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, 2021, and the
results of operations for the years ended July 31, 2021, and 2020. 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, 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
As of July 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.
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.
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 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 expect to generate a revised revenue of RMB16,000,000 from 50
franchisees by the end of 2022.
Liquidity and Capital Resources
As of July 31, 2021, we had negative working capital of $6,927,145 comprised of
current assets of $990,088 and current liabilities of $7,917,233. This
represents a decrease of $3,567,522 in the working capital balance from the July
31, 2020 negative amount of $3,359,623. During the year-ended July 31, 2021, our
working capital deficit increased primarily because we recognized $2,508,959
current operating lease liabilities by adopting ASU No. 2016-02, and additional
advances from related parties for business operating.
We believe that our funding requirements for the next twelve months will be in
excess of $1,600,000. 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, 2021 Compared to Year Ended July 31, 2020
Operating Activities
During the year ended July 31, 2021, $2,381,575 used in operating activities
compared to $1,400,028 used in the operations during the year ended July 31,
2020.
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.
During the year ended July 31, 2020, we recorded losses including noncontrolling
interests of $3,655,069, incurred non-cash depreciation of $69,941, Loss on
disposal of property and equipment of $6,659, impairment loss of $1,628,306 (see
note 10 Other assets and note 11 Goodwill ), prepaid and other current
receivables decreased by $10,041, other assets increased by $145,728, contract
liabilities increased by $74,978, other current payables increased by $112,365,
and related party payables, net increased by $66,954, operating lease assets and
liabilities increased by $406,572 as a result from the adoption of new lease
guidance ASU No. 2016-02.
10
Investing activities
Cash used in investing activities was $185,682 for the year ended July 31, 2021
as compared to $52,270 cash provided by investing activities for the
corresponding period in 2020.
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.
During the year ended July 31, 2020, $323,078 loan receivable and interest have
been paid back from third party borrowers. HF Int'l Education's subsidiary,
Pudong Haojin Childhood Education Ltd. ("PDHJ") was opened to provide childcare
education services. Property and equipment, amount of $270,808, have been added
to this new entity.
Financing activities
Cash provided by financing activities was $2,549,984 for the year ended July 31,
2021 as compared to $1,117,796 for the year ended July 31, 2020. 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.
The cash flows provided by financing activities for the year ended July 31, 2020
was primarily attributable to $953,236 funding support from related
party-Shanghai Oversea Chinese Culture Media Ltd., $184,438 contribution
received from noncontrolling interest shareholders to the joint venture entity -
HF Int'l, offset by $19,878 finance lease principal payment.
Equity and Capital Resources
We have incurred losses since inception of our business and, as of July 31,
2021, we had an accumulated deficit of $5,821,519 compared to $3,568,185 at the
previous year end. To date, we have funded our operations through short-term
debt and equity financing.
We expect our expenses might increase during the foreseeable future as a result
of increased operational expenses and the development of our business. As our
Chinese subsidiaries start operations and marketing plans, the three childcare
education centers have begun to generate limited revenues during the pandemic.
However, the generated revenue is not expected to be sufficient to cover our
marketing needs until the end of 2022 due to the uncertainties affected by the
pandemic. 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 some portion 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, 2021, 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, 2021, we have no off-balance sheet
arrangements.
Contractual Commitments
As of July 31, 2021, we have no other material contractual commitments except
the office building and property leases which are included Note 13 Leases. (see
note 16. Commitments and contingencies)
11
Results of Operations- Year Ended July 31, 2021 Compared to Year Ended July 31,
2020
Revenue and Cost of revenue: We recognized $553,459 and $98,307 revenue in the
year ended July 31, 2021 and 2020, respectively. Cost of revenue increased to
$308,413 for the year ended July 31, 2021, compared to $86,243 during the
comparable period of 2020. The revenue during both years was mainly generated
from two industry segments: hospitality housing in HZLJ and childhood education
care services in HF Int'l Education.
Operating Expenses: Operating expenses decreased to $3,261,411 for the year
ended July 31, 2021, compared to $3,511,021 during the comparable period of
2020. During the year ended July 31, 2021, the decrease of $249,610 was resulted
from the decrease of impairment loss by $1,557,792, offset by the increase of
the selling, general and administrative expenses by $1,293,020 and the increase
of depreciation and amortization expenses by $15,162. The increase of selling,
general and administrative expenses was mainly resulted from the expenses
incurred in the new operating subsidiaries in China for childcare education
business development, including lease cost. The company's major business plans
were halted during COVID-19 pandemic. Management determined that $1,006,343
goodwill and $621,963 deferred cost of finance lease which were generated from
acquisitions were fully impaired as of July 31, 2020. Management further
determined that $70,514 goodwill generated from Gelinke acquisition was fully
impaired as of July 31, 2021.
Other Income (Expense): Other income, net increased to $174,826 for the year
ended July 31, 2021, compared to $155,312 of other expense for the corresponding
period of 2020. 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 16. 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). Other expense for the year ended July 31, 2020,
was mainly resulted from $141,984 donation made to Shanghai JiaoTong University
Oversea Early Childcare Organization.
Net Loss Attributable to Noncontrolling Interest: For the year ended July 31,
2021, we recorded a net loss attributable to Noncontrolling interest of $589,005
compared to $1,003,700 for the corresponding period of 2020. The decrease was
mainly resulted from HF Int'l Education's ownership restructure, noncontrolling
interest has been reduced from 24.5% to 10% in 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
$2,253,334 or $ (0.02) per share for the year ended July 31, 2021, compared to a
net loss of $2,651,369 or $ (0.03) per share for the year ended July 31, 2020, a
decrease in losses of $398,035 due to the factors discussed above.
12
CRITICAL ACCOUNTING POLICIES
Use of Estimates: The preparation of financial statements in conformity with US
GAAP requires the Company's management to make estimates and assumptions that
affect the amounts of assets and liabilities, the identification and disclosure
of impaired assets and contingent liabilities at the date of the financial
statements, and the reported amounts of expenses during the reporting period.
Actual results could differ from those 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.
Comprehensive Income (loss): For the year ended July 31, 2021 and 2020, the
Company included its foreign currency translation gain or loss as part of its
comprehensive income (loss).
Fair value measurement: Fair value is defined as the exchange price that would
be received for an asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or liability in an orderly
transaction between market participants on the measurement date. Valuation
techniques used to measure fair value must maximize the use of observable inputs
and minimize the use of unobservable inputs. Accounting Standard Codification
("ASC") 820, Fair Value Measurements and Disclosures ("ASC 820"), describes a
fair value hierarchy based on three levels of inputs, of which the first two are
considered observable and the last unobservable, that may be used to measure
fair value, which are the following:
Level 1 - Quoted prices in active markets for identical assets or liabilities or
funds.
Level 2 - Inputs other than Level 1 that are observable, either directly or
indirectly, such as quoted prices for similar assets or liabilities; quoted
prices in markets that are not active; or other inputs that are observable or
can be corroborated by observable market data for substantially the full term of
the assets or liabilities.
Level 3 - Unobservable inputs that are supported by little or no market activity
and that are significant to the fair value of the assets or liabilities.
The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, related party receivable, prepaid and other current
receivable, accounts payable, related party payable and other current payable.
The carrying amounts of afore-mentioned accounts approximate fair value because
of their short-term nature.
Cash and Cash Equivalents: The Company maintains cash with banks in the USA and
China. Should any bank holding cash become insolvent, or if the Company is
otherwise unable to withdraw funds, the Company would lose the cash with that
bank; however, the Company has not experienced any losses in such accounts and
believes it is not exposed to any significant risks on its cash in bank
accounts. In China, a depositor has up to RMB500,000 insured by the People's
Bank of China Financial Stability Bureau ("FSD"). In the United States, the
standard insurance amount is USD250,000 per depositor in a bank insured by the
Federal Deposit Insurance Corporation ("FDIC"). Financial instruments that
potentially subject the Company to significant concentrations of credit risk are
cash and cash equivalents and accounts receivable. As of July 31, 2021 and 2020,
respectively, none of the Company's cash and cash equivalents held by financial
institutions was uninsured. With respect to accounts receivable, the Company
generally does not require collateral and does not have an allowance for
doubtful accounts.
Receivables: The Company evaluates the collectability of its receivables based
on a number of factors. In circumstances where the Company becomes aware of a
specific customer's or borrower's inability to meet its financial obligations to
the Company, a specific reserve for bad debts is estimated and recorded, which
reduces the recognized receivable to the estimated amount the Company believes
will ultimately be collected. As of July 31, 2021 and 2020, all balances are
collectable based on management's assessment.
Property and equipment, net: Property and equipment, net, are stated at cost.
Depreciation and amortization are computed using the straight-line method over
the estimated useful lives of the assets. The estimated useful lives of property
and equipment are as follows:
Years
Leasehold improvements Lesser of lease term or estimated useful life
ROU assets-Finance lease Lease term
Furniture and fixtures 3-5
Office equipment and vehicles 3-5
Computer software 3-5
Expenditures for repairs and maintenance are charged to expense as incurred.
13
Goodwill and Long-lived Assets: Goodwill, which represents the excess of the
purchase price over the fair value of identifiable net assets acquired, is not
amortized, in accordance with Accounting Standards Codification (ASC) 350,
Intangibles-Goodwill and Other. ASC 350 requires that goodwill be tested for
impairment at the reporting unit level on an annual basis and between annual
tests, if an event occurs or circumstances change that would more likely than
not reduce the fair value of a reporting unit below its carrying value. These
events or circumstances could include a significant change in the business
climate, legal factors, operating performance indicators, competition, or sale
or disposition of a significant portion of a reporting unit.
The Company has the option to assess goodwill for possible impairment by
performing a qualitative analysis to determine whether the existence of events
or circumstances leads to a determination that it is more likely than not that
the fair value of a reporting unit is less than its carrying amount. A
quantitative assessment is performed if the qualitative assessment results in a
more-likely-than-not determination or if a qualitative assessment is not
performed. The quantitative assessment considers whether the carrying amount of
a reporting unit exceeds its fair value, in which case an impairment charge is
recorded to the extent that the reporting unit's carrying value exceeds its fair
value. The Company's goodwill was mainly generated from the acquisitions during
the year ended July 31, 2019. We currently have two reporting units -
Hospitality and Early Childhood Education. Given the impact of COVID-19 pandemic
and the unfavorable operation results, an interim goodwill impairment assessment
was performed as of January 31, 2020. Based on the assessment result, management
determined that the goodwill generated from 2019 acquisitions was fully impaired
as of January 31, 2020. The goodwill balance as of July 31, 2021 was generated
from Gelinke acquisition in 2021.
Business Combinations: If an acquired set of activities and assets is capable of
being operated as a business consisting of inputs and processes from the
viewpoint of a market participant, the assets acquired and liabilities assumed
are a business. Business combinations are accounted for using the acquisition
method of accounting, which requires an acquirer to recognize the assets
acquired and the liabilities assumed at the acquisition date measured at their
fair values as of that date. Fair value determinations are based on discounted
cash flow analyses or other valuation techniques. In determining the fair value
of the assets acquired and liabilities assumed in a material acquisition, the
Company may utilize appraisals from third party valuation firms to determine
fair values of some or all of the assets acquired and liabilities assumed, or
may complete some or all of the valuations internally. In either case, the
Company takes full responsibility for the determination of the fair value of the
assets acquired and liabilities assumed. The value of goodwill reflects the
excess of the fair value of the consideration conveyed to the seller over the
fair value of the net assets received. Acquisition-related costs that the
Company incurs to affect a business combination are expensed in the periods in
which the costs are incurred.
Noncontrolling interest: The Company adopted ASC 810, Noncontrolling Interests
in Consolidated Financial Statements-an Amendment of Accounting Research
Bulletin No. 51, as of January 1, 2009. ASC 810 establishes accounting and
reporting standards for ownership interests in subsidiaries held by parties
other than the parent, the amount of consolidated net income attributable to the
parent and to the noncontrolling interest, changes in a parent's ownership
interest and the valuation of retained noncontrolling equity investments when a
subsidiary is deconsolidated. ASC 810 also establishes reporting requirements
that provide sufficient disclosures that clearly identify and distinguish
between the interest of the parent and the interests of the noncontrolling
owner.
Advertising costs: Advertising costs are expensed as incurred. During the year
ended July 31, 2021 and 2020, amount of $ 65,406 and $12,582 advertising
expenses were incurred, respectively.
Income Taxes: The Company accounts for income taxes using the asset and
liability method in accordance with ASC 740, Accounting for Income Taxes. The
asset and liability method provides that deferred tax assets and liabilities are
recognized for the expected future tax consequences of temporary differences
between the financial reporting and tax bases of assets and liabilities, and for
operating loss and tax credit carry forwards. Deferred tax assets and
liabilities are measured using the currently enacted tax rates and laws that
will be in effect when the differences are expected to reverse. The Company
records a valuation allowance to reduce deferred tax assets to the amount that
is believed more likely than not to be realized.
On December 22, 2017, the President of the United States signed into law the Tax
Reform Act. The Tax Reform Act permanently reduces the U.S. corporate income tax
rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018. In
addition, the 2017 Tax Act also creates a new requirement that certain income
(i.e., Global Intangible Low-Taxed Income ("GILTI")) earned by controlled
foreign corporations ("CFCs") must be included in the gross income of the CFCs'
U.S. shareholder income. The tax law in PRC applies an income tax rate of 25% to
all enterprises. The Company's subsidiary does not receive any preferential tax
treatment from local government. The Company has been in loss position for years
and zero balances of tax provisions, deferred tax assets and liabilities as of
the reporting periods ended. The tax reforms have no significant impacts on the
Company.
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, 2021and 2020. The revenue
during the year ended July 31, 2021 and 2020 was mainly generated from HZLJ and
HF Int'l Education.
14
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, 2021 and 2020, $435,150
and $29,582, 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.
Income (Loss) Per Share: Basic earnings per share include no dilution and are
computed by dividing net income (or loss) by the weighted- average number of
shares outstanding during the period. Diluted earnings per share reflect the
potential dilution of securities that could share in the earnings of the
Company, assuming the issuance of an equivalent number of common shares pursuant
to options, warrants, or convertible debt arrangements. Diluted earnings per
share are not shown for periods in which the Company incurs a loss because it
would be anti-dilutive. Similarly, potential common stock equivalents are not
included in the calculation if the effect would be anti-dilutive. No potentially
dilutive debt or equity securities were issued or outstanding during the year
ended July 31, 2021 or 2020.
Recent Accounting Pronouncements.
Recently adopted accounting pronouncements
In January 2017, the FASB issued ASU No. 2017-04, "Intangibles and Other (Topic
350): Simplifying the Test for Goodwill Impairment", which eliminates the
requirement to calculate the implied fair value of goodwill, but rather requires
an entity to record an impairment charge based on the excess of a reporting
unit's carrying value over its fair value. This amendment is effective for
annual or interim goodwill impairment tests in fiscal years beginning after
December 15, 2019. Early adoption is permitted. The Company early adopted ASU
No. 2017-04 on January 31, 2020. Management determined the goodwill generated
from HZLJ and HFSH acquisition was fully impaired as of January 31, 2020.
15
In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)". ASU No.
2016-02 requires the recognition of lease assets and lease liabilities on the
balance sheet for leases classified as operating leases under previous guidance.
The accounting for finance leases (capital leases) was substantially unchanged.
The original guidance required application on a modified retrospective basis
with adjustments to the earliest comparative period presented. In August 2018,
the FASB issued ASU No. 2018-11, "Targeted Improvements to ASC 842," which
included an option to not restate comparative periods in transition and elect to
use the effective date of ASU No. 2016-02 as the date of initial application,
which the Company elected. As a result, the consolidated balance sheet prior to
August 1, 2019 was not restated, and continues to be reported under previous
guidance that did not require the recognition of operating lease liabilities and
corresponding lease assets on the consolidated balance sheet. The cumulative
effect of the changes made to our Condensed Consolidated Balance Sheet at August
1, 2019 for the adoption of the new lease standard was as follows:
Balance at Balance at
July 31, 2019 Adjustments August 1, 2019
Assets:
Prepaid and Other current receivables 386,700 (74,197 ) 312,503
ROU assets-Operating lease - 4,185,827 4,185,827
Liabilities:
Current Operating Lease liabilities - 651,424 651,424
Operating lease liabilities - 3,481,229 3,481,229
The adoption of ASU No. 2016-02 had an immaterial impact on the Company's
consolidated statement of operation and consolidated statement of cash flows for
the year ended July 31, 2020. In addition, the Company elected the package of
practical expedients permitted under the transition guidance within the new
standard, which allowed the Company to carry forward the historical lease
classification, not reassess prior conclusions related to expired or existing
contracts that are or that contain leases, and not reassess the accounting for
initial direct costs. Operating leases with a term of 12 months or less will not
be recorded on the Consolidated Balance Sheet. Additional information and
disclosures required by ASU No. 2016-02 are contained in Note 13 Leases.
Recently issued accounting pronouncements not yet adopted
In June 2016, the FASB issued ASU 2016-13, "Financial Instruments-Credit
Losses". The standard, including subsequently issued amendments (ASU 2018-19,
ASU 2019-04, ASU 2019-05, ASU 2019-10 and ASU 2019-11), requires a financial
asset measured at amortized cost basis, such as accounts receivable and certain
other financial assets, to be presented at the net amount expected to be
collected based on relevant information about past events, including historical
experience, current conditions, and reasonable and supportable forecasts that
affect the collectability of the reported amount. In November 2019, the FASB
issued ASU No. 2019-10 to postpone the effective date of ASU No. 2016-13 for
public business entities eligible to be smaller reporting companies defined by
the SEC to fiscal years beginning after December 15, 2022, including interim
periods within those fiscal years. The Company is evaluating the impact of this
guidance on its consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740):
Simplifying the Accounting for Income Taxes which is intended to simplify
various aspects related to accounting for income taxes. The standard is
effective for fiscal years, and interim periods within those years, beginning
after December 15, 2020, with early adoption permitted. The Company is currently
evaluating the effects of the standard on our consolidated financial statements
and related disclosures.
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HARTFORD GREAT HEALTH CORP. 
