HQDA ELDERLY LIFE NETWORK CORP. - Quarter Report: 2021 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, 2021

or

For the transition period from ___________________to __________________

Commission File Number: 000-52417

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 14, 2021 was 139,314,416.

HQDA ELDERLY LIFE NETWORK CORP.

FORM 10-Q

TABLE OF CONTENTS

PART 1. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

HQDA Elderly Life Network Corp.

Consolidated Balance Sheets

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

HQDA Elderly Life Network Corp.

Consolidated Statements of Comprehensive Income (loss)

(Unaudited)

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

HQDA Elderly Life Network Corp.

Consolidated Statements of Cash Flows

(Unaudited)

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

HQDA Elderly Life Network Corp.

Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)

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, 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 Health Management Ltd. (“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, 2021 and for the nine months 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 $765,161 and $508,053 for the nine months ended March 31, 2021 and 2020, respectively. As of March 31, 2021, it had a negative working capital deficiency of $3,927,343 while it had a negative working capital deficiency of $4,464,602 at June 30, 2020.

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.

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 Health Management Ltd. All inter-company balances have been eliminated upon consolidation. The Company’s fiscal year end is June 30.

Use of Estimates

The preparation of financial statements in conformity with US GAAP requires the Company’s management to make estimates and assumptions that affect the amounts of assets and liabilities, the identification and disclosure of impaired assets and contingent liabilities at the date of the financial statements, and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.

Foreign currency translation

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

Revenue recognition

The Company adopted ASC 606 using the modified retrospective method on July 1, 2018. 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. The Company recognizes resident fees and services, other than move-in fees, daily as services are provided. Under ASC 606, the pattern and timing of recognition of income from assisted living facility is consistent with the prior accounting model.

Recently issued accounting pronouncements adopted

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 $41,248 and $194,812 at March 31, 2021 and June 30, 2020, respectively. Payable to related parties amounted to $3,836,471 and $3,537,325 at March 31, 2021 and June 30, 2020, respectively. The related party amounts are mainly operation advances and funding to support the Company’s daily operations. The payable balances bear no interest and due on demand.

Related party transactions

On July 2018, the Company entered a $172,600 (RMB1,185,000) service agreement with one entity that is under the common control of the Company’s CEO to develop the Company’s website and a BBC shopping APP. The Company capitalized the development cost of the website and APP in the amount of $146,710 based on the completion percentage method. During the year ended June 30, 2020, the APP development was halt and no further progress was made while the website was completed. The Company decided and mutually agreed to terminate the remaining APP development effective on June 30, 2020 due to the strategic direction and macro-economic condition. The unperformed obligation under the service agreement for both parties were canceled semiseriously pursuant to the termination agreement. $43,150 payable to the related party was waived and recognized as other income accordingly as of June 30, 2020.

On September 1, 2018, 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 one 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. For the three and nine months ended March 31, 2021, the Company recorded hotel management fee of $37,650 (RMB 0.25 million) and $112,952 (RMB 0.75 million), respectively. Payable due to ZHAWF Shanghai as of March 31, 2021 and June 30, 2020 were $205,284 and $102,268, respectively.

Other

During the three and nine months ended March 31, 2021, the Company recorded management fees of $33,600 and $93,600 for the service provided by Chief Financial Officer, respectively, and $45,880 and $101,772 for the three and nine months ended March 31, 2020, respectively. As of March 31, 2021, the payable due to Chief Financial Officer was $63,833.

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:

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

As of March 31, 2021, the Company has paid a total of $26,308,419 (RMB 176 million) toward the APA. 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 lawsuit against Shanghai Hongfu for the contract default and no-payment on installments pursuant to the APA on May 1, 2020. See Note 8 for details about the lawsuit.

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 District. Asset B has been transferred to Properties and equipment, net during the year ended June 30, 2019. 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, equivalent to $94,605 cash, 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 toward $3,000,000 deposit paid pursuant to the Rescission Agreement. $380,119 total residual amount was received by the end of June 30, 2020.

For the nine months ended March 31, 2021 and 2020, the depreciation and amortization expenses were $131,768 and $112,247, respectively, and $42,685 and $38,276 for the three months ended March 31, 2021 and 2020, respectively.

As of March 31, 2021 and June 30, 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 and nine months ended March 31, 2021 and 2020.

The Company operates in one industry segment, being the senior housing and retirement services through its wholly owned subsidiary in China. As of March 31, 2021 and June 30, 2020, the subsidiary had an amount of $15,385,787 and $14,552,394, respectively, in total assets, excluding inter-company balances, and it generated $130,027 and $38,432 for the three months ended March 31, 2021 and 2020, respectively, and $638,389 and $376,283 for the nine months ended March 31, 2021 and 2020, respectively, in revenue. 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 $26,306,419 (RMB 176,000,000) have been made through March 31, 2021. Due to the Seller of the assets has involved in several lawsuits that have restrictions on assets transferring (i.e. Property A) sentenced by Shanghai local district courts, the Company has decided not to make remaining payments until the asset is free of the restrictions on May 1, 2020.

On May 1, 2020, a lawsuit was filed 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 $11,721,154), including remaining RMB58 million installments, interest for delayed payment, default penalty, and etc. The lawsuit was filed in a District Court in Shanghai, China. The Company intends to vigorously defend this action. The court had initial opening on August 8, 2020, and the District Court in Shanghai ruled the first verdict on November 18, 2020, which was 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. The Company appealed the verdict by the end of 2020 and the lawsuit is processing by the High People’s Court so far.

As of March 31, 2021, the remaining installments under APA was RMB57,000,000. And for the nine months ended March 31, 2021, the Company has fully reserved $1,792,148 (approximate RMB11.5 million) amount for the penalty and lawsuit fee.

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 March 31, 2021, the transaction has not yet consummated.

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 March 31, 2021, $40,000 payable was outstanding toward the settlement.

None

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.

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.

Results of Operations

Three months ended March 31, 2021 compared to three months ended March 31, 2020

The revenue for the three months ended March 31, 2021 increased by $91,595 compared with the same period ended March 31, 2020. The increase is mainly due to the impact of COVID-19 small outbreak in Shanghai for three months ended March 31, 2020 while the impact was relieved for the three months ended March 31, 2021.

The decrease of operating loss amounted $95,732 for the three months ended March 31, 2021 as compared to the same period ended in 2020 was mainly due to the increase of revenue of $91,595, as both the impact of COVID-19 relieved and the Company raised the price of the unit room price while the operating cost remain constant for three months ended March 31, 2021 and 2020.

Excluding the non-cash expenses of depreciation and amortization, the operating loss would have been $109,909 and $210,049, for the three months ended March 31, 2021and 2020, respectively.

Nine ended March 31, 2021 compared to nine months ended March 31, 2020

The revenue for the nine months ended March 31,2021 increased by $262,106 compared with the same period ended March 31,2020. The increase is mainly due to the impact of COVID-19 small outbreak in Shanghai in the first quarter of 2020, and the unit price of each hotel rooms increased, which drives the revenue increased for nine months ended March 31, 2021.

The decrease of operating loss amounted $262,106 for the nine months ended March 31,2021 as compared to the same period ended in 2020 was mainly due to the increase of revenue of 262,102, as both the impact of COVID-19 relieved and the Company raised the price of the unit room price while the operating cost remain constant for nine months ended March 31, 2021 and 2020.

Excluding the non-cash expenses of depreciation and amortization, the operating loss would have been $102,782 and $395,052, for the nine months ended March 31, 2021 and 2020, respectively.

Liquidity and Capital Resources

On March 31, 2021, we had cash on hand of $54,118 and liabilities of $5,869,085. 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 $26,306,419 (RMB 176,000,000) have been made through March 31, 2021 and the remainder of $8,675,799 (RMB57,000,000) remains outstanding.

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, 2021, 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. The Company cannot guarantee that the current exchange rate will remain stable, therefore there is a possibility that the Company could post the same amount of income for two comparable periods and because of the fluctuating exchange rate post higher or lower income depending on exchange rate converted into US$ at the end of the financial year. The exchange rate could fluctuate depending on changes in political and economic environments without notice.

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

The Company is not a party to any pending legal proceeding. Our management is not aware of any threatened litigation, claims or assessments except below:

On May 1, 2020, a lawsuit was filed 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 lawsuit was filed in a District Court in Shanghai, China.

On November 18, 2020, there was a first verdict by the District Court in Shanghai, which was in favor of the Plaintiff’s claim, the Company should pay the penalty RMB11,140,000 along with the lawsuit fee RMB374,415 and the rest of RMB57,000,000 for the completion of the APA. The Company appealed by the end of 2020 and the lawsuit is processing in the High People’s Court so far.

Securities and Exchange Commission Settlement

Pursuant to an Order dated April 29, 2021, (the “Order”) the Securities and Exchange Commission (SEC) approved an offer to settle the administrative proceedings against the Company pursuant to Section 21C of the Securities Exchange Act of 1934 (“Exchange Act”). These proceedings arose out of the violation of the Exchange Act Rule 12b-25.

On two occasions, specifically, November 2019 and February 2020, the Company violated Rule 12b-25 by filing a Form 12b-25 with the Commission by failing to disclose in sufficient detail why its Form 10-Qs could not be timely filed

Pursuant to the administrative proceeding instituted by the SEC, the Company settled for a fine of $50,000 and agreed to cease and desist from any future violations of Sections 13(a) of the Exchange Act and Rule 12b-25 thereunder. 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.

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.