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, 2020, and the
results of operations for the years ended July 31, 2020, and 2019. 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, 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 July 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 58.5% ownership of HF Int'l
Education and maintains control over HF Int'l Education. On October 28, 2019, HF
Int'l Education's subsidiary, Pudong Haojin Childhood Education Ltd. ("PDHJ")
had its childhood education center opened.
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. We expect to generate
approximately RMB2 million in revenue by the end of 2020 and reach approximately
RMB15 million in revenue from 25 franchisees by the end of 2021.
9
Liquidity and Capital Resources
As of July 31, 2020, we had negative working capital of $3,359,623 comprised of
current assets of $963,499 and current liabilities of $4,323,122. This
represents a decrease of $3,157,388 in the working capital balance from the July
31, 2019 amount of $(202,235). During the year-ended July 31, 2020, our working
capital deficit increased primarily because we recognized $739,352 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 $1,900,000. 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 investor, selling 1,000,000 shares of common stock (the "Shares") priced
at $0.02 per share. The transfer agent is currently processing stock issuance.
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, 2020 Compared to Year Ended July 31, 2019
Operating Activities
During the year ended July 31, 2020, $446,792 used in operating activities
compared to $1,259,862 used in the operations during the year ended July 31,
2019.
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 9 Other assets and note 10 Goodwill ), prepaid and other current
receivables decreased by $10,041, other assets increased by $145,728, other
current payables increased by $439,497, and related party payables, net
increased by $1,020,190, operating lease assets and liabilities increased by
$154,418 as a result from the adoption of new lease guidance ASU No. 2016-02.
The increase of related party payables was resulted from the operating advances
from related parties. See Note 13 Related Party Transactions.
During the year ended July 31, 2019, we recorded losses including noncontrolling
interests of $659,994, incurred non-cash depreciation of $13,721, prepaid and
other current receivable increased by $230,669, inventory increased by $24,760,
other assets decreased by $75,962, other current payable increased by $9,533,
related party payable, net decreased by $492,419, and other liabilities
increased by $28,196. The increase of prepaid and other current receivable was
mainly resulted from the property rental and property associate fee prepayments,
deposits, and employee operating advances occurred in these new subsidiaries.
The decrease of other assets was mainly resulted from the accelerated
amortization of deferred start-up cost which was acquired through HZHF asset
acquisition, and the amortization of deferred cost of finance lease which was
acquired through HZLJ acquisition. The decrease of related party payable was
resulted from the payment made to SH Qiaohong, the amount borrowed from SH
Qiaohong by the original owner of SHHF was used for start-up expense and 90
percent of Qiao Garden Intl Travel acquisition and the liability was assumed by
the company through SHHF acquisition. The increase of other liabilities was
mainly due to the increase of the finance lease liabilities under HZLJ.
10
Investing activities
Cash provided by investing activities was $52,270 for the year ended July 31,
2020 as compared to $483,252 cash used for the corresponding period in 2019.
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 grand opened to provide
childcare education services. Property and equipment, amount of $270,808, have
been added to this new entity.
During the year ended July 31, 2019, we acquired multiple entities in Shanghai
and Hangzhou, China, total consideration for $606,262, cash paid for $230,161,
noncash payable waived for $235,553 and the unpaid balance for $140,548 which is
included in other current payable as of July 31, 2019. The cash proceeds from
the acquisitions of $50,470 (see note 4 "Acquisitions and Joint Ventures").
During the year ended July 31, 2019, we loaned $599,870 to two third parties
with annual interest rate of six percent, $300,000 of the loaned amount has been
paid back (see note 6 "Loan Receivable").
Financing activities
Cash provided by financing activities was $164,560 for the year ended July 31,
2020 as compared to $2,068,779 for the year ended July 31, 2019. The cash flows
provided by financing activities for the year ended July 31, 2020 was primarily
attributable to $ 184,438 contribution received from noncontrolling interest
shareholders to the joint venture entity - HF Int'l Education (see note 4
"Acquisitions and Joint Ventures"), offset by $19,878 finance lease principal
payment.
The cash flows provided by financing activities for the year ended July 31, 2019
was primarily attributable to sales of stock shares with proceeds of $1,921,800
received and $168,148 contribution received from noncontrolling interest owners
to form the joint venture entity HF Int'l Education (see note 4 "Acquisitions
and Joint Ventures"). During the year ended July 31, 2019, the company refunded
to the former CFO for $1,430 and paid $19,739 finance lease principal amount.
Equity and Capital Resources
We have incurred losses since inception of our business and, as of July 31,
2020, we had an accumulated deficit of $3,568,185 compared to $916,816 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 certain revenues. However, the
generated revenue is not expected to be sufficient to cover our marketing needs
until second quarter of 2021. 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 and February 27, 2019, HFSH entered an agreements 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 July 31, 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.
Off-Balance Sheet Arrangements
As of and subsequent to July 31, 2020, we have no off-balance sheet
arrangements.
Contractual Commitments
As of July 31, 2020, we have RMB 2 million book purchase commitments and the
office building and property leases which are included footnote 12 Leases. (see
note 15. Commitments and contingencies)
11
Results of Operations- Year Ended July 31, 2020 Compared to Year Ended July 31,
2019
Revenue and Cost of revenue: We recognized $98,307 and $56,174 revenue in the
year ended July 31, 2020 or 2019. Cost of revenue increased to $86,243 for the
year ended July 31, 2020, compared to $11,445 during the comparable period of
2019.The revenue during the year ended July 31, 2020 was mainly generated from
two industry segments: hospitality housing in HZLJ and childhood education care
services in HF Int'l Education. During the year ended July 31, 2019, revenue was
mainly generated from the hospitality housing in HZLJ.
Operating Expenses: Operating expenses increased to $3,511,021 for the year
ended July 31, 2020, compared to $727,247 during the comparable period of 2019.
During the year ended July 31, 2020, impairment loss increased by $1,628,306
(see Note 9 Other assets and Note 10 Goodwill), selling, general and
administrative expenses increased by $1,099,248, and depreciation and
amortization expenses increased by $56,220. The increase of operating expenses
was mainly resulted from the expenses incurred in the new subsidiaries in China
for business development, including lease cost. The company's major business
plans were halted as a result of COVID-10 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.
Other Income (Expense): Other expense increased to $155,312 for the year ended
July 31, 2020, compared to $22,524 of other income for the corresponding period
of 2019. The increase of other expense 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,
2020, we recorded a net loss attributable to Noncontrolling interest of
$1,003,700 compared to $75,825 for the corresponding period of 2019. The loss
was allocated based on the ownership percentage of Noncontrolling interest,
which was mainly acquired through the new acquisitions of HZLJ during the year
ended July 31, 2019.
Net Loss Attributable to Hartford Great Health Corp: We recorded a net loss of
$2,651,369 or $ (0.03) per share for the year ended July 31, 2020, compared to a
net loss of $584,169 or $ (0.01) per share for the year ended July 31, 2019, an
increase in losses of $2,067,200 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, 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, current loan 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, 2020, 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.
Loans and 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, 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 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 was fully impaired as of January 31, 2020.
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, 2020, $12,582 advertising expenses were incurred. No advertising
costs incurred during the year ended July 31, 2019.
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 on March 2019 and impact of COVID-19 pandemic, limited
operations occurred during the years ended July 31, 2020 and 2019. The revenue
during the year ended July 31, 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. The Company did not have any
material unsatisfied performance obligations and contract liabilities as of July
31, 2020.
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. 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. US$29,582 of revenue was
derived from early childhood education classes provided for the year ended
July 31, 2020.
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.
Unearned revenue: Unearned revenue represents revenues collected but not earned
as of July 31, 2020. This is primarily composed of tuition collected in advance
from childhood education services.
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, 2020 or 2019.
Recent Accounting Pronouncements.
Recently issued accounting pronouncements not yet adopted
In December 2019, the FASB issued Accounting Standards Update ("ASU") 2019-12,
"Simplifying the Accounting for Income Taxes", as part of its simplification
initiative to reduce the cost and complexity in accounting for income taxes. ASU
2019-12 removes certain exceptions related to the approach for intra-period tax
allocation, the methodology for calculating income taxes in an interim period
and the recognition of deferred tax liabilities for outside basis differences.
ASU 2019-12 also amends other aspects of the guidance to help simplify and
promote consistent application of GAAP. The guidance is effective for fiscal
years beginning after December 15, 2020, with early adoption permitted. The
Company does not expect that the adoption of ASU No. 2018-13 will have a
material impact on its financial position, results of operations and liquidity.
In August 2018, the FASB issued ASU No. 2018-13, "Fair Value Measurement (Topic
820): Disclosure Framework - Changes to the Disclosure Requirements for Fair
Value Measurement." ASU No. 2018-13 removes certain disclosure requirements
related to the fair value hierarchy, modifies existing disclosure requirements
related to measurement uncertainty and adds new disclosure requirements. ASU No.
2018-13 disclosure requirements include disclosing the changes in unrealized
gains and losses for the period included in other comprehensive income for
recurring Level 3 fair value measurements held at the end of the reporting
period and the range and weighted average of significant unobservable inputs
used to develop Level 3 fair value measurements. ASU No. 2018-13 is effective
for the Company within those fiscal years beginning on December 15, 2019, with
early adoption permitted. Certain disclosures in the new guidance will need to
be applied on a retrospective basis and others on a prospective basis. The
Company does not expect that the adoption of ASU No. 2018-13 will have a
material impact on its financial position, results of operations and liquidity.
15
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.
Recently adopted accounting pronouncements
In February 2018, the FASB issued ASU No. 2018-02, "Income Statement - Reporting
Comprehensive Income (Topic 220)", which amends the previous guidance to allow
for certain tax effects "stranded" in accumulated other comprehensive income,
which are impacted by the Tax Cuts and Jobs Act (the "Tax Reform Act") , to be
reclassified from accumulated other comprehensive income into retained earnings.
This amendment pertains only to those items impacted by the new tax law and will
not apply to any future tax effects stranded in accumulated other comprehensive
income. This standard is effective for fiscal years beginning after December 15,
2018 and allows for early adoption. The adoption of ASU No. 2018-02 did not have
an impact on the Company's financial position, results of operations and
liquidity.
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 when we tested goodwill impairment as of January 31, 2020.
Management determined the goodwill was fully impaired as of January 31, 2020.
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
condensed Consolidated Statement of Operation and condensed 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 12 Leases.
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HARTFORD GREAT HEALTH CORP. 
