HQDA ELDERLY LIFE NETWORK CORP. - Annual Report: 2021 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

Commission file number: 000-52417

HQDA ELDERLY LIFE NETWORK CORP.

(Name of small business issuer in its charter)

372 Ziwei Road, Pudongxin District, Shanghai, China

(Address of principal executive offices)

Securities registered under Section 12(b) of the Exchange Act:

Securities registered under Section 12(g) of the Exchange Act:

Check whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act: ☐

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 ☐

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will 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. ☐

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 definition of “accelerated filer,” “large accelerated filer,” “smaller reporting company” and “emerging growth 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 Act). ☐ Yes ☒ No

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second  fiscal quarter, as quoted by the OTCQB market on December 31, 2020: $59,710,374 

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date.

139,314,416 as at September 27, 2021

TABLE OF CONTENTS

FORWARD-LOOKING STATEMENTS

Statements made in this annual report on Form 10-K and the exhibits attached hereto that are not historical or current facts are “forward-looking statements” made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1993 (the “Act”) and section 21E of the Securities Exchange Act of 1934. These statements often can be identified by the use of terms such as “may”, “will”, “expect”, “believe”, “anticipate”, “estimate”, “approximate” or “continue”, or the negative thereof. We intend that such forward-looking statements by subject to the safe harbors for such statements. We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Any forward-looking statements represent management’s best judgments as to what may occur in the future; however, forward-looking statements are subject to risks, uncertainties and important factors beyond our control that could cause actual results and events to differ materially from historical results of operations and events and those presently anticipated or projected. We disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events. Such forward-looking statements are subject to certain risks and uncertainties, both known and unknown, and assumptions, including, without limitation, risks related to:

The preceding bullets outline some of the risks and uncertainties that may affect our forward-looking statements. For a full description of risks and uncertainties, see the sections elsewhere in this Form 10-K entitled “Risk Factors”, “Description of Business” and “Management Discussion and Analysis”. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, believed, estimated or expected.

Our Management has included projections and estimates in this annual report, which are based primarily on management’s experience in the industry, assessments of our results of operations, discussions and negotiations with third parties and a review of information filed by our competitors with the Securities and Exchange Commission or otherwise publicly available. We caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. We disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

PART I

ITEM 1 – DESCRIPTION OF BUSINESS

HQDA Elderly Life Network Corp. (“HQDA” or the “Company”) was incorporated in the State of Nevada on January 21, 2004. Our principal offices are located at 372 Ziwei Road, Pudongxin District, Shanghai, China. Our US telephone number is (626) 877-8187.

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

Please note that throughout this Annual Report, and unless otherwise noted, the words “we”, “our”, “us”, the “Company” or “HQDA”, refer to HQDA Elderly Life Network Corp.

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.

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.

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.

ITEM 1A. RISK FACTORS

Not required because we are a smaller reporting company.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable because we are a smaller reporting company.

Employees

At present, we have 18 employees, other than our current officers and directors, who devote their time as required to our business operations.

Competition

Senior assisted living business industry is relatively new and a developing market in China. However, there are already a number of companies that have entered the market with substantially more capital and resources that are capable of securing a greater number of customers. We will compete with numerous other companies providing similar long-term care alternatives such as home health agencies, life care at home, community-based service programs, retirement communities and convalescent facilities. Nursing facilities that provide long-term care services are also a potential source of competition for us. Providers of assisted living communities compete for residents primarily on the basis of quality of care, price, reputation, physical appearance of the facilities, services offered, family preferences, physical referrals, and locations. Almost all of our competitors will be significantly larger than us and have, or may obtain, greater financial resources than those currently available to us.

Patents and Trademarks

We do not own, either legally or beneficially, any patents or trademarks.

ITEM 2 – DESCRIPTION OF PROPERTY

Corporate Headquarters, California, USA

Our corporate headquarters are located at 8780 Valley Blvd., Suite J, Rosemead, California 91770. Our current premises are adequate for our existing operations.

Real Estate Investments

On April 2, 2018, we entered into an Asset Purchase Agreement whereby we will purchase land, buildings, right to use, construction use rights and other property rights located in Shanghai for a purchase price of RMB 233,000,000. As of June30, 2020, we made total payments of RMB 176,000,000 with the remaining amount of RMB 57,000,000... Although we have the rights to operate the senior living facilities purchased under this agreement, we have not yet received a deed on some of the assets because the seller involved in several lawsuits that have already resulted in a decision to restrict transfer of purchased assets by a Shanghai local court. Therefore, we are not going to make any further payments until the assets are free of the restrictions. On January 16, 2020, Shanghai Qiao Hong Real Estate, Ltd and its subsidiaries (the “Plaintiff”) sued the Company and Shanghai Hongfu, one of HQDA’s subsidiaries, 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 76,638,000 (approximately $10,833,604).

On May 27, 2021, Shanghai No. 2 Intermediate Court entered a verdict of the second trial raised in the January 16, 2020 lawsuit which supported the first verdict in December, 2020 and was filed against the Company and Shanghai Hongfu, 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 Court ordered HQDA to pay to the plaintiff a total of RMB 68,400,000. Although the verdict was unexpected, the Company was prepared for such event. It is a substantial amount, but it will not impact on the Company moving forward with its Global Wellness Alliance business which is the Company’s main goal platform to be established in the near future. Since the Company now partially owns the assets purchased from the Plaintiff, it is looking into ways to utilize the assets in a meaningful and profitable enterprise.

ITEM 3 – LEGAL PROCEEDINGS

HQDA is not a party to any pending legal proceeding. Management is not aware of any threatened litigation, claims or assessments.

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

No matters were submitted during the fourth quarter of our fiscal year to a vote of security holders, through the solicitation of proxies or otherwise.

PART II

ITEM 5 – MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

The Company’s common stock, par value, $0.001 per share (“Common Stock”) began trading on the Over the Counter NASDAQ Electronic Bulletin Board (“OTC:BB”) under the symbol “DYGO” beginning in September 2014. The symbol was changed to “HFRN” in August 2017, when the company changed its name to Hartford Retirement Network Corp. and subsequently changed again to its current symbol of “HQDA” when it changed its name to HQDA Elderly Life Network Corp. Since that time there has been only limited trading. The following table sets forth, for the period indicated, the range of high and low closing “Bid” prices reported by the OTC. Such quotations represent prices between dealers and may not include markups, markdowns, or commissions and may not necessarily represent actual transactions.

Stock Quotations

On June 26, 2017, the Company increased the authorized shares of common stock of the Company from 75,000,000 shares to 200,000,000 shares and authorized the issuance of up to 10,000,000 shares of preferred stock, with such rights, preferences and limitations as may be set from time to time by resolution of the Board of Directors.

Holders of Common Stock

As of September 30, 2021, we had 145 stockholders of record holding 139,314,416 shares of common stock.

Dividend Policy

There are no restrictions in our articles of incorporation or bylaws that prevent us from declaring dividends. The Nevada Revised Statutes, however, do prohibit us from declaring dividends where, after giving effect to the distribution of the dividend:

We have not declared any dividends, and we do not plan to declare any dividends in the foreseeable future.

Equity Compensation Plan

We do not have any securities authorized for issuance under any equity compensation plans.

Recent Sales of Unregistered Securities

No shares were sold to US and non-US residents nor were shares offered for sale in the U.S.A during the year ended June 30, 2021.

The Shares were sold by the officers and directors of the Company and no commissions were paid for such sales. All the investors are residents of China and all offers, and sales were conducted in China. The Shares were sold in a private placement pursuant to an exemption under the Securities Act of 1933, as amended (the “Act), in accordance with Regulation S of the Act. All stock certificates will be affixed with the appropriate Regulation S legend restricting sales and transfers.

ITEM 6 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION OR PLAN OF OPERATION

You should read the following discussion and analysis in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this annual report on Form 10-K. In preparing the management’s discussion and analysis, the registrant presumes that you have read or have access to the discussion and analysis for the preceding fiscal year.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, any projections of earning, revenue or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions of performance; and statements of belief; and any statements of assumptions underlying any of the foregoing. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of ours to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: our ability to raise capital; and other factors referenced in the Form 10-K.

The use in this Form 10-K of such words as “believes”, “plans”, “anticipates”, “expects”, “intends”, and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements. These forward-looking statements present our estimates and assumptions only as of the date of this report. Except for our ongoing obligation to disclose material information as required by the federal securities laws, we do not intend, and undertake no obligation, to update any forward-looking statements.

Although we believe that the expectations reflected in any of the forward-looking statements are reasonable, actual results could differ materially from those projected or assumed or any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties.

Plan of Operations

Acquisition-Senior Living Facilities

On April 2, 2018, we entered into an Asset Purchase Agreement (the “APA”) whereby the we will purchase land use rights, buildings, construction rights and other property rights located in Shanghai, China for a total purchase price of $36,991,173 (RMB 233,000,000 at exchange rate of 0.1587), for the purpose of operating senior living residences in Shanghai that will provide seniors with supportive, home life setting with care and services, including activities of daily living, life enrichment and health and wellness.

Acquisition-Aviation and Travel Agency

In April 2019, we 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 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. After payment of $3,000,000 in 2019, we decided to rescind agreement with above Project Company on September 8^th 2020. According to the rescission agreement, we shall return the 51% stock ownership back to the Project Company and the Project Company shall deliver to us $285,514 and $733,200HK, thus both parties shall release each other from further liability. We have received $285,514 and $733,200 HK Dollar by the end of June 30, 2020.

Travel-and-living Business line 

In March 2020, the Company established Sichuan HQDA Elderly Services Co., Ltd (“SHES”), the entity is intended to cooperate with the local hotels in Sichuan for providing travel-and-living services for seniors. The establishment of SHES is the first step of the Company’s worldwide travel-and-living platform, Global Wellness Alliance (“GWA”), in which the seniors can choose the cities they would like to travel, and have their proper short-term living options in all kinds of well-being places. In addition, the Company is also intended to cooperate with the local hotels in Hainan Province, which is the second member city of the GWA platform.

Business Apartment Service

In February 2021, the Company subtracted with Shanghai Jinhong Business Hotel Co., Ltd. (SHJH) for leasing the partial of the senior living residences and the related street and building property. SHJH subleases the rooms to the single independent residents, which are not limited to senior residents, and operate as the business apartment. The purpose of operating business apartment service is for creating the various home life styles and most importantly, helping the Company generate the stable and positive cash flow for the development of its main business – senior living industry.

Going Concern

The consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. We generated a net loss of $1,262,355 for the year ended June 30, 2021 and $4,756,825 for the year ended June 30, 2020. As of June 30, 2021, we have a working capital deficiency of $6,345,430.

These conditions raise substantial doubt regarding our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to raise additional capital.

In the notes to our audited consolidated financial statements as of June 30, 2021, included elsewhere in this Form10-K, our auditors included an explanatory paragraph stating that, because our incurred accumulated losses of $9,351,983 for the period from January 21, 2004 (inception) to June 30, 2021, there was substantial doubt about our ability to continue as a going concern.

There is limited historical financial information about the Company upon which to base of an evaluation of our performance. We shifted its focus to senior housing and retirement services and products. We cannot guarantee we will be successful in our business operations. Our business is subject to risks inherent in the establishment of a new resource exploration company, including limited capital resources, unanticipated problems relating to exploration and additional costs and expenses that may exceed current estimates. To become profitable, we will attempt to implement a plan of operation as detailed above.

Our cash reserves are not sufficient to meet our obligations for the next twelve-month period. As a result, we will need to seek additional capital in the near future. We anticipate that additional capital will be raised in the form of equity financing from the sale of our common stock. As well, our management is prepared to provide us with short-term loans.

We cannot provide investors with any assurance that we will be able to raise sufficient capital from the sale of our common stock or through a loan from our directors to meet our obligations over the next twelve months. We do not have any arrangements in place for any future equity financing. If we are unable to arrange additional financing, our business plan will fail and operations will cease.

Results of Operations

During the first half of 2020, we experienced a suspension due to COVID-19 outbreak in China, while the impact has been relieved since the second half of 2020. We adjust our main operation model which brings the revenue increased.

Operating loss decreased $3,514,508 for the year ended June 30, 2021 as compared to the year ended in June 30, 2020. The increase was mainly due to decrease of $2,719,643 in impairment loss, $264,682 in Litigation reserve and $95,806 decrease in amortization fee of consulting fee incurred in prior year.

The decrease in impairment loss was mainly due to the rescission of the Acquisition Agreement with Palau Asia-Pacific International Aviation and Travel Agency which was signed on April 16, 2019. The macro economic situation drove strategic change during the year. The recoverable amount of total first payment amounted to $3,000,000 was $285,514 together with $733,200HK, which was received by the end of June 30, 2020.The rest of impairment amounted to $99,762 was due to the termination of software development.

Litigation reserve is mainly generated from interest expense and default fee related to the lawsuits with Shanghai Hongfu, by Shanghai Qiao Hong Real Estate, Ltd (i.e. the Seller) and its subsidiaries (the “Plaintiff”) for breach of contract and non-payment of installments pursuant to the APA entered into between the Company and the Plaintiff on April 2, 2018.

Excluding the non-cash expenses of depreciation and amortization, impairment loss and litigation reserve, the operating loss would have been $289,797 for the year ended June 30, 2021 as compared to $671,428 for the year ended June 30, 2020.

Balance Sheet Data

Historical results of operations may differ materially from future results.

This discussion and analysis should be read in conjunction with the accompanying consolidated financial statements and related notes. The discussion and analysis of the financial condition and results of operations are based upon the consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of any contingent liabilities at the financial statement date and reported amounts of revenue and expenses during the reporting period. On an on-going basis the Company reviews its estimates and assumptions. The estimates were based on historical experience and other assumptions that the Company believes to be reasonable under the circumstances.

Actual results are likely to differ from those estimates under different assumptions or conditions, but the Company does not believe such differences will materially affect our financial position or results of operations. Critical accounting policies, the policies the Company believes are most important to the presentation of its financial statements and require the most difficult, subjective and complex judgments are outlined in Notes to financial statements 2 — Summary of Significant Accounting Policies.

Liquidity and Capital Resources

At June 30, 2021, we had cash of $28,080 and liabilities of $6,574,432. 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 installments. Payments of $27,425,644 (RMB 176,150,000) have been made by the end of June 30, 2021.

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 a decision to restrict transfer of this asset by a Shanghai court. Therefore, remain of $8,851,251 (RMB 56,850,000) is not going to pay until this asset is free of the restrictions. The lawsuit in related to the unpaid installment of APA was verdict by Shanghai No. 2 Intermediate Court at Shanghai City, China on May 2021, the ownership of Shanghai Qiaoyuan Information Technology Co., Ltd (“SH QYIT”), who holds the land use rights of Property B was frozen per court auction. See Note 11 for more details about the result of lawsuit.

Off-balance Sheet Arrangements

The Company has no off-balance sheet arrangements that would require disclosure.

Critical Accounting Policies

Our consolidated 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. See “2 – Significant Accounting Policies” to our consolidated financial Statements.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company, as a smaller reporting company (as defined by Rule 12b-2 of the Exchange Act), is not required to furnish information required by this item.

ITEM 7 – CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Registered Public Accounting Firm

To the Board of Directors and shareholders of HQDA Elderly Life Network Corp.

Opinions on the Financial Statements

We have audited the accompanying consolidated balance sheets of HQDA Elderly Life Network Corp. and subsidiaries (the “Company”) as of June 30, 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 June 30, 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 June 30, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended June 30, 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 1 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.

Simon & Edward, LLP /s/

Diamond bar, California

September 28, 2021

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

HQDA Elderly Life Network Corp.

Consolidated Balance Sheets

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

HQDA Elderly Life Network Corp.

Consolidated Statements of Operation and Other Comprehensive Income (loss)

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

HQDA Elderly Life Network Corp.

Consolidated Statements of Cash Flows

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

HQDA Elderly Life Network Corp.

Consolidated Statements of Changes in Stockholders’ Equity

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

HQDA Elderly Life Network Corp.

Notes to Consolidated Financial Statements

HQDA Elderly Life Network Corp. (the “Company”) was incorporated under the laws of the State of Nevada on January 21, 2004. In September 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 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. Shanghai Hongfu set up a wholly owned subsidiary - Sichuan HQDA Elderly Services Co., Ltd (“SHES”) on March 25, 2021 to extend its business at Southwest area of China.

The Company’s consolidated financial statements as of June 30, 2021 and for the year 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 $1,262,355 and $4,756,825 for the years ended June 30, 2021 and 2020, respectively. As of June 30, 2020, it had a negative working capital deficiency of $6,345,430 while it had a working capital of $14,471,669 at June 30, 2020.

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.

Basis of presentation

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. The Company’s fiscal year end is June 30.

Certain prior year figures have been adjusted to conform to the current year’s presentation.

Foreign currency translation

The United States dollar (“USD”) is the Company’s reporting currency. The Company’s wholly owned operating subsidiary, 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.

Cash and cash equivalents

Cash and cash equivalents include bank deposits and liquid investments with original maturities of three months or less.

Concentration risk

The Company maintains cash with banks in the USA and PRC. 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 $250,000 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 June 30, 2021 and 2020, none 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.

Major customers

For the years ended June 30, 2021 and 2020, the Company’s revenues from four and two major customers accounted more than 10% of the total revenue were as following:

There was no vendor concentration during the years ended June 30, 2021 and 2020.

Revenue recognition

On July 1, 2018 the Company adopted Accounting Standards Update (“ASU”) 2014-09, Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (ASC 606), which is a comprehensive new revenue recognition model that requires revenue to be recognized in a manner to depict the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. The Company adopted ASC 606 using the modified retrospective method. The Company evaluated its revenue streams to identify whether it would be subject to the provisions of ASC 606 and any differences in timing, measurement or presentation of revenue recognition. The Company’s main source of revenue is generated from operating senior living residences and business apartment service. For the senior living industry, the Company recognizes resident fees and services, other than move-in fees, monthly as services are provided.

On November 2020 and amended on February 2021, the Company contracted with Shanghai Jinhong Business Hotel Co., Ltd. (SHJH) for leasing 60 rooms as a whole for five years and auto renew for another five years if no party in default pursuant to the contract terms. SHJH subleases the rooms to the single independent resident and operates as business apartments. On April 2021, the Company entered another contract with SHJH to lease the auxiliary building including retail spaces along the street for ten years for the average yearly rent of $191,441 (RMB 1,268,543). The Company recognize the rental income based on the lease terms using straight-line method under ASC 842.

Unearned revenue

Unearned revenue is recorded when payments are received in advance of performing our services obligations and is recognized over the service period. Unearned revenue is primarily related to prepayments of monthly facility and service fees.

Property and equipment

Property and equipment are initially recorded at their historical cost. Repairs and maintenance are expensed as incurred. Depreciation is computed using the straight-line method over the following estimated useful lives of the depreciable assets:

All land in the PRC is owned by the PRC government and cannot be sold to any individual or company. The Company has recorded the amounts paid to the PRC government to acquire long-term interests of land use rights. This type of arrangement is common for the use of land in the PRC. The Company amortizes land use rights based on the term of the respective land use rights or expected useful lives, which generally ranges from 15 to 50 years. The land use rights of Collective Lands has unlimited useful lifetime.

The Company reviews the carrying value of long-lived assets that are held and used in the Company’s operating subsidiary for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Income taxes

Deferred income taxes and tax benefits are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases, and for tax losses and credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company provides for deferred taxes for the estimated future tax effects attributable to temporary differences and carry-forwards when realization is more likely than not.

The Tax cut and Jobs Act (the Tax Act), which was enacted in December 2017, decreased the corporate income tax rate from 35.0% to 21.0% beginning on January 1, 2018. The impact of the Tax Act was minimal to the Company’s consolidated financial statements.

The Company’s subsidiary, Shanghai Hongfu was incorporated in the PRC, are subject to PRC’s Enterprise Income Tax. Pursuant to the PRC Income Tax Laws, Enterprise Income Taxes (“EIT”) is generally imposed at 25%.

Use of estimates and assumptions

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenditures during the reporting period. Actual results could differ from these estimates.

Fair Value of Financial Instruments

The Company’s financial instruments consist principally of cash, accounts and other receivables, accounts payable and accrued liabilities and unearned revenues. The Company believes all of the financial instruments’ recorded values approximate fair values because of their nature or respective short durations.

Lease

Upon and thereafter the adoption of ASC 842 on July 1, 2019, the Company determines if an arrangement is or contains a lease at inception. Operating leases with lease terms of more than 12 months are included in operating lease assets, accrued and other current liabilities, and long-term operating lease liabilities on its consolidated balance sheet. Operating lease assets represent its right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments over the lease term. Operating lease assets and liabilities are recognized based on the present value of the remaining lease payments discounted using its incremental borrowing rate. Lease expense is recognized on a straight-line basis over the lease term.

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. The Company adopted ASU No. 2017-04 on July 1, 2020 and the adoption did not have an impact on the Company’s interim financial position and results of operations.

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.

Receivable and Payable

Receivable from related parties amounted $43,809 and $194,812 at June 30, 2021 and 2020, respectively. Payable to related parties amounted to $3,869,479 and $3,537,325 as of June 30, 2021 and 2020, respectively. The related party amounts represented operation advances or borrowings from companies that owned or controlled by the Company’s CEO to support the company’s normal operations. The payable balances bear no interest and due on demand.

Related party transactions

On September 1, 2019, the Company entered a three-year cooperation agreement with Zhonghuiai Wufu (Shanghai) Hotel Management Co., Ltd., (“ZHAWF Shanghai”), a related party, with respect to the daily operation and management of the senior hotel purchased on April 2018. According to the agreement, the Company shall pay RMB 1 million per year to ZHAWF Shanghai for the service provided. The Company amended the execution date of the cooperation agreement from September 1, 2018 to January 1, 2019 with three-year term. During the year ended June 30, 2021 and 2020, the Company recorded hotel management fee of $150,993 (RMB 1 million) and $213,329 (RMB 1.5 million), respectively. As of June 30, 2021 and 2020, the payable due to ZHAWF Shanghai of $144,638 and $102,268, respectively.

Other

During the years ended June 30, 2021 and 2020, the Company incurred management fees of $127,240 and $143,972, respectively, to the Company’s Chief Financial Officer (“CFO”). As of June 30, 2021, payable due to CFO was $35,644.

On April 2, 2018, the Company entered into an Asset Purchase Agreement (the “APA”) whereby the Company will purchase Assets A&B, including land use rights, buildings, construction rights and other property rights located in Shanghai from a third party (the “Seller”) 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:

(1) The exchange rate of 0.1587 was used to translate the RMB amounts at purchase date

As of June 30, 2021, the Company has paid a total of $27,425,644 (RMB 176.1 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 restrictions on assets transferring sentenced Shanghai local district courts. The Company has decided not to make any further payments until the asset is legally free of the restrictions. The Seller filed a legal case against Shanghai Hongfu for the payment default pursuant to the APA on July 13, 2020. See Note 11 for more details about the lawsuit and the final court ruling. During the year ended June 30, 2021, the Company paid $22,649 toward the agreement and the remaining unpaid balance was $8,851,251 (RMB56,580,000) as of June 30, 2021.

Further, the Company consummated the share purchase agreement to acquire the entity – Shanghai Qiaoyuan Information Technology Co., Ltd (“SH QYIT”) on 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 during the year ended June 30, 2021. The two acquisitions were accounted for assets acquisitions.

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 (“Palau Asia-Pacific”) 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 .The Company paid $3,000,000 deposit on April 2019 toward the Acquisition Agreement entered and decided to rescind the investment given the ongoing COVID-19 pandemic. The Company entered a rescission agreement (the “Rescission Agreement”) with Palau Asia-Pacific on September 8, 2020. According to the Rescission Agreement, the Company shall return the 51% stock ownership back to Palau Asia-Pacific, who shall deliver to us $285,514 and $733,200 Hong Kong Dollar back ($94,605) as investment return, thus both parties shall release each other from further liabilities under the Acquisition Agreement. As of June 30, 2020, the Company recorded $2,619,881 impairment loss on the $3,000,000 deposit paid pursuant to the Rescission Agreement. $380,119 total residual amount was received by the end of June 30, 2020.

During the years ended June 30, 2021 and 2020, the depreciation expenses amounted to $161,900 and $148,514, respectively. Capitalized software was determined to be impaired of $nil and 99,763 as of June 30, 2021 and 2020 due to the unfavorable business prospective and uncompleted APP development.

As of June 30, 2021 and 2020, the total issued and outstanding capital stocks was 139,314,416 with a par value of $0.001 per common share.

For the years ended June 30, 2021 and 2020, the Company recorded zero income tax provision due to the Company’s loss position except annual state corporation taxes.

United States Tax

HQDA is a Nevada corporation that is subject to U.S. corporate income tax on its taxable income at a rate of up to 21% for taxable years beginning after December 31, 2017. No provision for income taxes in the United States has been made as HQDA had no taxable income for the years ended June 30, 2021 and 2020.

PRC Tax

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.

A reconciliation of the provision for income taxes determined at the statutory income tax rate to the Company’s income taxes is as follows:

The tax effect of temporary differences that give arise to significant portion of the deferred tax assets are presented below:

As of June 30, 2021, the Company had an unused net operating loss carry-forward balance of approximately $3,696,710 that is available to offset future taxable income. This unused net operating loss carry-forward balance expires in various years between 2024 and 2040. Management believes it is more likely than not that the Company will not realize those potential tax benefits as the operations will not generate any operating profits in the foreseeable future. As a result, a valuation allowance was provided against the full amount of the potential tax benefits.

The Company operates in one industry segment, being the senior housing and retirement services through its Shanghai Hongfu in China. As of June 30, 2021, the subsidiary had an amount of $15,743,371 and $14,461,546 in total assets, excluding inter-company balances, and it generated $838,578 and $489,831 in revenue, respectively. There was $125,000 revenue generated from inter-company transactions, which was eliminated in the consolidation level during the year ended June 30, 2021.

Lawsuit related to the assets purchase agreements

The Company entered into the APA to acquire two properties in Shanghai totaling RMB 233,000,000. Payments of $27,425,644 (RMB 176,150,000) have been made through June 30, 2021. Due to the Seller of the assets is involved in several lawsuits that have restrictions of assets transferring assets under this purchase agreement sentenced by Shanghai local district courts, the Company has decided not to make remaining payments until the asset is free of the restrictions on June 2019.

On May 1, 2020, a lawsuit was filed at a district court in Shanghai, China, against the Company and Shanghai Hongfu, by Shanghai Qiao Hong Real Estate, Ltd (i.e. the Seller) and its subsidiaries (the “Plaintiff”) for breach of contract and non-payment of installments pursuant to the APA 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), including remaining RMB58 million installments, interest for delayed payment, default penalty, and etc. The District Court ruled the first verdict (the “First Verdict”) on November 18, 2020 in favor of the Plaintiff’s claim - the Company should pay RMB11,140,000 penalty along with the lawsuit fee RMB374,415 and the remaining RMB57,000,000 installments to consummate the APA. On May 27, 2021, Shanghai No. 2 Intermediate Court entered a verdict of the second trial raised in the January 16, 2020 which supported the first verdict in November 18, 2020. The Court ordered the Company to pay to the plaintiff a total of RMB 68,400,000.

For years ended June 30, 2021 and 2020, the Company reserved $952,558 and $1,217,240 for the interest expense related to the unpaid balance and penalty. As of June 30, 2021 and 2020, the Company total reserved the $2,314,786 and $1,209,892, respectively, in connection to the lawsuit pursuant to the First Verdict. Four bank accounts owned by Shanghai Hongfu were froze with the cash balance of $638 as of June 30, 2021.

Subsequently, the Company received a 2^nd court executive order from the District Court who froze the 100% ownership of SH QYIT due to non-performance on the court executive order issued pursuant to the First Verdict. SH QYIT owns the land use right in the net amount of $6,092,340 as of June 30, 2021.

Lianyuangang Acquisition

On October 26, 2020, the Company acquired 10% of the issued and outstanding shares (the “Shares”) of Lianyungang Yiheyuan Elderly Services Co., Ltd., a corporation registered in Jiangsu Province, PRC (“LYES”) pursuant to a Securities Purchase Agreement (the “Agreement”). In accordance with the Agreement, HQDA is purchasing the Shares in exchange for 234,845 shares of HQDA’s common stock valued at $1.00 per share, equivalent to 10% of the initial RMB16, 000,000 (approximately USD$2,348,450) registered capital of LYES. LYES operates a unique elderly services business in its local hot spring resort.

As of June 30, 2021, due to the Covid-19 epidemic in China and other reasons from LYES, both parties agreed to stop moving forward the acquisition transaction with no harm to any party of this cooperation. The 234,845 shares certificates of HQDA’s common stock not yet issued are in the process of cancellation.

Settlement of a Violation of Exchange Act

On March 11, 2021, the Company settled a violation of Exchange Act Rule 12b-25 with Securities and Exchange Commission (SEC) for a fine of $50,000. In accordance with the settlement, the Company is obligated to pay the $50,000 fine as follows: $10,000 within 14 days of the entry of the Order, $15,000 within 180 days of the entry of the order, $12,500 within 270 days of the entry of the Order and $12,500 days of the entry of the Order. As of June 30, 2021, $40,000 payable was outstanding toward the settlement.

Sichuan HQDA Elderly Services Co., Ltd (“SHES”), the newly established subsidiary of Shanghai Hongfu, entered two operating leases with third parties at Chengdu, China on March 2021. The two operating leases have a twenty-two months office space lease and a 1-year apartment lease for employee residence. The Company also has an office lease located at Rosemead, California with monthly rent of $1,020 at month-to-month basis.

According to ASC 842, the Company records the office lease on the balance sheet as Right-of-use assets and Operating lease liabilities and choose the simplified method record the apartment lease. The incremental borrowing rate is 5.75% and the remaining lease term is 1.6 years. Rental expenses for the years ended June 2021 and 2020 were $26,836 and $12,660, respectively. Total cash flows paid toward operation lease was $35,448 and $12,660 for the years ended June 30, 2021 and 2020, respectively. As of June 30, 2021, the Company had Right-of-use assets and operating lease liabilities in the amounts of $73,368 and $64,488, respectively.

As of June 30, 2021, future minimum annual lease payment under operating lease was as follows:

In accordance with ASC 855, “Subsequent Events”, the Company has evaluated subsequent events through the date of issuance of these audited financial statements and has noted no subsequent events to be disclosed except the one under Note 9.

ITEM 8 – CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

We did not have any disagreements on accounting and financial disclosures with our present accounting firm during the reporting period.

ITEM 8A – CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

Based on the management’s evaluation (with the participation our President and Chief Financial Officer), our President and Chief Financial Officer have concluded that as of June 30, 2018, the Company’s 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 effective to provide reasonable assurance that the information required to be disclosed in this annual report on Form 10-K 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 the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.

(b) Internal Controls 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 consolidated financial statements.

Under the supervision and with the participation of our management, including Ms. Ziyun Xu, our Chief Executive Officer, and Mr. Jimmy Zhou, our Chief Financial Officer, we have evaluated the effectiveness of our internal control over financial reporting and preparation of our quarterly consolidated financial statements as of June 30, 2021 and believe they are not effective.

Management assessed the effectiveness of our company’s internal control over financial reporting as of evaluation date and identified the following material weaknesses:

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 annual 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 annual report.

Changes in internal controls

Based on the evaluation as of June 30, 2021, Ms. Ziyun Xu, our Chief Executive Officer, and Mr. Jimmy Zhou, our Chief Financial Officer have concluded that there were no significant changes in our internal controls over financial reporting or in any other areas that could significantly affect our internal controls subsequent to the date of their most recent evaluation, including corrective actions with regard to significant deficiencies and material weaknesses.

ITEM 8A(T) – CONTROLS AND PROCEDURES

See Item 8A – Controls and Procedures above.

ITEM 8B – OTHER INFORMATION

None.

PART III

ITEM 9 – DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

Our executive officers and directors and their respective ages as of the date of this annual report are as follows:

Directors and Executive Officers

The following describes the business experience of our directors and executive officers, including other directorships held in reporting companies:

Ziyun Xu, President and Chief Executive Officer and Director

Ms. Ziyun Xu is the president of HQDA International Investment Holdings Ltd., Shanghai Zhonghuiai Wufu Investment Group, Guangdong Wugufushuo E-commerce Ltd., Sichuan Mianyang Wufu Ecological Tourism Co., Ltd, ZHA Wu Fu (Shanghai) Hotel Management Co. Ltd., China Elderly & Ecological Development Foundation Fund. Ms. Xu graduated from Hongkong International Business College in 1993 and worked in foreign enterprises in charge of marketing and planning in China thereafter. In 2003, she worked as the planning manager and journalist in “Golden Era” magazine of Guangdong Provincial Committee of the Youth League in Chinese government. In 2007, she started her own entrepreneurship. In 2009, she began to research the Chinese market on the industry of the senior services. In 2012, she established the senior retirement services and organized her own team to implement her innovational concept of the retirement model of the “Zero Pay”. This business model has been proved by her success in the Chinese senior retirement industry.

Peigeng Xu, Director

Mr. Peigeng Xu is a manager of HQDA International Investment Holdings Ltd. and the general manager of Sichuan Mianyang Wufu Ecological Tourism Co., Ltd. He graduated from Guangzhou Academy of Fine Arts in 2001 and joined in HQDA in 2013. He has served as a successful manager in the operation of the company and made Xunlongshan Scenic Area into a national AAAA-grade tourist attraction in 2015, along with maintaining an excellent reputation in the Chinese tourism industry.

Jimmy Zhou, Chief Financial Officer and Director

Mr. Zhou, prior to his appointment as CFO and Secretary of the Corporation, he was employed as CEO/CFO from July 2015 until October 2016 by Kiwa Bio-Tech Products Group located in Claremont, Ca (“KWBT”). KWBT is a public company involved in the development, manufacture, distribution and marketing of innovative, cost-effective and environmentally safe bio-technological products for agriculture. Prior to that Mr. Zhou was employed by AXA Advisors LLC (“AXA”) in California as a financial advisor from 2000 to 2007. He became a Certified Estate Planner (CEP) and a Registered Financial Consultant (RFC) in 2005. From 2007 to 2008, Mr. Zhou was involved in investment banking projects between China and the United States. Since 2008, Mr. Zhou has worked as an independent business consultant and an offshore financial advisor to clients in China for over 5 years. Mr. Zhou graduated from Shanghai International Studies University in China in 1990.

Haixiang Shen, Independent Director

Mr. Haixiang Shen is a partner of Shanghai Office of Zhongyin Law Firm. He graduated in 2008 from the University of Political Science and Law in China with a bachelor’s degree. He is an experienced lawyer and investment advisor in investment and financing, enterprise legal advisory, pension industry investment and commercial merger and acquisition services, and has participated in a number of large commercial mergers and acquisitions since 2008.

Conflict of Interest

As our present business plan is focused entirely on building a new business in the senior retirement sector, there is no expectation of any conflict between our business interests and those of our directors. However, possible conflicts may arise in the future.

Our bylaws provide that each officer who holds another office or possesses property whereby, whether directly or indirectly, duties or interests might be created in conflict with his duties or interests as our officer shall, in writing, disclose to the President the fact and the nature, character and extent of the conflict and be approved by a majority of the disinterested directors of our board of directors.

Significant Employees

The Registrant does not presently employ any person as a significant employee who is not an executive officer but who makes or is expected to make a significant contribution to the business of the Company.

Family Relationships

Ms. Xu and Mr. Xu are sister and brother.

Involvement in Certain Legal Proceedings

No event listed in Sub-paragraphs (1) through (4) of Subparagraph (d) of Item 401 of Regulation S-B, has occurred with respect to any present executive officer or director of the Registrant or any nominee for director during the past five years which is material to an evaluation of the ability or integrity of such director or officer.

Section 16(A) Beneficial Ownership Reporting Compliance

Section 16(A) of the Exchange Act requires our executive officers and directors, and persons who beneficially own more than 10% of our equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Officers, directors and greater than 10% shareholders are required by Securities and Exchange Commission regulation to furnish us with copies of all Section 16(A) forms they file. Based on our review of the copies of such forms we received, we believe that during the fiscal year ended June 30, 2018 all such filing requirements applicable to our officers and directors were current in their filings.

Code of Ethics

We have not adopted a written Code of Ethics at this time that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. Our Board of Directors are reviewing the necessity of adopting such a document given we are still in the start-up exploration stage and have limited employees, officers and directors.

Board Committees

Nominating Committee

We do not have a Nominating Committee. Since our formation we have relied upon the personal relationships of our President to attract individuals to our Board of Directors.

We do not have a policy regarding the consideration of any director candidates which may be recommended by our stockholders, including the minimum qualifications for director candidates, nor has our Board of Directors established a process for identifying and evaluating director nominees. We have not adopted a policy regarding the handling of any potential recommendation of director candidates by our stockholders, including the procedures to be followed. Our Board has not considered or adopted any of these policies as we have never received a recommendation from any stockholder for any candidate to serve on our Board of Directors. Given our relative size and lack of directors and officers insurance coverage, we do not anticipate that any of our stockholders will make such a recommendation in the near future. While there have been no nominations of additional directors proposed, in the event such a proposal is made, all members of our Board will participate in the consideration of director nominees.

Compensation Committee

We do not have a Compensation Committee. Our entire Board of Directors review and recommend the salaries, and benefits of all employees, consultants, directors and other individuals compensated by us.

Audit Committee

We do not have a standing Audit Committee. The functions of the Audit Committee are currently assumed by our Board of Directors.

Our Board of Directors has determined that we have at least one financial expert. Mr. Schottelkorb is considered independent.

An audit committee financial expert means a person who has the following attributes:

ITEM 10 – EXECUTIVE COMPENSATION 

The table below summarizes all compensation awarded to, earned by, or paid to our executive officers by any person for all services rendered in all capacities to us for the fiscal years ended June 30, 2018, 2017 and 2016.

Summary Compensation Table

Notes:

⁽¹⁾ Appointed on May 4, 2017.

⁽²⁾ Resigned on July 12, 2019

⁽³⁾ Appointed on April 12, 2018

⁽⁴⁾ Appointed on May 17, 2017

Outstanding Equity Awards

As of September 28, 2021, our directors and executive officers did not hold any unexercised options, stock that had not vested, or equity incentive plan awards.

Compensation of Directors

Our directors did not earn any compensation during the fiscal year ended June 30, 2021 and 2020.

Employment Contracts and Termination of Employment or Change of Control

We have no plans or arrangements in respect of remuneration received or that may be received by our executive officers to compensate such officers in the event of termination of employment (as a result of resignation or retirement) or change of control transaction.

No retirement, pension, profit sharing, stock option or insurance programs or other similar programs have been adopted by us for the benefit of our employees.

ITEM 11 – SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table lists, as of October 14, 2018, the number of shares of common stock of our Company that are beneficially owned by (i) each person or entity known to our Company to be the beneficial owner of more than 5% of the outstanding common stock; (ii) each officer and director of our Company; and (iii) all officers and directors as a group. Information relating to beneficial ownership of common stock by our principal shareholders and management is based upon information furnished by each person using “beneficial ownership” concepts under the rules of the Securities and Exchange Commission. Under these rules, a person is deemed to be a beneficial owner of a security if that person has or shares voting power, which includes the power to vote or direct the voting of the security, or investment power, which includes the power to vote or direct the voting of the security. The person is also deemed to be a beneficial owner of any security of which that person has a right to acquire beneficial ownership within 60 days. Under the Securities and Exchange Commission rules, more than one person may be deemed to be a beneficial owner of the same securities, and a person may be deemed to be a beneficial owner of securities as to which he or she may not have any pecuniary beneficial interest. Except as noted below, each person has sole voting and investment power. In computing the number and percentage of shares beneficially owned by each person, we include any shares of common stock that could be acquired within 60 days of October 14, 2018, by the exercise of options or warrants.

*Less than 1%

Changes in Control

Effective May 4, 2017 (the “Closing Date”), Tim Coupland and Brian Game, the principal stockholders of the Company (the “Sellers”), entered into a Stock Purchase Agreement (the “Agreement”) dated April 4, 2017, with Hartford International Retirement Network, Inc., a California corporation (the “Buyer”), pursuant to which, among other things, the Sellers agreed to sell to the Buyer, and the Buyer agreed to purchase from Sellers, a total of 5,185,000 shares of Common Stock owned of record and beneficially by the Sellers (the “Purchased Shares”). The Purchased Shares represented approximately 3.82% of the Company’s issued and outstanding shares of Common Stock.

On April 7, 2018, the Company entered into a Securities Purchase Agreement (“SPA”) with HQDA International Holdings Limited (the “Investor”), wherein the Company sold 47,500,000 shares of its common stock (the “Shares”) for an aggregate of $7,124,109 (the “Purchase Price”) and Bin He and Zhenghui Zhang, two non-affiliated shareholders of the company ( collectively the “Seller”), who pursuant to the SPA sold 5,000,000 shares that they owned of the Company’s common stock to the Investor for $749,906 (the “Seller Purchase Price”). Upon the closing, the Investor assumed control of the Company with approximately 65% ownership of the outstanding common stock of the Company.

In accordance with the Agreement, upon the closing, most of the old officers and directors resigned and the current officers and directors were appointed.

ITEM 12 – CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Certain Relationships and Related Transactions

During the year ended June 30, 2021 and 2020, the Company paid management fees of $147,240 and $143,972, respectively, to the Company’s Chief Financial Officer.

For the year ended June 30, 2021 and 2020, the Company owed to its Chief Financial Officer amounts of $35,644 and $nil, respectively, included in accrued liabilities. The amounts represent expenses paid by the Company’s CFO on behalf of the Company that was not reimbursed at each year end.

Director Independence

One of our directors, Mr. Haixiang Shen is considered independent, as the term “independent” is defined by the rules of the Nasdaq Stock Market. Our shares of common stock are listed on the Over-the-Counter Bulletin Board under the symbol “HQDA”. On September 17, 2014, the Company received approval to trade on the OTCQB market platform (United States). The OTCQB is the venture stage marketplace for early stage U.S. and international companies and development stage companies in the United States. The Company was able to comply with new standards of eligibility that were implemented on March 26, 2014 to provide a stronger baseline of transparency for investors and undergo an annual verification and management certification process.

ITEM 13 – EXHIBITS

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

ITEM 14 – PRINCIPAL ACCOUNTANT FEES AND SERVICES

Fees and Services

The following is an aggregate of fees billed for each of the last two fiscal years for professional services rendered by our current and prior principal accountants:

* Audit fees consist of fees related to professional services rendered in connection with the audit of our annual consolidated financial statements.

** Audit related fees consist of fees related to professional services rendered in connection with the review of our quarterly reports on Form 10-Q.

Pre-Approval Policies and Procedures

Our policy is to pre-approve all audit and permissible non-audit services performed by the independent accountants. These services may include audit services, audit-related services, tax services and other services. Under our audit committee’s policy, pre-approval is generally provided for particular services or categories of services, including planned services, project based services and routine consultations. In addition, the audit committee may also pre-approve particular services on a case-by-case basis. We approved all services that our independent accountants provided to us in the past two fiscal years.

SIGNATURE

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Pursuant to requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated: