HFUS 10-Q
Hartford Creative Group, Inc. (HFUS)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the quarterly period ended:
For the transition period from ________ to ________
Commission
File Number:
(Exact Name of Registrant as Specified in its Charter)
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification Number)
(Address of Principal Executive Offices) (Zip Code)
Registrant’s
telephone number including area code:
Former name, former address, and former fiscal year, if changed since last report
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by checkmark whether the registrant is a large accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Smaller
reporting company | |
| Emerging
growth company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| OTC Markets Group |
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: shares of common stock outstanding as of December 15, 2021.
Index
| 2 |
HARTFORD GREAT HEALTH CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
| October 31, 2021 | July 31, 2021 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | - | |||||||
| Prepaid and Other current receivables | ||||||||
| Related party receivable | ||||||||
| Inventory | ||||||||
| Total Current Assets | ||||||||
| Non-current Assets | ||||||||
| Property and equipment, net | ||||||||
| ROU assets-operating lease | ||||||||
| Other assets | ||||||||
| Total Non-current Assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities | ||||||||
| Related party loan and payables | $ | $ | ||||||
| Contract liabilities | ||||||||
| Current operating Lease liabilities | ||||||||
| Other current payable | ||||||||
| Total Current Liabilities | ||||||||
| Long-term loan from related party | ||||||||
| Lease liabilities, noncurrent | ||||||||
| TOTAL LIABILITIES | ||||||||
| Commitments and contingencies (Note 13) | - | - | ||||||
| Stockholders’ Equity (Deficit) | ||||||||
| Preferred stock - $ par value, shares authorized, shares issued and outstanding | - | - | ||||||
| Common stock - $ par value, shares authorized, shares outstanding at both of October 31 and July 31, 2021 | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Noncontrolling interest | ( | ) | ( | ) | ||||
| Total Stockholders’ Deficit | ( | ) | ( | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.
| 3 |
HARTFORD GREAT HEALTH CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
| Three months ended | ||||||||
| October 31, | ||||||||
| 2021 | 2020 | |||||||
| Tuition revenue | $ | $ | ||||||
| Service revenue | ||||||||
| Total revenue | ||||||||
| Operating cost and expenses | ||||||||
| Cost of revenue | ||||||||
| Depreciation and amortization | ||||||||
| Selling, general and administrative | ||||||||
| Total Operating Cost and Expenses | ||||||||
| Operating Loss | ( | ) | ( | ) | ||||
| Other Income (Expense) | ||||||||
| Interest (expense), net | ( | ) | ( | ) | ||||
| Other income, net | ||||||||
| Other income (expense), net | ( | ) | ||||||
| Loss before income taxes | ( | ) | ( | ) | ||||
| Income Tax Expense | - | |||||||
| Net Loss | ( | ) | ( | ) | ||||
| Less: net loss attributable to noncontrolling Interest | ( | ) | ( | ) | ||||
| Net Loss Attributable to Hartford Great Health Corp | $ | ( | ) | $ | ( | ) | ||
| Net loss per common share: | ||||||||
| Basic and Diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted average shares outstanding: | ||||||||
| Basic and diluted | ||||||||
The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.
| 4 |
HARTFORD GREAT HEALTH CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
| Three months ended | ||||||||
| October 31, | ||||||||
| 2021 | 2020 | |||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Other Comprehensive income (loss), net of income tax | ||||||||
| Foreign currency translation adjustments | ( | ) | ( | ) | ||||
| Total other comprehensive loss | ( | ) | ( | ) | ||||
| Less： total other comprehensive loss attributable to noncontrolling interest | ( | ) | ( | ) | ||||
| Total Other Comprehensive Loss Attributable to Hartford Great Health Corp | ( | ) | ( | ) | ||||
| Total Comprehensive Loss | $ | ( | ) | $ | ( | ) | ||
The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.
| 5 |
HARTFORD GREAT HEALTH CORP.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
| Accumulated | Total | |||||||||||||||||||||||||||
| Additional | Other | Stockholders’ | ||||||||||||||||||||||||||
| Common Stock | Paid - in | Accumulated | Comprehensive | Noncontrolling | Equity | |||||||||||||||||||||||
| Shares | Amount | Capital | (Deficit) | loss | Interest | (Deficit) | ||||||||||||||||||||||
| Balance, July 31, 2021 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
| Net (loss) | - | - | - | ( | ) | - | ( | ) | ( | ) | ||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Balance, October 31, 2021 (unaudited) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
| Accumulated | Total | |||||||||||||||||||||||||||
| Additional | Other | Stockholders’ | ||||||||||||||||||||||||||
| Common Stock | Paid - in | Accumulated | Comprehensive | Noncontrolling | Equity | |||||||||||||||||||||||
| Shares | Amount | Capital | (Deficit) | loss | Interest | (Deficit) | ||||||||||||||||||||||
| Balance, July 31, 2020 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
| Net (loss) | - | - | - | ( | ) | - | ( | ) | ( | ) | ||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Balance, October 31, 2020 (unaudited) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.
| 6 |
HARTFORD GREAT HEALTH CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
| Three months ended | ||||||||
| October 31, | ||||||||
| 2021 | 2020 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss including noncontrolling interests | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss including noncontrolling interests to net cash (used in) operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Loss on disposal of property and equipment | - | |||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid and other current receivables | ( | ) | ||||||
| Inventory | ( | ) | ||||||
| Other assets | ||||||||
| Related party receivables and payables | ( | ) | ||||||
| Contract liabilities | ||||||||
| Other current payable | ( | ) | ||||||
| Operating lease assets and liabilities | ||||||||
| Other liabilities | ||||||||
| Net cash (used in) operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Cash proceeds from Acquisitions | - | |||||||
| Cash used in Acquisitions | - | ( | ) | |||||
| Purchases of property and equipment | ( | ) | - | |||||
| Net cash (used in) provided by investing activities | ( | ) | ||||||
| Cash flows from financing activities: | ||||||||
| Proceeds of related party notes payable | ||||||||
| Principal payments on finance lease | - | ( | ) | |||||
| Advances from related parties | ||||||||
| Net cash provided by financing activities | ||||||||
| Effect of exchange rate changes on cash | ||||||||
| Net change in cash, cash equivalents and restricted cash | ( | ) | ||||||
| Cash, cash equivalents and restricted cash at beginning of period | ||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | $ | ||||||
| Supplemental Cash Flow Information | ||||||||
| Interest paid | $ | $ | ||||||
| Income taxes paid | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Payable to acquiree | $ | $ | ||||||
| Unpaid bills for leaseholder improvements | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.
| 7 |
HARTFORD GREAT HEALTH CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies is presented to assist in understanding the Company’s financial statements. The financial statements and notes are the responsibility of the Company’s management. These accounting policies conform to accounting principles generally accepted in the United States of America (“US GAAP”) and have been consistently applied in the preparation of the financial statements. This disclosure should be read in conjunction with our audited financial statements for the year ended July 31, 2021, including footnotes, contained in our Annual Report on Form 10-K,
Organization
Hartford Great Health Corp. was originally incorporated in the State of Nevada on April 2, 2008 under the name PhotoAmigo, Inc. It changed its name to Hartford Great Health Corp. on August 22, 2018 and since then we have been engaged in activities to formulate and implement our business plans.
Through
its wholly owned subsidiary - Hangzhou Hartford Comprehensive Health Management, Ltd (“HZHF) and HZHF’s
The
Company started to engage in early childhood education industry at Hartford International Education Technology Co., Ltd (“HF Int’l
Education”). On July 24, 2019 and March 23, 2020, HF Int’l Education established two
Basis of Presentation
The consolidated financial statements include the accounts of Hartford Great Health Corp, its wholly-owned subsidiaries and subsidiaries in which it has a controlling interest. The Company reports noncontrolling interests of the consolidated entities as a component of equity separate from the Company’s equity. All material inter-company transactions between and among the Company and its consolidated subsidiaries have been eliminated in the consolidation. The Company’s net income (loss) excludes income (loss) attributable to the noncontrolling interests.
Use of Estimates
The preparation of financial statements in conformity with US GAAP requires the Company’s management to make estimates and assumptions that affect the amounts of assets and liabilities, the identification and disclosure of impaired assets and contingent liabilities at the date of the financial statements, and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.
Reclassifications
Certain amounts on the prior-year consolidated balance sheet, consolidated statement of operations and cash flows were reclassified to conform to current-year presentation, with no effect on ending stockholders’ equity.
| 8 |
Income Taxes
The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, Accounting for Income Taxes. The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
Revenue Recognition
The Company adopted ASC Topic 606 Revenue from Contracts with Customers (“Topic 606) on August 1, 2019, applying the modified retrospective method to all contracts that were not completed as of August 1, 2019. The Company is building up its core business upon the completion of multiple acquisitions in March 2019 and limited operations occurred during the years ended July 31, 2021 due to the impact of COVID-19 pandemic. The revenue for the three months period ended October 31, 2021 and 2020 were mainly generated from HZLJ, PDHJ and Gelinke.
Revenue
is recognized when control of promised goods or services is transferred to our customers in an amount of consideration to which we expect
to be entitled to in exchange for those goods or services. We follow the five steps approach for revenue recognition under Topic 606:
(i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction
price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) we
satisfy a performance obligation. Billings to customers for which services are not rendered are considered deferred revenue. ASC 606
has no material impacts on the Company’s financial positions. The Company’s revenue is recognized when it satisfies a single
performance obligation by transferring control of its products or providing services to a customer. The Company’s general payment
terms are short-term in duration. The Company does not have significant financing components or payment terms. The Company recorded $
| a. | Early
childhood education services: HF Int’l Education generates revenue from childhood education
classes provided to its customers. The educational services consist of parent-child and bilingual
childcare classes. Each contract of educational classes is accounted for as a single performance
obligation which is satisfied proportionately over the service period. Tuition fee is generally
collected in advance and is initially recorded as deferred revenue and transferred to contract
liabilities after trial period. Refunds are provided to parents if they decide within the
trial period that they no longer want to take the class. After the trial period, if a parent
withdraws from a class, usually only that unearned portion of the fee is available to be
returned. For the three months ended October 31, 2021 and 2020, $ |
| b. | Hospitality services: HZLJ generates revenue primarily from the room rentals, sale of food and beverage and other miscellaneous hospitality services. The Company recognizes room rental and services daily as services are provided. Under ASC 606, the pattern and timing of recognition of income from hotel facility is consistent with the prior accounting model. |
| 9 |
Recent Accounting Pronouncements.
Recently adopted accounting pronouncements
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes which is intended to simplify various aspects related to accounting for income taxes. The standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2020, with early adoption permitted. The adoption of ASU No. 2019-12 did not have a material impact on the Company’s financial position, results of operations and liquidity.
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.
NOTE 2. GOING CONCERN
The
accompanying financial statements were prepared on a going concern basis, which contemplates the realization of assets and the satisfaction
of obligations in the normal course of business. However, Hartford Great Health Corp. has incurred losses since inception, resulting
in an accumulated deficit of $
In view of these matters, continuation as a going concern is dependent upon several factors, including the availability of debt or equity funding upon terms and conditions acceptable to Hartford Great Health Corp., and ultimately achieving profitable operations. Management believes that Hartford Great Health Corp.’s business plan provides it with an opportunity to continue as a going concern. However, management cannot provide assurance that Hartford Great Health Corp. will meet its objectives and be able to continue in operation.
The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of Hartford Great Health Corp. to continue as a going concern.
NOTE 3. ACQUISITIONS, JOINT VENTURES AND DECONSOLIDATION
Joint Venture – HF Int’l Education
On
March 22, 2019, HFSH entered into a joint venture agreement (the “JV agreement”) with Shanghai Jingyu Education Tech Ltd.
(“SH Jingyu”) and one individual investor, to form a new entity - HF Int’l Education to provide childcare education
services. HFSH initially owned
Continuous
operation losses caused by the market uncertainties including pandemic and government regulations, HF Int’l Education entered agreements
to sell the copyrights of seven education textbooks and ten “HaiDeFuDe” registered trademarks owned for RMB
Operation result of HF Int’l Education are included in the Company’s consolidated financial statements commencing on the formation date. The Company classifies the ownership interest held by other four parties as “Noncontrolling interest” on the consolidated balance sheet.
| 10 |
Acquisition of Gelinke
On July 20, 2020, HF Int’l Education entered an agreement with two individuals to acquire the whole ownership of Gelinke, who engages at early childhood education services in Changning District, Shanghai. The results of operations of the acquired entities are included in the Company’s consolidated financial statements commencing on the acquisition date. The Company has recorded an allocation of purchase price to Gelinke’s tangible and identifiable intangible assets acquired and liabilities assumed based on their fair value at the acquisition date. The Company accounted the acquisition transaction in accordance with FASB ASC 805, Business Combinations, under acquisition accounting method. The related transaction costs were immaterial and included in General and administrative expenses in the accompanying consolidated statements of operations. The acquisition was completed on August 31, 2021. The calculation of purchase price and purchase price allocation is as follows:
| Assets Acquired and | ||||
| Liabilities Assumed | ||||
| Cash and cash equivalents | ||||
| Restricted Cash | ||||
| Prepaid and Other current receivables | ||||
| Property and Equipment, net | ||||
| Unearned revenue | ( | ) | ||
| Goodwill | ||||
| Total consideration* | ||||
| * |
Goodwill
is mainly attributable to synergies expected from the acquisition of license, list of customers and teacher workforce. Due to unfavorable
operation result of Gelinke during the year ended July 31, 2021, management determined that $
Other Acquisitions
In
January and February 2019, HFSH entered agreements to acquire
In
January 2019, HFSH entered agreements to acquire
Disposal of subsidiary
On
December 31, 2020, HFSH disposed its
Net assets (liabilities) disposed of:
| Net assets (liabilities) disposed of: | ||||
| Cash and cash equivalents | ||||
| Restricted cash | ||||
| Related party receivable | ||||
| Related party payable | ( | ) | ||
| Other current payable | ( | ) | ||
| Noncontrolling interest | ( | ) | ||
| Net assets of the subsidiary, excluding noncontrolling interest | ||||
| Consideration | ||||
| Gain on disposal of the subsidiary | ( | ) | ||
| Gain on disposal of noncontrolling interest | ( | ) | ||
| Gain on disposal of the subsidiary, excluding noncontrolling interest | ( | ) | ||
Net inflow / (outflow) of cash and cash equivalents in respect of the disposal subsidiary:
| Cash and cash equivalents | ( | ) | ||
| Restricted cash | ( | ) | ||
| Cash and cash equivalents deconsolidated | ( | ) |
| 11 |
NOTE 4. RESTRICTED CASH
The Company early adopted ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, and includes restricted cash with cash and cash equivalents when reconciling the beginning of year and end of year total amounts shown on the statements of cash flows. The restricted cash are collaterals required by the local government in China for the early education license Gelinke held as of July 31, 2021, subsequently on August 26, the restricted cash had been withdrawal and transferred to other bank accounts as a result of operation halt at Gelinke.
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the balance sheets that sum to the total of the same such amounts shown in the statements of cash flows.
| October
31, 2021 (unaudited) | July 31, 2021 | |||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | - | |||||||
| Total cash, cash equivalents and restricted cash shown in the statement of cash flows | $ | $ | ||||||
NOTE 5. PREPAID AND OTHER CURRENT RECEIVABLES
Prepaid
and other current receivable amounts of $
NOTE 6. INVENTORY
Inventory
mainly consists of books, the early childhood education materials. Inventory is stated at the lower of cost or net realizable value.
As of October 31 and July 31, 2021, inventory balance was $
NOTE 7. PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the following at October 31 and July 31, 2021:
| October 31, | July 31, | |||||||
| 2021 (unaudited) | 2021 | |||||||
| Leasehold improvements | $ | $ | ||||||
| Finance lease assets | ||||||||
| Furniture and fixtures | ||||||||
| Office equipment and vehicles | ||||||||
| Construction in progress | ||||||||
| Less: accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| $ | $ | |||||||
Depreciation
expense for the three months ended October 31, 2021 and 2020, was $
NOTE 8. OTHER ASSETS
Other assets consist of the following at October 31 and July 31, 2021:
| October 31, 2021 (unaudited) | July 31, 2021 | |||||||
| Other miscellaneous assets | $ | $ | ||||||
| Rental deposits | ||||||||
| $ | $ | |||||||
NOTE 9. OTHER CURRENT PAYABLES
The following is a breakdown of the accounts and other payables as of October 31 and July 31, 2021:
| October 31, 2021 (unaudited) | July 31, 2021 | |||||||
| Payable to acquirees | $ | $ | ||||||
| Accrued payroll | ||||||||
| Payable to publisher | ||||||||
| Other payables | ||||||||
| $ | $ | |||||||
Payable to acquiree is the unpaid consideration for the acquisitions described in Note 3 Acquisitions and Joint Venture.
| 12 |
NOTE 10. LEASES
At the inception of a contract, the Company assesses whether the contract is, or contains, a lease. Leases are classified as either finance leases or operating leases based on criteria in Accounting Standards Codification (“ASC”) 842. Operating leases are included in ROU assets-Operating lease, Current Operating Lease liabilities and Operating lease liabilities, finance leases are included in Property and Equipment and Other Liabilities in the condensed Consolidated Balance Sheet.
Right-of-use (“ROU”) assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As the lease did not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in China market. ROU assets also include any lease payments made and exclude lease incentives. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for operating leases, consisting of lease payments, is recognized on a straight-line basis over the lease term. Lease expense for finance leases consists of the amortization of the ROU asset on a straight-line basis over the asset’s estimated useful life and interest expense is calculated using the amortized cost basis.
As
of July 31, 2021, the Company has multiple operating leases for office spaces and a finance lease of land and hotel building. Our operating
leases have remaining lease terms ranging from
In
June 2018 and January 2019, HFSH and HF Int’l Education entered two lease agreements with Shanghai Longjin Corporate Management
Co., Ltd (the “Sublessor”) to lease office spaces (the “Subleases”). HFSH and HF Int’l Education received
Notices of Lease Termination from the Sublessor for late payments on April 13, 2020 and filed a civil lawsuit against the Sublessor on
July 10, 2020 (see Note 16). And the original lease agreement entered between the Sublessor and the landlord of the office building (the
“Landlord”) was terminated by the Landlord on June 1, 2020 due to payment default. The two sublease agreements entered with
the Sublessor was terminated on June 1, 2020 and approximately $
On
September 1, 2020, Gelinke entered a -year new lease agreement at the original office location upon the completion of the acquisition.
Approximately $
HZHF
terminated its original office lease on January 6, 2021. Approximately $
The
finance lease was obtained through HZLJ acquisition on March 22, 2019. On October 1, 2010, HZLJ took over the lease of the land and hotel
building for
| 13 |
Lease-related assets and liabilities at October 31 and July 31, 2021 were as follows:
| October 31, | July 31, | |||||||
| 2021 (unaudited) | 2021 | |||||||
| Assets | ||||||||
| Finance lease right-of-use assets, cost (Note 7) | $ | $ | ||||||
| Less: accumulated amortization | ( | ) | ( | ) | ||||
| Finance lease right-of-use assets, net | ||||||||
| ROU assets-Operating lease | ||||||||
| Total Lease ROU assets | $ | $ | ||||||
| Liabilities | ||||||||
| Current Operating Lease liabilities | $ | $ | ||||||
| Operating lease liabilities, noncurrent | ||||||||
| Finance lease liabilities, noncurrent | ||||||||
| Total Lease liabilities | $ | $ | ||||||
The components of lease cost for the three months ended October 31, 2021 and 2020:
| Three months ended October 31, | ||||||||
| 2021 (unaudited) | 2020 (unaudited) | |||||||
| Operating lease cost | $ | $ | ||||||
| Finance leases: | ||||||||
| Amortization of ROU assets | ||||||||
| Interest on finance lease liabilities | ||||||||
| Finance lease cost | ||||||||
| Total lease cost | $ | $ | ||||||
Supplemental cash flow information for leases for the three months ended October 31, 2021 and 2020:
| Three months ended October 31, | ||||||||
| 2021 | 2020 | |||||||
| Operating cash flows paid for operating leases | $ | $ | ||||||
| Financing cash flows paid for finance leases | ||||||||
The weighted-average remaining lease term and weighted-average discount rate for operating and finance leases at October 31, 2021 was as follows:
| October 31, 2021 | ||||||||
| Operating Leases | Finance Leases | |||||||
| Weighted-average remaining lease term (years) | ||||||||
| Weighted-average discount rate | % | % | ||||||
The following table reconciles the undiscounted future minimum lease payments for operating and finance leases executed at October 31, 2021:
| Operating Leases | Finance Leases | |||||||
| 2022 | $ | $ | ||||||
| 2023 | ||||||||
| 2024 | ||||||||
| 2025 | ||||||||
| 2026 | ||||||||
| 2027 and thereafter | ||||||||
| Total lease payments | $ | $ | ||||||
| Less interest | ( | ) | ( | ) | ||||
| Present value of future lease payments | $ | $ | ||||||
| Current Lease liabilities | ||||||||
| Noncurrent Lease liabilities | ||||||||
| 14 |
NOTE 11. RELATED PARTY TRANSACTIONS
Related Party Receivables
The
original loan balance of $
$
Related Party Payables and loans
As of October 31 and July 31, 2021, amounts of $621,526 and $616,159, are payable to SH Qiaohong, respectively. The balances were mainly funding support from SH Qiaohong for operation. The funding support bears no interest and due on demand.
As
of October 31 and July 31, 2021, amount of $
HFSH
had payable balances to Shanghai Oversea Chinese Culture Media Ltd. (“SH Oversea”), an entity managed by the same management
team, in the amounts of $
From
September 2020 to October 2021, the Company borrowed several notes in a total principal amount of $
As
of October 31 and July 31, 2021, the Company has $
The
remaining related party payable of $
Three-Party Settlement Agreement
On
December 31, 2020, a Three-Party Settlement agreement among HFSH, SH Qiaohong and Qiao Garden Int’l Travel was entered. Pursuant
to the agreement, around $
Other Related Party Transactions
Office space at Rosemead, CA is provided to Hartford Great Health Corp. at no cost by the sole executive officer. No provision for these costs has been included in these financial statements as the amounts are not material.
On
September 30, 2019, HF Int’l Education entered two debt agreements with the related parties, SH Qiao Hong and SH Oversea. Each
debt agreement provides a line of credit up to RMB
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NOTE 12. NONCONTROLLING INTERESTS
Noncontrolling interests consisted of the following as of October 31, 2021 and July 31, 2021:
| Name of Entity | % of Non-Controlling Interests | July 31, 2021 | Net loss | Foreign currency translation adjustment | October
31, 2021 (unaudited) | |||||||||||||||
| HZLJ | % | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||
| HF
Int’l Education | % | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||
| Total | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||
| Name of Entity | % of Non-Controlling Interests | July 31, 2020 | Net loss | Restructure of subsidiary | Disposal of subsidiary | Foreign currency translation adjustment | July 31, 2021 | |||||||||||||||||||||
| HZLJ | % | $ | ( | ) | $ | ( | ) | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||
| HF Int’l Education | * | % | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Qiao Garden Intl Travel | - | ( | ) | |||||||||||||||||||||||||
| Total | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||
| * |
NOTE 13. COMMITMENTS AND CONTINGENCIES
There has been below material contractual obligations and other commitments except the lease commitments disclosed in Note 10 Leases.
Lawsuits related to lease agreements
In
June 2018 and January 2019, HFSH and HF Int’l Education entered two lease agreements with Shanghai Longjin Corporate Management
Co., Ltd (the “Sublessor”) to lease some office spaces. On April 13, 2020, HFSH and HF Int’l Education received Notices
of Lease Termination from the Tenant for late payments. HFSH and HF Int’l Education then filed a civil case against the Sublessor
for over-charged rent fees because of fictitious office size and requested refund in the total amount approximately $
On
July 7, 2021, the district court verdict the final ruling and awarded HFSH and HF Int’l Education total amounts of RMB
License agreements
In
June 2021, HF Int’l Education and its three subsidiaries: PDHJ, HDFD and Gelinke entered license agreements with HFHM for the rights
to use the intellectual Properties (the “IPs”) HFHM owns. The IPs cover in the license agreements are four set of curriculum
structure designed and fifteen trademarks including “HaiDeFuDe” registered trademarks purchased from HF Int’l Education.
NOTE 14. SEGMENT INFORMATION
The Company currently operates in following industry segments: hospitality (hotel and travel agency) and early childhood education industry in China.
Segment information on assets as of October 31, 2021 and revenue generated during the three months ended October 31, 2021, as follows:
| Hospitality | Education | Corporate and unallocated | Total | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss before tax | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net Loss Attributable to Hartford Great Health Corp | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total assets (excluding Intercompany balances) | ( | ) | ||||||||||||||
Segment information on assets as of October 31, 2020 and revenue generated during the three months ended October 31, 2020, as follows:
| Hospitality | Education | Corporate and unallocated | Total | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss before tax | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net Loss Attributable to Hartford Great Health Corp | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total assets (excluding Intercompany balances) | ||||||||||||||||
NOTE 15. SUBSEQUENT EVENTS
In accordance with ASC 855, “Subsequent Events”, the Company has evaluated subsequent events through the date of issuance of these unaudited financial statements and no subsequent events were noted.
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Forward-Looking Statements
This Form 10-Q contains or incorporates by reference “forward-looking statements,” as that term is used in federal securities laws, about our financial condition, results of operations and business. These statements include, among others:
| - | statements concerning the benefits that we expect will result from our business activities and results of business development that we contemplate or have completed, such as increased revenues; and statements of our expectations, beliefs, future plans and strategies, anticipated developments and other matters that are not historical facts. These statements may be made expressly in this document or may be incorporated by reference to other documents that we will file with the SEC. You can find many of these statements by looking for words such as “believes,” “expects,” “anticipates,” “estimates” or similar expressions used in this report or incorporated by reference in this report. |
These forward-looking statements are subject to numerous assumptions, risks and uncertainties that may cause our actual results to be materially different from any future results expressed or implied in those statements. Because the statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied. We caution you not to put undue reliance on these statements, which speak only as of the date of this report. Further, the information contained in this document or incorporated herein by reference is a statement of our present intention and is based on present facts and assumptions, and may change at any time and without notice, based on changes in such facts or assumptions.
Item 2. Management’s Discussion and Analysis or Plan of Operation Overview
This discussion updates our business plan for the three-month periods ending October 31, 2021. It also analyzes our financial condition at October 31, 2021 and compares it to our financial condition at July 31, 2021. This discussion and analysis should be read in conjunction with our audited financial statements for the year ended July 31, 2021, including footnotes, contained in our Annual Report on Form 10-K, and with the unaudited financial statements for the interim period ended October 31, 2021, including footnotes, which are included in this quarterly report.
Overview of the Business
Hartford Great Health Corp. was originally incorporated in the State of Nevada on April 2, 2008 under the name PhotoAmigo, Inc. It changed its name to Hartford Great Health Corp. on August 22, 2018 and since then we have been engaged in activities to formulate and implement our business plan as set forth below.
Ability to continue as a “going concern”.
The independent registered public accounting firms’ reports on our financial statements as of July 31, 2021 and 2020, includes a “going concern” explanatory paragraph that describes substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to the factors prompting the explanatory paragraph are discussed in the financial statements, including footnotes thereto.
Plan of Operation
On December 28, 2018, the Company acquired Hangzhou Hartford Comprehensive Health Management, Ltd (“HZHF”). On March 22, 2019, the Company acquired 60 percent of Hangzhou Longjing Qiao Fu Vacation Hotel Co., Ltd. (“HZLJ”). On March 20, 2019, the Company acquired Shanghai Hartford Comprehensive Health Management, Ltd. (“HFSH”) with 90 percent of Shanghai Qiao Garden International Travel Agency (“Qiao Garden Int’l Travel”), which was disposed on December 31, 2020, and formed a joint venture entity, Hartford International Education Technology Co., Ltd (“HF Int’l Education”).
The subsidiary of HFUS in Shanghai (HFSH) advances operating funds from two related party entities, SH Qiao Hong and SH Oversea Chinese Culture Media Ltd. The main purpose of the funding is to invest in Hartford International Education Technology (Shanghai) Co., Ltd. (HF Int’l Education). Upon signing of supplemental agreement, HFUS holds 75.5% ownership of HF Int’l Education and maintains control over HF Int’l Education. On July 24, 2019, HF Int’l Education established a 100% owned subsidiary, Pudong Haojin Childhood Education Ltd. (“PDHJ”). On October 28, 2019, PDHJ had its childhood education center opened. On March 23, 2020, HF Int’l Education established Shanghai Hongkou HaiDeFuDe Childcare Co., Ltd.(“HDFD”) and was approved the business license to conduct childcare operations in Shanghai, China. On July 20, 2020, HF Int’l Education entered an agreement with two individuals to acquire the whole ownership of Shanghai Gelinke Childcare Education Center (“Gelinke”). During the board meeting, SH Jingyu and another noncontrolling shareholders also sold a total of 14.5% equity at zero value to HFSH. As a result, HFSH currently holds 90% of HF Int’l Education and a total of 10% equity is held by two individual noncontrolling shareholders.
HF Int’l Education has developed an enhanced model of childcare franchise management program and registered a new brand name, “HaiDeFuDe”. HF Int’l Education has recruited a team of knowledgeable childcare teachers to develop series of independent textbooks designed to targeted age of young children and register for the copyrights for these textbooks in September of 2020. Since then, HF Int’l Education has begun marketing and promoting the enhanced model of franchise operation and management packaged program, under “HaiDeFuDe” brand, to an initial of 50 franchisees throughout different regions of China. To achieve that, HF Int’l Education has incorporated existing market resources throughout other major cities and provinces in China. The promotion of HF Int’l Education franchise operation and management model is expected to attract other childcare education centers to join the “HaiDeFuDe” brand, and HF Int’l Education expects to generate revenue from franchise and management fees.
Due to continued market uncertainties during the pandemic, the board of HFSH adopted a new management approach to ease cash flow and reduce operation loss. In March 2021, HF Int’l Education entered agreements with a third party, Hartford Health Management (Shanghai), Co. Ltd. (“HFHM”). HFHM purchased seven education & intellectual property copy rights and ten “HaiDeFuDe” registered trademarks from HF Int’l Education for a total amount of RMB1.2M and RMB1.0M, respectively. In June 2021, HF Int’l Education and its three subsidiaries entered license agreements with HFHM for the rights to use the intellectual Properties (the “IPs”) HFHM owns. The IPs cover in the license agreements are four sets of curriculum structure designed and fifteen trademarks including “HaiDeFuDe” registered trademarks purchased from HF Int’l Education. As a return, on a monthly basis, HF Int’l Education and its subsidiaries pays 90% of its tuition revenue generated to HFHM as license usage fee.
After further ease of restrictions from the pandemic, the Company will re-run special franchise promotion. There will be a great reduction in franchise fees for the first twenty childcare center that join “HaiDeFuDe” brand. In doing so, the Company expects to generate revenue of RMB16,000,000 from 50 franchisees by the end of 2022.
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Results of Operations – Three Months Ended October 31, 2021 Compared to Three Months Ended October 31, 2020.
Revenue: We recognized $169,812 and $79,387 revenue in the three months ended October 31, 2021 and 2020, respectively. The revenue was mainly generated from two industry segments, the hospitality housing in HZLJ and childhood education care services in HF Int’l Education. The other business lines with limited operations have not generated revenue yet.
Operating Cost and Expenses: Cost of revenue increased to $335,004 for the three months ended October 31, 2021, compared to $133,948 during the comparable period of 2020. The increase of Cost of revenue was mainly due to the license fees paid to HFHM and rent cost of HDFD’s operating facility, see note 14. Operating expenses decreased to $507,759 for the three months ended October 31, 2021, compared to $603,645 during the comparable period of 2020. During the three months ended October 31, 2021, selling, general and administrative expenses decreased by $104,964, and depreciation and amortization expenses increased by $9,078.
Other Income (Expense): Other income, net increased to $24,791 for the three months ended October 31, 2021, compared to $144 of expenses for the corresponding period of 2020. Other income for the three months ended October 31, 2021 was mainly resulted from sublease income offset by interest expenses.
Net Loss Attributable to Noncontrolling Interest: For the three months ended October 31, 2021, we recorded a net loss attributable to noncontrolling interest of $66,628 compared to $134,393 for the corresponding period of 2020. The loss was allocated based on the ownership percentage of noncontrolling interest, which was mainly acquired through the acquisitions and Joint Ventures.
Net Loss Attributable to Hartford Great Health Corp: We recorded a net loss of $581,532 or $(0.01) per share for the three months ended October 31, 2021, compared to a net loss of $524,757 or $(0.01) per share for the three months ended October 31, 2020, an increase in loss of $56,775 due to the factors discussed above.
Liquidity and Capital Resources
As of October 31, 2021, we had a working capital deficit of $7,583,285 comprised of current assets of $973,585 and current liabilities of $8,556,870.
This represents an increase of $656,140 in the working capital deficit from the July 31, 2021 amount of $6,927,145.
During the three months ended October 31, 2021, our working capital deficit increased primarily because the additional advances from related parties for business operating.
We believe that our funding requirements for the next twelve months will be in excess of $1,900,000. We are currently seeking for further funding through related parties’ loan and finance.
As of October 31, 2021, the company has issued a total of 100,108,000 shares of common stock. On December 11, 2018, 96,090,000 shares of common stock were issued at the price of $0.02 per share to raise an additional $1,921,800 in capital. On November 24, 2020, the Company issued additional 1,000,000 shares of common stock to a significant shareholder of the Company at $0.02 per share.
We will seek additional financing in the form of debt or equity. There is no assurance that we will be able to obtain any needed financing on favorable terms, or at all, or that we will find qualified purchasers for the sale of our stock. Any sales of our securities would dilute the ownership of our existing investors.
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Cash Flows – Three months ended October 31, 2021 Compared to Three months ended October 31, 2020
Operating Activities
During the three months ended October 31, 2021, $412,091 used in operating activities as compared to $505,572 used in the operations during the three months ended October 31, 2020. During the three months ended October 31, 2021, we recorded loss including noncontrolling interests of $648,160 , incurred non-cash depreciation of $28,219 , prepaid and other current receivables decreased by $116,580, other assets decreased by $74,757, other current payable increased by $35,152 , contract liabilities increased by $55,881, related party payables net with receivables decreased by $123,017, and operating lease liabilities net with operating lease assets increased by $39,003 as a result from the adoption of new lease guidance ASU No. 2016-02.
During the three months ended October 31, 2020, we recorded loss including noncontrolling interests of $659,150 , incurred non-cash depreciation of $19,141, prepaid and other current receivables increased by $21,729, inventory increased by $87,962, other assets decreased by $87,026, contract liabilities increased by $75,203, related party payables net with receivables increased by $12,607, and operating lease liabilities net with operating lease assets increased by $62,101 as a result from the adoption of new lease guidance ASU No. 2016-02.
Investing activities
Cash used in investing activities was $127,928 for the three months ended October 31, 2021 as compared to $12,264 cash provided by investing activities for the corresponding period in 2020. During the three months ended October 31, 2021, the cash used in investing activities was primarily due to the expenditure of leasehold improvements in HF Int’l Education.
During the three months ended October 31, 2020, HF Int’l Education acquired a new entity, Gelinke with cash net inflow of $12,264, see Note 4 Acquisitions and Joint Ventures.
Financing activities
Cash provided by financing activities was $529,995 for the three months ended October 31, 2021 as compared to $510,187 cash provided by financing activities for the three months ended October 31, 2020. The cash flows provided by financing activities for the three months ended October 31, 2021 was primarily attributable to $469,995 funding support from related parties, $60,000 proceeds of notes payable. The notes payable was borrowed from one related party with 5% annual interest rate. See Note 12 Related Party Transactions.
The cash flows provided by financing activities for the three months ended October 31, 2020 was primarily attributable to $506,288 funding support from related parties, $25,156 notes payable with interest offset by $21,257 finance lease principal payment. The notes payable was borrowed from one related party with 5% annual interest rate.
Future Capital Expenditures
In January 2019, HFSH entered agreements to acquire 100 percent equity interest of Shanghai Luo Sheng International Trade Ltd. (“SH Luosheng”). As of October 31, 2021, the agreement has not yet taken effect as no consideration has been paid toward this acquisition. The agreement will be executed when the Company is financially ready to move forward, and the purchase price will be calculated based on the net assets of each entity on the execute date. There was no penalty levied or to be levied due to delayed execution or no-execution of those agreements.
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Off-Balance Sheet Arrangements
As of and subsequent to October 31, 2021, we have no off-balance sheet arrangements.
Contractual Commitments
As of October 31, 2021, we have no other material contractual commitments except the office building and property leases which are included Note 10 Leases.
Critical Accounting Policies
Our significant accounting policies are disclosed in Note 1 of the footnotes to our unaudited financial statements above. There have been no other changes in our critical accounting policies since our most recent audit dated July 31, 2021.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
An evaluation was performed under the supervision of our management, including our Chief Executive Officer and Chief Financial Officer (principal financial officer), of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this Quarterly Report. Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that, as of October 31, 2021, our disclosure controls and procedures were not effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms due to material weaknesses in our internal controls described below.
Management’s Report on Internal Control over Financial Reporting
Management’s assessment identified several material weaknesses in our internal control over financial reporting. These material weaknesses include the following:
| ● | The Company has yet established an internal control system over financial reporting, including sufficient and thorough financial reporting procedures, competence accounting personnel and a well written accounting policies manual under US GAAP in place. |
Changes in Internal Control
During the three months period ended October 31, 2021, there has been no change in internal control within the Company.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
On April 13, 2020, HFSH and HF Int’l Education received Notices of Lease Termination from the sub-lessor. HFSH and HF International Education then filed a civil case against the sub-lessor for return the over-charged rent expense because of fictitious office size, approximately $483,000 (RMB3.3 million). The sublease agreement was terminated on June 1, 2020. HF International Education entered a new lease agreement with the original landlord on June 1, 2020. On July 7, 2021, the district court announced the ruling and awarded HFSH a total amount of RMB870,336 to be returned by the sub-lessor, Shanghai Longjin Management and awarded HF International Education a total amount of RMB268,450 to be returned by the same sub-lessor. However, the rental deposits in the amount of RMB313,286 paid to the sub-lessor are non-refundable. No further appeal on these rental dispute cases will be granted. These final ruling proceedings are pending execution by the district court.
We were not subject to any other legal proceedings during the three months ended October 31, 2021, and are not currently subject to any legal proceedings, and to the best of our knowledge, no such proceeding is threatened, the results of which would have a material impact on our results of operation or financial condition. Nor, to the best of our knowledge, are any of our officers or directors involved in any legal proceedings in which we are an adverse party.
Item 1A. Risk Factors.
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Mine Safety Disclosures
Not applicable to our Company.
Item 5. Other Information
Not applicable to our Company.
Item 6. Exhibits.
The following exhibits are filed with or incorporated by referenced in this report:
31.1* Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Rose Hong Wang.
31.2* Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Sheng-Yih Chang
101 Interactive Data Files
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| HARTFORD GREAT HEALTH CORP. | ||
| Date: December 15, 2021 | By: | /s/ ROSE HONG WANG |
| Rose Hong Wang | ||
| Chief Executive Officer | ||
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