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    HJGP   US41044P1066

HANJIAO GROUP, INC.

(HJGP)
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HANJIAO : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

08/16/2021 | 11:09am EDT
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 the SEC on March
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 of the United States. References to
"Chinese Yuan" or "Renminbi ("RMB")" are to the Chinese Yuan, the legal currency
of the People's Republic of China ("PRC" or "China"). Throughout this report,
assets and liabilities of the Company's subsidiaries are translated into U.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 as Beijing Luji Technology Co.,
Ltd.) ("Beijing VIE") that was formed in Beijing, China on March 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"), through Beijing Hanze Management Consulting Co. Ltd.
(formerly known as Beijing 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.







  30





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) LuJi Technology International Holding Limited ("Luji Technology") was

incorporated on July 5, 2018 in the British Virgin Islands and is wholly

owned by HJ.

(3) Inooka Holding Ltd. was established on July 18, 2018 in Hong Kong and is

wholly owned by Luji Technology.

(4) Beijing Hanze Management Consulting Co., Ltd. (fka Beijing Hongtao

Management Consulting Co., Ltd., currently "Beijing Hanze"), a Wholly

Foreign-Owned Enterprise ("WFOE"), was established in the PRC on October

11, 2018 and is a wholly owned subsidiary of Inooka Holding Ltd. It

currently provides consulting and technical services to Beijing Yingjun

Technology Co., Ltd. (fka Beijing Luji Technology Co., Ltd., currently

"Beijing VIE").

(5) Beijing VIE was established in the PRC on March 27, 2007. It is engaged

in the business of selling goods in China. Beijing Hanze controls Beijing

VIE via various variable interest contractual arrangements ("VIE

agreements") to realize its economic benefits. Currently, the

shareholders of Beijing VIE are Ms. Tian Xiangyang, Mr. Tian Zhihai, Mr.

Liu Zexian, Ms. Gao Xuewei and Ms. Li Chunduo, together the "Beijing VIE

Shareholders".

(6) Guoyi Investment Fund Management (Beijing) Co., Ltd. ("Beijing Guoyi")

was formed on February 19, 2016, and is wholly owned by Beijing VIE.

Beijing Guoyi has no business activity as of the date of this Quarterly

Report.

(7) On March 15, 2019, Beijing VIE executed a Share Purchase Agreement with

Rongcheng Health Group Co., Ltd. and acquired a 44% equity interest in

Rongcheng Tianrun Taxus Co., Ltd. ("Rongcheng Tianrun") for RMB

79,830,000 (approximately $12.3 million). Rongcheng Tianrun is organized

and registered in the PRC, and it is engaged primarily in the cultivation

         and marketing of Taxus, a type of medicinal plant.








  31





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
on May 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.



Exclusive Consulting and Services Agreement




Pursuant to the Exclusive Consulting and Service Agreement signed on May 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 the Exclusive 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 on May 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.







  32






Equity Disposal Agreement



Pursuant to the Equity Disposal Agreement signed on May 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.



Equity Pledge Agreement



Pursuant to the Equity Pledge Agreement signed on May 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 the Exclusive 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 the
Exclusive 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 the Exclusive
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.



 Agency Agreement


Pursuant to the Agency Agreement signed on May 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 of Association 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 late January 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. In
March 2020, the World Health Organization declared COVID-19 as a pandemic which
has resulted in quarantines, travel restrictions, and the temporary closure of
stores and business facilities in China and the U.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 in China, the business, results of operations, and financial
condition for year 2020 and the six months ended June 30, 2021, of Beijing VIE
and, consequently, the Company have been adversely affected. For the six months
ended June 30, 2021, the Company had a net loss of approximately $4.0 million.
At June 30, 2021, the Company has a significant working capital deficiency of
approximately $23.8 million, and a shareholders' deficit of approximately $9.3
million. These conditions raise substantial doubt about the Company's ability to
continue as a going concern.









  33






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 six months ended June 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 six months ended June
30,
2021.


Comparison for the Three Months Ended June 30, 2021 and 2020




The following table sets forth certain financial data for the three months ended
June 30, 2021 and 2020:



                                          For the Three Months Ended June 30,                  Percentage
                                          2021                           2020                    Change
                                 Dollars                        Dollars
                               (Unaudited)          %         (Unaudited)          %               %
Revenues                       $    337,741         100.0     $     94,172          100.0            258.6
Cost of revenues                   (535,982 )      (158.7 )       (166,535 )       (176.8 )          221.8
Gross loss                         (198,241 )       (58.7 )        (72,363 )        (76.8 )          174.0

General and administrative
expenses                            560,102         165.8          739,714          785.5            (24.3 )
Selling expenses                    495,320         146.7        2,385,503        2,533.1            (79.2 )
Finance expenses, net                 6,180           1.8           11,984           12.7            (48.4 )
Total operating expenses          1,061,602         314.3        3,137,201 
      3,331.4            (66.2 )

Operating loss                   (1,259,843 )        (373 )     (3,209,564 )     (3,408.2 )          (60.7 )

Total other expenses, net (800,184 ) (236.9 ) (577,276 ) (613.0 )

           38.6

Loss before provision for
income taxes                     (2,060,027 )      (609.9 )     (3,786,840 )     (4,021.2 )          (45.6 )
Provision for income taxes                -             -                - 
            -                -

Net loss                       $ (2,060,027 )      (609.9 )   $ (3,786,840 )     (4,021.2 )          (45.6 )

Foreign currency translation
adjustment                          (78,413 )       (23.2 )         (8,901 )         (9.5 )          780.9

Comprehensive loss             $ (2,138,440 )      (633.1 )   $ (3,795,741 )     (4,030.7 )          (43.7 )








  34





Revenues. The increase in revenues of approximately $244,000 or 258.6% was due
primarily to business recovery from COVID-19 in 2021. During the three months
ended June 30, 2021 and 2020, all revenues were generated in the PRC; and no
customers accounted for 10% or more of total revenues. During the three months
ended June 30, 2021, revenues were mainly from sales of health foods. During to
the same period of 2020, revenues were mainly attributable to the sales of
smart
watches and health foods.



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. Included in cost of revenues for the three months ended June 30,
2021 and 2020, are (i) write off of expired inventories of approximately
$198,000 and $ nil, respectively; and (ii) allowance for slow-moving inventory
of approximately $2,000 and $163,000 respectively.



There were two suppliers that accounted for more than 10% of total purchases for
the three months ended June 30, 2021, and only one supplier for the same period
in 2020, respectively. One supplier (Wuyishan Zuoyun Ecological Tea Co., Ltd)
accounted for 54%, and the other (Hainan Shanshiyuan Health Management Co.,
LTD.) accounted for 46% for the three months ended June 30, 2021. One supplier
(Baoqing Meilai Modern Agricultural Service Co., Ltd.) accounted for 92.3% for
the three months ended June 30, 2020.



Gross Loss: Gross loss for the three months ended June 30, 2021 and 2020, was
approximately $198,000 and $72,000, respectively. The increase was due primarily
to expired inventories that were written off during the quarter, partially
offset by the increase in product sales 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 24.3% or
approximately $180,000 to $560,000 from approximately $740,000 for the three
months ended June 30, 2020 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 by 79.2% or approximately $1.9 million to
approximately $495,000 in the three months ended June 30, 2021 from
approximately $2.4 million in 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, 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 $6,000 and
$12,000 for the three months ended June 30, 2021, and 2020, respectively. The
decrease in net financial expenses was due mainly to decrease in interest
expenses in the three months ended June 30, 2021.



Operating Loss. Compared to the same period of 2020, operating loss decreased by approximately $1.9 million for the three months ended June 30, 2021. The decrease was due mainly to the reduction in marketing expenses.




Total Other Expenses, net. Total net other expenses was approximately $800,000
for the three months ended June 30, 2021, compared to approximately $577,000 for
the same period of 2020. The increase was due primary to late fee related to VAT
and enterprise of income tax.



Provision for Income Taxes. No provision for income taxes was recorded for the
three months ended June 30, 2021 and 2020 since the Company reported pre-tax
loss of approximately $2.1 million and $3.8 million, respectively during such
period.


Net Loss. As a result of the factors described above, the Company reported net
loss of approximately $2.1 million and $3.8 million for the three months ended
June 30, 2021 and 2020, respectively.



Comprehensive Loss.Factoring in the impact of foreign currency translation adjustment, comprehensive loss was approximately $2.1 million and $3.8 million for the three months ended June 30, 2021 and 2020, respectively.







  35





Comparison for the Six Months Ended June 30, 2021 and 2020




The following table sets forth certain financial data for the six months ended
June 30, 2021 and 2020.



                                           For the Six Months Ended June 30,                   Percentage
                                          2021                           2020                    Change
                                 Dollars                        Dollars
                               (Unaudited)          %         (Unaudited)          %               %
Revenues                       $    578,236         100.0     $    128,503          100.0            350.0
Cost of revenues                   (651,082 )      (112.6 )       (205,316 )       (159.8 )          217.1
Gross loss                          (72,846 )       (12.6 )        (76,813 )        (59.8 )           (5.2 )

General and administrative
expenses                          1,313,800         227.2        1,872,180        1,456.9            (29.8 )
Selling expenses                  1,028,811         177.9        3,658,417        2,847.0            (71.9 )
Finance expenses (income),
net                                  17,175           3.0         (170,154 )       (132.4 )          110.1
Total operating expenses          2,359,786         408.1        5,360,443 
      4,171.5            (56.0 )

Operating loss                   (2,432,632 )      (420.7 )     (5,437,256 )     (4,231.2 )          (55.3 )

Total other expenses, net (1,556,072 ) (269.1 ) (2,769,005 ) (2,154.8 ) (43.8 )


Loss before provision for
income taxes                     (3,988,704 )      (689.8 )     (8,206,261 )     (6,386.0 )          (51.4 )
Provision for income taxes                -             -                - 
            -                -

Net loss                       $ (3,988,704 )      (689.8 )   $ (8,206,261 )     (6,386.0 )          (51.4 )

Foreign currency translation
adjustment                          (16,092 )        (2.8 )        (92,673 )        (72.1 )          (82.6 )

Comprehensive loss             $ (4,004,796 )      (692.6 )   $ (8,298,934 )     (6,458.1 )          (51.7 )




Revenues: The increase of approximately $449,700 or 350.0% was due primarily to
business recovery from COVID-19 in 2021. During the six months ended June 30,
2021 and 2020, all revenue was generated in the PRC and no customers accounted
for 10% or more of total revenues. During the six months ended June 30, 2021,
revenues were mainly attributable to the sales of health foods. During the same
period of 2020, revenues were mainly attributable to the sales of smart watches
and health foods.



Cost of revenues: The increase in cost of revenues of approximately $445,800 or
217.1% was due mainly to the increase in product sales in 2021 and write-off of
expired inventories of approximately $198,000. One supplier (Baoqing Meilai
Modern Agricultural Service Co., Ltd.) accounted for 97% and 92% of purchase for
the six months ended June30, 2021 and 2020, respectively.







  36






Gross Loss. The decrease in gross loss of approximately $4,000 was due mainly to
the increase in product sales, partially offset by the write-off and provision
for slow moving inventory of approximately $196,000 in 2021.



General and Administrative Expenses. General and administrative decreased by
29.8% or approximately $558,000 to approximately $1.3 million for the six months
ended Jun 30, 2021 from approximately $1.9 million for the six months ended June
30, 2020 was due primarily to the decrease in advisory fees, salaries and
benefits.



Selling Expenses. Selling expenses decreased by 71.9% or approximately $2.6
million to approximately $1.0 million for the six months ended June 30, 2021
from approximately $3.7 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, net. Total net finance expenses were approximately $17,000 for
the six months ended June 30, 2021, compared to approximately $170,000 of net
finance income for the same period of 2020. The decrease was due mainly to lower
interest income from bank and related bank products in the six months ended
June
30, 2021.



Operating loss. Operating loss was approximately $2.4 million for the six months
ended June 30, 2021, compared to approximately $5.4 million for the same period
of 2020. The decrease was due primary to reduction in selling expenses in 2021.



Total other expenses, net. The decrease in net other expenses of approximately
$1.2 million in 2021 was due primary to a special donation to the Red Cross
in
2020.


Provision for income taxes. No provision for income taxes was recorded for the
six months ended June 30, 2021 and 2020 since the Company reported pre-tax loss
of approximately $4.0 million and $8.2 million, respectively during such period.



Net loss. As a result of the factors described above, the Company reported net
loss of approximately $4.0 million for the six months ended June 30, 2021, a
decrease of approximately $4.2 million from approximately $8.2 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 $4.0 million for the six months ended June 30, 2021, as compared to approximately $8.3 million for the six months ended June 30, 2020.

Liquidity and Capital Resources

As of June 30, 2021 and December 31, 2020, we had cash and cash equivalents of
approximately $1.0 million and $2.7 million, respectively. The following table
sets forth a summary of our cash flows for the periods as indicated:



                                                          For the Six Months ended
                                                                  June 30,
                                                           2021             2020
                                                       (Unaudited)       (Unaudited)
Net cash used in operating activities                  $ (2,296,372 )   $ (19,233,677 )
Net cash used in investing activities                  $     (3,523 )   $  (1,773,998 )
Net cash used in financing activities                  $          -     $  (1,742,847 )
Effect of exchange rate changes on cash and cash
equivalents                                            $     72,969     $    (269,063 )
Net decrease in cash and cash equivalents              $ (2,226,926 )   $ (23,019,585 )
Cash and cash equivalents at beginning of period       $  3,257,005     $  28,919,817
Cash and cash equivalents at end of period             $  1,030,079     $  
5,900,232










  37





The following table sets forth a summary of our working capital:



                              June 30,        December 31,
                                2021              2020           Variation          %
                              (Unaudited)
Total Current Assets        $   9,012,296     $  11,435,892     $ (2,423,596 )     (21.2 )
Total Current Liabilities   $  32,807,650     $  31,307,498     $  1,500,152         4.8
Working Capital             $ (23,795,354 )   $ (19,871,606 )   $ (3,923,748 )     (19.7 )



Working Capital. The deterioration in working capital was due mainly to recurring net losses since year 2020.




For the six months ended June 30, 2021, cash used in operating activities was
approximately $2.3 million. For six months ended June 30, 2020, cash used in
operating activities was approximately $19.2 million. The decrease in cash
outflow of approximately $16.9 million was due primary to decrease in (1) net
loss of approximately $4.2 million (2) advances to suppliers of approximately
$6.1 million, (3) prepayment and other current assets of approximately $396,000,
(4) accrued expenses of approximately $4.7 million, and (5) other payables and
other current liabilities of approximately $680,000.



Net cash used in investing activities was approximately $4,000 and $1.8 million
for the six months ended June 30, 2021 and 2020, respectively. Net cash used in
investing activities of approximately $1.8 million for the six months ended June
30, 2020 was related to the purchases of property and equipment.



Net cash used in financing activities was $nil for the six months ended June 30,
2021, as compared to net cash used in financing activities of approximately $1.7
million for the six months ended June 30, 2020. The cash outflow for the six
months ended June 30, 2020 was due mainly to repayment of loans of approximately
$1.0 million and dividends paid of approximately $727,000.



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 by the 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.







  38





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.

© Edgar Online, source Glimpses

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Financials (USD)
Sales 2020 0,68 M - -
Net income 2020 -15,0 M - -
Net cash 2020 1,68 M - -
P/E ratio 2020 -4,85x
Yield 2020 -
Capitalization 49,6 M 49,6 M -
EV / Sales 2019 -
EV / Sales 2020 105x
Nbr of Employees 43
Free-Float 13,5%
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Managers and Directors
Xiang Yang Tian Chairman & Chief Executive Officer
Yong Hua Shan Chief Financial Officer & Director
Zhi Hai Tian Chief Operating Officer, Secretary & Director
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