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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-K)

03/31/2021 | 04:35pm EDT
This discussion summarizes the significant factors affecting the operating
results, financial condition, liquidity and cash flows of the Company and its
subsidiaries and VIE for the fiscal years ended December 31, 2020 and 2019. The
discussion and analysis that follows should be read together with the section
entitled "Cautionary Note Concerning Forward-Looking Statements" and our
consolidated financial statements and the notes to the consolidated financial
statements included elsewhere in this annual report on Form 10-K.



Except for historical information, the matters discussed in this section are
forward looking statements that involve risks and uncertainties and are based
upon judgments concerning various factors that are beyond the Company's control.
Consequently, and because forward-looking statements are inherently subject to
risks and uncertainties, the actual results and outcomes may differ materially
from the results and outcomes discussed in the forward-looking statements. You
are urged to carefully review and consider the various disclosures made by
us in
this report.


Currency and exchange rate




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. 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.



Impact of COVID-19 on our business




The outbreak of COVID-19 that started in late January 2020 in the PRC had
negatively affected our business. In March 2020, the World Health Organization
declared COVID-19 as a pandemic and 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 the Company's
business operations and its workforce are concentrated in China, the Company's
business, results of operations, and financial condition for 2020 have been
adversely affected. For the year ended December 31, 2020, the Company had a net
loss of approximately $15 million. At December 31, 2020, the Company has a
significant working capital deficiency of approximately $20 million, and a
shareholders' deficit of approximately $5.5 million. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.



To mitigate the overall financial impact of COVID-19 on the Company's business,
management introduced cost containment and staff reduction measures, revised
product selection and incentive programs and worked with our service centers
continuously to enhance their marketing and promotion activities. Management
believes that COVID-19 will continue to have a material impact on our financial
results for the first half of 2021 and could cause the potential impairment of
certain assets. Accordingly, we expect to continue implementing cost containment
measures, work closely with our 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 in the foreseeable future.
Assuming a significant easing of COVID related restrictive measures, and success
in the recruitment and retention of key sales members, we believe that we could
generate sufficient operating cash flows over the next 12 months to continue as
a going concern.







  16






Results of Operations


Our 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. In our consolidated financial statements for
the year ended December 31, 2020 and 2019, it has included a note about our
ability to continue as a going concern due to significant decline in our
operating cash flows and significant operating loss in year 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 operating cash flows during the fiscal year 2020.



The success of our business strategy is dependent in part upon the availability
of additional capital resources on terms satisfactory to management as we are
not generating sufficient revenues from our business operations. Our sources of
capital in the past have included advance from stockholders and affiliates.
There can be no assurance that we can raise such additional capital resources on
satisfactory terms. We believe that our current cash and other sources of
liquidity discussed above are adequate to support operations for at least the
next 12 months. We anticipate continuing to rely on equity sales of our common
shares and shareholder loans in order to continue to fund our business
operations. Issuances of additional shares will result in dilution to our
existing shareholders. There is no assurance that we will achieve any additional
sales of our equity securities or arrange for debt or other financing to fund
our plan of operations.


Comparison for the Years Ended December 31, 2020 and 2019




The following table sets forth certain financial data for the years ended
December 31, 2020 and 2019:



                                             For the Year Ended December 31,                    Percentage
                                          2020                             2019                   Change
                                 Dollars            %             Dollars            %               %
Revenues                      $     675,435          100.0     $  58,233,055          100.0           (98.8 )
Cost of revenues                 (1,802,493 )       (266.9 )     (41,763,786 )        (71.7 )         (95.7 )
Gross (loss) profit              (1,127,058 )       (166.9 )      16,469,269           28.3          (106.8 )

General and administrative
expenses                          7,319,709        1,083.7         8,110,916           13.9            (9.8 )
Selling expenses                  2,418,217          358.0         3,595,934            6.2           (32.8 )
Finance (income) expenses,
net                                (189,759 )        (28.1 )          83,409            0.1          (327.5 )

Total operating expenses 9,548,167 1,413.6 11,790,259

           20.2           (19.0 )

Operating (loss) income (10,675,225 ) (1,580.5 ) 4,679,010

            8.0          (328.2 )

Other expenses, net              (4,430,599 )       (656.0 )      (2,378,313 )         (4.1 )          86.3
(Income)/Loss from equity
investment                           84,828           12.6           

(31,098 ) (0.1 ) (372.8 )

Total other expenses, net (4,345,771 ) (643.4 ) (2,409,411 ) (4.1 ) 80.4

(Loss) income before provision for income taxes (15,020,996 ) (2,223.9 ) 2,269,599

            3.9          (761.8 )
Provision for income taxes                -              -           931,201            1.6          (100.0 )

Net (loss) income             $ (15,020,996 )     (2,223.9 )   $   1,338,398            2.3        (1,222.3 )

Foreign currency
translation adjustment             (166,580 )        (24.7 )        (163,254 )         (0.3 )           2.0

Comprehensive (loss) income $ (15,187,576 ) (2,248.6 ) $ 1,175,144

            2.0        (1,392.4 )






  17






Revenues: Revenues were approximately $675,000 and approximately $58.2 million
for the year ended December 31, 2020 and 2019, respectively. The decrease in
revenues of approximately $57.6 million or 98.8% is due primarily to business
interruptions arising from COVID-19. During the years ended December 31, 2020
and 2019, all revenues were generated in the PRC. During the year ended December
31, 2020, revenues were mainly attributable to the sales of home appliances,
smart watches, health foods, cold gel and cosmetics products, representing 3.7%,
22.1%, 26.1%, 34.9% and 2.6% of revenues, respectively. During the year ended
December 31, 2019, the top products categories were health foods, home
appliances and cosmetics, representing 70.92%, 11.38% and 7.32% of the revenue,
respectively. During the year ended December 31, 2020 and 2019, no customers
accounted for 10% or more of our total net revenues.



Cost of revenues: Cost of revenues consists primarily of the cost of merchandise
sold, delivery cost, service fees, sales incentives and commissions that are
directly attributable to the sale of certain designated products as well as
allowance for and write-down of slow-moving inventories. Cost of revenues of
approximately $1.8 million for the year ended December 31, 2020 consisted of
provision for slow-moving inventory of approximately $1.4 million. The decrease
in cost of revenues of approximately $40.0 million or 95.7% from the comparable
period of 2019 was due mainly to decrease in product sales as a result of
COVID-19.



There were three suppliers that accounted for more than 10% of total purchases
for the year ended December 31, 2020. One supplier (Shandong Kangqi Wood
Industry Co. Ltd.) accounted for 50%, one supplier (Harbin Xinyue Technology Co.
Ltd.) accounted for 21% and the other (Suzhou Jianli Kongjian Health Technology
Co. Ltd.) accounted for 20% for the year ended December 31, 2020. There were two
suppliers that accounted for more than 10% of total purchases, for the year
ended December 31, 2019. One supplier (Harbin Xinyue Technology Co. Ltd.)
accounted for 68%, and the other (Zhongji Technology Services Co. Ltd.)
accounted for 11% for the year ended December 31, 2019.



Gross (Loss) Profit. Gross loss for the year ended December 31, 2020 of approximately $1.1 million was attributed mainly to the provision for slowing-moving inventory of approximately $1.4 million. Gross profit for the year ended December 31, 2019 of approximately $16.5 million was attributed mainly to revenues of approximately $58.2 million.




General and Administrative Expenses. General and administrative expenses ("G&A
expenses") consist mainly of payroll and related costs for employees involved in
general corporate functions, including accounting, finance, tax, legal and human
resources, professional fees and other general corporate expenses as well as
costs associated with the use by these functions of facilities and equipment,
such as depreciation and rental expenses. G&A expenses decreased 9.8% or
approximately $791,000 to approximately $7.3 million from approximately $8.1
million for the year ended December 31, 2019 was due primarily to the decrease
in professional fees, and salary 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 32.8% or approximately $1.2 million to
approximately $2.4 million in the year ended December 31, 2020 from
approximately $3.6 million in the same period of 2019. The decrease was due
mainly to fewer events and lower travel expenses because of the negative impact
of COVID-19.



Finance Income, net. For the years ended December 31, 2020 and 2019, payment
processing fees amounted to $9,911 and $274,149, respectively. For the years
ended December 31, 2020 and 2019, interest expense amounted to $30,920 and
$16,312, respectively. For year ended December 31, 2020 and 2019, interest
income amounted to $230,590 and $207,052, respectively. The increase in net
finance income in 2020 was due mainly to lower payment processing fee or the
year ended December 31, 2020 as a result of the decline in revenues due to
COVID-19.



Operating (loss) Income. Operating loss was approximately $10.7 million for the
year ended December 31, 2020, compared to operating income of approximately $4.7
million for the same period of 2019. The decrease in operating income in 2020
was due primary to the significant decline in revenues in 2020 due to the impact
of COVID-19.









  18






Total Other Expenses, net. Other expenses consist mainly of estimated tax
penalties and charitable contributions. Total net other expenses were
approximately $4.4 million for the year ended December 31, 2020, compared to
approximately $2.4 million for the same period of 2019. The increase in total
net other expenses was due primary to donation to Binzhou Red Cross Society for
approximately $1.4 million and estimated tax penalties related to unpaid VAT and
income taxes of approximately $2.3 million.



Provision for Income Taxes. Provision for income taxes was nil for the year ended December 31, 2020, compared to $931,000 for the same period of 2019. The decrease was attributable mainly to the significant operating loss in year 2020.

Net (loss) Income. As a result of the factors described above, net loss was approximately $15.0 million for the year ended December 31, 2020, a decrease of $16.4 million from net income $1.3 million for the same period of 2019.




Comprehensive Loss (Income). Comprehensive loss was approximately $15.2 million
for the year ended December 31, 2020, as compared to comprehensive income of
approximately $1.2 million for the year ended December 31, 2019.



Liquidity and Capital Resources

As of December 31, 2020 and December 31, 2019, we had cash and cash equivalents of approximately $3.3 million and $28.9 million, respectively.




The following table sets forth a summary of our cash flows for the periods as
indicated:



                                                             For the Years ended
                                                                December 31,
                                                           2020              2019

Net cash (used in) provided by operating activities $ (22,538,913 ) $ 24,730,684 Net cash (used in) investing activities

                $  (1,671,064 )   $ (11,581,326 )
Net cash (used in) financing activities                $  (1,974,343 )   $  (1,865,742 )
Effect of exchange rate changes on cash, cash
equivalents and restricted cash                        $     521,508     $    (383,416 )
Net (decrease) increase in cash, cash equivalents
and restricted cash                                    $ (25,662,812 )   $ 

10,900,200

Cash, cash equivalents and restricted cash at
beginning of year                                      $  28,919,817     $ 

18,019,617

Cash, cash equivalents and restricted cash at end of
year                                                   $   3,257,005     $  28,919,817



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





                                  As of December 31,
                                2020              2019           Variation           %
Total Current Assets        $  11,435,892     $ 31,095,695     $ (19,659,803 )       (63.2 )
Total Current Liabilities   $  31,307,498     $ 32,354,228     $  (1,046,730 )        (3.2 )
Working Capital             $ (19,871,606 )   $ (1,258,533 )   $ (18,613,073 )     1,478.9





Working Capital. The deterioration in the Company's working capital was due mainly to the negative impact of COVID-19 as the Company experienced a significant decline in its revenues.

For the year ended December 31, 2020, cash used in operating activities was
approximately $22.5 million. For year ended December 31, 2019, cash provided by
operating activities was approximately $24.7 million. The key factors
attributing to the net cash outflows of approximately $22.5 million in 2020
include: net loss of approximately $15.0 million due mainly to drop in revenues
and increase in advance to suppliers of approximately $6.2 million.







  19





Net cash generated from operating activities was $24.7 million for the year
ended December 31, 2019, was due mainly to net income of $1.3 million, increase
in accrued expenses and other liabilities of $4.3 million, an increase in taxes
payable of $9.0 million, and increase in due from related parties of $10.2
million; partially offset by decrease in advance from customers of $3.5 million.



Net cash used in investing activities was approximately $1.7 million for the
year ended December 31, 2020, as compared to $11.6 million for the year ended
December 31, 2019. The change of approximately $9.9 million was due primary to
purchases of property and equipment of approximately $1.7 million in 2020, as
compared to an investment in equity investee of $11.6 million in 2019.



Net cash used in financing activities was approximately $2.0 million for the
year ended December 31, 2020, that consisted mainly net repayment of loans from
related parties and third parties of approximately $1.2 million plus dividends
of approximately $0.7 million. Net cash used in financing activities of
approximately $1.9 million for the year ended December 31, 2019 consisted mainly
of dividends of $3 million, partially offset by loan from third parties and
related parties of $1.2 million.



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



Basis of Presentation



The accompanying consolidated financial statements and related notes have been
prepared in accordance with accounting principles generally accepted in the
United States of America ("US GAAP") and pursuant to the rules and regulations
of the U.S. Securities and Exchange Commission ("SEC"). Certain prior year
balances have been reclassified to conform to the current year's presentation.



Principles of Consolidation



The accompanying consolidated financial statements include the financial
statements of the Company, its wholly-owned subsidiaries, and the VIE and its
subsidiary. All inter-company transactions and balances have been eliminated
upon consolidation.


VIE Agreements with Beijing Hongtao




The Company does not have a direct equity ownership interest in Beijing Luji but
relies on the VIE Agreements to control and receive the economic benefits of
Beijing Luji's business. The Company relies on contractual arrangements with its
variable interest entity to operate its online to office (O2O) business in the
PRC in which foreign investment is restricted or prohibited. The O2O platform
integrates the Company's e-commerce platform with physical outlets (service
centers) to connect consumers and merchants in a dynamic marketplace. Pursuant
to the VIE Agreements, the Company, through Beijing Hongtao, is able to exercise
effective control over, bears the risks of, enjoys substantially all of the
economic benefits its VIE and its subsidiary and has an exclusive option to
purchase all or part of the equity interests in the VIE when and to the extent
permitted by PRC law. The Company's management concluded that Beijing Luji and
its subsidiary are variable interest entities of the Company and Beijing Hongtao
is the primary beneficiary of Beijing Luji and its subsidiary. As such, the
financial statements of the VIE and its subsidiary are included in the
consolidated financial statements of the Company.



During the year ended December 31, 2020 and 2019, HanJiao, Luji Technology and Inooka did not have any business activities.









  20






Use of Estimates


The preparation of consolidated financial statements in conformity with US GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period.



Significant accounting estimates reflected in the Company's consolidated
financial statements include the allowance for doubtful accounts and slow-moving
inventory, and the useful lives of property and equipment. Since the use of
estimates is an integral component of the financial reporting process, actual
results could differ from those estimates.



Fair Value of Financial Instruments




The Company follows Financial Accounting Standards Board ("FASB") Accounting
Standards Codification ("ASC") FASB ASC Section 820, "Fair Value Measurements
and Disclosures." ASC 820 clarifies the definition of fair value, prescribes
methods for measuring fair value, and establishes a fair value hierarchy to
classify the inputs used in measuring fair value as follows:



Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

Level 2 applies to assets or liabilities for which there are inputs, other than
quoted prices in level 1, that are observable for the asset or liability such as
quoted prices for similar assets or liabilities in active markets; quoted prices
for identical assets or liabilities in markets with insufficient volume or
infrequent transactions (less active markets); or model-derived valuations in
which significant inputs are observable or can be derived principally from, or
corroborated by, observable market data.



Level 3 applies to assets or liabilities for which there are unobservable inputs
to the valuation methodology that are significant to the measurement of the fair
value of the asset or liability.



The carrying value of financial instruments included in current assets and liabilities approximate their fair values because of the short-term nature of these instruments.




Risks and Uncertainties



The operations of the Company are located in the PRC. Accordingly, the Company's
business, financial condition, and results of operations may be influenced by
the political, economic, and legal environment in the PRC, as well as by the
general state of the PRC economy. The Company's operations in the PRC are
subject to special considerations and significant risks not typically associated
with companies in North America and Western Europe. These include risks
associated with, among other factors, the political, economic and legal
environment and foreign currency restrictions. The Company's results may be
adversely affected by changes in the political, regulatory and social conditions
in the PRC, and by changes in governmental policies or interpretations with
respect to laws and regulations, anti-inflationary measures, currency
conversion, remittances abroad, and rates and methods of taxation, among other
things. Although the Company has not experienced losses from these situations
and believes that it is in compliance with existing laws and regulations,
changes in the future could affect the Company's interest in these entities.









  21






The outbreak of COVID-19 that started in late January 2020 in the PRC had
negatively affected our business. In March 2020, the World Health Organization
declared COVID-19 as a pandemic and 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 the Company's
business operations and its workforce are concentrated in China, the Company's
business, results of operations, and financial condition for the year ended
December 31, 2020 have been adversely affected. There is an uncertainty around
the breadth and duration of business disruptions related to COVID-19, as well as
its impact on the Company's business. Based on management's assessment of the
current economic environment in the PRC, the Company's recent sales trend, and
the possible negative impact from a prolonged pandemic in the PRC, management
believes that the Company's revenues and operating cash flows may be lower than
expected in the first half of 2021. To mitigate the overall financial impact of
COVID-19 on the Company's business, management continues to explore
opportunities to reduce its operating overhead and works closely with its
service centers to develop promotional activities that will hopefully generate
additional sales in 2021.



Inventories



Inventories consist of finished goods and they are stated at the lower of cost
or net realizable value. Cost is determined using the weighted average method.
The Company periodically evaluates its inventories and will record an allowance
for inventories that are either slow-moving, may not be saleable or whose cost
exceeds its net realizable value.



Advance to Suppliers



Advance to suppliers consists of payments to suppliers for finished goods that
have not been delivered to the Company. The Company periodically evaluates and
reviews its advance to suppliers to determine whether its carrying value has
been impaired.



Long-term Investment



Long-term investment consists of the Company's equity investment for strategic
or business development purposes. The Company applies the equity method of
accounting for its equity investment, according to FASB ASC 323
"Investment-Equity Method and Joint Ventures," over which it has significant
influence but does not own a majority equity interest or otherwise control.
Under the equity method, the Company's share of the profits or losses of the
equity investees are recorded in its consolidated statements of comprehensive
income (loss).


The Company reviews its investment at least annually to determine whether a
decline in fair value to below the carrying value is other-than-temporary. The
primary factors the Company considers in its determination are the duration and
severity of the decline in fair value; the financial condition, operating
performance and the prospects of the equity investee; and other company specific
information such as recent financing activities. If the decline in fair value is
deemed to be other-than-temporary, the carrying value of the investment will be
written down to its fair value.



No events have occurred that indicated an impairment in fair value for the year ended December 31, 2020.









  22






Property and Equipment, Net



Property and equipment are carried at cost and are depreciated on the
straight-line basis over the estimated useful lives of the underlying assets.
The cost of repairs and maintenance is expensed as incurred; major replacements
and improvements are capitalized. When their assets are retired or disposed of,
the cost and accumulated depreciation and amortization are removed from the
accounts, and any resulting gains or losses are included in income in the year
of disposition. The Company examines the possibility of decreases in the value
of its property and equipment, when events or changes in circumstances reflect
the fact that their recorded value may not be recoverable.



Estimated useful lives are as follows, taking into account the assets' estimated residual value:



                 Classification           Estimated useful lives
                 Property                 20 years
                 Vehicles                 10 years
                 Office equipment         3 years
                 Furniture and fixtures   3 years
                 Software                 3 years




Long-lived Assets



Finite-lived assets and intangibles are reviewed for impairment testing when
circumstances require. For purposes of evaluating the recoverability of
long-lived assets, when undiscounted future cash flows will not be sufficient to
recover an asset's carrying amount, the asset is written down to its fair value.
The long-lived assets of the Company that are subject to evaluation consist
primarily of property and equipment, and long-term investment. For the year
ended December 31, 2020 and 2019, the Company did not recognize any impairment
of its long-lived assets.



Leases



In January 2016, the FASB issued ASU 2016-02, "Leases" ("ASU 2016-02") requiring
leases to be recognized on the balance sheet as a right-of-use asset and lease
liability for all long-term leases and requiring disclosure of key information
about leasing arrangements in order to increase transparency and comparability
among organizations.



Effective July 1, 2020, the Company adopted ASU 2016-02, "Leases" (Topic 842),
and elected the practical expedients that do not require it to reassess: (1)
whether any expired or existing contracts are, or contain, leases, (2) lease
classification for any expired or existing leases and (3) initial direct costs
for any expired or existing leases. The Company also adopted the practical
expedient that allows lessees to treat the lease and non-lease components of a
lease as a single lease component.



The Company measures the lease liability based on the present value of the lease
payments discounted by the relevant borrowing rate and reduces the carrying
value of the lease liability for lease payments made. Leases with an initial
expected term of 12 months or less are considered short-term and are not
recorded on the Company's consolidated balance sheets. The Company recognizes
lease expense for these leases on a straight-line basis over the expected lease
term.









  23






Revenue Recognition



On January 1, 2019, the Company adopted FASB ASC 606, Revenue from Contracts
with Customers using the modified retrospective method for all contracts not
completed as of the date of adoption. Accordingly, revenues for the year ended
December 31, 2020 and 2019, are presented under ASC 606.



The core principle underlying the revenue recognition standard is that the
Company will recognize revenue to represent the transfer of products or services
to customers in an amount that reflects the consideration to which the Company
expects to be entitled in such exchange. This will require the Company to
identify contractual performance obligations and determine whether revenue
should be recognized at a point in time or over time, based on when control of
the product or the benefit of the services transfers to the customer. Under the
guidance of ASC 606, the Company is required to (a) identify the contract with a
customer, (b) identify the performance obligations in the contract,
(c) determine the transaction price, (d) allocate the transaction price to the
performance obligations in the contract and (e) recognize revenue when (or as)
the Company satisfies its performance obligations.



Product Sales: Beijing Luji, the Company's VIE, is primarily engaged in the sale
of healthcare and other products (such as nutrition or dietary supplements;
water or air purifiers and smart watches) to the middle aged and elderly market
segments in the PRC. Beijing Luji sells these products under its own "Fozgo"
brand and related healthcare products for other vendors through its internet
platform and offline service centers. Revenue from product sales is recognized
when control passes to the customer, which generally occurs at a point in time
when products are delivered. Allowance for sales returns, that reduces revenues,
are estimated based on historical experience. Revenues are recorded net of
value-added taxes, business taxes, discounts and surcharges and allowance for
returns.



Beijing Luji collects cash from customers before or upon delivery of products
mainly through banks and third-party online payment platforms (such as Alipay).
Cash collected from customers before product delivery is recognized as advance
from customers.



Cost of Revenues



Cost of revenues consists primarily of the cost of merchandise sold, delivery
cost, service fees, sales incentives and commissions that are directly
attributable to the sale of certain designated products as well as allowance for
and write-down of slow-moving inventories.



General and Administrative Expenses




General and administrative expenses consist mainly of payroll and related costs
for employees involved in general corporate functions, including accounting,
finance, tax, legal and human resources, professional fees and other general
corporate expenses as well as costs associated with the use by these functions
of facilities and equipment, such as depreciation and rental expenses.



Selling Expenses



Selling expenses consist mainly of payroll and benefits for employees involved
in the sales and distribution functions, meeting/event fees, advertisement,
marketing and selling expenses that are related to events and activities at the
Company's service centers designed to promote product sales as well as operating
expenses related to the service centers.









  24






Finance Expenses (Income)


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.




For the years ended December 31, 2020 and 2019, bank fees amounted to $9,911 and
$274,149, respectively. For year ended December 31, 2020 and 2019, interest
expense amounted to $30,920 and $16,312, respectively. For the years ended
December 31, 2020 and 2019, interest income amounted to $230,590 and $207,052,
respectively.



Other Income (Expenses)


Other income consists primarily of income from the administration of Beijing Luji's online marketplace. Other expenses consist mainly of estimated tax penalties and charitable contributions.



Income Taxes


The Company follows FASB ASC Topic 740, "Income Taxes," which requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Under this method, deferred income taxes are recognized for the tax
consequences in future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts at each period end based on
enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Deferred tax assets are also
recognized for operating losses that are available to offset the future taxable
income. Valuation allowances are established when deemed necessary to reduce
deferred tax assets to the amount expected to be realized.



The Company follows FASB ASC 740-10-25, "Accounting for Uncertainty in Income
Taxes", which requires income tax positions to meet a more-likely-than-not
recognition threshold to be recognized in the financial statements. Under ASC
740-10-25, tax positions that previously failed to meet the more-likely-than-not
threshold should be recognized in the first subsequent financial reporting
period in which that threshold is met. Previously recognized tax positions that
no longer meet the more-likely-than-not threshold should be derecognized in the
first subsequent financial reporting period in which that threshold is no longer
met. The Company believes that it does not have any uncertain tax positions. It
is not expected that there will be any uncertain tax position within year of
December 31, 2020.


The application of tax laws and regulations is subject to legal and factual
interpretation, judgment and uncertainty. Tax laws and regulations themselves
are subject to change as a result of changes in fiscal policy, changes in
legislation, the evolution of regulations and court rulings. Therefore, the
actual liability may be materially different from our estimates, which could
result in the need to record additional tax liabilities or potentially reverse
previously recorded tax liabilities or the deferred tax asset valuation
allowance. Due to the lack of temporary differences between the tax bases and
their financial reporting amounts, the Company has not recognized any deferred
tax assets or liabilities as of December 31, 2020 and 2019.



Enterprise Income Tax



Under the Provisional Regulations of the PRC concerning income tax on
enterprises promulgated by the PRC (the "EIT Law"), the Company was qualified as
a high and new technology enterprise starting in 2018, and enjoys a preferential
tax rate of 15% for 3 years expired in 2020. The Company is applying for the
qualification of the preferential tax rate. An entity can re-apply to be a high
and new technology enterprise when the prior certificate expires. Income tax is
payable at a rate of 15% of our taxable income for the year ended December
31,
2020 and 2019.









  25






Value-Added Tax



Starting from May 1, 2018, the VAT rate for revenue generated from providing
products was 16%. Starting from April 1, 2019, the VAT rate for revenue
generated from providing products changed from 16% to 13%. VAT is reported as a
reduction of revenue when incurred. Entities that are VAT general taxpayers are
allowed to offset qualified input VAT paid to suppliers against their output VAT
liabilities. The net VAT balance between input VAT and output VAT is recorded in
taxes payable.



Foreign Currency Translation



The functional currency of the Company's operations in the PRC is the Chinese
Yuan or Renminbi ("RMB"). The financial statements are translated into U.S.
dollars ("USD") using the period end rates of exchange for assets and
liabilities, equity is translated at historical exchange rates, and average
rates of exchange (for the period) are used for revenues and expenses and cash
flows. As a result, amounts relating to assets and liabilities reported on the
statements of cash flows may not necessarily agree with the changes in the
corresponding balances on the balance sheets. Translation adjustments resulting
from the process of translating the local currency financial statements into USD
are included in determining comprehensive income (loss). Transactions
denominated in foreign currencies are translated into the functional currency at
the exchange rates prevailing on the transaction dates. Assets and liabilities
denominated in foreign currencies are translated into the functional currency at
the exchange rates prevailing at the balance sheet date with any transaction
gains and losses that arise from exchange rate fluctuations on transactions
denominated in a currency other than the functional currency are included in the
results of operations as incurred.



All of the Company's revenue transactions are transacted in its functional
currency. The Company does not enter into any material transaction in foreign
currencies. Transaction gains or losses have not had, and are not expected to
have, a material effect on the results of operations of the Company.



The exchange rates as of December 31, 2020 and 2019 and for the year ended December 31, 2020 and 2019 are as follows:



                                                                                        Year ended
                                     December 31,         December 31,                 December 31,
                                         2020                 2019                2020               2019
Foreign currency                    Balance Sheet        Balance Sheet        Profits/Loss       Profits/Loss
RMB:1USD                                     6.5249               6.9762             6.8976             6.8985




Comprehensive Income (Loss)



Comprehensive income (loss) consists of two components, net income (loss) and
other comprehensive income (loss). Other comprehensive income (loss) refers to
revenue, expenses, gains and losses that under GAAP are recorded as an element
of shareholders' equity but are excluded from net income (loss). Other
comprehensive income (loss) consists entirely of foreign currency translation
adjustments resulting from the Company's translation of its financial statements
from its functional currency into USD.



Earnings (loss) Per Share



Basic earnings (loss) per share is computed by dividing net income (loss) by the
weighted-average number of ordinary shares outstanding during the period.
Diluted earnings per share is computed by dividing net income by the
weighted-average number of ordinary shares plus dilutive potential ordinary
shares outstanding during the period. When the Company has a loss, the potential
ordinary shares are not included since their inclusion would be anti-dilutive.
For the year ended December 31, 2020 and 2019, there were no potential ordinary
shares, such as options, warrants or conversion rights, that would have a
dilutive effect on the Company's earnings per share.









  26





Recent Accounting Pronouncements




In February 2016, the FASB issued ASU 2016-02, Amendments to the ASC 842 Leases.
This update requires a lessee to recognize an asset and liability (the lease
liability) arising from operating leases on the balance sheet for the lease
term. When measuring assets and liabilities arising from a lease, a lessee (and
a lessor) should include payments to be made in optional periods only if the
lessee is reasonably certain to exercise an option to extend the lease or not to
exercise an option to terminate the lease. Leases with twelve months or less
lease term, a lessee is permitted to make an accounting policy election not to
recognize lease assets and liabilities. If a lessee makes this election, it
should recognize lease expense on a straight-line basis over the lease term. In
transition, this update was effective for public entities for fiscal years
beginning after December 15, 2018, including interim periods within those fiscal
years. The Company adopted ASU 2016-02 upon the completion of the Share Exchange
Transaction. The adoption of ASU 2016-02 did have a material impact on the
Company's consolidated financial statements.



In July 2017, the FASB Issued ASU 2017-11, Earnings Per Share (Topic 260),
Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging
(Topic 815). The amendments in Part I of the Update change the reclassification
analysis of certain equity-linked financial instruments (or embedded features)
with down round features. The amendments in Part II of this Update
recharacterize the indefinite deferral of certain provisions of Topic 480 that
now are presented as pending content in the Codification, to a scope exception.
For public business entities, the amendments in Part I of this Update are
effective for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2018. For all other entities, the amendments in
Part I of this Update are effective for fiscal years beginning after December
15, 2019, and interim periods within fiscal years beginning after December 15,
2020. The amendments in Part II of this Update do not require any transition
guidance because those amendments do not have an accounting effect. The adoption
of this ASU did not have a material effect on the consolidated financial
statements.



In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement Disclosure
Framework-Changes to the Disclosure Requirements for Fair Value
Measurement ("ASU 2018-13"), which amends certain disclosure requirements over
Level 1, Level 2, and Level 3 fair value measurements. ASU 2018-13 is effective
for fiscal years beginning after December 15, 2019 and interim periods within
those fiscal years. Early adoption is permitted. The adoption of ASU 2018-13 did
have a material impact on the Company's consolidated financial statements.



In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740) to
simplify accounting for income taxes. This ASU removes certain exceptions to the
general principles in Topic 740 and amends existing guidance to improve
consistent application. ASU 2019-12 is effective for fiscal years beginning
after December 15, 2020 and interim periods within those fiscal years, with
early adoption permitted. The Company does not expect the adoption of the new
ASU to have a significant impact on its consolidated financial statements.



The Company does not believe that other recently issued accounting standards, if
currently adopted, will have a material effect on the Company's consolidated
financial statements.











  27

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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 48,5 M 48,5 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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