For the immediate
future, we intend to finance our business and strategic plans including possible corporate transactions such as asset or business
acquisitions through sales of our securities to existing shareholders, management or employees as well as loans from existing shareholders
or financial institutions. There can be no assurance that we will be able to raise such additional capital resources on satisfactory
terms, that that we will be successful in consummating a business acquisition or that any acquired business will be successful
after acquisition. While our operating performance in 2020 was negatively impacted by COVID-19, we believe our business will begin
to stabilize in the second half of 2021, and that our current cash and other sources of liquidity discussed above will be adequate
to support operations for at least the next 12 months. We anticipate continuing to rely on equity sales of our common shares and
shareholder loans in order to continue to fund our business operations. Issuances of additional shares will result in dilution
to our existing shareholders. There is no assurance that we will achieve any additional sales of our equity securities or arrange
for debt or other financing to fund our plan of operations.
We rely on, trade
secrets, copyrights, know-how, trademarks, license agreements and contractual provisions to establish our intellectual property
rights and protect the “Fozgo” brand of Beijing Luji. These legal means, however, afford only limited protection and
may not adequately protect our rights. Litigation may be necessary in the future to enforce our intellectual property rights, protect
our trade secrets or determine the validity and scope of the proprietary rights of others. Litigation could result in substantial
costs and diversion of resources and management attention. Any unauthorized disclosure or use of our intellectual property increase
our business cost and harm our operating results.
The laws of the PRC
may not protect our brand and intellectual property to the same extent as U.S. laws, if at all. We may be unable to fully protect
our intellectual property rights in our country. Further, companies in the internet, social media technology and other industries
may own large numbers of patents, copyrights and trademarks and may frequently request license agreements, threaten litigation
or file suit against us based on allegations of infringement or other violations of their intellectual property rights.
We intend to seek
the widest possible protection for significant product and process developments in our major markets through a combination of trade
secrets, trademarks, copyrights and patents, if applicable. We anticipate that the form of protection will vary depending upon
the level of protection afforded by the particular jurisdiction. Initially, we expect that our revenue will be derived principally
from our operations in the PRC where intellectual property protection may be more limited and difficult to enforce. In such instances,
we may seek protection of our intellectual property through measures taken to increase the confidentiality of our findings.
We intend to register
trademarks as a means of protecting the brand names of our companies and products. We intend to protect our trademarks against
infringement and also seek protection of registered design and product patent.
We rely on trade
secrets and unpatentable know-how that we seek to protect, in part, by confidentiality agreements. We expect that, where applicable,
we will require our employees to execute confidentiality agreements upon the commencement of employment with us. We expect these
agreements to provide that all confidential information developed or made known to the individual during the course of the individual’s
relationship with us is to be kept confidential and not disclosed to third parties except in specific limited circumstances. The
agreements will also provide that all inventions conceived by the individual while rendering services to us shall be assigned to
us as the exclusive property of the Company. There can be no assurance, however, that all persons who we desire to sign such agreements
will sign, or if they do, that these agreements will not be breached, that we would have adequate remedies for any breach, or that
our trade secrets or unpatentable know-how will not otherwise become known or be independently developed by competitors.
All of our employees
are located in the PRC. None of our employees are members of a trade union. We believe that we maintain good relationships with
our employees and have not experienced any strikes or shutdowns and have not been involved in any labor disputes.
Moreover, according
to the Regulations on Management of Housing Provident Fund, we are required to make a contribution to the housing provident fund
for all of our eligible employees in the PRC based on a certain percentage of their relevant income.
Transhare located at 2849 Executive Drive, Suite 200, Clearwater,
FL 33762, telephone number (303) 662-1112, serves as our stock transfer agent
PART III
ITEM 10. Directors,
Executive Officers and Corporate Governance.
Set forth below are
the present directors and executive officers of the Company. Note that there are no other persons who have been nominated or chosen
to become directors nor are there any other persons who have been chosen to become executive officers. There are no arrangements
or understandings between any of the directors, officers and other persons pursuant to which such person was selected as a director
or an officer. Directors are elected to serve until the next annual meeting of stockholders and until their successors have been
elected and have qualified. Officers are appointed to serve until the meeting of the board of directors following the next annual
meeting of stockholders and until their successors have been elected and qualified.
Name
|
|
Age
|
|
Position
|
Tian Xiangyang
|
|
48
|
|
Chief Executive Officer, Director and Chairperson of the Board of Director
|
Shan Yonghua
|
|
52
|
|
Chief Financial Officer and Director
|
Tian Zhihai
|
|
44
|
|
Chief Operating Officer, Secretary and Director
|
Biographies
Set forth below are
brief accounts of the business experience during the past five years of each director, executive officer and significant employee
of the Company.
Ms. Xiangyang
Tian, 48 years old, has served as our Chief Executive Officer and Director since August 6, 2020. She joined Hanjiao international
on July 5, 2018 as HJ Chief Executive Officer, Director and Chairperson of the Board. She is one of the founders of Beijing Luji,
and has served as an Executive Director of Beijing Luji since March 2007. She has served as a director of HJ since July 2018, and
has served as Chief Executive Officer and Chairman of Hanjiao international the board since April 2019, and is responsible for
the overall strategic planning and day-to-day operations of Beijing Luji Technology Co., Ltd at the same time. Ms. Tian has introduced
a business model by creating a cloud platform called "Fozgo" for the elderly.
Prior to establishing
Beijing Luji, Ms. Tian served as the Chief Secretary at Supply and Marketing Agency of Huailai County, Hebei Province from January
2000 to February 2007. From January 1996 to December 1999, she served as the Political Cadre for the Government Office of Tumu
Town in Huailai County, Hebei Province. Ms. Tian was the staff for the Zhangbei County Grain Bureau of Hebei Province from July
1991 to December 1995. Ms. Tian graduated from Hebei Provincial Party College, majoring in Economic Management, and EMBA Business
Administration at Peking University. She brings to the Board her experience in financial planning, overview and strategic planning.
Mr. Yonghua Shan,
52 years old, has served as our Chief Financial Officer and Director since August 6, 2020. He has served as Chief Financial Officer
of Hanjiao International since March 2020. Mr. Shan has over 31 years working experience in financial management, tax planning,
investment and financing management. Prior to joining HJ, Mr. Shan served as the Financial Director of Beijing Luji Technology
Co., Ltd. since September 2016. During July 2013 to August 2016, Mr. Shan was the Financial Director of Beijing Beichuang Non-Woven
Co. Mr. Shan was the Financial Manager of Beijing Ligao Technology Co., Ltd. from February 2006 to June 2013 and the General Manager
Assistant and Investment Manager of Kelon Electric Co., Ltd from August 2000 to January 2006. Mr. Shan obtained his Master degree
in Management Engineering from Wuhan University of Technology. Mr. Shan brings to the Board his experience in financial management.
Mr. Zhihai Tian,
44 years old, has served as our Chief Operating Officer and Director since August 6, 2020, and as our Secretary since March 1,
2021. He joined Hanjiao International in July 2018 and has served as Chief Operating Officer and Director of Hanjiao International
since April 2020. Mr. Tian joined Beijing Luji in 2008 and has served as Chief Operating Officer of Beijing Luji since July 2018.
Mr. Tian is mainly responsible for the daily operation and customer relationship management. He had more than 10 years of experience
in company operations, customer development and relationship management. Before joining Beijing Luji, Mr. Tian worked at Hongshu
Group from July 2000 to December 2007. Mr. Tian obtained EMBA at the School of Economics and Management, Peking University. Mr.
Tian brings to the Board his deep industry operational expertise.
Family Relationships.
Ms. Tian Xiangyang is the aunt of Mr. Tian
Zhihai. Except as set forth above, there are no family relationships between any of our directors or executive officers.
Involvement in Certain Legal Proceedings
No executive officer
or director has been involved in the last ten years in any of the following:
|
·
|
Any bankruptcy petition filed by or against any business or property of such person, or of which
such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
|
|
·
|
Any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding
traffic violations and other minor offenses);
|
|
·
|
Being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated,
of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement
in any type of business, securities or banking activities;
|
|
·
|
Being found by a court of competent jurisdiction (in a civil action), the SEC or the Commodity
Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed,
suspended, or vacated;
|
|
·
|
Being the subject of or a party to any judicial or administrative order, judgment, decree or finding,
not subsequently reversed, suspended or vacated relating to an alleged violation of any federal or state securities or commodities
law or regulation, or any law or regulation respecting financial institutions or insurance companies, including but not limited
to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist
order, or removal or prohibition order, or any law or regulation prohibiting mail, fraud, wire fraud or fraud in connection with
any business entity; or
|
|
·
|
Being the subject of or a party to any sanction or order, not subsequently reversed, suspended
or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act, any registered entity (as
defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that
has disciplinary authority over its members or persons associated with a member.
|
Board Committees and Audit Committee Financial Expert
We do not currently
have a standing audit, nominating or compensation committee of the board of directors, or any committee performing similar functions.
Our board of directors performs the functions of audit, nominating and compensation committees. As of the date of this report,
no member of our board of directors qualifies as an “audit committee financial expert” as defined in Item 407(d)(5)
of Regulation S-K promulgated under the Securities Act. We hope to attract a director who qualifies as an “audit committee
financial expert” as our business operations mature.
Director Nominations
On July 11, 2020, the
Board and stockholders holding a majority of our issued and outstanding securities authorized, adopted and approved by written
consent in lieu of a special meeting certain amendments to our Articles of Incorporation (the Articles of Incorporation, together
with all amendments, the “Amended Articles”) and the Amended and Restated Bylaws of the Company (the “Restated
Bylaws”). The Restated Bylaws contain new provisions that may have the effect of delaying, deferring or discouraging another
person from acquiring control of the Company. These provisions are designed to encourage persons seeking to acquire control of
us to first negotiate with our Board and to discourage certain types of coercive takeover practices and inadequate takeover bids.
Among other things, the Amended Articles and the Restated Bylaws provide that:
|
·
|
Our stockholders may not call special meetings of our stockholders unless they hold in excess of
50% of the shares entitled to vote at a meeting of stockholders. Stockholders requesting a special meeting to act on any matter
that may properly be considered at a meeting of stockholders must comply with special notification and other procedures set forth
in our Rested Bylaws, including without limitation, submission of a written request to the secretary of the Corporation. Such meeting
request must contain all information required pursuant to the Restated Bylaws, be sent to the secretary by registered mail, return
receipt requested, and be received by the secretary within the time periods specified in the Restated Bylaws;
|
|
·
|
In any annual meeting of our stockholders, stockholders may not act on any matter not properly
brought before the meeting. A stockholder is required to comply with special notification and other procedures to properly bring
forth a matter before a meeting. A matter is considered to have been properly brought before a meeting if the stockholder has given
timely notice thereof in writing to the secretary of the Corporation and such business is a proper matter for action by the stockholders.
To be timely, a stockholder’s notice shall set forth all information required pursuant to the Restated Bylaws and shall be
delivered to the secretary at the principal executive office of the Corporation not earlier than the 150th day nor later than 5:00
p.m., Eastern Time, on the 120th day prior to the first anniversary of the date of the proxy statement for the preceding year’s
annual meeting; provided, however, that in the event that the date of the annual meeting is advanced or delayed by more than 30
days from the first anniversary of the date of the preceding year’s annual meeting, notice by the stockholder to be timely,
such notice must be so delivered not earlier than the 150th day prior to the date of such annual meeting and not later than 5:00
p.m., Eastern Time, on the later of the 120th day prior to the date of such annual meeting, as originally convened, or the tenth
day following the day on which public announcement of the date of such meeting is first made. The public announcement of a postponement
or adjournment of an annual meeting shall not commence a new time period for the giving of a stockholder’s notice as described
above;
|
|
·
|
Our stockholders may not nominate persons to our Board unless they comply with certain nomination
procedures. A stockholder must deliver notice of its intent to nominate persons to be elected to the Board to the secretary of
the Company not earlier than the 150th day nor later than 5:00 p.m., Eastern Time, on the 120th day prior
to the first anniversary of the date of the proxy statement for the preceding year’s annual meeting; provided, however, that
in the event that the date of the annual meeting is advanced or delayed by more than 30 days from the first anniversary of the
date of the preceding year’s annual meeting, notice by the stockholder to be timely, such notice must be so delivered not
earlier than the 150th day prior to the date of such annual meeting and not later than 5:00 p.m., Eastern Time,
on the later of the 120th day prior to the date of such annual meeting, as originally convened, or the tenth day
following the day on which public announcement of the date of such meeting is first made. The public announcement of a postponement
or adjournment of an annual meeting shall not commence a new time period for the giving of a stockholder’s notice as described
above. Such stockholder’s notice must include all information required pursuant to the Restated Bylaws, which shall include
information regarding (i) the stockholder, (ii) any person acting in concert with such stockholder, (iii) any beneficial
owner of shares of stock of the Corporation owned of record or beneficially by such stockholder (other than a stockholder that
is a depositary) and (iv) any person that directly, or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, such stockholder or any of the persons described in sections (ii) and (iii)
above. Such notice shall contain, among other things, a written undertaking certifying that such proposed nominee (a) is not, and
will not become a party to, any agreement, arrangement or understanding with any person or entity other than the Company in connection
with service or action as a director that has not been disclosed to the Company;
|
|
·
|
Our Board may designate the terms of, and issue a new series of preferred stock with, voting or
other rights without stockholders approval;
|
|
·
|
Our directors have the power to adopt, amend or repeal our bylaws without stockholders approval;
|
|
·
|
Our stockholders may not cumulate votes in the election of directors; and
|
|
·
|
We will indemnify directors and officers against losses that they may incur in investigations and
legal proceedings resulting from their services to us, which may include services in connection with takeover defense measures.
|
These provisions
might preclude our stockholders from bringing matters before our annual meeting of stockholders or from making nominations for
directors at our annual meeting of stockholders if the proper procedures are not followed. We expect that these provisions might
also discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate
of directors or otherwise attempting to obtain control of our company.
Our board of directors
does not have a policy with regards to the consideration of any director candidates recommended by our shareholders. Our board
of directors has determined that it is in the best position to evaluate our company’s requirements as well as the qualifications
of each candidate when the board considers a nominee for a position on our board of directors.
Except as set forth
above, we have not established formal procedures by which security holders may recommend nominees to the Company’s board
of directors.
Code of Ethics
We have not yet adopted
a code of ethics that applies to our principal executive officer, principal financial officer principal accounting officer or controller
in light of our Company’s current stage of development. We expect to adopt a code of ethics in the near future.
ITEM 11. Executive
Compensation.
Compensation Philosophy and Objectives
Currently, our executive
directors and officers receive cash compensation for services in such capacities. We expect to establish an incentive compensation
plan as our company matures. We expect that our executive compensation philosophy will be to create a long-term direct relationship
between pay and our performance. Our executive compensation program will be designed to provide a balanced total compensation package
over the executive’s career with us. The compensation program objectives will be to attract, motivate and retain the qualified
executives that help ensure our future success, to provide incentives for increasing our profits by awarding executives when corporate
goals are achieved and to align the interests of executives and long-term stockholders. We expect the compensation package of our
named executive officers to consist of the following main elements:
|
1.
|
base salary for our executives that is competitive relative to the market, and that reflects individual performance, retention and other relevant considerations;
|
|
2.
|
incentive compensation consisting of stock options, restricted stock and the like; and
|
|
3.
|
discretionary bonus awards payable in cash and or securities of the Company tied to the satisfaction of corporate objectives.
|
Process for Setting Executive Compensation
As we do not have Compensation
Committee, our Board will be responsible for developing and overseeing the implementation of our philosophy with respect to the
compensation of executives and for monitoring the implementation and results of the compensation philosophy to ensure compensation
remains competitive, creates proper incentives to enhance stockholder value and rewards superior performance. The Board will annually
review and approve for each named executive officer, and particularly with regard to the Chief Executive Officer, all components
of the executive’s compensation. The Board may award discretionary bonuses to each of the named executives, and reviews and
approves the process and factors (including individual and corporate performance measures and actual performance versus such measures)
used by the Chief Executive Officer to recommend such awards. Additionally, the Board will review and approve the base salary,
equity-incentive awards (if any) and any other special or supplemental benefits of the named executive officers.
We expect our Chief
Executive Officer to periodically provide the Board with an evaluation of each named executive officer’s performance, based
on the individual performance goals and objectives developed by the Chief Executive Officer at the beginning of the year, as well
as other factors. The Board will provide an evaluation for the Chief Executive Officer. These evaluations will serve as the bases
for bonus recommendations and changes in the compensation arrangements of our named executives.
Our Compensation Peer Group
We expect to engage
in informal market analysis in evaluating our executive compensation arrangements. As the Company and its businesses mature, we
may retain compensation consultants that will assist us in developing a formal benchmark and selecting a compensation peer group
of companies similar to us in size or business for the purpose of comparing executive compensation levels.
Program Components
We expect our executive
compensation program to consist of the following elements:
Base Salary
Our base salary structure
will be designed to encourage internal growth, attract and retain new talent, and reward strong leadership that will sustain our
growth and profitability. The base salary for each named executive officer will reflect our past and current operating profits,
the named executive officer’s individual contribution to our success throughout his career, internal pay equity and informal
market data regarding comparable positions within similarly situated companies. In determining and setting base salary, the Board
will consider all of these factors, though it will not assign specific weights to any factor. The Board will generally review the
base salary for each named executive officer on an annual basis. For each of our named executive officers, we expect to review
base salary data internally obtained by the Company for comparable executive positions in similarly situated companies to ensure
that the base salary rate for each executive is competitive relative to the market.
Discretionary Bonus
The objectives of our
bonus awards will be to encourage and reward our employees, including the named executive officers, who contribute to and participate
in our success by their ability, industry, leadership, loyalty or exceptional service and to recruit additional executives who
will contribute to that success.
Each of our named executive
officers will be eligible for consideration for a discretionary cash bonus. The Chief Executive Officer will make recommendations
regarding bonus awards for the named executive officers and the Board provides the bonus recommendation for the Chief Executive
Officer. However, the Board/Compensation Committee will have sole and final authority and discretion in designating to whom awards
are made, the size of the award, if any, and its terms and conditions. The bonus recommendation for each of the named executive
officers depends on a number of factors, including (i) the performance of the Company for the year, (ii) the satisfaction
of certain individual and corporate performance measures, and (iii) other factors which the Board may deem relevant. The Company
did not award any cash bonuses during fiscal year 2020.
Stock Holdings
The Board recognizes
the importance of having a portion of the named executive officers’ compensation be paid in the form of equity, to help align
the executives’ interests with the interests of the Company’s stockholders. Initially, we expect the Board to emphasize
the cash-based portion of our compensation program over a stock program because it believes the discretionary nature of the cash-based
compensation gives it the needed flexibility to factor in and reward the attainment of longer-term goals for the Company and the
executives, as the Board deems appropriate.
We have not timed nor
do we plan to time our release of material non-public information for the purpose of affecting the value of executive compensation.
Summary Compensation Table
The following summary
compensation table sets forth the aggregate compensation we paid or accrued during the fiscal years ended December 31, 2020 and
2019 to (i) our Chief Executive Officer (principal executive officer), (ii) our two most highly compensated executive officers
other than the principal executive officer who were serving as executive officers on December 31, 2020, whose total compensation
was in excess of $100,000, and (iii) up to two additional individuals who would have been within the two-other-most-highly compensated
but were not serving as executive officers on December 31, 2020.
Name and Principal Position
|
Fiscal Year
|
Salary
($)
|
Bonus
($)
|
Equity
Awards
($)
|
All Other
Compensation
($)
|
Total
($)
|
Tian Xiangyang (1)
|
2020
|
94,278
|
0
|
0
|
134,478
|
228,756
|
(Chief Executive Officer, Director and Chairperson of the Board)
|
2019
|
74,165
|
0
|
0
|
81,446
|
155,611
|
(1)
|
Effective since August 6, 2020, Ms. Tian was appointed to serve as our CEO and Chairman of the Board of Director.
|
Narrative disclosure to Summary
Compensation
Each of Ms. Tian Xiangyang,
Mr. Shan Yonghua, and Mr. Tian Zhihai are parties to an employment agreement with Beijing Luji, our VIE, as of the dates and for
the salary set forth below:
Name
|
|
Position with the Company
|
|
Monthly Salary
(RMB/ USD)
|
|
Effective Date/Expiration Date
|
Ms Tian Xiangyang
|
|
Chief Executive Officer,
Director and Chairperson of the Board of Director
|
|
100,000 / 14,286
|
|
January 1, 2019 / December 31, 2022
|
Mr. Shan Yonghua
|
|
Chief Financial Officer and Director
|
|
30,000 / 4,286
|
|
January 1, 2017 / December 31, 2021
|
Mr. Tian Zhihai
|
|
Chief Operating Officer and Director
|
|
26,000 / 3,714
|
|
January 1, 2017 / December 31, 2021
|
_____________________
Employment Contracts
Each executive may
terminate his or her employment agreement by giving three months prior written notice thereof. Otherwise, Beijing Luji has the
right to deduct the wage, bonus, on-duty fees, etc. that have not been paid if such action causes serious economic loss to Beijing
Luji.
Beijing Luji is entitled
to reassign duties of Executive in the event that his or her performance does not meet the standards set forth in her performance
appraisal for three consecutive months.
Beijing Luji is entitled
to terminate this employment agreement upon the occurrence of the following events:
|
(1)
|
Executive violates labor discipline or the Company’s rules and systems;
|
|
(2)
|
Executive commits serious gross negligence or jobbery, which causes serious damage to the Company’s interests; or
|
|
(3)
|
Executive is subjected to the investigation of criminal responsibilities as per laws.
|
Executive is entitled
to reimbursement for reasonable travel and other out-of-pocket expenses incurred in connection with his or her services on our
behalf. He or she is also entitled to certain health and welfare benefits, transportation allowances, and relevant professional
membership fees and course fees.
The foregoing description
of the Employment Agreements of each of Ms. Tian Xiangyang, Mr. Shan Yonghua, and Mr. Tian Zhihai is qualified in its entirety
by reference to such agreements which are filed as Exhibits 10.9 through and including 10.11 to this Annual Report and are incorporated
herein by reference.
Other than set out
above and below, there are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or
executive officers. We expect to establish one or more incentive compensation plans in the future. Our directors and executive
officers may receive securities of the Company as incentive compensation at the discretion of our board of directors in the future.
We do not have any material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to
our directors or executive officers.
Equity Awards
There are no unvested
options, warrants or convertible securities outstanding.
At no time during the
last fiscal year with respect to any of any of our executive officers was there:
|
·
|
any outstanding option or other equity-based award repriced or otherwise materially
modified (such as by extension of exercise periods, the change of vesting or forfeiture conditions, the change or elimination
of applicable performance criteria, or the change of the bases upon which returns are determined;
|
|
·
|
any waiver or modification of any specified performance target, goal or condition to payout
with respect to any amount included in non-stock incentive plan compensation or payouts;
|
|
·
|
any option or equity grant;
|
|
·
|
any non-equity incentive plan award made to a named executive officer;
|
|
·
|
any nonqualified deferred compensation plans including nonqualified defined contribution plans;
or
|
|
·
|
any payment for any item to be included under All Other Compensation in the Summary Compensation
Table.
|
Compensation of Directors
During our fiscal year
ended December 31, 2020, we provided compensation to Messrs. Yin and Wang, our former directors, pursuant to a Supplementary Agreement
of Labor Contract with each of them for their services as directors:
Name
|
|
Fees earned or paid in cash
($)
|
|
|
Stock awards
($)
|
|
|
Option awards
($)
|
|
|
Non-equity incentive plan compensation
($)
|
|
|
Change in pension value and nonqualified
deferred compensation earnings
|
|
|
All other compensation
($)
|
|
|
Total
($)
|
|
Yin Jianen*
|
|
|
18,400
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
18,400
|
|
Wang Jirui*
|
|
|
18,400
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
18,400
|
|
*Each of Messrs. Yin and Wang resigned
from his position as a director of the Company effective March 1, 2021.
Narrative to Director Compensation Table
Each of Messrs. Yin
and Wang are parties to a Supplementary Agreement of Labor Contract, made effective January 1, 2020, which is an addendum to their
original Labor Contract. Pursuant to the terms of such Supplementary Agreement of Labor Contract, each director is entitled to
a monthly compensation of RMB 10,000 (approximately $1,429) for their services as a director on our Board of Directors. The compensation
is payable in one lump sum at the end of calendar year 2020. Directors are entitled to reimbursement for reasonable travel and
other out-of-pocket expenses incurred in connection with attendance at meetings of our board of directors. Our board of directors
may award special remuneration to any director undertaking any special services on our behalf other than services ordinarily required
of a director.
We hope to enter into
Director Retainer Agreements which will set forth the terms and conditions upon which our directors will serve on our board. A
form of the Director Retainer Agreement is filed as Exhibit 10.12 to this Annual Report and is incorporated herein by reference.
Compensation Risk Management
Our Board of directors
and human resources staff conducted an assessment of potential risks that may arise from our compensation programs. Based on this
assessment, we concluded that our policies and practices do not encourage excessive and unnecessary risk taking that would be reasonably
likely to have material adverse effect on the Company. The assessment included our cash incentive programs, which awards non-executives
with cash bonuses for punctuality. Our compensation programs are substantially identical among business units, corporate functions
and global locations (with modifications to comply with local regulations as appropriate). The risk-mitigating factors considered
in this assessment included:
|
·
|
the alignment of pay philosophy, peer group companies and compensation amounts relative to local competitive practices to support our business objectives; and
|
|
·
|
effective balance of cash, short- and long-term performance periods, caps on performance-based award schedules and financial metrics with individual factors and Board and management discretion.
|
Compensation Committee Interlocks and
Insider Participation
We have not yet established
a Compensation Committee. Our Board of Directors performs the functions that would be performed by a compensation committee. During
the fiscal year ended December 31, 2020, none of our executive officers has served: (i) on the compensation committee (or other
board committee performing equivalent functions or, in the absence of any such committee, the entire board of directors) of another
entity, one of whose executive officers served on our board of directors; (ii) as a director of another entity, one of whose executive
officers served on the compensation committee (or other board committee performing equivalent functions or, in the absence of any
such committee, the entire board of directors) of the registrant; or (iii) on the compensation committee (or other board committee
performing equivalent functions or, in the absence of any such committee, the entire board of directors) of another entity, one
whose executive officers served as a director of the registrant.
Compensation Committee Report
Our board of directors
has reviewed and discussed the Compensation Discussion and Analysis in this report with management. Based on its review and discussion
with management, the board of directors recommended that the Compensation Discussion and Analysis be included in this Annual Report
on Form 10-K for the year ended December 31, 2020. The material in this report is not deemed filed with the SEC and is not incorporated
by reference in any of our filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended,
whether made on, before, or after the date of this Report on Form 10-K and irrespective of any general incorporation language in
such filing.
Submitted by the board of directors:
Ms. Tian Xiangyang
Mr. Shan Yonghua
Mr. Tian Zhihai
ITEM 12. Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table
sets forth certain information concerning the number of shares of our common stock owned beneficially as of March 30, 2021, by:
(i) each person (including any group) known to us to own more than five percent (5%) of any class of our voting securities, (ii)
each of our directors and each of our named executive officers (as defined under Item 402(m)(2) of Regulation S-K), and (iii) officers
and directors as a group. Unless otherwise indicated, the shareholders listed possess sole voting and investment power with respect
to the shares shown except to the extent voting power may be shared with a spouse. Unless otherwise indicated, the address for
each director and executive officer listed is: c/o Hanjiao Group, Inc., Room 1206, 12th Floor, 301, 3-17 F, Building
5, Block 1, Hangfeng Road, Fengtai District, Beijing, China.
|
|
Common Stock Beneficially Owned
|
|
Name and Address of Beneficial Owner
|
|
Number of Shares
and Nature of
Beneficial
Ownership
|
|
|
Percentage of
Total Common
Equity (1)
|
|
TIAN Xiangyang (2)
|
|
|
68,800,000
|
|
|
|
70.78%
|
|
TIAN Zhihai (3)
|
|
|
4,300,000
|
|
|
|
4.42%
|
|
SHAN Yonghua
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
All executive officers and directors as a Group (3 persons)
|
|
|
72,300,000
|
|
|
|
75.20%
|
|
|
|
|
|
|
|
|
|
|
5% or Greater Stockholders:
|
|
|
|
|
|
|
|
|
GAO Xue Ran
|
|
|
8,581,063
|
|
|
|
8.83%
|
|
(1)
|
Beneficial ownership is determined in accordance with SEC rules and generally includes voting or investment power with respect to securities. For purposes of this table, a person or group of persons is deemed to have “beneficial ownership” of any shares of common stock that such person has the right to acquire within 60 days of March 30, 2021. Applicable percentage ownership is based on 97,201,030 shares of common stock outstanding as of March 30, 2021, and any shares that such person or persons has the right to acquire within 60 days of March 30, 2021, is deemed to be outstanding for such person, but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. The inclusion herein of any shares listed as beneficially owned does not constitute an admission of beneficial ownership.
|
(2)
|
Ms. Tian has served as the Chairman, Chief Executive Officer and Director of the Board of Directors of Beijing Luji since July 2018 and was appointed to serve as the Chief Executive Officer and Director of the Company on August 6, 2020.
|
(3)
|
Mr. Tian has served as the Chief Operating Officer of Beijing Luji since January 2017 and was appointed to serve as the Chief Operating Officer and Director of the Company on August 6, 2020.
|
ITEM 13. Certain
Relationships and Related Transactions, and Director Independence.
Other than as disclosed
below, there are no transactions during our two most recent fiscal years ended December 31, 2020, and December 31, 2019, or any
currently proposed transaction, in which our Company was or to be a participant and the amount exceeds the lesser of $120,000 or
one percent of the average of our Company’s total assets at year-end for our last two completed years, and in which any of
our directors, officers or principal stockholders, or any other related person as defined in Item 404 of Regulation S-K, had or
have any direct or indirect material interest.
As of December 31, 2020 and 2019, due from
related parties is as follows:
|
|
As of December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Zhuang Richun (1)
|
|
$
|
–
|
|
|
$
|
112,218
|
|
Total
|
|
$
|
–
|
|
|
$
|
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 it was non-interest bearing. The
loan was repaid in August 2020.
|
As of December 31, 2020 and 2019, due to
related parties is as follows:
|
|
As of December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Niu Jianxin (2)
|
|
$
|
–
|
|
|
$
|
566,928
|
|
Zhuang Rihong (3)
|
|
|
–
|
|
|
|
215,017
|
|
Tian Xiangdong (4)
|
|
|
–
|
|
|
|
137,611
|
|
Beijing Chunduo Technology Co., Ltd. (5)
|
|
|
–
|
|
|
|
43,002
|
|
Tian Xiangyang (6)
|
|
|
21,038
|
|
|
|
34,904
|
|
Gao Xue Wei (7)
|
|
|
–
|
|
|
|
15,934
|
|
Total
|
|
$
|
21,038
|
|
|
$
|
1,013,396
|
|
|
(2)
|
This represents a non-interest bearing loan from Mr. Niu
Jianxin to the Company (which was expected to be 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 15). On April 9, 2020, Mr. Zhang filed a lawsuit against the Company (see Note 19). As of the date of this
report, neither the Company or Ms. Tian has received the payment of RMB 3,955,000 from Mr. Niu.
|
|
(3)
|
Ms. Zhuang Rihong is the sister of Mr. Zhuang Richun. The loan was
for working capital purposes and it was due on demand with no interest. The loan agreement expired in November 2020, and it is
still outstanding as of December 31, 2020. The Company has accrued for the related late payment penalty at a rate of 2% every day.
The liability is reclassified to other payables in 2020 since Ms. Zhuang Rihong is not considered a related party.
|
|
(4)
|
Mr. Tian Xiangdong is the brother of Ms. Tian Xiangyang. The loan
was for working capital purposes and it was due on demand with no interest. The loan was repaid in full in January 2020.
|
|
(5)
|
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; it was non-interest bearing
and due on demand. The loan was repaid in full in January 2020.
|
|
(6)
|
This represents a loan from Ms. Tian Xiangyang, the Company’s founder and chairwoman, to the Company for working capital purposes. The loan is non-interest bearing and it is due on demand.
|
|
(7)
|
Mr. Gao Xuewei is a shareholder of the Company. The loan was for
working capital purposes and was due on demand with no interest. The loan was repaid in full in January 2020.
|
We have not adopted
policies or procedures for approval of related person transactions but review them on a case-by-case basis. We believe that all
related party transactions were on terms at least as favorable as we would have secured in arm’s-length transactions with
third parties. Except as set forth above, we have not entered into any material transactions with any director, executive officer,
and promoter, beneficial owner of five percent or more of our common stock, or family members of such persons.
Director Independence
Our board of directors
currently consists of Tian Xianyang, our CEO, Yin Jianen, our Secretary, Shan Yonghua, our CFO, Tian Zhihai, our COO, and
Wang Jirui. Except for Mr. Wang Jirui, our directors do not qualify as an independent director under the published listing requirements
of the NASDAQ Stock Market or the NYSE because they are executive officers of the Company. As of the date hereof, we have not adopted
a standard of independence nor do we have a policy with respect to independence requirements for our board members or that a majority
of our board be comprised of “independent directors.”
ITEM 14. Principal
AccountING Fees And Services.
Wei, Wei & Co.,
LLP (“WWC”) audited the consolidated financial statements of Hanjiao Group, Inc. and Subsidiaries as of and for the
years ended December 31, 2020 and 2019.
All audit work was
performed by the full-time employees of WWC for the above-mentioned fiscal years. Our board of directors does not have an audit
committee. The functions customarily delegated to an audit committee are performed by our full board of directors. Our board of
directors approves in advance, all services performed by WWC, but have not adopted pre-approval policies or procedures. Our board
of directors has considered whether the provision of non-audit services is compatible with maintaining the principal accountant’s
independence, and has approved such services.
The following table
sets forth fees billed by our auditors during the last two fiscal years for services rendered for the audit of our annual financial
statements and the review of our quarterly financial statements, services by our auditors that are reasonably related to the performance
of the audit or review of our financial statements and that are not reported as audit fees, services rendered in connection with
tax compliance, tax advice and tax planning, and all other fees for services rendered.
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Audit fees
|
|
$
|
381,167
|
|
|
$
|
335,233
|
|
Audit related fees
|
|
|
–
|
|
|
|
–
|
|
Tax fees
|
|
|
2,000
|
|
|
|
2,000
|
|
All other fees
|
|
|
–
|
|
|
|
–
|
|
Total
|
|
$
|
383,167
|
|
|
$
|
338,733
|
|
* Giving retroactive effect to the reorganization in
connection with the share exchange transaction effected on August 6, 2020
The accompanying notes are an integral part
of these consolidated financial statements.
* Giving retroactive effect to the reorganization in
connection with the share exchange transaction effected on August 6, 2020
The accompanying notes are an integral part
of these consolidated financial statements.
* Giving retroactive effect to the reorganization in
connection with the share exchange transaction effected on August 6, 2020
The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
Notes to Consolidated Financial Statements
December 31, 2020 and 2019
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. On October 20, 2020, the Company changed its name from “AS Capital,
Inc.” to “Hanjiao Group, Inc.”
The accompanying consolidated financial
statements and related notes reflect the historical results of HanJiao prior to the Share Exchange Transaction and of the combined
company following the Share Exchange Transaction, and do not include the historical results of ASIN prior to the completion of
the Share Exchange Transaction. These financial statements and related notes should be read in conjunction with the audited consolidated
financial statements of HanJiao for the year ended December 31, 2019, included in the Company’s Form 8-K/A filed
with the Securities and Exchange Commission (the “SEC”) on August 14, 2020.
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 Company’s current corporate
structure is as follows:
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
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.
The accounts of Beijing Luji and its subsidiary
are consolidated in the accompanying consolidated financial statements pursuant to ASC 810-10, Consolidation.
The carrying amounts of the VIE’s consolidated assets and
liabilities are as follows:
|
|
As of December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
9,975,677
|
|
|
$
|
31,095,595
|
|
Property and equipment, net
|
|
|
1,919,816
|
|
|
|
263,640
|
|
Other noncurrent assets
|
|
|
12,354,301
|
|
|
|
11,458,928
|
|
Total assets
|
|
|
24,249,794
|
|
|
|
42,818,163
|
|
Total liabilities
|
|
|
(29,005,749
|
)
|
|
|
(32,354,228
|
)
|
Net assets
|
|
$
|
(4,775,955
|
)
|
|
$
|
10,463,935
|
|
|
|
As of December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Other payables and accrued liabilities
|
|
$
|
8,826,184
|
|
|
$
|
11,693,330
|
|
Other payables – related parties
|
|
|
21,038
|
|
|
|
1,013,396
|
|
Taxes payable
|
|
|
20,315,818
|
|
|
|
19,647,502
|
|
Total liabilities
|
|
$
|
29,163,040
|
|
|
$
|
32,354,228
|
|
The summarized operating results of the
VIE are as follows:
|
|
For the Years Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
675,435
|
|
|
$
|
59,089,885
|
|
Loss from operations
|
|
$
|
(10,211,218
|
)
|
|
$
|
(9,614,315
|
)
|
Net loss
|
|
$
|
(14,363,727
|
)
|
|
$
|
7,816,984
|
|
NOTE 2 – LIQUIDITY AND GOING CONCERN
As indicated in the accompanying consolidated
financial statements, the Company had a net loss of approximately $15.0 million for the year ended December 31, 2020, significant
decline in operating cash flows and negative working capital of approximately $20.2 million as of December 31, 2020. Management
of the Company has considered whether there is substantial doubt about the Company’s ability to continue as a going concern
due to the significant operating loss and net loss of approximately $10.6 million and $15.0 million, respectively, in 2020
as a result of COVID-19 that had adversely impacted the Company’s sales and marketing efforts. While the Company cannot accurately
predict the full impact of COVID-19 on its business in 2021, management believes that its business will gradually stabilize in
the second half of 2021 as market conditions in China continue to improve. In assessing the Company’s liquidity, management
monitors and analyzes its cash on hand and its operating expenses, and existing regulatory obligations and commercial commitments.
Based on its latest sales and cash flows projection, management believes that the Company should be 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 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 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.
NOTE 3 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Basis
of Presentation
The accompanying consolidated financial
statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States
of America (“US GAAP”) and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”).
Certain prior year balances have been reclassified to conform to the current year’s presentation.
Principles
of Consolidation
The accompanying consolidated financial
statements include the financial statements of the Company, its wholly-owned subsidiaries, and the VIE and its subsidiary. All
inter-company transactions and balances have been eliminated upon consolidation.
VIE
Agreements with Beijing Hongtao
The Company does not have a direct equity
ownership interest in Beijing Luji but relies on the VIE Agreements to control and receive the economic benefits of Beijing Luji’s
business. The Company relies on contractual arrangements with its variable interest entity to operate its online to office (O2O)
business in the PRC in which foreign investment is restricted or prohibited. The O2O platform integrates the Company’s e-commerce
platform with physical outlets (service centers) to connect consumers and merchants in a dynamic marketplace. Pursuant to the VIE
Agreements, the Company, through Beijing Hongtao, is able to exercise effective control over, bears the risks of, enjoys substantially
all of the economic benefits its VIE and its subsidiary and has an exclusive option to purchase all or part of the equity interests
in the VIE when and to the extent permitted by PRC law. The Company’s management concluded that Beijing Luji and
its subsidiary are variable interest entities of the Company and Beijing Hongtao is the primary beneficiary of Beijing Luji and
its subsidiary. As such, the financial statements of the VIE and its subsidiary are included in the consolidated financial statements
of the Company. Each of the VIE Agreements is described in detail below:
Exclusive
Consulting and Services Agreement
Pursuant to the Exclusive Consulting and
Services Agreement signed on May 15, 2019, between Beijing Hongtao and Beijing Luji, Beijing Hongtao agrees to provide various
services exclusively to Beijing Luji including development and research services for business-related software, pre-job and on-the-job
training services, technology development and transfer services, public relations services, market research and consulting services,
short and medium-term market development and planning services, various technical support services, consulting services related
to business compliance, organization and planning services related to marketing and membership activities. For services rendered
to Beijing Luji by Beijing Hongtao under this agreement, Beijing Hongtao is entitled to collect 100% of the net income of
Beijing Luji.
The Exclusive Consulting and Services Agreement
shall remain in effect for ten years from the date of signing unless it is terminated by Beijing Hongtao in advance or upon the
mutual agreement of both parties. Beijing Luji may terminate the agreement subject to payment of all service fees for completed
services and compensation to Beijing Hongtao for losses. Prior to the termination of this agreement, the parties may extend the
term of this agreement in accordance with the requirements of Beijing Hongtao.
Business
Operations Agreement
Pursuant to the Business Operations Agreement
signed on May 15, 2019, by and among the Beijing Luji shareholders, Beijing Luji and Beijing Hongtao. Beijing Luji agreed not to
conduct any transactions that may materially affect its assets, business, personnel, obligations, rights or company operations,
without the prior written consent of Beijing Hongtao. Beijing Hongtao agrees to provide advice to Beijing Luji from time to time
regarding the appointment and dismissal of employees, daily management and financial management systems. Beijing Luji and Beijing
Luji shareholders also agree to appoint designees of Beijing Hongtao to serve as its board of directors and on the senior management
team of Beijing Luji. In connection with this agreement, the Beijing Luji shareholders executed a power of attorney of the Business
Operations Agreement in which the Beijing Luji shareholders shall irrevocably authorize the designated personnel of Beijing Hongtao
to exercise their shareholders’ rights on their behalf, including voting rights at the shareholders' meeting in the name
of the shareholders. The Beijing Luji shareholders further agree that they will replace the person authorized in the above power
of attorney at any time upon Beijing Hongtao's request. The Business Operations Agreement shall remain in effect for ten years
from the date of signing unless earlier terminated by Beijing Hongtao by delivering 30 days prior written notice or upon the mutual
agreement of all parties. Beijing Luji and the Beijing Luji shareholders do not have the right to terminate the agreement unilaterally.
Upon the termination of any agreement between Beijing Hongtao and Beijing Luji, Beijing Hongtao shall be entitled to terminate
all agreements between such parties.
Equity
Disposal Agreement
Pursuant to the Equity Disposal Agreement
signed on May 15, 2019, by and among the Beijing Luji shareholders, Beijing Luji and Beijing Hongtao, the Beijing Luji shareholders
granted to Beijing Hongtao an exclusive option right to purchase all of their equity interests in Beijing Luji to secure the execution
of the Equity Pledge Agreement in which the details are set out below. Under the terms of this agreement, Beijing Hongtao
has an exclusive right to purchase, to the extent permitted under the PRC law, at any time, all or any part of the equity interests
of the Beijing Luji shareholders in Beijing Luji or an option to transfer the equity interests in Beijing Luji to any third party
designated by Beijing Hongtao. The option price shall be the minimum permitted by the laws and regulations of the PRC. The
Equity Disposal Agreement has a term of ten years from the date of signing, and it may be renewed at Beijing Hongtao’s discretion.
Equity
Pledge Agreement
Pursuant to the Equity Pledge Agreement
signed on May 15, 2019, by and among the Beijing Luji shareholders and Beijing Hongtao, the Beijing Luji shareholders pledged all
of their equity interests in Beijing Luji to Beijing Hongtao to guarantee the performance of Beijing Luji’s obligations under
the Exclusive Consulting and Services Agreement, the Equity Disposal Agreement and the Business Operations Agreement. Under
the terms of the agreement, in the event that Beijing Luji or its shareholders breach their respective contractual obligations
under the Exclusive Consulting and Services Agreement, the Equity Disposal Agreement and the Business Operations Agreement, or
upon occurrence of any event of default as set forth in the Equity Pledge Agreement, Beijing Hongtao shall be entitled to exercise
its rights under this agreement, subject to certain cure periods. The Beijing Luji shareholders further agree not to dispose of
the pledged equity interests or take any actions that would prejudice Beijing Hongtao’s interest.
The Equity Pledge Agreement shall be effective
until Beijing Luji and the Beijing Luji shareholders have performed all of their obligations under the Exclusive Consulting and
Services Agreement, the Equity Disposal Agreement and the Business Operations Agreement and the written approval of Beijing Hongtao
has been obtained.
Agency
Agreement
Pursuant to the Agency Agreement signed
on May 15, 2019, among the Beijing Luji shareholders and Beijing Hongtao, the Beijing Luji shareholders granted Beijing Hongtao
an irrevocable license for the longest period permitted under law the right to exercise the voting rights of the Beijing Luji shareholders
in accordance with the laws of the PRC and the Articles of Association of Beijing Luji. During the term of this Agreement, none
of the Beijing Luji shareholders shall be entitled to transfer their interest in Beijing Luji to any third party other than entities
or individuals designated by Beijing Hongtao. This Agency Agreement shall be irrevocable and continuously valid from the date of
execution of this Agency Agreement, and it can be terminated at Beijing Hongtao’s discretion.
During
the year ended December 31, 2020 and 2019, HanJiao, Luji Technology and Inooka did not have any business activities.
Use of Estimates
The
preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.
Significant accounting estimates reflected
in the Company’s consolidated financial statements include the allowance for doubtful accounts and slow-moving inventory,
and the useful lives of property and equipment. Since the use of estimates is an integral component of the financial reporting
process, actual results could differ from those estimates.
Fair Value of Financial Instruments
The Company follows Financial Accounting
Standards Board (“FASB”) Accounting Standards Codification (“ASC”) FASB ASC Section 820, “Fair Value
Measurements and Disclosures.” ASC 820 clarifies the definition of fair value, prescribes methods for measuring fair value,
and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:
Level 1 applies to assets or
liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2 applies to assets or
liabilities for which there are inputs, other than quoted prices in level 1, that are observable for the asset or liability
such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in
markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant
inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3 applies to assets or
liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the
fair value of the asset or liability.
The carrying value of financial instruments included in current
assets and liabilities approximate their fair values because of the short-term nature of these instruments.
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 in the PRC. As of December 31, 2020 and 2019, the Company had cash and cash equivalents of approximately $2.7 million
and $28.9 million, respectively. The Company’s cash equivalents included approximately $nil and $11.6 million (RMB 80 million)
of the bank’s financial products as of December 31, 2020 and 2019, respectively.
Restricted Cash
Restricted cash represents cash preserved
for a legal matter (see Note 19).
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.
The outbreak of COVID-19 that started in
late January 2020 in the PRC had negatively affected our business. In March 2020, the World Health Organization declared COVID-19
as a pandemic and has resulted in quarantines, travel restrictions, and the temporary closure of stores and business facilities
in China and the U.S. in the subsequent months. Given the rapidly expanding nature of the COVID-19 pandemic, and because substantially
all of the Company’s business operations and its workforce are concentrated in China, the Company’s business, results
of operations, and financial condition for the year ended December 31, 2020 have been adversely affected. There is an uncertainty
around the breadth and duration of business disruptions related to COVID-19, as well as its impact on the Company’s business.
Based on management’s assessment of the current economic environment in the PRC, the Company’s recent sales trend,
and the possible negative impact from a prolonged pandemic in the PRC, management believes that the Company’s revenues and
operating cash flows may be lower than expected in the first half of 2021. To mitigate the overall financial impact of COVID-19
on the Company’s business, management continues to explore opportunities to reduce its operating overhead and works closely
with its service centers to develop promotional activities that will hopefully generate additional sales in 2021.
Inventories
Inventories consist of finished goods and
they are stated at the lower of cost or net realizable value. Cost is determined using the weighted average method. The Company
periodically evaluates its inventories and will record an allowance for inventories that are either slow-moving, may not be saleable
or whose cost exceeds its net realizable value.
Advance to Suppliers
Advance to suppliers consists of payments
to suppliers for finished goods that have not been delivered to the Company. The Company periodically evaluates and reviews its
advance to suppliers to determine whether its carrying value has been impaired.
Long-term Investment
Long-term investment consists of the Company’s
equity investment for strategic or business development purposes. The Company applies the equity method of accounting for its equity
investment, according to FASB ASC 323 “Investment—Equity Method and Joint Ventures,” over which it has significant
influence but does not own a majority equity interest or otherwise control. Under the equity method, the Company’s share
of the profits or losses of the equity investees are recorded in its consolidated statements of comprehensive income (loss).
The Company reviews its investment at least
annually to determine whether a decline in fair value to below the carrying value is other-than-temporary. The primary factors
the Company considers in its determination are the duration and severity of the decline in fair value; the financial condition,
operating performance and the prospects of the equity investee; and other company specific information such as recent financing
activities. If the decline in fair value is deemed to be other-than-temporary, the carrying value of the investment will be written
down to its fair value.
No events have occurred that indicated
an impairment in fair value for the year ended December 31, 2020.
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.
Estimated useful lives are as follows,
taking into account the assets’ estimated residual value:
Classification
|
|
Estimated useful lives
|
Property
|
|
20 years
|
Vehicles
|
|
10 years
|
Office equipment
|
|
3 years
|
Furniture and fixtures
|
|
3 years
|
Software
|
|
3 years
|
Long-lived Assets
Finite-lived assets and intangibles are
reviewed for impairment testing when circumstances require. For purposes of evaluating the recoverability of long-lived assets,
when undiscounted future cash flows will not be sufficient to recover an asset’s carrying amount, the asset is written down
to its fair value. The long-lived assets of the Company that are subject to evaluation consist primarily of property and equipment,
and long-term investment. For the year ended December 31, 2020 and 2019, the Company did not recognize any impairment of its long-lived
assets.
Leases
In January 2016, the FASB issued ASU 2016-02,
“Leases” (“ASU 2016-02”) requiring leases to be recognized on the balance sheet as a right-of-use asset
and lease liability for all long-term leases and requiring disclosure of key information about leasing arrangements in order to
increase transparency and comparability among organizations.
Effective July 1, 2020, the Company adopted
ASU 2016-02, “Leases” (Topic 842), and elected the practical expedients that do not require it to reassess: (1) whether
any expired or existing contracts are, or contain, leases, (2) lease classification for any expired or existing leases and (3)
initial direct costs for any expired or existing leases. The Company also adopted the practical expedient that allows lessees to
treat the lease and non-lease components of a lease as a single lease component.
The Company measures the lease liability
based on the present value of the lease payments discounted by the relevant borrowing rate and reduces the carrying value of the
lease liability for lease payments made. Leases with an initial expected term of 12 months or less are considered short-term and
are not recorded on the Company’s consolidated balance sheets. The Company recognizes lease expense for these leases on a
straight-line basis over the expected lease term.
Revenue Recognition
On January 1, 2019, the Company adopted
FASB ASC 606, Revenue from Contracts with Customers using the modified retrospective method for all contracts not completed as
of the date of adoption. Accordingly, revenues for the year ended December 31, 2020 and 2019, are presented under ASC 606.
The core principle underlying the revenue
recognition standard is that the Company will recognize revenue to represent the transfer of products or services to customers
in an amount that reflects the consideration to which the Company expects to be entitled in such exchange. This will require the
Company to identify contractual performance obligations and determine whether revenue should be recognized at a point in time or
over time, based on when control of the product or the benefit of the services transfers to the customer. Under the guidance of
ASC 606, the Company is required to (a) identify the contract with a customer, (b) identify the performance obligations
in the contract, (c) determine the transaction price, (d) allocate the transaction price to the performance obligations
in the contract and (e) recognize revenue when (or as) the Company satisfies its performance obligations.
Product Sales: Beijing Luji, the
Company’s VIE, is primarily engaged in the sale of healthcare and other products (such as nutrition or dietary supplements;
water or air purifiers and smart watches) to the middle aged and elderly market segments in the PRC. Beijing Luji sells these products
under its own “Fozgo” brand and related healthcare products for other vendors through its internet platform
and offline service centers. Revenue from product sales is recognized when control passes to the customer, which generally occurs
at a point in time when products are delivered. Allowance for sales returns, that reduces revenues, are estimated based on historical
experience. Revenues are recorded net of value-added taxes, business taxes, discounts and surcharges and allowance for returns.
Beijing Luji collects cash from customers
before or upon delivery of products mainly through banks and third-party online payment platforms (such as Alipay). Cash collected
from customers before product delivery is recognized as advance from customers.
Cost of Revenues
Cost of revenues consists primarily of
the cost of merchandise sold, delivery cost, service fees, sales incentives and commissions that are directly attributable to the
sale of certain designated products as well as allowance for and write-down of slow-moving inventories.
General and Administrative Expenses
General and administrative expenses consist
mainly of payroll and related costs for employees involved in general corporate functions, including accounting, finance, tax,
legal and human resources, professional fees and other general corporate expenses as well as costs associated with the use by these
functions of facilities and equipment, such as depreciation and rental expenses.
Selling Expenses
Selling expenses consist mainly of payroll
and benefits for employees involved in the sales and distribution functions, meeting/event fees, advertisement, marketing and selling
expenses that are related to events and activities at the Company’s service centers designed to promote product sales as
well as operating expenses related to the service centers.
Finance Expenses (Income)
Finance expenses consist mainly of service
fees related to the use of third-party online payment platforms, bank fees and interest expenses related to borrowings; net of
interest income from bank and related bank products.
For the years ended December 31, 2020 and
2019, payment processing fees amounted to $9,911 and $274,149, respectively. For year ended December 31, 2020 and 2019, interest
expense amounted to $30,920 and $16,312, respectively. For the years ended December 31, 2020 and 2019, interest income amounted
to $230,590 and $207,052, respectively.
Other Income (Expenses)
Other income consists primarily of income
from the administration of Beijing Luji’s online marketplace. Other expenses consist mainly of estimated tax penalties and
charitable contributions.
Income Taxes
The Company follows FASB ASC Topic
740, “Income Taxes,” which requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial statements or tax returns. Under this method,
deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets
and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates
applicable to the periods in which the differences are expected to affect taxable income. Deferred tax assets are also
recognized for operating losses that are available to offset the future taxable income. Valuation allowances are established
when deemed necessary to reduce deferred tax assets to the amount expected to be realized.
The Company follows FASB ASC 740-10-25,
“Accounting for Uncertainty in Income Taxes”, which requires income tax positions to meet a more-likely-than-not recognition
threshold to be recognized in the financial statements. Under ASC 740-10-25, tax positions that previously failed to meet the more-likely-than-not
threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized
tax positions that no longer meet the more-likely-than-not threshold should be derecognized in the first subsequent financial reporting
period in which that threshold is no longer met. The Company believes that it does not have any uncertain tax positions. It is
not expected that there will be any uncertain tax position within year of December 31, 2020.
The application of tax laws and regulations
is subject to legal and factual interpretation, judgment and uncertainty. Tax laws and regulations themselves are subject to change
as a result of changes in fiscal policy, changes in legislation, the evolution of regulations and court rulings. Therefore, the
actual liability may be materially different from our estimates, which could result in the need to record additional tax liabilities
or potentially reverse previously recorded tax liabilities or the deferred tax asset valuation allowance. Due to the lack of temporary
differences between the tax bases and their financial reporting amounts, the Company has not recognized any deferred tax assets
or liabilities as of December 31, 2020 and 2019.
Enterprise Income Tax
Under the Provisional Regulations of the
PRC concerning income tax on enterprises promulgated by the PRC (the “EIT Law”), the Company was qualified as a high
and new technology enterprise starting in 2018, and enjoys a preferential tax rate of 15% for 3 years that expired in 2020 and
the Company is applying to qualify for the same preferential tax rate. An entity can re-apply to be a high and new technology enterprise
when the prior certificate expires. Income tax is payable at a rate of 15% of our taxable income for the year ended December 31,
2020 and 2019.
Value-Added Tax
Starting from May 1, 2018, the VAT rate
for revenue generated from providing products was 16%. Starting from April 1, 2019, the VAT rate for revenue generated from providing
products changed from 16% to 13%. VAT is reported as a reduction of revenue when incurred. Entities that are VAT general taxpayers
are allowed to offset qualified input VAT paid to suppliers against their output VAT liabilities. The net VAT balance between input
VAT and output VAT is recorded in taxes payable.
Foreign Currency Translation
The functional currency of the Company’s
operations in the PRC is the Chinese Yuan or Renminbi (“RMB”). The financial statements are translated into U.S. dollars
(“USD”) using the period end rates of exchange for assets and liabilities, equity is translated at historical exchange
rates, and average rates of exchange (for the period) are used for revenues and expenses and cash flows. As a result, amounts relating
to assets and liabilities reported on the statements of cash flows may not necessarily agree with the changes in the corresponding
balances on the balance sheets. Translation adjustments resulting from the process of translating the local currency financial
statements into USD are included in determining comprehensive income (loss). Transactions denominated in foreign currencies are
translated into the functional currency at the exchange rates prevailing on the transaction dates. Assets and liabilities denominated
in foreign currencies are translated into the functional currency at the exchange rates prevailing at the balance sheet date with
any transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than
the functional currency are included in the results of operations as incurred.
All of the Company’s revenue transactions
are transacted in its functional currency. The Company does not enter into any material transactions in foreign currencies. Transaction
gains or losses have not had, and are not expected to have, a material effect on the results of operations of the Company.
The exchange rates as of December 31, 2020
and 2019 and for the year ended December 31, 2020 and 2019 are as follows:
|
|
December 31,
|
|
|
December 31,
|
|
|
Years ended
December
31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Foreign currency
|
|
Balance Sheet
|
|
|
Balance Sheet
|
|
|
Profits/Loss
|
|
|
Profits/Loss
|
|
RMB:1USD
|
|
|
6.5249
|
|
|
|
6.9762
|
|
|
|
6.8976
|
|
|
|
6.8985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income (Loss)
Comprehensive income (loss) consists of
two components, net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) refers to revenue, expenses,
gains and losses that under GAAP are recorded as an element of shareholders’ equity but are excluded from net income (loss).
Other comprehensive income (loss) consists entirely of foreign currency translation adjustments resulting from the Company’s
translation of its financial statements from its functional currency into USD.
Earnings (loss) Per
Share
Basic earnings (loss) per share is computed
by dividing net income (loss) by the weighted-average number of ordinary shares outstanding during the period. Diluted earnings
per share is computed by dividing net income by the weighted-average number of ordinary shares plus dilutive potential ordinary
shares outstanding during the period. When the Company has a loss, the potential ordinary shares are not included since their inclusion
would be anti-dilutive. For the year ended December 31, 2020 and 2019, there were no potential ordinary shares, such as options,
warrants or conversion rights, that would have a dilutive effect on the Company’s earnings per share.
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02,
Amendments to the ASC 842 Leases. This update requires a lessee to recognize an asset and liability (the lease liability) arising
from operating leases on the balance sheet for the lease term. When measuring assets and liabilities arising from a lease, a lessee
(and a lessor) should include payments to be made in optional periods only if the lessee is reasonably certain to exercise an option
to extend the lease or not to exercise an option to terminate the lease. Leases with twelve months or less lease term, a lessee
is permitted to make an accounting policy election not to recognize lease assets and liabilities. If a lessee makes this election,
it should recognize lease expense on a straight-line basis over the lease term. In transition, this update was effective for public
entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company adopted
ASU 2016-02 upon the completion of the Share Exchange Transaction. The adoption of ASU 2016-02 did not have a material impact on
the Company’s consolidated financial statements.
In July 2017, the FASB Issued ASU 2017-11,
Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815). The
amendments in Part I of the Update change the reclassification analysis of certain equity-linked financial instruments (or embedded
features) with down round features. The amendments in Part II of this Update recharacterize the indefinite deferral of certain
provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception. For public business
entities, the amendments in Part I of this Update are effective for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2018. For all other entities, the amendments in Part I of this Update are effective for fiscal years
beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. The amendments in
Part II of this Update do not require any transition guidance because those amendments do not have an accounting effect. The adoption
of this ASU did not have a material effect on the consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair
Value Measurement Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (“ASU
2018-13”), which amends certain disclosure requirements over Level 1, Level 2, and Level 3 fair value measurements.
ASU 2018-13 is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years.
Early adoption is permitted. The adoption of ASU 2018-13 did not have a material impact on the Company’s consolidated financial
statements.
In December 2019, the FASB issued ASU No.
2019-12, Income Taxes (Topic 740) to simplify accounting for income taxes. This ASU removes certain exceptions to the general principles
in Topic 740 and amends existing guidance to improve consistent application. ASU 2019-12 is effective for fiscal years beginning
after December 15, 2020 and interim periods within those fiscal years, with early adoption permitted. The Company does not expect
the adoption of the new ASU to have a significant impact on its consolidated financial statements.
The Company does not believe that other
recently issued accounting standards, if currently adopted, will have a material effect on the Company’s consolidated financial
statements.
NOTE 4 – CASH, CASH EQUIVALENTS AND RESTRICTED CASH
|
|
As of December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
Cash on hand
|
|
$
|
2,643
|
|
|
$
|
908
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
Bank time deposits (maturing within 3 months)
|
|
|
2,573,383
|
|
|
|
17,417,057
|
|
Bank’s financial products
|
|
|
–
|
|
|
|
11,467,561
|
|
Other cash equivalents
|
|
|
74,839
|
|
|
|
34,291
|
|
Total cash equivalents
|
|
|
2,648,222
|
|
|
|
28,918,909
|
|
Total cash and cash equivalents
|
|
|
2,650,865
|
|
|
|
28,919,817
|
|
Restricted cash (see Note 19)
|
|
|
606,140
|
|
|
|
–
|
|
Total cash, cash equivalents and restricted cash
|
|
$
|
3,257,005
|
|
|
$
|
28,919,817
|
|
NOTE 5 – INVENTORIES, NET
|
|
As of December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Finished goods
|
|
$
|
3,105,625
|
|
|
$
|
1,880,155
|
|
Less: allowance for slow-moving inventories
|
|
|
(1,655,882
|
)
|
|
|
(279,004
|
)
|
Inventories, net
|
|
$
|
1,449,743
|
|
|
$
|
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 year ended December 31, 2020 and 2019, provision for slow-moving inventory amounted to approximately
$1,357,581 and $279,004, respectively.
NOTE 6 – ADVANCE TO SUPPLIERS
|
|
|
|
As of December 31,
|
|
Supplier
|
|
For the purchase of
|
|
2020
|
|
|
2019
|
|
Baoqing Meilai Modern Agricultural Service Co., Ltd. (1)
|
|
Selenium enriched rice
|
|
$
|
6,058,140
|
|
|
$
|
–
|
|
Shandong Kangqi Muye Industry Co., Ltd.
|
|
Specialty wooden phonograph
|
|
|
199,237
|
|
|
|
–
|
|
Chongqing Zhouhai Intelligent Technology Co., Ltd.
|
|
Smart watches
|
|
|
94,960
|
|
|
|
–
|
|
Wuyishan Zuoyun Ecological Tea Co., Ltd.
|
|
Tea
|
|
|
87,020
|
|
|
|
81,391
|
|
One Four One Three (Tianjin) Network Technology Development Co., Ltd.
|
|
Various products
|
|
|
14,495
|
|
|
|
23,583
|
|
Others
|
|
Nutritional supplements
|
|
|
1,227
|
|
|
|
161,263
|
|
Less: allowance for doubtful accounts
|
|
|
|
|
(87,020
|
)
|
|
|
–
|
|
Advance to Suppliers, net
|
|
|
|
$
|
6,368,059
|
|
|
$
|
266,237
|
|
(1)
|
In January 2020, the Company and Baoqing Meilai Modern Agriculture
Service Co., Ltd. (“Baoqing Melai”) entered into an agreement for a period of one-year whereby the Company agreed to
purchase 5 million kg of selenium enriched rice for RMB 40 million (approximately $6.1 million). The Company prepaid the purchase
in full in 2020 and took delivery of (and sold) approximately 59,000 kg of selenium enriched rice (valued at RMB 471,240 or approximately
$72,000) during the year ended December 31, 2020. Due to the negative impact of COVID-19, the Company and Baoqing Meilai extended
the purchase agreement to January 17, 2022.
|
NOTE 7 – PREPAYMENTS AND OTHER
CURRENT ASSETS, NET
|
|
As of December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Business advance to employees
|
|
$
|
154,515
|
|
|
$
|
94,034
|
|
Prepaid office decoration expense
|
|
|
235,667
|
|
|
|
91,146
|
|
Others
|
|
|
7,072
|
|
|
|
11,092
|
|
Less: allowance for doubtful accounts
|
|
|
(36,169
|
)
|
|
|
–
|
|
Prepaid Expenses and Other Current Assets, net
|
|
$
|
361,085
|
|
|
$
|
196,272
|
|
NOTE 8 – 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 in September 2019. Based on audited financials on Rongcheng Tianrun
for the year ended December 31, 2020, the Company recognized gain from equity investment of approximately $85,000 for the year
ended December 31, 2020. During the year ended December 31, 2019, the Company’s recorded a loss from this equity investment
of $31,098, representing its share of the equity loss in Rongcheng Tianrun’s net loss.
The financial statements of Rongcheng Tianrun
as of December 31, 2020 was audited by a PRC local audit firm, the summarized carrying amounts of the assets and liabilities are
as follows:
|
|
Amount
|
|
Current assets
|
|
$
|
43
|
|
Biological assets
|
|
|
42,560,824
|
|
Total assets
|
|
|
42,560,867
|
|
Total liabilities
|
|
|
(7,960,689
|
)
|
Net assets
|
|
$
|
34,600,178
|
|
|
|
Amount
|
|
Current liabilities:
|
|
$
|
3,140
|
|
Other payables and accrued liabilities
|
|
|
7,957,549
|
|
Total liabilities
|
|
$
|
7,960,689
|
|
The summarized operating results of the
Rongcheng Tianrun are as follows:
|
|
Amount
|
|
Operating revenues
|
|
$
|
227,730
|
|
Income from operations
|
|
|
192,791
|
|
Net income
|
|
$
|
192,791
|
|
NOTE 9 – PROPERTY AND EQUIPMENT, NET
At December 31, 2020 and 2019, property and equipment is as
follows:
|
|
As of December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Property (1)
|
|
$
|
1,699,595
|
|
|
$
|
–
|
|
Office furniture
|
|
|
98,876
|
|
|
|
90,998
|
|
Computer equipment
|
|
|
97,293
|
|
|
|
82,874
|
|
Vehicles
|
|
|
233,012
|
|
|
|
217,938
|
|
Software (2)
|
|
|
328,587
|
|
|
|
307,331
|
|
|
|
|
2,457,363
|
|
|
|
699,141
|
|
Less: accumulated depreciation
|
|
|
(241,468
|
)
|
|
|
(170,028
|
)
|
Less: accumulated amortization related to software
|
|
|
(296,079
|
)
|
|
|
(265,473
|
)
|
Property and equipment, net
|
|
$
|
1,919,816
|
|
|
$
|
263,640
|
|
(1) On April 25, 2020, the Company purchased
an apartment in Beijing valued at approximately $1.7 million (RMB 12,087,760).
(2) Software mainly includes financial
and management systems purchased by the Company.
For year ended December 31, 2020 and 2019,
depreciation expense amounted to $56,454 and $62,033, respectively. For year ended December 31, 2020 and 2019, amortization expense
amounted to $11,584 and $98,974, respectively.
NOTE 10 – DEPOSITS AND OTHER ASSETS, NON-CURRENT
|
|
As of December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Office rental deposit
|
|
$
|
36,087
|
|
|
$
|
46,487
|
|
Other deposit
|
|
|
56,654
|
|
|
|
–
|
|
Total
|
|
$
|
92,741
|
|
|
$
|
46,487
|
|
NOTE 11 – RELATED PARTY BALANCES AND TRANSACTIONS
As of December 31, 2020 and 2019, due from related parties is
as follows:
|
|
As of December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Zhuang Richun (1)
|
|
$
|
–
|
|
|
$
|
112,218
|
|
Total
|
|
$
|
–
|
|
|
$
|
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.
|
As of December 31, 2020 and 2019, due to
related parties is as follows:
|
|
As of December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Niu Jianxin (2)
|
|
$
|
–
|
|
|
$
|
566,928
|
|
Zhuang Rihong (3)
|
|
|
–
|
|
|
|
215,017
|
|
Tian Xiangdong (4)
|
|
|
–
|
|
|
|
137,611
|
|
Beijing Chunduo Technology Co., Ltd. (5)
|
|
|
–
|
|
|
|
43,002
|
|
Tian Xiangyang (6)
|
|
|
21,038
|
|
|
|
34,904
|
|
Gao Xue Wei (7)
|
|
|
–
|
|
|
|
15,934
|
|
Total
|
|
$
|
21,038
|
|
|
$
|
1,013,396
|
|
(2)
|
This represents a non-interest bearing loan from Mr. Niu
Jianxin to the Company which was expected to be paid directly to Ms. Tian Xiangyang to settle the Company's dividends payable
to Ms. Tian) in 2019. As of the date of this report, neither the Company nor Ms. Tian Xiangyang has received payment from Mr.
Niu. 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 is classified as an other payable as of December 31, 2020 (see Note 15). On April 9, 2020,
Mr. Zhang filed a lawsuit against the Company; the RMB 3,955,000 has been preserved by the lawsuit (see Note 19).
|
(3)
|
Ms. Zhuang Rihong is the sister of Mr. Zhuang Richun. The loan was
for working capital purposes and it was due on demand with no interest. The loan agreement expired in November 2020, and it is
still outstanding as of December 31, 2020. The Company has accrued for the related late payment penalty at a rate of 2% every day.
The liability is reclassified to other payables in 2020 since Ms. Zhuang Rihong is not considered a related party.
|
(4)
|
Mr. Tian Xiangdong is the brother of Ms. Tian Xiangyang. The loan
was for working capital purposes and it was due on demand with no interest. The loan was repaid in full in January 2020.
|
(5)
|
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; it was non-interest bearing
and due on demand. The loan was repaid in January 2020.
|
(6)
|
This represents a loan from Ms. Tian Xiangyang, the Company's founder and chairwoman, to the Company for working capital purposes. The loan is non-interest bearing and it is due on demand.
|
(7)
|
Mr. Gao Xuewei is a shareholder of the Company. The loan was for
working capital purposes; it was non-interest bearing and due on demand. The loan was repaid in January 2020.
|
NOTE 12 – TAXES PAYABLE
At December 31, 2020 and 2019, taxes payable is as follows:
|
|
As of December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
VAT payable
|
|
$
|
17,057,766
|
|
|
$
|
16,431,683
|
|
Income tax payable
|
|
|
941,571
|
|
|
|
1,153,677
|
|
Other taxes payable
|
|
|
2,159,213
|
|
|
|
2,062,142
|
|
Total
|
|
$
|
20,158,550
|
|
|
$
|
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 December 31, 2020 and 2019, respectively in other
current liabilities (see Note 15).
Other taxes payable consists 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 13 – ACCRUED EXPENSES
At December 31, 2020 and 2019, accrued expenses consisted of
the following:
|
|
As of December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Incentive awards
|
|
$
|
–
|
|
|
$
|
4,823,543
|
|
|
|
|
|
|
|
|
|
|
Incentive awards represents performance-based
incentives payable to qualified service centers. The Company paid the incentive awards fully in the first quarter of 2020.
NOTE 14 – 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.
The maturity schedule of the Company’s lease liabilities
is as follows:
Twelve months ending December 31,
|
|
Amount
|
|
|
|
|
|
2021
|
|
$
|
242,088
|
|
2022
|
|
|
98,666
|
|
Total lease payments
|
|
|
340,754
|
|
Less: imputed interest
|
|
|
–
|
|
Less: amount prepaid
|
|
|
1,236
|
|
Present value of lease liabilities
|
|
$
|
341,990
|
|
Total lease expenses for the year ended
December 31, 2020 were approximately $131,000.
NOTE 15 – OTHER PAYABLES AND OTHER CURRENT LIABILITIES
At December 31, 2020 and 2019, other payables and other current
liabilities are as follows:
|
|
As of December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Payroll and benefits (1)
|
|
$
|
1,589,600
|
|
|
$
|
1,389,090
|
|
Payable to suppliers
|
|
|
26,643
|
|
|
|
1,846,105
|
|
Commissions payable
|
|
|
1,142,080
|
|
|
|
275,748
|
|
Payable to Niu Jianxin (2)
|
|
|
606,140
|
|
|
|
–
|
|
Tax penalty (3)
|
|
|
7,019,374
|
|
|
|
3,354,544
|
|
Other current liabilities
|
|
|
500,750
|
|
|
|
–
|
|
Total
|
|
$
|
10,884,587
|
|
|
$
|
6,865,487
|
|
|
(1)
|
Payroll and benefits payable represents fringe benefits and last month
salaries payable to the Company’s employees.
|
|
(2)
|
This represents a non-interest bearing loan from Mr. Niu
Jianxin to the Company (which was expected to be paid directly to Ms. Tian Xiangyang to settle the Company’s dividends
payable to Ms. Tian) in 2019 (see Note 11).
|
|
(3)
|
Interest and penalties represent 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 year ended December 31, 2020, the Company recorded an estimated penalty of approximately $2,272,000 and $97,000 for unpaid VAT and income taxes, respectively.
|
NOTE 16 – DIVIDENDS PAYABLE
In 2019, the board declared dividends of
RMB 33,929,000 (approximately $4,918,000) in total.
During 2019, total dividends for RMB 33,899,000
(approximately $4,914,000) were distributed as follows:
|
·
|
RMB 20,100,000 (approximately $2,914,000) was distributed to Ms. Tian Xiangyang through an accounting
offset;
|
|
·
|
RMB 8,278,000 (approximately $1,200,000) of dividends payable to Ms. Tian Xiangyang was offset
against the balance due from her;
|
|
·
|
RMB 3,955,000 (approximately $567,000) expected to be paid
by Mr. Niu Jianxin to Ms. Tian Xiangyang via a related party loan to the Company. As of the date of this report, neither the
Company nor Ms. Tian Xiangyang has received payment from Mr. Niu;
|
|
·
|
RMB 1,250,000 (approximately $181,000) was distributed to Ms. Tian Xiangyang.
|
As a result, the Company has a dividends payable of $4,300 (RMB
30,000) as of December 31, 2019, which amount was distributed in the first quarter of 2020.
In accordance with a board resolution dated
January 21, 2020, the Company declared dividends of RMB 5,080,900 (approximately $722,000), which amount was distributed
in the first quarter of 2020.
NOTE 17 – 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 December 31, 2020 and 2019, the balance
of the statutory reserve was $1,687,125.
NOTE 18 – 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 consolidated
financial statements as Inooka Holding Ltd. has no profits or operations for the years ended December 31, 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 years ended
December 31, 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 subject 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 expired in 2020. The Company is applying for
qualification of the preferential tax rate. 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 years ended December 31, 2020 and 2019.
|
|
For the Years Ended
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Non-PRC operations
|
|
$
|
434,630
|
|
|
$
|
–
|
|
PRC operations
|
|
|
(14,586,366
|
)
|
|
|
2,116,083
|
|
Net (loss) income before provision for income taxes
|
|
$
|
(15,020,996
|
)
|
|
$
|
2,116,083
|
|
Provision for income taxes comprised of the followings:
|
|
For the Years Ended
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Current tax expense
|
|
|
|
|
|
|
|
|
PRC
|
|
$
|
–
|
|
|
$
|
931,201
|
|
Deferred tax expense
|
|
|
|
|
|
|
|
|
PRC
|
|
|
–
|
|
|
|
–
|
|
Total provision for income taxes
|
|
$
|
–
|
|
|
$
|
931,201
|
|
The Company’s deferred tax assets are comprised of the
following:
|
|
As of December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Net operating loss
|
|
|
|
|
|
|
|
|
PRC
|
|
$
|
1,808,840
|
|
|
$
|
–
|
|
Total deferred tax assets
|
|
|
1,808,840
|
|
|
|
–
|
|
Valuation allowance
|
|
|
(1,808,840
|
)
|
|
|
–
|
|
Deferred tax assets, net - long-term
|
|
$
|
–
|
|
|
$
|
–
|
|
|
|
For the Years Ended
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
PRC statutory tax rate
|
|
|
25.0%
|
|
|
|
25.0%
|
|
Permanent differences
|
|
|
(17.8%
|
)
|
|
|
26.0%
|
|
Tax holiday effect
|
|
|
(7.2%
|
)
|
|
|
(10.0%
|
)
|
Effective tax rate
|
|
|
–
|
|
|
|
41.0%
|
|
Below is a breakdown
of key components that make up the permanent differences:
|
|
For the Years Ended
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Penalties related to unpaid VAT and income taxes
|
|
|
(5.4%
|
)
|
|
|
15.7%
|
|
Non-deductible expenses/donation
|
|
|
(0.3%
|
)
|
|
|
9.5%
|
|
Change in valuation allowance
|
|
|
(12.0%
|
)
|
|
|
–
|
|
Others
|
|
|
(0.1%
|
)
|
|
|
0.8%
|
|
Total
|
|
|
(17.8%
|
)
|
|
|
26.0%
|
|
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 $14.6 million and the deferred tax assets was approximately $1.8 million
as of December 31, 2020, which would expire on various dates through 2025. The Company does not file consolidated tax returns
in the PRC, 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 not be realized in the
foreseeable future. As of December 31, 2020, the Company recognized a 100% valuation allowance.
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 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 currently 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.
Legal Matters
Beijing Luji, the Company’s VIE
has a payable to Mr. Niu Jianxin for RMB 3,955,000 (approximately $606,000) (see Note 19), representing a non-interest
bearing loan from Mr. Niu to the Company (which was expected to be paid directly to Ms. Tian Xiangyang to settle the
Company's dividends payable to Ms. Tian) in 2019. As of the date of this report, neither Beijing Luji nor Ms. Tian has
received the said payment from Mr. Niu. Upon Mr. Niu’s departure from Beijing Luji in February 2020, Mr. Niu allegedly
transferred his rights to Mr. Zhang Hongbin in March 2020. 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. In
connection with this legal matter, RMB 3,955,000 has been preserved and reported by the Company as restricted cash (see Note
4) on its consolidated balance sheet as of December 31, 2020. This legal matter has gone to trial and it is still being
reviewed by the court. As of the date of this report, no decision has been rendered by the court.
In December 2020, Shanghai Gaolie Enterprise
Service Center filed a lawsuit against Beijing Guoyi and Beijing Luji for RMB 484,000 (approximately $74,000) for certain unpaid
talent intermediary fees. The parties are in the process of mediating this matter.
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 December 31, 2020 and 2019, respectively.
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 December 31, 2020 was approximately $3.3 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 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 three suppliers that accounted for more than 10% of total purchases, for the year ended December 31, 2020. One supplier
accounted for 50%, one supplier accounted for 21%, and the other accounted for 20% for the year ended December 31, 2020. There
were two suppliers that accounted for more than 10% of total purchases, for the year ended December 31, 2019. One supplier accounted
for 68%, and the other accounted for 11% for the year ended December 31, 2019. There were no accounts payable balances owed to
these suppliers as of December 31, 2020 and 2019.
Major customers
There were no customers who accounted for more than 10% of total
revenue for the year ended December 31, 2020 and 2019.
NOTE 21 – SUBSEQUENT EVENTS
The Company has analyzed its operations
subsequent to December 31, 2020, through the date of this report and have determined that the Company does not have any material
subsequent events to disclose in these 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 (loss) of the subsidiaries is presented
as “share of income (loss) of subsidiaries”. Certain information and footnote disclosures generally included in financial
statements prepared in accordance with US GAAP are not required.
The Company did not have any significant
capital and other commitments, long-term obligations, or guarantees as of December 31, 2020 and 2019.
PARENT COMPANY BALANCE SHEETS
|
|
As of December, 31
|
|
|
|
2020
|
|
|
2019
|
|
Assets
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Investment in subsidiaries
|
|
$
|
(5,325,496
|
)
|
|
$
|
10,464,035
|
|
Total Current Assets
|
|
|
(5,325,496
|
)
|
|
|
10,464,035
|
|
Total Assets
|
|
$
|
(5,325,496
|
)
|
|
$
|
10,464,035
|
|
Liabilities and Shareholders’ (Deficit) Equity
|
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Shareholders’ (Deficit) Equity
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Common stock: US$0.0001 par value; authorized-100,000,000 shares; issued and outstanding 97,201,030 shares and 11,201,030 shares at December 31, 2020 and 2019 respectively*
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$
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9,720
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$
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1,120
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Additional paid-in capital*
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7,360,741
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7,248,755
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Statutory reserves
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1,687,125
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1,687,125
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(Deficit) retained earnings
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(13,607,326
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)
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2,136,211
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Accumulated other comprehensive loss
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(775,756
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)
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(609,176
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)
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Total Shareholders’ (Deficit) Equity
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(5,325,496
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)
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10,464,035
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Total Liabilities and Shareholders’ (Deficit) Equity
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$
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(5,325,496
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)
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$
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10,464,035
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* Giving retroactive effect to the reorganization in
connection with the share exchange transaction effected on August 6, 2020
PARENT COMPANY STATEMENTS OF COMPREHENSIVE
INCOME
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For the years ended
December 31,
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2020
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2019
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Equity (loss) income
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$
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(15,020,996
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)
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$
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1,338,398
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Net (loss) income
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(15,020,996
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)
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1,338,398
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Foreign currency translation adjustments
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(166,580
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)
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(163,254
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)
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Comprehensive (loss) income
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$
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(15,187,576
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)
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$
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1,175,144
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PARENT COMPANY STATEMENTS OF CASH
FLOWS
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For the years ended
December 31,
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2020
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2019
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Cash flows from operating activities
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Net (loss) income
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$
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(15,020,996
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)
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$
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1,338,398
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Adjustments to reconcile net (loss) income to cash provided by (used in) operating activities:
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Equity (loss) income
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(15,020,996
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)
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(1,338,398
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)
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Net cash provided by (used in) operating activities
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–
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–
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Changes in cash and cash equivalents
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–
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–
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Cash and cash equivalents at beginning of year
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–
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–
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Cash and cash equivalents at end of year
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$
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–
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$
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–
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