This discussion updates our business plan for the nine month periods ending
April 30, 2022. It also analyzes our financial condition at April 30, 2022 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 April 30, 2022, 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 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 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 only some ease of restrictions from the recent Covid lockdown in Shanghai
for over two months, the Company’s educational centers remain non-operational
until further announcements from the government in regard to the dynamic changes
in China’s Zero-Covid policy. The Company will need to re-evaluate the early
child care educational market, pending the outcome of government policy. The
Company expects to generate revenue about RMB3,200,000 in 2022.
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Results of Operations – Three Months Ended April 30, 2022 Compared to Three
Months Ended April 30, 2021
Revenue: We recognized $157,770 and $137,892 revenue in the three months ended
April 30, 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 increased to $267,968 for the three
months ended April 30, 2022, compared to $216,991 during the comparable period
of 2021. The increase of Cost of revenue was mainly due to the license fees paid
to HFHM, see note 13. During the three months ended April 30, 2022, selling,
general and administrative expenses decreased by $141,687 compared to the
comparable period in 2021, primarily due to the reduction of payroll and rent
cost because the company closed some education centers during the pandemic.
Other Income (Expense): Other income, net increased to $35,733 for the three
months ended April 30, 2022, compared to Other expense, net of $(11,491) for the
corresponding period of 2021. Other income for the three months ended April 30,
2022 was mainly resulted from sublease income offset by interest expenses. Other
expense for the three months ended April 30, 2021 was mainly resulted from the
interest expense of related party loans offset with the interest income from the
related party receivable from SH Qiaohong, which was settled through three-way
settlement agreement on December 30, 2020, see note 11, Related Party
Transactions.
Net Loss Attributable to Noncontrolling Interest: For the three months ended
April 30, 2022, we recorded a net loss attributable to noncontrolling interest
$48,090 compared to $130,040 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
$395,266 or $(0.00) per share for the three months ended April 30, 2022,
compared to a net loss of $468,409 or $(0.00) per share for the three months
ended April 30, 2021, a decrease in loss of $73,143 due to the factors discussed
above.
Results of Operations – Nine months Ended April 30, 2022 Compared to Nine months
Ended April 30, 2021
Revenue: We recognized $514,533 and $320,204 revenue in the nine months ended
April 30, 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 increased to $884,568 for the nine
months ended April 30, 2022, compared to $545,532 during the comparable period
of 2021. The increase of Cost of revenue was mainly due to the license fees paid
to HFHM, see note 13. During the nine months ended April 30, 2022, selling,
general and administrative expenses decreased by $613,688 compared to the
comparable period in 2021, primarily due to the reduction of payroll and rent
cost because the company closed some education centers during the pandemic.
Other Income (Expense): Other income, net increased to $100,931 for the nine
months ended April 30, 2022, compared to $90,572 for the corresponding period of
2021. Other income for the nine months ended April 30, 2022 was mainly resulted
from sublease income offset by interest expenses. Other income for the nine
months ended April 30, 2021 was mainly resulted from the gain on disposal of
subsidiary.
Net Loss Attributable to Noncontrolling Interest: For the nine months ended
April 30, 2022, we recorded a net loss attributable to noncontrolling interest
$177,817 compared to $486,520 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
$1,496,896 or $(0.01) per share for the nine months ended April 30, 2022,
compared to a net loss of $1,637,227 or $(0.02) per share for the nine months
ended April 30, 2021, a decrease in loss of $140,331 due to the factors
discussed above.
Liquidity and Capital Resources
As of April 30, 2022, we had a working capital deficit of $7,652,253 comprised
of current assets of $830,602 and current liabilities of $8,482,855.
This represents an increase of $2,103,661 in the working capital deficit from
the July 31, 2021 amount of $5,548,592. During the nine months ended April 30,
2022, 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 $650,000. We are currently seeking for further funding through related
parties’ loan and finance.
As of April 30, 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.
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 – Nine months ended April 30, 2022 Compared to Nine months ended
April 30, 2021
Operating Activities
During the nine months ended April 30, 2022, $1,041,031 used in operating
activities as compared to $1,892,057 used in the operations during the nine
months ended April 30, 2021. During the nine months ended April 30, 2022, we
recorded loss including noncontrolling interests of $1,674,713, incurred
non-cash depreciation of $90,968, prepaid and other current receivables
decreased by $91,801, other assets decreased by $89,376, other current payable
increased by $18,356, contract liabilities increased by $ 66,188 , related party
payables net with receivables increased by $89,323, other liabilities increased
by $21,167 and operating lease liabilities net with operating lease assets
increased by $161,110 as a result from the adoption of new lease guidance ASU
No. 2016-02.
During the nine months ended April 30, 2021, we recorded loss including
noncontrolling interests of $2,123,747, incurred non-cash depreciation of
$60,662, gain on disposal of subsidiary, including noncontrolling interest of
$104,317, prepaid and other current receivables increased by $75,917, inventory
increased by $297,558, other assets increased by $45,456, contract liabilities
increased by $260,420, other current payable increased by $312,453, related
party payables net with receivables increased by $26,308, other liabilities
increased by $20,193 and operating lease liabilities net with operating lease
assets increased by $74,147 as a result from the adoption of new lease guidance
ASU No. 2016-02.
Investing activities
Cash used in investing activities was $174,277 for the nine months ended April
30, 2022 as compared to $154,997 for the corresponding period in 2021. During
the nine months ended April 30, 2022, the cash used in investing activities was
primarily due to the expenditure of leasehold improvements in HF Int’l
Education.
During nine months ended April 30, 2021, HF Int’l Education acquired a new
entity, Gelinke with cash net inflow of $12,635, HFSH disposed its 90 percent
owned subsidiary – Qiao Garden Intel Travel with cash net outflow of $30,116,
see note 4 Acquisitions, Joint Ventures and Deconsolidation., and Property and
equipment purchases of $137,516.
Financing activities
Cash provided by financing activities was $1,177,463 for the nine months ended
April 30, 2022 as compared to $2,064,942 cash provided by financing activities
for the nine months ended April 30, 2021. The cash flows provided by financing
activities for the nine months ended April 30, 2022 was primarily attributable
to $1,018,395 funding support from related parties, $120,000 proceeds of notes
payable from one related party with 5% annual interest rate (see Note 11 Related
Party Transactions), and $62,509 contribution from noncontrolling interest (see
Note 3 Acquisitions, Joint Ventures and Deconsolidation ), offset by $23,441
finance lease principal payment.
The cash flows provided by financing activities for the nine months ended April
30, 2021 was primarily attributable to $1,941,842 funding support from related
parties, $125,000 notes payable from one related party, $20,000 proceeds from
stock issuance, offset by $21,900 finance lease principal payment.
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 April 30,
2022, 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.
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Off-Balance Sheet Arrangements
As of and subsequent to April 30, 2022, we have no off-balance sheet
arrangements.
Contractual Commitments
As of April 30, 2022, 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.
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