Hartford Great Health Corp. - Annual Report: 2021 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.

FORM 10-K

Commission file number 000-54439

Hartford Great Health Corp.

(Exact name of registrant as specified in its charter)

(626) 321-1915

(Registrant’s telephone number, including area code)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes ☒ No ☐

Indicate by check mark whether the issuer (1) filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒

January 31, 2021, the last business day of the Registrant’s most recently completed second fiscal quarter, the aggregate market value of the voting common stock held by non-affiliates of the Registrant (without admitting that any person whose shares are not included in such calculation is an affiliate) was $6,653,600.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: Common Stock, Par value $0.001

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 100,108,000 shares of common stock outstanding as of October 29, 2021.

ADDITIONAL INFORMATION

Descriptions of agreements or other documents contained in this report are intended as summaries and are not necessarily complete. Please refer to the agreements or other documents filed or incorporated herein by reference as exhibits. Please see the exhibit index at the end of this report for a complete list of those exhibits.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties and are based on the beliefs and assumptions of management and information currently available to management. The use of words such as “believes”, “expects”, “anticipates”, “intends”, “plans”, “estimates”, “should”, “likely” or similar expressions, indicates a forward-looking statement.

The identification in this report of factors that may affect future performance and the accuracy of forward-looking statements is meant to be illustrative and by no means exhaustive. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty.

Factors that could cause actual results to differ materially from those expressed or implied by forward-looking statements include, but are not limited to:

PART I

ITEM 1. BUSINESS.

General

Hartford Great Health Corp. (“the Company”, “Hartford” “we”, “us” or our”) was incorporated in the State of Nevada on April 2, 2008 (“Inception) under the name PhotoAmigo, Inc. It changed its name to Hartford Great Health Corp. on August 20, 2018, and since then we have been engaged in activities to formulate and implement our business plan as set forth below.

Overview

Up until August 2018, we provided social networking and photo sharing from the website PhotoAmigo.com. We also maintained the domain names PhotoAmigo.net, fotoamigo.com and fotoamigo.net. These domain names all redirect incoming traffic to our main website, PhotoAmigo.com.

In August 2018, the Company changed its future plans of operations. Through its wholly owned subsidiary - Hangzhou Hartford Comprehensive Health Management, Ltd (“HZHF) and HZHF’s 60 percent owned subsidiary - Hangzhou Longjing Qiao Fu Vacation Hotel Co., Ltd. (“HZLJ”), and through Shanghai Hartford Comprehensive Health Management, Ltd. (“HFSH”) and its 90 percent owned subsidiary - Shanghai Qiao Garden International Travel Agency (“Qiao Garden Int’l Travel”), the Company engages in hospitality industry in China. Qiao Garden Int’l Travel was disposed on December 31, 2020, see note 4 Acquisitions, Joint Ventures and Deconsolidation.

The Company started to engage in early childhood education industry at Hartford International Education Technology Co., Ltd (“HF Int’l Education”), a 75.5% ownership subsidiary of HFSH in March 2019. On July 24, 2019 and March 23, 2020, HF Int’l Education established two 100% owned subsidiaries, Pudong Haojin Childhood Education Ltd. (“PDHJ”) and Shanghai Hongkou HaiDeFuDe Childcare Co., Ltd.(“HDFD”), respectively, to operate the early childhood education service under the brand name of “HaiDeFuDe” 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”).

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. As a part of the purchase agreement, HFHM will be paid the 90% of gross tuition income from the three childcare centers. 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 other noncontrolling shareholders.

The following business plan is based on research and discussions between the board and third party suppliers and experts. Only preliminary activities relating to the following objectives have been undertaken and therefore, there is no assurance that any of the proposed activities set forth below will be started by the Company or if started will be successful.

Strategy

The initial plan focuses on the development of the Sino-U.S. health industry in the following four areas:

A. International Anti-Aging Membership Program,

B. Artificial Intelligence and Medical Equipment Sales,

C. Mobile Lifestyle Health & Wellness Management Platform,

D. Integrated Health Management of Metabolic Diseases.

The Company has also expanded its strategy into the hospitality industry, focusing on hotels, restaurants, and travel arrangements. The Company plans to integrate hospitality with health management through its membership-based program by arranging travel accommodations for Chinese citizen members to the United States to obtain stem cell beauty treatments.

The initial plan in early 2019 that focused on the development of the Sino-U.S. health industry in the areas of International Anti-Aging membership based program; Artificial Intelligence and Medical Equipment Sales; Mobile Lifestyle Management Platform; and Integrated management of metabolic diseases have been put on hold due to economic uncertainties caused by the increasing tension between the US and China international relation.

Near the end of 2019, the Company has found another opportunity to expand its market reach in the Chinese childhood education industry. The Company plans to formulate a proprietary early childhood education center management model beginning with the opening of several early childhood education centers in the greater Shanghai area with the goal of demonstrating the management model in action in order to attract interest from potential franchisees. Currently, there are three early child education and development center in operation despite the economic slowdown during the pandemic. The recent “Three-child policy” announced on May 1, 2021, by Chinese government further increases the market opportunities in early childhood education industry. On July 24, 2021, the Chinese government announced a “Double-Reduction” education policy to be taken effective on August 31, 2021. This new education policy has since impacted the Company’s early childhood education business. In the short future, the Company is optimistic on the increasing demand for childcare and childhood education; therefore, the Company will remain focus mainly on childcare and childhood educational development industry.

There can be no assurance following consummation of any of the business ventures will develop into a going concern or, if the business is already operating, that it will continue to operate successfully. Many of the potential business opportunities available to the Company may involve new and untested products, processes or market strategies which may not ultimately prove successful.

The Company’s independent auditors have issued a report raising substantial doubt about the Company’s ability to continue as a going concern. At present, the Company has limited operations and the continuation of the Company as a going concern is dependent upon financial support from its stockholders, its ability to obtain necessary equity financing to continue operations and/or to successfully locate and negotiate with a business entity for the combination of that target company with the Company. There is no assurance that the Company will ever be profitable.

Competition

We believe there are only limited barriers to entry in our business. With regards to the education industry, the Company carefully selected to invest in a business with established expertise and knowledge of the early childhood education industry in China. The Company recognizes that there are numerous childcare centers throughout China; however, these centers lack standard curriculums for educating children and many fall into the designation of daycares rather than education centers. As such, the Company’s interests with regards to early childhood education mainly relate to creating a nationwide standardized curriculum to be implemented throughout all of China which is an idea that faces little competition as it has remained unexplored by other childcare businesses. To successfully compete in our industries, we will need to:

However, there can be no assurance that even if we do these things, we will be able to compete effectively with the other companies in our industry. We believe that we have the required management expertise in sourcing properties with good development potential and affordable price. We are committed to work and communicate with our investors and sales consultants to identify their goals and needs which will make it easier to continually provide them with the best products and services.

Employees

As of October 29, 2021, we have 65 employees.

ITEM 1A. RISK FACTORS

As a “smaller reporting company” as defined by Item 8 of Regulation S-K, the Company is not required to provide information required by this Item.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Hartford Great Health Corp. uses the offices of its Chief Executive Officer, at 8832 Glendon Way, Rosemead, CA 91770, for its minimal office facility needs for no consideration.

Each newly acquired or formed entity maintains its own leased office building and property. We lease spaces in Shanghai and Hangzhou, China under leases that expire at various times between 2023 and 2051 with various term extensions available.

We lease all of our facilities and do not own any real property.

ITEM 3. LEGAL PROCEEDINGS

On April 13, 2020, HFSH and HF Int’l Education received Notices of Lease Termination from the sub-lessor. HFSH and HF International Education then filed a civil case against the sub-lessor for return the over-charged rent expense because of fictitious office size, approximately $483,000 (RMB3.3 million). The sublease agreement was terminated on June 1, 2020. HF International Education entered a new lease agreement with the original landlord on June 1, 2020. On July 7, 2021, the district court announced the ruling and awarded HFSH a total amount of RMB870,336 to be returned by the sub-lessor, Shanghai Longjin Management and awarded HF International Education a total amount of RMB268,450 to be returned by the same sub-lessor. However, the rental deposits in the amount of RMB313,286 paid to the sub-lessor are non-refundable. No further appeal on these rental dispute cases will be granted. These final ruling proceedings are pending execution by the district court.

We were not subject to any other legal proceedings during the twelve months ended July 31, 2021, and are not currently subject to any legal proceedings, and to the best of our knowledge, no such proceeding is threatened, the results of which would have a material impact on our results of operation or financial condition. Nor, to the best of our knowledge, are any of our officers or directors involved in any legal proceedings in which we are an adverse party.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable to our Company.

PART II

ITEM 5. MARKET FOR COMMON EQUITY. RELATED STOCKHOLDER MATTERS AND PURCHASES OF EQUITY SECURITIES

Market Information

There has only been limited trading for the Company’s Common Stock since it was quoted on OTC Markets. There is no assurance that an active trading market will ever develop or, if such a market does develop, that it will continue. The Securities and Exchange Commission has adopted Rule 15g-9 which establishes the definition of a “penny stock,” for purposes relevant to the Company, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require: (i) that a broker or dealer approve a person’s account for transactions in penny stocks and (ii) the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased. In order to approve a person’s account for transactions in penny stocks, the broker or dealer must (i) obtain financial information and investment experience and objectives of the person and (ii) make a reasonable determination that the transactions in penny stocks are suitable for that person and that person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks. The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prepared by the Commission relating to the penny stock market, which, in highlight form, (i) sets forth the basis on which the broker or dealer made the suitability determination and (ii) that the broker or dealer received a signed, written agreement from the investor prior to the transaction. Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading, and about commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

Because of these regulations, broker-dealers may encounter difficulties in their attempt to buy or sell shares of our common stock, which may affect the ability of our shareholders to sell their shares in the secondary market and have the effect of reducing the level of trading activity in the secondary market. These additional sales practice and disclosure requirements could impede the sale of our common stock in the market place. In addition, the liquidity for our common stock may be decreased, with a corresponding decrease in the price of our common stock. Our shares are likely to be subject to such penny stock rules for the foreseeable future.

On October 29, 2021, the closing price of our common stock reported on the OTC Markets was $0.16 per share. The following table sets forth, for each of the quarterly periods indicated, the high and low sales prices of our common stock, as reported on the OTC Markets.

Holders

As of October 29, 2021, a total of 100,108,000 shares of our common stock were outstanding and there were approximately 51 holders of record.

Penny Stock Rules

Due to the price of our common stock, as well as the fact that we are not listed on Nasdaq or a national securities exchange, our stock is characterized as “penny stocks” under applicable securities regulations. Our stock will therefore be subject to rules adopted by the Securities and Exchange Commission (“SEC”) regulating broker-dealer practices in connection with transactions in penny stocks. The broker or dealer proposing to affect a transaction in a penny stock must furnish his customer a document containing information prescribed by the SEC and obtain from the customer an executed acknowledgment of receipt of that document. The broker or dealer must also provide the customer with pricing information regarding the security prior to the transaction and with the written confirmation of the transaction. The broker or dealer must also disclose the aggregate amount of any compensation received or receivable by him in connection with such transaction prior to consummating the transaction and with the written confirmation of the trade. The broker or dealer must also send an account statement to each customer for which he has executed a transaction in a penny stock each month in which such security is held for the customer’s account. The existence of these rules may have an effect on the price of our stock, and the willingness of certain brokers to effect transactions in our stock.

Transfer Agent

We have appointed EQ by Equiniti, as the transfer agent for our common stock. The principal office of EQ is located at 1110 Centre Pointe Curve #101, Mendota Heights, MN 55120 and its telephone number is (612) 209-9006.

Dividend Policy

We have never declared or paid dividends on our common stock. Payment of future dividends, if any, will be at the discretion of our Board of Directors after taking into account various factors, including the terms of any credit arrangements, our financial condition, operating results, current and anticipated cash needs and plans for expansion. At the present time, we intend to retain any earning in our business, and therefore do not anticipate paying dividends in the foreseeable future.

Recent Sales of Unregistered Securities; Use of Proceeds from Unregistered Securities

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 and all proceeds have been 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. The proceeds from the sales of securities have been used in operating activities and acquisition of new entities.

On July 3, 2020, the Company signed a subscription agreement to one of the existing investors selling 1,000,000 shares of common stock (the “Shares”) priced at $0.02 per share. The shares were issued on November 24, 2020.

ITEM 6. SELECTED FINANCIAL DATA

As a “smaller reporting company” as defined by Item 8 of Regulation S-K, the Company is not required to provide information required by this Item.

ITEM 7. MANAGEMENTS’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

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.

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.

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)

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.

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:

Expenditures for repairs and maintenance are charged to expense as incurred.

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.

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.

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.

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:

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.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

As a “smaller reporting Company” as defined by Item 8 of Regulation S-K, the Company is not required to provide information required by this Item.

ITEM 8. FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

To the Board of Directors and shareholders of Hartford Great Health Corp.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Hartford Great Health Corp. and subsidiaries (the “Company”) as of July 31, 2021 and 2020, and the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity (deficit) and cash flows for each of the two years in the period ended July 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of July 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended July 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

Going Concern Uncertainty

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has suffered recurring losses from operations and accumulated deficit that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinions

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Simon & Edward, LLP

City of Industry, California

October 29, 2021

We have served as the Company’s auditor since 2019.

HARTFORD GREAT HEALTH CORP.

CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these financial statements.

HARTFORD GREAT HEALTH CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

The accompanying notes are an integral part of these financial statements.

HARTFORD GREAT HEALTH CORP.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

The accompanying notes are an integral part of these financial statements.

HARTFORD GREAT HEALTH CORP.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

for the years ended July 31, 2021 and 2020

The accompanying notes are an integral part of these financial statements.

HARTFORD GREAT HEALTH CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

The accompanying notes are an integral part of these financial statements.

HARTFORD GREAT HEALTH CORP.

Notes to Financial Statements

For the Years Ended July 31, 2021 and 2020

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

This summary of significant accounting policies is presented to assist in understanding the Company’s financial statements. The financial statements and notes are the responsibility of the Company’s management. These accounting policies conform to accounting principles generally accepted in the United States of America (“US GAAP”) and have been consistently applied in the preparation of the financial statements.

Organization

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 plans.

Through its wholly owned subsidiary - Hangzhou Hartford Comprehensive Health Management, Ltd (“HZHF) and HZHF’s 60 percent owned subsidiary - Hangzhou Longjing Qiao Fu Vacation Hotel Co., Ltd. (“HZLJ”), and through Shanghai Hartford Comprehensive Health Management, Ltd. (“HFSH”) and its 90 percent owned subsidiary - Shanghai Qiao Garden International Travel Agency (“Qiao Garden Int’l Travel”), the Company engages in hospitality industry in China. Qiao Garden Int’l Travel was disposed on December 31, 2020, see note 4 Acquisitions, Joint Ventures and Deconsolidation.

The Company started to engage in early childhood education industry at Hartford International Education Technology Co., Ltd (“HF Int’l Education”). On July 24, 2019 and March 23, 2020, HF Int’l Education established two 100% owned subsidiaries, Pudong Haojin Childhood Education Ltd. (“PDHJ”) and Shanghai Hongkou HaiDeFuDe Childcare Co., Ltd.(“HDFD”), respectively, to operate the early childhood education service under the brand name of “HaiDeFuDe” 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”).

Basis of Presentation

The consolidated financial statements include the accounts of Hartford Great Health Corp, its wholly-owned subsidiaries and subsidiaries in which it has a controlling interest. The Company reports noncontrolling interests of the consolidated entities as a component of equity separate from the Company’s equity. All material inter-company transactions between and among the Company and its consolidated subsidiaries have been eliminated in the consolidation. The Company’s net income (loss) excludes income (loss) attributable to the noncontrolling interests.

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 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, related party receivables, prepaid and other current receivables, related party payables and other current liabilities. 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 United States 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, nil of the Company’s cash and cash equivalents held by financial institutions were 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:

Expenditures for repairs and maintenance are charged to expense as incurred.

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 business acquisitions during the fiscal years ended July 31, 2021 and 2019. We currently have two reporting units - Hospitality and Early Childhood Education. Given the impact of COVID-19 pandemic and the unfavorable operation results, goodwill impairment assessment was performed at interim time and annually. Based on the assessment results, management determined that $1,006,343 goodwill and $621,963 deferred lease cost were fully impaired as of July 31, 2020. The goodwill generated from Gelinke acquisition in 2021 was fully impaired as of July 31, 2021.

Reclassifications

Certain amounts on the prior-year consolidated balance sheet, consolidated statement of operations and cash flows were reclassified to conform to current-year presentation, with no effect on ending stockholders’ equity.

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

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.

The 2017 Tax Reform Act permanently reduces the U.S. corporate income tax rate to a flat 21% rate. In addition, the 2017 Tax Reform 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.

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 for the year ended July 31, 2021 and 2020 were mainly generated from HZLJ, PDHJ and Gelinke.

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 recorded $545,346 and $75,861 unsatisfied performance obligations and contract liabilities as of July 31, 2021 and 2020, respectively.

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, and the goodwill generated from Gelinke acquisition was impaired as of July 31, 2021

The Company adopted ASC 842 lease accounting policy on August 1, 2019 and elected not to restate comparative periods in transition and use the effective date of ASU No. 2016-02 as the date of initial application of ASC 842. As a result, the consolidated balance sheet prior to August 1, 2019 was not restated, and continues to be reported under previous lease 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:

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.

NOTE 2. GOING CONCERN

The accompanying financial statements were prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of obligations in the normal course of business. However, Hartford Great Health Corp. has incurred losses since inception, resulting in an accumulated deficit of $ 5,821,519 as of July 31, 2021. These conditions raise substantial doubt about the ability of Hartford Great Health Corp. to continue as a going concern.

In view of these matters, continuation as a going concern is dependent upon several factors, including the availability of debt or equity funding upon terms and conditions acceptable to Hartford Great Health Corp., and ultimately achieving profitable operations. Management believes that Hartford Great Health Corp.’s business plan provides it with an opportunity to continue as a going concern. However, management cannot provide assurance that Hartford Great Health Corp. will meet its objectives and be able to continue in operation.

The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of Hartford Great Health Corp. to continue as a going concern.

NOTE 3. STOCKHOLDERS’ EQUITY

Preferred Stock

The Company is authorized to issue 5,000,000 shares of preferred stock with a par value of $0.001 per share. No shares of preferred stock have been issued or outstanding since Inception (April 2, 2008).

Common Stock

The Company is authorized to issue 300,000,000 shares of common stock with a par value of $0.001 per share. On December 11, 2018, 96,090,000 shares of common stock were issued at the price of $0.02 per share to raise $1,921,800 capital in cash. 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. As of July 31, 2021 and 2020, the company had a total of 100,108,000 and 99,108,000 shares of common stock issued and outstanding, respectively.

NOTE 4. ACQUISITIONS, JOINT VENTURES AND DECONSOLIDATION

Joint Venture – HF Int’l Education

On March 22, 2019, HFSH entered into a joint venture agreement (the “JV agreement”) with Shanghai Jingyu Education Tech Ltd. (“SH Jingyu”) and one individual investor, to form a new entity - HF Int’l Education to provide childcare education services. HFSH initially owned 65.0% ownership HF Int’l Education, and reduced to 61.0% during the year ended on July 31, 2020 because of equity transactions between noncontrolling shareholders. On June 19, 2020, the board of HF Int’l Education decided to increase registered capital to RMB10 million from RMB5 million, and three out of four noncontrolling shareholders gave up the subscription rights. As a result, HFSH held 75.5% of HF Int’l Education and a total of 24.5% equity was held by noncontrolling shareholders. Pursuant to the board meeting held on June 1, 2021, the noncontrolling shareholders sold a total 14.5% equity at zero consideration to HFSH. As a result, HFSH holds 90.0% of HF Int’l Education and $403,131 noncontrolling loss was absorbed by HFSH as a result of the ownership restructure at HF Int’l Education.

Continuous operation losses caused by the market uncertainties including pandemic and government regulations, HF Int’l Education entered agreements to sell the copyrights of seven education textbooks and ten “HaiDeFuDe” registered trademarks owned for RMB1.2 million and RMB1.0 million, respectively, to Hartford Health Management (Shanghai) Co., Ltd (“HFHM”) in March 2021 with approval of the board of directors. The CEO of HFHM is a shareholder of the Company who owns more than 5% of the Company’s common stocks.

Operation result of HF Int’l Education are included in the Company’s consolidated financial statements commencing on the formation date. The Company classifies the ownership interest held by other four parties as “Noncontrolling interest” on the consolidated balance sheet.

Acquisition of Gelinke

On July 20, 2020, HF Int’l Education entered an agreement with two individuals to acquire the whole ownership of Gelinke, who engages at early childhood education services in Changning District, Shanghai. The results of operations of the acquired entities are included in the Company’s consolidated financial statements commencing on the acquisition date. The Company has recorded an allocation of purchase price to Gelinke’s tangible and identifiable intangible assets acquired and liabilities assumed based on their fair value at the acquisition date. The Company accounted the acquisition transaction in accordance with FASB ASC 805, Business Combinations, under acquisition accounting method. The related transaction costs were immaterial and included in General and administrative expenses in the accompanying consolidated statements of operations. The acquisition was completed on August 31, 2021. The calculation of purchase price and purchase price allocation is as follows:

*$10,462 (RMB70,000) payable to the acquiree plus $14,362 (RMB100,000) cash payment totaled $24,824 consideration for the acquisition.

Goodwill is mainly attributable to synergies expected from the acquisition of license, list of customers and teacher workforce. Due to unfavorable operation result of Gelinke during the year ended July 31, 2021, management determined that $67,712 goodwill generated from Gelinke Acquisition was fully impaired.

Other Acquisitions

In January and February 2019, HFSH entered agreements to acquire 85 percent ownership of Shanghai Senior Health Consulting Ltd. (“SH Senior”) and 55 percent ownership of Shanghai Pasadena Ltd. (“SH Pasadena”). On December 31, 2020, HFSH withdrew from the two acquisition agreements. No penalty results from the withdrawn.

In January 2019, HFSH entered agreements 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 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 executing dates. There was no penalty levied or to be levied due to delayed execution or inexecution.

On May and June 2019, the Company entered an agreement and a supplemental agreement to acquire 60 percent equity interest of Shanghai Ren Lai Ren Wang Restaurant Co., Ltd. (“SH RLRW”). The acquisition agreement has not yet taken effect as no consideration has been paid towards the acquisition. On June 12, 2020, the company withdraw from the acquisition and transferred the agreement to an individual with zero price.

Disposal of subsidiary

On December 31, 2020, HFSH disposed its 90 percent owned subsidiary - Qiao Garden Int’l Travel to an individual (the “Disposal”). The individual is a relative of the CEO, Qiao Garden Int’l Travel became a related party after deconsolidation. The operation results, assets and liabilities, and cash flows of Qiao Garden Int’l Travel were deconsolidated from the Company’s consolidated financial statements effective on December 31, 2020. The Disposal of Qiao Garden was consummated through a three-party settlement among HFSH, SH Qiaohong and Qiao Garden Int’l Travel (the “Three-Party Settlement”): the original investment RMB 4.5 million plus RMB 0.5 million investment income were agreed to returned from Qiao Garden Int’l Travel as a result of the Disposal and settled with a payable due to SH Qiaohong at SHHF, who was a debtor of Qiao Garden Int’l Travel, see Note 14, Related Party Transactions.

Net assets (liabilities) disposed of:

Net inflow / (outflow) of cash and cash equivalents in respect of the disposal subsidiary:

NOTE 5. RESTRICTED CASH

The Company early adopted ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, and includes restricted cash with cash and cash equivalents when reconciling the beginning of year and end of year total amounts shown on the statements of cash flows. The restricted cash are collaterals required by the local government in China for the early education license Gelinke held and the travel license Qiao Garden Int’l Travel held as of July 31, 2021 and 2020, respectively.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the balance sheets that sum to the total of the same such amounts shown in the statements of cash flows.

NOTE 6. LOAN RECEIVABLE

The Company loaned $99,870 to a third party, Longsheng Aquatic Products Co., Ltd. The loan bears 6% annum interest rate with three-month term started on February 14, 2019. On May 12, 2019, the loan had been extended for another year, expires on May 13, 2020. Nil and $5,260 of interest income were recognized during the year ended July 31, 2021 and 2020, respectively. The loaned amount and interest have been fully paid back on June 11, 2020.

The Company loaned another $200,000 to HK HongTai on March 4, 2019. The loan bears annual interest rate of six percent with six months term expiring on September 3, 2019. Subsequently on August 30, 2019, the loan has been extended to September 3, 2020. Nil and $10,202 of interest income were recognized during the years ended July 31, 2021 and 2020, respectively. The loan principal and interest accrued have been fully paid back on June 11, 2020.

NOTE 7. PREPAID AND OTHER CURRENT RECEIVABLES

Prepaid and other current receivable amounts of $286,232 and $173,819 as of July 31, 2021 and 2020, respectively, mainly consist of advances for purchase and renovation project, employee operating advances and others.

NOTE 8. INVENTORY

Inventory mainly consists of books, the early childhood education materials. Inventory is stated at the lower of cost or net realizable value. As of July 31, 2021 and 2020, inventory balance was $323,814 and nil, respectively.

NOTE 9. PROPERTY AND EQUIPMENT, NET

Property and equipment, net consists of the following at July 31, 2021 and 2020:

Depreciation expense for the years ended July 31, 2021 and 202, was $ 85,103 and $48,643, respectively.

NOTE 10. OTHER ASSETS

Other assets consist of the following at July 31, 2021 and 2020:

The cost of obtaining the finance lease of the land use rights and hotel building at HZLJ, in the amount of $879,800 (RMB 6 million) was recognized as Other Assets and subject for amortization over the remaining lease term, 41 years commenced on October 2010. The amortization is computed using the straight-line method over the remaining lease term. Amortization expense of deferred cost of finance lease for the year ended July 31, 2021 and 2020 were Nil and $21,298, respectively. Given the impact of COVID-19 pandemic and the unfavorable operation results, management determined that the deferred cost of finance lease was fully impaired as of July 31, 2020 and $621,963 impairment cost was recorded for the year ended July 31, 2020.

NOTE 11. GOODWILL

Our goodwill was mainly contributed by the acquisitions during the fiscal year of 2021 and 2019. Under the circumstance of the COVID-19 pandemic and slowly economic recoveries at the cities of Shanghai and Hangzhou, the Company’s business plans have been halted for an indefinite period of time. Based on the management’s assessment, management determined that goodwill was fully impaired as of January 31, 2021 and 2020. The following is a roll-forward of goodwill for the years ended July 31, 2021 and 2020:

NOTE 12. OTHER CURRENT PAYABLES

The following is a breakdown of the accounts and other payables as of July 31, 2021 and 2020:

Payable to acquiree is the unpaid consideration for the acquisitions described in Note 4 Acquisitions and Joint Venture.

NOTE 13. LEASES

At the inception of a contract, the Company assesses whether the contract is, or contains, a lease. Leases are classified as either finance leases or operating leases based on criteria in Accounting Standards Codification (“ASC”) 842. Operating leases are included in ROU assets-Operating lease, Current Operating Lease liabilities and Operating lease liabilities, finance leases are included in Property and Equipment and Other Liabilities in the condensed Consolidated Balance Sheet.

Right-of-use (“ROU”) assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As the lease did not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in China market. ROU assets also include any lease payments made and exclude lease incentives. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for operating leases, consisting of lease payments, is recognized on a straight-line basis over the lease term. Lease expense for finance leases consists of the amortization of the ROU asset on a straight-line basis over the asset’s estimated useful life and interest expense is calculated using the amortized cost basis.

As of July 31, 2021, the Company has multiple operating leases for office spaces and a finance lease of land and hotel building. Our operating leases have remaining lease terms ranging from one year to five years, with various term extensions available. Our finance lease has remaining lease term of thirty years. The Company has elected not to recognize ROU assets and lease liabilities for short-term operating leases that have a term of twelve months or less.

In June 2018 and January 2019, HFSH and HF Int’l Education entered two lease agreements with Shanghai Longjin Corporate Management Co., Ltd (the “Sublessor”) to lease office spaces (the “Subleases”). HFSH and HF Int’l Education received Notices of Lease Termination from the Sublessor for late payments on April 13, 2020 and filed a civil lawsuit against the Sublessor on July 10, 2020 (see Note 16). And the original lease agreement entered between the Sublessor and the landlord of the office building (the “Landlord”) was terminated by the Landlord on June 1, 2020 due to payment default. The two sublease agreements entered with the Sublessor was terminated on June 1, 2020 and approximately $921,000 ROU and $891,000 lease liability associated with the two Subleases as of May 31, 2020 were eliminated and $29,000 other expenses was recognized as a result. HF Int’l Education entered a new lease agreement with the Landlord on June 1, 2020 for the same office spaces with a five-year term. On July 13, 2021, HF Int’l Education entered a sublease agreement with sub-lessee (a third party) for some office space with two-year term, amount of $5,003 was recognized as sublease income, included under other income, for the year ended July 31, 2021.

On September 1, 2020, Gelinke entered a five-year new lease agreement at the original office location upon the completion of the acquisition. Approximately $1.2 million ROU and lease liability, respectively, were recognized with the new lease at lease commencement date. Subsequently on August 15, 2021, an early termination agreement was entered to terminate this lease on August 30, 2021. As a result, approximately $1 million ROU and lease liability, respectively, associated with this lease as of July 31, 2021 were eliminated and $40,005 gain was recognized.

HZHF terminated its original office lease on January 6, 2021. Approximately $287,000 ROU and $258,000 lease liability associated with the original lease agreement were eliminated. On January 9, 2021, HFHZ entered into a two-year new lease with smaller space at the same location. Approximately $49,000 ROU and lease liability, respectively, were recognized with the new lease at lease commencement date.

The finance lease was obtained through HZLJ acquisition on March 22, 2019. On October 1, 2010, HZLJ took over the lease of the land and hotel building for 41 years. Finance lease right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease.

Lease-related assets and liabilities at July 31, 2021 and 2020 were as follows:

The components of lease cost for the year ended July 31, 2021 and 2020:

Supplemental cash flow information for leases for the years ended July 31, 2021 and 2020:

The weighted-average remaining lease term and weighted-average discount rate for operating and finance leases at July 31, 2021 was as follows:

The following table reconciles the undiscounted future minimum lease payments for operating and finance leases executed at July 31, 2021:

NOTE 14. RELATED PARTY TRANSACTIONS

Related Party Receivables

As of July 31, 2021 and 2020, amounts of $0 and $703,776, respectively, are due from Shanghai Qiaohong Real Estate Co., Ltd. (“SH Qiaohong”), the noncontrolling interest of HZLJ. The balance was acquired through HFSH acquisition. HFSH lent the amount to SH Qiaohong for two years on June 21, 2018 bearing annual interest of six percent. On August 1, 2020, the loan has been extended to July 31, 2022. The balance was settled through a Three-way settlement agreement on December 31, 2020, see following “Three-Party Settlement Agreement” paragraph for detail. For the years ended July 31, 2021 and 2020, $18,662 and $37,676 of interest income were recognized, respectively.

$295,916 advances to HFHM were made pursuant to the license agreements entered by HF Int’l Education and its three subsidiaries in June 2021. See Note 16 for details. The remaining related party receivable of $29,948 and $49,300 as of July 31, 2021 and 2020, respectively, represents the operating advances made to the affiliates which are managed by the same management team. These advances do not bear interest and are considered due on demand.

Related Party Payables

As of July 31, 2021 and 2020, amounts of $616,159 and $674,830, are payable to SH Qiaohong, respectively. Majority of the balance at July 31, 2020 was assumed through HFSH acquisition, from its 90 percent owned entity, Qiao Garden Int’l Travel. This payable balance does not bear interest and due on demand. This balance was settled through a Three-way settlement agreement on December 31, 2020, see following “Three-Party Settlement Agreement” paragraph for detail. The balance at July 31, 2021 was mainly funding support from SH Qiaohong for operation. The funding support bears no interest and due on demand.

As of July 31, 2021 and 2020, amount of $619,051 and $594,965, respectively, is payable to Shanghai Qiao Garden Property Management Group (“Qiao Garden Group”), an entity managed by the same management team. The balance was assumed through HZLJ acquisition. This payable balance does not bear interest and is considered due on demand.

HFSH had payable balances to Shanghai Oversea Chinese Culture Media Ltd. (“SH Oversea”), an entity managed by the same management team, in the amounts of $2,926,782 and $1,012,650 as of July 31, 2021 and 2020, respectively. The payable is funding support from SH Oversea for operation, bears no interest and due on demand.

From September 2020 to July 2021, the Company borrowed several notes in a total amount of $145,000, in form of a short-term loan at 5% per annum from a related party, Hartford Hotel Investment Inc., an entity managed by the same management team. $3,856 of interest expense was recorded during the year ended July 31, 2021. The unpaid principal and interest will be due on demand.

As of July 31, 2021 and 2020, the Company has $657,572 and $592,106, respectively, short-term payable to Shanghai DuBian Assets Management Ltd. (“Dubian”), which is owned by the Company’s ex-CEO’s relative. The payable balance was assumed from the acquisition transaction. On April 30, 2019, both parties entered a long-term agreement to convert the payable to a long-term debt, with expiration date on April 30, 2021, bearing approximately 2.5 percent of annual interest. On April 30, 2021, both parties entered a second long-term agreement to extend another two years, with expiration date on April 30, 2023, bearing approximately 4 percent of annual interest. $ 18,072 and $14,445 of interest expense were recognized during the year ended July 31, 2021 and 2020, respectively. The unpaid principal and interest will be due on the maturity date. This loan payable is not exposed to market risk due to the stable and fixed interest rates in accordance with the loan agreements. As of July 31, 2021 and 2020, the estimated fair value of long term loan payable was approximately $ 655,940 and $591,521, respectively.

The remaining related party payable of $80,477 and $92,100 as of July 31, 2021 and 2020, respectively, represents the unpaid portion of operating advances made to the Company by affiliates which are managed by the same management team. These advances do not bear interest and are considered due on demand.

Three-Party Settlement Agreement