HQDA ELDERLY LIFE NETWORK CORP. - Quarter Report: 2020 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended March 31, 2020

or

For the transition period from ___________________to __________________

Commission File Number: 000-52417

HQDA ELDERLY LIFE NETWORK CORP.

(Exact name of registrant as specified in its charter)

8780 Valley Blvd., Suite J

Rosemead, California 91770

(Address of principal executive offices)

(626) 877-8187

(Registrant’s telephone number, including area code)

None

(Former name, former address, and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 [X] No [  ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).

Yes [X] No [  ]

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

If an emerging growth company, indicate by checkmark 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 Act). Yes [  ] No [X]

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

The number of shares of Common Stock, $0.001 par value, of the registrant outstanding at May 8, 2020, was 139,314,416.

HQDA ELDERLY LIFE NETWORK CORP.

(formerly HARTFORD RETIREMENT NETWORK CORP.)

FORM 10-Q

TABLE OF CONTENTS

PART 1. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

HQDA Elderly Life Network Corp.

(formerly Hartford Retirement Network Corp.)

Consolidated Balance Sheets

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

HQDA Elderly Life Network Corp.

(formerly Hartford Retirement Network Corp.)

Consolidated Statements of Comprehensive Income (loss)

(Unaudited)

(1) For discussion on the restatements, see consolidated financial statements Note 2

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

HQDA Elderly Life Network Corp.

(formerly Hartford Retirement Network Corp.)

Consolidated Statements of Cash Flows

(Unaudited)

(1) For discussion on the restatements, see consolidated financial statements Note 2

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

HQDA Elderly Life Network Corp.

(formerly Hartford Retirement Network Corp.)

Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)

(1) For discussion on the restatements, see consolidated financial statements Note 2

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

HQDA Elderly Life Network Corp. (formerly Hartford Retirement Network Corp.) (the “Company”) was incorporated under the laws of the State of Nevada on January 21, 2004. In November 2017, the Company acquired Shanghai Hongfu Health Management Ltd (“Shanghai Hongfu”), a company incorporated in the People’s Republic China (“PRC”). Following the acquisition, on April 23, 2018, the Company changed its name to HQDA Elderly Life Network Corp.

Through its wholly-owned subsidiary, Shanghai Hongfu, The Company purchased senior living facilities and launched a senior living residences business, which, hosts to mostly men and women over the age of 50. The Company intends to expand its business of owning, leasing and/or operating senior living residences that will provide seniors with a supportive, home life setting with care and services, including activities of daily living, life enrichment and health and wellness.

The Company’s consolidated financial statements as of March 31, 2020 and for nine months then ended have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Company reported a net loss of $508,053 and $1,622,100 for the nine months ended March 31, 2020 and 2019, respectively. As of March 31, 2020, it had a negative working capital deficiency of $3,555,969 while it had a negative working capital deficiency of $1,412,674 at June 30, 2019.

Management cannot provide assurance that the Company will ultimately achieve profitable operations or become cash flow positive, or raise additional debt and/or equity capital. Management believes that the Company’s capital resources will not be adequate to continue operating and maintaining its business strategy for the next 12 months. If the Company is unable to raise additional capital in the near future, management expects that the Company will need to curtail operations, seek additional capital on less favorable terms and/or pursue other remedial measures. These consolidated financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Principles of Consolidation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The Company’s consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Shanghai Hongfu. All inter-company balances have been eliminated upon consolidation. Our unaudited interim Consolidated Financial Statements include, in the opinion of management, all adjustments, consisting of normal and recurring items, necessary for the fair statement of the Condensed Consolidated Financial Statements. The operating results for the nine months ended March 30, 2020 are not necessarily indicative of the results expected for the full year ending June 30, 2020.

Foreign currency translation

The United States dollar (“USD”) is the Company’s reporting currency. Shanghai Hongfu is located in China. The net sales generated, and the related expenses directly incurred from the operations are denominated in local currency, Renminbi (“RMB”). The functional currency of the subsidiary is generally the same as the local currency.

Assets and liabilities measured in RMB are translated into USD at the prevailing exchange rates in effect as of the financial statement date and the related gains and losses, net of applicable deferred income taxes, are reflected in accumulated other comprehensive income (loss) in its consolidated balance sheets. Income and expense accounts are translated at the average exchange rate for the period. The Company has not, to the date of these consolidated financial statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.

Certain amounts in prior periods have been reclassified to conform with current period presentation.

Recently issued accounting pronouncements

In February 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02 (Topic 842) “Leases.” Topic 842 supersedes the lease recognition requirements in Accounting Standards Codification (“ASC”) Topic 840 “Leases.” Under Topic 842, lessees are required to recognize a right-of-use asset and a lease liability for substantially all leases. Leases will continue to be classified as either finance or operating. Topic 842 is effective for annual reporting periods and interim periods within those years beginning after December 15, 2018 with early adoptions permitted. The Company adopted the new standard July 1, 2019. As part of the adoption of ASU 2016-02, the Company made an accounting policy election that will not recognizing leases with an initial term of 12 months or less on the consolidated balance sheet. As of September 30, 2019, the Company only has one month-to-month office lease with monthly rent of $1,020. The adoption of this new accounting standard did not have an effect on the Company’s consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13 “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. 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 believes the adoption of ASU No. 2016-13 will not have a material impact on its financial position and results of operations.

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 believes the adoption of ASU No. 2016-13 will not have a material impact on its financial position and results of operations.

The Company restated certain balance sheet items as of June 30, 2018 on Form 10-K filed on October 25, 2019. The restatement resulted in balance sheet item adjustments as of March 31, 2019, further affecting a few income statement line items and statement of cash flows for three-month and nine-month periods ended March 31, 2019.

In additional, the Company also recorded assets A and B under the APA agreement in the amount of $34,718,601 as of March 31, 2019 under properties and equipment during the nine months period ended Mar 31, 2019. However, the payments made toward Asset A should have been classified as deposits and not properties and equipment. The Company determined that it would appropriate to correct those errors.

Restated Consolidated Statement (Adjusted Line Items) as follows:

Receivable and Payable

Receivable from related parties amounted $163,539 and $168,958 at March 31, 2020 and June 30, 2019, respectively. Payable to related parties amounted to $3,770,498 and $2,207,742 at March 31, 2020 and June 30, 2019, respectively. The related party amounts are mainly are results of normal operations dealing with companies that owned by the Company’s CEO.

Related party transactions

On July 2018, the Company entered a $172,600 (RMB1,185,000) service agreement with one party that is under the common control of the Company’s CEO to develop the Company’s website and a BBC shopping App. As of March 31, 2020, the project has not yet finished, the Company capitalized the development cost of the website and App in the amount of $146,710 based on the completion percentage method. The entire project is expecting to finish in the middle of 2020.

Other

During the six months ended March 31, 2020 and 2019, the Company paid management fees of $101,772 and $91,980, respectively, to the Company’s Chief Financial Officer.

On April 2, 2018, the Company entered into an Asset Purchase Agreement (the “APA”) whereby the Company will purchase land use rights, buildings, construction rights and other property rights located in Shanghai from a third party for a total purchase price of $36,991,173 (RMB 233,000,0000 at exchange rate of 0.1587), which was its approximate fair value as estimated by a third party appraisal firm. A summary of fair value of the asset as following:

As of March 31, 2020, the Company has paid total of $24,812,846 (RMB 176 million). On September 1, 2018, the Company obtained the full management and operation rights of the senior hotel property and other assets (Property A) located at Shanghai Pudong New Area pursuant to the Operation Rights Transferring Agreement entered on August 31, 2018 with the seller. Although the Company has the rights to operate the senior living services of Asset A purchased under this agreement, and is currently generating revenues, the Company has not received a deed because the seller is involved in several lawsuits that have resulted in rulings to restrict transferring it by Shanghai local district courts. Therefore, The Company has decided not to make any further payments until the asset is free of the restrictions. On November 29, 2019, the Company entered a Letter of Understanding regarding the APA with the seller: 1) the Company shall pay RMB4,000,000 immediately upon signing the agreement, and 2) shall arrange the payments of the remaining balance incorporated with the seller’s schedules of external debt settlements in order to lift the courts’ restrictions. The Company made another $140,982 (RMB1 million) payment on January 2020. As of March 31, 2020, $19,296,217 (RMB136.87 million)payments made for Asset A was recorded as deposit.

Further, the Company consummated the share purchase agreement to acquire the entity – Shanghai Qiaoyuan Information Technology Co., Ltd (“SH QYIT”) in November 2018 who holds the land use rights of Property B located on Shanghai Chongming. Asset B has been transferred to Properties and equipment, net in November 2018. The two acquisitions were accounted for assets acquisition. As of December 31, 2018, the Company had transferred Asset A to Properties and equipment, net and reminder payments in payable on the 10-Q filed on February 19, 2019. The Company corrected this error accordingly and the adjustments are reflected on the statement of operations (depreciation of the Asset B $72,008 for the nine months ended March 31, 2019) and cash flows for nine months ended March 31, 2019 in this report.

On April 16, 2019 the Company entered into a Business Project Investment Agreement (the “Acquisition Agreement”) with Palau Asia-Pacific International Aviation and Travel Agency consisting of Palau Asia Pacific Air Management Limited, Global Tourism Management Limited and Global (Guangzhou) Tourism Service Co., Ltd. (collectively the “Project Company”) pursuant to which it will acquire 51% of the issued and outstanding capital stock of Project Company for $8,000,000, representing 49% of the Project Company’s dividend distribution, voting rights and liquidation interest of assets. The Project Company will remain the main operator of the existing business. The $8,000,000 will be paid as follows: $3,000,000 on or before April 27, 2019; $2,000,000 on or before June 30, 2019 and $3,000,000 on or before September 30, 2019. As of March 31, 2020, the Company made a $3,000,000 payment. However, the acquisition was subject to continuing due diligence, negotiation and customary closing conditions, including completion of an audit. The process of due diligence and audit are still on going. Therefore, additional payments have been postponed until a satisfactory audit can be delivered and other due diligence has been completed. We cannot be assured that the transaction will be completed as intended as of March 31, 2020.

For the three months ended March 31, 2020 and 2019, the Company recorded $38,276 and $8,495, respectively, and $112,247 and $72,008 for the nine months ended March 31, 2020 and 2019.

As of March 31, 2020, the total issued and outstanding capital stocks was 139,314,416 common shares with a par value of $0.001 per common share. No additional stock issued for three months and nine months ended March 31, 2020.

The Company operates in one industry segment, being the senior housing and retirement services through Shanghai Hongfu in China. As of March 31, 2020, the subsidiary had an amount of $14,552,394 in total assets, excluding inter-company balances, and it generated revenue in the amounts of $38,432 and $376,283, and $80,090 and $302,554 for the three and nine months ended March 31, 2020 and 2019, respectively. There was no revenue generated from inter-company transactions.

The Company entered into the APA to acquire two properties in Shanghai totaling RMB 233,000,000. Payments of $24,812,846 (RMB 176,000,000) have been made through March 31, 2020. Due to the seller of the asset is involved in several lawsuits that have resulted in rulings to restrict transfer of certain assets under this purchase agreement by Shanghai local district courts, the Company has decided not to make any further payments until the asset is free of the restrictions. The Company has no knowledge of when the restrictions will be lifted by the courts.

On February 19, 2020, in response to a request by Shanghai Qiao Hong Real Estate, Ltd and its subsidiaries (the “Plaintiff”) in the lawsuit filed on January 16, 2020 against the Company for breach of contract (the “Lawsuit”) in a District Court in Shanghai, China (the “Court”), the Court dismissed the Lawsuit against the Company.

On May 1, 2020, the Plaintiff filed another lawsuit against the Company and Shanghai Hongfu for breach of contract and non-payment of an installment pursuant to an Asset Purchase Agreement entered into between the Company and the Plaintiff on April 2, 2018. The Plaintiff is alleging damages of RMB 76,654,000 (approximately $10,842,150). The lawsuit was filed in a District Court in Shanghai, China. The Company intends to vigorously defend this action. The lawsuit is in its preliminary stages and as of this reporting date there has been no discovery initiated.

ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The terms “HQDA”, “Company”, “we”, “our”, and “us” refer to HQDA Elderly Life Network Corp. (formerly Hartford Retirement Network Corp.) unless the context suggests otherwise.

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes “forward-looking statements” as defined by the Securities and Exchange Commission, or SEC. We make these forward-looking statements in reliance on the safe harbor protections provided under the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, included in this Form 10-Q that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements. These forward-looking statements are based on assumptions which we believe are reasonable based on current expectations and projections about future events and industry conditions and trends affecting our business. However, whether actual results and developments will conform to our expectations and predictions is subject to a number of risks and uncertainties that, among other things, could cause actual results to differ materially from those contained in the forward-looking statements, including without limitation the Risk Factors set forth in our Annual Report on Form 10-K for the year ended June 30, 2018 including the following:

General

HQDA Elderly Life Network Corp. (formerly Hartford Retirement Network Corp.) (“HQDA” or the “Company”) was incorporated in the State of Nevada on January 21, 2004. Our principal offices are located at Suite J, 8780 Valley Blvd., Rosemead, California 91770. Our telephone number is (626) 877-8187.

The Company has not had any bankruptcy, receivership or similar proceeding since incorporation.

Our business plan is owning, leasing and/or operating senior living residences that provide seniors with a supportive, home life setting with care and services, including activities of daily living, life enrichment and health and wellness in certain cities in China. We also plan to operate a network carrier, providing scheduled air transportation to passengers, travel destination services to leisure travelers.

The Senior Living Industry

Through our newly acquired and wholly-owned subsidiary, Shanghai Hongfu Health management Ltd., we purchased senior living facilities in April 2018, launched a senior living residences business, which, hosts to mostly men and women over the age of 50. We intend to expand the business of owning, leasing and/or operating senior living residences that will provide seniors with supportive, home life setting with care and services, including activities of daily living, life enrichment and health and wellness in China.

The senior living industry encompasses a broad spectrum of senior living service and care options, which include independent living, assisted living and skilled nursing care. Our primary focus will be on the independent living services. Independent living is designed to meet the needs of seniors who choose to live in an environment surrounded by their peers where they receive services such as housekeeping, meals and activities, but are not reliant on assistance with activities of daily living (for example, bathing, eating and dressing), although we may offer these services through contracts with third parties.

Our operating philosophy is to provide services and care which meet the individual needs of its residents, and to enhance their physical and mental well-being, thereby allowing them to live longer and to “age in place.” These facilities will offer, on a 24-hour basis, personal, supportive and home health care services appropriate for their residents in a home-like setting, which allow residents to maintain their independence and quality of life. We predict that the average of the residents at our facilities will be between 55 and 70.

Our primary focus will be in China, where we intend to grow and become a leader in senior living facilities. We also will seek to develop or acquire facilities and manage or cooperate with existing facilities as well. We believe that by concentrating or “clustering” our facilities in target areas with desirable demographics, can increase the efficiency of our management resources and achieve broad economies of scale.

The long-term care industry encompasses a wide continuum of services and residential arrangements for elderly senior citizens. Skilled nursing facilities provide the highest level of care and are designed for elderly senior citizens who need chronic nursing and medical attention and are not able to live on their own. Further, skilled nursing facilities tend to be one of the most expensive alternatives while providing elderly senior citizens with limited independence and a diminished quality of life. On the other end of the continuum is home-based care, which typically is provided in an individual’s private residence. While this alternative allows the elderly individual to “age in place” in his or her home and, in certain instances, can provide most of the services available at a skilled nursing facility, it does not foster any sense of community or the ability to participate in group activities.

Assisted living facilities generally are designed to fill the gap in the middle of this continuum. Assisted living facilities have been described by the Assisted Living Federation of America (“ALFA”) as providing a special combination of housing and personal, supportive and home health care services designed to respond to the individual needs of those who need, or desire help with their activities of daily living, including personal care and household management. Services in an assisted living facility are generally available 24 hours a day to meet the scheduled and unscheduled needs of residents, thereby promoting maximum dignity and independence.

The assisted living industry is highly fragmented in China. At present, the industry is characterized by participants who operate only a limited number of facilities and who frequently can offer only basic assistance with a limited number of activities of daily living. We intend to be characterized by the following: (i) the ability to offer premium accommodations and a comprehensive bundle of standard services for a single inclusive monthly fee; (ii) sophisticated, professional management structures and highly trained employees; (iii) a cost-efficient, user-specific prototype facility; and (iv) experience in providing home health care services.

Our facilities will provide services and care which are designed to meet the individual needs of its residents, enhance their physical and mental well-being and promote a supportive, independent and home-like setting. Most of our facilities will be primarily designed as premium facilities at which residents receive a comprehensive, bundled package of standard services for a single monthly fee. During the last December 2019, we launch the establishment of the Global Wellness Alliance (GWA), a network platform for international wellness management and services. The combination of online and offline ecosystem strengthens our customer stickiness by means of wellness resources, products, and wellness management information and services.

We will strive to combine in our facilities the best aspects of independent living with the protection and safety of assisted living, with trained staff members who provide 24-hour care and monitoring of every resident. The senior living facilities will be designed and decorated to have a home-like atmosphere. Residents will be encouraged to furnish their rooms with personal items they have collected during their lifetime. Our senior living facilities differ from skilled nursing facilities in that our senior living facilities will not provide the more extensive, and costly, nursing and medical care found in nursing homes.

Aviation and Travel

In less than two decades China has grown from travel minnows to the world’s more powerful outbound market. According to China Tourism Academy, Chinese travelers made a total of 140 million outbound trips in 2018, up 13.5 percent from the previous year’s 129 million. They have spent more than $120 billion, compared to $100 billion in 2017. China has become a main contributor to the global tourism industry. The China outbound Tourism Research Institute predicts that overseas trips by the Chinese residents will reach more than 400 million by 2030.

In April 2019, we entered into a Business Project Investment Agreement (the “Acquisition Agreement”) through our wholly owned subsidiary with Palau Asia-Pacific International Aviation and Travel Agency consisting of Palau Asia Pacific Air Management Limited, Global Tourism Management Limited and Global (Guangzhou) Tourism Service Co., Ltd. (collectively the “Project Company”) pursuant to which we will acquire 51% of the issued and outstanding capital stock of Project Company for $8,000,000, representing 49% of the Project Company’s dividend distribution, voting rights and liquidation interest of assets. The Project Company currently has 2 scheduled air lines from Macao to Palau, where there is a series of islands in West Pacific Rim and Macao to Cambodia. Palau is relatively unknown destination for Chinese travelers.

We control marketing, scheduling, ticketing, pricing and seat inventories. Our mission is to help Chinese leisure travelers experience Palau and to became a travel company that will provide one stop for all by providing passenger airlines, hotel reservations services and other excursion activity booking services on Palau. We have completed an initial payment of $3,000,000 of the total $8,000,000 purchase price with remaining payments of $2,000,000 and $3,000,00 due on June 30, 2019 and September 30, 2019, respectively. However, the acquisition was subject to continuing due diligence, negotiation and customary closing conditions, including completion of an audit. The process of due diligence and audit are still on going. Therefore, additional payments have been postponed until a satisfactory audit can be delivered and other due diligence has been completed. We cannot be assured that the transaction will be completed as intended.

Results of Operations

Three months ended March 31, 2020 compared to three months ended March 31, 2019

Operating loss drop by $319,213 for the last three months period ended March 31, 2020 as compared to the same period ended in 2019 mainly due to the decrease of G&A expense. Due to COVID-19 lockdown during last three months in China halted the operation of the senior house in Shanghai , as a result, fixed cost such as utilities and labor decreased sharply.

Excluding the non-cash expenses of depreciation and amortization, the operating loss would have been $210,049 and $559,044, for the last three months ended March 31, 2020 and 2019, respectively.

Nine months ended March 31, 2020 compared to nine months ended March 31, 2019

Operating loss decreased by $507,300 during the last nine months ended March 31, 2020 as compared to the same period ended in 2019. The increase was primarily due to an increase of $73,729 in revenue plus a decrease of general and administrative expenses by $575,868. The lower revenue realized during the nine months ended March 31, 2019 is mainly due to the Company spent some time to restructure the business of the senior hotel after obtained the full management and operation rights on September 1, 2018. The decline in professional fees and other operating cost are due to the fact that the Company just started business during last fiscal year and related initial cost existed

Excluding the non-cash expenses of depreciation and amortization, the operating loss would have been $395,053 and $1,084,889, for the nine months ended March 31, 2020 and 2019, respectively.

Liquidity and Capital Resources

On March 31, 2020, we had cash on hand of $27,482 and liabilities of $3,879,638. We will require additional funding in order to cover all anticipated administration costs and to proceed with the Asset Purchase Agreement executed on April 2, 2018 and to seek out additional travel agents for similar contracts. We also intend to provide management services to retirement homes, commercial properties and apartment buildings in China, which will result in higher administrative costs in the future.

Capital Expenditures

On April 2, 2018, we entered into an Asset Purchase Agreement (the “APA”) whereby we purchased land, buildings, and right to use, construction use rights and other property rights located in Shanghai from a third party. Properties are split into two groups:

We have agreed to pay the purchase price totaling RMB 233,000,000 in instalments. Payments of $24,812,846 (RMB 176,000,000) have been made through March 31, 2020 and the remainder of $8,035,979 (RMB57,000,000) will be paid till the completion of further negotiation. Although we have the rights to operate the senior living facilities purchased under this agreement, we have not yet received a deed for Property A because the seller is involved in several lawsuits that have already resulted in rulings to restrict transfer of this asset by Shanghai local district courts. Therefore, we are not going to make any further payments until this asset is free of the restrictions.

Employees

At present, we have 14 employees, other than our current officers and directors, who devote their time as required to our business operations.

Off-balance Sheet Arrangements

As of March 31, 2020, we have no off-balance sheet arrangements that would require disclosure.

Critical Accounting Policies

Our interim financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. Preparing financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions which affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the balance sheet dates, and the recognition of revenues and expenses for the reporting periods. These estimates and assumptions are affected by management’s application of accounting policies.

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We do not issue or invest in financial instruments or their derivatives for trading or speculative purposes. Our limited operations are conducted primarily in China, and California, USA, and, are not subject to material foreign currency exchange risk. Although we have immaterial outstanding debts and related interest expense, market risk of interest rate exposure in the United States is currently not material.

ITEM 4 – CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

Based on our management’s evaluation (with the participation of our President and Chief Financial Officer), our President and Chief Financial Officer have concluded that as of the end of the period covered by this report, our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange of 1934 (the “Exchange Act”)) are not effective to provide reasonable assurance that the information required to be disclosed in this quarterly report on Form 10-Q is recorded, processed, summarized and reported within the time period specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.

(b) Internal control over financial reporting

Management’s annual report on internal control over financial reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is intended to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. Our internal control over financial reporting should include those policies and procedures that: pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with applicable GAAP, and that receipts and expenditures are being made only in accordance with authorizations of management and the Board of Directors; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Changes in internal control over financial reporting

Based upon their evaluation of our controls, Ms. Ziyun Xu, our Chief Executive Officer, and Mr. Jimmy Zhou, our Chief Financial Officer, has concluded that, there were no significant changes in our internal control over financial reporting or in other factors during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Attestation report of the registered public accounting firm

This quarterly report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management’s report in this report.

There were no changes in our internal controls that occurred during the quarter covered by this report that have materially affected or are reasonably likely to materially affect our internal controls.

PART II – OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS

On May 1, 2020, a lawsuit was filed against the Company and Shanghai Hongfu Health Management Co. Ltd., one of HQDA’s subsidiaries, by Shanghai Qiao Hong Real Estate, Ltd and its subsidiaries (the “Plaintiff”) for breach of contract and non-payment of an installment pursuant to an Asset Purchase Agreement entered into between the Company and the Plaintiff on April 2, 2018. The Plaintiff is alleging damages of RMB 76,654,000 (approximately $10,842,150). The lawsuit was filed in a District Court in Shanghai, China. The Company intends to vigorously defend this action. The lawsuit is in its preliminary stages and as of this date there has been no discovery initiated.

ITEM 1A. RISK FACTORS

Not Applicable

ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3 – DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4 – SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

ITEM 5 – OTHER INFORMATION

None

ITEM 6 – EXHIBITS

The following exhibits are furnished as required by Item 601 of Regulation S-B.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.