LEPOTA The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this report. Our consolidated financial statements have been prepared in accordance withU.S. GAAP. In addition, our consolidated financial statements and the financial data included in this Annual Report reflect our reorganization and have been prepared as if our current corporate structure had been in place throughout the relevant periods. The following discussion and analysis contain forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. For additional information regarding these risks and uncertainties, please see
"Risk Factors." Overview The Company was originally incorporated inNevada under the name "Lepota Inc. " onDecember 9, 2013 . It maintains its principal executive offices at Room 1703B,Zhongzhou Building , No.3088 Jintian Road ,Futian District ,Shenzhen City,Guangdong Province ,People's Republic of China 518000. The Company was formed for the purpose of importing and distributing cosmetics into theRussian Federation . The Company filed a registration statement on Form S-1 with theSEC onSeptember 18, 2014 , which was declared effective onMay 4, 2016 . However, because the Company did not identify a viable business model or engage in any business prior to the Share Exchange, it was a shell company untilAugust 12, 2020 . OnFebruary 18, 2020 , as a result of a private transaction, 5,000,000 shares of the Company's Common Stock were transferred fromRene Lawrence , its controlling shareholder, to certain purchasers (the "Purchasers"), withZhao Lixin , the Company's current CEO, becoming a 53.8% holder of the voting rights of the Company, and the Purchasers becoming the controlling shareholders. As a result of the change of control, Iurii Iurtaev resigned as the Company's president, chief executive officer, chief financial officer and director andRene Lawrence resigned as the Company's secretary.Zhao Lixin was then named President, Chief Executive Officer, Chief Financial Officer, Treasurer, Secretary and Chairman of the Board of Directors of the Company. OnAugust 12, 2020 (the "Closing Date"), the Company closed on the Share Exchange with Mu Yan Samoa and the Mu Yan Shareholders. As a result,Mu Yan Samoa is now a wholly owned subsidiary of the Company. Under the Share Exchange Agreement, the Mu Yan Shareholders exchanged 100% of the outstanding shares of Mu Yan Samoa's common stock for 300,000,000 shares of the Company's Common Stock. As a result of the Share Exchange, effectiveSeptember 22, 2020 , the Company's name was changed toMu Yan Technology Group Co., Limited .
For accounting purposes, the Share Exchange was treated as a recapitalization of the Company with Mu Yan Samoa as the acquirer. When we refer in this Annual Report to business and financial information for periods prior to the consummation of the Share Exchange, we are referring to the business and financial information of Mu Yan Samoa unless the context suggests otherwise.
22 As a result of the closing of the Share Exchange, the Mu Yan Shareholders own approximately 98% of the total outstanding common shares of the Company and the former shareholders of the Company own approximately 2%. The shares issued to the Mu Yan Shareholders in connection with the Share Exchange were not registered under the Securities Act in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act, which exempts transactions by an issuer not involving any public offering. These securities may not be offered or sold absent registration or an applicable exemption from the registration requirement. As a result of the recapitalization described above, management of the Company believes that the Company is no longer a shell company. The Company's operations now consist of the operations of Mu Yan Samoa and its subsidiaries. Since our operating subsidiary, Mu Yan Shenzhen, was formed inSeptember 2019 and did not commence sales of the Huobaobao backpack untilJanuary 2020 , we have no comparable revenue data for a prior fiscal year, making it impossible to quantify or accurately assess the impact of the COVID-19 pandemic on our revenues for the fiscal year endedJuly 31, 2020 . However, management believes that the pandemic did negatively impact our results of operations for that fiscal year.
Throughout the remainder of this Annual Report, when we use phrases such as "we," "our," "Company" and "us," we are referring to the Company and all of its subsidiaries, as a combined entity.
Results of Operations
For the fiscal years ended
The following summarizes our results of operations for the fiscal year endedJuly 31, 2021 and the fiscal year endedJuly 31, 2020 . The table and the discussion below should be read in conjunction with our financial statements and the notes thereto appearing elsewhere in this report. Revenue Revenue generated from selling our mobile advertisement backpack contributed$5,926,274 and$9,050,811 to our total revenue for the fiscal years endedJuly 31, 2021 and 2020, respectively. The decrease in revenue for the fiscal year endedJuly 31, 2021 was due to a significant decrease in the number of mobile advertisement backpacks sold during the fiscal year endedJuly 31, 2021 as a result of the suspension of sales while the Company worked on upgrading and updating the hardware and the software utilized in the backpack as well as
a shortage of raw materials..
Revenue generated from advertising services contributed
Total revenue for the years endedJuly 31, 2021 and 2020 were$6,261,163 and$9,050,811 , respectively. 23 Cost of Revenue Increase (decrease) in Year ended July 31, 2021 compared to 2021 2020 2020 (In U.S. dollars, except for percentages) Net revenue for mobile advertisement backpack$ 5,926,274 100.0 %$ 9,050,811 100.0 %$ (3,124,537 ) (34.5 )% Inventory$ 2,560,674 43.2 %$ 3,113,151 34.4 %$ (552,477 ) (17.7 )% Total cost of revenue for mobile advertisement backpack$ 2,560,674 43.2 %$ 3,113,151 34.4 %$ (552,477 ) (17.7 )% Gross profit for mobile advertisement backpack$ 3,365,600 56.8 %$ 5,937,660 65.6 %$ (2,572,060 ) (43.3 )% Net revenue for advertising services$ 334,889 100.0 % $ - -$ 334,889 N/A Labor$ 8,530 2.5 % $ - -$ 8,530 N/A Marketing$ 65,141 19.5 % $ - -$ 65,141 N/A Total cost of revenue for advertising services$ 73,671 22.0 % $ - -$ 73,671 N/A Gross profit for advertising services$ 261,218 78.0 % $ - -$ 261,218 N/A Total cost of revenue$ 2,634,345 42.1 %$ 3,113,151 34.4 %$ (478,806 ) (15.4 )% Gross profit$ 3,626,818 57.9 %$ 5,937,660 65.6 %$ (2,310,842 ) (38.9 )%
Cost of revenue for mobile advertisement backpack for the years endedJuly 31, 2021 and 2020 was$2,560,674 and$3,113,151 , respectively. The significant decrease in cost of revenue was a result of our having sold 15,252 mobile advertisement backpacks during the year endedJuly 31, 2021 compared to 17,648 backpacks having been sold during the year endedJuly 31, 2020 .
For our mobile advertisement backpack business, we outsourced the assembly processes of our products to subcontractors, and we maintained stable relationships with them. We outsource our delivery services to two courier companies. Delivery fees are paid by the ultimate customers upon delivery of the products. We have not experienced difficulty in obtaining inventory for our business, and we believe we maintain good relationships with our suppliers.
Inventory costs for our mobile advertisement backpack business were 43.2% of our total mobile advertisement backpack business revenue in the year endedJuly 31, 2021 , compared with 34.4% in the year endedJuly 31, 2020 . The increased percentage was mainly due to a 50% reduction in the selling price of our mobile advertisement backpacks due to a promotion fromSeptember 2020 toNovember 2020 . Cost of revenue for advertising services for the years endedJuly 31, 2021 and 2020 was$73,671 and $Nil, respectively. The increase in cost of revenue for advertising services was due to the fact that the Company did not commence sales in this business segment untilDecember 2020 . For our advertising services business, we outsource some of the business to our contractors. Labor fees, which amounted to$8,530 for the year endedJuly 31, 2021 and $Nil for the year endedJuly 31, 2020 , represented approximately 11.6% and Nil of total cost of revenues for our advertising services segment for the years endedJuly 31, 2021 and 2020, respectively. Marketing fees, which amounted to$65,141 for the year endedJuly 31, 2021 and $Nil for the year endedJuly 31, 2020 , represented approximately 88.4% and Nil of total cost of revenues for our advertising services segment for the years endedJuly 31, 2021 and 2020, respectively. 24 Labor costs for our service business accounted for 2.5% of our total service revenue for the year endedJuly 31, 2021 , compared with Nil for the year endedJuly 31, 2020 . Marketing costs for our service business accounted for 19.5% of our total service revenue for the year endedJuly 31, 2021 , compared with Nil for the year endedJuly 31, 2020 . Total cost of revenue for the year endedJuly 31, 2021 was$2,634,345 compared with$3,113,151 for the year endedJuly 31, 2020 . Total cost of revenue as a percentage for the year endedJuly 31, 2021 was 42.1%, compared with 34.4% for the year endedJuly 31, 2020 . Gross profit for the year endedJuly 31, 2021 was 57.9% compared with 65.6% for the year endedJuly 31, 2020 . Net Profit Year ended 2021 compared to 2020 July 31, July 31, Amount of % of 2021 2020 Increase Increase Gross Profit for mobile advertisement backpack$ 3,365,600 $ 5,937,660 $ (2,572,060 ) (43 )% Gross Profit for advertising services$ 261,218 $ -$ 261,218 N/A Additional Tax$ (52,425 ) $ (39,927 ) $ (12,498 ) 31 % Gross Profit$ 3,574,393 $ 5,897,733 $ (2,323,340 ) (39 )% Operating Expenses:
Selling and Marketing Expenses$ 637,856 $ (904,192 ) $
266,336 (29 )% General and Administrative Expenses$ 1,803,010 $ (900,761 ) $ (902,249 ) 100 % Research and Development Expenses$ 526,646 $ (322,839 ) $ (203,807 ) 63 % Operating Expenses$ 2,967,512 $ (2,127,792 ) $ (839,720 ) 39 % Other Income, net$ 8,825 $ 368,896 $ (360,071 ) (98 )%
Income (Loss) from operations
(85 )%
Revenue Related Tax $ 455,075 $ (1,044,138 ) $ 589,063 (56 )% Net Profit$ 160,631 $ (3,094,699 ) $ (2,934,068 ) (95 )%
Gross profit for our mobile advertisement backpack for the year endedJuly 31, 2021 and the year endedJuly 31, 2020 were$3,365,600 and$5,937,660 , respectively. Gross profit margins for our mobile advertisement backpack for the year endedJuly 31, 2021 and the year endedJuly 31, 2020 were 56.8% and 65.6%, respectively. The decrease in gross profit margin was principally due to a promotion in which the selling price of the backpacks was reduced by 50% fromSeptember 2020 toNovember 2020 , and a further reduction in revenue that resulted from reduced sales while the Company worked on upgrading and updating the hardware and the software utilized in the mobile advertisement backpack. Management believes that, now that the upgrades and updates have been completed, the Company's dependence upon third party suppliers will decrease and unit savings in production will be realized. Gross profit for advertising services for the year endedJuly 31, 2021 and the year endedJuly 31, 2020 were$261,218 and $Nil , respectively. Gross profit margins for advertising services for the year endedJuly 31, 2021 and the year endedJuly 31, 2020 were 78% and Nil, respectively. The increase in gross profit margin for advertising services was due to the fact that the Company did not commence sales in this business segment untilDecember 2020 . 25
Net profit for the fiscal year ended
Selling and Marketing Expenses
Our selling and marketing expenses for the years endedJuly 31, 2021 and 2020 were$637,856 and$904,192 , respectively. Selling and marketing expenses during both of those years consisted primarily of marketing expenses. The decrease in selling and marketing expenses from the year endedJuly 31, 2020 to the year endedJuly 31, 2021 was primarily attributable to a decrease in selling expenses related to our mobile advertisement backpack due to a reduction in sales of that product. During the year endedJuly 31, 2021 , we sold 15,252 backpacks, whereas during the year endedJuly 31, 2020 , we sold 17,648.
General and Administrative Expenses
Our general and administrative expenses for the year endedJuly 31, 2021 and 2020 were$1,803,010 and$900,761 , respectively. General and administrative expenses consisted primarily of administrative payroll, office expense, depreciation charges and other office expenses that are not directly attributable to our revenues. The increase in general and administrative expenses was primarily attributable to business entertainment expense incurred to maintain business relationships with cooperative partners on our mobile advertisement backpack while the Company worked on upgrading and updating the hardware and the software utilized in the mobile advertisement backpack.
Research and Development Expenses
Our research and development expenses for the fiscal years endedJuly 31, 2021 and 2020 were$526,646 and$322,839 , respectively. Research and development expenses consist primarily of researchers' payroll and IT services expenses. The increase in research and development expenses during the year endedJuly 31, 2021 was primarily attributable to the upgrading and updating of the hardware and the software utilized in the Company's mobile advertisement backpack. Other Income
Other income in the fiscal year endedJuly 31, 2021 was$8,825 compared to other income of$368,896 in the fiscal year endedJuly 31, 2020 . Other income in the fiscal year endedJuly 31, 2021 was attributable to the sale of backpack accessories, whereas other income in the fiscal year endedJuly 31, 2020 was attributable to our one-time consulting service provided to potential distributors of our products. Income Taxes
Income tax for the fiscal years ended
Summary of Cash Flows Summary cash flows information for the fiscal years endedJuly 31, 2021 and 2020 are as follow:July 31, 2021 2020 (InU.S. Dollars)
Net cash provided by operating activities
26 Net cash provided by operating activities were$2,206,306 and$1,088,504 for the fiscal years endedJuly 31, 2021 and 2020, respectively. The cash provided by operating activities during the year endedJuly 31, 2021 was primarily attributable to other receivables, inventories and advances from customers. The cash provided by operating activities during the year endedJuly 31, 2020 was primarily attributable to advances from customers, inventories, downpayments to suppliers, other payables and amount due to/from related parties. Net cash used in investing activities during the fiscal year endedJuly 31, 2021 was$2,048,275 , consisting entirely from the acquisition of property, plant and equipment. Net cash used in investing activities during the fiscal year endedJuly 31, 2020 was$231,436 and consisted of the purchase of a motor vehicle
and office equipment.
Financial Condition, Liquidity and Capital Resources
As ofJuly 31, 2021 , we had cash on hand of$1,092,575 , total current assets of$6,502,832 and current liabilities of$3,583,457 . The Company had revenues of$6,261,163 and generated a net profit of$160,631 for the year endedJuly 31, 2021 . We believe that our business can generate sufficient cash flows to support the growth of our business. Concentration of Credit Risk Financial instruments that potentially expose the Company to significant concentration of credit risk consist primarily of cash and cash equivalents and amount due from related parties. As ofJuly 31, 2021 andJuly 31, 2020 , substantially all of the Company's cash and cash equivalents were deposited with financial institutions with high-credit ratings and quality. The Company did not have any clients constituting 10% or more of its net revenues for the fiscal year endedJuly 31, 2021 and the fiscal year endedJuly 31, 2020 .
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements (as that term is defined in Item 303(a)(4)(ii) of Regulation S-K) as ofJuly 31, 2021 that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Critical Accounting Policies and Estimates
We prepare our financial statements in conformity withU.S. GAAP, which requires management to make certain estimates and apply judgments. We base our estimates and judgments on historical experience, current trends and other factors that management believes to be important at the time the financial statements are prepared. On a regular basis, we review our accounting policies and how they are applied and disclosed in our consolidated financial statements. Actual results could differ from those estimates made by management. We believe that of our significant accounting policies, which are described in note 2 to our financial statements, the following accounting policies involve a greater degree of judgment and complexity. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our financial condition and results of operations.
Recently Issued and Adopted Accounting Pronouncements
InFebruary 2016 , the FASB issued ASU 2016-02, Leases (Topic 842). The guidance supersedes existing guidance on accounting for leases with the main difference being that operating leases are to be recorded in the statement of financial position as right-of-use assets and lease liabilities, initially measured at the present value of the lease payments. For operating leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election not to recognize lease assets and liabilities. For public business entities, the guidance is effective for fiscal years beginning afterDecember 15, 2018 , including interim periods within those fiscal years. Early application of the guidance is permitted. In transition, entities are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. Mu Yan Shenzhen leased an office inShenzhen , PRC, under an operating lease which will terminate in 2022; hence, adoption of this standard by the Company resulted in the recognition of right-of-use assets of$8,825 and operating lease liabilities of$368,896 for the fiscal year endedJuly 31, 2021 . 27 InJune 2016 , the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Statements. This ASU requires a financial asset (or group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. This Accounting Standards Update affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. For public business entities, the amendments in this Update are effective for fiscal years beginning afterDecember 15, 2022 , including interim periods within those fiscal years. All entities may adopt the amendments in this Update through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (that is, a modified-retrospective approach). The Company is in the process of evaluating the impact of the adoption of this pronouncement on its financial statements.
The Company reviews new accounting standards as issued. Management has not identified any other new standards that it believes will have a significant impact on the Company's consolidated financial statements.
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