HANJIAO GROUP, INC. The following discussion and analysis of our Company's financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes included elsewhere in the report. This discussion contains forward-looking statements that involve risks and uncertainties. Actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of various factors. See "Cautionary Note Concerning Forward-Looking Statements" on page 2. The description of our business included in this quarterly report is summary in nature and only includes material developments that have occurred since the latest full description. The full discussion of the history and general development of our business is included in "Item 1. Description of Business" section of the Company's Annual Report on Form 10-K filed with theSEC onMarch 31, 2021 , which section is incorporated by reference. Unless otherwise noted, all currency figures quoted as "U.S. dollars", "dollars" or "US$" refer to the legal currency ofthe United States . References to "Chinese Yuan" or "Renminbi ("RMB")" are to the Chinese Yuan, the legal currency ofthe People's Republic of China ("PRC" or "China"). Throughout this report, assets and liabilities of the Company's subsidiaries are translated intoU.S. dollars using the exchange rate on the balance sheet date. Revenue and expenses are translated at average rates prevailing during the period. The gains and losses resulting from translation of financial statements of foreign subsidiaries are recorded as a separate component of accumulated other comprehensive income within the statement of stockholders' equity.Hanjiao Group, Inc. ("HJGP") is a holding company that, through its subsidiaries and variable interest entity (collectively, the "Company" or "we") is engaged in the business of selling healthcare and other related products to the middle-aged and elderly market segments in the PRC through our online to offline (O2O) platform. Our O2O platform integrates our e-commerce platform with physical outlets to connect consumers and merchants in a dynamic marketplace. Our platform not only offers users the convenience of making online purchases, but also provides users the possibility to purchase and receive products at offline service centers. Currently, our core product categories include nutritional supplements, cosmetics, smart home products (such as smart watches) and home appliances (such as water filters and air purifiers). We have developed several branch offices with outlets across the PRC with approximately 160,000 users. We conduct business primarily through our variable interest entity,Beijing Yingjun Technology Co., Ltd. (formerly known asBeijing Luji Technology Co., Ltd. ) ("Beijing VIE") that was formed inBeijing, China onMarch 27, 2007 . HJPG does not have a direct equity ownership interest in Beijing VIE but relies on a series of contractual arrangements, or variable interest entity (VIE) agreements ("VIE Agreements"), throughBeijing Hanze Management Consulting Co. Ltd. (formerly known asBeijing Hongtao Management Consulting Co., Ltd. ) ("Beijing Hanze"), to control and receive substantially all of the economic risks and benefits of Beijing VIE's business in the PRC in which foreign investment is restricted or prohibited. The VIE agreements are designed to mimic direct ownership of Beijing VIE and allow the financial conditions and results of operations of Beijing VIE to be consolidated with the financial statements of HJPG. A fuller discussion of the VIE agreements is included in the section entitled "Contractual Agreements between Beijing Hanze, Beijing VIE and Beijing VIE Shareholders." The VIE Agreements also provide HJGP, through its subsidiaries including Beijing Hanze, with an exclusive option to purchase all or part of the equity interests in Beijing VIE when and to the extent permitted by PRC law. HJGP's management concluded that Beijing VIE and its subsidiaries are variable interest entities of HJPG and Beijing Hanze is the primary beneficiary of Beijing VIE and its subsidiaries. As such, the financial statements of the Beijing VIE and its subsidiaries are included in the unaudited condensed consolidated financial statements of HJGP. References to the Company's financial condition, results of operations and the like in this report refer to the financial condition and results of operations of HJPG, its subsidiaries and Beijing VIE and its subsidiaries on a consolidated basis. 27
Our corporate organizational chart is below:
[[Image Removed]]
(1) HanJiao International Holding Limited . ("HJ" or "HanJiao") was
incorporated on July 5, 2018 in the British Virgin Islands .
(2)
incorporated on
owned by HJ.
(3)
wholly owned by Luji Technology.
(4)
Foreign-Owned Enterprise ("WFOE"), was established in the PRC on October
11, 2018 and is a wholly owned subsidiary of
currently provides consulting and technical services to Beijing Yingjun
"Beijing VIE").
(5) Beijing VIE was established in the PRC on
in the business of selling goods in
Beijing VIE via various variable interest contractual arrangements ("VIE
agreements") to realize its economic benefits. Currently, the
shareholders of Beijing VIE are Ms.
Liu Zexian, Ms.
Shareholders".
(6)
was formed on
Beijing Guoyi has no business activity as of the date of this Quarterly
Report.
(7) On
79,830,000 (approximately
and registered in the PRC, and it is engaged primarily in the
cultivation and marketing of Taxus, a type of medicinal plant.
28
Contractual Agreements between Beijing Hanze, Beijing VIE and Beijing VIE Shareholders
We do not have a direct equity ownership interest in Beijing VIE but rely on a series of contractual arrangements, the VIE Agreements, to control and receive the economic benefits of Beijing VIE's business. We rely on contractual arrangements with our variable interest entities to operate our business in the PRC and other businesses in which foreign investment is restricted or prohibited. Beijing Hanze, Beijing VIE, and its shareholders entered into the VIE Agreements onMay 15, 2019 . The VIE agreements are designed to provide Beijing Hanze with the power, rights and obligations equivalent in all material respects to those it would possess as the sole equity holder of Beijing VIE, including absolute control rights and the rights to the assets, property and revenue of Beijing VIE. Each of the VIE Agreements is described in detail below.
Pursuant to theExclusive Consulting and Service Agreement signed onMay 15, 2019 , between Beijing Hanze and Beijing VIE, Beijing Hanze agrees to provide various services exclusively to Beijing VIE including development and research services for business-related software, pre-job and on-the-job training services, technology development and transfer services, public relations services, market research and consulting services, short and medium-term market development and planning services, various technical support services, consulting services related to business compliance, organization and planning services related to marketing and membership activities. For services rendered to Beijing VIE by Beijing Hanze under this agreement, Beijing Hanze is entitled to collect 100% of the net income of Beijing VIE.The Exclusive Consulting and Services Agreement shall remain in effect for ten years from the date of signing unless it is terminated by Beijing Hanze in advance or upon the mutual agreement of both parties. Beijing VIE may terminate the agreement subject to payment of all service fees for completed services and compensation to Beijing Hanze for losses. Prior to the termination of this agreement, the parties may extend the term of this agreement in accordance with the requirements of Beijing Hanze. The foregoing description of theExclusive Consulting and Services Agreement is qualified in its entirety by reference to the Consulting and Services Agreement, an English translation of which is filed as Exhibit 10.1 to this Quarterly Report and incorporated herein by reference. Business Operation Agreement
Pursuant to the Business Operation Agreement signed onMay 15, 2019 , by and among the Beijing VIE Shareholders, Beijing VIE and Beijing Hanze. Beijing VIE agrees not to conduct any transactions that may materially affect its assets, business, personnel, obligations, rights or company operations, without the prior written consent of Beijing Hanze. Beijing Hanze agrees to provide advice to Beijing VIE from time to time regarding the appointment and dismissal of employees, daily management and financial management systems. Beijing VIE and Beijing VIE Shareholders also agreed to appoint designees of Beijing Hanze to serve as Board of directors and on the senior management team of the Beijing VIE. In connection with this agreement, the Beijing VIE Shareholders executed a Power of Attorney at Annex 1 of the Business Operation Agreement in which the Beijing VIE shareholders shall irrevocably authorize the designated personnel of Beijing Hanze to exercise their shareholders' rights on their behalf, including voting rights at the shareholders' meeting in the name of the shareholders. The Beijing VIE Shareholders further agree that they will replace the person authorized in the above Power of Attorney at any time upon Beijing Hanze's request. The Business Operation Agreement shall remain in effect for ten years from the date of signing unless earlier terminated by Beijing Hanze by delivering 30 days prior written notice or upon the mutual agreement of all parties. Beijing VIE and the Beijing VIE Shareholders do not have the right to terminate the agreement unilaterally. Upon the termination of any agreement between Beijing Hanze and Beijing VIE, Beijing Hanze shall be entitled to terminate all agreements between such parties.
The foregoing description of the Business Operation Agreement is qualified in its entirety by reference to the Business Operation Agreement, an English translation of which is filed as Exhibit 10.2 to this Quarterly Report and incorporated herein by reference.
Equity Disposal Agreement Pursuant to the Equity Disposal Agreement signed onMay 15, 2019 , by and among the Beijing VIE Shareholders, Beijing VIE and Beijing Hanze, the Beijing VIE Shareholders granted to Beijing Hanze an exclusive option right to purchase all of their equity interests in Beijing VIE to secure the execution of the Equity Pledge Agreement in which the details are set out below. Under the terms of this agreement, Beijing Hanze has an exclusive right to purchase, to the extent permitted under the PRC law, at any time, all or any part of the equity interests of the Beijing VIE Shareholders in Beijing VIE or an option to transfer the equity interests in Beijing VIE to any third party designated by Beijing Hanze. The option price shall be the minimum permitted by the laws and regulations of the PRC. The Equity Disposal Agreement has a term of ten years from the date of signing, and it may be renewed at Beijing Hanze's discretion. The foregoing description of the Equity Disposal Agreement is qualified in its entirety by reference to the Equity Disposal Agreement, an English translation of which is filed as Exhibit 10.3 to this Quarterly Report and incorporated
herein by reference. 29 Equity Pledge Agreement Pursuant to the Equity Pledge Agreement signed onMay 15, 2019 , by and among the Beijing VIE Shareholders and Beijing Hanze, the Beijing VIE Shareholders pledged all of their equity interests in Beijing VIE to Beijing Hanze to guarantee the performance of Beijing VIE's obligations under theExclusive Consulting and Services Agreement, the Equity Disposal Agreement and the Business Operation Agreement. Under the terms of the agreement, in the event that Beijing VIE or its shareholders breach their respective contractual obligations under theExclusive Consulting and Services Agreement, the Equity Disposal Agreement and the Business Operation Agreement, or upon occurrence of any event of default as set forth in the Equity Pledge Agreement, Beijing Hanze shall be entitled to exercise its rights under this agreement, subject to certain cure periods. The Beijing VIE Shareholders further agree not to dispose of the pledged equity interests or take any actions that would prejudice Beijing Hanze's interest. The Equity Pledge Agreement shall be effective until Beijing VIE and the Beijing VIE Shareholders have performed all of their obligations under theExclusive Consulting and Services Agreement, the Equity Disposal Agreement and the Business Operations Agreement and the written approval of Beijing Hanze has
been obtained. The foregoing description of the Equity Pledge Agreement is qualified in its entirety by reference to the Equity Pledge Agreement, an English translation of which is filed as Exhibit 10.4 to this Quarterly Report and incorporated herein by reference. Because we are not a PRC operating company but aNevada holding company with operations conducted through our variable interest entity based in the PRC, our investors may never directly hold equity interests in our variable interest entity. This structure presents unique risks as we will be dependent upon contributions from our subsidiaries and VIE to finance our cash flow needs. Further, in light of the recent statements and regulatory actions by the PRC government, such as the promulgation of regulations prohibiting foreign ownership of Chinese companies operating in certain industries, which are constantly evolving, and anti-monopoly concerns, we may be subject to the risks of uncertainty of any future actions of the PRC government in this regard including the risk that the PRC government could disallow our holding company structure, which may result in a material change in our operations, including our ability to continue our existing holding company structure, carry on our current business, accept foreign investments, and offer or continue to offer securities to our investors. These adverse actions could value the value of our common stock to significantly decline or become worthless. We may also be subject to penalties and sanctions imposed by the PRC regulatory agencies, including theChinese Securities Regulatory Commission , if we fail to comply with such rules and regulations, which could adversely affect the ability of the Company's securities to continue to trade on the Over-the-Counter Bulletin Board, which may cause the value of our securities to significantly decline
or become worthless. There may be prominent risks associated with our operations being in the PRC. For example, as aU.S. -listed PRC public company, we may face heightened scrutiny, criticism and negative publicity, which could result in a material change in our operations and the value of our common stock. It could also significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless. Additionally, changes in Chinese internal regulatory mandates, such as the M&A rules, Anti-Monopoly Law, and the soon to be effective Data Security Law, may target the Company's corporate structure and impact our ability to conduct business in the PRC, accept foreign investments, or list on anU.S. or other foreign exchange. Agency Agreement
Pursuant to the Agency Agreement signed onMay 15, 2019 , among the Beijing VIE Shareholders and Beijing Hanze, the Beijing VIE Shareholders granted Beijing Hanze an irrevocable license for the longest period permitted under law the right to exercise the voting rights of the Beijing VIE Shareholders in accordance with the laws of the PRC and the Articles ofAssociation of Beijing VIE . During the term of this Agreement, none of the Beijing VIE Shareholders shall be entitled to transfer its interest in Beijing VIE to any third party other than entities or individuals designated by Beijing Hanze. This Agency Agreement shall be irrevocable and continuously valid from the date of execution of this Agency Agreement, and it can be terminated at Beijing Hanze's discretion. The foregoing description of the Agency Agreement is qualified in its entirety by reference to the Agency Agreement, an English translation of which is filed as Exhibit 10.5 to this Quarterly Report and incorporated herein by reference.
Impact of COVID-19 on our business and the business of Beijing VIE
The outbreak of COVID-19 that started in lateJanuary 2020 in the PRC has negatively affected Beijing VIE's business and consequently, the revenues and operating results that we are able to receive through our VIE agreements. InMarch 2020 , theWorld Health Organization declared COVID-19 as a pandemic which has resulted in quarantines, travel restrictions, and the temporary closure of stores and business facilities inChina and theU.S. in the subsequent months. Given the rapidly expanding nature of the COVID-19 pandemic, and because substantially all of Beijing VIE's business operations and its workforce are concentrated inChina , the business, results of operations, and financial condition for year 2020 and the nine months endedSeptember 30, 2021 , of Beijing VIE and, consequently, the Company have been adversely affected. For the nine months endedSeptember 30, 2021 , the Company had a net loss of approximately$5.3 million . AtSeptember 30, 2021 , the Company has a significant working capital deficiency of approximately$25.2 million , and a shareholders' deficit of approximately$10.7 million . These conditions raise substantial doubt about the Company's ability to continue as a going concern. 30 To mitigate the overall financial impact of COVID-19 on the business of Beijing VIE and its subsidiaries, management introduced cost containment and staff reduction measures, revised product selection and incentive programs and worked with Beijing VIE's service centers continuously to enhance their marketing and promotion activities. While we cannot predict future disruptions to Beijing VIE and the Company which may occur due to the spread of COVID-19 and its variants, management believes that COVID-19 will continue to have a material impact on the financial results of both Beijing VIE and the Company for the balance of 2021, and could cause potential impairment of certain assets. Accordingly, we expect to continue implementing cost containment measures, work closely with Beijing VIE's service centers with offline, online and virtual marketing and promotion activities, as well as actively recruit key sales members and obtain product and service collaborations for the benefit of Beijing VIE in the foreseeable future. We continue to monitor the status of the pandemic and will adjust our business strategies accordingly. Based on the most recent sales and cash flows projections for Beijing VIE and its subsidiaries, we believe that Beijing VIE and its subsidiaries could generate sufficient operating cash flows over the next 12 months to continue as a going concern. Results of Operations Our unaudited condensed consolidated financial statements have been prepared on a going concern basis, which assumes that we will be able to continue to operate in the future in the normal course of business. Our unaudited condensed consolidated financial statements for the nine months endedSeptember 30, 2021 , includes a note about our ability to continue as a going concern due to significant loss from operations of Beijing VIE and subsidiaries since 2020 as a result of COVID-19. Business closures in the PRC and limitations on business operations arising from COVID-19 has significantly disrupted our ability to generate revenues and cash flow during the three and nine months endedSeptember 30, 2021 .
Comparison for the Three Months Ended
The following table sets forth certain financial data for the three months ended
For the Three Months Ended September 30, Percentage
2021 2020 Change
(Unaudited) % (Unaudited) % %
Revenues $ 1,052,323 100.0 $ 81,669 100.0 1,188.5
Cost of revenues (506,218 ) (48.1 ) (407,798 ) (499.3 ) 24.1
Gross profit (loss) 546,105 51.9 (326,129 ) (399.3 ) (267.5 )
General and administrative
expenses 618,099 58.7 758,653 928.9 (18.5 )
Selling expenses 452,822 43.0 1,291,611 1,581.5 (64.9 )
Finance expenses (income),
net 10,957 1.0 (3,468 ) (4.3 ) (415.9 )
Total operating expenses 1,081,878 102.8 2,046,796
2,506.2 (47.1 )
Operating loss (535,773 ) (50.9 ) (2,372,925 ) (2,905.5 ) (77.4 )
Other expenses, net (801,002 ) (76.1 ) (796,320 ) (975.1 ) 0.6
Income from equity
investment - - 83,703 102.5 (100.0 )Total other expenses, net (801,002 ) (76.1 ) (712,617 ) (872.6 )
12.4
Loss before provision for
income taxes (1,336,775 ) (127.0 ) (3,085,542 ) (3,778.1 ) (56.7 )
Provision for income taxes - - -
- -
Net loss $ (1,336,775 ) (127.0 ) $ (3,085,542 ) (3,778.1 ) (56.7 )
Foreign currency
translation adjustment (17,027 ) (1.6 ) 23,318
28.6 (173.0 )
Comprehensive loss $ (1,353,802 ) (128.6 ) $ (3,062,224 ) (3,749.6 ) (144.2 )
31
Revenues. The increase in revenues of approximately $971,000 or 1,188.5% was due
primarily to business recovery from COVID-19 in 2021. For the three months ended
September 30, 2021 and 2020, all revenues were generated in the PRC; and no
customers accounted for 10% or more of total revenues. For the period of three
months ended September 31, 2021 and 2020, revenues were mainly attributable to
the sales of health foods, smart watches and cosmetics products.
Cost of Revenues.Cost of revenues consists primarily of the cost of merchandise
sold, sales incentives and commissions that are directly attributable to product
sales as well as allowance for slow-moving items and write off of expired
inventories. For the three months ended September 30, 2021 and 2020, cost of
revenues increased $98,420 or 24.1% compared to the same period in 2020 due
mainly to higher product sales in 2021. There were no suppliers that accounted
for more than 10% of purchase for the three months ended September 30, 2021
and 2020, respectively.
Gross Profit (Loss): Gross profit for the three months ended September 30, 2021
was approximately $546,000 , while gross loss for the three months ended
September 30, 2020 was approximately $326,000 . The improvement was due primarily
to the increase of revenues as a result of business recovery from COVID-19
in
2021.
General and Administrative Expenses. General and administrative expenses ("G&A
expenses") consist primarily of salary and benefits for our general
administrative and management staff, facilities costs, depreciation expenses,
professional and audit fees, and other miscellaneous expenses incurred in
connection with general operations. G&A expenses decreased 18.5% or
approximately $145,000 to approximately $618,000 for the three months ended
September 30, 2021 from approximately $759,000 for the same period of 2020. The
decrease was due primarily to the decrease in advisory fees, salaries and
benefits.
Selling Expenses. Selling expenses consist mainly of payroll and benefits for
employees involved in the sales and distribution functions, meeting/event fees,
advertisement, and marketing and selling expenses that are related to events and
activities at the Company's service centers designed to promote product sales.
Selling expenses decreased 64.9% or approximately $839,000 to approximately
$452,000 for the three months ended September 30, 2021 from approximately $1.3
million for the same period of 2020. The decrease was due mainly to the
Company's cost containment plan and initiatives to scale back its marketing
expenses in 2021 as the PRC economy continues to recover from the COVID
pandemic. During the same period of 2020, the Company organized numerous events
designed to boost product sales in light of the negative impact of COVID-19on its business.
Finance Expenses (Income), net. Finance expenses consist mainly of service fees related to the use of third-party online payment platforms, bank fees and interest expenses related to borrowings; net of interest income from bank and related bank products. Total net financial expenses were approximately$10,957 for the three months endedSeptember 30, 2021 , compared to approximately$3,500 of net finance income for the same period of 2020. The decrease was due mainly to the related bank products income for the three months endedJune 30, 2020 . Operating Loss. Compared to the same period of 2020, operating loss decreased by approximately$1.8 million for the three months endedSeptember 30, 2021 . The decrease was due mainly to the increase in gross profit. Total Other Expenses, net. Total net other expenses was approximately$801,000 for the three months endedSeptember 30, 2021 , compared to approximately$713,000 for the same period of 2020. The increase was due primary to late fee related to unpaid VAT and enterprise income tax. Provision for Income Taxes. No provision for income taxes was recorded for the three months endedSeptember 30, 2021 and 2020 since the Company reported pre-tax loss of approximately$1.3 million and$3.1 million , respectively during such period.
Net Loss. As a result of the factors described above, the Company reported net loss of approximately$1.3 million and$3.1 million for the three months endedSeptember 30, 2021 and 2020, respectively.
Comprehensive Loss.Factoring in the impact of foreign currency translation
adjustment, comprehensive loss was approximately
32
Comparison for the nine months ended
The following table sets forth certain financial data for the nine months endedSeptember 30, 2021 and 2020. For the Nine Months Ended September 30, Percentage 2021 2020 Change (Unaudited) % (Unaudited) % % Revenues$ 1,630,559 100.0$ 210,172 100.0 675.8 Cost of revenues (1,157,300 ) (71.0 ) (613,114 ) (291.7 ) 88.8 Gross profit (loss) 473,259 29.0 (402,942 ) (191.7 ) (217.5 ) General and administrative expenses 1,931,899 118.5 2,746,034 1,306.6 (29.6 ) Selling expenses 1,481,633 90.9 4,950,028 2,355.2 (70.1 ) Finance expenses (income), net 28,132 1.7 (173,622 ) (82.6 ) (116.2 ) Total operating expenses 3,441,664 211.1 7,522,440
3,579.2 (54.2 )
Operating loss (2,968,405 ) (182.0 ) (7,925,382 ) (3,770.9 ) (62.5 )
Other expenses, net (2,348,908 ) (144.1 ) (3,565,325 ) (1,696.4 ) (34.1 )
Income (loss) from equity
investment (8,166 (0.5 ) 83,703 39.8 (109.8 )
Total other expenses, net (2,357,074 ) (144.6 ) (3,481,622 ) (1,656.6 ) (32.3 )
Loss before provision for income taxes (5,325,479 ) (326.6 ) (11,407,004 ) (5,427.5 ) (53.2 ) Provision for income taxes - - -
- -
Net loss $ (5,325,479 ) (326.6 ) $ (11,407,004 ) (5,427.5 ) (53.3 )
Foreign currency
translation adjustment (33,119 ) (2.0 ) (69,355 ) (33.0 ) (52.2 )
Comprehensive loss $ (5,358,598 ) (328.6 ) $ (11,476,359 ) (5,460.5 ) (53.2 )
Revenues: The increase of approximately $1.4 million or 675.8% was due primarily
to business recovery from COVID-19 in 2021. For the nine months ended September
30, 2021 and 2020, all revenues were generated in the PRC; and no customers
accounted for 10% or more of total revenues. For the period of nine months ended
September 31, 2021 and 2020, revenues were mainly attributable to the sales of
health foods, smart watches and cosmetics products.
Cost of Revenues: The increase in cost of revenues of approximately $544,000 or
88.8% was due mainly to the increase in product sales in 2021. One supplier
(Baoqing Meilai Modern Agricultural Service Co., Ltd. ) accounted for 97% and 92%
of purchase for the nine months ended September 30, 2021 and 2020, respectively.
Gross Profit (Loss). Gross profit for the nine months ended September 30, 2021
was approximately $473,000 , while gross loss for the nine months ended September
30, 2020 was approximately $403,000 . The improvement in gross profit of
approximately $876,000 was due mainly to the increase in product sales in 2021.
33
General and Administrative Expenses. General and administrative decreased by
29.6% or approximately $814,000 to approximately $1.9 million for the nine
months ended Jun 30, 2021 from approximately $2.7 million for the nine months
ended September 30, 2020 . The decrease was due primarily mainly to the decrease
in advisory fees, salaries and benefits.
Selling Expenses. Selling expenses decreased by 70.1% or approximately $3.5
million to approximately $1.5 million for the nine months ended September 30,
2021 from approximately $5.0 million for the same period of 2020. The decrease
was due mainly to the Company's cost containment plan and initiatives to scale
back its marketing expenses in 2021 as the PRC economy continues to recover from
the COVID pandemic. During the same period of 2020, the Company organized
numerous events designed to boost product sales in light of the negative impact
of COVID-19 on its business.
Finance Expenses (Income), net. Finance expenses consist mainly of service fees related to the use of third-party online payment platforms, bank fees and interest expenses related to borrowings; net of interest income from bank and related bank products. Total net finance expenses were approximately$28,000 for the nine months endedSeptember 30, 2021 , compared to approximately$174,000 of net finance income for the same period of 2020. The decrease was due mainly to the related bank products income in the nine months endedSeptember 30, 2020 . Operating Loss. Operating loss was approximately$3.0 million for the nine months endedSeptember 30, 2021 , compared to approximately$7.9 million for the same period of 2020. The decrease was due primary to increase of gross profit in 2021.
Total Other Expenses, net. The decrease in total net other expenses of
approximately
Provision for Income Taxes. No provision for income taxes was recorded for the nine months endedSeptember 30, 2021 and 2020 since the Company reported pre-tax loss of approximately$5.3 million and$11.4 million , respectively during such period.
Net Loss. As a result of the factors described above, the Company reported net loss of approximately$5.3 million for the nine months endedSeptember 30, 2021 , a decrease of approximately$6.1 million from approximately$11.4 million of net loss for the same period of 2020.
Comprehensive Loss. Factoring in the impact of foreign currency translation
adjustment, comprehensive loss was approximately
Liquidity and Capital Resources
As ofSeptember 30, 2021 andDecember 31, 2020 , we had cash, cash equivalents and restricted cash of approximately$914,000 and$3.3 million , respectively. The following table sets forth a summary of our cash flows for the periods
as
indicated:
For the nine months ended
September 30,
2021 2020
(Unaudited) (Unaudited)Net cash used in operating activities$ (2,159,012 ) $ (21,468,409 ) Net cash used in investing activities$ (196,680 ) $ (1,788,623 ) Net cash used in financing activities $ -$ (1,724,779 ) Effect of exchange rate changes on cash, cash equivalents and restricted cash$ 12,869 $
30,376
Net decrease in cash, cash equivalents and restricted cash$ (2,342,823 ) $ (24,951,435 ) Cash, cash equivalents and restricted cash at beginning of period$ 3,257,005 $
28,919,817
Cash, cash equivalents and restricted cash at end of period$ 914,182 $ 3,968,382 34
The following table sets forth a summary of our working capital deficiency:
September 30, December 31,
2021 2020 Variation %
(Unaudited)
Total Current Assets $ 8,422,609 $ 11,435,892 $ (3,013,283 ) (26.3 )
Total Current Liabilities $ 33,587,169 $ 31,307,498 $ 2,279,671 7.3
Working Capital Deficiency $ (25,164,560 ) $ (19,871,606 ) $ (5,292,954 ) 26.6
Working Capital Deficiency. The increase in our working capital deficiency was
due mainly to net losses during the nine months ended
For the nine months endedSeptember 30, 2021 , cash used in operating activities was approximately$2.2 million . For nine months endedSeptember 30, 2020 , cash used in operating activities was approximately$21.5 million . The decrease in cash outflow of approximately$19.3 million was due primary to decrease in net loss of approximately$6.1 million , and increase in net cash inflow from changes in advances to suppliers of approximately$186,000 ; inventories of approximately$297,000 ; other payables and other current liabilities of approximately$2.5 million , partially offset by the decrease in tax payable of approximately$208,000 . Net cash used in investing activities was approximately$197,000 and$1.8 million for the nine months endedSeptember 30, 2021 and 2020, respectively. Net cash used in investing activities for the nine months endedSeptember 30, 2021 and 2020 was related to the purchases of property and equipment.
Net cash used in financing activities was $nil for the nine months ended
Off-Balance Sheet Arrangements
We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. In addition, we have not entered into any derivative contracts that are indexed to our own shares and classified as shareholders' equity, or that are not reflected in our financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. Moreover, we do not have any variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.
Critical Accounting Policies and Estimates
We prepare our financial statements in conformity with accounting principles generally accepted bythe United States of America ("U.S. GAAP"), which require us to make judgments, estimates, and assumptions that affect our reported amount of assets, liabilities, revenue, costs and expenses, and any related disclosures. Although there were no material changes made to the accounting estimates and assumptions since year 2020, we continually evaluate these estimates and assumptions based on the most recently available information, our own historical experience and various other assumptions that we believe to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from our expectations as a result of changes in our estimates. We believe that our accounting policies involve a higher degree of judgment and complexity in their application and require us to make significant accounting estimates. Accordingly, the policies we believe are the most critical to understanding and evaluating our consolidated financial condition and results of operations are summarized in "Note 3 - Summary of Significant Accounting Policies" in the notes to our unaudited condensed consolidated financial statements. 35
Recent Accounting Pronouncements
See "Note 3 - Summary of Significant Accounting Policies" in the notes to our unaudited condensed consolidated financial statements for a discussion of recent accounting pronouncements. The Company believes that other recent accounting pronouncement will not have a material effect on the Company's consolidated financial position, results of operations and cash flows.
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