Table of Contents
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| (Mark
One) |
|
|
| [X] |
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020. |
|
or
| [_] |
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to
__________ |
|
Commission File Number: 000-55999
Hanjiao Group, Inc.
(Exact Name of Registrant as Specified in its Charter)
| Nevada |
83-2187195 |
| (State
of other jurisdiction of |
(I.R.S.
Employer |
| incorporation
or organization) |
Identification
Number) |
Room 1206, 12th Floor, 301, 3-17 F, Building 5
Block 1, Hangfeng Road
Fengtai District, Beijing
People's Republic of China
(Address of principal executive offices) (Zip Code)
Registrant's Phone: +86 185 1685 0587
Securities registered pursuant to Section 12(b) of the
Act:
|
Title
of each Class |
Trading
Symbol |
Name
of each exchange on which registered |
| Common
Stock, par value US$0.0001 |
HJGP |
N/A |
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes [_] No [X]
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the
registrant was required to submit such files). Yes [X] No [_]
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer,
or a smaller reporting company. See the definitions of “large
accelerated filer”, “accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act.
| Large
accelerated filer [_] |
|
Accelerated
filer [_] |
| |
|
|
| Non-accelerated
filer [_] |
Smaller
reporting company [X] |
| |
|
|
| Emerging
growth company [_] |
|
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.
[_]
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Act). Yes [X] No [_]
As of November 20, 2020, the issuer had 97,201,030 shares of common
stock issued and outstanding.
CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes "forward-looking
statements" within the meaning of Section 27A of the Securities Act
of 1933, as amended, and Section 21E of the Securities Exchange Act
of 1934, as amended that are not historical facts, and involve
risks and uncertainties that could cause actual results to differ
materially from those expected and projected. All statements, other
than statements of historical facts, included in this Form 10-Q
including, without limitation, statements in the “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations” regarding the Company’s financial position, business
strategy and the plans and objectives of management for future
operations, events or developments which the Company expects or
anticipates will or may occur in the future, including such things
as future capital expenditures (including the amount and nature
thereof); expansion and growth of the Company's business and
operations; and other such matters are forward-looking statements.
These statements are based on certain assumptions and analyses made
by the Company in light of its experience and its perception of
historical trends, current conditions and expected future
developments, as well as other factors it believes are appropriate
under the circumstances. However, whether actual results or
developments will conform with the Company's expectations and
predictions is subject to a number of risks and uncertainties,
including general economic, market and business conditions; the
business opportunities (or lack thereof) that may be presented to
and pursued by the Company; changes in laws or regulation; and
other factors, most of which are beyond the control of the
Company.
These forward-looking statements can be identified by the use of
predictive, future-tense or forward-looking terminology, such as
"believes," "anticipates," "expects," "estimates," "plans," "may,"
"will," or similar terms. These statements appear in a number of
places in this filing and include statements regarding the intent,
belief or current expectations of the Company, and its directors or
its officers with respect to, among other things: (i) trends
affecting the Company's financial condition or results of
operations for its limited history; (ii) the Company's business and
growth strategies; and, (iii) the Company's financing plans.
Investors are cautioned that any such forward-looking statements
are not guarantees of future performance and involve significant
risks and uncertainties, and that actual results may differ
materially from those projected in the forward-looking statements
as a result of various factors. Such factors that could adversely
affect actual results and performance include, but are not limited
to, the Company's limited operating history, potential fluctuations
in quarterly operating results and expenses, government regulation,
technological change and competition. For information identifying
important factors that could cause actual results to differ
materially from those anticipated in the forward-looking
statements, please refer to the Risk Factors section of the
Company’s Current Report on Form 8-K/A filed with the U.S.
Securities and Exchange Commission (the “SEC”) on August 14,
2020.
Consequently, all of the forward-looking statements made in this
Form 10-Q are qualified by these cautionary statements and there
can be no assurance that the actual results or developments
anticipated by the Company will be realized or, even if
substantially realized, that they will have the expected
consequence to or effects on the Company or its business or
operations. The Company assumes no obligations to update any such
forward-looking statements.
PART I – FINANCIAL
INFORMATION
ITEM 1. FINANCIAL
STATEMENTS
HANJIAO GROUP, INC. AND SUBSIDIARIES
Index to Unaudited Condensed Consolidated Financial
Statements
HANJIAO GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED
BALANCE SHEETS
| |
|
September 30, |
|
|
December 31, |
|
| |
|
2020 |
|
|
2019 |
|
| |
|
(Unaudited) |
|
|
|
|
| Assets |
|
|
|
|
|
|
|
|
| Current assets |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
3,968,382 |
|
|
$ |
28,919,817 |
|
| Advance
to suppliers |
|
|
6,418,332 |
|
|
|
266,237 |
|
|
Inventories, net |
|
|
2,244,258 |
|
|
|
1,601,151 |
|
|
Prepayments and other current assets |
|
|
348,428 |
|
|
|
196,272 |
|
|
Due from related parties, net |
|
|
17,621 |
|
|
|
112,218 |
|
| Total current
assets |
|
|
12,997,021 |
|
|
|
31,095,695 |
|
|
Long-term investment |
|
|
11,776,729 |
|
|
|
11,412,441 |
|
| Property
and equipment, net |
|
|
219,016 |
|
|
|
263,640 |
|
|
Right-of-use assets |
|
|
389,638 |
|
|
|
– |
|
|
Deposits and other assets, non-current |
|
|
1,941,091 |
|
|
|
46,487 |
|
| Total
assets |
|
$ |
27,323,495 |
|
|
$ |
42,818,263 |
|
| |
|
|
|
|
|
|
|
|
| Liabilities and
shareholders’ (deficit) equity |
|
|
|
|
|
|
|
|
| Current
liabilities |
|
|
|
|
|
|
|
|
| Taxes
payable |
|
$ |
19,597,803 |
|
|
$ |
19,647,502 |
|
|
Dividends payable |
|
|
– |
|
|
|
4,300 |
|
| Due to
related parties |
|
|
240,418 |
|
|
|
1,134,459 |
|
| Accrued
expenses |
|
|
32,687 |
|
|
|
4,823,543 |
|
| Lease
liabilities |
|
|
232,118 |
|
|
|
– |
|
|
Other payables and other current liabilities |
|
|
8,940,473 |
|
|
|
6,887,083 |
|
| Total current
liabilities |
|
|
29,043,499 |
|
|
|
32,496,887 |
|
|
Lease liabilities – non-current |
|
|
157,520 |
|
|
|
– |
|
| Total
liabilities |
|
|
29,201,019 |
|
|
|
32,496,887 |
|
| |
|
|
|
|
|
|
|
|
| Commitments and
contingencies |
|
|
– |
|
|
|
– |
|
| |
|
|
|
|
|
|
|
|
| Shareholders’
(deficit) equity |
|
|
|
|
|
|
|
|
| Common
stock: $0.0001 par value, 100,000,000 shares authorized; 97,201,030
shares issued and outstanding, respectively * |
|
|
9,720 |
|
|
|
9,720 |
|
|
Additional paid-in capital* |
|
|
7,256,566 |
|
|
|
7,256,566 |
|
|
Statutory reserves |
|
|
1,687,125 |
|
|
|
1,687,125 |
|
|
(Deficit) retained earnings |
|
|
(10,152,404 |
) |
|
|
1,977,141 |
|
|
Accumulated other comprehensive loss |
|
|
(678,531 |
) |
|
|
(609,176 |
) |
| Total
shareholders’ (deficit) equity |
|
|
(1,877,524 |
) |
|
|
10,321,376 |
|
| |
|
|
|
|
|
|
|
|
| Total
liabilities and shareholders’ (deficit) equity |
|
$ |
27,323,495 |
|
|
$ |
42,818,263 |
|
*
Giving retroactive effect of reorganization in connection with the
share exchange transaction effected on August 6, 2020
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
HANJIAO GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED
STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
| |
|
For the Three Months Ended
September 30,
|
|
|
For the Nine Months Ended
September 30, |
|
| |
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Revenues |
|
$ |
81,669 |
|
|
$ |
8,031,797 |
|
|
$ |
210,172 |
|
|
$ |
59,089,885 |
|
| Cost of revenues |
|
|
(407,798 |
) |
|
|
(827,225 |
) |
|
|
(613,114 |
) |
|
|
(38,115,528 |
) |
| Gross
(loss) profit |
|
|
(326,129 |
) |
|
|
7,204,572 |
|
|
|
(402,942 |
) |
|
|
20,974,357 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating
expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| General
and administrative expenses |
|
|
758,653 |
|
|
|
2,226,222 |
|
|
|
2,746,034 |
|
|
|
6,402,316 |
|
| Selling
expenses |
|
|
1,291,611 |
|
|
|
1,426,350 |
|
|
|
4,950,028 |
|
|
|
3,057,377 |
|
|
Finance expenses (income), net |
|
|
(3,468 |
) |
|
|
(14,043 |
) |
|
|
(173,622 |
) |
|
|
81,102 |
|
| Total
operating expenses |
|
|
2,046,796 |
|
|
|
3,638,529 |
|
|
|
7,522,440 |
|
|
|
9,540,795 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income |
|
|
(2,372,925 |
) |
|
|
3,566,043 |
|
|
|
(7,925,382 |
) |
|
|
11,433,562 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other income
(expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other
expenses, net |
|
|
(796,320 |
) |
|
|
(653,100 |
) |
|
|
(3,565,325 |
) |
|
|
(1,814,388 |
) |
|
Income (loss) from equity investment |
|
|
83,703 |
|
|
|
(18,493 |
) |
|
|
83,703 |
|
|
|
(18,493 |
) |
| Total
other expenses, net |
|
|
(712,617 |
) |
|
|
(671,593 |
) |
|
|
(3,481,622 |
) |
|
|
(1,832,881 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (Loss) income
before provision for income taxes |
|
|
(3,085,542 |
) |
|
|
2,894,450 |
|
|
|
(11,407,004 |
) |
|
|
9,600,681 |
|
| Provision for
income taxes |
|
|
– |
|
|
|
361,558 |
|
|
|
– |
|
|
|
1,797,331 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net (loss)
income |
|
$ |
(3,085,542 |
) |
|
$ |
2,532,892 |
|
|
$ |
(11,407,004 |
) |
|
$ |
7,803,350 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other comprehensive
(loss) income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Foreign currency
translation adjustment |
|
|
23,318 |
|
|
|
(454,784 |
) |
|
|
(69,355 |
) |
|
|
(484,235 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive (loss) income |
|
$ |
(3,062,224 |
) |
|
$ |
2,078,108 |
|
|
$ |
(11,476,359 |
) |
|
$ |
7,319,115 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Earnings (loss) per ordinary
share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Basic and
diluted * |
|
$ |
(0.03 |
) |
|
$ |
0.03 |
|
|
$ |
(0.12 |
) |
|
$ |
0.08 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of ordinary shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Basic and
diluted * |
|
|
97,201,030 |
|
|
|
97,201,030 |
|
|
|
97,201,030 |
|
|
|
97,201,030 |
|
*
Giving retroactive effect of reorganization in connection with the
share exchange transaction effected on August 6, 2020
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
HANJIAO GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
| |
|
Ordinary shares* |
|
|
Additional |
|
|
|
|
|
|
|
|
Accumulated other |
|
|
Total |
|
| |
|
Number of shares |
|
|
Amount |
|
|
paid-in
capital |
|
|
Statutory reserves |
|
|
Retained
earnings |
|
|
comprehensive loss |
|
|
shareholders’ equity |
|
|
Balance as of December 31,
2018 |
|
|
11,201,030 |
|
|
$ |
1,120 |
|
|
$ |
7,248,755 |
|
|
$ |
1,547,861 |
|
|
$ |
5,855,424 |
|
|
$ |
(445,922 |
) |
|
$ |
14,207,238 |
|
|
Effect of reverse
acquisition |
|
|
86,000,000 |
|
|
|
8,600 |
|
|
|
7,811 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,411 |
|
|
Dividends declared |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(111,615 |
) |
|
|
– |
|
|
|
(111,615 |
) |
|
Net loss |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(543,381 |
) |
|
|
– |
|
|
|
(543,381 |
) |
|
Foreign currency
translation |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
346,577 |
|
|
|
346,577 |
|
|
Balance as of March 30, 2019
(unaudited) |
|
|
97,201,030 |
|
|
$ |
9,720 |
|
|
$ |
7,256,566 |
|
|
$ |
1,547,861 |
|
|
$ |
5,200,428 |
|
|
$ |
(99,345 |
) |
|
$ |
13,915,230 |
|
|
Dividends declared |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(199,539 |
) |
|
|
– |
|
|
|
(199,539 |
) |
|
Net income |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
5,813,839 |
|
|
|
– |
|
|
|
5,813,839 |
|
|
Foreign currency
translation |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(376,027 |
) |
|
|
(376,027 |
) |
|
Balance as of June 30, 2019
(unaudited) |
|
|
97,201,030 |
|
|
$ |
9,720 |
|
|
$ |
7,256,566 |
|
|
$ |
1,547,861 |
|
|
$ |
10,814,728 |
|
|
$ |
(475,372 |
) |
|
$ |
19,153,503 |
|
|
Dividends declared |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(4,639,434 |
) |
|
|
– |
|
|
|
(4,639,434 |
) |
|
Net income |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
2,532,892 |
|
|
|
– |
|
|
|
2,532,892 |
|
|
Foreign currency
translation |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(454,785 |
) |
|
|
(454,785 |
) |
|
Balance as of September 30, 2019
(unaudited) |
|
|
97,201,030 |
|
|
$ |
9,720 |
|
|
$ |
7,256,566 |
|
|
$ |
1,547,861 |
|
|
$ |
8,708,186 |
|
|
$ |
(930,157 |
) |
|
$ |
16,592,176 |
|
| |
|
Ordinary shares* |
|
|
Additional |
|
|
|
|
|
Retained |
|
|
Accumulated other |
|
|
Total shareholders’ |
|
| |
|
Number of shares |
|
|
Amount |
|
|
paid-in
capital |
|
|
Statutory reserves |
|
|
earnings/
(deficit) |
|
|
comprehensive loss |
|
|
(deficit) equity |
|
|
Balance as of December 31,
2019 |
|
|
97,201,030 |
|
|
$ |
9,720 |
|
|
$ |
7,256,566 |
|
|
$ |
1,687,125 |
|
|
$ |
1,977,141 |
|
|
$ |
(609,176 |
) |
|
$ |
10,321,376 |
|
|
Dividends declared |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(722,541 |
) |
|
|
– |
|
|
|
(722,541 |
) |
|
Net loss |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(4,446,454 |
) |
|
|
– |
|
|
|
(4,446,454 |
) |
|
Foreign currency
translation |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(83,772 |
) |
|
|
(83,772 |
) |
|
Balance as of March 30, 2020
(unaudited) |
|
|
97,201,030 |
|
|
$ |
9,720 |
|
|
$ |
7,256,566 |
|
|
$ |
1,687,125 |
|
|
$ |
(3,191,854 |
) |
|
$ |
(692,948 |
) |
|
$ |
5,068,609 |
|
|
Net loss |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(3,875,008 |
) |
|
|
– |
|
|
|
(3,875,008 |
) |
|
Foreign currency
translation |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(8,901 |
) |
|
|
(8,901 |
) |
|
Balance as of June 30, 2020
(unaudited) |
|
|
97,201,030 |
|
|
$ |
9,720 |
|
|
$ |
7,256,566 |
|
|
$ |
1,687,125 |
|
|
$ |
(7,066,862 |
) |
|
$ |
(701,849 |
) |
|
$ |
1,184,700 |
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,085,542 |
) |
|
|
|
|
|
|
(3,085,542 |
) |
|
Foreign currency
translation |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
23,318 |
|
|
|
23,318 |
|
|
Balance as of September 30, 2020
(unaudited) |
|
|
97,201,030 |
|
|
$ |
9,720 |
|
|
$ |
7,256,566 |
|
|
$ |
1,687,125 |
|
|
$ |
(10,152,404 |
) |
|
$ |
(678,531 |
) |
|
$ |
(1,877,524 |
) |
*
Giving retroactive effect of reorganization in connection with the
share exchange transaction effected on August 6, 2020
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
HANJIAO GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
| |
|
For the Nine Months Ended
September 30, |
|
| |
|
2020 |
|
|
2019 |
|
| Cash flows from
operating activities |
|
|
|
|
|
|
|
|
| Net (loss) income |
|
$ |
(11,407,004 |
) |
|
$ |
7,803,350 |
|
|
Adjustments to reconcile net loss to net cash (used in) provided by
operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
56,614 |
|
|
|
121,461 |
|
| Income
(loss) from equity investment |
|
|
(83,703 |
) |
|
|
18,493 |
|
|
(Reversal of) provision for bad debt expense |
|
|
(1,845 |
) |
|
|
167,966 |
|
|
Provision for slow-moving inventories |
|
|
431,502 |
|
|
|
– |
|
| Changes
in operating assets and liabilities: |
|
|
|
|
|
|
|
|
| Advance
to suppliers |
|
|
(5,985,946 |
) |
|
|
126,889 |
|
| Inventories |
|
|
(1,019,863 |
) |
|
|
(1,003,302 |
) |
| Due from
related parties, net |
|
|
94,805 |
|
|
|
10,419,115 |
|
|
Prepayments and other current assets |
|
|
(204,242 |
) |
|
|
1,073,530 |
|
| Advance
from customers |
|
|
23,555 |
|
|
|
(3,547,099 |
) |
| Taxes
payable |
|
|
(515,166 |
) |
|
|
9,581,639 |
|
| Accrued
expenses |
|
|
(4,780,986 |
) |
|
|
(1,889,704 |
) |
|
Other payables and other current liabilities |
|
|
1,923,870 |
|
|
|
3,227,385 |
|
| Net cash
(used in) provided by operating activities |
|
|
(21,468,409 |
) |
|
|
26,099,723 |
|
| |
|
|
|
|
|
|
|
|
| Cash flows from
investing activities |
|
|
|
|
|
|
|
|
| Purchase
of property and equipment |
|
|
(6,886 |
) |
|
|
(9,233 |
) |
| Deposit
for office space purchase |
|
|
(1,781,737 |
) |
|
|
– |
|
|
Investment in equity investee |
|
|
– |
|
|
|
(11,649,043 |
) |
| Net cash
used in investing activities |
|
|
(1,788,623 |
) |
|
|
(11,658,276 |
) |
| |
|
|
|
|
|
|
|
|
| Cash flows from
financing activities |
|
|
|
|
|
|
|
|
|
(Repayment) advances from related parties, net |
|
|
(211,304 |
) |
|
|
11,528 |
|
|
Repayment of loans from third parties |
|
|
(790,934 |
) |
|
|
– |
|
|
Dividends paid |
|
|
(722,541 |
) |
|
|
(197,346 |
) |
| Net cash
used in financing activities |
|
|
(1,724,779 |
) |
|
|
(185,818 |
) |
| |
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
30,376 |
|
|
|
(944,766 |
) |
| Net (decrease)
increase in cash and cash equivalents |
|
|
(24,951,435 |
) |
|
|
13,310,863 |
|
| Cash and
cash equivalents at beginning of period |
|
|
28,919,817 |
|
|
|
18,019,682 |
|
| Cash
and cash equivalents at end of period |
|
$ |
3,968,382 |
|
|
$ |
31,330,545 |
|
| |
|
|
|
|
|
|
|
|
| Supplemental
disclosures of cash flow information: |
|
|
|
|
|
|
|
|
|
Cash paid for income taxes |
|
$ |
124,800 |
|
|
$ |
24,263 |
|
| |
|
|
|
|
|
|
|
|
| Non-cash
transactions of operating and investing activities |
|
|
|
|
|
|
|
|
|
Initial recognition of right-of-use assets and lease
liabilities |
|
$ |
477,631 |
|
|
$ |
– |
|
|
Offset receivable from related party against dividends due to such
party |
|
$ |
– |
|
|
$ |
1,229,928 |
|
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
HANJIAO GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(amounts in U.S. dollars unless otherwise stated)
NOTE 1 – ORGANIZATION AND NATURE OF OPERATIONS
Hanjiao Group, Inc. (the “Company”), known previously as AS
Capital, Inc. (“ASIN”) is in the business of selling healthcare and
other related products to the middle-aged and elderly market
segments in the People’s Republic of China (the “PRC” or “China”).
On August 6, 2020, ASIN and HanJiao International Holding Limited
(“HanJiao”) consummated a Share Exchange Agreement (the “Share
Exchange Transaction”). In connection with the Share Exchange
Transaction, ASIN issued 86,000,000 shares of its common stock to
acquire all the equity shares of HanJiao. Upon the completion of
the Share Exchange Transaction, the shareholders of HanJiao own
approximately 88.5% of the common stock of ASIN.
Prior to the Share Exchange Transaction, ASIN was a shell company
with nominal assets and limited operations. Effective October 20,
2020, ASIN changed its name from AS Capital, Inc. to Hanjiao Group,
Inc.
HanJiao is a holding company incorporated in the British Virgin
Islands on July 5, 2018. HanJiao and its wholly owned subsidiaries,
variable interest entity (“VIE”) and its subsidiary are primarily
engaged in the sale of healthcare and other related products to the
middle-aged and elderly market segments in China through its
internet platform and offline service centers.
LuJi Technology International Holding Limited (“Luji Technology”),
a holding company incorporated in the British Virgin Islands on
July 5, 2018, is wholly owned by HanJiao.
Inooka Holding Ltd. (“Inooka”), a company established in Hong Kong
on July 18, 2018, is wholly owned by Luji Technology.
Beijing Hongtao Management Consulting Co., Ltd. (“Beijing
Hongtao”), a wholly foreign-owned enterprise (“WFOE”) was
established in China on October 11, 2018 and it is a wholly owned
subsidiary of Inooka. Beijing Hongtao currently provides consulting
and technical services to Beijing Luji Technology Co., Ltd.
(“Beijing Luji”) that was incorporated in China on March 27, 2007.
Beijing Luji established Guoyi Investment Fund Management (Beijing)
Co., Ltd. (“Beijing Guoyi”) with registered capital of RMB 50
million (approximately US$973,000) on February 19, 2016.
The following table illustrates how the Company is organized:
HANJIAO GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in U.S. dollars unless otherwise stated)
Reorganization and Variable Interest
Entities
On May 15, 2019, Beijing Hongtao, Beijing Luji and their
shareholders entered into a series of contractual arrangements (the
“VIE Agreements”) to control and receive the economic benefits of
Beijing Luji’s business. The VIE Agreements are designed to provide
Beijing Hongtao with the power, rights and obligations equivalent
in all material respects to those it would possess as the sole
equity holder of Beijing Luji, including absolute control rights
and the rights to the assets, property, revenue and income of
Beijing Luji.
To complete the corporate reorganization, the shareholders of Luji
Technology transferred their respective ownership interest in Luji
Technology in exchange for their respective ownership interest in
HanJiao on September 16, 2019 (the “Share Transfer”).
Based on the Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (‘ASC’) Topic 805, the VIE
Agreements executed between the Beijing Hongtao and Beijing Luji
and the Share Transfer constituted a reorganization of entities
under common control since all these entities were controlled by
the same major shareholder before and after the reorganization. As
such, the Company’s consolidated financial statements have been
prepared as if the reorganization had occurred retroactively and
the existing corporate structure had been in existence throughout
all periods presented.
NOTE 2 – LIQUIDITY AND GOING CONCERN
As indicated in the accompanying unaudited condensed consolidated
financial statements, the Company had a net loss of approximately
$11.7 million for the nine months ended September 30, 2020;
negative working capital of approximately $16.0 million and $1.4
million, respectively, as of September 30, 2020 and December 31,
2019. Management of the Company has considered whether there is
substantial doubt about its ability to continue as a going concern
due to consecutive quarterly losses from operations in the first
nine months of 2020 as a result of COVID-19; and evaluated its
available cash balance against its working capital requirements
over the next twelve months.
While management cannot accurately predict the full impact of
COVID-19 on the Company’s business, management believes that its
business will turnaround in the last quarter of 2020 as the market
situation recovers. The Company believes that the market recovery
can reduce its operating loss, but will not be enough to completely
eliminate the negative impact of the COVID-19 for the full year of
2020. Based on its latest sales and cash flows projection,
management believes that the Company is able to generate sufficient
cash flows from operations to meet its working capital requirements
for the next twelve months; and that its capital resources are
currently sufficient to maintain its business operations for the
next twelve months.
The accompanying unaudited condensed consolidated financial
statements have been prepared assuming that the Company will
continue as a going concern, which contemplates the realization of
assets and satisfaction of liabilities in the normal course of
business. The accompanying unaudited condensed consolidated
financial statements do not include any adjustments related to the
recoverability and/or classification of the recorded asset amounts
and/or the classification of the liabilities that might be
necessary should the Company be unable to continue as a going
concern.
HANJIAO GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in U.S. dollars unless otherwise stated)
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial
statements and related notes have been prepared in accordance with
accounting principles generally accepted in the United States of
America (“US GAAP”) for interim financial information pursuant to
the rules and regulations of the Securities and Exchange Commission
(“SEC”). The unaudited condensed consolidated financial
statements include the accounts of the Company and include the
assets, liabilities, revenues and expenses of the subsidiaries and
VIE. In the opinion of management, all adjustments (including
normal recurring accruals) considered necessary for a fair
presentation of financial position, results of operations and cash
flows at the dates and for the periods presented have been
included. Interim results are not necessarily indicative of results
to be expected for the full year. The information included in this
report should be read in conjunction with the information included
in the Company’s annual report for the year ended December 31,
2019.
Principles of Consolidation
The accompanying unaudited condensed 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 unaudited condensed consolidated financial
statements of the Company.
Use of Estimates
The preparation of the
unaudited condensed 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
unaudited condensed consolidated financial statements and the
reported amounts of revenues and expenses during the reporting
period.
Significant accounting estimates reflected in the Company’s
unaudited condensed 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.
HANJIAO GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in U.S. dollars unless otherwise stated)
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.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand, cash on deposit
and other highly liquid investments which are unrestricted as to
withdrawal or use, and which have original maturities of three
months or less when purchased. The Company maintains cash with
various financial institutions mainly in the PRC. As of September
30, 2020 and December 31, 2019, the Company had cash and cash
equivalents of approximately $4.0 million and $28.9 million,
respectively. The Company’s cash equivalents included approximately
$0 and $11.6 million (RMB 80 million) of the bank’s financial
products as of September 30, 2020 and December 31, 2019,
respectively.
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.
HANJIAO GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in U.S. dollars unless otherwise stated)
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 nine months ended September 30, 2020 have been
adversely affected. Management believes that COVID-19 will have a
material impact on its financial results for the year 2020 and
could cause the potential impairment of certain assets. To mitigate
the overall financial impact of COVID-19 on the Company’s business,
management has worked closely with its service centers to enhance
their marketing and promotion activities during the third quarter
of 2020 that were designed to generate sales in the third and
fourth quarters of 2020. While management cannot accurately predict
the full impact of COVID-19 on the Company’s business, management
believes that its business will turnaround in the last quarter of
2020 as the market situation recovers. The Company believes that
the market recovery can reduce its operating loss, but will not be
enough to completely eliminate the negative impact of the COVID-19
for the full year of 2020.
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
Advances to suppliers consist of payments to suppliers for finished
goods that have not been received by 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 to account for an 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 rounds. 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 other-than-temporary
decline in fair value for the nine months ended September 30,
2020.
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 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.
HANJIAO GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in U.S. dollars unless otherwise stated)
Estimated useful lives are as follows, taking into account the
assets’ estimated residual value:
|
Classification |
|
Estimated useful lives |
| 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 nine
months ended September 30, 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.
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 three and nine months ended September
30, 2020 and 2019 are presented under ASC 606.
HANJIAO GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in U.S. dollars unless otherwise stated)
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.
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.
HANJIAO GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in U.S. dollars unless otherwise stated)
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 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 nine months of
September 30, 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 September 30, 2020 and December 31, 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
expiring in 2020. 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 nine
months ended September 30, 2020 and 2019.
HANJIAO GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in U.S. dollars unless otherwise stated)
Value-Added Tax
Prior to May 1, 2018, the Company was subject to value-added tax
(“VAT”) at rates of 6% and 17% on revenue generated from providing
services and products, respectively. Starting from May 1, 2018, the
VAT rate for revenue generated from providing products was changed
from 17% to 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 condensed consolidated
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 September 30, 2020 and December 31, 2019
and for nine months ended September 30, 2020 and 2019 are as
follows:
| |
|
September 30, |
|
|
December 31, |
|
|
Nine months ended
September 30, |
|
| |
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
| Foreign currency |
|
Balance Sheet |
|
|
Balance Sheet |
|
|
Profits/Loss |
|
|
Profits/Loss |
|
| RMB:1USD |
|
|
6.8101 |
|
|
|
6.9762 |
|
|
|
6.9917 |
|
|
|
6.8529 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
HANJIAO GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in U.S. dollars unless otherwise stated)
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 three and nine months ended September 30,
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.
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 a
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 will be 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
unaudited condensed 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-lined 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. Early adoption is permitted for
all entities, including adoption in an interim period. If an entity
early adopts the amendments in an interim period, any adjustments
should be reflected as of the beginning of the fiscal year that
includes that interim period. 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 unaudited condensed
consolidated financial statements.
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.
HANJIAO GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in U.S. dollars unless otherwise stated)
NOTE 4 – INVENTORIES, NET
| |
|
September 30, |
|
|
December 31, |
|
| |
|
2020 |
|
|
2019 |
|
| |
|
|
(Unaudited) |
|
|
|
|
|
| Finished goods |
|
$ |
2,973,077 |
|
|
$ |
1,880,155 |
|
| Less: allowance
for slow-moving inventories |
|
|
(728,819 |
) |
|
|
(279,004 |
) |
| Inventories,
net |
|
$ |
2,244,258 |
|
|
$ |
1,601,151 |
|
The Company reviews its inventories periodically to determine if
any reserves are necessary for slow-moving inventory or if a
write-down is necessary when the carrying value exceeds net
realizable value. For nine months ended September 30, 2020 and
2019, provision for slow-moving inventory amounted to approximately
$450,000 and $0, respectively. For three months ended September 30,
2020 and 2019, provision for slow-moving inventory amounted to
approximately $263,000 and $0, respectively.
NOTE 5 – ADVANCE TO SUPPLIERS
As of September 30, 2020 and December 31, 2019, advances to
suppliers were $6,418,332 and $266,237, respectively. The increase
was due mainly to an advance of approximately $5,650,000 during the
fourth quarter of 2020 to Baoqing Meilai Modern Agricultural
Service Co., Ltd. for the purchase of specialty rice with selenium.
The Company has delayed its plan to take delivery of the specialty
rice from its supplier due to the negative impact of COVID-19 on
its sales process. Management of the Company plans to take delivery
of the specialty rice, in stages, starting in the fourth quarter of
2020 or first quarter of 2021 to coincide with the related sales
activities.
NOTE 6 – PREPAYMENTS AND OTHER CURRENT ASSETS
| |
|
September 30, |
|
|
December 31, |
|
| |
|
2020 |
|
|
2019 |
|
| |
|
(Unaudited) |
|
|
|
|
| Business advance to
employees |
|
$ |
38,179 |
|
|
$ |
94,034 |
|
| Prepaid service fees |
|
|
304,026 |
|
|
|
91,146 |
|
| Other
receivable |
|
|
6,223 |
|
|
|
11,092 |
|
| Total Prepaid
Expenses and Other Current Assets |
|
$ |
348,428 |
|
|
$ |
196,272 |
|
NOTE 7 – LONG-TERM INVESTMENT
On March 15, 2019, Beijing Luji executed an Equity Acquisition
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 $11.4 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. The ownership transfer and related registration
procedures were completed on September 20, 2019. Due to COVID-19,
Rongcheng Tianrun management was unable to furnish the Company with
its 2020 unaudited interim financials until Q3 2020. As a result,
the Company recognized income from equity investment of
approximately $84,000 for the three and nine months ended September
30, 2020.
HANJIAO GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in U.S. dollars unless otherwise stated)
NOTE 8 – PROPERTY AND EQUIPMENT, NET
At September 30, 2020 and December 31, 2019, property and equipment
is as follows:
| |
|
September 30, |
|
|
December 31, |
|
| |
|
2020 |
|
|
2019 |
|
| |
|
(Unaudited) |
|
|
|
|
| Office furniture |
|
$ |
93,218 |
|
|
$ |
90,998 |
|
| Computer equipment |
|
|
91,965 |
|
|
|
82,874 |
|
| Vehicles |
|
|
223,254 |
|
|
|
217,938 |
|
| Software |
|
|
314,826 |
|
|
|
307,331 |
|
| |
|
|
723,263 |
|
|
|
699,141 |
|
| Less: accumulated
depreciation and amortization |
|
|
(504,247 |
) |
|
|
(435,501 |
) |
| Property and
equipment, net |
|
$ |
219,016 |
|
|
$ |
263,640 |
|
For nine months ended September 30, 2020 and 2019, depreciation and
amortization expense amounted to $56,614 and $121,461,
respectively. For three months ended September 30, 2020 and 2019,
depreciation and amortization expense amounted to $6,664 and
$40,178, respectively.
NOTE 9 – DEPOSITS AND OTHER ASSETS, NON-CURRENT
| |
|
September 30, |
|
|
December 31, |
|
| |
|
2020 |
|
|
2019 |
|
| |
|
|
(Unaudited) |
|
|
|
|
|
| Deposit for office
space purchase |
|
$ |
1,774,975 |
|
|
$ |
– |
|
| Other
deposits |
|
|
166,116 |
|
|
|
46,487 |
|
| Total |
|
$ |
1,941,091 |
|
|
$ |
46,487 |
|
On April 25, 2020, the Company signed a contract with Beijing
Greentown China Real Estate Development Co., Ltd to purchase a
commercial office in Beijing valued at approximately $1.8 million
(RMB 12,087,760). The Company has paid for the office purchase in
full. Based on management’s best estimate, the commercial office is
expected to be delivered to the Company in the first half of
2021.
HANJIAO GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in U.S. dollars unless otherwise stated)
NOTE 10 – RELATED PARTY BALANCES AND TRANSACTIONS
As of September 30, 2020 and December 31, 2019, due from related
parties is as follows:
| |
|
September 30, |
|
|
December 31, |
|
| |
|
2020 |
|
|
2019 |
|
| |
|
(Unaudited) |
|
|
|
|
| Zhuang Richun (1) |
|
$ |
– |
|
|
$ |
112,218 |
|
| Li Chunduo
(2) |
|
|
17,621 |
|
|
|
– |
|
| Total |
|
$ |
17,621 |
|
|
$ |
112,218 |
|
| (1) |
This
represents a loan receivable from Mr. Zhuang Richun, marketing
director of the Company. The loan agreement was executed on
February 28, 2019; and was non-interest bearing and repaid in
August 2020. |
| (2) |
This represents a receivable from Ms. Li Chunduo, a shareholder of
the Company, related to payment of certain expenses on her behalf.
The loan is expected to be paid before December 31, 2020.
|
As of September 30, 2020 and December 31, 2019, due to related
parties is as follows:
| |
|
September 30, |
|
|
December 31, |
|
| |
|
2020 |
|
|
2019 |
|
| |
|
|
(Unaudited) |
|
|
|
|
|
| Niu Jianxin (4) |
|
$ |
– |
|
|
$ |
566,928 |
|
| Zhuang Rihong (5) |
|
|
220,261 |
|
|
|
215,017 |
|
| Tian Xiangdong (6) |
|
|
– |
|
|
|
137,611 |
|
| Beijing Chunduo Technology Co., Ltd.
(7) |
|
|
– |
|
|
|
43,002 |
|
| Tian Xiangyang (3) |
|
|
20,157 |
|
|
|
34,904 |
|
| Gao Xue Wei (8) |
|
|
– |
|
|
|
15,934 |
|
| Gao Xueran
(9) |
|
|
– |
|
|
|
121,063 |
|
| Total |
|
$ |
240,418 |
|
|
$ |
1,134,459 |
|
| |
(3) |
This
represents a loan from Ms. Tian Xiangyang, the Company’s founder
and chairwoman, to the Company for working capital purposes. The
loan is due on demand with no interest. |
During 2018, the Company provided Ms. Tian with a business advance
of approximately $11.5 million that was intended to facilitate Ms.
Tian’s negotiation with Rongcheng Health Group Co., Ltd. for a
strategic investment in Rongcheng Tianrun (see Note 7). The
investment in Rongcheng Tianrun was ultimately made by the Company
and Ms. Tian repaid approximately $10.4 million to the Company in
May 2019. The remaining balance of approximately $1.2 million was
offset against a dividend payable due to her.
HANJIAO GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in U.S. dollars unless otherwise stated)
| |
(4) |
This
represents a non-interest bearing loan from Mr. Niu Jianxin to the
Company which was paid directly to Ms. Tian Xiangyang to settle the
Company’s dividends payable to Ms. Tian in 2019. Mr Niu was a
former member of senior management of the Company who resigned in
February 2020. On March 15, 2020, Mr. Niu executed an agreement
with Mr. Zhang Hongbin, an unrelated third-party, to transfer this
loan receivable of RMB 3,955,000 to Mr. Zhang. The payable to Mr.
Niu has been classified as an other payable as of September 30,
2020 (see Note 14). On April 9, 2020, Mr. Zhang filed a lawsuit
against the Company (see Note 19). |
| |
(5) |
Ms.
Zhuang Rihong is the sister of Mr. Zhuang Richun. The loan was for
working capital purposes and it is due on demand with no
interest. |
| |
(6) |
Mr.
Tian Xiangdong is the brother of Ms. Tian Xiangyang. The loan was
for working capital purposes and it is due on demand with no
interest. The loan was repaid in full in January 2020. |
| |
(7) |
Beijing Chunduo Technology Co., Ltd. (“Beijing Chunduo”) is
controlled by Ms. Li Chunduo, a shareholder of the Company. The
loan was for working capital purposes and is due on demand. The
loan is due on demand with no interest. It was repaid in full in
January 2020.
|
| |
(8) |
Mr.
Gao Xuewei is a shareholder of the Company. The loan was for
working capital purposes and is due on demand with no interest. The
loan was repaid in full in January 2020. |
| |
(9) |
Mr.
Gao Xueran is a former shareholder of the Company. While he was a
shareholder of the Company in 2019, he extended a loan to the
Company for working capital purposes. The loan was non-interest
bearing. As Mr. Gao xueran was not shareholder of the Company in
2020, the Company did not recognize the related party loan as of
September 30, 2020. |
NOTE 11 – TAXES PAYABLE
At September 30, 2020 and December 31, 2019, taxes payable is as
follows:
| |
|
September 30, |
|
|
December 31, |
|
| |
|
2020 |
|
|
2019 |
|
| |
|
(Unaudited) |
|
|
|
|
| VAT payable |
|
$ |
16,580,443 |
|
|
$ |
16,431,683 |
|
| Income tax payable |
|
|
999,969 |
|
|
|
1,153,677 |
|
| Other taxes
payable |
|
|
2,017,391 |
|
|
|
2,062,142 |
|
| Total |
|
$ |
19,597,803 |
|
|
$ |
19,647,502 |
|
Under PRC tax rules that are in effect, Beijing Luji, the Company’s
VIE, is subject to penalties for any unpaid VAT and income taxes.
The Company has accrued and recorded the related estimated
penalties for unpaid VAT and income taxes as of September 30, 2020
and December 31, 2019, respectively in other current liabilities
(see Note 14).
HANJIAO GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in U.S. dollars unless otherwise stated)
Other taxes payable consisted mainly of tax obligations related to
the city construction tax, education fund and withholding taxes
related to dividends distributed to the Company’s shareholders.
NOTE 12 – ACCRUED EXPENSES
At September 30, 2020 and December 31, 2019, accrued expenses
consisted of the following:
| |
|
September 30, |
|
|
December 31, |
|
| |
|
2020 |
|
|
2019 |
|
| |
|
(Unaudited) |
|
|
|
|
|
| Incentive
awards |
|
$ |
32,687 |
|
|
$ |
4,823,543 |
|
| |
|
|
|
|
|
|
|
|
Incentive awards represents performance-based incentives payable to
qualified service centers.
NOTE 13 – RIGHT-OF-USE ASSETS AND LEASE LIABILITIES
The Company has the following operating leases:
| |
· |
Office lease located in Unit 605, 6th Floor,
Building 5, No. 1 Hang Feng Road, Beijing in the PRC (annual
payment of approximately $160,000) that will expire on March 30,
2022. |
| |
· |
Office lease located in Unit 1206, 12th Floor,
Building 5, No.1 Hang Feng Rd, Beijing in the PRC (annual payment
of approximately $93,000) that will expire on July 20,
2022. |
These lease agreements do not contain any material residual value
guarantees or material restrictive covenants, and they do not
contain options to extend at the time of expiration.
Upon the adoption of ASU 2016-02, the Company recognized lease
liabilities of approximately $477,600, with corresponding
right-of-use (“ROU”) assets of the same amount based on the present
value of the future minimum rental payments of the lease, using an
incremental a borrowing rate of 4.35% to 4.57% based on the
duration of the lease terms.
Effective July 1, 2020, the Company adopted the new lease
accounting standard using the optional transition method which
allowed us to continue to apply the guidance under the lease
standard in effect at the time in the comparative periods
presented. In addition, the Company elected the package of
practical expedients, which allowed us to not reassess whether any
existing contracts contain a lease, to not reassess historical
lease classification as operating or finance leases, and to not
reassess initial direct costs. The Company has not elected the
practical expedient to use hindsight to determine the lease term
for its leases at transition. The Company has also elected the
practical expedient allowing us to not separate the lease and
non-lease components for all classes of underlying assets.
Financial position for reporting periods beginning on or after July
1, 2020, are presented under the new guidance, while prior period
amounts are not adjusted and continue to be reported in accordance
with previous guidance.
HANJIAO GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in U.S. dollars unless otherwise stated)
The maturity schedule of the Company’s lease liabilities is as
follows:
| |
|
Amount |
|
| Twelve months ending September
30, |
|
|
|
| 2021 |
|
$ |
237,255 |
|
| 2022 |
|
|
191,197 |
|
| Total lease payments |
|
|
428,452 |
|
| Less: imputed interest |
|
|
(16,032 |
) |
| Less: amount
prepaid |
|
|
(22,781 |
) |
| Present value of lease
liabilities |
|
$ |
389,638 |
|
Total lease expenses for the three and nine months ended September
30, 2020 were approximately $43,000 and $155,000.
NOTE 14 – OTHER PAYABLES AND OTHER CURRENT LIABILITIES
At September 30, 2020 and December 31, 2019, other payables and
other current liabilities are as follows:
| |
|
September 30, |
|
|
December 31, |
|
| |
|
2020 |
|
|
2019 |
|
| |
|
|
(Unaudited) |
|
|
|
|
|
| Payroll and benefits
(1) |
|
$ |
1,498,624 |
|
|
$ |
1,389,090 |
|
| Payable to suppliers |
|
|
819,041 |
|
|
|
1,846,105 |
|
| Commissions payable |
|
|
– |
|
|
|
275,748 |
|
| Payable to Niu Jianxin (2) |
|
|
586,629 |
|
|
|
– |
|
| Interest and penalties (3) |
|
|
5,772,935 |
|
|
|
3,354,544 |
|
| Other current
liabilities |
|
|
263,244 |
|
|
|
21,596 |
|
| Total |
|
$ |
8,940,473 |
|
|
$ |
6,887,083 |
|
|
(1) |
Payroll and benefits payable
represents mainly salaries and bonus payable to the Company’s
employees. |
|
(2) |
This represents a non-interest
bearing loan from Mr. Niu Jianxin to the Company which was paid
directly to Ms. Tian Xiangyang to settle the Company’s dividends
payable to Ms. Tian in 2019 (see Note 10). |
|
(3) |
Interest and penalties represents
estimated interest and penalties related to unpaid VAT and income
taxes related to Beijing Luji, which is calculated at 0.05% per day
from the day tax payment is due under applicable PRC laws and
regulations. For nine months ended September 30, 2020, the Company
recorded an estimated penalty of approximately $2,272,000 and
$97,000 for unpaid VAT and income taxes, respectively. For three
months ended September 30, 2020, the Company recorded an estimated
penalty of approximately $837,000 and $55,000 for unpaid VAT and
income taxes, respectively. |
NOTE 15 – DIVIDENDS PAYABLE
In accordance with a board resolution dated January 21, 2020, the
Company declared dividends of approximately $723,000 (RMB
5,080,900), which amount was distributed in the first quarter of
2020.
HANJIAO GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in U.S. dollars unless otherwise stated)
NOTE 16 – STATUTORY RESERVES
Pursuant to the laws in the PRC, entities must make appropriations
from after-tax profit to a non-distributable “statutory surplus
reserve fund.” Subject to certain cumulative limits, the statutory
surplus reserve fund requires annual appropriations of 10% of
after-tax profit (as determined under accounting principles
generally accepted in the PRC) until the aggregated appropriations
reach 50% of the registered capital.
As of September 30, 2020 and December 31, 2019, the balance of the
statutory reserve was $1,687,125.
NOTE 17 – INCOME TAXES
The entities within the Company file separate tax returns in the
respective tax jurisdictions in which they operate as follows:
British Virgin Islands
HanJiao is a tax-exempt entity incorporated in the British Virgin
Islands.
Hong Kong
Inooka was incorporated in Hong Kong and does not conduct any
substantial operations of its own. No provision for Hong Kong
profits tax has been made in the unaudited condensed consolidated
financial statements as Inooka Holding Ltd has no assessable
profits for the nine months ended September 30, 2020 and 2019.
United States
The Company was incorporated under the laws of the State of Nevada
in the United States. It had no taxable income for the U.S. income
tax purposes for the three and nine months ended September 30, 2020
and 2019. Nevada does not have a state income tax. The applicable
federal tax rate is 21.0%.
PRC
The entities incorporated in the PRC are governed by the income tax
law of the PRC and are subjected to the PRC enterprise income tax
(“EIT”). The EIT rate of the PRC is 25%, which applies to both
domestic and foreign invested enterprises. Under the Provisional
Regulations of the PRC Concerning Income Tax on Enterprises
promulgated by the PRC (the “EIT Law”), Beijing Luji qualified as a
high and new technology enterprise starting in 2018, and enjoys a
preferential tax rate of 15% for 3 years expiring in 2020. Beijing
Luji can re-apply as a high and new technology enterprise when the
prior certificate expires. Income tax is payable at a rate of 15%
of PRC taxable income for the nine months ended September 30, 2020
and 2019.
HANJIAO GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in U.S. dollars unless otherwise stated)
| |
|
For the nine months ended
September 30 |
|
| |
|
2020 |
|
|
2019 |
|
| |
|
(Unaudited) |
|
|
(Unaudited) |
|
| Non-PRC operations |
|
$ |
– |
|
|
$ |
– |
|
| PRC
operations |
|
|
(11,407,004 |
) |
|
|
9,600,681 |
|
| Net (loss)
income before provision for income taxes |
|
$ |
(11,407,004 |
) |
|
$ |
9,600,681 |
|
Provision for income taxes comprised of the followings:
| |
|
For the nine months ended
September 30 |
|
| |
|
2020 |
|
|
2019 |
|
| |
|
(Unaudited) |
|
|
(Unaudited) |
|
| Current tax
expense |
|
|
|
|
|
|
|
|
| PRC |
|
$ |
– |
|
|
$ |
1,797,331 |
|
| Deferred tax
expense |
|
|
|
|
|
|
|
|
| PRC |
|
|
– |
|
|
|
– |
|
| Total
provision for income taxes |
|
$ |
– |
|
|
$ |
1,797,331 |
|
The Company’s deferred tax assets are comprised of the
following:
| |
|
September 30, |
|
|
December 31, |
|
| |
|
2020 |
|
|
2019 |
|
| |
|
|
(Unaudited) |
|
|
|
|
|
| Net operating
loss |
|
|
|
|
|
|
|
|
| PRC |
|
$ |
1,763,891 |
|
|
$ |
– |
|
| Total deferred tax
assets |
|
|
1,763,891 |
|
|
|
– |
|
| Valuation
allowance |
|
|
(1,763,891 |
) |
|
|
– |
|
|
Deferred tax assets, net - long-term |
|
$ |
– |
|
|
$ |
– |
|
The Company's deferred tax assets were generated from the net
operating loss carry forwards of the PRC entities of the Company.
The Company considers the following factors, among other matters,
when determining whether some portion or all of the deferred tax
assets will more likely than not be realized: the nature, frequency
and severity of recent losses, forecasts of future profitability,
the duration of statutory carry forward years, the Company’s
experience with tax attributes expiring unused and tax planning
alternatives. The Company’s ability to realize deferred tax assets
depends on its ability to generate sufficient taxable income within
the carry forward years provided for in the tax law.
The Company’s VIE in the PRC had total net operating loss carry
forwards of approximately $11.4 million and the deferred tax assets
was approximately $1.8 million as of September 30, 2020, which
would expire on various dates through 2025. The Company does not
file consolidated tax returns, therefore, losses from its VIE and
individual subsidiaries may not be used to offset other VIE or
subsidiaries’ earnings within the Company. A valuation allowance is
considered on each individual subsidiary or VIE that was provided
against deferred tax assets as it is considered more likely than
not that the relevant deferred tax assets will be realized in the
foreseeable future. As of September 30, 2020, the Company fully
recognized valuation allowance of deferred tax assets.
HANJIAO GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in U.S. dollars unless otherwise stated)
NOTE 18 – VARIABLE INTEREST ENTITY
On May 15, 2019, Beijing Hongtao entered into VIE Agreements with
Beijing Luji and its shareholders. The accounts of Beijing Luji and
its subsidiary are consolidated in the accompanying unaudited
condensed consolidated financial statements pursuant to ASC 810-10,
Consolidation.
The carrying amounts of the VIEs’ consolidated assets and
liabilities are as follows:
| |
|
September 30, |
|
|
December 31, |
|
| |
|
2020 |
|
|
2019 |
|
| |
|
(Unaudited) |
|
|
|
|
| Current assets |
|
$ |
10,927,443 |
|
|
$ |
31,095,595 |
|
| Property and equipment, net |
|
|
219,016 |
|
|
|
263,640 |
|
| Other
noncurrent assets |
|
|
13,689,168 |
|
|
|
11,458,928 |
|
| Total assets |
|
|
24,835,627 |
|
|
|
42,818,163 |
|
| Total
liabilities |
|
|
(26,289,075 |
) |
|
|
(32,354,228 |
) |
| Net
assets |
|
$ |
(1,453,448 |
) |
|
$ |
10,463,935 |
|
| |
|
September 30, |
|
|
December 31, |
|
| |
|
2020 |
|
|
2019 |
|
| |
|
(Unaudited) |
|
|
|
|
| Current liabilities: |
|
|
|
|
|
|
|
|
| Other payables and accrued
liabilities |
|
$ |
6,450,867 |
|
|
$ |
11,693,330 |
|
| Other payables – related
parties |
|
|
240,418 |
|
|
|
1,013,396 |
|
| Taxes
payable |
|
|
19,597,790 |
|
|
|
19,647,502 |
|
| Total
liabilities |
|
$ |
26,289,075 |
|
|
$ |
32,354,228 |
|
The summarized operating results of the VIEs are as
follows:
| |
|
For the Nine Months Ended September 30, |
|
| |
|
2020 |
|
|
2019 |
|
| |
|
(Unaudited) |
|
|
(Unaudited) |
|
|
Operating revenues |
|
$ |
210,172 |
|
|
$ |
59,089,885 |
|
| Loss from
operations |
|
$ |
(7,821,446 |
) |
|
$ |
(9,614,315 |
) |
| Net
loss |
|
$ |
(11,148,559 |
) |
|
$ |
7,816,984 |
|
HANJIAO GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in U.S. dollars unless otherwise stated)
NOTE 19 – COMMITMENTS AND CONTINGENCIES
Contingencies
From time to time, the Company may be subject to certain legal
proceedings, claims and disputes that arise in the ordinary course
of business. Amounts accrued, as well as the total amount of
possible losses with respect to such matters, individually and in
the aggregate, are not deemed to be material to the unaudited
condensed consolidated financial statements.
Variable interest entity structure
In the opinion of management, (i) the corporate structure of the
Company is in compliance with existing PRC laws and regulations;
(ii) the VIE Arrangements are valid and binding, and do not result
in any violation of PRC laws or regulations currently in effect;
and (iii) the business operations of the WFOE and the VIEs are in
compliance with existing PRC laws and regulations in all material
respects. However, there are substantial uncertainties regarding
the interpretation and application of current and future PRC laws
and regulations. Accordingly, the Company cannot assure that the
PRC regulatory authorities will not ultimately take a contrary view
to the foregoing opinion. If the current corporate structure of the
Company or the VIE Arrangements is found to be in violation of any
existing or future PRC laws and regulations, the Company may be
required to restructure its corporate structure and operations in
the PRC to comply with changing and new PRC laws and regulations.
In the opinion of management, the likelihood of loss in respect of
the Company’s current corporate structure or the VIE Arrangements
is remote based on current facts and circumstances.
Lease Obligations
The Company leases certain office premises and apartments for
employees under operating lease agreements with various terms that
are less than one year in duration. Future minimum lease payments
amounted to approximately $206,000 for the twelve months ending
September 30, 2021.
Rent expense for nine months ended September 30, 2020 and 2019 was
$$367,980 and $476,310, respectively. Rent expense for three months
ended September 30, 2020 and 2019 was $197,354 and $346,160,
respectively.
Legal Matters
Beijing Luji, the Company’s VIE, is involved in the following legal
matter:
| |
· |
|
The Company has a payable to Mr. Niu Jianxin for
RMB 3,955,000 (approximately $581,000). Upon Mr. Niu’s departure
from Beijing Luji in February 2020, Mr. Niu had allegedly
transferred his rights to Mr. Zhang Hongbin. On April 9, 2020, Mr.
Zhang Hongbin filed a lawsuit with the people's Court of Fengtai
District, Beijing, on the basis that Beijing Luji did not repay the
amount that is due to him. The case has gone to trial but no
decision has been rendered by the court as of the date of this
report. |
The Company evaluates all pending legal matters periodically and
establishes reserves when it is probable that they will result in a
negative outcome, and that the amount of the loss could be
reasonably estimated. The Company does not have any legal reserves
as of September 30, 2020 and December 31, 2019, respectively.
HANJIAO GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in U.S. dollars unless otherwise stated)
NOTE 20 – CONCENTRATION OF RISK
Concentration of credit risk
The Company places its cash with a financial institution with
high-credit ratings and quality. Cash and cash equivalents as of
September 30, 2020 was approximately $4 million. A depositor has up
to RMB 500,000 insured by the People’s Bank of China Financial
Stability Bureau (“FSD”) if the bank fails. . While management
believes that the financial institution is of high credit quality,
it also continually monitors its credit worthiness.
Foreign currency risk
The RMB is not a freely convertible currency. The State
Administration for Foreign Exchange, under the authority of the
People’s Bank of China, controls the conversion of RMB into foreign
currencies. The value of the RMB is subject to changes in central
government policies and to international economic and political
developments affecting supply and demand in the China Foreign
Exchange Trading System market.
Concentration of supplier risk
The Company’s utilizes various suppliers. There were two suppliers
that accounted for more than 10% of total purchases, for the nine
months ended September 30, 2020 and 2019, respectively. One
supplier accounted for 62%, and the other accounted for 10% for the
nine months ended September 30, 2020 and 2019, respectively. There
was no accounts payable balances owed to these suppliers as of
September 30, 2020. The Company has two major suppliers that
accounted for 68% and 11% of total purchases in 2019.
Major customers
There was no customer whose revenue accounts for more than 10% of
total revenue for nine months ended September 30, 2020 and
2019.
NOTE 21 – SUBSEQUENT EVENTS
The Company has analyzed its operations subsequent
to September 30, 2020, through the date of this report and
have determined that the Company does not have any material
subsequent events to disclose in these unaudited condensed
consolidated financial statements.
NOTE 22 – FINANCIAL INFORMATION OF THE PARENT COMPANY
(UNAUDITED)
The Company performed a test on the restricted net assets of its
consolidated subsidiaries in accordance with the Securities and
Exchange Commission Regulation S-X Rule 5-04 and concluded that it
was applicable for the Company to disclose the financial statements
for the parent company.
The subsidiary did not pay any dividends to the Company for the
periods presented. For the purpose of presenting parent only
financial information, the Company records its investment in its
subsidiaries under the equity method of accounting. Such investment
is presented on the separate condensed balance sheets of the
Company as “Investment in subsidiaries” and the income of the
subsidiaries is presented as “share of income of subsidiaries”.
Certain information and footnote disclosures generally included in
financial statements prepared in accordance with US GAAP are not
required.
The Parent Company did not have any significant capital and other
commitments, long-term obligations, or guarantees as of September
30, 2020 and December 31, 2019.
HANJIAO GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in U.S. dollars unless otherwise stated)
PARENT COMPANY’S UNAUDITED BALANCE SHEETS
| |
|
September, 30 |
|
|
December, 31 |
|
| |
|
2020 |
|
|
2019 |
|
| Assets |
|
|
|
|
|
|
|
|
| Current assets |
|
|
|
|
|
|
|
|
|
Investment in subsidiaries |
|
$ |
(1,877,524 |
) |
|
$ |
10,321,376 |
|
| Total
Current Assets |
|
|
(1,877,524 |
) |
|
|
10, 321,376 |
|
| Total
Assets |
|
$ |
(1,877,524 |
) |
|
$ |
10, 321,376 |
|
| Liabilities and
Shareholders’ (Deficit) Equity |
|
|
|
|
|
|
|
|
| Shareholders’
Equity |
|
|
|
|
|
|
|
|
| Common
stock: $0.0001 par value, 100,000,000 shares authorized; 97,201,030
and 97,201,030 shares issued and outstanding; respectively * |
|
$ |
9,720 |
|
|
$ |
9,720 |
|
|
Additional paid-in capital* |
|
|
7,256,566 |
|
|
|
7,256,566 |
|
|
Statutory reserves |
|
|
1,687,125 |
|
|
|
1,687,125 |
|
| Retained
earnings |
|
|
(10,152,404 |
) |
|
|
1,977,141 |
|
|
Accumulated other comprehensive loss |
|
|
(678,531 |
) |
|
|
(609,176 |
) |
| Total
Shareholders’ (Deficit) Equity |
|
|
(1,877,524 |
) |
|
|
10,321,376 |
|
| |
|
|
|
|
|
|
|
|
| Total
Liabilities and Shareholders’ (Deficit) Equity |
|
$ |
(1,877,524 |
) |
|
$ |
10, 321,376 |
|
* Given retroactive
effect of reorganization in connection with the share exchange
transaction in August 2020
PARENT COMPANY’S UNAUDITED STATEMENTS OF COMPREHENSIVE
(LOSS) INCOME
| |
|
For the Three Months Ended
September 30,
|
|
|
For the Nine Months Ended
September 30, |
|
| |
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
|
Equity (loss) income of subsidiaries and VIEs |
|
$ |
(3,085,542 |
) |
|
$ |
2,532,892 |
|
|
$ |
(11,407,004 |
) |
|
$ |
7,803,350 |
|
| Net
(loss) income |
|
$ |
(3,085,542 |
) |
|
$ |
2,532,892 |
|
|
$ |
(11,407,004 |
) |
|
$ |
7,803,350 |
|
|
Foreign currency translation adjustments |
|
$ |
23,318 |
|
|
$ |
(454,784 |
) |
|
$ |
(69,355 |
) |
|
$ |
(484,235 |
) |
|
Comprehensive (loss) income |
|
$ |
(3,062,224 |
) |
|
$ |
2,078,108 |
|
|
$ |
(11,476,359 |
) |
|
$ |
7,319,115 |
|
HANJIAO GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in U.S. dollars unless otherwise stated)
PARENT COMPANY’S UNAUDITED STATEMENTS OF CASH FLOWS
| |
|
For the nine months
ended
September 30,
|
|
| |
|
2020 |
|
|
2019 |
|
| Cash flows from
operating activities |
|
|
|
|
|
|
|
|
| Net (loss) income |
|
$ |
(11,407,004 |
) |
|
$ |
7,803,350 |
|
|
Adjustments to reconcile net (loss) income to cash used in
operating activities: |
|
|
|
|
|
|
|
|
|
Equity loss (income) of subsidiaries and VIEs |
|
|
11,407,004 |
|
|
|
(7,803,350 |
) |
|
Net cash used in operating activities |
|
|
– |
|
|
|
– |
|
| |
|
|
|
|
|
|
|
|
| Changes
in cash and cash equivalents |
|
|
– |
|
|
|
– |
|
| Cash and cash
equivalents at beginning of year |
|
|
– |
|
|
|
– |
|
| Cash and cash
equivalents at end of year |
|
$ |
– |
|
|
$ |
– |
|
ITEM 2. MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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.
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 the first half of 2020 have been adversely affected.
Management believes that COVID-19 could have a material impact on
its financial results for the year 2020 and could cause the
potential impairment of certain assets. To mitigate the overall
financial impact of COVID-19 on the Company’s business, management
has worked closely with its service centers to enhance their
marketing and promotion activities during the third quarter of 2020
that were designed to generate sales in the third and fourth
quarters of 2020.
Overview
Hanjiao Group, Inc., known formerly as AS Capital, Inc. (“ASIN”)
and 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 its online to offline
platform. We conduct business primarily through our variable
interest entity (“VIE”), Beijing Luji Technology Co., Ltd.
(“Beijing Luji”) that was formed in Beijing, China on March 27,
2007.
Beijing Luji operates its “Fozgo” branded online to offline (“O2O”)
E-commerce marketplace. The 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 the
possibility to purchase and receive products and services offline.
Currently, our core product categories include sales of home
appliances (such as water purifiers and air purifiers), health
foods and cosmetics products. As of September 30, 2020, Beijing
Luji has 178 branch offices with outlets across the PRC with
approximately 159,000 users. In 2018, it was granted with hi-tech
enterprise status in the PRC.
History
We were incorporated on June 15, 2006 under the laws of the State
of Nevada as Jupiter Resources, Inc. 75,000,000 shares of stock was
authorized all as common stock with a par value $0.001 and no other
classes of stock were authorized. On March 25, 2009, the articles
were amended to authorize an addition of 10 million preferred
shares making a total of 85,000,000 shares authorized (75M common,
10M preferred). On April 30, 2009 the Company filed an amendment to
change the name of the corporation to Rineon Group, Inc. On May 14,
2009, the board of directors of the Company authorized a change in
the fiscal year end of the Company from May 31 to December 31.
From inception to November 1, 2018, the date of the filing of the
Company’s Form 15, the Company attempted unsuccessfully to enter
into business combinations with various target companies. There was
no business activity between the filing of the Form 15 and prior to
August 9, 2018. The Company had Exchange Act disclosure
requirements from January 11, 2008 to November 10, 2010. The
Company has no knowledge or records related to the assets
referenced above and therefor there is some level of uncertainty in
the above descriptions.
Prior Company management was unresponsive to shareholders and had
refused to respond to requests to meet statutory requirements to
get current with the secretary of state and the Securities and
Exchange Commission’s filing requirements. Accordingly, on August
9, 2018, XTC, Inc. was appointed to serve as the custodian of the
Company in a shareholder filed action with the Eighth Judicial
District Court in Clark County, Nevada and was instructed to revive
the company. XTC, Inc. was a shareholder of record as shown in the
court documents of 500 common shares attached as Exhibit 99.1 to
this Quarterly Report. XTC acquired its 500 common shares on June
14, 2018 in the open market at a price of $0.05 per share.
On September 25, 2018, the Company filed a Certificate of
Designation whereby the following preferred shares were designated
and the rights, privileges and designations of the Series A and C
Convertible Preferred Stock were amended and restated.
| |
· |
The
number of Series A Convertible Preferred was increased from 36,000
to 1,000,000. |
| |
· |
3,000,000
shares of Series B Convertible Preferred Stock were created with no
voting rights, and conversion rights of 1000:1, with the
restriction that holders cannot convert to hold more the 4.95% of
issued and outstanding common stock. |
| |
· |
1,000,000
shares of Series C Convertible Preferred Stock were created with
each Series C having 100,000 votes per share, with 1:1 conversion
rights. |
On September 25, 2018, the Company issued 964,000 shares of Series
A Convertible Preferred shares to XRC, LLC at $0.001 per share and
1,000,000 shares of Series C Convertible Preferred shares at $0.001
per share to XRC, LLC, a company controlled by Chris Lotito, in
exchange for paying the costs to revive the Company with the State
of Nevada, giving it voting control.
On September 28, 2018, a shareholders meeting was held wherein the
shareholders gave the board authority to reorganize the Company,
including making possible a name change, and/or engaging in a
reverse stock split. In addition, the Series A shareholders voted
to approve a reverse split of the Series A Convertible Preferred
and to authorize a new designation.
On October 1, 2018, the Company made filings with the Nevada
Secretary of State to change our name to "AS Capital, Inc.” and
approve a 1 for 10 reverse stock split for the Common stock and a 1
for 1,000 reverse of the Series A Convertible Preferred, with
conversion rights of 1 common share for every 12,000 shares of
Series A Convertible Preferred Stock held. As a result, the number
of issued and outstanding Series A Convertible Preferred Stock was
reduced to 1,000 shares.
On December 6, 2018, the Court granted an Order discharging the
custodian and approved all actions taken by the custodian.
Change in Control
On June 4, 2019, ASIN, a Nevada corporation, XRC, LLC, a Colorado
limited liability company (“XRC”) and Gao Xue Ran (“Purchaser”)
entered into a Stock Purchase Agreement (the “SPA”), pursuant to
which the Purchaser agreed to purchase from XRC 11,000,000 shares
of common stock of the Company, par value $0.001, and 964 shares of
Series A Convertible Preferred Stock of the Company, par value
$0.001 (collectively, the “Shares”), for aggregate consideration of
$410,000 in accordance with the terms and conditions of the SPA.
XRC was the controlling shareholder of the Company. The acquisition
of the Shares was consummated on July 18, 2019, and the Shares were
ultimately purchased by the following three individuals using their
own personal funds:
| Name |
|
No. of Shares |
|
Percentage of Issued
and Outstanding
|
|
|
Consideration
Paid |
|
| Gao
Xue Ran |
|
8,581,063 of Common
Stock;
964 shares of Series A Preferred Stock |
|
|
76.61% |
|
|
$ |
319,840 |
|
| Zhang Yan Hua |
|
1,935,633 of Common Stock |
|
|
17.28% |
|
|
$ |
72,146 |
|
| Cheung Kwok Chiu Kris |
|
483,304 of Common Stock |
|
|
4.31% |
|
|
$ |
18,014 |
|
Upon the consummation of the sale of the Shares, Chris Lotito, our
Chief Executive Officer and sole director, and John Karatzaferis,
our President, resigned from all of their positions with the
Company, effective July 18, 2019. Their resignations were not due
to any dispute or disagreement with the Company on any matter
relating to the Company's operations, policies or practices.
Concurrently with such resignations, Gao Xue Ran was appointed to
serve as the Chief Executive Officer, Chief Financial Officer,
President, Secretary and sole Director of the Company. Ms. Gao
served in her positions without compensation.
Acquisition of HanJiao International Holding Limited
On August 6, 2020, ASIN and HanJiao International Holding Limited
(“HanJiao”) consummated a Share Exchange Agreement (the “Share
Exchange Transaction”). In connection with the Share Exchange
Transaction, ASIN issued 86,000,000 shares of its common stock to
acquire all the equity shares of HanJiao. Upon the completion of
the Share Exchange Transaction, the shareholders of HanJiao own
approximately 88.5% of the common stock of ASIN. In connection with
the Share Exchange Transaction, effective August 6, 2020, the
following individuals were appointed to serve in the capacities set
forth next to their names until his or her successor(s) shall be
duly elected or appointed, unless he or she resigns, is removed
from office or is otherwise disqualified from serving as an
executive officer or director of the Company:
| Name |
|
Positions |
| Tian
Xiangyang |
|
Chief
Executive Officer, Director and Chairperson of the Board of
Director |
| Shan
Yonghua |
|
Chief
Financial Officer, and Director |
| Tian
Zhihai |
|
Chief
Operating Officer and Director |
| Yin
Jianen |
|
Secretary
and Director |
| Wang
Jirui |
|
Director |
Upon the consummation of the Share Exchange Transaction, Gao Xue
Ran resigned from all of her positions with the Company, effective
August 6, 2020. Her resignation was not due to any dispute or
disagreement with the Company on any matter relating to the
Company's operations, policies or practices.
Effective October 20, 2020, ASIN changed its name from AS Capital,
Inc. to Hanjiao Group, Inc.
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. In our unaudited condensed consolidated financial
statements for the three and nine months ended September 30, 2020,
it has included a note about our ability to continue as a going
concern due to consecutive quarterly losses from operations in 2020
as a result of COVID-19. Business closures in the PRC and
limitations on business operations arising from COVID-19 has
significantly disrupted Beijing Luji’s ability to generate revenues
and cash flow during the nine months of 2020.
Comparison for the Three Months Ended September 30, 2020 and
2019
The following table sets forth certain financial data for the three
months ended September 30, 2020 and 2019 (in thousands):
| |
|
For the
Three Months Ended September 30, |
|
|
Percentage |
|
|
|
|
2020 |
|
|
2019 |
|
|
Change |
|
| |
|
Dollars |
|
|
% |
|
|
Dollars |
|
|
% |
|
|
% |
|
| Revenues |
|
$ |
81.7 |
|
|
|
100.0 |
|
|
$ |
8,031.8 |
|
|
|
100.0 |
|
|
|
(99.0 |
) |
| Cost of revenues |
|
|
(407.8 |
) |
|
|
(499.1 |
) |
|
|
(827.2 |
) |
|
|
(10.3 |
) |
|
|
(50.7 |
) |
| Gross (loss)
profit |
|
|
(326.1 |
) |
|
|
(399.1 |
) |
|
|
7,204.6 |
|
|
|
89.7 |
|
|
|
(104.5 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| General and administrative
expenses |
|
|
758.7 |
|
|
|
928.6 |
|
|
|
2,226.2 |
|
|
|
27.7 |
|
|
|
(65.9 |
) |
| Selling expenses |
|
|
1,291.6 |
|
|
|
1,580.9 |
|
|
|
1,426.4 |
|
|
|
17.8 |
|
|
|
(9.5 |
) |
| Finance income,
net |
|
|
(3.5 |
) |
|
|
(4.3 |
) |
|
|
(14.0 |
) |
|
|
(0.2 |
) |
|
|
(75.0 |
) |
| Total operating
expenses |
|
|
2,046.8 |
|
|
|
2,505.3 |
|
|
|
3,638.6 |
|
|
|
45.3 |
|
|
|
(43.7 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating (loss)
income |
|
|
(2,372.9 |
) |
|
|
(2,904.4 |
) |
|
|
3,566.0 |
|
|
|
44.4 |
|
|
|
(166.5 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other expenses,
net |
|
|
(712.6 |
) |
|
|
(872.2 |
) |
|
|
(671.6 |
) |
|
|
(8.4 |
) |
|
|
6.1 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total other
expenses, net |
|
|
(712.6 |
) |
|
|
(872.2 |
) |
|
|
(671.6 |
) |
|
|
(8.4 |
) |
|
|
6.1 |
|
| (Loss)
income before provision for income taxes |
|
|
(3,085.5 |
) |
|
|
(3,776.6 |
) |
|
|
2,894.4 |
|
|
|
36.0 |
|
|
|
(206.6 |
) |
| Provision for
income taxes |
|
|
– |
|
|
|
– |
|
|
|
361.6 |
|
|
|
4.5 |
|
|
|
(100.0 |
) |
| Net (loss) income |
|
$ |
(3,085.5 |
) |
|
|
(3,776.6 |
) |
|
$ |
2,532.8 |
|
|
|
31.5 |
|
|
|
(221.8 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Foreign currency
translation adjustment |
|
|
23.3 |
|
|
|
28.5 |
|
|
|
(454.8 |
) |
|
|
(5.7 |
) |
|
|
(105.1 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Comprehensive
(loss) income |
|
$ |
(3,062.2 |
) |
|
|
(3,748.1 |
) |
|
$ |
2,078 |
|
|
|
25.9 |
|
|
|
(247.4 |
) |
Revenues: Revenues were approximately $82,000 and
approximately $8.0 million for the three months ended September 30,
2020 and 2019 respectively. The decrease in revenues of
approximately $8.0 million or 99.0% is due primarily to business
interruptions arising from COVID-19. During the three months ended
September 30, 2020 and 2019, all revenues were generated in the
PRC. During the period of three months ended September 30, 2020,
revenues were mainly attributable to the sales of home appliances,
smart watches, health foods, and cosmetics products, representing
36.8%, 19.1%, 12.0%, and 1.75% of revenues, respectively. During to
the same period of 2019, the revenues were mainly attributable to
the sales of health foods, home appliances and cosmetics products,
representing 83.2%, 13.2% and 0.27% of revenues, respectively.
During the three months ended September30, 2020 and 2019, no
customers accounted for 10% or more of total 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. Cost of revenues of
approximately $408,000 for the three months ended September 30,
2020 consisted of provision for slow-moving inventory of
approximately $263,000. The decrease in cost of revenues of
approximately $419,000 or 50.7% from the comparable period of 2019
was due mainly to decrease in product sales as a result of
COVID-19.
There were two suppliers that accounted for more than 10% of total
purchases, for the three months ended September 30, 2020 and 2019,
respectively. One supplier (Shandong Kangqi Wood Industry Co. Ltd.)
accounted for 75%, and the other (Suzhou Jianli Space Health
Technology Co. Ltd.) accounted for 19% for the three months ended
September 30, 2020. One supplier (Harbin Xinyue Technology Co.
Ltd.) accounted for 73%, and the other (Zhongji Technology Services
Co. Ltd.) accounted for 12% for the three months ended September
30, 2019.
Gross (Loss) Profit. Gross loss for the three months
ended September 30, 2020 of approximately $326,000 was attributed
mainly to the provision for slowing-moving inventory of
approximately $263,000. Gross profit for the three months ended
September 30, 2019 of approximately $7.2 million was attributed
mainly to revenues of approximately $8.0 million.
General and Administrative Expenses. General and
administrative expenses (“G&A expenses”) consist primarily of
costs in salary and benefits for our general administrative and
management staff, facilities costs, depreciation expenses,
professional fees, audit fees, and other miscellaneous expenses
incurred in connection with general operations. G&A expenses
decreased 65.9% or approximately $1.5 million from approximately
$2.2 million for the three months ended September 30, 2019 was due
primarily to the decrease in advisory fees, 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 9.4% or approximately
$134,000 to approximately $1.3 million in the three months ended
September 30, 2020 from approximately $1.4 million in the same
period of 2019. The decrease was due mainly to the impact of
COVID-19 as certain marketing and other promotional activities had
been postponed in 2020.
Finance Income, net. Total net financial income was
approximately $3,000 and $14,000 for the three months ended
September 30, 2020, and 2019, respectively. The decrease was due
mainly to lower interest form bank and related bank products in the
three months period ended September 30, 2020.
Operating (Loss) Income. Operating loss was
approximately $2.4 million for the three months ended September 30,
2020, compared to approximately $3.6 million of operating income
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.
Total Other Expenses, net. Other expenses consist
mainly of estimated tax penalties and charitable contributions.
Total net other expenses were approximately $713,000 for the three
months ended September 30, 2020, compared to approximately $672,000
for the same period of 2019. The increase in total net other
expenses was due primary to increase in estimated tax penalty, net
of income from equity investment in 2020.
Provision for Income Taxes. No provision for income
taxes was recorded for the three months ended September 30, 2020
since the Company reported a pre-tax loss of approximately $3.1
million in 2020, as compared to approximately $362,000 of income
tax provision for the same period of 2019 when the Company reported
a pre-tax income of approximately $2.9 million.
Net (Loss) Income. As a result of the factors
described above, net loss was approximately $3.1 million for the
three months ended September 30, 2020, a decrease of approximately
$5.6 million from approximately $2.5 million of net income for the
same period of 2019.
Comprehensive Loss (Income). Comprehensive loss was
approximately $3.1 million for the three months ended September 30,
2020, as compared to other comprehensive income of approximately
$2.1 million for the three months ended September 30, 2019.
Comparison for the Nine Months Ended September 30, 2020 and
2019
The following table sets forth certain financial data for the nine
months ended September30, 2020 and 2019 (in thousands):
| |
|
For the Nine Months Ended September
30, |
|
|
Percentage |
|
| |
|
2020 |
|
|
2019 |
|
|
Change |
|
| |
|
Dollars |
|
|
% |
|
|
Dollars |
|
|
% |
|
|
% |
|
| Revenues |
|
$ |
210.2 |
|
|
|
100.0 |
|
|
$ |
59,089.9 |
|
|
|
100.0 |
|
|
|
(99.6 |
) |
| Cost of revenues |
|
|
(613.1 |
) |
|
|
(291.7 |
) |
|
|
(38,115.5 |
) |
|
|
(64.5 |
) |
|
|
(98.4 |
) |
| Gross (loss) profit |
|
|
(402.9 |
) |
|
|
(191.7 |
) |
|
|
20,974.4 |
|
|
|
35.5 |
|
|
|
(101.9 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| General and administrative
expenses |
|
|
2,746.0 |
|
|
|
1,306.4 |
|
|
|
6,402.3 |
|
|
|
10.8 |
|
|
|
(57.1 |
) |
| Selling expenses |
|
|
4,950.0 |
|
|
|
2,354.9 |
|
|
|
3,057.4 |
|
|
|
5.2 |
|
|
|
61.9 |
|
| Finance (income) expenses, net |
|
|
(173.6) |
|
|
|
(82.6 |
) |
|
|
81.1 |
|
|
|
0.1 |
|
|
|
(314.1 |
) |
| Total operating
expenses |
|
|
7,522.4 |
|
|
|
3,578,7 |
|
|
|
9,540.8 |
|
|
|
16.1 |
|
|
|
(21.2 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating (loss)
income |
|
|
(7,925.3 |
) |
|
|
(3,770.4 |
) |
|
|
11,433.6 |
|
|
|
19.3 |
|
|
|
(169.3 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other expenses, net |
|
|
(3,481.6 |
) |
|
|
(1,656.3 |
) |
|
|
(1,832.9 |
) |
|
|
(3.1 |
) |
|
|
90.0 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total other expenses,
net |
|
|
(3,481.6 |
) |
|
|
(1,656.3 |
) |
|
|
(1,832.9 |
) |
|
|
(3.1 |
) |
|
|
90.0 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (Loss) income before provision
for income taxes |
|
|
(11,406.9 |
) |
|
|
(5,426.7 |
) |
|
|
9,600.7 |
|
|
|
16.2 |
|
|
|
(218.8 |
) |
| Provision for income
taxes |
|
|
– |
|
|
|
– |
|
|
|
1,797.3 |
|
|
|
3.0 |
|
|
|
(100.0 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net (loss) income |
|
$ |
(11,407.0 |
) |
|
|
(5,426.7 |
) |
|
$ |
7,803.4 |
|
|
|
13.2 |
|
|
|
(246.2 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Foreign currency translation
adjustment |
|
|
(69.4 |
) |
|
|
(33.0 |
) |
|
|
(484.2 |
) |
|
|
(0.8 |
) |
|
|
(85.7 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Comprehensive (loss)
income |
|
$ |
(11,476.3 |
) |
|
|
(5,459.8 |
) |
|
$ |
7,319.2 |
|
|
|
12.4 |
|
|
|
(256.8 |
) |
Revenues: Revenues were approximately $210,000 and
approximately $59.1 million for the nine months ended September 30,
2020, and 2019, respectively. The decrease in revenues of
approximately $58.9 million or 99.6% is due primarily to business
interruptions arising from COVID-19. During the nine months ended
September 30, 2020 and 2019, all revenues were generated in the
PRC. During the period of nine months ended September 30, 2020,
revenues were mainly attributable to the sales of home appliances,
smart watches, health foods, and cosmetics products, representing
21.6%, 39.5%, 12.3%, and 1.7% of revenues, respectively. During to
the same period of 2019, revenues were mainly attributable to the
sales of health food, home appliances and cosmetics products,
representing 69.4%, 17.5% and 11.9% of revenues, respectively.
During the nine months ended September 30, 2020 and 2019, no
customers accounted for 10% or more of total 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. Cost of revenues of
approximately $613,000 for the nine months ended September 30, 2020
consisted of provision for slow-moving inventory of approximately
$450,000. The decrease in cost of revenues of approximately $37.5
million or 98.4% from the comparable period of 2019 was due mainly
to decrease in product sales as a result of COVID-19.
There were two suppliers that accounted for more than 10% of total
purchases, for the nine months ended September 30, 2020 and 2019,
respectively. One supplier (Baoqing Meilai Modern Agriculture
Service Co. Ltd.) accounted for 62%, and the other (Shandong Kangqi
Wood Industry Co. Ltd.) accounted for 10% for the nine months ended
September 30, 2020. One supplier (Harbin Xinyue Technology Co.
Ltd.) accounted for 68%, and the other (Zhongji Technology Services
Co. Ltd.) accounted for 11% for the nine months ended September 30,
2019.
Gross (Loss) Profit. Gross loss for the nine months
ended September 30, 2020 of approximately $403,000 was attributed
mainly to the provision for slowing-moving inventory of
approximately $450,000. Gross profit for the nine months ended
September 30, 2019 of approximately $21.0 million was attributed
mainly to revenues of approximately $59.1 million.
General and Administrative Expenses. General and
administrative expenses (“G&A expenses”) consist primarily of
costs in salary and benefits for our general administrative and
management staff, facilities costs, depreciation expenses,
professional fees, audit fees, and other miscellaneous expenses
incurred in connection with general operations. G&A expenses
decreased 57.1% or approximately $3.7 million from approximately
$6.4 million for the nine months ended September 30, 2019 was due
primarily to the decrease in advisory fees, 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 increased by 61.9% or approximately
$1.9 million to approximately $5.0 million in the nine months ended
September 30, 2020 from approximately $3.1 million in the same
period of 2019. The increase was due mainly to costs incurred in
marketing and other promotional activities in 2020 designed to
offset the negative impact of COVID-19.
Finance Income, net. Total net financial income and
expense were approximately $174,000 and $81,000 for the nine months
ended September 30, 2020, and 2019, respectively. The increase was
due mainly to interest income earned in the nine months period
ended September 30, 2020.
Operating (loss) Income. Operating loss was
approximately $7.9 million for the nine months ended September 30,
2020, compared to approximately $11.4 million of operating income
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.
Total Other Expenses, net. Other expenses consist
mainly of estimated tax penalties and charitable contributions.
Total net other expenses were approximately $3.5 million for the
nine months ended September 30, 2020, compared to approximately
$1.8 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. No provision for income
taxes was recorded for the nine months ended September 30, 2020,
since the Company reported a pre-tax loss of approximately $11.4
million in 2020, as compared to approximately $1.8 million of
income tax provision for the same period of 2019 when the Company
reported pre-tax income of approximately $9.6 million.
Net (loss) Income. As a result of the factors
described above, net loss was approximately $11.4 million for the
nine months ended September 30, 2020, a decrease of approximately
$19.2 million from approximately $7.8 million of net income for the
same period of 2019.
Comprehensive Loss (Income). Comprehensive loss was
approximately $11.4 million for the nine months ended September 30,
2020, as compared to other comprehensive income of approximately
$7.3 million for the nine months ended September 30, 2019.
Liquidity and Capital Resources
As of September 30, 2020 and December 31, 2019, we had cash and
cash equivalents of approximately $4.0 million and $28.9 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, |
|
| |
|
2020 |
|
|
2019 |
|
| |
|
(Unaudited) |
|
|
(Unaudited) |
|
| Net cash (used in)
provided by operating activities |
|
$ |
(21,468,409 |
) |
|
$ |
26,099,723 |
|
| Net cash (used in) investing
activities |
|
$ |
(1,788,623 |
) |
|
$ |
(11,658,276 |
) |
| Net cash (used in) financing
activities |
|
$ |
(1,724,779 |
) |
|
$ |
(185,818 |
) |
| Effect of exchange rate changes on
cash and cash equivalents |
|
$ |
30,376 |
|
|
$ |
(944,766 |
) |
| Net (decrease) increase in cash and
cash equivalents |
|
$ |
(24,951,435 |
) |
|
$ |
13,310,863 |
|
| Cash and cash equivalents at
beginning of period |
|
$ |
28,919,817 |
|
|
$ |
18,019,682 |
|
| Cash and cash equivalents at end of
period |
|
$ |
3,968,382 |
|
|
$ |
31,330,545 |
|
The following table sets forth a summary of our working
capital:
| |
|
September 30, |
|
|
December 31, |
|
|
|
|
|
|
|
| |
|
2020 |
|
|
2019 |
|
|
Variation |
|
|
% |
|
| |
|
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total Current
Assets |
|
$ |
12,997,021 |
|
|
$ |
31,095,695 |
|
|
$ |
(18,098,674 |
) |
|
|
(58.2 |
) |
| Total Current Liabilities |
|
$ |
29,043,499 |
|
|
$ |
32,496,887 |
|
|
$ |
(3,453,388 |
) |
|
|
(10.6 |
) |
| Working Capital |
|
$ |
(16,046,478 |
) |
|
$ |
(1,401,192 |
) |
|
$ |
(14,645,285 |
) |
|
|
1,045.2 |
|
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 nine months ended September 30, 2020, cash used in
operating activities was approximately $21.5 million. For nine
months ended September 30, 2019, cash provided by operating
activities was approximately $26.1 million. The key factors
attributing to the net cash outflows of approximately $21.5 million
in 2020 include: net loss of approximately $11.4 million due mainly
to drop in revenues; increase in advance to suppliers and
inventories of approximately $6.0 million and $1 million,
respectively; and increase in estimated tax penalties of
approximately $2.4 million. The key reasons for the net cash flows
from operation of approximately $26.1 million in the same period of
2019 include: net income of approximately $7.8 million; change in
due from related parties, net of approximately $10.5 million, and
change in accrued expenses of approximately $9.6 million.
Net cash used in investing activities was approximately $1.8
million for the nine months ended September 30, 2020, as compared
to net cash used in investing activities of $11.7 million for the
nine months ended September 30, 2019. The change of approximately
$10 million was due primary to net changes in (1) purchases of
property and equipment of approximately $1.8 million, and (2)
investment in equity investee of $11.6 million.
Net cash used in financing activities was approximately $1.7
million for the nine months ended September 30, 2020, as compared
to net cash used in financing activities of approximately $0.2
million for the nine months ended September 30, 2019. The increase
was due mainly to increase in dividends paid of approximately $0.5
million, and (2) Repayment of loans of approximately $1.0
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
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 in the past three years, 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.
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.
ITEM 3. QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, as defined by Item 10 (f)(1) of
Regulation S-K, we are not required to provide the information
required by this item.
ITEM 4. CONTROLS AND
PROCEDURES
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15 under the Securities Exchange Act of
1934 (the “1934 Act”), as of September 30, 2020, we carried out an
evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures. This evaluation was carried out
under the supervision and with the participation of our Chief
Executive Officer (our principal executive officer) and our Chief
Financial Officer (our principal financial officer), who concluded,
that because of the material weakness in our internal control over
financial reporting (“ICFR”) described below, our disclosure
controls and procedures were not effective as of September 30,
2020.
Disclosure controls and procedures are controls and other
procedures that are designed to ensure that information required to
be disclosed in our reports filed or submitted under the Securities
Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange
Commission’s rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed in our
reports filed under the Exchange Act is accumulated and
communicated to our management, including our principal executive
officer and our principal financial officer, as appropriate, to
allow timely decisions regarding required disclosure.
Management Report on Internal Control Over Financial
Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting to provide
reasonable assurance regarding the reliability of our financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles in the United States (US GAAP). Internal control over
financial reporting includes those policies and procedures that (i)
pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions of
the assets of the Company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with US GAAP, and that receipts
and expenditures of the Company are being made only in accordance
with authorizations of management and directors of the Company; and
(iii) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the
Company’s assets that could have a material effect on the financial
statements.
Any system of internal control, no matter how well designed, has
inherent limitations, including the possibility that a control can
be circumvented or overridden and misstatements due to error or
fraud may occur and not be detected in a timely manner. Also,
because of changes in conditions, internal control effectiveness
may vary over time. Accordingly, even an effective system of
internal control will provide only reasonable assurance with
respect to financial statement preparation. In addition, the design
of any system of controls is based in part on certain assumptions
about the likelihood of future events, and there can be no
assurance that any design will succeed in achieving its stated
goals under all potential future conditions. Over time, controls
may become inadequate because of changes in conditions or
deterioration in the degree of compliance with policies or
procedures. Therefore, any current evaluation of controls cannot
and should not be projected to future periods.
Management assessed our internal control over financial reporting
as of the period ended September 30, 2020. In making this
assessment, management used the criteria set forth by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO) in
the report entitled “2013 Internal Control - Integrated Framework.”
Based on management’s assessment using the COSO criteria,
management concluded that the Company’s internal control over
financial reporting was not effective as of September 30, 2020, due
to the existence of the following material weaknesses:
| ● |
There was a lack of control
procedures to ensure the correct application of US GAAP and
compliance with related disclosure requirements. |
| ● |
There were deficiencies in our
control documentation. |
| ● |
There was no independent audit
committee. |
Changes in Internal Control over Financial Reporting
There have been no changes in our ICFR identified in connection
with the evaluation required by paragraph (d) of Exchange Act Rules
13a-15 or 15d-15 that occurred during our current quarter ended
September 30, 2020, that have materially affected, or are
reasonable likely to materially affect, our internal control over
financial reporting.
PART II OTHER
INFORMATION
ITEM 1. LEGAL
PROCEEDINGS
Other than the item set forth in Note 19 of Notes to Unaudited
Condensed Consolidated Financial Statements, we are not a party to
any legal or administrative proceedings that we believe,
individually or in the aggregate, would be likely to have a
material adverse effect on our financial condition or results of
operations.
ITEM 1A. RISK FACTORS
None.
ITEM 2. UNREGISTERED SALES OF
EQUITY SECURITIES AND USE OF PROCEEDS
There were no sales of unregistered equity securities during the
covered time period.
ITEM 3. DEFAULTS UPON SENIOR
SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO
A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER
INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON
FORM 8-K
|
Exhibit
Number
|
Description |
| 3.1 |
Amended
and Restated Articles of Incorporation of AS Capital,
Inc. (1) |
| 3.1.1 |
Certificate
of Amendment to the Articles of Incorporation for Rineon Group,
Inc. (2) |
| 3.1.2 |
Certificate
of Amendment to the Articles of Incorporation for AS Capital,
Inc. (3) |
| 3.2 |
Amended
and Restated By-Laws (3) |
| 4.2 |
Description
of Securities (4) |
| 10.1 |
Equity
Acquisition Agreement, dated March 15, 2019, by and between
Rongcheng Health Group Co. Ltd. and Beijing Luji Technology Co.
Ltd. (5) |
| 10.2 |
Exclusive
Consulting and Services Agreement, dated May 15, 2019, by and among
Beijing Hongtao Management Consulting Co. Ltd. and Beijing Luji
Technology Co. Ltd. (5) |
| 10.3 |
Business
Operations Agreement, dated May 19, 2019, by and among Beijing
Hongtao Management Consulting Co. Ltd., Beijing Luji Technology Co.
Ltd. and Tian Xiangyang, Tian Zhihai, Liu Zexian, Gao Xuewei, and
Li Chunduo (5) |
| 10.4 |
Equity
Disposal Agreement, dated May 15, 2019, by and among Beijing
Hongtao Management Consulting Co. Ltd., Beijing Luji Technology Co.
Ltd., Tian Xiangyang, Tian Zhihai, Liu Zexian, Gao Xuewei, and Li
Chunduo (5) |
| 10.5 |
Equity
Pledge Agreement, dated May 15, 2019, by and among Beijing Hongtao
Management Consulting Co. Ltd., Tian Xiangyang, Tian Zhihai, Liu
Zexian, Gao Xuewei, and Li Chunduo (5) |
| 10.6 |
Agency
Agreement, dated May 15, 2019, by and among Beijing Hongtao
Management Consulting Co. Ltd., Tian Xiangyang, Tian Zhihai, Liu
Zexian, Gao Xuewei, and Li Chunduo (5) |
| 10.7 |
House
Lease Contract, dated June 12, 2020, by and among Beijing Hongtao
Management Consulting Co. Ltd. And Beijing Luji Technology Co.
Ltd. (5) |
| 10.8 |
Labor
Contract, dated January 1, 2019, by and between Beijing Luji and
Tian Xiangyang(5) |
| 10.9 |
Labor
Contract, dated January 1, 2017, by and between Beijing Luji and
Shan Yonghua (5) |
| 10.10 |
Labor
Contract, dated January 1, 2017, by and between Beijing Luji and
Tian Zhihai (5) |
| 10.11 |
Supplementary
Labor Contract, dated April 1, 2020, by and between Beijing Luji
and Yin Jian’en (5) |
| 10.12 |
Supplementary
Labor Contract, dated April 1, 2020, by and between Beijing Luji
and Wang Jirui (5) |
| 10.13 |
Supplementary Agreement of Labor
Contract, effective January 1, 2020, by and between Beijing Luji
Technology Co., Ltd. and Yin Jianen (4) |
| 10.14 |
Supplementary Agreement of Labor
Contract, effective January 1, 2020, by and between Beijing Luji
Technology Co., Ltd. and Wang Jirui (4) |
| 10.15 |
Form
of Director Retainer Agreement (5) |
| 21 |
List
of Subsidiaries (5) |
| 31.1 |
Certification of Principal Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act* |
| 31.2 |
Certification of Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act* |
| 32.1 |
Certification of Principal Executive Officer pursuant to Section
906 of the Sarbanes-Oxley Act* |
| 32.2 |
Certification of Chief Financial Officer pursuant to Section 906 of
the Sarbanes-Oxley Act* |
| 99.1 |
Court
Custodian Documents (6) |
| 101 |
Interactive
Data File* |
| 101.INS |
XBRL
Instance Document* |
| 101.SCH |
XBRL
Taxonomy Extension Schema Document* |
| 101.CAL |
XBRL
Taxonomy Extension Calculation Linkbase Document* |
| 101.DEF |
XBRL
Taxonomy Extension Definition Linkbase Document* |
| 101.LAB |
XBRL
Taxonomy Extension Label Linkbase Document* |
| 101.PRE |
XBRL Taxonomy Extension
Presentation Linkbase Document* |
_______________________
| |
|
| (1) |
Incorporated
by reference to the Exhibits to Registration Statement on Form 10
filed with the Securities and Exchange Commission on November 1,
2018. |
| (2) |
Incorporated
by reference to Exhibit 3.1 to Current Report on Form 8-K filed
with the Securities and Exchange Commission on May 8,
2009. |
| (3) |
Incorporated
by reference to the Exhibits to Information Statement on Definitive
Schedule 14C filed with the Securities and Exchange Commission on
July 29, 2020. |
| (4) |
Incorporated
by reference to Amendment No. 1 to Current Report on Form 8-K filed
with the Securities and Exchange Commission on August 14,
2020. |
| (5) |
Incorporated
by reference to the Exhibits to Current Report on Form 8-K filed
with the Securities and Exchange Commission on August 6,
2020. |
| (6) |
Incorporated
by reference to the Exhibits to Amendment No. 5 to Registration
Statement on Form 10 filed with the Securities and Exchange
Commission on July 17, 2019. |
SIGNATURES
In accordance with Section 13 or 15 (d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 20, 2020
| |
Hanjiao Group, Inc. |
| |
Registrant |
| |
|
| |
|
| |
By:
/s/ Tian Xiangyang |
| |
Tian Xiangyang
Chief Executive Officer
|
AS Capital (PK) (USOTC:ASIN)
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