U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)
~~[X]~~☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, ~~2020.~~2021.

~~[_]~~☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number: 000-55999

Hanjiao Group, Inc.

(Exact Name of Registrant as Specified in its Charter)

Nevada	83-2187195
(State of other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification Number)

Room 1206, 12th Floor, 301, 3-17 F, Building 5

Block 1, Hangfeng Road

Fengtai District,Beijing

People's Republic of China

(Address of principal executive offices) (Zip Code)

Registrant's Phone: ~~+86~~ +86185 1685 0587

Securities registered pursuant to Section 12(b) of the Act:

Title of each Class	Trading Symbol	Name of each exchange on which registered
Common Stock, par value US$0.0001	HJGP	N/A

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ~~[_]~~☒ No ~~[X]~~☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ~~[X]~~☒ No ~~[_]~~☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ~~[_]~~☐		Accelerated filer ~~[_]~~☐

Non-accelerated filer ~~[_]~~☐		Smaller reporting company ~~[X]~~☒

Emerging growth company ~~[_]~~☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ~~[_]~~☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ~~[X]~~ ☐No ~~[_]~~☒

As of November ~~20, 2020,~~10, 2021, the issuer had 97,201,030 shares of common stock issued and outstanding.

	TABLE OF CONTENTS	Page

PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operation	3227
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	4236
Item 4.	Controls and Procedures	4236

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	4437
Item 1A.	Risk Factors	4437
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4442
Item 3.	Defaults Upon Senior Securities	4442
Item 4.	Submission of Matters to a Vote of Security Holders	4442
Item 5.	Other Information	4442
Item 6.	Exhibits	4543

CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, that are not historical facts, and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical facts, included in this Form 10-Q including, without limitation, statements in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, events or developments which the Company expects or anticipates will or may occur in the future, including such things as future capital expenditures (including the amount and nature thereof); expansion and growth of the Company's business and operations; and other such matters are forward-looking statements. These statements are based on certain assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions and expected future developments, as well as other factors it believes are appropriate under the circumstances. However, whether actual results or developments will conform with the Company's expectations and predictions is subject to a number of risks and uncertainties, including general economic, market and business conditions; the business opportunities (or lack thereof) that may be presented to and pursued by the Company; changes in laws or ~~regulation;~~regulation and other factors, most of which are beyond the control of the Company.

These forward-looking statements can be identified by the use of predictive, future-tense or forward-looking terminology, such as "believes," "anticipates," "expects," "estimates," "plans," "may," "will," or similar terms. These statements appear in a number of places in this filing and include statements regarding the intent, belief or current expectations of the Company, and its directors or its officers with respect to, among other things: (i) trends affecting the Company's financial condition or results of operations for its limited history; (ii) the Company's business and growth strategies; and, (iii) the Company's financing plans. Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve significant risks and uncertainties, and that actual results may differ materially from those projected in the forward-looking statements as a result of various factors. Such factors that could adversely affect actual results and performance include, but are not limited to, the Company's limited operating history, potential fluctuations in quarterly operating results and expenses, government regulation, technological change and competition. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to our filings with the SEC under the Exchange Act and the Securities Act of 1933, as amended, including the Risk Factors section of the Company’s Current Report on Form 8-K/A filed with the U.S. Securities and Exchange Commission (the “SEC”) on August 14, 2020.

Consequently, all of the forward-looking statements made in this Form 10-Q are qualified by these cautionary statements and there can be no assurance that the actual results or developments anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequence to or effects on the Company or its business or operations. The Company assumes no obligations to update any such forward-looking statements.

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

HANJIAO GROUP, INC. ~~AND SUBSIDIARIES~~

Index to Unaudited Condensed Consolidated Financial Statements

	Page

Unaudited Condensed Consolidated Balance Sheets as of September 30, ~~2020~~2021 and December 31, ~~2019~~2020	5

Unaudited Condensed Consolidated Statements of Operations and Comprehensive ~~(Loss) Income~~Loss for the Three and Nine ~~months~~Months Ended September 30, ~~2020~~2021 and ~~2019~~2020	6

Unaudited Condensed Consolidated Statements of Changes in Shareholders’ Equity (Deficit) for the Nine ~~months~~Months Ended September 30, ~~2020~~2021 and ~~2019~~2020	7

Unaudited Condensed Consolidated Statements of Cash Flows for the Nine ~~months~~Months Ended September 30, ~~2020~~2021 and ~~2019~~2020	8

Notes to Unaudited Condensed Consolidated Financial Statements	9

HANJIAO GROUP, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS


	September 30,			December 31,			September 30,			December 31,
	2020			2019			2021			2020
	(Unaudited)						(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	3,968,382		$	28,919,817		$	914,182		$	2,650,865
Advance to suppliers		6,418,332			266,237
Restricted cash								0			606,140
Advance to suppliers, net								6,221,350			6,368,059
Inventories, net		2,244,258			1,601,151			1,032,933			1,449,743
Prepayments and other current assets		348,428			196,272
Due from related parties, net		17,621			112,218
Prepayments and other current assets, net								254,144			361,085
Total current assets		12,997,021			31,095,695			8,422,609			11,435,892
Long-term investment		11,776,729			11,412,441			12,358,179			12,291,466
Property and equipment, net		219,016			263,640			1,890,954			1,919,816
Right-of-use assets		389,638			–			127,295			340,755
Deposits and other assets, non-current		1,941,091			46,487
Deposits								104,038			92,740
Total assets	$	27,323,495		$	42,818,263		$	22,903,075		$	26,080,669

Liabilities and shareholders’ (deficit) equity
Liabilities and shareholders’ deficit
Current liabilities
Taxes payable	$	19,597,803		$	19,647,502		$	20,074,158		$	20,158,550
Dividends payable		–			4,300
Other payables and other current liabilities								13,437,065			10,884,587
Lease liabilities								39,052			243,323
Due to related parties		240,418			1,134,459			36,894			21,038
Accrued expenses		32,687			4,823,543
Lease liabilities		232,118			–
Other payables and other current liabilities		8,940,473			6,887,083
Total current liabilities		29,043,499			32,496,887			33,587,169			31,307,498
Lease liabilities – non-current		157,520			–
Lease liabilities, non-current								0			98,667
Total liabilities		29,201,019			32,496,887			33,587,169			31,406,165

Commitments and contingencies		–			–			–			–

Shareholders’ (deficit) equity
Common stock: $0.0001 par value, 100,000,000 shares authorized; 97,201,030 shares issued and outstanding, respectively *		9,720			9,720
Additional paid-in capital*		7,256,566			7,256,566
Shareholders’ deficit
Common stock: $0.0001 par value; authorized 100,000,000 shares; issued and outstanding 97,201,030 shares at September 30, 2021 and December 31, 2020								9,720			9,720
Additional paid-in capital								7,360,741			7,360,741
Statutory reserves		1,687,125			1,687,125			1,687,125			1,687,125
(Deficit) retained earnings		(10,152,404	)		1,977,141
Deficit								(18,932,805	)		(13,607,326	)
Accumulated other comprehensive loss		(678,531	)		(609,176	)		(808,875	)		(775,756	)
Total shareholders’ (deficit) equity		(1,877,524	)		10,321,376
Total shareholders’ deficit								(10,684,094	)		(5,325,496	)

Total liabilities and shareholders’ (deficit) equity	$	27,323,495		$	42,818,263
Total liabilities and shareholders’ deficit							$	22,903,075		$	26,080,669

* Giving retroactive effectThe accompanying notes are an integral part of ~~reorganization in connection with the share exchange transaction effected on August 6, 2020~~these unaudited condensed consolidated financial statements.

HANJIAO GROUP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2021			2020			2021			2020

Revenues	$	1,052,323		$	81,669		$	1,630,559		$	210,172
Cost of revenues		(506,218	)		(407,798	)		(1,157,300	)		(613,114	)
Gross profit (loss)		546,105			(326,129	)		473,259			(402,942	)

Operating expenses:
General and administrative expenses		618,099			758,653			1,931,899			2,746,034
Selling expenses		452,822			1,291,611			1,481,633			4,950,028
Finance expenses (income), net		10,957			(3,468	)		28,132			(173,622	)
Total operating expenses		1,081,878			2,046,796			3,441,664			7,522,440

Operating loss		(535,773	)		(2,372,925	)		(2,968,405	)		(7,925,382	)

Other expenses
Other expenses, net		(801,002	)		(796,320	)		(2,348,908	)		(3,565,325	)
Income (loss) from equity investment		0			83,703			(8,166	)		83,703
Total other expenses, net		(801,002	)		(712,617	)		(2,357,074	)		(3,481,622	)

Loss before provision for income taxes		(1,336,775	)		(3,085,542	)		(5,325,479	)		(11,407,004	)
Provision for income taxes		0			0			0			0

Net loss	$	(1,336,775	)	$	(3,085,542	)	$	(5,325,479	)	$	(11,407,004	)

Other comprehensive loss
Foreign currency translation adjustment		(17,027	)		23,318			(33,119	)		(69,355	)

Comprehensive loss	$	(1,353,802	)	$	(3,062,224	)	$	(5,358,598	)	$	(11,476,359	)

Weighted average number of ordinary shares outstanding
Basic and diluted		97,201,030			97,201,030			97,201,030			97,201,030

Loss per ordinary share
Basic and diluted	$	(0.01	)	$	(0.03	)	$	(0.06	)	$	(0.12	)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

HANJIAO GROUP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT)


	Common stock				Additional				Retained			Accumulated other			Total shareholders’
	Number of shares		Amount		paid-in capital		Statutory reserves		earnings (deficit)			comprehensive loss			equity (deficit)
Balance as of December 31, 2019		11,201,030	$	1,120	$	7,248,755	$	1,687,125	$	2,136,211		$	(609,176	)	$	10,464,035
Effect of reverse acquisition		86,000,000		8,600		111,986		–		–			–			120,586
Dividends declared		–		–		–		–		(722,541	)		–			(722,541	)
Net loss		–		–		–		–		(11,407,004	)		–			(11,407,004	)
Foreign currency translation		–		–		–		–		–			(69,355	)		(69,355	)
Balance as of September 30, 2020 (unaudited)		97,201,030	$	9,720	$	7,360,741	$	1,687,125	$	(9,993,334	)	$	(678,531	)	$	(1,614,279	)

	Common stock				Additional							Accumulated other			Total
	Number of shares		Amount		paid-in capital		Statutory reserves		(Deficit)			comprehensive loss			shareholders’ (deficit)
Balance as of December 31, 2020		97,201,030	$	9,720	$	7,360,741	$	1,687,125	$	(13,607,326	)	$	(775,756	)	$	(5,325,496	)
Net loss		–		–		–		–		(5,325,479	)		–			(5,325,479	)
Foreign currency translation		–		–		–		–		–			(33,119	)		(33,119	)
Balance as of September 30, 2021 (unaudited)		97,201,030	$	9,720	$	7,360,741	$	1,687,125	$	(18,932,805	)	$	(808,875	)	$	(10,684,094	)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

HANJIAO GROUP, INC. ~~AND SUBSIDIARIES~~

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF ~~COMPREHENSIVE (LOSS) INCOME~~CASH FLOWS

For the Three Months Ended
September 30,
For the Nine Months Ended
September 30,
2020 2019 2020 2019

Revenues $ 81,669 $ 8,031,797 $ 210,172 $ 59,089,885
Cost of revenues (407,798 ) (827,225 ) (613,114 ) (38,115,528 )
Gross (loss) profit (326,129 ) 7,204,572 (402,942 ) 20,974,357

Operating expenses:
General and administrative expenses 758,653 2,226,222 2,746,034 6,402,316
Selling expenses 1,291,611 1,426,350 4,950,028 3,057,377
Finance expenses (income), net (3,468 ) (14,043 ) (173,622 ) 81,102
Total operating expenses 2,046,796 3,638,529 7,522,440 9,540,795

Operating (loss) income (2,372,925 ) 3,566,043 (7,925,382 ) 11,433,562

Other income (expense):
Other expenses, net (796,320 ) (653,100 ) (3,565,325 ) (1,814,388 )
Income (loss) from equity investment 83,703 (18,493 ) 83,703 (18,493 )
Total other expenses, net (712,617 ) (671,593 ) (3,481,622 ) (1,832,881 )

(Loss) income before provision for income taxes (3,085,542 ) 2,894,450 (11,407,004 ) 9,600,681
Provision for income taxes – 361,558 – 1,797,331

Net (loss) income $ (3,085,542 ) $ 2,532,892 $ (11,407,004 ) $ 7,803,350

Other comprehensive (loss) income
Foreign currency translation adjustment 23,318 (454,784 ) (69,355 ) (484,235 )

Comprehensive (loss) income $ (3,062,224 ) $ 2,078,108 $ (11,476,359 ) $ 7,319,115

Earnings (loss) per ordinary share
Basic and diluted * $ (0.03 ) $ 0.03 $ (0.12 ) $ 0.08

Weighted average number of ordinary shares outstanding
Basic and diluted * 97,201,030 97,201,030 97,201,030 97,201,030
* Giving retroactive effect of reorganization in connection with the share exchange transaction effected on August 6, 2020

For the Nine Months Ended
September 30,
2021 2020

Cash flows from operating activities
Net loss $ (5,325,479 ) $ (11,407,004 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 237,321 154,729
Equity investment income (loss) 8,166 (83,703 )
Reversal of bad debt expense (5,316 ) (1,845 )
Write off and provision for slow-moving inventory 129,597 431,502
Changes in operating assets and liabilities:
Advance to suppliers 185,894 (5,985,946 )
Inventories 296,960 (1,019,863 )
Due from related parties, net 0 94,805
Prepayments and other current assets 103,936 (204,242 )
Taxes payable (207,617 ) (515,166 )
Accrued expenses 0 (4,780,986 )
Lease liabilities (89,679 ) (98,115 )
Other payables and other current liabilities 2,507,205 1,947,425
Net cash used in operating activities (2,159,012 ) (21,468,409 )

Cash flows from investing activities
Purchases of property and equipment (196,680 ) (1,788,623 )
Net cash used in investing activities (196,680 ) (1,788,623 )

Cash flows from financing activities
Repayment of loans from related parties 0 (211,304 )
Repayment of loans from third parties 0 (790,934 )
Dividends paid 0 (722,541 )
Net cash used in financing activities 0 (1,724,779 )

Effect of exchange rate changes on cash, cash equivalents and restricted cash 12,869 30,376
Net decrease in cash, cash equivalents and restricted cash (2,342,823 ) (24,951,435 )
Cash, cash equivalents and restricted cash at beginning of period 3,257,005 28,919,817
Cash, cash equivalents and restricted cash at end of period $ 914,182 $ 3,968,382

Supplemental disclosures of cash flow information:
Cash paid for income taxes $ 94,018 $ 124,800

Supplemental non-cash financing information:
Right-of-use assets and lease liabilities $ 0 $ 477,631

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

6
~~HANJIAO GROUP, INC. AND SUBSIDIARIES~~
~~UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY~~
Ordinary shares* Additional Accumulated other Total
Number of shares Amount paid-in
capital Statutory reserves Retained
earnings comprehensive loss shareholders’ equity
Balance as of December 31, 2018 11,201,030 $ 1,120 $ 7,248,755 $ 1,547,861 $ 5,855,424 $ (445,922 ) $ 14,207,238
Effect of reverse acquisition 86,000,000 8,600 7,811 16,411
Dividends declared – – – – (111,615 ) – (111,615 )
Net loss – – – – (543,381 ) – (543,381 )
Foreign currency translation – – – – – 346,577 346,577
Balance as of March 30, 2019 (unaudited) 97,201,030 $ 9,720 $ 7,256,566 $ 1,547,861 $ 5,200,428 $ (99,345 ) $ 13,915,230
Dividends declared (199,539 ) – (199,539 )
Net income – – – – 5,813,839 – 5,813,839
Foreign currency translation – – – – – (376,027 ) (376,027 )
Balance as of June 30, 2019 (unaudited) 97,201,030 $ 9,720 $ 7,256,566 $ 1,547,861 $ 10,814,728 $ (475,372 ) $ 19,153,503
Dividends declared – – – – (4,639,434 ) – (4,639,434 )
Net income – – – – 2,532,892 – 2,532,892
Foreign currency translation – – – – – (454,785 ) (454,785 )
Balance as of September 30, 2019 (unaudited) 97,201,030 $ 9,720 $ 7,256,566 $ 1,547,861 $ 8,708,186 $ (930,157 ) $ 16,592,176
Ordinary shares* Additional Retained Accumulated other Total shareholders’
Number of shares Amount paid-in
capital Statutory reserves earnings/
(deficit) comprehensive loss (deficit) equity
Balance as of December 31, 2019 97,201,030 $ 9,720 $ 7,256,566 $ 1,687,125 $ 1,977,141 $ (609,176 ) $ 10,321,376
Dividends declared – – – – (722,541 ) – (722,541 )
Net loss – – – – (4,446,454 ) – (4,446,454 )
Foreign currency translation – – – – – (83,772 ) (83,772 )
Balance as of March 30, 2020 (unaudited) 97,201,030 $ 9,720 $ 7,256,566 $ 1,687,125 $ (3,191,854 ) $ (692,948 ) $ 5,068,609
Net loss – – – – (3,875,008 ) – (3,875,008 )
Foreign currency translation – – – – – (8,901 ) (8,901 )
Balance as of June 30, 2020 (unaudited) 97,201,030 $ 9,720 $ 7,256,566 $ 1,687,125 $ (7,066,862 ) $ (701,849 ) $ 1,184,700
Net loss (3,085,542 ) (3,085,542 )
Foreign currency translation – – – – – 23,318 23,318
Balance as of September 30, 2020 (unaudited) 97,201,030 $ 9,720 $ 7,256,566 $ 1,687,125 $ (10,152,404 ) $ (678,531 ) $ (1,877,524 )
* Giving retroactive effect of reorganization in connection with the share exchange transaction effected on August 6, 2020
~~The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.~~
7
~~HANJIAO GROUP, INC. AND SUBSIDIARIES~~
~~UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~
For the Nine Months Ended
September 30,
2020 2019
Cash flows from operating activities
Net (loss) income $ (11,407,004 ) $ 7,803,350
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization 56,614 121,461
Income (loss) from equity investment (83,703 ) 18,493
(Reversal of) provision for bad debt expense (1,845 ) 167,966
Provision for slow-moving inventories 431,502 –
Changes in operating assets and liabilities:
Advance to suppliers (5,985,946 ) 126,889
Inventories (1,019,863 ) (1,003,302 )
Due from related parties, net 94,805 10,419,115
Prepayments and other current assets (204,242 ) 1,073,530
Advance from customers 23,555 (3,547,099 )
Taxes payable (515,166 ) 9,581,639
Accrued expenses (4,780,986 ) (1,889,704 )
Other payables and other current liabilities 1,923,870 3,227,385
Net cash (used in) provided by operating activities (21,468,409 ) 26,099,723

Cash flows from investing activities
Purchase of property and equipment (6,886 ) (9,233 )
Deposit for office space purchase (1,781,737 ) –
Investment in equity investee – (11,649,043 )
Net cash used in investing activities (1,788,623 ) (11,658,276 )

Cash flows from financing activities
(Repayment) advances from related parties, net (211,304 ) 11,528
Repayment of loans from third parties (790,934 ) –
Dividends paid (722,541 ) (197,346 )
Net cash used in financing activities (1,724,779 ) (185,818 )

Effect of exchange rate changes on cash and cash equivalents 30,376 (944,766 )
Net (decrease) increase in cash and cash equivalents (24,951,435 ) 13,310,863
Cash and cash equivalents at beginning of period 28,919,817 18,019,682
Cash and cash equivalents at end of period $ 3,968,382 $ 31,330,545

Supplemental disclosures of cash flow information:
Cash paid for income taxes $ 124,800 $ 24,263

Non-cash transactions of operating and investing activities
Initial recognition of right-of-use assets and lease liabilities $ 477,631 $ –
Offset receivable from related party against dividends due to such party $ – $ 1,229,928
~~The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.~~
8

~~HANJIAO GROUP, INC. AND SUBSIDIARIES~~Hanjiao Group, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in U.S. dollars unless otherwise stated)

NOTE 1 – - ORGANIZATION AND NATURE OF OPERATIONS

Hanjiao Group, Inc. ~~(the “Company”~~(“HJPG”), known previously as AS Capital, Inc. (“ASIN”), is a holding company that, through its subsidiaries and variable interest entity (collectively, the “Company”) is engaged 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”) through its internet platform and offline service centers.
HJPG conducts business primarily through its variable interest entity, Beijing Luji Technology Co., Ltd. (“Beijing Luji”) that was formed in Beijing, China on March 27, 2007. HJPG does not have a direct equity ownership interest in Beijing Luji but relies on a series of contractual arrangements, or variable interest entity (VIE) agreements (“VIE Agreements”), through Beijing Hongtao Management Consulting Co., Ltd.) (“Beijing Hongtao) to control and receive substantially all of the economic risks and benefits of Beijing Luji’s business in the PRC in which foreign investment is restricted or prohibited. The VIE Agreements are designed to mimic direct ownership of Beijing Luji and allow the financial conditions and results of operations of Beijing Luji to be consolidated with the financial statements of HJPG.
On July 15, 2021, Beijing Hongtao Management Consulting Co., Ltd. changed its name to Beijing Hanze Management Consulting Co., Ltd. (“Beijing Hanze”). On July 16, 2021, Beijing Luji Technology Co., Ltd. changed its name to Beijing Yingjun Technology Co., Ltd. (“Beijing Yingjun”). Beijing Yingjun and Beijing Hanze executed a supplementary agreement on July 16, 2021, confirming that all the original terms and conditions related to the VIE Agreements remain unchanged and they continue to be valid.
The Company’s corporate structure as of September 30, 2021 is as follows:

· HanJiao International Holding Limited (“HanJiao”) is a holding company incorporated in the British Virgin Islands on July 5, 2018.
· 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.
9
· Inooka Holding Ltd. (“Inooka”), a company established in Hong Kong on July 18, 2018, is wholly owned by Luji Technology.
· Beijing Hanze Management Consulting Co., Ltd. (previously known as Beijing Hongtao Management Consulting Co., Ltd.), a wholly foreign-owned enterprise (“WFOE”) was established in China on October 11, 2018 and it is a wholly owned subsidiary of Inooka. Beijing Hanze provides consulting and technical services to Beijing Yingjun Technology Co., Ltd. (previously known as Beijing Luji Technology Co., Ltd.) that was incorporated in China on March 27, 2007. Beijing Yingjun 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.
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.”

~~Prior~~The accompanying unaudited condensed 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 ~~was a shell company~~prior to the completion of the Share Exchange Transaction. These financial statements and related notes should be read in conjunction with ~~nominal assets and limited operations. Effective October 20,~~the audited consolidated financial statements of the Company for the year ended December 31, 2020, ~~ASIN changed its name from AS Capital, Inc. to Hanjiao Group, Inc.~~
~~HanJiao is a holding company incorporated~~included in the ~~British Virgin Islands on July 5, 2018. HanJiao~~Company’s Form 10-K filed with the Securities and ~~its wholly owned subsidiaries, variable interest entity (“VIE”~~Exchange Commission (the “SEC”) and its subsidiary are primarily engaged in the sale of healthcare and other related products to the middle-aged and elderly market segments in China through its internet platform and offline service centers.
~~LuJi Technology International Holding Limited (“Luji Technology”), a holding company incorporated in the British Virgin Islands on July 5, 2018, is wholly owned by HanJiao.~~
~~Inooka Holding Ltd. (“Inooka”), a company established in Hong Kong on July 18, 2018, is wholly owned by Luji Technology.~~
Beijing Hongtao Management Consulting Co., Ltd. (“Beijing Hongtao”), a wholly foreign-owned enterprise (“WFOE”) was established in China on October 11, 2018 and it is a wholly owned subsidiary of Inooka. Beijing Hongtao currently provides consulting and technical services to Beijing Luji Technology Co., Ltd. (“Beijing Luji”) that was incorporated in China on March ~~27, 2007. Beijing Luji established Guoyi Investment Fund Management (Beijing) Co., Ltd. (“Beijing Guoyi”) with registered capital of RMB 50 million (approximately US$973,000) on February 19, 2016.~~
~~The following table illustrates how the Company is organized:~~

9
~~HANJIAO GROUP, INC. AND SUBSIDIARIES~~
~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(amounts in U.S. dollars unless otherwise stated)~~
31, 2021.

Reorganization and Variable Interest Entities

On May 15, 2019, Beijing ~~Hongtao,~~Hanze, Beijing ~~Luji~~Yingjun and their shareholders entered into a series of contractual arrangements (the “VIE Agreements”) to control and receive the economic benefits of Beijing ~~Luji’s~~Yingjun’s business. The VIE Agreements are designed to provide Beijing ~~Hongtao~~Hanze with the power, rights and obligations equivalent in all material respects to those it would possess as the sole equity holder of Beijing ~~Luji,~~Yingjun, including absolute control rights and the rights to the assets, property, revenue and income of Beijing ~~Luji.~~Yingjun.

To complete the corporate reorganization, the shareholders of Luji Technology transferred their respective ownership interest in Luji Technology in exchange for their respective ownership interest in HanJiao on September 16, 2019 (the “Share Transfer”).

Based on the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (‘ASC’) Topic 805, the VIE Agreements executed between ~~the~~ Beijing ~~Hongtao~~Hanze and Beijing ~~Luji~~Yingjun 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 Yingjun and its wholly owned subsidiary are consolidated in the accompanying unaudited condensed consolidated financial statements pursuant to ASC 810-10, Consolidation.
The carrying amounts of the VIE’s consolidated assets and liabilities are as follows:
Financial information of VIE
September 30, December 31,
2021 2020
(Unaudited)
Current assets $ 9,375,253 $ 9,975,677
Property and equipment, net 1,890,954 1,919,816
Other noncurrent assets 12,421,400 12,354,301
Total assets 23,687,607 24,249,794
Total liabilities (33,494,651 ) (29,005,749 )
Net (liabilities) $ (9,807,044 ) $ (4,775,955 )
10
September 30, December 31,
2021 2020
(Unaudited)
Other payables and accrued liabilities $ 13,383,589 $ 8,826,184
Other payables – related parties 36,894 21,038
Taxes payable 20,074,168 20,315,818
Total liabilities $ 33,494,651 $ 29,163,040
The summarized operating results of the VIE are as follows:

For the Three Months
Ended September 30,

For the Nine Months
Ended September 30,

2021 2020 2021 2020
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Operating revenues $ 1,052,323 $ 81,669 $ 1,630,559 $ 210,172
Loss from operations $ (525,817 ) $ (2,500,769 ) $ (2,667,768 ) $ (7,821,446 )
Net loss $ (1,329,426 ) $ (3,014,081 ) $ (5,033,910 ) $ (11,148,559 )

NOTE 2 – LIQUIDITY AND GOING CONCERN

As indicated in the accompanying unaudited condensed consolidated financial statements, the Company had a net loss of approximately ~~$11.7~~$5.3 million for the nine months ended September 30, ~~2020;~~2021; and negative working capital of approximately ~~$16.0~~$25.1 million ~~and $1.4 million, respectively,~~ as of September 30, ~~2020 and December 31, 2019.~~2021. Management of the Company has considered whether there is substantial doubt about its ability to continue as a going concern due to ~~consecutive quarterly~~significant losses from operations in year 2020 and the first ~~nine months~~three quarters of ~~2020~~2021 as a result of COVID-19; and evaluated its available cash balance against its working capital requirements over the next twelve months.
While ~~management~~the Company cannot accurately predict the full impact of COVID-19 on its business for the ~~Company’s business,~~full year 2021, management believes that its business will ~~turnaround~~gradually stabilize in the ~~last~~fourth quarter of ~~2020~~2021 as market conditions in China are expected to continue to improve. In assessing the ~~market situation recovers. The Company believes that the market recovery can reduce~~Company’s liquidity, management monitors and analyzes its cash on hand and its operating ~~loss, but will not be enough to completely eliminate the negative impact of the COVID-19 for the full year of 2020.~~expenses, and existing regulatory obligations and commercial commitments. Based on its latest sales and cash ~~flows~~flow projection s, management believes that the Company isshould 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. In the event the Company has a working capital deficit, the Company’s major shareholder is committed to providing short-term interest free advances to the Company.

The accompanying unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The accompanying unaudited condensed consolidated financial statements do not include any adjustments related to the recoverability and/or classification of the recorded asset amounts and/or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.

1011

~~HANJIAO GROUP, INC. AND SUBSIDIARIES~~
~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(amounts in U.S. dollars unless otherwise stated)~~

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial information pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The unaudited condensed consolidated financial statements include the accounts of the Company and include the assets, liabilities, revenues and expenses of the subsidiaries and VIE. In the opinion of management, all adjustments (including normal recurring accruals) considered necessary for a fair presentation of financial position, results of operations and cash flows at the dates and for the periods presented have been included. Interim results are not necessarily indicative of results to be expected for the full year. The information included in this report should be read in conjunction with the information included in the Company’s annual report for the year ended December 31, ~~2019.~~2020.

Principles of Consolidation

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

VIE Agreements with Beijing ~~Hongtao~~Hanze

The Company does not have a direct equity ownership interest in Beijing ~~Luji~~Yingjun but relies on the VIE Agreements to control and receive the economic benefits of Beijing ~~Luji’s~~Yingjun’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,~~Hanze, 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~~Yingjun and its subsidiary are variable interest entities of the Company and Beijing ~~Hongtao~~Hanze is the primary beneficiary of Beijing ~~Luji~~Yingjun and its subsidiary. As such, the financial statements of the VIE and its subsidiary are included in the unaudited condensed consolidated financial statements of the Company.

Use of Estimates

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

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

1112

~~HANJIAO GROUP, INC. AND SUBSIDIARIES~~
~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(amounts in U.S. dollars unless otherwise stated)~~

Fair Value of Financial Instruments

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

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

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

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

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

Cash and Cash Equivalents

Cash and cash equivalents consist of cash on hand, cash on deposit and other highly liquid investments which are unrestricted as to withdrawal or use, and which have original maturities of three months or less when purchased. The Company maintains cash with various financial institutions ~~mainly~~ in the PRC. As of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the Company had cash and cash equivalents of approximately ~~$4.0~~$914,000 and $2.7 million, and $28.9 million, respectively. The Company’s cash equivalents included approximately $0 and $11.6 million (RMB 80 million) of the bank’s financial products as of September 30, 2020 and December 31, 2019, respectively.

Restricted Cash
Restricted cash represented cash reserved for a legal matter (see Note 16).
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.

1213

~~HANJIAO GROUP, INC. AND SUBSIDIARIES~~
~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(amounts in U.S. dollars unless otherwise stated)~~

The outbreak of COVID-19 that started in late January 2020 in the PRC had negatively affected ~~our~~the Company’s business. In March 2020, the World Health Organization declared COVID-19 as a pandemic and has resulted in quarantines, travel restrictions, and the temporary closure of stores and business facilities in China and the U.S. in the subsequent months. Given the rapidly expanding nature of the COVID-19 pandemic, and because substantially all of the Company’s business operations and its workforce are concentrated in China, the Company’s business, results of operations, and financial condition ~~for the nine months ended~~through September 30, ~~2020~~2021 have been adversely affected. ~~Management~~There is 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 ~~COVID-19 will have a material impact on its financial results for~~ the Company’s revenues and operating cash flows may be lower than expected in year ~~2020 and could cause the potential impairment of certain assets.~~2021. To mitigate the overall financial impact of COVID-19 on the Company’s business, management ~~has worked~~continues to explore opportunities to reduce its operating overhead and works closely with its service centers to ~~enhance their marketing and promotion~~develop promotional activities ~~during the third quarter of 2020~~ that ~~were designed to~~will hopefully generate additional sales in the ~~third and~~ fourth ~~quarters of 2020. While management cannot accurately predict the full impact of COVID-19 on the Company’s business, management believes that its business will turnaround in the last~~ quarter of 2020 as the market situation recovers. The Company believes that the market recovery can reduce its operating loss, but will not be enough to completely eliminate the negative impact of the COVID-19 for the full year of 2020.2021.

~~Inventor~~Inventories, Net~~ies~~

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, Net

~~Advances~~Advance to suppliers ~~consist~~consists of payments to suppliers for finished goods that have not been ~~received by~~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 VIE equity investment for strategic or business development purposes. The Company applies the equity method of accounting ~~to account~~ for anits equity investment, according to FASB ASC 323 “Investment—Equity Method and Joint Ventures,” over which it has significant influence but does not own a majority equity interest or otherwise control. Under the equity method, the Company’s share of the profits or losses of the equity investees are recorded in its consolidated statements of comprehensive income (loss).

The Company reviews its investment at least annually to determine whether a decline in fair value to below the carrying value is other-than-temporary. The primary factors the Company considers in its determination are the duration and severity of the decline in fair value; the financial condition, operating performance and the prospects of the equity investee; and other company specific information such as recent financing ~~rounds.~~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 ~~other-than-temporary decline~~impairment in fair value for the nine months ended September 30, ~~2020.~~2021.

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.

1314

~~HANJIAO GROUP, INC. AND SUBSIDIARIES~~
~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(amounts in U.S. dollars unless otherwise stated)~~

Estimated useful lives are as follows, taking into account the assets’ estimated residual value:
~~Classification~~Schedule of property and equipment estimated useful lives
Classification Estimated useful lives
~~Vehicles~~Property 1020 years
~~Office equipment~~Vehicles 310 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 its long-term investment. For the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, the Company did ~~not~~0t 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~~In accordance with FASB ASC 606, Revenue from Contracts with Customers, using the modified retrospective method for all contracts not completed as of the date of adoption. Accordingly, revenues for the three and nine months ended September 30, 2020 and 2019 are presented under ASC 606.
14
~~HANJIAO GROUP, INC. AND SUBSIDIARIES~~
~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(amounts in U.S. dollars unless otherwise stated)~~
~~The core principle underlying the revenue recognition standard is that~~ the Company ~~will recognize~~recognizes 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,~~Yingjun, the Company’s VIE, is primarily engaged in the sale of healthcare and other products (such as nutrition or dietary supplements; water orand air purifiers and smart watches) to the middle aged and elderly market segments in the PRC. Beijing ~~Luji~~Yingjun 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.
15

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 slow-moving items and ~~write-down~~write off of expired or unsaleable inventories. Included in cost of revenues for the three months ended September 30, 2021 and 2020, are write-off of expired inventories and provision for slow-moving ~~inventories.~~inventory of $66,078 and $263,354, respectively. Included in cost of revenues for the nine months ended September 30, 2021 and 2020, are write-off of expired inventories and provision for slow-moving inventory of $129,597 and $431,502, respectively.

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), Net

Finance expenses consist mainly of service fees related to the use of third-party online payment platforms, bank fees and interest expenses related to borrowings; net of interest income from bank and related bank products.

15
~~HANJIAO GROUP, INC. AND SUBSIDIARIES~~
~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(amounts in U.S. dollars unless otherwise stated)~~
Other Income (Expenses), Net

Other income consists primarily of income from the administration of Beijing ~~Luji’s~~Yingjun’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 net 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 no0 longer meet the more-likely-than-not threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met. The Company believes that it does not have any uncertain tax positions. It is not expected that there will be any uncertain tax position within ~~nine~~twelve months of September 30, ~~2020.~~2021.
16

The application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. Tax laws and regulations themselves are subject to change as a result of changes in fiscal policy, changes in legislation, the evolution of regulations and court rulings. Therefore, the actual liability may be materially different from our estimates, which could result in the need to record additional tax liabilities or potentially reverse previously recorded tax liabilities or the deferred tax asset valuation allowance. Due to the lack of temporary differences between the tax bases and their financial reporting amounts, the Company has not recognized any deferred tax assets or liabilities as of September 30, 2020 and December 31, 2019.

Enterprise Income Tax

Under the Provisional Regulations of the PRC concerning income tax on enterprises promulgated by the PRC (the “EIT Law”), the Company was qualified as a high and new technology enterprise starting in 2018, and enjoys a preferential tax rate of 15% for 3 years ~~expiring~~that expired in 2020. An entity can re-apply to be a high and new technology enterprise when the prior certificate expires. ~~Income~~The Company has applied to qualify for the same preferential tax ~~is payable at a~~ rate ~~of 15% of our taxable income for nine months ended September 30, 2020~~in 2021; and ~~2019.~~
16
~~HANJIAO GROUP, INC. AND SUBSIDIARIES~~
~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(amounts~~management expects to obtain the qualification in ~~U.S. dollars unless otherwise stated)~~
December 2021.

Value-Added Tax

~~Prior to May 1, 2018, the Company was subject to value-added tax (“VAT”) at rates of 6% and 17% on revenue generated from providing services and products, respectively.~~ Starting from May 1, 2018, the VAT rate for revenue generated from providing products was ~~changed from 17% to~~ 16%. Starting from April 1, 2019, the VAT rate for revenue generated from providing products ~~changed from 16%~~was reduced to ~~13%~~13%. VAT is reported as a reduction of revenue when incurred. Entities that are VAT general taxpayers are allowed to offset qualified input VAT paid to suppliers against their output VAT liabilities. The net VAT balance between input VAT and output VAT is recorded in taxes payable.
Foreign Currency Translation

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

All of the Company’s revenue transactions are transacted in its functional currency. The Company does not enter into any material ~~transaction~~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 September 30, ~~2020~~2021 and December 31, ~~2019~~2020 and for the nine months ended September 30, ~~2020~~2021 and ~~2019~~2020 are as follows:
Foreign currency translation rates
September 30, December 31, Nine months ended
September 30,
2021 2020 2021 2020
Foreign currency Balance Sheet Balance Sheet Profits/Loss Profits/Loss
RMB:1USD 6.4854 6.5249 6.4714 6.9917

September 30, December 31, Nine months ended
September 30,
2020 2019 2020 2019
Foreign currency Balance Sheet Balance Sheet Profits/Loss Profits/Loss
RMB:1USD 6.8101 6.9762 6.9917 6.8529

17
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.

17
~~HANJIAO GROUP, INC. AND SUBSIDIARIES~~
~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(amounts in U.S. dollars unless otherwise stated)~~
Earnings ~~(loss)~~(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~~0t included since their inclusion would be anti-dilutive. For the ~~three and~~ nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, there were no potential ordinary shares, such as options, warrants or conversion rights, that would have a dilutive effect on the Company’s earnings (loss) per share.

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

In July 2017, the FASB Issued ASU 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815). The amendments in Part I of the Update change the reclassification analysis of certain equity-lined financial instruments (or embedded features) with down round features. The amendments in Part II of this Update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception. For public business entities, the amendments in Part I of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other entities, the amendments in Part I of this Update are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted for all entities, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments in Part II of this Update do not require any transition guidance because those amendments do not have an accounting effect. The adoption of this ASU did not have a material effect on the unaudited condensed consolidated financial statements.
~~The Company believes that other recent accounting pronouncement will not have a material effect on the Company’s consolidated financial position, results of operations and cash flows.~~
18
~~HANJIAO GROUP, INC.~~NOTE 4 – CASH, CASH EQUIVALENTS AND ~~SUBSIDIARIES~~RESTRICTED CASH
~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(amounts in U.S. dollars unless otherwise stated)~~
Schedule of cash, cash equivalents and restricted cash
September 30, December 31,
2021 2020
(Unaudited)
Cash and cash equivalents:
Cash on hand $ 7,942 $ 2,643
Cash equivalents: 　　
Bank time deposits (maturing within 3 months) 835,115 2,573,383
Other cash equivalents 71,125 74,839
Total cash equivalents 906,240 2,648,222
Total cash and cash equivalents 914,182 2,650,865
Restricted cash (see Note 16) 0 606,140
Total cash, cash equivalents and restricted cash $ 914,182 $ 3,257,005

NOTE 45 – INVENTORIES, NET
Schedule of inventories
September 30, December 31, September 30, December 31,
2020 2019 2021 2020
(Unaudited) (Unaudited)
Finished goods $ 2,973,077 $ 1,880,155 $ 1,734,083 $ 3,105,625
Less: allowance for slow-moving inventories (728,819 ) (279,004 ) (701,150 ) (1,655,882 )
Inventories, net $ 2,244,258 $ 1,601,151 $ 1,032,933 $ 1,449,743

The Company reviews its inventories periodically to determine if any reserves are necessary for slow-moving inventory or if a write-down is necessary when the carrying value exceeds net realizable value. For nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, provision for slow-moving inventory amounted to ~~approximately $450,000~~ $68,000 and ~~$0,~~$450,000, respectively. For the three months ended September 30, ~~2020~~2021 and ~~2019,~~2020, provision for slow-moving inventory amounted to ~~approximately $263,000~~$25,500 and ~~$0,~~$263,000, respectively.
~~NOTE 5 – ADVANCE TO SUPPLIERS~~
As of September 30, 2020 and December 31, 2019, advances to suppliers were $6,418,332 and $266,237, respectively. The increase was due mainly to an advance of approximately $5,650,000 during the fourth quarter of 2020 to Baoqing Meilai Modern Agricultural Service Co., Ltd. for the purchase of specialty rice with selenium. The Company has delayed its plan to take delivery of the specialty rice from its supplier due to the negative impact of COVID-19 on its sales process. Management of the Company plans to take delivery of the specialty rice, in stages, starting in the fourth quarter of 2020 or first quarter of 2021 to coincide with the related sales activities.
~~NOTE 6 – PREPAYMENTS AND OTHER CURRENT ASSETS~~
September 30, December 31,
2020 2019
(Unaudited)
Business advance to employees $ 38,179 $ 94,034
Prepaid service fees 304,026 91,146
Other receivable 6,223 11,092
Total Prepaid Expenses and Other Current Assets $ 348,428 $ 196,272
~~NOTE 7 – LONG-TERM INVESTMENT~~
On March 15, 2019, Beijing Luji executed an Equity Acquisition Agreement with Rongcheng Health Group Co., Ltd. and acquired a 44% equity interest in Rongcheng Tianrun Taxus Co., Ltd. (“Rongcheng Tianrun”) for RMB 79,830,000 (approximately $11.4 million). Rongcheng Tianrun is organized and registered in the PRC, and it is engaged primarily in the cultivation and marketing of Taxus, a type of medicinal plant. The ownership transfer and related registration procedures were completed on September 20, 2019. Due to COVID-19, Rongcheng Tianrun management was unable to furnish the Company with its 2020 unaudited interim financials until Q3 2020. As a result, the Company recognized income from equity investment of approximately $84,000 for the three and nine months ended September 30, 2020.

1918
NOTE 6 – ADVANCE TO SUPPLIERS, NET
Advance to Suppliers
September 30, December 31,
Supplier For the purchase of 2021 2020
(Unaudited)
Baoqing Meilai Modern Agricultural Service Co., Ltd. (1) Selenium enriched rice $ 6,052,962 $ 6,058,140
Shandong Kangqi Muye Industry Co., Ltd. Specialty wooden phonographs 70,158 199,237
Chongqing Zhouhai Intelligent Technology Co., Ltd. Smart watches 95,538 94,960
Wuyishan Zuoyun Ecological Tea Co., Ltd. Tea – 87,020
Others Various products 5,058 15,722
Less: allowance for doubtful accounts (2,366 ) (87,020 )
Advance to Suppliers, net $ 6,221,350 $ 6,368,059
(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 million). The Company prepaid the purchase in full in 2020. Due to the negative impact of COVID-19, the Company and Baoqing Meilai extended the purchase agreement to January 17, 2022.

~~HANJIAO GROUP, INC.~~NOTE 7 – PREPAYMENTS AND ~~SUBSIDIARIES~~OTHER CURRENT ASSETS, NET
~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(amounts in U.S. dollars unless otherwise stated)~~
Schedule of prepaid expenses
September 30, December 31,
2021 2020
(Unaudited)
Business advance to employees $ 170,012 $ 154,515
Prepaid expenses 103,352 235,667
Others 11,865 7,072
Less: allowance for doubtful accounts (31,085 ) (36,169 )
Total Prepaid Expenses and Other Current Assets $ 254,144 $ 361,085

NOTE 8 – PROPERTY AND EQUIPMENT, NET

At September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, property and equipment is as follows:
Schedule of property and equipment
September 30, December 31,
2021 2020
(Unaudited)
Property $ 1,709,947 $ 1,699,595
Office furniture 97,885 98,876
Computer equipment 102,993 97,293
Vehicles 234,432 233,012
Software (1) 523,329 328,587
2,668,586 2,457,363
Less: accumulated depreciation and amortization (777,632 ) (537,547 )
Property and equipment, net $ 1,890,954 $ 1,919,816

September 30, December 31,
2020 2019
(Unaudited)
Office furniture $ 93,218 $ 90,998
Computer equipment 91,965 82,874
Vehicles 223,254 217,938
Software 314,826 307,331
723,263 699,141
Less: accumulated depreciation and amortization (504,247 ) (435,501 )
Property and equipment, net $ 219,016 $ 263,640
(1) Software mainly includes financial and management systems purchased by the Company and WeChat mini program developed by the Company.

For nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, depreciation and amortization expense amounted to ~~$56,614~~$237,321 and ~~$121,461,~~$154,729, respectively. For three months ended September 30, ~~2020~~2021 and ~~2019,~~2020, depreciation and amortization expense amounted to ~~$6,664~~ $60,855and ~~$40,178,~~$104,779, respectively.
19

NOTE 9 – DEPOSITS AND OTHER ASSETS, NON-CURRENT
September 30, December 31,
2020 2019
(Unaudited)
Deposit for office space purchase $ 1,774,975 $ –
Other deposits 166,116 46,487
Total $ 1,941,091 $ 46,487
On April 25, 2020, the Company signed a contract with Beijing Greentown China Real Estate Development Co., Ltd to purchase a commercial office in Beijing valued at approximately $1.8 million (RMB 12,087,760). The Company has paid for the office purchase in full. Based on management’s best estimate, the commercial office is expected to be delivered to the Company in the first half of 2021.
20
~~HANJIAO GROUP, INC. AND SUBSIDIARIES~~
~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(amounts in U.S. dollars unless otherwise stated)~~
Schedule of other assets
September 30, December 31,
2021 2020
(Unaudited)
Office rental deposit $ 36,306 $ 36,087
Other deposits 67,732 56,653
Total $ 104,038 $ 92,740

NOTE 10 – RELATED PARTY BALANCES AND TRANSACTIONS

As of September 30, ~~2020~~2021 and December 31, ~~2019, due from related parties is as follows:~~
September 30, December 31,
2020 2019
(Unaudited)
Zhuang Richun (1) $ – $ 112,218
Li Chunduo (2) 17,621 –
Total $ 17,621 $ 112,218
~~(1)~~ This represents a loan receivable from Mr. Zhuang Richun, marketing director of the Company. The loan agreement was executed on February 28, 2019; and was non-interest bearing and repaid in August 2020.
~~(2)~~
~~This represents a receivable from Ms. Li Chunduo, a shareholder of the Company, related to payment of certain expenses on her behalf. The loan is expected to be paid before December 31, 2020.~~
~~As of September 30,~~ 2020, ~~and December 31, 2019,~~ due to related parties is as follows:
September 30, December 31,
2020 2019
(Unaudited)
Niu Jianxin (4) $ – $ 566,928
Zhuang Rihong (5) 220,261 215,017
Tian Xiangdong (6) – 137,611
Beijing Chunduo Technology Co., Ltd. (7) – 43,002
Tian Xiangyang (3) 20,157 34,904
Gao Xue Wei (8) – 15,934
Gao Xueran (9) – 121,063
Total $ 240,418 $ 1,134,459
Schedule of due to related parties
September 30, December 31,
2021 2020
(Unaudited)
Tian Xiangyang (1) $ 36,894 $ 21,038
Total $ 36,894 $ 21,038

(1) ~~(3)~~ ~~This represents a loan from Ms.~~Amounts due to Tian Xiangyang ~~the Company’s founder~~at September 30, 2021 includes (a) $15,432 of business expenses that have not been reimbursed; and ~~chairwoman,~~(b) an interest free loan of approximately $21,000 to the Company for working capital ~~purposes. The~~purposes; the loan is due on ~~demand with no interest.~~demand.

During 2018, the Company provided Ms. Tian with a business advance of approximately $11.5 million that was intended to facilitate Ms. Tian’s negotiation with Rongcheng Health Group Co., Ltd. for a strategic investment in Rongcheng Tianrun (see Note 7). The investment in Rongcheng Tianrun was ultimately made by the Company and Ms. Tian repaid approximately $10.4 million to the Company in May 2019. The remaining balance of approximately $1.2 million was offset against a dividend payable due to her.
21
~~HANJIAO GROUP, INC. AND SUBSIDIARIES~~
~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(amounts in U.S. dollars unless otherwise stated)~~
~~(4)~~ This represents a non-interest bearing loan from Mr. Niu Jianxin to the Company which was paid directly to Ms. Tian Xiangyang to settle the Company’s dividends payable to Ms. Tian in 2019. Mr Niu was a former member of senior management of the Company who resigned in February 2020. On March 15, 2020, Mr. Niu executed an agreement with Mr. Zhang Hongbin, an unrelated third-party, to transfer this loan receivable of RMB 3,955,000 to Mr. Zhang. The payable to Mr. Niu has been classified as an other payable as of September 30, 2020 (see Note 14). On April 9, 2020, Mr. Zhang filed a lawsuit against the Company (see Note 19).
~~(5)~~ ~~Ms. Zhuang Rihong is the sister of Mr. Zhuang Richun. The loan was for working capital purposes and it is due on demand with no interest.~~
~~(6)~~ ~~Mr. Tian Xiangdong is the brother of Ms. Tian Xiangyang. The loan was for working capital purposes and it is due on demand with no interest. The loan was repaid in full in January 2020.~~
~~(7)~~
Beijing Chunduo Technology Co., Ltd. (“Beijing Chunduo”) is controlled by Ms. Li Chunduo, a shareholder of the Company. The loan was for working capital purposes and is due on demand. The loan is due on demand with no interest. It was repaid in full in January 2020.
~~(8)~~ ~~Mr. Gao Xuewei is a shareholder of the Company. The loan was for working capital purposes and is due on demand with no interest. The loan was repaid in full in January 2020.~~
~~(9)~~ Mr. Gao Xueran is a former shareholder of the Company. While he was a shareholder of the Company in 2019, he extended a loan to the Company for working capital purposes. The loan was non-interest bearing. As Mr. Gao xueran was not shareholder of the Company in 2020, the Company did not recognize the related party loan as of September 30, 2020.
NOTE 11 – TAXES PAYABLE

At September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, taxes payable is as follows:
Schedule of taxes payable
September 30, December 31, September 30, December 31,
2020 2019 2021 2020
(Unaudited) (Unaudited)
VAT payable $ 16,580,443 $ 16,431,683 $ 17,244,297 $ 17,057,766
Income tax payable 999,969 1,153,677
Income taxes payable 645,585 941,571
Other taxes payable 2,017,391 2,062,142 2,184,276 2,159,213
Total $ 19,597,803 $ 19,647,502 $ 20,074,158 $ 20,158,550

Under PRC tax rules that are in effect, Beijing ~~Luji,~~Yingjun, the Company’s VIE, is subject to penalties for any unpaid VAT and income taxes. The Company has accrued and recorded the related estimated penalties for unpaid VAT and income taxes as of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively in other current liabilities (see Note ~~14)~~13).
22
~~HANJIAO GROUP, INC. AND SUBSIDIARIES~~
~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(amounts in U.S. dollars unless otherwise stated)~~

Other taxes payable ~~consisted~~consists mainly of tax obligations related to the city construction tax, education fund and withholding taxes related to dividends previously distributed to the Company’s shareholders.

~~NOTE 12 – ACCRUED EXPENSES~~

~~At September 30, 2020 and December 31, 2019, accrued expenses consisted of the following:~~
20

September 30, December 31,
2020 2019
(Unaudited)
Incentive awards $ 32,687 $ 4,823,543

~~Incentive awards represents performance-based incentives payable to qualified service centers.~~

NOTE 1312 – 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 on July 1, 2020, 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.
23
~~HANJIAO GROUP, INC. AND SUBSIDIARIES~~
~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(amounts in U.S. dollars unless otherwise stated)~~
The maturity schedule of the Company’s lease liabilities is as follows:
Amount
Schedule of lease maturity
Twelve months ending September 30, Amount
2021 $ 237,255
2022 191,197 $ 39,470
Total lease payments 428,452 39,470
Less: imputed interest (16,032 ) 418
Less: amount prepaid (22,781 ) –
Present value of lease liabilities $ 389,638 $ 39,052

Total lease expenses for the three and nine months ended September 30, ~~2020~~2021, were approximately ~~$43,000~~$61,000 and ~~$155,000.~~$184,000, respectively.

NOTE 1413 – OTHER PAYABLES AND OTHER CURRENT LIABILITIES

At September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, other payables and other current liabilities are as follows:
Schedule of other payables
September 30, December 31, September 30, December 31,
2020 2019 2021 2020
(Unaudited) (Unaudited)
Payroll and benefits (1) $ 1,498,624 $ 1,389,090 $ 1,820,964 $ 1,589,600
Payable to suppliers 819,041 1,846,105 89,022 26,643
Commissions payable – 275,748 630,038 1,142,080
Payable to Niu Jianxin (2) 586,629 – 609,831 606,140
Interest and penalties (3) 5,772,935 3,354,544 9,477,331 7,019,374
Other current liabilities 263,244 21,596 809,879 500,750
Total $ 8,940,473 $ 6,887,083 $ 13,437,065 $ 10,884,587

(1) Payroll and benefits payable represents ~~mainly~~fringe benefits and last month salaries ~~and bonus~~ payable to the Company’s employees.

(2) This represents a ~~non-interest bearing~~reserve related to the legal matter associated with the loan from Mr. Niu Jianxin to the Company in 2019, which amount was expected to be paid directly to Ms. Tian Xiangyang to settle the Company’s dividends payable to Ms. ~~Tian in 2019 (see~~Tian. See Note ~~10).~~16.

(3) Interest and penalties ~~represents~~represent estimated interest and penalties related to unpaid VAT and income taxes related to Beijing ~~Luji,~~Yingjun, which is calculated at 0.05% per day from the day tax payment is due under applicable PRC laws and regulations. For the nine months ended September 30, ~~2020,~~2021, the Company recorded an estimated penalty of approximately ~~$2,272,000~~$2,316,000 and ~~$97,000~~ $99,000 for unpaid VAT and income taxes, respectively. For three months ended September 30, ~~2020,~~2021, the Company recorded an estimated penalty of approximately ~~$837,000~~$768,000 and ~~$55,000~~$29,000 for unpaid VAT and income taxes, respectively.
~~NOTE 15 – DIVIDENDS PAYABLE~~
~~In accordance with a board resolution dated January 21, 2020, the Company declared dividends of approximately $723,000 (RMB 5,080,900), which amount was distributed in the first quarter of 2020.~~

2421

~~HANJIAO GROUP, INC. AND SUBSIDIARIES~~
~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(amounts in U.S. dollars unless otherwise stated)~~

NOTE 1614 – STATUTORY RESERVES

Pursuant to the laws in the PRC, entities must make appropriations from after-tax profit to a non-distributable “statutory surplus reserve fund.” Subject to certain cumulative limits, the statutory surplus reserve fund requires annual appropriations of 10% of after-tax profit (as determined under accounting principles generally accepted in the PRC) until the aggregated appropriations reach 50% of the registered capital.

As of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the balance of the statutory reserve was ~~$1,687,125.~~$1,687,125.

NOTE 1715 – 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~~is incorporated in Hong Kong and does not conduct any substantial operations of its own. No provision for Hong Kong profits tax has been made in the unaudited condensed consolidated financial statements as Inooka Holding ~~Ltd~~Ltd. has no ~~assessable~~ profits or operations for the nine months ended September 30, ~~2020~~2021 and ~~2019.~~2020.

United States

~~The Company was~~HJPG is incorporated under the laws of the State of Nevada in the United States. It ~~had~~has no taxable income for the U.S. income tax purposes for the ~~three and~~ nine months ended September 30, ~~2020~~2021 and ~~2019.~~2020. Nevada does not have a state income tax. The applicable federal tax rate is 21.0%.

PRC

The entities incorporated in the PRC are governed by the income tax law of the PRC and are ~~subjected~~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~~Yingjun qualified as a high and new technology enterprise starting in 2018, ~~and enjoys~~had a preferential tax rate of 15% for 3 years ~~expiring~~which expired in 2020. Beijing ~~Luji~~Yingjun can re-apply as a high and new technology enterprise when the prior certificate expires. The Company has applied to qualify for the same preferential tax rate in 2021; and management expects to obtain the qualification in December 2021. Income tax is payable at a rate of 15% of PRC taxable income for the nine months ended September 30, ~~2020~~2021 and ~~2019.~~2020.
Net (loss) income provision by operation segments
For the Nine Months Ended
September 30,
2021 2020
(Unaudited) (Unaudited)
Non-PRC operations $ (137,416 ) $ 0
PRC operations (5,188,063 ) (11,407,004 )
Net loss before provision for income taxes $ (5,325,479 ) $ (11,407,004 )

2522

~~HANJIAO GROUP, INC. AND SUBSIDIARIES~~
~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(amounts in U.S. dollars unless otherwise stated)~~
For the nine months ended
September 30
2020 2019
(Unaudited) (Unaudited)
Non-PRC operations $ – $ –
PRC operations (11,407,004 ) 9,600,681
Net (loss) income before provision for income taxes $ (11,407,004 ) $ 9,600,681
~~Provision for income taxes comprised of the followings:~~
For the nine months ended
September 30
2020 2019
(Unaudited) (Unaudited)
Current tax expense
PRC $ – $ 1,797,331
Deferred tax expense
PRC – –
Total provision for income taxes $ – $ 1,797,331

The Company’s deferred tax assets are comprised of the following:
Schedule of deferred tax assets
September 30, December 31,
2021 2020
(Unaudited)
Deferred tax assets $ 2,349,681 $ 1,808,840
Valuation allowance (2,349,681 ) (1,808,840 )
Deferred tax assets, net - long-term $ 0 $ 0

September 30, December 31,
2020 2019
(Unaudited)
Net operating loss
PRC $ 1,763,891 $ –
Total deferred tax assets 1,763,891 –
Valuation allowance (1,763,891 ) –
Deferred tax assets, net - long-term $ – $ –
Reconciliation of effective tax rate
For the Nine Months Ended
September 30,
2021 2020
PRC statutory tax rate 25.0% 25.0%
Permanent differences (19.0% ) (17.2% )
Tax holiday effect (6.0% ) (7.8% )
Effective tax rate 0 0
Below is a breakdown of key components that make up the permanent differences:
Reconciliation of permanent differences
For the Nine Months Ended
September 30,
2021 2020
Penalties related to unpaid VAT and income taxes (7.6% ) (3.3% )
Non-deductible expenses/donations (1.0% ) (0.2% )
Change in valuation allowance (10.2% ) (11.9% )
Others (0.2% ) (1.8% )
Total (19.0% ) (17.2% )

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 the net deferred tax assets depends on its ability to generate sufficient taxable income within the carry forward years provided for in the tax law.

The Company’s ~~VIE in the PRC had~~ total net operating loss carry forwards of approximately ~~$11.4~~$20.3 million and ~~the~~ deferred tax assets was approximately ~~$1.8~~$2.3 million as of September 30, ~~2020,~~2021, 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 September 30, ~~2020,~~2021, the Company ~~fully~~ recognized a 100% valuation ~~allowance of deferred tax assets.~~allowance.
26
~~HANJIAO GROUP, INC. AND SUBSIDIARIES~~
~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(amounts in U.S. dollars unless otherwise stated)~~
~~NOTE 18 – VARIABLE INTEREST ENTITY~~
On May 15, 2019, Beijing Hongtao entered into VIE Agreements with Beijing Luji and its shareholders. The accounts of Beijing Luji and its subsidiary are consolidated in the accompanying unaudited condensed consolidated financial statements pursuant to ASC 810-10, Consolidation.
~~The carrying amounts of the VIEs’ consolidated assets and liabilities are as follows:~~
September 30, December 31,
2020 2019
(Unaudited)
Current assets $ 10,927,443 $ 31,095,595
Property and equipment, net 219,016 263,640
Other noncurrent assets 13,689,168 11,458,928
Total assets 24,835,627 42,818,163
Total liabilities (26,289,075 ) (32,354,228 )
Net assets $ (1,453,448 ) $ 10,463,935
September 30, December 31,
2020 2019
(Unaudited)
Current liabilities:
Other payables and accrued liabilities $ 6,450,867 $ 11,693,330
Other payables – related parties 240,418 1,013,396
Taxes payable 19,597,790 19,647,502
Total liabilities $ 26,289,075 $ 32,354,228
~~The summarized operating results of the VIEs are as follows:~~
For the Nine Months Ended September 30,
2020 2019
(Unaudited) (Unaudited)
Operating revenues $ 210,172 $ 59,089,885
Loss from operations $ (7,821,446 ) $ (9,614,315 )
Net loss $ (11,148,559 ) $ 7,816,984
27
~~HANJIAO GROUP, INC. AND SUBSIDIARIES~~
~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(amounts in U.S. dollars unless otherwise stated)~~

NOTE 1916 – COMMITMENTS AND CONTINGENCIES

Contingencies
From time to time, the Company may be subject to certain legal proceedings, claims and disputes that arise in the ordinary course of business. Amounts accrued, as well as the total amount of possible losses with respect to such matters, individually and in the aggregate, are not deemed to be material to the unaudited condensed consolidated financial statements.
23
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.

~~Lease Obligations~~
The Company leases certain office premises and apartments for employees under operating lease agreements with various terms that are less than one year in duration. Future minimum lease payments amounted to approximately $206,000 for the twelve months ending September 30, 2021.
Rent expense for nine months ended September 30, 2020 and 2019 was $$367,980 and $476,310, respectively. Rent expense for three months ended September 30, 2020 and 2019 was $197,354 and $346,160, respectively.
Legal Matters

Beijing ~~Luji,~~Yingjun, the Company’s VIE, and Mr. Niu Jianxin executed a loan arrangement in 2019 whereby Mr. Niu agreed to lend RMB 3,955,000 (approximately $610,000) to Beijing Yingjun which was expected to be paid directly to Ms. Tian Xiangyang. As of the date of this report, neither Beijing Yingjun nor Ms. Tian has received the aforementioned payment from Mr. Niu. Mr. Niu subsequently transferred this loan arrangement to Zhang Hongbin who filed a lawsuit with The People's Court of Fengtai District of Beijing and applied to preserve the litigated amount of RMB 3,955,000 in Beijing Yingjun’s bank account. In connection with this legal matter, the Company has set up a reserve in its other payables (see Note 13) and reported the RMB 3,955,000 in reserve as restricted cash (see Note 4) on its consolidated balance sheets. In May 2021, the restricted cash was unfrozen. On July 10, 2021, Beijing Fengtai Court made a judgment requiring Beijing Yingjun to repay RMB 3,700,000 to Zhang Hongbin. Beijing Yingjun did not accept the above judgment and has filed an appeal in accordance applicable laws in effect. This legal matter is ~~involved~~currently in the ~~following legal matter:~~second instance trial stage at the Beijing Second Intermediate People's Court.

· The Company has a payable to Mr. Niu Jianxin for RMB 3,955,000 (approximately $581,000). Upon Mr. Niu’s departure from Beijing Luji in February 2020, Mr. Niu had allegedly transferred his rights to Mr. Zhang Hongbin. On April 9, 2020, Mr. Zhang Hongbin filed a lawsuit with the people's Court of Fengtai District, Beijing, on the basis that Beijing Luji did not repay the amount that is due to him. The case has gone to trial but no decision has been rendered by the court as of the date of this report.
In December 2020, Shanghai Gaolie Enterprise Service Center (“Shanghai Gaolie”) filed a lawsuit against Beijing Guoyi and Beijing Yingjun for RMB 484,000 (approximately $74,000) for certain unpaid talent intermediary fees. As of November 10, 2021, Shanghai Gaolie has withdrawn this legal 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 September 30, ~~2020~~2021 and December 31, ~~2019, respectively.~~2020.
28
~~HANJIAO GROUP, INC. AND SUBSIDIARIES~~
~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(amounts in U.S. dollars unless otherwise stated)~~
NOTE 17 - CONCENTRATION OF RISK
Risk of doing business in China
The Company conducts its operations and generates its revenue through its Beijing VIE in the PRC. Accordingly, economic, political, and legal developments in the PRC will significantly affect the Company’s business, financial condition, results of operations and prospects. The PRC economy is in transition from a planned economy to a market-oriented economy subject to plans adopted by the government that set national economic development goals. Policies of the PRC government can have significant effects on economic conditions in the PRC. While the Company believes that the PRC will continue to strengthen its economic and trading relationships with foreign countries and that business development in the PRC will continue to follow market forces, there is no assurance that this will be the case. The Company’s interests may be adversely affected by changes in policies by the PRC government, including:
•   changes in laws, regulations, or their interpretation;
•   confiscatory taxation;
•   restrictions on currency conversion, imports or sources of supplies, or ability to continue as a for-profit enterprise;
•   expropriation or nationalization of private enterprises; and
•   the allocation of resources.

~~NOTE 20 – CONCENTRATION OF RISK~~
24

Concentration of credit risk

The Company places its cash with a financial institution with high-credit ratings and quality. Cash and cash equivalents as of September 30, ~~2020~~2021 was approximately ~~$4 million.~~$914,000. A depositor has up to RMB 500,000 ( USD77,096) insured by the People’s Bank of China Financial Stability Bureau (“FSD”) if the bank fails. . While management believes that the financial institution is of high credit quality, it ~~also~~ continually monitors its credit worthiness.

Foreign currency risk
The RMB is not a freely convertible currency. The State Administration for Foreign Exchange, under the authority of the People’s Bank of China, controls the conversion of RMB into foreign currencies. The value of the RMB is subject to changes in central government policies and to international economic and political developments affecting supply and demand in the China Foreign Exchange Trading System market.

Concentration of supplier risk
The Company’s utilizes various suppliers. ~~There were two suppliers that~~One supplier accounted for ~~more than 10%~~97% of total purchases, for the nine months ended September 30, ~~2020 and 2019, respectively.~~2021. One supplier that accounted for ~~62%, and the other accounted for 10%~~92% of total purchases, for the nine months ended September 30, ~~2020 and 2019, respectively.~~2020. There ~~was~~were no accounts payable balances owed to these suppliers as of September 30, ~~2020. The Company has two major suppliers that accounted for 68%~~2021 and ~~11% of total purchases in 2019.~~December 31, 2020.

Major customers

There ~~was~~were no ~~customer whose revenue accounts~~customers who accounted for more than 10% of total revenue for the nine months ended September 30, ~~2020~~2021 and ~~2019.~~2020.

NOTE 2118 – SUBSEQUENT EVENTS

The Company has analyzed its operations subsequent to September 30, ~~2020,~~2021, through the date of this report and have determined that the Company does not have any material subsequent events to disclose in these unaudited condensed consolidated financial statements.

NOTE 2219 – 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 and VIE 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”~~subsidiaries and VIE”. Certain information and footnote disclosures generally included in financial statements prepared in accordance with US GAAP are not required.

25
The ~~Parent~~ Company did not have any significant capital and other commitments, long-term obligations, or guarantees as of September 30, ~~2020~~2021 and December 31, ~~2019.~~
29
~~HANJIAO GROUP, INC. AND SUBSIDIARIES~~
~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(amounts in U.S. dollars unless otherwise stated)~~
2020.

PARENT ~~COMPANY’S UNAUDITED~~COMPANY BALANCE SHEETS

September, 30 December, 31
2020 2019
Assets
Current assets
Investment in subsidiaries $ (1,877,524 ) $ 10,321,376
Total Current Assets (1,877,524 ) 10, 321,376
Total Assets $ (1,877,524 ) $ 10, 321,376
Liabilities and Shareholders’ (Deficit) Equity
Shareholders’ Equity
Common stock: $0.0001 par value, 100,000,000 shares authorized; 97,201,030 and 97,201,030 shares issued and outstanding; respectively * $ 9,720 $ 9,720
Additional paid-in capital* 7,256,566 7,256,566
Statutory reserves 1,687,125 1,687,125
Retained earnings (10,152,404 ) 1,977,141
Accumulated other comprehensive loss (678,531 ) (609,176 )
Total Shareholders’ (Deficit) Equity (1,877,524 ) 10,321,376
　　
Total Liabilities and Shareholders’ (Deficit) Equity $ (1,877,524 ) $ 10, 321,376
Parent Company Financial Information
September 30, December 31,
2021 2020
Assets (Unaudited) (Unaudited)
Current assets
Investment in subsidiaries and VIE $ (10,684,094 ) $ (5,325,496 )
Total Current Assets (10,684,094 ) (5,325,496 )
Total Assets $ (10,684,094 ) $ (5,325,496 )
Liabilities and Shareholders’ Deficit
Shareholders’ Deficit
Common stock: $0.0001 par value; authorized 100,000,000 shares; issued and outstanding 97,201,030 shares at September 30, 2021 and December 31, 2020 $ 9,720 $ 9,720
Additional paid-in capital 7,360,741 7,360,741
Statutory reserves 1,687,125 1,687,125
Deficit (18,932,805 ) (13,607,326 )
Accumulated other comprehensive loss (808,875 ) (775,756 )
Total Shareholders’ Deficit (10,684,094 ) (5,325,496 )
　
Total Liabilities and Shareholders’ Deficit $ (10,684,094 ) $ (5,325,496 )

*        Given retroactive effect of reorganization in connection with the share exchange transaction in August 2020
PARENT ~~COMPANY’S UNAUDITED~~COMPANY STATEMENTS OF COMPREHENSIVE ~~(LOSS~~) INCOME

For the Three Months Ended
September 30,
For the Nine Months Ended
September 30,
2020 2019 2020 2019
Equity (loss) income of subsidiaries and VIEs $ (3,085,542 ) $ 2,532,892 $ (11,407,004 ) $ 7,803,350
Net (loss) income $ (3,085,542 ) $ 2,532,892 $ (11,407,004 ) $ 7,803,350
Foreign currency translation adjustments $ 23,318 $ (454,784 ) $ (69,355 ) $ (484,235 )
Comprehensive (loss) income $ (3,062,224 ) $ 2,078,108 $ (11,476,359 ) $ 7,319,115
30
~~HANJIAO GROUP, INC. AND SUBSIDIARIES~~
~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(amounts in U.S. dollars unless otherwise stated)~~

For the Three Months
Ended September 30,

For the Nine Months
Ended September 30,

2021 2020 2021 2020
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Equity loss of subsidiaries and VIE $ (1,336,775 ) $ (3,085,542 ) $ (5,325,479 ) $ (11,407,004 )
Net loss (1,336,775 ) (3,085,542 ) (5,325,479 ) (11,407,004 )
Foreign currency translation adjustments (17,027 ) 23,318 ) (33,119 ) (69,355 )
Comprehensive loss $ (1,353,802 ) $ (3,062,224 ) $ (5,358,598 ) $ (11,476,359 )

PARENT ~~COMPANY’S UNAUDITED~~COMPANY STATEMENTS OF CASH FLOWS

For the Nine Months ended
September 30,

For the nine months ended
September 30,
2021 2020
2020 2019 (Unaudited) (Unaudited)
Cash flows from operating activities
Net (loss) income $ (11,407,004 ) $ 7,803,350
Adjustments to reconcile net (loss) income to cash used in operating activities:
Equity loss (income) of subsidiaries and VIEs 11,407,004 (7,803,350 )
Net loss $ (5,325,479 ) $ (11,407,004 )
Adjustments to reconcile net loss to cash provided by used in operating activities:
Equity loss of subsidiaries and VIE 5,325,479 11,407,004
Net cash used in operating activities – – 0 0

Changes in cash and cash equivalents – – 0 0
Cash and cash equivalents at beginning of year – – 0 0
Cash and cash equivalents at end of year $ – $ – $ 0 $ 0

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our Company’s financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes included elsewhere in the report. This discussion contains forward-looking statements that involve risks and uncertainties. Actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of various factors. See “Cautionary Note Concerning Forward-Looking Statements” on page 2.
The description of our business included in this quarterly report is summary in nature and only includes material developments that have occurred since the latest full description. The full discussion of the history and general development of our business is included in “Item 1. Description of Business” section of the Company’s Annual Report on Form 10-K filed with the SEC on March 31, 2021, which section is incorporated by reference.
Unless otherwise noted, all currency figures quoted as “U.S. dollars”, “dollars” or “US$” refer to the legal currency of the United States. References to “Chinese Yuan” or “Renminbi (“RMB”)” are to the Chinese Yuan, the legal currency of the People’s Republic of China (“PRC” or “China”). Throughout this report, assets and liabilities of the Company’s subsidiaries are translated into U.S. dollars using the exchange rate on the balance sheet date. Revenue and expenses are translated at average rates prevailing during the period. The gains and losses resulting from translation of financial statements of foreign subsidiaries are recorded as a separate component of accumulated other comprehensive income within the statement of stockholders’ equity.
Hanjiao Group, Inc. (“HJGP”) is a holding company that, through its subsidiaries and variable interest entity (collectively, the “Company” or “we”) is engaged in the business of selling healthcare and other related products to the middle-aged and elderly market segments in the PRC through our online to offline (O2O) platform. Our O2O platform integrates our e-commerce platform with physical outlets to connect consumers and merchants in a dynamic marketplace. Our platform not only offers users the convenience of making online purchases, but also provides users the possibility to purchase and receive products at offline service centers. Currently, our core product categories include nutritional supplements, cosmetics, smart home products (such as smart watches) and home appliances (such as water filters and air purifiers). We have developed several branch offices with outlets across the PRC with approximately 160,000 users.
We conduct business primarily through our variable interest entity, Beijing Yingjun Technology Co., Ltd. (formerly known as Beijing Luji Technology Co., Ltd.) (“Beijing VIE”) that was formed in Beijing, China on March 27, 2007. HJPG does not have a direct equity ownership interest in Beijing VIE but relies on a series of contractual arrangements, or variable interest entity (VIE) agreements (“VIE Agreements”), through Beijing Hanze Management Consulting Co. Ltd. (formerly known as Beijing Hongtao Management Consulting Co., Ltd.) (“Beijing Hanze”), to control and receive substantially all of the economic risks and benefits of Beijing VIE’s business in the PRC in which foreign investment is restricted or prohibited. The VIE agreements are designed to mimic direct ownership of Beijing VIE and allow the financial conditions and results of operations of Beijing VIE to be consolidated with the financial statements of HJPG. A fuller discussion of the VIE agreements is included in the section entitled “Contractual Agreements between Beijing Hanze, Beijing VIE and Beijing VIE Shareholders.”
The VIE Agreements also provide HJGP, through its subsidiaries including Beijing Hanze, with an exclusive option to purchase all or part of the equity interests in Beijing VIE when and to the extent permitted by PRC law. HJGP’s management concluded that Beijing VIE and its subsidiaries are variable interest entities of HJPG and Beijing Hanze is the primary beneficiary of Beijing VIE and its subsidiaries. As such, the financial statements of the Beijing VIE and its subsidiaries are included in the unaudited condensed consolidated financial statements of HJGP. References to the Company’s financial condition, results of operations and the like in this report refer to the financial condition and results of operations of HJPG, its subsidiaries and Beijing VIE and its subsidiaries on a consolidated basis.
27
Our corporate organizational chart is below:

(1) HanJiao International Holding Limited. (“HJ” or “HanJiao”) was incorporated on July 5, 2018 in the British Virgin Islands.
(2) LuJi Technology International Holding Limited (“Luji Technology”) was incorporated on July 5, 2018 in the British Virgin Islands and is wholly owned by HJ.
(3) Inooka Holding Ltd. was established on July 18, 2018 in Hong Kong and is wholly owned by Luji Technology.
(4) Beijing Hanze Management Consulting Co., Ltd. (fka Beijing Hongtao Management Consulting Co., Ltd., currently “Beijing Hanze”), a Wholly Foreign-Owned Enterprise (“WFOE”), was established in the PRC on October 11, 2018 and is a wholly owned subsidiary of Inooka Holding Ltd. It currently provides consulting and technical services to Beijing Yingjun Technology Co., Ltd. (fka Beijing Luji Technology Co., Ltd., currently “Beijing VIE”).
(5) Beijing VIE was established in the PRC on March 27, 2007. It is engaged in the business of selling goods in China. Beijing Hanze controls Beijing VIE via various variable interest contractual arrangements (“VIE agreements”) to realize its economic benefits. Currently, the shareholders of Beijing VIE are Ms. Tian Xiangyang, Mr. Tian Zhihai, Mr. Liu Zexian, Ms. Gao Xuewei and Ms. Li Chunduo, together the “Beijing VIE Shareholders”.
(6) Guoyi Investment Fund Management (Beijing) Co., Ltd. (“Beijing Guoyi”) was formed on February 19, 2016, and is wholly owned by Beijing VIE. Beijing Guoyi has no business activity as of the date of this Quarterly Report.
(7) On March 15, 2019, Beijing VIE executed a Share Purchase Agreement with Rongcheng Health Group Co., Ltd. and acquired a 44% equity interest in Rongcheng Tianrun Taxus Co., Ltd. (“Rongcheng Tianrun”) for RMB 79,830,000 (approximately $12.3 million). Rongcheng Tianrun is organized and registered in the PRC, and it is engaged primarily in the cultivation and marketing of Taxus, a type of medicinal plant.
28
Contractual Agreements between Beijing Hanze, Beijing VIE and Beijing VIE Shareholders
We do not have a direct equity ownership interest in Beijing VIE but rely on a series of contractual arrangements, the VIE Agreements, to control and receive the economic benefits of Beijing VIE’s business. We rely on contractual arrangements with our variable interest entities to operate our business in the PRC and other businesses in which foreign investment is restricted or prohibited.
Beijing Hanze, Beijing VIE, and its shareholders entered into the VIE Agreements on May 15, 2019. The VIE agreements are designed to provide Beijing Hanze with the power, rights and obligations equivalent in all material respects to those it would possess as the sole equity holder of Beijing VIE, including absolute control rights and the rights to the assets, property and revenue of Beijing VIE. Each of the VIE Agreements is described in detail below.
Exclusive Consulting and Services Agreement
Pursuant to the Exclusive Consulting and Service Agreement signed on May 15, 2019, between Beijing Hanze and Beijing VIE, Beijing Hanze agrees to provide various services exclusively to Beijing VIE including development and research services for business-related software, pre-job and on-the-job training services, technology development and transfer services, public relations services, market research and consulting services, short and medium-term market development and planning services, various technical support services, consulting services related to business compliance, organization and planning services related to marketing and membership activities. For services rendered to Beijing VIE by Beijing Hanze under this agreement, Beijing Hanze is entitled to collect 100% of the net income of Beijing VIE.
The Exclusive Consulting and Services Agreement shall remain in effect for ten years from the date of signing unless it is terminated by Beijing Hanze in advance or upon the mutual agreement of both parties. Beijing VIE may terminate the agreement subject to payment of all service fees for completed services and compensation to Beijing Hanze for losses. Prior to the termination of this agreement, the parties may extend the term of this agreement in accordance with the requirements of Beijing Hanze.
The foregoing description of the Exclusive Consulting and Services Agreement is qualified in its entirety by reference to the Consulting and Services Agreement, an English translation of which is filed as Exhibit 10.1 to this Quarterly Report and incorporated herein by reference.
Business Operation Agreement
Pursuant to the Business Operation Agreement signed on May 15, 2019, by and among the Beijing VIE Shareholders, Beijing VIE and Beijing Hanze. Beijing VIE agrees not to conduct any transactions that may materially affect its assets, business, personnel, obligations, rights or company operations, without the prior written consent of Beijing Hanze. Beijing Hanze agrees to provide advice to Beijing VIE from time to time regarding the appointment and dismissal of employees, daily management and financial management systems. Beijing VIE and Beijing VIE Shareholders also agreed to appoint designees of Beijing Hanze to serve as Board of directors and on the senior management team of the Beijing VIE. In connection with this agreement, the Beijing VIE Shareholders executed a Power of Attorney at Annex 1 of the Business Operation Agreement in which the Beijing VIE shareholders shall irrevocably authorize the designated personnel of Beijing Hanze to exercise their shareholders’ rights on their behalf, including voting rights at the shareholders’ meeting in the name of the shareholders. The Beijing VIE Shareholders further agree that they will replace the person authorized in the above Power of Attorney at any time upon Beijing Hanze’s request. The Business Operation Agreement shall remain in effect for ten years from the date of signing unless earlier terminated by Beijing Hanze by delivering 30 days prior written notice or upon the mutual agreement of all parties. Beijing VIE and the Beijing VIE Shareholders do not have the right to terminate the agreement unilaterally. Upon the termination of any agreement between Beijing Hanze and Beijing VIE, Beijing Hanze shall be entitled to terminate all agreements between such parties.
The foregoing description of the Business Operation Agreement is qualified in its entirety by reference to the Business Operation Agreement, an English translation of which is filed as Exhibit 10.2 to this Quarterly Report and incorporated herein by reference.
Equity Disposal Agreement
Pursuant to the Equity Disposal Agreement signed on May 15, 2019, by and among the Beijing VIE Shareholders, Beijing VIE and Beijing Hanze, the Beijing VIE Shareholders granted to Beijing Hanze an exclusive option right to purchase all of their equity interests in Beijing VIE to secure the execution of the Equity Pledge Agreement in which the details are set out below. Under the terms of this agreement, Beijing Hanze has an exclusive right to purchase, to the extent permitted under the PRC law, at any time, all or any part of the equity interests of the Beijing VIE Shareholders in Beijing VIE or an option to transfer the equity interests in Beijing VIE to any third party designated by Beijing Hanze. The option price shall be the minimum permitted by the laws and regulations of the PRC. The Equity Disposal Agreement has a term of ten years from the date of signing, and it may be renewed at Beijing Hanze’s discretion.
The foregoing description of the Equity Disposal Agreement is qualified in its entirety by reference to the Equity Disposal Agreement, an English translation of which is filed as Exhibit 10.3 to this Quarterly Report and incorporated herein by reference.
29
Equity Pledge Agreement
Pursuant to the Equity Pledge Agreement signed on May 15, 2019, by and among the Beijing VIE Shareholders and Beijing Hanze, the Beijing VIE Shareholders pledged all of their equity interests in Beijing VIE to Beijing Hanze to guarantee the performance of Beijing VIE’s obligations under the Exclusive Consulting and Services Agreement, the Equity Disposal Agreement and the Business Operation Agreement. Under the terms of the agreement, in the event that Beijing VIE or its shareholders breach their respective contractual obligations under the Exclusive Consulting and Services Agreement, the Equity Disposal Agreement and the Business Operation Agreement, or upon occurrence of any event of default as set forth in the Equity Pledge Agreement, Beijing Hanze shall be entitled to exercise its rights under this agreement, subject to certain cure periods. The Beijing VIE Shareholders further agree not to dispose of the pledged equity interests or take any actions that would prejudice Beijing Hanze’s interest.
The Equity Pledge Agreement shall be effective until Beijing VIE and the Beijing VIE Shareholders have performed all of their obligations under the Exclusive Consulting and Services Agreement, the Equity Disposal Agreement and the Business Operations Agreement and the written approval of Beijing Hanze has been obtained.
The foregoing description of the Equity Pledge Agreement is qualified in its entirety by reference to the Equity Pledge Agreement, an English translation of which is filed as Exhibit 10.4 to this Quarterly Report and incorporated herein by reference.
Because we are not a PRC operating company but a Nevada holding company with operations conducted through our variable interest entity based in the PRC, our investors may never directly hold equity interests in our variable interest entity. This structure presents unique risks as we will be dependent upon contributions from our subsidiaries and VIE to finance our cash flow needs. Further, in light of the recent statements and regulatory actions by the PRC government, such as the promulgation of regulations prohibiting foreign ownership of Chinese companies operating in certain industries, which are constantly evolving, and anti-monopoly concerns, we may be subject to the risks of uncertainty of any future actions of the PRC government in this regard including the risk that the PRC government could disallow our holding company structure, which may result in a material change in our operations, including our ability to continue our existing holding company structure, carry on our current business, accept foreign investments, and offer or continue to offer securities to our investors. These adverse actions could value the value of our common stock to significantly decline or become worthless. We may also be subject to penalties and sanctions imposed by the PRC regulatory agencies, including the Chinese Securities Regulatory Commission, if we fail to comply with such rules and regulations, which could adversely affect the ability of the Company’s securities to continue to trade on the Over-the-Counter Bulletin Board, which may cause the value of our securities to significantly decline or become worthless.
There may be prominent risks associated with our operations being in the PRC. For example, as a U.S.-listed PRC public company, we may face heightened scrutiny, criticism and negative publicity, which could result in a material change in our operations and the value of our common stock. It could also significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless. Additionally, changes in Chinese internal regulatory mandates, such as the M&A rules, Anti-Monopoly Law, and the soon to be effective Data Security Law, may target the Company's corporate structure and impact our ability to conduct business in the PRC, accept foreign investments, or list on an U.S. or other foreign exchange.
Agency Agreement
Pursuant to the Agency Agreement signed on May 15, 2019, among the Beijing VIE Shareholders and Beijing Hanze, the Beijing VIE Shareholders granted Beijing Hanze an irrevocable license for the longest period permitted under law the right to exercise the voting rights of the Beijing VIE Shareholders in accordance with the laws of the PRC and the Articles of Association of Beijing VIE. During the term of this Agreement, none of the Beijing VIE Shareholders shall be entitled to transfer its interest in Beijing VIE to any third party other than entities or individuals designated by Beijing Hanze. This Agency Agreement shall be irrevocable and continuously valid from the date of execution of this Agency Agreement, and it can be terminated at Beijing Hanze’s discretion.
The foregoing description of the Agency Agreement is qualified in its entirety by reference to the Agency Agreement, an English translation of which is filed as Exhibit 10.5 to this Quarterly Report and incorporated herein by reference.

Impact of COVID-19 on our business and the business of Beijing VIE

The outbreak of COVID-19 that started in late January 2020 in the PRC ~~had~~has negatively affected Beijing VIE’s business and consequently, the revenues and operating results that we are able to receive through our ~~business.~~VIE agreements. In March 2020, the World Health Organization declared COVID-19 as a pandemic ~~and~~which has resulted in quarantines, travel restrictions, and the temporary closure of stores and business facilities in China and the U.S. in the subsequent months. Given the rapidly expanding nature of the COVID-19 pandemic, and because substantially all of ~~the Company’s~~Beijing VIE’s business operations and its workforce are concentrated in China, the ~~Company’s~~ business, results of operations, and financial condition for year 2020 and the ~~first half~~nine months ended September 30, 2021, of ~~2020~~Beijing VIE and, consequently, the Company have been adversely affected. ~~Management believes that COVID-19 could have~~For the nine months ended September 30, 2021, the Company had a ~~material impact on its financial results for~~net loss of approximately $5.3 million. At September 30, 2021, the ~~year 2020~~Company has a significant working capital deficiency of approximately $25.2 million, and ~~could cause~~a shareholders’ deficit of approximately $10.7 million. These conditions raise substantial doubt about the ~~potential impairment of certain assets.~~ Company’s ability to continue as a going concern.
30
To mitigate the overall financial impact of COVID-19 on the ~~Company’s~~ business of Beijing VIE and its subsidiaries, management ~~has~~introduced cost containment and staff reduction measures, revised product selection and incentive programs and worked ~~closely~~ with ~~its~~Beijing VIE’s service centers continuously to enhance their marketing and promotion activities. While we cannot predict future disruptions to Beijing VIE and the Company which may occur due to the spread of COVID-19 and its variants, management believes that COVID-19 will continue to have a material impact on the financial results of both Beijing VIE and the Company for the balance of 2021, and could cause potential impairment of certain assets. Accordingly, we expect to continue implementing cost containment measures, work closely with Beijing VIE’s service centers with offline, online and virtual marketing and promotion activities, ~~during~~as well as actively recruit key sales members and obtain product and service collaborations for the ~~third quarter~~benefit of ~~2020 that were designed to generate sales~~Beijing VIE in the ~~third~~foreseeable future. We continue to monitor the status of the pandemic and ~~fourth quarters of 2020.~~
~~Overview~~
~~Hanjiao Group, Inc., known formerly as AS Capital, Inc. (“ASIN”)~~will adjust our business strategies accordingly. Based on the most recent sales and cash flows projections for Beijing VIE and its subsidiaries, we believe that Beijing VIE and ~~variable interest entity (collectively,~~its subsidiaries could generate sufficient operating cash flows over the ~~“Company” or “we”) is engaged in the business of selling healthcare and other related products~~next 12 months to the middle-aged and elderly market segments in the PRC through its online to offline platform. We conduct business primarily through our variable interest entity (“VIE”), Beijing Luji Technology Co., Ltd. (“Beijing Luji”) that was formed in Beijing, China on March 27, 2007.
Beijing Luji operates its “Fozgo” branded online to offline (“O2O”) E-commerce marketplace. The O2O platform integrates our E-commerce platform with physical outlets to connect consumers and merchants incontinue as a dynamic marketplace. Our platform not only offers users the convenience of making online purchases, but also provides the possibility to purchase and receive products and services offline. Currently, our core product categories include sales of home appliances (such as water purifiers and air purifiers), health foods and cosmetics products. As of September 30, 2020, Beijing Luji has 178 branch offices with outlets across the PRC with approximately 159,000 users. In 2018, it was granted with hi-tech enterprise status in the PRC.going concern.
32
~~History~~
We were incorporated on June 15, 2006 under the laws of the State of Nevada as Jupiter Resources, Inc. 75,000,000 shares of stock was authorized all as common stock with a par value $0.001 and no other classes of stock were authorized. On March 25, 2009, the articles were amended to authorize an addition of 10 million preferred shares making a total of 85,000,000 shares authorized (75M common, 10M preferred). On April 30, 2009 the Company filed an amendment to change the name of the corporation to Rineon Group, Inc. On May 14, 2009, the board of directors of the Company authorized a change in the fiscal year end of the Company from May 31 to December 31.
From inception to November 1, 2018, the date of the filing of the Company’s Form 15, the Company attempted unsuccessfully to enter into business combinations with various target companies. There was no business activity between the filing of the Form 15 and prior to August 9, 2018. The Company had Exchange Act disclosure requirements from January 11, 2008 to November 10, 2010. The Company has no knowledge or records related to the assets referenced above and therefor there is some level of uncertainty in the above descriptions.
Prior Company management was unresponsive to shareholders and had refused to respond to requests to meet statutory requirements to get current with the secretary of state and the Securities and Exchange Commission’s filing requirements. Accordingly, on August 9, 2018, XTC, Inc. was appointed to serve as the custodian of the Company in a shareholder filed action with the Eighth Judicial District Court in Clark County, Nevada and was instructed to revive the company. XTC, Inc. was a shareholder of record as shown in the court documents of 500 common shares attached as Exhibit 99.1 to this Quarterly Report. XTC acquired its 500 common shares on June 14, 2018 in the open market at a price of $0.05 per share.
On September 25, 2018, the Company filed a Certificate of Designation whereby the following preferred shares were designated and the rights, privileges and designations of the Series A and C Convertible Preferred Stock were amended and restated.
· ~~The number of Series A Convertible Preferred was increased from 36,000 to 1,000,000.~~
· 3,000,000 shares of Series B Convertible Preferred Stock were created with no voting rights, and conversion rights of 1000:1, with the restriction that holders cannot convert to hold more the 4.95% of issued and outstanding common stock.
· ~~1,000,000 shares of Series C Convertible Preferred Stock were created with each Series C having 100,000 votes per share, with 1:1 conversion rights.~~
On September 25, 2018, the Company issued 964,000 shares of Series A Convertible Preferred shares to XRC, LLC at $0.001 per share and 1,000,000 shares of Series C Convertible Preferred shares at $0.001 per share to XRC, LLC, a company controlled by Chris Lotito, in exchange for paying the costs to revive the Company with the State of Nevada, giving it voting control.
On September 28, 2018, a shareholders meeting was held wherein the shareholders gave the board authority to reorganize the Company, including making possible a name change, and/or engaging in a reverse stock split. In addition, the Series A shareholders voted to approve a reverse split of the Series A Convertible Preferred and to authorize a new designation.
On October 1, 2018, the Company made filings with the Nevada Secretary of State to change our name to "AS Capital, Inc.” and approve a 1 for 10 reverse stock split for the Common stock and a 1 for 1,000 reverse of the Series A Convertible Preferred, with conversion rights of 1 common share for every 12,000 shares of Series A Convertible Preferred Stock held. As a result, the number of issued and outstanding Series A Convertible Preferred Stock was reduced to 1,000 shares.
~~On December 6, 2018, the Court granted an Order discharging the custodian and approved all actions taken by the custodian.~~
33
~~Change in Control~~
On June 4, 2019, ASIN, a Nevada corporation, XRC, LLC, a Colorado limited liability company (“XRC”) and Gao Xue Ran (“Purchaser”) entered into a Stock Purchase Agreement (the “SPA”), pursuant to which the Purchaser agreed to purchase from XRC 11,000,000 shares of common stock of the Company, par value $0.001, and 964 shares of Series A Convertible Preferred Stock of the Company, par value $0.001 (collectively, the “Shares”), for aggregate consideration of $410,000 in accordance with the terms and conditions of the SPA. XRC was the controlling shareholder of the Company. The acquisition of the Shares was consummated on July 18, 2019, and the Shares were ultimately purchased by the following three individuals using their own personal funds:
Name No. of Shares
Percentage of Issued
and Outstanding
Consideration Paid
Gao Xue Ran 8,581,063 of Common Stock;
964 shares of Series A Preferred Stock 76.61% $ 319,840
Zhang Yan Hua 1,935,633 of Common Stock 17.28% $ 72,146
Cheung Kwok Chiu Kris 483,304 of Common Stock 4.31% $ 18,014
Upon the consummation of the sale of the Shares, Chris Lotito, our Chief Executive Officer and sole director, and John Karatzaferis, our President, resigned from all of their positions with the Company, effective July 18, 2019. Their resignations were not due to any dispute or disagreement with the Company on any matter relating to the Company's operations, policies or practices.
Concurrently with such resignations, Gao Xue Ran was appointed to serve as the Chief Executive Officer, Chief Financial Officer, President, Secretary and sole Director of the Company. Ms. Gao served in her positions without compensation.
~~Acquisition of HanJiao International Holding Limited~~
On August 6, 2020, ASIN and HanJiao International Holding Limited (“HanJiao”) consummated a Share Exchange Agreement (the “Share Exchange Transaction”). In connection with the Share Exchange Transaction, ASIN issued 86,000,000 shares of its common stock to acquire all the equity shares of HanJiao. Upon the completion of the Share Exchange Transaction, the shareholders of HanJiao own approximately 88.5% of the common stock of ASIN. In connection with the Share Exchange Transaction, effective August 6, 2020, the following individuals were appointed to serve in the capacities set forth next to their names until his or her successor(s) shall be duly elected or appointed, unless he or she resigns, is removed from office or is otherwise disqualified from serving as an executive officer or director of the Company:
~~Name~~ ~~Positions~~
~~Tian Xiangyang~~ ~~Chief Executive Officer, Director and Chairperson of the Board of Director~~
~~Shan Yonghua~~ ~~Chief Financial Officer, and Director~~
~~Tian Zhihai~~ ~~Chief Operating Officer and Director~~
~~Yin Jianen~~ ~~Secretary and Director~~
~~Wang Jirui~~ ~~Director~~
Upon the consummation of the Share Exchange Transaction, Gao Xue Ran resigned from all of her positions with the Company, effective August 6, 2020. Her resignation was not due to any dispute or disagreement with the Company on any matter relating to the Company's operations, policies or practices.
~~Effective October 20, 2020, ASIN changed its name from AS Capital, Inc. to Hanjiao Group, Inc.~~
34

Results of Operations

Our unaudited condensed consolidated financial statements have been prepared on a going concern basis, which assumes that we will be able to continue to operate in the future in the normal course of business. ~~In our~~Our unaudited condensed consolidated financial statements for the ~~three and~~ nine months ended September 30, ~~2020, it has included~~2021, includes a note about our ability to continue as a going concern due to ~~consecutive quarterly losses~~significant loss from operations inof Beijing VIE and subsidiaries since 2020 as a result of COVID-19. Business closures in the PRC and limitations on business operations arising from COVID-19 has significantly disrupted ~~Beijing Luji’s~~our ability to generate revenues and cash flow during the three and nine months ~~of 2020.~~ended September 30, 2021.

Comparison for the Three Months Ended September 30, ~~2020~~2021 and ~~2019~~2020

The following table sets forth certain financial data for the three months ended September 30, ~~2020~~2021 and ~~2019 (in thousands):~~2020:

For the Three Months Ended September 30, Percentage For the Three Months Ended September 30, Percentage
2020 2019 Change 2021 2020 Change
Dollars % Dollars % % (Unaudited) % (Unaudited) % %
Revenues $ 81.7 100.0 $ 8,031.8 100.0 (99.0 ) $ 1,052,323 100.0 $ 81,669 100.0 1,188.5
Cost of revenues (407.8 ) (499.1 ) (827.2 ) (10.3 ) (50.7 ) (506,218 ) (48.1 ) (407,798 ) (499.3 ) 24.1
Gross (loss) profit (326.1 ) (399.1 ) 7,204.6 89.7 (104.5 )
Gross profit (loss) 546,105 51.9 (326,129 ) (399.3 ) (267.5 )

General and administrative expenses 758.7 928.6 2,226.2 27.7 (65.9 ) 618,099 58.7 758,653 928.9 (18.5 )
Selling expenses 1,291.6 1,580.9 1,426.4 17.8 (9.5 ) 452,822 43.0 1,291,611 1,581.5 (64.9 )
Finance income, net (3.5 ) (4.3 ) (14.0 ) (0.2 ) (75.0 )
Finance expenses (income), net 10,957 1.0 (3,468 ) (4.3 ) (415.9 )
Total operating expenses 2,046.8 2,505.3 3,638.6 45.3 (43.7 ) 1,081,878 102.8 2,046,796 2,506.2 (47.1 )

Operating (loss) income (2,372.9 ) (2,904.4 ) 3,566.0 44.4 (166.5 )
Operating loss (535,773 ) (50.9 ) (2,372,925 ) (2,905.5 ) (77.4 )

Other expenses, net (712.6 ) (872.2 ) (671.6 ) (8.4 ) 6.1 (801,002 ) (76.1 ) (796,320 ) (975.1 ) 0.6
Income from equity investment – – 83,703 102.5 (100.0 )
Total other expenses, net (801,002 ) (76.1 ) (712,617 ) (872.6 ) 12.4

Total other expenses, net (712.6 ) (872.2 ) (671.6 ) (8.4 ) 6.1
(Loss) income before provision for income taxes (3,085.5 ) (3,776.6 ) 2,894.4 36.0 (206.6 )
Loss before provision for income taxes (1,336,775 ) (127.0 ) (3,085,542 ) (3,778.1 ) (56.7 )
Provision for income taxes – – 361.6 4.5 (100.0 ) – – – – –
Net (loss) income $ (3,085.5 ) (3,776.6 ) $ 2,532.8 31.5 (221.8 )

Net loss $ (1,336,775 ) (127.0 ) $ (3,085,542 ) (3,778.1 ) (56.7 )

Foreign currency translation adjustment 23.3 28.5 (454.8 ) (5.7 ) (105.1 ) (17,027 ) (1.6 ) 23,318 28.6 (173.0 )

Comprehensive (loss) income $ (3,062.2 ) (3,748.1 ) $ 2,078 25.9 (247.4 )
Comprehensive loss $ (1,353,802 ) (128.6 ) $ (3,062,224 ) (3,749.6 ) (144.2 )

3531
~~Revenues:~~ Revenues~~Revenues were~~. The increase in revenues of approximately ~~$82,000 and approximately $8.0 million for~~$971,000 or 1,188.5% was due primarily to business recovery from COVID-19 in 2021. For the three months ended September 30, ~~2020~~2021 and ~~2019 respectively. The decrease in revenues of approximately $8.0 million or 99.0% is due primarily to business interruptions arising from COVID-19. During the three months ended September 30,~~ 2020, ~~and 2019,~~ all revenues were generated in the ~~PRC. During~~PRC; and no customers accounted for 10% or more of total revenues. For the period of three months ended September ~~30,~~31, 2021 and 2020, revenues were mainly attributable to the sales of home appliances, smart watches, health foods, and cosmetics products, representing 36.8%, 19.1%, 12.0%, and 1.75% of revenues, respectively. During to the same period of 2019, the revenues were mainly attributable to the sales of health foods, ~~home appliances~~smart watches and cosmetics ~~products, representing 83.2%, 13.2% and 0.27% of revenues, respectively. During the three months ended September30, 2020 and 2019, no customers accounted for 10% or more of total revenues.~~products.

Cost of ~~revenues:~~ 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~~product sales as well as allowance for slow-moving items and write off of ~~certain designated products. Cost of revenues of approximately $408,000 for~~expired inventories. For the three months ended September 30, 2021 and 2020, ~~consisted of provision for slow-moving inventory of approximately $263,000. The decrease in~~ cost of revenues ~~of approximately $419,000~~increased $98,420 or ~~50.7% from~~24.1% compared to the ~~comparable~~same period ~~of 2019 was~~in 2020 due mainly to ~~decrease in~~higher product sales ~~as a result of COVID-19.~~
in 2021. There were ~~two~~no suppliers that accounted for more than 10% of ~~total purchases,~~purchase for the three months ended September 30, 2021 and 2020, ~~and 2019,~~ respectively. ~~One supplier (Shandong Kangqi Wood Industry Co. Ltd.) accounted for 75%, and the other (Suzhou Jianli Space Health Technology Co. Ltd.) accounted for 19%~~
Gross Profit (Loss): Gross profit for the three months ended September 30, ~~2020. One supplier (Harbin Xinyue Technology Co. Ltd.) accounted for 73%, and the other (Zhongji Technology Services Co. Ltd.) accounted for 12% for the three months ended September 30, 2019.~~
~~Gross (Loss) Profit~~~~. Gross~~2021 was approximately $546,000, while gross loss for the three months ended September 30, 2020 ofwas approximately ~~$326,000~~$326,000. The improvement was ~~attributed mainly~~due primarily to the ~~provision for slowing-moving inventory~~increase of ~~approximately $263,000. Gross profit for the three months ended September 30, 2019~~revenues as a result of ~~approximately $7.2 million was attributed mainly to revenues of approximately $8.0 million.~~
business recovery from COVID-19 in 2021.
General and Administrative Expenses. General and administrative expenses (“G&A expenses”) consist primarily of ~~costs in~~ salary and benefits for our general administrative and management staff, facilities costs, depreciation expenses, professional ~~fees,~~and audit fees, and other miscellaneous expenses incurred in connection with general operations. G&A expenses decreased ~~65.9%~~18.5% or approximately ~~$1.5 million from~~$145,000 to approximately ~~$2.2 million~~$618,000 for the three months ended September 30, ~~2019~~2021 from approximately $759,000 for the same period of 2020. The decrease was due primarily to the decrease in advisory fees, ~~salary~~salaries and benefits.

Selling Expenses. Selling expenses consist mainly of payroll and benefits for employees involved in the sales and distribution functions, meeting/event fees, advertisement, and marketing and selling expenses that are related to events and activities at the Company’s service centers designed to promote product sales. Selling expenses decreased ~~by 9.4%~~64.9% or approximately ~~$134,000~~$839,000 to approximately ~~$1.3 million in~~$452,000 for the three months ended September 30, ~~2020~~2021 from approximately ~~$1.4~~$1.3 million infor the same period of ~~2019.~~2020. The decrease was due mainly to the Company’s cost containment plan and initiatives to scale back its marketing expenses in 2021 as the PRC economy continues to recover from the COVID pandemic. During the same period of 2020, the Company organized numerous events designed to boost product sales in light of the negative impact of COVID-19 ~~as certain marketing and other promotional activities had been postponed in 2020.~~on its business.

Finance ~~Income,~~Expenses (Income), net. Finance expenses consist mainly of service fees related to the use of third-party online payment platforms, bank fees and interest expenses related to borrowings; net of interest income from bank and related bank products. Total net financial ~~income was~~expenses were approximately ~~$3,000 and $14,000~~$10,957 for the three months ended September 30, ~~2020, and 2019, respectively.~~2021, compared to approximately $3,500 of net finance income for the same period of 2020. The decrease was due mainly to ~~lower interest form bank and~~the related bank products inincome for the three months ~~period~~ ended ~~September~~June 30, 2020.

Operating ~~(Loss) Income~~Loss. ~~Operating~~Compared to the same period of 2020, operating loss ~~was~~decreased by approximately ~~$2.4~~$1.8 million for the three months ended September 30, ~~2020, compared to approximately $3.6 million of operating income for the same period of 2019.~~2021. The decrease ~~in operating income in 2020~~ was due ~~primary~~mainly to the ~~significant decline~~increase in ~~revenues in 2020 due to the impact of COVID-19.~~gross profit.

36
Total Other Expenses, net. ~~Other expenses consist mainly of estimated tax penalties and charitable contributions.~~ Total net other expenses ~~were~~was approximately ~~$713,000~~$801,000 for the three months ended September 30, ~~2020,~~2021, compared to approximately ~~$672,000~~$713,000 for the same period of ~~2019.~~2020. The increase ~~in total net other expenses~~ was due primary to ~~increase in estimated tax penalty, net of~~late fee related to unpaid VAT and enterprise income ~~from equity investment in 2020.~~
tax.
Provision for Income Taxes. No provision for income taxes was recorded for the three months ended September 30, 2021 and 2020 since the Company reported a pre-tax loss of approximately $1.3 million and $3.1 million, ~~in 2020, as compared to approximately $362,000 of income tax provision for the same period of 2019 when the Company reported a pre-tax income of approximately $2.9 million.~~
respectively during such period.
Net ~~(Loss) Income~~Loss. As a result of the factors described above, the Company reported net loss ~~was~~of approximately $1.3 million and $3.1 million for the three months ended September 30, 2021 and 2020, ~~a decrease of approximately $5.6 million from approximately $2.5 million of net income for the same period of 2019.~~respectively.

Comprehensive ~~Loss (Income)~~Loss.~~. Comprehensive~~ Factoring in the impact of foreign currency translation adjustment, comprehensive loss was approximately $1.4 million and $3.1 million for the three months ended September 30, 2021 and 2020, ~~as compared to other comprehensive income of approximately $2.1 million for the three months ended September 30, 2019.~~respectively.
32

Comparison for the ~~Nine Months Ended~~nine months ended September 30, ~~2020~~2021 and ~~2019~~2020

The following table sets forth certain financial data for the nine months ended ~~September30, 2020~~September 30, 2021 and ~~2019 (in thousands)~~:2020.

For the Nine Months Ended September 30, Percentage
2020 2019 Change
Dollars % Dollars % %
Revenues $ 210.2 100.0 $ 59,089.9 100.0 (99.6 )
Cost of revenues (613.1 ) (291.7 ) (38,115.5 ) (64.5 ) (98.4 )
Gross (loss) profit (402.9 ) (191.7 ) 20,974.4 35.5 (101.9 )

General and administrative expenses 2,746.0 1,306.4 6,402.3 10.8 (57.1 )
Selling expenses 4,950.0 2,354.9 3,057.4 5.2 61.9
Finance (income) expenses, net (173.6) (82.6 ) 81.1 0.1 (314.1 )
Total operating expenses 7,522.4 3,578,7 9,540.8 16.1 (21.2 )

Operating (loss) income (7,925.3 ) (3,770.4 ) 11,433.6 19.3 (169.3 )

Other expenses, net (3,481.6 ) (1,656.3 ) (1,832.9 ) (3.1 ) 90.0

Total other expenses, net (3,481.6 ) (1,656.3 ) (1,832.9 ) (3.1 ) 90.0

(Loss) income before provision for income taxes (11,406.9 ) (5,426.7 ) 9,600.7 16.2 (218.8 )
Provision for income taxes – – 1,797.3 3.0 (100.0 )

Net (loss) income $ (11,407.0 ) (5,426.7 ) $ 7,803.4 13.2 (246.2 )

Foreign currency translation adjustment (69.4 ) (33.0 ) (484.2 ) (0.8 ) (85.7 )

Comprehensive (loss) income $ (11,476.3 ) (5,459.8 ) $ 7,319.2 12.4 (256.8 )
37
For the Nine Months Ended September 30, Percentage
2021 2020 Change
(Unaudited) % (Unaudited) % %
Revenues $ 1,630,559 100.0 $ 210,172 100.0 675.8
Cost of revenues (1,157,300 ) (71.0 ) (613,114 ) (291.7 ) 88.8
Gross profit (loss) 473,259 29.0 (402,942 ) (191.7 ) (217.5 )

General and administrative expenses 1,931,899 118.5 2,746,034 1,306.6 (29.6 )
Selling expenses 1,481,633 90.9 4,950,028 2,355.2 (70.1 )
Finance expenses (income), net 28,132 1.7 (173,622 ) (82.6 ) (116.2 )
Total operating expenses 3,441,664 211.1 7,522,440 3,579.2 (54.2 )

Operating loss (2,968,405 ) (182.0 ) (7,925,382 ) (3,770.9 ) (62.5 )

Other expenses, net (2,348,908 ) (144.1 ) (3,565,325 ) (1,696.4 ) (34.1 )
Income (loss) from equity investment （8,166 (0.5 ) 83,703 39.8 (109.8 )
Total other expenses, net (2,357,074 ) (144.6 ) (3,481,622 ) (1,656.6 ) (32.3 )

Loss before provision for income taxes (5,325,479 ) (326.6 ) (11,407,004 ) (5,427.5 ) (53.2 )
Provision for income taxes – – – – –

Net loss $ (5,325,479 ) (326.6 ) $ (11,407,004 ) (5,427.5 ) (53.3 )

Foreign currency translation adjustment (33,119 ) (2.0 ) (69,355 ) (33.0 ) (52.2 )

Comprehensive loss $ (5,358,598 ) (328.6 ) $ (11,476,359 ) (5,460.5 ) (53.2 )

Revenues: ~~Revenues were~~The increase of approximately ~~$210,000 and approximately $59.1~~$1.4 million ~~for~~or 675.8% was due primarily to business recovery from COVID-19 in 2021. For the nine months ended September 30, ~~2020,~~2021 and ~~2019, respectively. The decrease in revenues of approximately $58.9 million or 99.6% is due primarily to business interruptions arising from COVID-19. During the nine months ended September 30,~~ 2020, ~~and 2019,~~ all revenues were generated in the ~~PRC. During~~PRC; and no customers accounted for 10% or more of total revenues. For the period of nine months ended September ~~30,~~31, 2021 and 2020, revenues were mainly attributable to the sales of ~~home appliances,~~health foods, smart watches ~~health foods,~~ and cosmetics products, representing 21.6%, 39.5%, 12.3%, and 1.7% of revenues, respectively. During to the same period of 2019, revenues were mainly attributable to the sales of health food, home appliances and cosmetics products, representing 69.4%, 17.5% and 11.9% of revenues, respectively. During the nine months ended September 30, 2020 and 2019, no customers accounted for 10% or more of total revenues.products.

Cost of ~~revenues:~~ Revenues: ~~Cost of revenues consists primarily of the~~The increase in cost ~~of merchandise sold, delivery cost, service fees, sales incentives and commissions that are directly attributable to the sale of certain designated products. Cost~~ of revenues of approximately ~~$613,000~~$544,000 or 88.8% was due mainly to the increase in product sales in 2021. One supplier (Baoqing Meilai Modern Agricultural Service Co., Ltd.) accounted for 97% and 92% of purchase for the nine months ended September 30, 2021 and 2020, consisted of provision for slow-moving inventory of approximately $450,000. The decrease in cost of revenues of approximately $37.5 million or 98.4% from the comparable period of 2019 was due mainly to decrease in product sales as a result of COVID-19.respectively.

~~There were two suppliers that accounted for more than 10% of total purchases,~~Gross Profit (Loss). Gross profit for the nine months ended September 30, 2020 and 2019, respectively. One supplier (Baoqing Meilai Modern Agriculture Service Co. Ltd.) accounted for 62%, and the other (Shandong Kangqi Wood Industry Co. Ltd.) accounted for 10% for the nine months ended September 30, 2020. One supplier (Harbin Xinyue Technology Co. Ltd.) accounted for 68%, and the other (Zhongji Technology Services Co. Ltd.) accounted for 11% for the nine months ended September 30, 2019.
~~Gross (Loss) Profit.~~ ~~Gross~~2021 was approximately $473,000, while gross loss for the nine months ended September 30, 2020 was approximately $403,000. The improvement in gross profit of approximately ~~$403,000~~$876,000 was ~~attributed~~due mainly to the ~~provision for slowing-moving inventory of~~increase in product sales in 2021.
33
General and Administrative Expenses. General and administrative decreased by 29.6% or approximately ~~$450,000. Gross profit~~$814,000 to approximately $1.9 million for the nine months ended ~~September~~Jun 30, ~~2019 of approximately $21.0 million was attributed mainly to revenues of approximately $59.1 million.~~
~~General and Administrative Expenses~~. General and administrative expenses (“G&A expenses”) consist primarily of costs in salary and benefits for our general administrative and management staff, facilities costs, depreciation expenses, professional fees, audit fees, and other miscellaneous expenses incurred in connection with general operations. G&A expenses decreased 57.1% or approximately $3.7 million2021 from approximately ~~$6.4~~$2.7 million for the nine months ended September 30, ~~2019~~2020. The decrease was due primarily mainly to the decrease in advisory fees, ~~salary~~salaries and benefits.

Selling Expenses. Selling expenses consist mainly of payroll and benefits for employees involved in the sales and distribution functions, meeting/event fees, advertisement, and marketing and selling expenses that are related to events and activities at the Company’s service centers designed to promote product sales. Selling expenses increaseddecreased by ~~61.9%~~70.1% or approximately ~~$1.9~~$3.5 million to approximately $5.0 million in the nine months ended September 30, 2020 from approximately $3.1 million in the same period of 2019. The increase was due mainly to costs incurred in marketing and other promotional activities in 2020 designed to offset the negative impact of COVID-19.
~~Finance Income, net~~. Total net financial income and expense were approximately $174,000 and $81,000 for the nine months ended September 30, 2020, and 2019, respectively. The increase was due mainly to interest income earned in the nine months period ended September 30, 2020.
~~Operating (loss) Income~~~~. Operating loss was approximately $7.9~~$1.5 million for the nine months ended September 30, 2021 from approximately $5.0 million for the same period of 2020. The decrease was due mainly to the Company’s cost containment plan and initiatives to scale back its marketing expenses in 2021 as the PRC economy continues to recover from the COVID pandemic. During the same period of 2020, the Company organized numerous events designed to boost product sales in light of the negative impact of COVID-19 on its business.
Finance Expenses (Income), net. Finance expenses consist mainly of service fees related to the use of third-party online payment platforms, bank fees and interest expenses related to borrowings; net of interest income from bank and related bank products. Total net finance expenses were approximately $28,000 for the nine months ended September 30, 2021, compared to approximately ~~$11.4 million~~$174,000 of ~~operating~~net finance income for the same period of ~~2019.~~2020. The decrease ~~in operating~~was due mainly to the related bank products income in ~~2020 was due primary to~~ the ~~significant decline in revenues in 2020 due to the impact of COVID-19.~~nine months ended September 30, 2020.

38
~~Total Other Expenses, net~~Operating Loss. ~~Other expenses consist mainly of estimated tax penalties and charitable contributions. Total net other expenses were~~Operating loss was approximately ~~$3.5~~$3.0 million for the nine months ended September 30, ~~2020,~~2021, compared to approximately ~~$1.8~~$7.9 million for the same period of ~~2019.~~2020. The decrease was due primary to increase of gross profit in 2021.
Total Other Expenses, net. The decrease in total net other expenses ~~was~~of approximately $1.2 million for the nine months ended September 30, 2021was due primary to a special donation to ~~Binzhou~~the Red Cross ~~Society~~ for ~~approximately $1.4 million and estimated tax penalties related to unpaid VAT and income taxes~~the same period of ~~approximately $2.3 million.~~2020.

Provision for Income Taxes. No provision for income taxes was recorded for the nine months ended September 30, 2021 and 2020 since the Company reported a pre-tax loss of approximately $5.3 million and $11.4 million, ~~in 2020, as compared to approximately $1.8 million of income tax provision for the same period of 2019 when the Company reported pre-tax income of approximately $9.6 million.~~respectively during such period.

Net ~~(loss) Income~~Loss. As a result of the factors described above, the Company reported net loss ~~was~~of approximately ~~$11.4~~$5.3 million for the nine months ended September 30, ~~2020,~~2021, a decrease of approximately ~~$19.2~~$6.1 million from approximately ~~$7.8~~$11.4 million of net ~~income~~loss for the same period of ~~2019.~~2020.

Comprehensive ~~Loss (Income)~~Loss. ~~. Comprehensive~~Factoring in the impact of foreign currency translation adjustment, comprehensive loss was approximately ~~$11.4~~$5.4 million for the nine months ended September 30, ~~2020,~~2021, as compared to ~~other comprehensive income of~~ approximately ~~$7.3~~$11.5 million for the nine months ended September 30, ~~2019.~~2020.

Liquidity and Capital Resources

As of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, we had cash, ~~and~~ cash equivalents and restricted cash of approximately ~~$4.0~~$914,000 and $3.3 million, ~~and $28.9 million,~~ respectively.
The following table sets forth a summary of our cash flows for the periods as indicated:

For the Nine Months ended
September 30,
2020 2019
(Unaudited) (Unaudited)
Net cash (used in) provided by operating activities $ (21,468,409 ) $ 26,099,723
Net cash (used in) investing activities $ (1,788,623 ) $ (11,658,276 )
Net cash (used in) financing activities $ (1,724,779 ) $ (185,818 )
Effect of exchange rate changes on cash and cash equivalents $ 30,376 $ (944,766 )
Net (decrease) increase in cash and cash equivalents $ (24,951,435 ) $ 13,310,863
Cash and cash equivalents at beginning of period $ 28,919,817 $ 18,019,682
Cash and cash equivalents at end of period $ 3,968,382 $ 31,330,545
For the nine months ended
September 30,
2021 2020
(Unaudited) (Unaudited)
Net cash used in operating activities $ (2,159,012 ) $ (21,468,409 )
Net cash used in investing activities $ (196,680 ) $ (1,788,623 )
Net cash used in financing activities $ – $ (1,724,779 )
Effect of exchange rate changes on cash, cash equivalents and restricted cash $ 12,869 $ 30,376
Net decrease in cash, cash equivalents and restricted cash $ (2,342,823 ) $ (24,951,435 )
Cash, cash equivalents and restricted cash at beginning of period $ 3,257,005 $ 28,919,817
Cash, cash equivalents and restricted cash at end of period $ 914,182 $ 3,968,382

3934

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

September 30, December 31, September 30, December 31,
2020 2019 Variation % 2021 2020 Variation %
(Unaudited) (Unaudited)
Total Current Assets $ 12,997,021 $ 31,095,695 $ (18,098,674 ) (58.2 ) $ 8,422,609 $ 11,435,892 $ (3,013,283 ) (26.3 )
Total Current Liabilities $ 29,043,499 $ 32,496,887 $ (3,453,388 ) (10.6 ) $ 33,587,169 $ 31,307,498 $ 2,279,671 7.3
Working Capital $ (16,046,478 ) $ (1,401,192 ) $ (14,645,285 ) 1,045.2
Working Capital Deficiency $ (25,164,560 ) $ (19,871,606 ) $ (5,292,954 ) 26.6

Working Capital Deficiency. The ~~deterioration~~increase in ~~the Company’s~~our working capital deficiency was due mainly to net losses during the ~~negative impact of COVID-19 as the Company experienced a significant decline in its revenues.~~nine months ended September 30, 2021.

For the nine months ended September 30, 2021, cash used in operating activities was approximately $2.2 million. For nine months ended September 30, 2020, cash used in operating activities was approximately $21.5 million. ~~For nine months ended September 30, 2019,~~The decrease in cash ~~provided by operating activities was approximately $26.1 million. The key factors attributing to the net cash outflows~~outflow of approximately ~~$21.5~~$19.3 million was due primary to decrease in ~~2020 include:~~ net loss of approximately ~~$11.4~~$6.1 million, ~~due mainly to drop in revenues;~~and increase in ~~advance~~net cash inflow from changes in advances to suppliers ~~and~~of approximately $186,000; inventories of approximately ~~$6.0 million~~$297,000; other payables and ~~$1 million, respectively; and increase in estimated tax penalties~~other current liabilities of approximately ~~$2.4 million. The key reasons for~~$2.5 million, partially offset by the ~~net cash flows from operation~~decrease in tax payable of approximately $26.1 million in the same period of 2019 include: net income of approximately $7.8 million; change in due from related parties, net of approximately $10.5 million, and change in accrued expenses of approximately $9.6 million.$208,000.

Net cash used in investing activities was approximately $197,000 and $1.8 million for the nine months ended September 30, 2021 and 2020, ~~as compared to net~~respectively. Net cash used in investing activities ~~of $11.7 million~~ for the nine months ended September 30, ~~2019. The change of approximately $10 million~~2021 and 2020 was ~~due primary~~related to ~~net changes in (1)~~the purchases of property and ~~equipment of approximately $1.8 million, and (2) investment in equity investee of $11.6 million.~~equipment.

Net cash used in financing activities was ~~approximately $1.7 million~~$nil for the nine months ended September 30, ~~2020,~~2021, as compared to net cash used in financing activities of approximately ~~$0.2~~$1.7 million for the nine months ended September 30, ~~2019.~~2020. The ~~increase~~cash outflow for the nine months ended September 30, 2020 was due mainly to ~~increase in dividends paid of approximately $0.5 million, and (2) Repayment~~repayment of loans of approximately $1.0 ~~million.~~million and dividends paid of approximately $723,000.

Off-Balance Sheet Arrangements

We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. In addition, we have not entered into any derivative contracts that are indexed to our own shares and classified as shareholders’ equity, or that are not reflected in our financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. Moreover, we do not have any variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.

Critical Accounting Policies and Estimates

We prepare our financial statements in conformity with accounting principles generally accepted by the United States of America (“U.S. GAAP”), which require us to make judgments, estimates, and assumptions that affect our reported amount of assets, liabilities, revenue, costs and expenses, and any related disclosures. Although there were no material changes made to the accounting estimates and assumptions ~~in the past three years,~~since year 2020, we continually evaluate these estimates and assumptions based on the most recently available information, our own historical experience and various other assumptions that we believe to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from our expectations as a result of changes in our estimates.

We believe that our accounting policies involve a higher degree of judgment and complexity in their application and require us to make significant accounting estimates. Accordingly, the policies we believe are the most critical to understanding and evaluating our consolidated financial condition and results of operations are summarized in “Note 3 - Summary of Significant Accounting Policies” in the notes to our unaudited condensed consolidated financial statements.

35
Recent Accounting Pronouncements

See “Note 3 - Summary of Significant Accounting Policies” in the notes to our unaudited condensed consolidated financial statements for a discussion of recent accounting pronouncements.

The Company believes that other recent accounting pronouncement will not have a material effect on the Company’s consolidated financial position, results of operations and cash flows.
41

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a smaller reporting company, as defined by Item 10 (f)(1) of Regulation S-K, we are not required to provide the information required by this item.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15 under the Securities Exchange Act of 1934 (the “1934 Act”), as of September 30, 2020, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer (our principal executive officer) and our Chief Financial Officer (our principal financial officer), who concluded, that because of the material weakness in our internal control over financial reporting (“ICFR”) described below, our disclosure controls and procedures were not effective as of September 30, 2020.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

~~Management Report on Internal Control Over Financial Reporting~~
~~Our management is responsible for establishing~~As required by Rule 13a-15 under the Securities Exchange Act of 1934 (the “1934 Act”), as of September 30, 2021, we carried out an evaluation of the effectiveness of the design and ~~maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability~~operation of our disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer (our principal executive officer) and our Chief Financial Officer (our principal financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States (US GAAP). Internal control over financial reporting includes those policiesofficer), who concluded that our disclosure controls and procedures ~~that (i) pertain~~were not effective as of September 30, 2021, due to the ~~maintenance of records that~~significant deficiencies in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with US GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
42
Any system of internal control, no matter how well designed, has inherent limitations, including the possibility that a control can be circumvented or overridden and misstatements due to error or fraud may occur and not be detected in a timely manner. Also, because of changes in conditions, internal control effectiveness may vary over time. Accordingly, even an effective system of internal control will provide only reasonable assurance with respect to financial statement preparation. In addition, the design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Therefore, any current evaluation of controls cannot and should not be projected to future periods.
~~Management assessed~~ our internal control over financial reporting as of the period ended September 30, 2020. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in the report entitled “2013 Internal Control - Integrated Framework.” Based on management’s assessment using the COSO criteria, management concluded that the Company’s internal control over financial reporting was not effective as of September 30, 2020, due to the existence of the following material weaknesses:discussed below;

● ~~There was a lack~~· Lack of ~~control~~proper segregation of duties;
· Lack formal policies and procedures to ensure timely book close on a quarterly basis;
· Lack of detailed account analyses to ensure proper reconciliation of all key accounts;
· Lack of proper training of the ~~correct~~accounting staff to ensure consistent application of ~~US GAAP and~~generally accepted accounting principles in the United States as well as compliance with related ~~disclosure requirements.~~financial reporting guidelines; and
● ~~There were deficiencies in our~~· Lack of a formal documentation retention policy to ensure that supporting control ~~documentation.~~
● ~~There was no independent audit committee.~~evidence is property maintained.

Changes in Internal Control over Financial Reporting

There have been no changes in our ICFR identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during ~~our current~~the quarter ended September 30, ~~2020,~~2021, that have materially affected, or are reasonable likely to materially affect, our internal control over financial reporting.


4336

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Other than the item set forth in Note 1916 of our Notes to Unaudited Condensed Consolidated Financial Statements, we are not a party to any legal or administrative proceedings that we believe, individually or in the aggregate, would be likely to have a material adverse effect on our financial condition or results of operations.

ITEM 1A. RISK FACTORS

~~None.~~We face the risk that changes in the policies of the PRC government could have a significant impact upon the business we may be able to conduct in the PRC and the profitability of such business.
We conduct our operations and generate our revenue through our Beijing VIE in the PRC. Accordingly, economic, political and legal developments in the PRC will significantly affect our business, financial condition, results of operations and prospects. The PRC economy is in transition from a planned economy to a market-oriented economy subject to plans adopted by the government that set national economic development goals. Policies of the PRC government can have significant effects on economic conditions in the PRC. While we believe that the PRC will continue to strengthen its economic and trading relationships with foreign countries and that business development in the PRC will continue to follow market forces, we cannot assure you that this will be the case.  Our interests may be adversely affected by changes in policies by the PRC government, including:
· changes in laws, regulations or their interpretation;
· confiscatory taxation;
· restrictions on currency conversion, imports or sources of supplies, or ability to continue as a for-profit enterprise;
· expropriation or nationalization of private enterprises; and
· the allocation of resources.
Substantial uncertainties and restrictions with respect to the political and economic policies of the PRC government and PRC laws and regulations could have a significant impact upon the business that we may be able to conduct in the PRC and accordingly on the results of our operations and financial condition.
Our business operations may be adversely affected by the current and future political environment in the PRC. The Chinese government exerts substantial influence and control over the manner in which we must conduct our business activities. Our ability to operate in China may be adversely affected by changes in Chinese laws and regulations. Under the current government leadership, the government of the PRC has been pursuing reform policies which have adversely affected China-based operating companies whose securities are listed in the United States, with significant policies changes being made from time to time with little to no advance notice.
There are substantial uncertainties regarding the interpretation and application of PRC laws and regulations, including, but not limited to, the laws and regulations governing our business, or the enforcement and performance of our contractual arrangements with borrowers in the event of the imposition of statutory liens, death, bankruptcy or criminal proceedings. Only after 1979 did the Chinese government begin to promulgate a comprehensive system of laws that regulate economic affairs in general, deal with economic matters such as foreign investment, corporate organization and governance, commerce, taxation and trade, as well as encourage foreign investment in China. Although the influence of the law has been increasing, China has not developed a fully integrated legal system and recently enacted laws and regulations may not sufficiently cover all aspects of economic activities in China. Also, because these laws and regulations are relatively new, and because of the limited volume of published cases and their lack of force as precedents, interpretation and enforcement of these laws and regulations involve significant uncertainties. New laws and regulations that affect existing and proposed future businesses may also be applied retroactively. In addition, there have been constant changes and amendments of laws and regulations over the past 30 years in order to keep up with the rapidly changing society and economy in China. Because government agencies and courts provide interpretations of laws and regulations and decide contractual disputes and issues, new polices or regulations in certain less developed areas causes uncertainty and may affect our business. Consequently, we cannot predict the future direction of Chinese legislative activities with respect to either businesses with foreign investment or the effectiveness on enforcement of laws and regulations in China.
37
Although the PRC government has been pursuing economic reform policies for more than two decades, the PRC government continues to exercise significant control over economic growth in the PRC through the allocation of resources, controlling payments of foreign currency, setting monetary policy and imposing policies that impact particular industries in different ways.  We cannot assure you that the PRC government will continue to pursue policies favoring a market oriented economy or that existing policies will not be significantly altered, especially in the event of a change in leadership, social or political disruption, or other circumstances affecting political, economic and social life in the PRC.
The Holding Foreign Companies Accountable Act requires the Public Company Accounting Oversight Board (PCAOB) to be permitted to inspect the issuer's public accounting firm within three years. There are uncertainties under the PRC Securities Law relating to the procedures and requisite timing for the U.S. securities regulatory agencies to conduct investigations and collect evidence within the territory of the PRC. If the U.S. securities regulatory agencies are unable to conduct such investigations, they may suspend or de-register our registration with the SEC and delist our securities from applicable trading market within the US.
On December 28, 2019, the newly amended Securities Law of the PRC (the “PRC Securities Law”) was promulgated, which became effective on March 1, 2020. According to Article 177 of the PRC Securities Law (“Article 177”), the securities regulatory authority of the State Council may establish a regulatory cooperation mechanism with securities regulatory authorities of another country or region for the implementation of cross-border supervision and administration. Article 177 further provides that overseas securities regulatory authorities shall not engage in activities pertaining to investigations or evidence collection directly conducted within the territories of the PRC, and that no Chinese entities or individuals shall provide documents and information in connection with securities business activities to any organizations and/or persons aboard without the prior consent of the securities regulatory authority of the State Council and the competent departments of the State Council. As of the date of this prospectus, we are not aware of any implementing rules or regulations which have been published regarding application of Article 177.
We believe Article 177 is only applicable where the activities of overseas authorities constitute a direct investigation or evidence collection by such authorities within the territory of the PRC. Our principal business operation is conducted in the PRC. In the event that the U.S. securities regulatory agencies carry out an investigation on us such as an enforcement action by the Department of Justice, the SEC or other authorities, such agencies’ activities will constitute conducting an investigation or collecting evidence directly within the territory of the PRC and accordingly fall within the scope of Article 177. In that case, the U.S. securities regulatory agencies may have to consider establishing cross-border cooperation with the securities regulatory authority of the PRC by way of judicial assistance, diplomatic channels or establishing a regulatory cooperation mechanism with the securities regulatory authority of the PRC. However, there is no assurance that the U.S. securities regulatory agencies will succeed in establishing such cross-border cooperation in this particular case and/or establish such cooperation in a timely manner.
Furthermore, as Article 177 is a recently promulgated provision, it remains unclear as to how it will be interpreted, implemented or applied by the Chinese Securities Regulatory Commission or other relevant government authorities. As such, there are uncertainties as to the procedures and requisite timing for the U.S. securities regulatory agencies to conduct investigations and collect evidence within the territory of the PRC. The Holding Foreign Companies Accountable Act requires the Public Company Accounting Oversight Board (PCAOB) be permitted to inspect the issuer's public accounting firm within three years. If the U.S. securities regulatory agencies are unable to conduct such investigations, there exists a risk that they may determine to suspend or de-register our registration with the SEC and may also delist our securities from applicable trading market within the US.
We are subject to extensive and evolving PRC laws and regulations including those regarding cybersecurity, data privacy and data security. Non-compliance with these and other laws, or changes therein, may materially and adversely affect our business and prospects, and may result in a material change in our operations and/or the value of our common stock or could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of our securities to significantly decline or be worthless.
PRC companies are subject to various PRC laws, regulations and government policies and the relevant laws, regulations and policies continue to evolve. Recently, the PRC government is enhancing supervision over companies seeking listings overseas and some specific business or activities such as the use of variable interest entities and data security or anti-monopoly. The PRC government may adopt new measures that may affect our operations, or may exert more oversight and control over offerings conducted outside of China and foreign investment in China-based companies, and we may be subject to challenges brought by these new laws, regulations and policies.
38
For example, on June 10, 2021, the Standing Committee of the National People’s Congress promulgated the PRC Data Security Law, which took effect from September 1, 2021. The Data Security Law provides for a security review procedure for the data activities that may affect national security. Furthermore, Measures for Cybersecurity Review, which became effective on June 1, 2020, set forth the cybersecurity review mechanism for critical information infrastructure operators, and provided that critical information infrastructure operators who intend to purchase internet products and services that affect or may affect national security shall be subject to a cybersecurity review. On July 10, 2021, the Cyberspace Administration of China published the Measures for Cybersecurity Review (Revised Draft for Comments), which further restates and expands the applicable scope of the cybersecurity review. Pursuant to the draft measures, critical information infrastructure operators that intend to purchase internet products and services and data processing operators engaging in data processing activities that affect or may affect national security must be subject to the cybersecurity review. The draft measures further stipulate that if an operator has personal information of over one million individuals and intends to be listed in a foreign country, it must be subject to the cybersecurity review. As of now, it is uncertain under PRC regulations whether the data gathering and usage by us will affect national security. Our current data activities do not fall under the scope of cybersecurity review and the volume of personal information currently collected or processed by us is far less than the one-million threshold, and it is also very unlikely that we will reach such threshold in the near future. That being said, it is also uncertain whether the cybersecurity review will be further expanded to cover our businesses. Failure of cybersecurity, data privacy and data security compliance could subject us to penalties, damage its reputation and brand, and harm its business and results of operations.
On August 20, 2021, the Standing Committee of the National People’s Congress promulgated the PRC Personal Information Protection Law, which will take effect in November 2021. The Personal Information Protection Law provides that any entity involving processing of personal information (“Personal Information Processer”)shall take various measures to prevent the disclosure, modification or losing of the personal information processed by such entity, including, but not limited to, formulating a related internal management system and standard of operation, conducting classified management of personal information, taking safety technology measures to encrypt and de-identify the processed personal information, providing regular safety training and education for staff and formulating a personal information safety emergency accident plan. The Personal Information Protection Law further provides that a Personal Information Processer shall conduct a prior evaluation of the impact of personal information protection before the occurrence of various situations, including, but not limited to, processing of sensitive personal information (personal information that, once leaked or illegally used, may lead to discrimination against an individual or serious harm to an individual’s personal or property safety, including information on an individual’s ethnicity, religious beliefs, personal biological characteristics, medical health, financial accounts, personal whereabouts), using personal information to make automated decisions and providing personal information to any overseas entity. Our business involves the processing of personal information of customers using our healthcare products and receiving our services, which may be deemed as sensitive personal information. If we do not take measures to review and improve our mechanisms in protecting personal information after the new Personal Information Protection Law takes effect, failure of personal information protection compliance could subject us to penalties, damage its reputation and brand and harm our business and results of operations.
Because these laws, regulations and policies are relatively new and the PRC legal system continues to rapidly evolve, the interpretations of many laws, regulations and rules are not always uniform and enforcement of these laws, regulations and rules involve uncertainties. Furthermore, as we may be subject to additional, yet undetermined, laws and regulations, compliance may require us to obtain additional permits and licenses, complete or update registrations with relevant regulatory authorities, adjust our business operations, as well as allocate additional resources to monitor developments in the relevant regulatory environment. However, under the stringent regulatory environment, it may take much more time for the relevant regulatory authorities to approve new applications for permits and licenses, and complete or update registrations and we cannot assure you that we will be able to comply with these laws and regulations in a timely manner or at all. The failure to comply with these laws and regulations may delay, or possibly prevent, us to conduct business, accept foreign investments, or listing overseas.
Adverse regulatory developments in China may subject us to additional regulatory review, and additional disclosure requirements and regulatory scrutiny to be adopted by the SEC in response to risks related to recent regulatory developments in China may impose additional compliance requirements for companies like us with significant China-based operations, all of which could increase our compliance costs, subject us to additional disclosure requirements.
The recent regulatory developments in China, in particular with respect to restrictions on China-based companies raising capital offshore, may lead to additional regulatory review in China over our financing and capital raising activities in the United States. In addition, we may be subject to industry-wide regulations that may be adopted by the relevant PRC authorities, which may have the effect of limiting our service offerings, restricting the scope of our operations in China, or causing the suspension or termination of our business operations in China entirely, all of which will materially and adversely affect our business, financial condition and results of operations. We may have to adjust, modify, or completely change our business operations in response to adverse regulatory changes or policy developments, and we cannot assure you that any remedial action adopted by us can be completed in a timely, cost-efficient, or liability-free manner or at all.
39
On July 30, 2021, in response to the recent regulatory developments in China and actions adopted by the PRC government, the Chairman of the SEC issued a statement asking the SEC staff to seek additional disclosures from offshore issuers associated with China-based operating companies before their registration statements will be declared effective, including detailed disclosure related to VIE structures and whether the VIE and the issuer, when applicable, received or were denied permission from Chinese authorities to list on U.S. exchanges and the risks that such approval could be denied or rescinded. On August 1, 2021, the China Securities Regulatory Commission stated in a statement that it had taken note of the new disclosure requirements announced by the SEC regarding the listings of Chinese companies and the recent regulatory development in China, and that both countries should strengthen communications on regulating China-related issuers. Since we maintain a VIE structure, we cannot guarantee that we will not be subject to tightened regulatory review and we could be exposed to government interference in China.
Risks Relating to Our Corporate Structure
We conduct our principal business through Beijing VIE, by means of contractual arrangements. If the PRC courts or administrative authorities determine that these contractual arrangements do not comply with applicable regulations, we could be subject to severe penalties and our business could be adversely affected. In addition, changes in such Chinese laws and regulations may materially and adversely affect our business.
There are uncertainties regarding the interpretation and application of PRC laws, rules and regulations, including but not limited to the laws, rules and regulations governing the validity and enforcement of the VIE contractual arrangements. The contractual arrangements were entered into among Beijing Hanze, Beijing VIE and/or its shareholders. We have been advised by our PRC counsel, Jingtian & Gongcheng, based on their understanding of the current PRC laws, rules and regulations, that (i) the structure for operating our business in China will not result in any violation of PRC laws or regulations currently in effect, and (ii) the contractual arrangements among Beijing Hanze, Beijing VIE and its shareholders are valid, binding and enforceable, and will not result in any violation of PRC laws or regulations currently in effect. If the PRC courts or regulatory authorities determine that our contractual arrangements are in violation of applicable PRC laws, rules or regulations, our contractual arrangements will become invalid or unenforceable.
If we or our ownership structure or the contractual arrangements, are determined to be in violation of any existing or future PRC laws, rules or regulations, or we fail to obtain or maintain any of the required governmental permits or approvals, the relevant PRC regulatory authorities would have broad discretion in dealing with such violations, including:
· revoking our business and operating licenses;
· discontinuing or restricting our operations;
· imposing conditions or requirements with which we may not be able to comply;
· requiring us to restructure the relevant ownership structure or operations;
· restricting or prohibiting our use of the proceeds to finance our business and operations in China; or
· imposing fines.
The imposition of any of these penalties would severely disrupt our ability to conduct our business and have a material adverse effect on our financial condition, results of operations and prospects.
It is uncertain whether any new PRC laws, rules or regulations relating to the variable interest entity structure will be adopted or if adopted, what they would provide.
The PRC government may determine that our contractual arrangements do not comply with the applicable laws and regulations.
There can be no assurance that the VIE Arrangements will be deemed by the relevant governmental or judicial authorities to be in compliance with the existing or future applicable PRC laws and regulations, or the relevant governmental or judicial authorities may in the future interpret the existing laws or regulations with the result that the contractual arrangements will be deemed to be in compliance of the PRC laws and regulations.
40
On 15 March 2019, the National People’s Congress promulgated the Foreign Investment Law of the PRC, the (‘‘Foreign Investment Law’’), which will come into effect on 1 January 2020. The Foreign Investment Law will replace the Law on Sino-Foreign Equity Joint Ventures, the Law on Sino-Foreign Contractual Joint Ventures and the Law on Wholly Foreign-Owned Enterprises to become the legal foundation for foreign investment in the PRC. The Foreign Investment Law stipulates certain forms of foreign investment, which do not include the contractual arrangements as a form of foreign investment. However, the Foreign Investment Law stipulates that foreign investment includes “foreign investors invest through any other methods under laws, administrative regulations or provisions prescribed by the State Council”. Therefore, there are possibilities that future laws, administrative regulations or provisions prescribed by the State Council may regard contractual arrangements as a form of foreign investment, and then whether our contractual arrangements will be recognized as a foreign investment, whether our contractual arrangements will be deemed to be in violation of the foreign investment access requirements and how our contractual arrangements will be handled are uncertain. Therefore, there is no guarantee that our contractual arrangements with Beijing VIE and the business of our PRC operating subsidiaries will not be materially and adversely affected in the future.
The Foreign Investment Law provides that a negative list for foreign investments is adopted by government authorities. Whether or not a foreign investment is prohibited or restricted is determined according to the negative list. Under the current negative list, value-added telecommunication services and online culture operation businesses engaged by our PRC operating entities are foreign investment restricted and prohibited businesses.
Considering that a number of existing entities engaged in the value-added telecommunication business and/or online culture operation business, some of which have obtained listing status abroad, are operating under contractual arrangements, our Directors are of the view that it is unlikely, if any interpretation or implementation regulations, rules or measures of the Foreign Investment Law are subsequently promulgated, that the relevant authorities will apply it retrospectively to require relevant enterprises to remove or otherwise unwind their contractual arrangements.
The Board is monitoring and will continue to monitor the development of the Foreign Investment Laws in order to assess its possible impact on the contractual arrangements and the business of Beijing VIE. In case there would be material impact on the Company’s business, the Company will timely publish announcements in relation to material developments of and arising from the Foreign Investment Law.
Our contractual arrangements may not be as effective as direct ownership in providing control over Beijing VIE.
We rely on the VIE contractual arrangements with Beijing VIE to operate the O2O business and such other related business activities in the PRC. These contractual arrangements may not be as effective in providing control over Beijing VIE as direct ownership.
In the event that any of the Beijing VIE Shareholders or Beijing VIE fails to perform each of their respective obligations under the VIE contractual arrangements, our management may have to take time to ask for rectification and even bring legal proceedings against the relevant defaulting party, which may result in diversion of resources and management’s attention, and therefore materially and adversely affect our business and results of operations.
The Beijing VIE Shareholders may potentially have a conflict of interests with us.
Our control over Beijing VIE is based on the VIE contractual arrangements. Conflict of interests of the Beijing VIE Shareholders therefore could adversely affect the interests of our Company. Pursuant to the Power of Attorney, the Beijing VIE Shareholders will irrevocably authorize designated persons appointed by us as their representatives to exercise their rights as shareholders of Beijing VIE. However, cooperation from the Beijing VIE Shareholders is needed in exercising and performing relevant shareholder’s rights and obligations sometimes, for example in case of registration for changes with governmental authorities or remitting the dividend payable to us. In the event that conflict of interests between the Company and the Beijing VIE Shareholders arises, there can be no assurance that all or any of the Beijing VIE Shareholders will act in our interest. If the Beijing VIE Shareholders act in a way compromising our interest or fail to act, our business, financial conditions and results of operations may be adversely affected.
In addition, the Beijing VIE Shareholders own a significant portion of the Company’s outstanding common stock and are able to vote and direct our operations. The decisions made by these shareholders may not be in your best interest and could negatively affect the value of your investment.
41
The contractual arrangements may be subject to scrutiny of the PRC tax authorities and transfer pricing adjustments and additional tax may be imposed.
We could face material adverse tax consequences if the PRC tax authorities determine that the contractual arrangements were not entered into based on arm’s length negotiations. If the PRC tax authorities determine that these agreements were not entered into on an arm’s length basis, they may adjust our income and expenses for PRC tax purposes in the form of a transfer pricing adjustment. A transfer pricing adjustment could adversely affect our financial position by increasing the relevant tax liability, and this could further result in late payment fees and other penalties to the Company for unpaid taxes. As a result, any transfer pricing adjustment could have a material adverse effect on our financial position and results of operations.
A substantial amount of costs and time may be involved in transferring the ownership of Beijing VIE to us under the Equity Disposal Agreement.
The Equity Disposal Agreement grants Beijing Hanze a right to acquire part or all of the equity interest in the registered capital or part or all of the assets of Beijing VIE at the lowest price permitted by PRC law, under which the WFOE or its designated party is entitled to acquire all or part of the equity interest of Beijing VIE from the Beijing VIE Shareholders.
Nevertheless, such rights can only be exercised by Beijing Hanze as and when permitted by the relevant PRC laws and regulations, in particular, when there are no limitations on foreign ownership in PRC companies that are engaged in the value-added telecommunication services and related online business.
In addition, a substantial amount of costs and time may be involved in transferring the ownership or assets of Beijing VIE to Beijing Hanze if it chooses to exercise the exclusive right to acquire all or part of the equity interest in Beijing VIE under the Equity Disposal Agreement, which may have a material adverse impact on our business, prospects and results of operation.
The Company does not have any insurance which covers the risks relating to the contractual arrangements and the transactions contemplated thereunder.
We do not have insurance that covers the risks relating to the contractual arrangements and the transactions contemplated thereunder and the Company has no intention to purchase any insurance in this regard. If any risk arises from the contractual arrangements in the future, such as those affecting the enforceability of the contractual arrangements and the relevant agreements for the transactions contemplated thereunder and the operation of the Company, our results may be adversely affected. However, we will monitor the relevant legal and operational environment from time to time to comply with the applicable laws and regulations. In addition, we will implement relevant internal control measures to reduce the operational risk.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

There were no sales of unregistered equity securities during the covered time period.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

Exhibit
Number

Description
3.1 Amended and Restated Articles of Incorporation, ~~of AS Capital, Inc.~~as amended (1)
~~3.1.1~~3.2 ~~Certificate of Amendment to the Articles of Incorporation for Rineon Group, Inc.(2)~~
~~3.1.2~~ ~~Certificate of Amendment to the Articles of Incorporation for AS Capital, Inc.(3)~~
~~3.2~~ Amended and Restated By-Laws ~~(3)~~(2)
~~4.2~~4.1 Specimen of common stock certificate*
4.2 Description of Securities ~~(4)~~(1)
10.1 ~~Equity Acquisition Agreement, dated March 15, 2019, by and between Rongcheng Health Group Co. Ltd. and Beijing Luji Technology Co. Ltd.(5)~~
~~10.2~~ Exclusive Consulting and Services Agreement, dated May 15, 2019, by and among Beijing ~~Hongtao~~Hanze Management Consulting Co. Ltd. and Beijing ~~Luji~~VIE Technology Co. Ltd. ~~(5)~~(3)
~~10.3~~10.2 Business Operations Agreement, dated May 19, 2019, by and among Beijing ~~Hongtao~~Hanze Management Consulting Co. Ltd., Beijing ~~Luji~~VIE Technology Co. Ltd. and Tian Xiangyang, Tian Zhihai, Liu Zexian, Gao Xuewei, and Li Chunduo ~~(5)~~(3)
~~10.4~~10.3 Equity Disposal Agreement, dated May 15, 2019, by and among Beijing ~~Hongtao~~Hanze Management Consulting Co. Ltd., Beijing ~~Luji~~VIE Technology Co. Ltd., Tian Xiangyang, Tian Zhihai, Liu Zexian, Gao Xuewei, and Li Chunduo ~~(5)~~(3)
~~10.5~~10.4 Equity Pledge Agreement, dated May 15, 2019, by and among Beijing ~~Hongtao~~Hanze Management Consulting Co. Ltd., Tian Xiangyang, Tian Zhihai, Liu Zexian, Gao Xuewei, and Li Chunduo ~~(5)~~(3)
~~10.6~~10.5 Agency Agreement, dated May 15, 2019, by and among Beijing ~~Hongtao~~Hanze Management Consulting Co. Ltd., Tian Xiangyang, Tian Zhihai, Liu Zexian, Gao Xuewei, and Li Chunduo ~~(5)~~(3)
~~10.7~~10.6 House Lease Contract, dated June 12, 2020, by and among Beijing ~~Hongtao~~Hanze Management Consulting Co. Ltd. ~~And~~and Beijing ~~Luji~~VIE Technology Co. Ltd. ~~(5)~~(3)
~~10.8~~10.7 House Lease Contract, dated March 20, 2020, by and among Beijing Hanze Management Consulting Co. Ltd. and Beijing VIE Technology Co. Ltd.(1)
10.8 Lease Agreement, dated January 18, 2021, by and between Beijing Guochuan Borui Technology Co. Ltd. and Beijing VIE Technology Co. Ltd. (1)
10.9 Labor Contract, dated January 1, 2019, by and between Beijing ~~Luji~~VIE and Tian Xiangyang~~(5)~~(3)
~~10.9~~10.10 Labor Contract, dated January 1, 2017, by and between Beijing ~~Luji~~VIE and Shan Yonghua ~~(5)~~(3)
~~10.10~~10.11 Labor Contract, dated January 1, 2017, by and between Beijing ~~Luji~~VIE and Tian Zhihai ~~(5)~~(3)
~~10.11~~10.12 ~~Supplementary Labor Contract,~~Form of Director Retainer Agreement(3)
10.13 Elderly Care Service Platform” Development Agreement, dated ~~April 1, 2020,~~January 4, 2021, by and between China Guangzhi Investment (Beijing) Technology Co. Ltd. and Beijing ~~Luji and Yin Jian’en(5)~~
~~10.12~~ ~~Supplementary Labor Contract, dated April 1, 2020, by and between Beijing Luji and Wang Jirui(5)~~
~~10.13~~ ~~Supplementary Agreement of Labor Contract, effective January 1, 2020, by and between Beijing Luji~~VIE Technology Co., Ltd. and ~~Yin Jianen~~ ~~(4)~~
~~10.14~~ Supplementary Agreement, ~~of Labor Contract, effective January 1, 2020,~~dated March 9, 2021, by and between China Guangzhi Investment (Beijing) Technology Co. Ltd. and Beijing ~~Luji~~VIE Technology Co., Ltd. ~~and Wang Jirui~~ (4)
~~10.15~~21 ~~Form of Director Retainer Agreement(5)~~
21 List of Subsidiaries~~(5)~~*
31.1 Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act*
31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act*
32.1 Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley ~~Act~~Act*
32.2 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act*
99.1 Court Custodian Documents ~~(6)~~(5)
~~101~~101.INS Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File*File because its XBRL tags are embedded within the Inline XBRL document)
~~101.INS~~101.SCH XBRL Instance Document*
~~101.SCH~~ Inline XBRL Taxonomy Extension Schema Document*Document
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document*Document
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document*Document
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document*Document
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document*Document
~~_______________________~~
104 * ~~Filed Herewith.~~Cover Page Interactive Data File (formatted in IXBRL, and included in exhibit 101).

45
_______________________
* Filed Herewith.

(1)
~~(1)~~ Incorporated by reference to the Exhibits to ~~Registration Statement~~Annual Report on Form 1010-K filed with the Securities and Exchange Commission on ~~November 1, 2018.~~March 31, 2021.
(2) ~~Incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed with the Securities and Exchange Commission on May 8, 2009.~~
~~(3)~~ Incorporated by reference to the Exhibits to Information Statement on Definitive Schedule 14C filed with the Securities and Exchange Commission on July 29, 2020.
~~(4)~~(3) ~~Incorporated by reference to Amendment No. 1 to Current Report on Form 8-K filed with the Securities and Exchange Commission on August 14, 2020.~~
~~(5)~~ Incorporated by reference to the Exhibits to Current Report on Form 8-K filed with the Securities and Exchange Commission on August 6,7, 2020.
~~(6)~~(4) Incorporated by reference to Exhibit 10.13 to Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 17, 2021.
(5) Incorporated by reference to the Exhibits to Amendment No. 5 to Registration Statement on Form 10 filed with the Securities and Exchange Commission on July 17, 2019.

4643
SIGNATURES

In accordance with Section 13 or 15 (d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: November ~~20, 2020~~12, 2021

Hanjiao Group, Inc.
Registrant

By: /s/ Tian Xiangyang

Tian Xiangyang
Chief Executive Officer

4744

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2020			2019			2020			2019

Revenues	$	81,669		$	8,031,797		$	210,172		$	59,089,885
Cost of revenues		(407,798	)		(827,225	)		(613,114	)		(38,115,528	)
Gross (loss) profit		(326,129	)		7,204,572			(402,942	)		20,974,357

Operating expenses:
General and administrative expenses		758,653			2,226,222			2,746,034			6,402,316
Selling expenses		1,291,611			1,426,350			4,950,028			3,057,377
Finance expenses (income), net		(3,468	)		(14,043	)		(173,622	)		81,102
Total operating expenses		2,046,796			3,638,529			7,522,440			9,540,795

Operating (loss) income		(2,372,925	)		3,566,043			(7,925,382	)		11,433,562

Other income (expense):
Other expenses, net		(796,320	)		(653,100	)		(3,565,325	)		(1,814,388	)
Income (loss) from equity investment		83,703			(18,493	)		83,703			(18,493	)
Total other expenses, net		(712,617	)		(671,593	)		(3,481,622	)		(1,832,881	)

(Loss) income before provision for income taxes		(3,085,542	)		2,894,450			(11,407,004	)		9,600,681
Provision for income taxes		–			361,558			–			1,797,331

Net (loss) income	$	(3,085,542	)	$	2,532,892		$	(11,407,004	)	$	7,803,350

Other comprehensive (loss) income
Foreign currency translation adjustment		23,318			(454,784	)		(69,355	)		(484,235	)

Comprehensive (loss) income	$	(3,062,224	)	$	2,078,108		$	(11,476,359	)	$	7,319,115

Earnings (loss) per ordinary share
Basic and diluted *	$	(0.03	)	$	0.03		$	(0.12	)	$	0.08

Weighted average number of ordinary shares outstanding
Basic and diluted *		97,201,030			97,201,030			97,201,030			97,201,030

	Ordinary shares*				Additional							Accumulated other			Total
	Number of shares		Amount		paid-in capital		Statutory reserves		Retained earnings			comprehensive loss			shareholders’ equity
Balance as of December 31, 2018		11,201,030	$	1,120	$	7,248,755	$	1,547,861	$	5,855,424		$	(445,922	)	$	14,207,238
Effect of reverse acquisition		86,000,000		8,600		7,811										16,411
Dividends declared		–		–		–		–		(111,615	)		–			(111,615	)
Net loss		–		–		–		–		(543,381	)		–			(543,381	)
Foreign currency translation		–		–		–		–		–			346,577			346,577
Balance as of March 30, 2019 (unaudited)		97,201,030	$	9,720	$	7,256,566	$	1,547,861	$	5,200,428		$	(99,345	)	$	13,915,230
Dividends declared										(199,539	)		–			(199,539	)
Net income		–		–		–		–		5,813,839			–			5,813,839
Foreign currency translation		–		–		–		–		–			(376,027	)		(376,027	)
Balance as of June 30, 2019 (unaudited)		97,201,030	$	9,720	$	7,256,566	$	1,547,861	$	10,814,728		$	(475,372	)	$	19,153,503
Dividends declared		–		–		–		–		(4,639,434	)		–			(4,639,434	)
Net income		–		–		–		–		2,532,892			–			2,532,892
Foreign currency translation		–		–		–		–		–			(454,785	)		(454,785	)
Balance as of September 30, 2019 (unaudited)		97,201,030	$	9,720	$	7,256,566	$	1,547,861	$	8,708,186		$	(930,157	)	$	16,592,176

Financial information of VIE
	September 30,			December 31,
	2021			2020
	(Unaudited)
Current assets	$	9,375,253		$	9,975,677
Property and equipment, net		1,890,954			1,919,816
Other noncurrent assets		12,421,400			12,354,301
Total assets		23,687,607			24,249,794
Total liabilities		(33,494,651	)		(29,005,749	)
Net (liabilities)	$	(9,807,044	)	$	(4,775,955	)

~~Classification~~Schedule of property and equipment estimated useful lives
Classification		Estimated useful lives
~~Vehicles~~Property		1020 years
~~Office equipment~~Vehicles		310 years
Office equipment		3 years
Furniture and fixtures		3 years
Software		3 years

Foreign currency translation rates
	September 30,		December 31,		Nine months ended September 30,
	2021		2020		2021		2020
Foreign currency	Balance Sheet		Balance Sheet		Profits/Loss		Profits/Loss
RMB:1USD		6.4854		6.5249		6.4714		6.9917

Schedule of cash, cash equivalents and restricted cash
	September 30,		December 31,
	2021		2020
	(Unaudited)
Cash and cash equivalents:
Cash on hand	$	7,942	$	2,643
Cash equivalents:
Bank time deposits (maturing within 3 months)		835,115		2,573,383
Other cash equivalents		71,125		74,839
Total cash equivalents		906,240		2,648,222
Total cash and cash equivalents		914,182		2,650,865
Restricted cash (see Note 16)		0		606,140
Total cash, cash equivalents and restricted cash	$	914,182	$	3,257,005

Schedule of inventories
	September 30,			December 31,			September 30,			December 31,
	2020			2019			2021			2020
		(Unaudited)					(Unaudited)
Finished goods	$	2,973,077		$	1,880,155		$	1,734,083		$	3,105,625
Less: allowance for slow-moving inventories		(728,819	)		(279,004	)		(701,150	)		(1,655,882	)
Inventories, net	$	2,244,258		$	1,601,151		$	1,032,933		$	1,449,743

Schedule of prepaid expenses
	September 30,			December 31,
	2021			2020
	(Unaudited)
Business advance to employees	$	170,012		$	154,515
Prepaid expenses		103,352			235,667
Others		11,865			7,072
Less: allowance for doubtful accounts		(31,085	)		(36,169	)
Total Prepaid Expenses and Other Current Assets	$	254,144		$	361,085

Schedule of property and equipment
	September 30,			December 31,
	2021			2020
	(Unaudited)
Property	$	1,709,947		$	1,699,595
Office furniture		97,885			98,876
Computer equipment		102,993			97,293
Vehicles		234,432			233,012
Software (1)		523,329			328,587
		2,668,586			2,457,363
Less: accumulated depreciation and amortization		(777,632	)		(537,547	)
Property and equipment, net	$	1,890,954		$	1,919,816

Schedule of other assets
	September 30,		December 31,
	2021		2020
	(Unaudited)
Office rental deposit	$	36,306	$	36,087
Other deposits		67,732		56,653
Total	$	104,038	$	92,740

Schedule of due to related parties
	September 30,		December 31,
	2021		2020
	(Unaudited)
Tian Xiangyang (1)	$	36,894	$	21,038
Total	$	36,894	$	21,038

Schedule of taxes payable
	September 30,		December 31,		September 30,		December 31,
	2020		2019		2021		2020
	(Unaudited)				(Unaudited)
VAT payable	$	16,580,443	$	16,431,683	$	17,244,297	$	17,057,766
Income tax payable		999,969		1,153,677
Income taxes payable						645,585		941,571
Other taxes payable		2,017,391		2,062,142		2,184,276		2,159,213
Total	$	19,597,803	$	19,647,502	$	20,074,158	$	20,158,550

	Amount
Schedule of lease maturity
Twelve months ending September 30,				Amount
2021	$	237,255
2022		191,197		$	39,470
Total lease payments		428,452			39,470
Less: imputed interest		(16,032	)		418
Less: amount prepaid		(22,781	)		–
Present value of lease liabilities	$	389,638		$	39,052

Schedule of other payables
	September 30,		December 31,		September 30,		December 31,
	2020		2019		2021		2020
		(Unaudited)			(Unaudited)
Payroll and benefits (1)	$	1,498,624	$	1,389,090	$	1,820,964	$	1,589,600
Payable to suppliers		819,041		1,846,105		89,022		26,643
Commissions payable		–		275,748		630,038		1,142,080
Payable to Niu Jianxin (2)		586,629		–		609,831		606,140
Interest and penalties (3)		5,772,935		3,354,544		9,477,331		7,019,374
Other current liabilities		263,244		21,596		809,879		500,750
Total	$	8,940,473	$	6,887,083	$	13,437,065	$	10,884,587

Net (loss) income provision by operation segments
	For the Nine Months Ended September 30,
	2021			2020
	(Unaudited)			(Unaudited)
Non-PRC operations	$	(137,416	)	$	0
PRC operations		(5,188,063	)		(11,407,004	)
Net loss before provision for income taxes	$	(5,325,479	)	$	(11,407,004	)

	For the nine months ended September 30
	2020			2019
	(Unaudited)			(Unaudited)
Non-PRC operations	$	–		$	–
PRC operations		(11,407,004	)		9,600,681
Net (loss) income before provision for income taxes	$	(11,407,004	)	$	9,600,681

Schedule of deferred tax assets
	September 30,			December 31,
	2021			2020
	(Unaudited)
Deferred tax assets	$	2,349,681		$	1,808,840
Valuation allowance		(2,349,681	)		(1,808,840	)
Deferred tax assets, net - long-term	$	0		$	0

Reconciliation of effective tax rate
	For the Nine Months Ended September 30,
	2021			2020
PRC statutory tax rate		25.0%			25.0%
Permanent differences		(19.0%	)		(17.2%	)
Tax holiday effect		(6.0%	)		(7.8%	)
Effective tax rate		0			0

Reconciliation of permanent differences
	For the Nine Months Ended September 30,
	2021			2020
Penalties related to unpaid VAT and income taxes		(7.6%	)		(3.3%	)
Non-deductible expenses/donations		(1.0%	)		(0.2%	)
Change in valuation allowance		(10.2%	)		(11.9%	)
Others		(0.2%	)		(1.8%	)
Total		(19.0%	)		(17.2%	)

	For the Nine Months Ended September 30,
	2020			2019
	(Unaudited)			(Unaudited)
Operating revenues	$	210,172		$	59,089,885
Loss from operations	$	(7,821,446	)	$	(9,614,315	)
Net loss	$	(11,148,559	)	$	7,816,984

	September, 30			December, 31
	2020			2019
Assets
Current assets
Investment in subsidiaries	$	(1,877,524	)	$	10,321,376
Total Current Assets		(1,877,524	)		10, 321,376
Total Assets	$	(1,877,524	)	$	10, 321,376
Liabilities and Shareholders’ (Deficit) Equity
Shareholders’ Equity
Common stock: $0.0001 par value, 100,000,000 shares authorized; 97,201,030 and 97,201,030 shares issued and outstanding; respectively *	$	9,720		$	9,720
Additional paid-in capital*		7,256,566			7,256,566
Statutory reserves		1,687,125			1,687,125
Retained earnings		(10,152,404	)		1,977,141
Accumulated other comprehensive loss		(678,531	)		(609,176	)
Total Shareholders’ (Deficit) Equity		(1,877,524	)		10,321,376

Total Liabilities and Shareholders’ (Deficit) Equity	$	(1,877,524	)	$	10, 321,376

Parent Company Financial Information
	September 30,			December 31,
	2021			2020
Assets	(Unaudited)			(Unaudited)
Current assets
Investment in subsidiaries and VIE	$	(10,684,094	)	$	(5,325,496	)
Total Current Assets		(10,684,094	)		(5,325,496	)
Total Assets	$	(10,684,094	)	$	(5,325,496	)
Liabilities and Shareholders’ Deficit
Shareholders’ Deficit
Common stock: $0.0001 par value; authorized 100,000,000 shares; issued and outstanding 97,201,030 shares at September 30, 2021 and December 31, 2020	$	9,720		$	9,720
Additional paid-in capital		7,360,741			7,360,741
Statutory reserves		1,687,125			1,687,125
Deficit		(18,932,805	)		(13,607,326	)
Accumulated other comprehensive loss		(808,875	)		(775,756	)
Total Shareholders’ Deficit		(10,684,094	)		(5,325,496	)

Total Liabilities and Shareholders’ Deficit	$	(10,684,094	)	$	(5,325,496	)

	(1)	HanJiao International Holding Limited. (“HJ” or “HanJiao”) was incorporated on July 5, 2018 in the British Virgin Islands.
	(2)	LuJi Technology International Holding Limited (“Luji Technology”) was incorporated on July 5, 2018 in the British Virgin Islands and is wholly owned by HJ.
	(3)	Inooka Holding Ltd. was established on July 18, 2018 in Hong Kong and is wholly owned by Luji Technology.
	(4)	Beijing Hanze Management Consulting Co., Ltd. (fka Beijing Hongtao Management Consulting Co., Ltd., currently “Beijing Hanze”), a Wholly Foreign-Owned Enterprise (“WFOE”), was established in the PRC on October 11, 2018 and is a wholly owned subsidiary of Inooka Holding Ltd. It currently provides consulting and technical services to Beijing Yingjun Technology Co., Ltd. (fka Beijing Luji Technology Co., Ltd., currently “Beijing VIE”).
	(5)	Beijing VIE was established in the PRC on March 27, 2007. It is engaged in the business of selling goods in China. Beijing Hanze controls Beijing VIE via various variable interest contractual arrangements (“VIE agreements”) to realize its economic benefits. Currently, the shareholders of Beijing VIE are Ms. Tian Xiangyang, Mr. Tian Zhihai, Mr. Liu Zexian, Ms. Gao Xuewei and Ms. Li Chunduo, together the “Beijing VIE Shareholders”.
	(6)	Guoyi Investment Fund Management (Beijing) Co., Ltd. (“Beijing Guoyi”) was formed on February 19, 2016, and is wholly owned by Beijing VIE. Beijing Guoyi has no business activity as of the date of this Quarterly Report.
	(7)	On March 15, 2019, Beijing VIE executed a Share Purchase Agreement with Rongcheng Health Group Co., Ltd. and acquired a 44% equity interest in Rongcheng Tianrun Taxus Co., Ltd. (“Rongcheng Tianrun”) for RMB 79,830,000 (approximately $12.3 million). Rongcheng Tianrun is organized and registered in the PRC, and it is engaged primarily in the cultivation and marketing of Taxus, a type of medicinal plant.

	·	~~The number of Series A Convertible Preferred was increased from 36,000 to 1,000,000.~~
	·	3,000,000 shares of Series B Convertible Preferred Stock were created with no voting rights, and conversion rights of 1000:1, with the restriction that holders cannot convert to hold more the 4.95% of issued and outstanding common stock.
	·	~~1,000,000 shares of Series C Convertible Preferred Stock were created with each Series C having 100,000 votes per share, with 1:1 conversion rights.~~

Name	No. of Shares	Percentage of Issued and Outstanding		Consideration Paid
Gao Xue Ran	8,581,063 of Common Stock; 964 shares of Series A Preferred Stock		76.61%	$	319,840
Zhang Yan Hua	1,935,633 of Common Stock		17.28%	$	72,146
Cheung Kwok Chiu Kris	483,304 of Common Stock		4.31%	$	18,014

~~Name~~		~~Positions~~
~~Tian Xiangyang~~		~~Chief Executive Officer, Director and Chairperson of the Board of Director~~
~~Shan Yonghua~~		~~Chief Financial Officer, and Director~~
~~Tian Zhihai~~		~~Chief Operating Officer and Director~~
~~Yin Jianen~~		~~Secretary and Director~~
~~Wang Jirui~~		~~Director~~

	For the Three Months Ended September 30,												Percentage			For the Three Months Ended September 30,												Percentage
	2020						2019						Change			2021						2020						Change
	Dollars			%			Dollars			%			%			(Unaudited)			%			(Unaudited)			%			%
Revenues	$	81.7			100.0		$	8,031.8			100.0			(99.0	)	$	1,052,323			100.0		$	81,669			100.0			1,188.5
Cost of revenues		(407.8	)		(499.1	)		(827.2	)		(10.3	)		(50.7	)		(506,218	)		(48.1	)		(407,798	)		(499.3	)		24.1
Gross (loss) profit		(326.1	)		(399.1	)		7,204.6			89.7			(104.5	)
Gross profit (loss)																	546,105			51.9			(326,129	)		(399.3	)		(267.5	)

General and administrative expenses		758.7			928.6			2,226.2			27.7			(65.9	)		618,099			58.7			758,653			928.9			(18.5	)
Selling expenses		1,291.6			1,580.9			1,426.4			17.8			(9.5	)		452,822			43.0			1,291,611			1,581.5			(64.9	)
Finance income, net		(3.5	)		(4.3	)		(14.0	)		(0.2	)		(75.0	)
Finance expenses (income), net																	10,957			1.0			(3,468	)		(4.3	)		(415.9	)
Total operating expenses		2,046.8			2,505.3			3,638.6			45.3			(43.7	)		1,081,878			102.8			2,046,796			2,506.2			(47.1	)

Operating (loss) income		(2,372.9	)		(2,904.4	)		3,566.0			44.4			(166.5	)
Operating loss																	(535,773	)		(50.9	)		(2,372,925	)		(2,905.5	)		(77.4	)

Other expenses, net		(712.6	)		(872.2	)		(671.6	)		(8.4	)		6.1			(801,002	)		(76.1	)		(796,320	)		(975.1	)		0.6
Income from equity investment																	–			–			83,703			102.5			(100.0	)
Total other expenses, net																	(801,002	)		(76.1	)		(712,617	)		(872.6	)		12.4

Total other expenses, net		(712.6	)		(872.2	)		(671.6	)		(8.4	)		6.1
(Loss) income before provision for income taxes		(3,085.5	)		(3,776.6	)		2,894.4			36.0			(206.6	)
Loss before provision for income taxes																	(1,336,775	)		(127.0	)		(3,085,542	)		(3,778.1	)		(56.7	)
Provision for income taxes		–			–			361.6			4.5			(100.0	)		–			–			–			–			–
Net (loss) income	$	(3,085.5	)		(3,776.6	)	$	2,532.8			31.5			(221.8	)

Net loss																$	(1,336,775	)		(127.0	)	$	(3,085,542	)		(3,778.1	)		(56.7	)

Foreign currency translation adjustment		23.3			28.5			(454.8	)		(5.7	)		(105.1	)		(17,027	)		(1.6	)		23,318			28.6			(173.0	)

Comprehensive (loss) income	$	(3,062.2	)		(3,748.1	)	$	2,078			25.9			(247.4	)
Comprehensive loss																$	(1,353,802	)		(128.6	)	$	(3,062,224	)		(3,749.6	)		(144.2	)

	For the Nine Months ended
	September 30,
	2020			2019
	(Unaudited)			(Unaudited)
Net cash (used in) provided by operating activities	$	(21,468,409	)	$	26,099,723
Net cash (used in) investing activities	$	(1,788,623	)	$	(11,658,276	)
Net cash (used in) financing activities	$	(1,724,779	)	$	(185,818	)
Effect of exchange rate changes on cash and cash equivalents	$	30,376		$	(944,766	)
Net (decrease) increase in cash and cash equivalents	$	(24,951,435	)	$	13,310,863
Cash and cash equivalents at beginning of period	$	28,919,817		$	18,019,682
Cash and cash equivalents at end of period	$	3,968,382		$	31,330,545

●	~~There were deficiencies in our~~·	Lack of a formal documentation retention policy to ensure that supporting control ~~documentation.~~
●	~~There was no independent audit committee.~~evidence is property maintained.

	·	changes in laws, regulations or their interpretation;
	·	confiscatory taxation;
	·	restrictions on currency conversion, imports or sources of supplies, or ability to continue as a for-profit enterprise;
	·	expropriation or nationalization of private enterprises; and
	·	the allocation of resources.