ITEM
1. CONSOLIDATED FINANCIAL STATEMENTS
HQDA
Elderly Life Network Corp.
Consolidated
Balance Sheets
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|
September
30,
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June
30,
|
|
|
|
2020
|
|
|
2020
|
|
|
|
(Unaudited)
|
|
|
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|
ASSETS
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
52,145
|
|
|
$
|
119,955
|
|
Accounts
and other receivables
|
|
|
68,264
|
|
|
|
52,531
|
|
Receivable
- related parties
|
|
|
127,405
|
|
|
|
194,812
|
|
|
|
|
247,814
|
|
|
|
367,298
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
20,010,470
|
|
|
|
19,662,519
|
|
Properties
and equipment, net
|
|
|
5,434,044
|
|
|
|
5,277,036
|
|
Capitalized
software, net
|
|
|
45,774
|
|
|
|
46,947
|
|
Total
assets
|
|
$
|
25,738,102
|
|
|
$
|
25,353,800
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$
|
146,104
|
|
|
$
|
91,751
|
|
Litigation
reserve
|
|
|
1,435,542
|
|
|
|
1,209,892
|
|
Payable
to related parties
|
|
|
3,845,012
|
|
|
|
3,537,325
|
|
Total
liabilities
|
|
|
5,426,658
|
|
|
|
4,838,968
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies – Note 8
|
|
|
|
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|
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|
|
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|
|
|
|
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STOCKHOLDERS’
DEFICIT
|
|
|
|
|
|
|
|
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Preferred
stock: authorized 10,000,000 shares of $0.001 par value; issued and outstanding, none
|
|
|
-
|
|
|
|
-
|
|
Common stock:
authorized 200,000,000 shares of $0.001 par value; 139,314,416 shares issued and outstanding,
|
|
|
139,314
|
|
|
|
139,314
|
|
Additional
paid-in capital
|
|
|
29,719,865
|
|
|
|
29,719,865
|
|
Accumulated
other comprehensive loss
|
|
|
(1,094,553
|
)
|
|
|
(1,234,719
|
)
|
Accumulated
deficit
|
|
|
(8,453,182
|
)
|
|
|
(8,109,628
|
)
|
Total
stockholders’ equity
|
|
|
20,311,444
|
|
|
|
20,514,832
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
25,738,102
|
|
|
$
|
25,353,800
|
|
The
accompanying notes are an integral part of these consolidated interim financial statements
HQDA
Elderly Life Network Corp.
Consolidated
Statements of Operation and Other Comprehensive Loss
(Unaudited)
|
|
Three
months ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
155,440
|
|
|
$
|
172,176
|
|
|
|
|
|
|
|
|
|
|
Operating
costs:
|
|
|
|
|
|
|
|
|
Cost
of food and beverages
|
|
|
46,855
|
|
|
|
64,586
|
|
Selling,
general and administrative expenses
|
|
|
228,966
|
|
|
|
213,775
|
|
Depreciation
and amortization
|
|
|
47,949
|
|
|
|
37,594
|
|
Litigation
expenses
|
|
|
176,050
|
|
|
|
-
|
|
Other
operating expenses
|
|
|
301
|
|
|
|
5,981
|
|
|
|
|
500,121
|
|
|
|
321,936
|
|
Operating
loss
|
|
|
(344,681
|
)
|
|
|
(149,760
|
)
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
Interest
Income
|
|
|
11
|
|
|
|
-
|
|
Other
|
|
|
1,116
|
|
|
|
(342
|
)
|
Net
loss
|
|
$
|
(343,554
|
)
|
|
$
|
(150,102
|
)
|
Foreign
currency translation, net tax
|
|
|
140,166
|
|
|
|
(771,154
|
)
|
Comprehensive
loss
|
|
$
|
(203,388
|
)
|
|
$
|
(921,256
|
)
|
Earnings
per share
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per share
|
|
$
|
(0.002
|
)
|
|
$
|
(0.001
|
)
|
Weighted
average common shares outstanding
|
|
|
139,314,416
|
|
|
|
139,314,416
|
|
The
accompanying notes are an integral part of these consolidated interim financial statements
HQDA
Elderly Life Network Corp.
Consolidated
Statements of Cash Flows
(Unaudited)
|
|
Three
months ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
Cash
flow from operating activities
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(343,554
|
)
|
|
$
|
(150,102
|
)
|
Adjustments
to reconcile loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
47,949
|
|
|
|
37,594
|
|
Legal
reserve
|
|
|
176,050
|
|
|
|
-
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
(Decrease)
Increase in receivables
|
|
|
(13,564
|
)
|
|
|
100,831
|
|
Increase
in related party receivable
|
|
|
71,728
|
|
|
|
93,092
|
|
Increase
(Decrease) in accounts payable and accrued liabilities
|
|
|
51,665
|
|
|
|
(22,682
|
)
|
(Decrease)
Increase in related party payable
|
|
|
(50,589
|
)
|
|
|
732,739
|
|
Net
cash (used in) provided by operating activities
|
|
|
(60,315
|
)
|
|
|
791,472
|
|
|
|
|
|
|
|
|
|
|
Cash
flow from investing activities
|
|
|
|
|
|
|
|
|
Deposits
paid for assets purchase
|
|
|
-
|
|
|
|
(1,141,878
|
)
|
Purchase
of equipment
|
|
|
(352
|
)
|
|
|
-
|
|
Net
cash used in investing activities
|
|
|
(352
|
)
|
|
|
(1,141,878
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flow from financing activities
|
|
|
|
|
|
|
|
|
Issuance
of common shares, net
|
|
|
-
|
|
|
|
-
|
|
Net
cash provided by financing activities
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes
|
|
|
(7,143
|
)
|
|
|
102,608
|
|
Decrease
in cash
|
|
|
(67,810
|
)
|
|
|
(247,798
|
)
|
Cash,
beginning
|
|
|
119,955
|
|
|
|
350,734
|
|
Cash,
ending
|
|
$
|
52,145
|
|
|
$
|
102,936
|
|
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)
|
|
Number
of
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Accumulated
other
|
|
|
Total
|
|
|
|
shares
|
|
|
Capital
|
|
|
paid-in
|
|
|
Accumulated
|
|
|
comprehensive
|
|
|
stockholders’
|
|
|
|
issued
|
|
|
stock
|
|
|
capital
|
|
|
Deficit
|
|
|
loss
|
|
|
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at June 30, 2019
|
|
|
139,314,416
|
|
|
$
|
139,314
|
|
|
$
|
29,719,865
|
|
|
$
|
(3,352,803
|
)
|
|
|
(1,138,433
|
)
|
|
$
|
25,367,943
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(150,102
|
)
|
|
|
-
|
|
|
|
(150,102
|
)
|
Common
shares issued
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Subscriptions
received
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Foreign
currency translation, net tax
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(771,154
|
)
|
|
|
(771,154
|
)
|
Balance
at September 30, 2019
|
|
|
139,314,416
|
|
|
$
|
139,314
|
|
|
$
|
29,719,865
|
|
|
$
|
(3,502,905
|
)
|
|
$
|
(1,909,587
|
)
|
|
$
|
24,446,687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at June 30, 2020
|
|
|
139,314,416
|
|
|
$
|
139,314
|
|
|
$
|
29,719,865
|
|
|
$
|
(8,109,628
|
)
|
|
|
(1,234,719
|
)
|
|
|
20,514,832
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(343,554
|
)
|
|
|
-
|
|
|
|
(343,554
|
)
|
Foreign
currency translation, net tax
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
140,166
|
|
|
|
140,166
|
|
Balance
at September 30, 2020
|
|
|
139,314,416
|
|
|
$
|
139,314
|
|
|
$
|
29,719,865
|
|
|
$
|
(8,453,182
|
)
|
|
$
|
(1,094,553
|
)
|
|
$
|
20,311,444
|
|
The
accompanying notes are an integral part of these consolidated interim financial statements
1.
|
Nature
and Continuance of Operations
|
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 newly acquired and wholly owned subsidiary, Shanghai Hongfu Health management Ltd., 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 September 30, 2020 and for three months then ended have been prepared
on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the
normal course of business. The Company reported a net loss of $343,554 and $150,012 for the three months ended September 30,2020
and 2019, respectively. As of September 30, 2020, it had a negative working capital deficiency of $5,178,844 while it had a negative
working capital deficiency of $4,471,670 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.
2.
|
Basis
of Significant Accounting policies
|
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.
Foreign
currency translation
The
United States dollar (“USD”) is the Company’s reporting currency. The Company’s wholly owned subsidiary,
Shanghai Hongfu Health Management Ltd. is located in China. The net sales generated, and the related expenses directly incurred
from the operations are denominated in local currency, Renminbi (“RMB”). The functional currency of the subsidiary
is generally the same as the local currency.
Assets
and liabilities measured in RMB are translated into USD at the prevailing exchange rates in effect as of the financial statement
date and the related gains and losses, net of applicable deferred income taxes, are reflected in accumulated other comprehensive
income (loss) in its consolidated balance sheets. Income and expense accounts are translated at the average exchange rate for
the period. The Company has not, to the date of these consolidated financial statements, entered into derivative instruments to
offset the impact of foreign currency fluctuations.
Certain
amounts in prior periods have been reclassified to conform with current period presentation.
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. The Company recognizes resident fees and services, other than move-in fees,
monthly 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
February 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”)
No. 2016-02 (Topic 842) “Leases.” Topic 842 supersedes the lease recognition requirements in Accounting Standards
Codification (“ASC”) Topic 840 “Leases.” Under Topic 842, lessees are required to recognize a right-of-use
asset and a lease liability for substantially all leases. Leases will continue to be classified as either finance or operating.
Topic 842 is effective for annual reporting periods and interim periods within those years beginning after December 15, 2018 with
early adoptions permitted. The Company adopted the new standard July 1, 2019. As part of the adoption of ASU 2016-02, the Company
made an accounting policy election that will not recognizing leases with an initial term of 12 months or less on the consolidated
balance sheet. As of September 30, 2020, the Company only has one month-to-month office lease with monthly rent of $1,020. The
adoption of this new accounting standard did not have an effect on the Company’s consolidated financial statements.
In
January 2017, the FASB issued ASU No. 2017-04, “Intangibles and Other (Topic 350): Simplifying the Test for Goodwill Impairment”,
which eliminates the requirement to calculate the implied fair value of goodwill, but rather requires an entity to record an impairment
charge based on the excess of a reporting unit’s carrying value over its fair value. This amendment is effective for annual
or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company
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.
3.
|
Related
party Transactions
|
Receivable
and Payable
Receivable
from related parties amounted $127,405 and $194,812 at September 30, 2020 and June 30, 2020, respectively. Payable to related
parties amounted to $3,845,012 and $3,537325 at September 30, 2020 and June 30, 2020, respectively. The related party amounts
are mainly are results of 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 cancelled semiseriously pursuant to the
termination agreement. $43,150 payable to the related party was waived and recognized accordingly as of September 30, 2020.
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 1million 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 months ended September 30, 2020, the Company recorded hotel management fee of $36,135 (RMB 0.25 million).
Payable due to ZHAWF Shanghai as of September 30, 2020 and June 30, 2020 was $258,928 and $102,268 respectively.
Other
During
the three months ended September 30 2020 and 2019, the Company paid management fees of $24,920 and $31,440 respectively, to the
Company’s Chief Financial Officer. As of September 30, 2020, the Company owed to its Chief Financial Officer the amounts
of $20,000 included in accrued liabilities. The amounts represent expenses paid by the Company’s CFO on behalf of the Company.
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:
Description
|
|
Location
|
|
Amount
(1)
|
|
|
Amount
|
|
|
|
|
|
(in
dollars)
|
|
|
(in
RMB)
|
|
Building
and building improvements and land use rights
|
|
Shanghai
Pudong New Area Zhangjiang Ziwei Rd No. 372 and No. 376.
|
|
|
30,778,879
|
|
|
|
193,870,000
|
|
Land
use rights
|
|
Shanghai
Chongming District San Shuang Gong Lu No. 4797.
|
|
|
6,212,294
|
|
|
|
39,130,000
|
|
|
|
|
|
|
36,991,173
|
|
|
|
233,000,000
|
|
(1)
The exchange rate of 0.1587 was used to translate the RMB amounts at purchase date.
|
As
of September 30, 2020, the Company has paid a total of $25,842,070 (RMB 176 million). On September 1, 2018, the Company obtained
the full management and operation rights of the senior hotel property and other assets (Property A) located at Shanghai Pudong
New Area pursuant to the Operation Rights Transferring Agreement entered on August 31, 2018 with the seller. Although the Company
has the rights to operate the senior living services of Asset A purchased under this agreement, and is currently generating revenues,
the Company has not received a deed because the seller is involved in several lawsuits that have 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 more 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. 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, totaling
$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 out of $3,000,000 deposit paid pursuant to the Rescission Agreement.
$380,119 total residual amount was received by the end of June 30, 2020. The Rescission Agreement was fully consummated as
of June 30, 2020.
5.
|
Properties
and Equipment, net
|
|
|
September
30,
|
|
|
June
30,
|
|
|
|
2020
|
|
|
2020
|
|
Land
use rights and land use rights improvements
|
|
$
|
5,745,456
|
|
|
$
|
5,531,446
|
|
Furniture
and office equipment
|
|
|
6,724
|
|
|
|
6,130
|
|
Capitalized
software
|
|
|
45,774
|
|
|
|
46,947
|
|
Accumulated
depreciation
|
|
|
(318,136
|
)
|
|
|
(260,540
|
)
|
|
|
$
|
5,479,818
|
|
|
$
|
5,323,983
|
|
As
of September 30, 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 months ended September 30, 2020.
The
Company operates in one industry segment, being the senior housing and retirement services through its wholly owned subsidiary
in China. As of September 30, 2020, and June 30, 2020, the subsidiary had an amount of $14,979,171 and$14,461,546 respectively
in total assets, excluding inter-company balances, and it generated $155,440 and $172,176 for the three months ended September
30, 2020 and 2019, respectively, in revenue. There was no revenue generated from inter-company transactions.
8.
|
Commitments
and contingencies
|
The
Company entered into the APA to acquire two properties in Shanghai totaling RMB 233,000,000. Payments of $25,842,070 (RMB 176,000,000)
have been made through September 30, 2020. 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 September 30,2020.
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
$11,255,101), 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 for the lawsuit on August 8, 2020, the Company questioned whether the Plaintiff could continue to perform its asset delivery
obligations under the APA since the Plaintiff is under the criminal investigation by a district police department of Shanghai
city and requested the Plaintiff to cooperate with government agencies and courts.
As
of September 30, 2020, the remaining installments under APA was RMB57,000,000. And for the three months ended September 30, 2020,
the Company reserved $1,435,542 (approximate RMB9.78 million) amount in connection to the future expenditures of the lawsuit based
on the management’s best knowledge.
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, P.R. China (“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, which the total value is equivalent to 10% of the originally
invested cash value RMB16, 000,000 (about USD$2,348,450) by the LYES shareholders. LYES operates a profitable elderly services
business in its local hot spring resort. Both parties are looking forward to expansion of the local elderly services especially
for establishing the International Wellness Town in Linayungang City, Jiangsu province, China.
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:
|
●
|
our
failure to obtain additional financing;
|
|
●
|
our
inability to continue as a going concern;
|
|
●
|
the
unique difficulties and uncertainties inherent in the business;
|
|
●
|
local
and multi-national economic and political conditions, and
|
|
●
|
our
common stock.
|
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 September 30
|
|
|
|
2020
|
|
|
2019
|
|
|
Changes
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
155,440
|
|
|
$
|
172,176
|
|
|
$
|
(16,736
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of food and beverages
|
|
|
46,855
|
|
|
|
64,586
|
|
|
|
(17,731
|
)
|
General
and administrative cost
|
|
|
228,966
|
|
|
|
213,775
|
|
|
|
15,191
|
|
Litigation
expenses
|
|
|
176,050
|
|
|
|
|
|
|
|
176,050
|
|
Depreciation
and amortization
|
|
|
47,949
|
|
|
|
37,594
|
|
|
|
10,355
|
|
Other
operating cost
|
|
|
301
|
|
|
|
5,981
|
|
|
|
(5,680
|
)
|
|
|
|
500,121
|
|
|
|
321,936
|
|
|
|
178,185
|
|
Operating
loss
|
|
$
|
(344,681
|
)
|
|
$
|
(149,760
|
)
|
|
$
|
(194,921
|
)
|
Three
months ended September 30, 2020 compared to three months ended September 30, 2019
The
revenue for the three months ended September 30, 2020 decreased by $16,736 compared with the same period ended September 30,2019.
The decrease is mainly due to the impact of COVID-19 outbreak in China.
The
increase of operating loss amounted $194,921 for the three months ended September 30, 2020 as compared to the same period ended
in 2019 was mainly due to the increase of Litigation reserve of $176,050.
Excluding
the non-cash expenses of depreciation and amortization, the operating loss would have been $296,732 and $112,166, for the
three months ended September 30, 2020 and 2019, respectively.
Liquidity
and Capital Resources
On
September 30, 2020, we had cash on hand of $52,145 and liabilities of $5,426,658. 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:
|
●
|
Property
A: land use rights and adhesive substance use rights, right to own, and right to operate
of the land located in Shanghai Pudong New Area Zhangjiang Ziwei Rd No. 372 and No. 376.
|
|
|
|
|
●
|
Property
B: land use right, adhesive substance under construction use rights, right to own, and right to operate of the land located
in Shanghai Chongming District San Shuang Gong Lu No. 4797.
|
We
have agreed to pay the purchase price totaling RMB 233,000,000 in instalments. Payments of $25,842,070(RMB 176,000,000) have been
made through September 30, 2020 and the remainder of $8,380,751 (RMB57,000,000) is not going to pay until this asset is free of
the restrictions.
Employees
At
present, we have 14 employees, other than our current officers and directors, who devote their time as required to our business
operations.
Off-balance
Sheet Arrangements
As
of September 30, 2020, we have no off-balance sheet arrangements that would require disclosure.
Critical
Accounting Policies
Our
interim financial statements are prepared in accordance with accounting principles generally accepted in the United States of
America. Preparing financial statements in accordance with generally accepted accounting principles requires management to make
estimates and assumptions which affect the reported amounts of assets and liabilities and the disclosure of contingent assets
and liabilities at the balance sheet dates, and the recognition of revenues and expenses for the reporting periods. These estimates
and assumptions are affected by management’s application of accounting policies.