MU YAN TECHNOLOGY GROUP CO., LTD Management’s Discussion and Analysis of Financial Position and Results of Operations (Form 10-Q)

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 with U.S.
GAAP. In addition, our consolidated financial statements and the financial data
included in this Quarterly 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.



Overview



The Company was originally incorporated in Nevada under the name "Lepota Inc."
on December 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 the Russian
Federation.



The Company filed a registration statement on Form S-1 with the SEC on September
18, 2014, which was declared effective on May 4, 2016. However, because the
Company did not identify a viable business model or engage in any business prior
to the share exchange discussed below, it was a shell company until August
12,
2020.



On February 18, 2020, as a result of a private transaction, 5,000,000 shares of
the Company's Common Stock were transferred from Rene Lawrence, its controlling
shareholder, to certain purchasers (the "Purchasers"), with Zhao 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 and Rene 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.



On August 12, 2020 (the "Closing Date"), the Company closed on a share exchange
(the "Share Exchange") with Mu Yan Technology Holding Co., Limited, a limited
liability company incorporated in Samoa ("Mu Yan Samoa"), and the holders of
100% of the outstanding shares of Mu Yan Samoa's common stock (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, effective September 22, 2020, the Company's name was changed to Mu 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 Quarterly
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.



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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.



Throughout the remainder of this Quarterly 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.



Political and economic risks in China



The Company's operations are conducted 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 and by the general state of
the PRC economy. Because all of our operations are conducted in the PRC through
our wholly-owned subsidiaries, the Chinese government may exercise significant
oversight and discretion over the conduct of our business and may intervene in
or influence our operations at any time, which could result in a material change
in our operations and/or the value of our shares.



Recently, the PRC government initiated a series of regulatory actions and made a
number of public statements on the regulation of business operations in the PRC
with little advance notice, including cracking down on illegal activities in the
securities market, enhancing supervision over PRC-based companies listed
overseas using a variable interest entity structure, adopting new measures to
extend the scope of cybersecurity reviews, and expanding efforts in
anti-monopoly enforcement. We do not believe that we are directly subject to
these regulatory actions or statements, as we do not have a variable interest
entity structure and our business does not involve the collection of user data,
implicate cybersecurity, or involve any other type of restricted industry.
Because these statements and regulatory actions are new, however, it is highly
uncertain how soon legislative or administrative regulation making bodies in the
PRC will respond to them, or what existing or new laws or regulations will be
modified or promulgated, if any, or the potential impact such modified or new
laws and regulations will have on our daily business operations or our ability
to accept foreign investments and list on an U.S. exchange.



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The structure of cash flow within our organization, and as a summary of the applicable regulations, is as follows:



1. Our equity structure is a direct holding structure, that is, the overseas
entity trading in the U.S., Mu Yan Technology Group Co., Limited ("Mu Yan
Technology"), through our 100% owned Samoan subsidiary controls Mu Yan (Hong
Kong) Technology Co., Limited ("Mu Yan Hong Kong"), which owns 100% of Mu Yan
(Shenzhen) Media Technology Co., ("Mu Yan Shenzhen") (the "WFOE"), which owns
100% of Mu Yan (Shenzen Digital Technology Co., Limited ("Mu Yan Digital).



2. Within our direct holding structure, the cross-border transfer of funds
within our corporate group is legal and compliant with the laws and regulations
of the PRC. After foreign investors' funds enter Mu Yan Technology, the funds
can be directly transferred to Mu Yan Hong Kong, and then to Mu Yan Shenzhen in
the PRC and then transferred to subordinate operating entities through the WFOE.



If the Company intends to distribute dividends, the Company will transfer the
dividends to Mu Yan Hong Kong in accordance with the laws and regulations of the
PRC, and then Mu Yan Hong Kong will transfer the dividends to Mu Yan Technology,
and the dividends will be distributed from Mu Yan Technology to all shareholders
respectively in proportion to the shares they hold, regardless of whether the
shareholders are U.S. investors or investors in other countries or regions.



3. In the reporting periods presented in this Form 10-Q, no cash and other asset
transfers have occurred among the Company and its subsidiaries; and no dividends
or distributions of a subsidiary has been made to the Company. For the
foreseeable future, the Company intends to use any earnings for research and
development, to develop new products and to expand its distribution and
production capacity. As a result, we do not expect to pay any cash dividends.



4. Our PRC subsidiaries' ability to distribute dividends is based upon their
distributable earnings. Current PRC regulations permit our PRC subsidiaries to
pay dividends to their respective shareholders only out of their accumulated
profits, if any, determined in accordance with PRC accounting standards and
regulations. In addition, each of our PRC subsidiaries is required to set aside
at least 10% of its after-tax profits each year, if any, to fund a statutory
reserve until such reserve reaches 50% of each of their registered capitals.
These reserves are not distributable as cash dividends.



To address persistent capital outflows and the RMB's depreciation against the
U.S. dollar in the fourth quarter of 2016, the People's Bank of China and the
State Administration of Foreign Exchange, or SAFE, have implemented a series of
capital control measures in the subsequent months, including stricter vetting
procedures for PRC-based companies to remit foreign currency for overseas
acquisitions, dividend payments and shareholder loan repayments. The PRC
government may continue to strengthen its capital controls and our PRC
subsidiaries' dividends and other distributions may be subject to tightened
scrutiny in the future. The PRC government also imposes controls on the
conversion of RMB into foreign currencies and the remittance of currencies out
of the PRC. Therefore, we may experience difficulties in completing the
administrative procedures necessary to obtain and remit foreign currency for the
payment of dividends from our profits, if any. Furthermore, if our subsidiaries
in the PRC incur debt on their own in the future, the instruments governing the
debt may restrict their ability to pay dividends or make other payments.



In addition, the Enterprise Income Tax Law and its implementation rules provide
that a withholding tax at a rate of 10% will be applicable to dividends payable
by Chinese companies to non-PRC-resident enterprises unless reduced under
treaties or arrangements between the PRC central government and the governments
of other countries or regions where the non-PRC resident enterprises are tax
resident. Pursuant to the tax agreement between Mainland China and the Hong Kong
Special Administrative Region, the withholding tax rate in respect to the
payment of dividends by a PRC enterprise to a Hong Kong enterprise may be
reduced to 5% from a standard rate of 10%. However, if the relevant tax
authorities determine that our transactions or arrangements are for the primary
purpose of enjoying a favorable tax treatment, the relevant tax authorities may
adjust the favorable withholding tax in the future. Accordingly, there is no
assurance that the reduced 5% withholding rate will apply to dividends received
by our Hong Kong subsidiary from our PRC subsidiaries. This withholding tax will
reduce the amount of dividends we may receive from our PRC subsidiaries.



Results of Operations for the three months ended October 31, 2021 and 2020



The following summarizes our results of operations for the three months ended
October 31, 2021 and 2020. The table and the discussion below should be read in
conjunction with our financial statements and the notes thereto appearing
elsewhere in this Quarterly Report.



Revenue



Revenue generated from selling our mobile advertisement backpack contributed
$168,235 and $4,551,255 to our total revenue for the three months ended October
31, 2021 and 2020, respectively. The decrease in revenue for the three months
ended October 31, 2021 was due to a significant decrease in the number of mobile
advertisement backpack sold during the three months ended October 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 backpacks as well as a
shortage raw materials.



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Cost of Revenue



                                                                                                       Increase
                                               Three months ended October 31,                        (decrease) in
                                              2021                         2020                  2021 compared to 2020
                                         (In U.S. dollars, except for percentages)
Net revenue for mobile
advertisement backpack             $   168,235          100.0 %   $ 4,551,255       100.0 %   $    (4,383,020 )     (96.3 )%
Inventory                          $    25,658           15.3 %   $ 1,955,934        43.0 %   $    (1,930,276 )     (98.7 )%
Total cost of revenue for mobile
advertisement backpack             $    25,658           15.3 %   $ 1,955,934        43.0 %   $    (1,930,276 )     (98.7 )%
Gross profit for mobile
advertisement backpack             $   142,577           84.7 %   $ 2,595,321        57.0 %   $    (2,452,744 )     (94.5 )%




Cost of revenue for mobile advertisement backpack for the three months ended
October 31, 2021 and 2020 was $25,658 and $1,955,934 respectively. The
significant decrease in cost of revenue was a result of our having sold 207
mobile advertisement backpacks during the three months ended October 31, 2021
compared to 11,816 backpacks having been sold during the three months ended
October 31, 2020.



For our mobile advertising backpacks business, we have outsourced the assembly processes of our products to subcontractors and we have maintained stable relationships with them. We subcontract our delivery services to two courier companies. Delivery costs are paid by end customers upon delivery of the products. We have not encountered any difficulty in obtaining inventory for our business and believe that we maintain a good relationship with our suppliers.



Inventory costs for our mobile advertisement backpack business were 15.3% of our
total mobile advertisement backpack business revenue in the three months ended
October 31, 2021, compared with 43% in the three months ended October 31, 2020.
The decreased percentage was mainly due to a 50% increment in the selling price
of our mobile advertisement backpacks due to a shortage of raw materials from
September 2021 to October 2021.



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Net Profit



                                         Three months ended              2021 compared to 2020
                                    October 31,      October 31,       Amount of          % of
                                       2021              2020           Increase        Increase
Gross Profit for mobile
advertisement backpack             $     142,577     $  2,595,321     $ (2,452,744 )          (95 )%
Additional Tax                     $      (3,426 )   $    (39,527 )   $     36,101            (91 )%
Gross Profit                       $     139,151     $  2,555,794     $ (2,416,643 )          (95 )%
Operating Expenses:
Selling and Marketing Expenses     $        (525 )   $   (141,005 )   $   
140,480           (100 )%
General and Administrative
Expenses                           $    (490,421 )   $   (326,233 )   $   (164,188 )           50 %
Research and Development
Expenses                           $    (269,349 )   $    (86,782 )   $   (182,567 )          210 %
Operating Expenses                 $    (760,295 )   $   (554,020 )   $   (206,275 )           37 %
Other Income, net                  $     357,920     $         46     $    357,874        777,987 %
Income from Operations             $    (263,224 )   $  2,001,820     $ (2,265,044 )         (113 )%
Revenue Related Tax                $        (596 )   $   (506,818 )   $    506,222           (100 )%
Net (Loss) Profit                  $    (263,820 )   $  1,495,002     $ (1,758,822 )         (118 )%




Gross profit for our mobile advertisement backpack for the three months ended
October 31, 2021 and the three months ended October 31, 2020 was $139,151 and
$2,555,794, respectively. Gross profit margin for our mobile advertisement
backpack for the three months ended October 31, 2021 and the three months ended
October 31, 2020 were 84.7% and 57%, respectively. The decrease in gross profit
was primarily due to the 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. The increase in gross profit
margin was principally due to the selling price of the backpacks was increased
by 50% from September 2021 to October 2021, 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.



Net profit (loss) for the three months ended October 31, 2021 and the three months have ended October 31, 2020 were ($ 263,820) and $ 1,495,002, respectively.

Sales and marketing costs



Our selling and marketing expenses for the three months ended October 31, 2021
and 2020 were $525 and $141,005, respectively. Selling and marketing expenses
during both of those periods consisted primarily of marketing expenses. The
decrease in selling and marketing expenses from the three months ended October
31, 2021 to the three months ended October 31, 2020 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 three months ended
October 31, 2021, we sold 207 backpacks, whereas during the three months ended
October 31, 2020, we sold 11,816.



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General and administrative expenses

Our general and administrative expenses for the three months ended October 31,
2021 and 2020 were $490,421 and $326,233, 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 general and administrative expenses increase
during the three months ended October 31, 2021 was primarily attributable to the
increment of administrative payroll for professional managers and depreciation
charges in Vehicle and the Vehicle maintenance fee, such as vehicle insurance
and fuel cost.


Research and development costs



Our research and development expenses for the three months ended October 31,
2021 and 2020 were $269,349 and $86,782, respectively. Research and development
expenses consist primarily of researchers' payroll and IT services expenses. The
research and development expenses increase during the three months ended October
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 three months ended October 31, 2021 was $357,920 compared to
other income of $46 in the three months ended October 31, 2020. Other income in
the three months ended October 31, 2021 was attributable to the sale of IT
servers, acquired during the year ended July 31, 2021. On May 10, 2021, the
Company entered into a contract with Mr. Zhao Lixin, the Company's CEO, to sell
these IT servers to him for $2,554,100. The IT servers were delivered to Mr.
Zhao on Aug 10, 2021.



Income Taxes


Income tax for the three months ended October 31, 2021 and 2020 were $ 596 and
$ 506,818, respectively.

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