , other assets decreased by $24,078 , contract liabilities increased by
$26,466 , other current payable increased by $102,526 , related party payables
net with receivables decreased by $81,013 , other liabilities increased by
$27,880 and operating lease liabilities net with operating lease assets
increased by $458,993 as a result from the delayed rent payments.
During the year ended July 31, 2021, we recorded losses including noncontrolling
interests of $2,842,339, incurred non-cash depreciation of $85,103, Loss
absorbed from subsidiary restructure $403,131, gain on disposal of subsidiary of
$104,317, including noncontrolling interest, goodwill impairment loss of
$70,514, prepaid and other current receivables increased by $87,977, inventory
increased by $299,588, other assets decreased by $10,435, contract liabilities
increased by $373,413, other current payable increased by $312,902, related
party payables net with receivables decreased by $185,693, other liabilities
increased by $27,108 and operating lease liabilities net with operating lease
assets increased by $17,779 as a result from the adoption of new lease guidance
ASU No. 2016-02.
10
Investing activities
Cash used in investing activities was $145,048 for the year ended July 31, 2022
as compared to $185,682 cash used in investing activities for the corresponding
period in 2021.
During the year ended July 31, 2022, the Company purchased Property and
equipment of $145,048.
During the year ended July 31, 2021, HF Int'l Education acquired a new entity,
Gelinke with cash net inflow of $12,721, HFSH disposed its 90 percent owned
subsidiary - Qiao Garden Int'l Travel with cash net outflow of $30,116, and
Property and equipment purchases of $168,287.
Financing activities
Cash provided by financing activities was $972,267 for the year ended July 31,
2022 as compared to $2,549,984 for the year ended July 31, 2021. The cash flows
provided by financing activities for the year ended July 31, 2022 was primarily
attributable to $788,673 funding support from related parties, $145,000 notes
payable from one related party, $61,750 contribution from noncontrolling
interest, offset by $23,156 finance lease principal payment.
The cash flows provided by financing activities for the year ended July 31, 2021
was primarily attributable to $2,407,033 funding support from related parties,
$145,000 notes payable from one related party, $20,000 proceeds from stock
issuance, offset by $22,049 finance lease principal payment.
Equity and Capital Resources
We have incurred losses since inception of our business and, as of July 31,
2022, we had an accumulated deficit of $7,400,620 compared to $5,821,519 at the
previous year end. To date, we have funded our operations through short-term
debt and equity financing.
We expect our expenses will decrease in the foreseeable future because of the
decrease in operational expenses and because of closure of the childcare
education centers. The two remaining childcare education centers with our
Chinese subsidiaries were generating limited revenues during the pandemic and
were forced to halt operations due to Covid-19 lockdown since March 2022. The
generated revenue is not expected to be sufficient to cover our marketing needs
in the foreseeable future due to the uncertainties affected by the Zero-Covid
policy in China. Consequently, we are dependent on the proceeds from future debt
or equity investments to sustain our operations and implement our business plan.
If we are unable to raise sufficient capital, we will be required to delay or
forego most of our business plan, which would have a material adverse effect on
our anticipated results from operations and financial condition. There is no
assurance that we will be able to obtain necessary amounts of additional capital
or that our estimates of our capital requirements will prove to be accurate.
Future Capital Expenditures
On January 2019, HFSH entered an agreement to acquire 100 percent equity
interest of Shanghai Luo Sheng International Trade Ltd. ("SH Luosheng"). As of
July 31, 2022, the agreement has not yet taken effective as no consideration has
been paid toward those acquisitions. 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 execute dates. There was no
penalty levied or to be levied due to delayed execution or inexecution of this
agreement.
Off-Balance Sheet Arrangements
As of and subsequent to July 31, 2022, we have no off-balance sheet
arrangements.
Contractual Commitments
As of July 31, 2022, we have no other material contractual commitments except
the office building and property leases which are included Note 13 Leases. (see
note 7. Commitments and contingencies)
11
Results of Operations- Year Ended July 31, 2022 Compared to Year Ended July 31,
2021
Revenue: We recognized $561,262 and $553,459 revenue in the year ended July 31,
2022 and 2021, 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 decreased to $677,093 for the year
ended July 31, 2022, compared to $722,838 during the comparable period of 2021.
The decrease of Cost of revenue was mainly due to the decrease of the revenue
and the amendment of the license fees charge rate to HFHM. During the year ended
July 31, 2022, selling, general and administrative expenses decreased by
$1,055,599 compared to the comparable period in 2021, primarily due to the
reduction of payroll and rent cost because the company closed several education
centers during the pandemic.
Other Income (Expense): Other income, net decreased to $101,884 for the year
ended July 31, 2022, compared to $174,826 of other income for the corresponding
period of 2021. Other income for the year ended July 31, 2022 was mainly
resulted from sublease income offset by interest expenses. Other income for the
year ended July 31, 2021 was mainly resulted from $108,366 lease payable
write-off as a result of the legal settlement (see note 7. Commitments and
contingencies), $104,317 gain on disposal of subsidiary, $334,537 income
realized from the trademark and copy rights transfer to a related party, offset
by $403,131 loss from HF Int'l Education's ownership restructure in 2021 (see
note 4 Acquisitions, Joint Ventures and Deconsolidation).
Net Loss Attributable to Noncontrolling Interest: For the year ended July 31,
2022, we recorded a net loss attributable to Noncontrolling interest of $193,481
compared to $589,005 for the corresponding period of 2021. 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
$1,579,101 or $ (0.02) per share for the year ended July 31, 2022, compared to a
net loss of $2,253,334 or $(0.02) per share for the year ended July 31, 2021, a
decrease in losses of $674,233 due to the factors discussed above.
12
Accounting Policies and Pronouncements
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with GAAP. GAAP
requires us to make estimates and assumptions that affect the reported amounts
in our consolidated financial statements. Critical accounting estimates are
those that management believes are the most important to the portrayal of our
financial condition and results and require the most difficult, subjective or
complex judgments, often as a result of the need to make estimates about the
effect of matters that are inherently uncertain and that have had, or are
reasonably likely to have, a material impact on our financial condition or
results of operations. Judgments and uncertainties may result in materially
different amounts being reported under different conditions or using different
assumptions. See "Part II, Item 8 - Financial Statements - Note 1 -Summary of
Significant Accounting Policies" for a summary of our significant accounting
policies.
The following summarizes our most significant critical accounting estimates:
Foreign Currency: The accounts of the Company's foreign subsidiaries are
translated in accordance with FASB ASC 830. Foreign currency transaction gains
and losses are recognized in other expense, net, at the time they occur. Net
foreign currency exchange gains or losses resulting from the translation of
assets and liabilities of foreign subsidiaries whose functional currency is not
the U.S. dollar are recorded as a part of accumulated other comprehensive loss
in stockholders' equity. The Company does not undertake hedging transactions to
cover its foreign currency exposure.
Revenue Recognition: The Company adopted ASC Topic 606 Revenue from Contracts
with Customers ("Topic 606) on August 1, 2019, applying the modified
retrospective method to all contracts that were not completed as of August 1,
2019. The Company is building up its core business upon the completion of
multiple acquisitions in March 2019 and impact of COVID-19 pandemic, limited
operations occurred during the years ended July 31, 2022 and 2021. The revenue
during the year ended July 31, 2022 and 2021 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.
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 and transferred to contract liabilities after trial period. 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. For the year ended July 31, 2022 and 2021, $509,920 and $435,149,
respectively, of revenue were derived from early childhood education classes
provided.
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.
See "Part II, Item 8 - Financial Statements - Note 1 -Summary of Significant
Accounting Policies - Recent Accounting Pronouncements" for a full description
of recent accounting pronouncements including the respective expected dates of
adoption and expected effects on the Company's consolidated financial position,
results of operations or liquidity.
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