China Shianyun Group (PINK:SAYC)

Management Discussion and Analysis

Revenue for the three months ended September 30, 2015 amounted to $725,039, represents a substantial increase of $676,387 or 1,390.3% compared to $48,652 for the same period in 2014.

(a)  Sale of consumer products

Our sales of consumer products in the three months ended September 30, 215 consist of sales of red wine, natural eggs, growing and producing in the farm in Xinjiang Province, which are all produced by ecologically breeding methods. The rebound in the sales of consumer products as we temporarily suspended our sales of consumer products in first half of 2014 to adjust our product portfolio to find the consumer preference..

In the first half of 2015, observing the fast growth of the IoT market in China, we have been focusing on designing “GEN+Me”chip and accompanying IoT system.  We have completed our research on IoT system in the third quarter of 2015, which have been widely introduced to the market.  The sales revenue of “GEN+Me”chips reached $368,538 in the three months ended September 30, 215. We also provided supply chain management and solution services to the customers based on the logistic information gathering from our “GEN+Me”chips and the newly developed IoT system, which generated revenue of $353,901 in this quarter.  We believed the IoT system, “GEN+Me”chips and “Shianyun” platform create immense growth potential for our operation.

(b)  Regional distribution rights

Since third quarter of 2010, the Company has granted regional distribution rights in the PRC for using “GEN+Me” trademark.

Revenues from regional distribution rights include initial fees and continuing management fee income. All amounts received will be initially recognized as receipt in advance, and will be recognized as revenues when the following criteria are met:
 
(i) Initial admission fee income is generally recorded upon completion of admission procedures, when the rights to use the “GEN+ME” trademarks are granted to the users, and when collectability is reasonably assured.  
(ii) Continuing management fee income represent regular contractual payments received for our supporting services, which are recognized as revenue when earned, generally on a straight line basis.

The continuing supporting services included adverting campaign, band promotion activities and training services provided to the distributor for the next three years after distribution rights granted. The continuing management fee will be recognized on a yearly basis. During the three months ended September 30, 2015, we did not recruit any new distributor or provide any supporting services to our existing distributors as we were experiencing a transitional period to clearing out our inventories and developing the IoT business.

The Company recorded a pretax income of $1,452,066 for the three months ended September 30, 2015, compared to a pretax loss of $245,306 for the three months ended September 30, 2014. The substantial change was mainly attributable to the recovery of bad debts amounted to $1,001,648 and our new revenue sourcing from the IoT business during the period.

There was no PRC income tax provision for the second quarter of 2015 as substantial amount of taxable income were absorbed by accumulated losses incurred in previous years.  The Company did not recognize deferred tax assets in the three months ended September 30, 2014 for net operating loss based on that no sufficient future taxable profits will be available to allow all or part of the deferred tax asset to be utilized.

Management Discussion and Analysis

Revenue for the three months ended June 30, 2015 amounted to $24,382, represents a substantial decrease of $33,248 or 57.7% compared to $57,630 for the same period in 2014. 

The Company recorded a pretax income of $990,796 for the three months ended June 30, 2015, compared to a pretax loss of $239,042 for the three months ended June 30, 2014. The substantial change was mainly attributable to the recovery of bad debts amounted to $1,260,660 during the period.

There was no PRC income tax provision for the second quarter of 2015 as substantial amount of taxable income were absorbed by accumulated losses incurred in previous years.  The Company did not recognize deferred tax assets in the three months ended June 30, 2014 for net operating loss based on that no sufficient future taxable profits will be available to allow all or part of the deferred tax asset to be utilized.

Management Discussion and Analysis

Revenues

Revenue for the three months ended March 31, 2015 amounted to $782,417, represents a substantial increase of $681,450 or 674.9% compared to $100,967 for the same period in 2014. 

Net income/(loss)

We recorded a net income of $119,892 for the first quarter of 2015, as compared to a net loss of $710,091 for the same period in 2014. The increase in net income was mainly attributable to the growth of operation revenue and the significant decrease in selling and general administrative expenses.

Management Discussion and Analysis

Revenues

We generate revenues from sales of consumer products and income for granting regional distribution rights.

Revenue for the year ended December 31, 2014 amounted to $209,992, compared to $2,005,497 for the same period in 2013, representing a significant decrease of 89.5%.

a) Sales of consumer products

Our sales of consumer products consist of sales of red wine, natural eggs, cured meat and noodle with extracted tomato carotenes, which are all produced by ecologically breeding methods.  This substantial decrease in sale of consumer products is a result of our modification of business strategies and products portfolio in 2014.

The market of consumer products is highly competitive and customer preferences change constantly. High value products (healthy, nutritious and nature foods, wine, etc.) come to be a trend in sales strategy accompanied with the development of the product diversification. We concentrated our effort on the market and product research and continually adjusted our product portfolio to seize the next profit orientation. As a result of our modification of sales strategies, the consumer products business was affected in the short period of time.
 
In order to improve the Company’s operational results and financial situation, the Company constantly adjusts its manufacture and distribution strategies according to economic conditions, consumer preference, government policy and social climate in China’s marketplace. The Company has developed and improved online platform “Shianyun” in addition to its offline regional distribution channels during 2014. Our new logistics and distribution system “Intelligent Community” will go into service in 2015, which will provide efficient and effective delivery and storage service to customer. To further enhance brand awareness and expand market shares, the Company will introduce the consumer goods under combined brand name and distribute via online platform in 2015. As a part of its strategic adjustments, the Company is diversifying its product portfolio to include various healthy, nutritious and nature foods.
 
The Company believes that the undertaking of its strategic adjustments ensures a sustainable and long-term growth. Our revenue will be greatly improved along with introduction of the new products and launch of the cost-effective logistic system.

(b) Regional distribution rights

Since the third quarter of 2010, the Company has granted regional distribution rights in the PRC for using “GEN+Me” trademark.

Revenues from regional distribution rights include initial fees and continuing management fee income. All amounts received are initially recognized as receipt in advance, and recognized as revenues when the following criteria are met:
 
(i) Initial admission fee income is generally recorded upon completion of admission procedures, when the rights to use the “GEN+Me” trademarks are granted to the users, and when collectability is reasonably assured.

(ii) Continuing management fee income represent regular contractual payments received for our supporting services, which are recognized as revenue when earned, generally on a straight line basis.

The continuing supporting services include adverting campaign, band promotion activities and training services provided to the distributor for the next three years after distribution rights granted.

Since our modification of business strategies, our revenues from regional distribution rights dropped significantly. We expected our revenue from regional distribution rights will realize recovery growth along with implementing our new business strategies.

Net loss

We recorded a net loss of $1,338,555 and a net loss of $381,508 for the year ended December 31, 2014 and 2013, respectively. The increase of loss was mainly attributable to the reduction in operation revenue and the significant increase in general administrative expenses.

Management Discussion and Analysis

Revenues

Revenue for the three months ended September 30, 2014 amounted to $48,652, representing a $447,205 or 90.19% decrease as compared to $495,857 for the same period in the last year.

 
(a)  Sale of consumer products
 
Our sales of consumer products consist of sales of red wine, natural eggs, cured meat and noodle with extracted tomato carotenes, which are all produced by ecologically breeding methods. High value products (healthy, nutritious and nature foods, wine, etc.) come to be a trend in sales strategy accompanied with the development of the product diversification. We conducted market and product research and continually adjusted our product portfolio to seize the next profit orientation. As a result of the modification of sales strategy, the consumer products business was affected in the short period of time and the revenue from sale of consumer products decreased by $27,008, from $75,660 for the three months ended September 30, 2013 to $48,652 for the third quarter of 2014.
 
In order to improve the Company’s operational results and financial situation, the Company constantly adjusts its manufacture and distribution strategies according to economic conditions, consumer preference, government policy and social climate in China’s marketplace. The Company has developed online platform in addition to its offline regional distribution channels and plants to conduct series of online promotions to attract end-consumers. To further enhance brand awareness and expand market shares, the Company plans to use combined brand name for consumer goods distributed via online platform in 2014. As a part of its strategic adjustments, the Company is diversifying its product portfolio to include various healthy, nutritious and nature foods. The Company believes that the undertaking of its strategic adjustments ensures a sustainable and long-term growth.
 

(b)  Regional distribution rights

Since third quarter of 2010, the Company has granted regional distribution rights in the PRC for using “GEN+Me” trademark.
 
Revenues from regional distribution rights include initial fees and continuing management fee income. All amounts received will be initially recognized as receipt in advance, and will be recognized as revenues when the following criteria are met:
 

(i) Initial admission fee income is generally recorded upon completion of admission procedures, when the rights to use the “GEN+ME” trademarks are granted to the users, and when collectability is reasonably assured.

(ii) Continuing management fee income represent regular contractual payments received for our supporting services, which are recognized as revenue when earned, generally on a straight line basis.

 
The continuing supporting services included adverting campaign, band promotion activities and training services provided to the distributor for the next three years after distribution rights granted. The continuing management fee will be recognized on a yearly basis.
 
Since our modification of business strategies, our revenues from regional distribution rights dropped significantly. We expected our revenue from regional distribution rights will realize recovery growth along with implementing our new business strategies.

Net loss
 
We recorded a net loss of $245,306 for the third quarter of 2014, as compared to a net loss of $110,515 for the same period in 2013. The decrease in net income was mainly attributable to the reduction in operation revenue.

Management Discussion and Analysis

Revenues

Revenue for the three months ended June 30, 2014 amounted to $57,630, representing a $55,353 or 49% decrease compared to $112,983 for the same period in the last year.

Net loss

We recorded a net loss of $239,042 for the second quarter of 2014, as compared to a net loss of $185,337 for the same period in 2013. The decrease in net income was mainly attributable to the reduction in operation revenue.

Management Discussion and Analysis

Revenues

We generate revenues from sales of consumer products and income for granting regional distribution rights.

Revenue for the year ended December 31, 2013 amounted to $2,005,497, compared to $6,870,194 for the same period in 2012, representing a significant decrease of 70.8%.

Net (loss)/income

We recorded a net loss of $381,508 and a net profit of $635,873 for the year ended December 31, 2013 and 2012, respectively. The change was mainly due to the decrease of sales of consumer products caused by our strategic adjustment in 2013.