The accompanying notes
are an integral part of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,
2020 AND SEPTEMBER 30, 2021
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”))
|
1. |
ORGANIZATION AND PRINCIPAL ACTIVITIES |
Tianjin Yieryi Technology Co., Ltd. (“YEY”
or the “Company") was incorporated on July 14, 2016 by Junpeng Guo and Ting Zhao. The Company, through its consolidated subsidiary
(collectively, the “Group”), operates live streaming platform called Hongle Live in the People's Republic of China (the “PRC”)
which enable users to view and interact with broadcasters through online chat, virtual items and playing games.
Beijing Weiliantong Technology Co., Ltd. (“WLT”)
was incorporated on July 28, 2015 and became 100% subsidiary of “YEY” on July 14, 2016.
As of December 31, 2020 and September 30,
2021, the Group’s major subsidiaries are as follows:
| | |
Percentage of Ownership | | |
Date of incorporation | |
Place
of Incorporation | |
Principal activities |
| | |
| | |
| |
| |
|
| Beijing Weiliantong Technology Co., Ltd.
(“WLT”) | |
| 100 | % | |
July 28, 2015 | |
The PRC | |
Live streaming platform |
TIANJIN YIERYI TECHNOLOGY CO., LTD.,
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31,
2020 AND SEPTEMBER 30, 2021
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”))
|
2. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
|
(a) |
Basis of presentation and principles of consolidation |
The accompanying consolidated financial statements
have been prepared in accordance with U.S. generally accepted accounting principles (“US GAAP”).
The accompanying consolidated financial statements
include the financial statements of the Company and its subsidiaries. All intercompany transactions and balances have been eliminated
upon consolidation.
The preparation of the 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 disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported
amounts of revenues and expenses during the period. Areas where management uses subjective judgment include, but are not limited to revenue
recognition, estimating the useful lives of long-lived assets and intangible assets, valuation assumptions in performing asset impairment
tests of long-lived assets, allowance for doubtful accounts. Actual results could differ from those estimates, and as such, differences
may be material to the consolidated financial statements.
The functional currency of the Group is in Renminbi
(“RMB”), as determined based on the criteria of Accounting Standards Codification (“ASC”) 830 (“ASC 830”)
“Foreign Currency Matters”. The reporting currency of the Group is also the RMB. Transactions denominated in foreign
currencies are re-measured into RMB at the exchange rates prevailing on the transaction dates. Foreign currency denominated financial
assets and liabilities are re-measured at the balance sheet date exchange rate. Exchange gains and losses are included in foreign exchange
gains and losses in the consolidated statements of operations and comprehensive income.
|
(d) |
Convenience translation |
Translations of balances in the consolidated
balance sheets, consolidated statements of operations and comprehensive income and consolidated statements of cash flows from RMB into
USD (or “US$”) as of and for the year ended December 31, 2020 are solely for the convenience of the reader and were calculated
at the rate of US$1.00 = RMB6.5250, representing the noon buying rate in The City of New York for cable transfers of RMB as certified
for customs purposes by the Federal Reserve Bank of New York on the last trading day of December 31, 2020. No representation is made
that the RMB amounts represent or could have been, or could be, converted, realized or settled into US$ at that rate, or at any other
rate.
Translations of balances in the consolidated
balance sheets, consolidated statements of operations and comprehensive income and consolidated statements of cash flows from RMB into
USD (or “US$”) as of and for the period ended September 30, 2021 are solely for the convenience of the reader and were calculated
at the rate of US$1.00 = RMB6.4434, representing the noon buying rate in The City of New York for cable transfers of RMB as certified
for customs purposes by the Federal Reserve Bank of New York on the last trading day of September 30, 2021. No representation is made
that the RMB amounts represent or could have been, or could be, converted, realized or settled into US$ at that rate, or at any other
rate.
|
(e) |
Cash and cash equivalents |
Cash and cash equivalents consist of cash on
hand and demand deposits placed with banks or other financial institutions which are unrestricted as to withdrawal and use and have original
maturities less than three months.
The Group maintains all of its bank accounts
in the PRC.
TIANJIN YIERYI TECHNOLOGY CO., LTD.,
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31,
2020 AND SEPTEMBER 30, 2021
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”))
| 2. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(CONTINUED) |
|
(f) |
Accounts receivable and allowance for doubtful accounts |
Accounts receivables are stated at the historical
carrying amount net of allowance for doubtful accounts.
The Group maintains an allowance for doubtful
accounts which reflects its best estimate of amounts that potentially will not be collected. The Group determines the allowance for doubtful
accounts taking into consideration various factors including but not limited to historical collection experience and credit-worthiness
of the debtors as well as the age of the individual receivables balance. Additionally, the Group makes specific bad debt provisions based
on any specific knowledge the Group has acquired that might indicate that an account is uncollectible. The facts and circumstances for
each account may require the Group to use substantial judgment in assessing its collectability.
Account balances are charged off against the
allowance after all means of collection have been exhausted and the likelihood of collection is not probable.
No allowance for doubtful accounts was recognized
for the year ended December 31, 2020 and the nine months ended September 30, 2021.
|
(g) |
Property and equipment |
Property and equipment are stated at cost, net
of accumulated depreciation using the straight-line method over their estimated useful lives, once the asset is placed in service.
The estimated useful lives are as follows:
| Computer and transmission equipment |
3-5 years |
| Furniture, fixtures and office equipment |
3-5 years |
Repair and maintenance costs are charged to expense
when incurred, whereas the cost of betterments that extend the useful life of property and equipment are capitalized as additions to
the related assets. Retirement, sale and disposals of assets are recorded by removing the cost and related accumulated depreciation with
any resulting gain or loss reflected in the consolidated statements of operations and comprehensive income. The Group also re-evaluates
the periods of depreciation to determine whether subsequent events and circumstances warrant revised estimates of useful lives.
Intangible assets are carried at cost less accumulated
amortization and any impairment. Intangible assets with a finite useful life are amortized using the straight-line method over the estimated
economic life of the intangible assets as follows:
| Trademark |
10 years |
| Software |
10 years |
|
|
TIANJIN YIERYI TECHNOLOGY CO., LTD.,
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31,
2020 AND SEPTEMBER 30, 2021
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”))
|
2. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
|
(i) |
Impairment of long-lived assets |
The Group evaluates its long-lived assets or
asset group, including property and equipment and intangible assets with finite lives, for impairment whenever events or changes in circumstances
(such as a significant adverse change to market conditions that will impact the future use of the assets) indicate that the carrying
amount of an asset or a group of long-lived assets may not be recoverable. When these events occur, the Group evaluates for impairment
by comparing the carrying amount of the assets to future undiscounted net cash flows expected to result from the use of the assets and
their eventual disposition. If the sum of the expected undiscounted cash flow is less than the carrying amount of the assets, the Group
would recognize an impairment loss based on the excess of the carrying amount of the asset group over its fair value. Fair value is generally
determined by discounting the cash flows expected to be generated by the assets, when the market prices are not readily available for
the long-lived assets.
No impairment of long-lived assets was recognized
for the year ended December 31, 2020 and the nine months ended September 30, 2021.
|
(j) |
Fair value of financial instruments |
ASC 825-10 requires certain disclosures regarding
the fair value of financial instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer
a liability in an orderly transaction between market participants at the measurement date. A three-level fair value hierarchy prioritizes
the inputs used to measure fair value. The hierarchy requires entities to maximize the use of observable inputs and minimize the use
of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
| ● | Level
1 — inputs to the valuation methodology are quoted prices (unadjusted) for identical
assets or liabilities in active markets. |
| ● | Level
2 — inputs to the valuation methodology include quoted prices for similar assets and
liabilities in active markets, quoted market prices for identical or similar assets in markets
that are not active, inputs other than quoted prices that are observable and inputs derived
from or corroborated by observable market data. |
| ● | Level
3 — inputs to the valuation methodology are unobservable. |
The carrying amounts of financial assets and
liabilities, such as cash and cash equivalents, accounts receivable, loan receivable – third party, other receivables, included
in prepaid expenses and other current assets, loan payable – third party, accounts payables, and other current liabilities, approximate
their fair values because of the short-term maturity of these instruments.
TIANJIN YIERYI TECHNOLOGY CO., LTD.,
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31,
2020 AND SEPTEMBER 30, 2021
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”))
| 2. | SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
| | |
| (k) | Revenue
recognition |
On January 1, 2019, the Group adopted ASC 606,
“Revenue from Contracts with Customers” using the modified retrospective method applied to those contracts which were not
completed as of January 1, 2019. Results for reporting periods beginning after January 1, 2019 are presented under Topic 606, while prior
period amounts are not adjusted and continue to be reported in accordance with the Company’s historic accounting under Topic 605.
Based on the Group’s assessment, the adoption of ASC 606 did not result in any adjustment on the Group’s consolidated financial
statements, and there were no material differences between the Group’s adoption of ASC 606 and its historic accounting under ASC
605.
Under ASC 606, revenue is recognized when a customer
obtains control of promised goods or services in an amount that reflects the consideration the entity expects to receive in exchange
for those goods or services. The Group identify the contracts with customers and all performance obligations within those contracts.
The Group then determine the transaction price and allocate the transaction price to the performance obligation within the contracts
with customers, recognizing revenue when, or as, the Group satisfy the performance obligations.
Live streaming
The Group is principally engaged in operating
its own live streaming platforms, which enable broadcasters and viewers to interact with each other during live streaming. The Group
is responsible for providing a technological infrastructure to enable the broadcasters, online users and viewers to interact through
live streaming platforms. All the platforms can be accessed for free.
The Group designs, creates and offers various
virtual items for sales to users with pre-determined stand-alone selling price. Virtual items are categorized as consumable and time-based
items. Consumable items are consumed upon purchase and use while time-based items could be used for a fixed period of time, such as privilege
titles.
The Group mainly derives the revenue from sales
of virtual items in the platforms. The Group has a recharge system for users to purchase the Group’s virtual currency then purchase
virtual items for use. Users can recharge via various online third-party payment platforms, including WeChat Pay, Ali Pay and other payment
platforms. The Group’s live streaming virtual items are generally sold without right of return and the Group does not provide any
other credit and incentive to its users
The Group cooperates with independent third-party
distributors to sell virtual currency through annual distribution agreements with these distributors. Third-party distributors purchase
virtual currency from the Group according to the annual distribution agreements, and they are responsible for selling the virtual currency
to end users. The Group’s virtual currency is non-refundable and often consumed soon after it is purchased.
In accordance with ASC 606, the Group evaluate
the contracts with the customers and determine that the Group have a single combined performance obligation which is to make the virtual
items and the ongoing related services available to the paying users. The transaction price, which is the amount paid for virtual items
by the paying users, is allocated entirely to this single combined performance obligation.
Revenues derived from the sale of virtual items
are recognized at point-in-time when the virtual item is delivered and consumed if the virtual item is a consumable item, or, in the
case of time-based virtual item, recognized ratably over the period, which generally does not exceed 30 days. Proceeds received from
the sales of virtual items before these virtual items are consumed are recorded as “deferred revenue.”
The Group paid commissions to broadcasters and
talent agencies in accordance with their revenue sharing arrangements. For those broadcasters, who do not have revenue sharing arrangements
with the Group, they are not entitled to any commissions.
The Group also utilizes third-party payment collection
channels, which charges the payment handling cost for users to purchase the virtual currency directly from it.
The Group reports live streaming revenues on
a gross basis in accordance to ASC 606 as the Group act as the principal to fulfill all obligations related to the sales of virtual items,
take overall responsibility of the content or performance provided by broadcasters in the platforms and maintain the hosting servers
for running the live streaming platforms. The revenue commissions paid to broadcasters and talent agencies and payment handling costs
are recorded as costs of revenues. The Group has discretion to determine the price of the virtual currency sold to its end users.
TIANJIN YIERYI TECHNOLOGY CO., LTD.,
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2020 AND SEPTEMBER 30, 2021
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”))
|
2. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
Deferred revenue primarily consists of unconsumed
virtual currency and unamortized revenue from virtual items in the Group’s platforms, where there is still an obligation to be
provided by the Group, which will be recognized as revenue when all of the revenue recognition criteria are met.
Amounts recorded as cost of revenue relate to
direct expenses incurred in order to generate revenue. Such costs are recorded as incurred. Cost of revenues consists primarily of (i)
revenue sharing fees, including payments to various broadcasters providers, (ii) user acquisition costs, (iii) payment handling costs,
(iv) bandwidth costs, and (v) salaries and bonus.
|
(n) |
Research and development expenses |
Research and development expenses primarily consist
of (1) salaries and benefits expenses incurred for research and development personnel, and (2) rental, general expenses and depreciation
expenses associated with the research and development activities. Expenditures incurred during the research phase are expensed as incurred
and no research and development expenses were capitalized as of December 31, 2020 and September 30, 2021.
|
(o) |
Sales and marketing expenses |
Sales and marketing expenses consist primarily
of advertising and market promotion expenses. The advertising and market promotion expenses amounted to RMB 5,586（US$856）and
RMB1,907 (US$296) for the year ended December 31, 2020 and the nine months ended September 30, 2021 respectively.
|
(p) |
General and administrative expenses |
General and administrative expenses consist primarily
of consulting fee, and salaries and welfare for general and administrative personnel which are expensed as incurred.
The full-time employees of the Group’s
PRC subsidiaries are entitled to staff welfare benefits including medical care, housing fund, unemployment insurance and pension benefits,
which are government mandated defined contribution plans. These entities are required to accrue for these benefits based on certain percentages
of the employees’ respective salaries, subject to certain ceilings, in accordance with the relevant PRC regulations, and make cash
contributions to the state-sponsored plans out of the amounts accrued. The total amounts for such employee benefits were RMB 647 (US$99)
and RMB 1,440 (US$223) for the year ended December 31, 2020 and the nine months ended September 30,2021 respectively.
All leases are accounted for as operating leases
wherein rental payments are expensed on a straight-line basis over the periods of their respective leases. The Group lease office space
under operating lease agreements. Certain of the lease agreements contain rent holidays. Rent holidays are considered in determining
the straight-line rent expense to be recorded over the lease term. The lease term begins on the date of initial possession of the lease
property for purposes of recognizing lease expense on a straight-line basis over the term of the lease. The excess of rent expense and
rent paid, as the case may be for respective leases, is recorded as deferred rental included in the prepaid expenses and other current
assets in the consolidated balance sheets.
TIANJIN YIERYI TECHNOLOGY CO., LTD.,
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2020 AND SEPTEMBER 30, 2021
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”))
|
2. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
Current income taxes are provided on the basis
of income/(loss) for financial reporting purposes, adjusted for income and expense items which are not assessable or deductible for income
tax purposes, in accordance with the regulations of the relevant tax jurisdictions. Deferred income taxes are provided using the assets
and liabilities method. Under this method, deferred income taxes are recognized for the tax consequences of temporary differences by
applying enacted statutory rates applicable to future years to differences between the financial statement carrying amounts and the tax
bases of existing assets and liabilities. The tax base of an asset or liability is the amount attributed to that asset or liability for
tax purposes. The effect on deferred taxes of a change in tax rates is recognized in the consolidated statement of operations and comprehensive
loss in the period of change. A valuation allowance is provided to reduce the amount of deferred tax assets if it is considered more-likely-than-not
that some portion of, or all of the deferred tax assets will not be realized
The guidance on accounting for uncertainties
in income taxes prescribes a more likely than not threshold for financial statement recognition and measurement of a tax position taken
or expected to be taken in a tax return. Guidance was also provided on recognition of deferred tax assets and liabilities, classification
of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting
for income taxes in interim periods, and income tax disclosures. Significant judgment is required in evaluating the Group’s uncertain
tax positions and determining its provision for income taxes. The Group recognizes interests and penalties, if any, under accrued expenses
and other current liabilities on its balance sheet and under other expenses in its statement of operations and comprehensive income.
The Group did not recognize any interest and penalties associated with uncertain tax positions for the year ended December 31, 2020 and
the nine months ended September 30,2021. As of December 31, 2020 and September 30,2021, the Group did not have any significant unrecognized
uncertain tax positions.
|
(t) |
Value added tax (“VAT”) |
Revenue represents the invoiced value of service,
net of VAT. The VAT is based on gross sales price and VAT rates range up to 6%, depending on the type of service provided. Entities that
are VAT general taxpayers are allowed to offset qualified input VAT paid to suppliers against their output VAT liabilities. Net VAT balance
between input VAT and output VAT is recorded in accrued and other liabilities. All of the VAT returns filed by the entities within the
Group in China, have been and remain subject to examination by the tax authorities for five years from the date of filing. As of December
31, 2020 and September 30, 2021, the Group has VAT recovery of RMB 8,013 ($1,228) and RMB 7,210 ($1,119) which management expect to be
able to offset future VAT liabilities.
The Group is required to make appropriations
to certain non-distributable reserve funds. In accordance with the Company Laws of the PRC, the Group’s registered as PRC domestic
companies must take appropriations from its after-tax profit as determined under the PRC GAAP to non-distributable reserve funds including
a statutory surplus fund and a discretionary surplus fund. The appropriation to the statutory surplus fund must be at least 10% of after
tax profits as determined under the PRC GAAP. Appropriation is not required if the surplus fund has reached 50% of the registered capital
of the Group. Appropriation to the discretionary surplus fund is made at the discretion of the Group. The use of the general reserve
fund, statutory surplus fund and discretionary surplus fund are restricted to the off-setting of losses or increasing capital of the
respective company. The staff bonus and welfare fund is liability in nature and is restricted to fund payments of special bonus to staff
and for the collective welfare of employees. All these reserves are not allowed to be transferred to the Group in terms of cash dividends,
loans or advances, nor can they be distributed except under liquidation. As of December 31, 2020 and September 30, 2021, no statutory
reserves was made due to the Group has not generated any surplus.
TIANJIN YIERYI TECHNOLOGY CO., LTD.,
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2020 AND SEPTEMBER 30, 2021
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”))
|
2. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
| (v) | Commitments
and Contingencies |
In the normal course of business, the Group is
subject to contingencies, such as legal proceedings and claims arising out of its business, which cover a wide range of matters. Liabilities
for contingencies are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably
estimated.
If the assessment of a contingency indicates
that it is probable that a material loss is incurred and the amount of the liability can be estimated, then the estimated liability is
accrued in the Company’s financial statements. If the assessment indicates that a potentially material loss contingency is not
probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with
an estimate of the range of possible loss, if determinable and material, would be disclosed.
Loss contingencies considered remote are generally
not disclosed unless they involve guarantees, in which case the nature of the guarantee would be disclosed.
The Company did not have other commitments except
lease commitment as of December 31, 2020 and September30,2021.
| (y) | Going
Concern Assumption |
For the nine months
ended September 30, 2021 and for the year ended December 31, 2020, the Group reported a net income of RMB 19,814 ($3,074) and RMB 12,866
($1,972) respectively, and operating cash inflows of RMB 21,734 ($3,373) and operating cash outflows of RMB 2,076 ($318). The group has
an accumulated deficit of RMB97,332 ($15,106) as of Sep 30, 2021.
In assessing the Group’s ability to continue
as a going concern, the Group monitors and analyzes its cash and its ability to generate sufficient cash flow in the future to support
its operating and capital expenditure commitments. Historically, the Group has relied principally
on both operational sources of cash and debt financing from third parties to fund its
operations and business development.
The
Group’s ability to continue as a going concern is dependent upon the Company generating profits in the future and/or to
obtain necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due.
Management intends to finance operating costs over the next twelve months primarily through financings from the Company’s major
shareholder.
The consolidated financial statements have been
prepared on a going concern basis, which assumes the Group will be able to continue in operation for the foreseeable future and will
be able to realize its assets and discharge its liabilities and commitments in the normal course of business. The consolidated financial
statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts
and classification of liabilities that might result from the outcome of the uncertainties described above.
| (w) |
Recent accounting pronouncements |
In October 2021, the Financial Accounting Standards
Board issued Accounting Standards Update 2021-08, Business Combinations-Accounting for Contract Assets and Contract Liabilities from
Contracts with Customers (Topic 805). The new guidance requires contract assets and contract liabilities acquired in a business combination
to be recognized in accordance with Accounting Standards Codification (“ASC”) Topic 606 as if the acquirer had originated
the contracts. The standard is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal
years. Early adoption is permitted. The Company does not expect adoption of this standard to have a material effect on the Company’s
consolidated financial statements.
In August 2020, the FASB issued a new standard
(ASU 2020-06) to reduce the complexity of accounting for convertible debt and other equity-linked instruments. For certain convertible
debt instruments with a cash conversion feature, the changes are a trade-off between simplifications in the accounting model (no separation
of an “equity” component to impute a market interest rate, and simpler analysis of embedded equity features) and a potentially
adverse impact to diluted EPS by requiring the use of the if-converted method. The new standard will also impact other financial instruments
commonly issued by both public and private companies. For example, the separation model for beneficial conversion features is eliminated
simplifying the analysis for issuers of convertible debt and convertible preferred shares. Also, certain specific requirements to achieve
equity classification and/or qualify for the derivative scope exception for contracts indexed to an entity’s own equity
TIANJIN YIERYI TECHNOLOGY CO., LTD.,
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2020 AND SEPTEMBER 30, 2021
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”))
|
2. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
| (w) | Recent
accounting pronouncements |
are removed, enabling more freestanding instruments
and embedded features to avoid mark-to-market accounting. The new standard is effective for companies that are SEC filers (except for
Smaller Reporting Companies) for fiscal years beginning after December 15, 2021 and interim periods within that year, and two years later
for other companies. Companies can early adopt the standard at the start of a fiscal year beginning after December 15, 2020. The standard
can either be adopted on a modified retrospective or a full retrospective basis. The Company is currently reviewing the newly issued
standard and does not believe it will materially impact the Company.
In February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842). This update will require the recognition of a right-of-use asset and a corresponding lease liability, initially measured
at the present value of the lease payments, for all leases with terms longer than 12 months. For operating leases, the asset and liability
will be expensed over the lease term on a straight-line basis, with all cash flows included in the operating section of the statement
of cash flows. For finance leases, interest on the lease liability will be recognized separately from the amortization of the right-of-use
asset in the statement of comprehensive income and the repayment of the principal portion of the lease liability will be classified as
a financing activity while the interest component will be included in the operating section of the statement of cash flows. ASU 2016-02
is effective for interim and annual periods beginning after December 15, 2018 and requires a modified retrospective approach to adoption.
Early adoption is permitted.
In June 2020, the FASB issued ASU No. 2020-05,
“Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842) Effective Dates for Certain Entities” (“ASU
2020-05”) in response to the ongoing impacts to businesses in response to the coronavirus (COVID-19) pandemic. ASU 2020-05 provides
a limited deferral of the effective dates for implementing previously issued ASU 606 and ASU 842 to give some relief to businesses and
the difficulties they are facing during the pandemic. ASU 2020-05 affects entities in the “all other” category and public
Not-For-Profit entities that have not gone into effect yet regarding ASU 2016-02, Leases (Topic 842). Entities in the “all other”
category may defer to fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December
15, 2022. The Company is currently evaluating the impact of the adoption of ASU 2016-02 on its consolidated financial statements and
related disclosures. As of September 30 2021, the Company has RMB 507 (US$79) of future minimum operating lease commitments that are
not currently recognized on its consolidated balance sheets. Therefore, the Company would expect changes to its consolidated balance
sheets for the recognition of these and any additional leases entered into in the future upon adoption.
In June 2016, the
FASB amended guidance related to the impairment of financial instruments as part of ASU2016-13 Financial Instruments – Credit Losses
(Topic 326): Measurement of Credit Losses on Financial Instruments, which will be effective January 1, 2020. The guidance replaces the
incurred loss impairment methodology with an expected credit loss model for which a company recognizes an allowance based on the estimate
of expected credit loss. In November 2018, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments
-Credit Losses, which clarified that receivables from operating leases are not within the scope of Topic 326 and instead, impairment
of receivables arising from operating leases should be accounted for in accordance with Topic 842. On May 15, 2019, the FASB issued ASU
2019-05, 9 which provides transition relief for entities adopting the Board’s credit losses standard, ASU 2016-13. Specifically,
ASU 2019-05 amends ASU 2016-13 to allow companies to irrevocably elect, upon adoption of ASU 2016-13, the fair value option for financial
instruments that (1) were previously recorded at amortized cost and (2) are within the scope of the credit losses guidance in ASC 326-20,
(3) are eligible for the fair value option under ASC 825-10, and (4) are not held-to-maturity debt securities. For entities that have
adopted ASU 2016-13, the amendments in ASU 2019-05 are effective for fiscal years beginning after December 15, 2019, including interim
periods therein. An entity may early adopt the ASU in any interim period after its issuance if the entity has adopted ASU 2016-13. For
all other entities, the effective date will be the same as the effective date of ASU 2016-13. In January 2020, the FASB issued ASU 2020-2,
“Financial Instruments – Credit Losses (Topic 326) and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to SEC Staff
Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic
842), February 2020” (“ASU 2020-02”). ASU 2020-02 added and amended SEC paragraphs in the Accounting Standards Codification
to reflect the issuance of SEC Staff Accounting Bulletin No. 119, related to the new credit losses standard, and comments by the SEC
staff related to the revised effective date of the new leases standard. This ASU is effective upon issuance. The Company is evaluating
the impact this ASU will have on its consolidated financial statements.
TIANJIN YIERYI TECHNOLOGY CO., LTD.,
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2020 AND SEPTEMBER 30, 2021
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”))
Financial instruments that potentially subject
the Group to significant concentrations of credit risk consist primarily of cash and cash equivalents, accounts receivable, other receivables
included in prepaid expenses, other current assets, and amounts due from related parties. As of December 31, 2020 and September 30, 2021,
RMB 6,090 (US$ 933) and RMB 3,208 (US$ 498), respectively, were deposited with major financial institutions located in the PRC. Management
believes that these financial institutions are of high credit quality and continually monitor the credit worthiness of these financial
institutions. Historically, deposits in Chinese banks are secure due to the state policy on protecting depositors’ interests.
|
(b) |
Currency convertibility risk |
Substantially all of the Group’s businesses
are transacted in RMB, which is not freely convertible into foreign currencies. On January 1, 1994, the PRC government abolished the
dual rate system and introduced a single rate of exchange as quoted daily by the People’s Bank of China. However, the unification
of the exchange rates does not imply the convertibility of RMB into US$ or other foreign currencies. All foreign exchange transactions
continue to take place either through the People’s Bank of China or other banks authorized to buy and sell foreign currencies at
the exchange rates quoted by the People’s Bank of China. Approval of foreign currency payments by the People’s Bank of China
or other institutions requires submitting a payment application form together with suppliers’ invoices, shipping documents and
signed contracts.
|
(c) |
Significant customers |
For the year ended December 31, 2020, no customer
individually represents greater than 10% of the total revenue. Three third-party distributors accounted for 48%, 16% and 10% of total
accounts receivable, respectively.
For the nine months ended September 30,2021,
no customer individually represents greater than 10% of the total revenue. Two third-party distributors accounted for 62% and 27% of
total accounts receivable, respectively.
|
(d) |
Significant suppliers |
For the year ended December 31, 2020, two vendors
accounted for 26% and 14% of the Group’s total purchases and two vendors accounted for 26%, and 13% of the Group’s accounts
payable as of December 31, 2020.
For the nine months ended September 30, 2021,
two vendors accounted for 20.1% and 19.8% of the Group’s total purchases and two vendors accounted for 25% and 15% of the Group’s
accounts payable as of September 30, 2021.
In December 2019, a novel strain of coronavirus
(COVID-19) surfaced. COVID-19 has spread rapidly to many parts of the PRC and other parts of the world in the first half of 2020, which
has caused significant volatility in the PRC and international markets. During the year ended December 31,2020 and nine months ended
September 30,2021, the COVID-19 pandemic did not have a material net impact on our financial positions and operating results. The extent
of the impact on our future financial results will be dependent on future developments such as the length and severity of the crisis,
the potential resurgence of the crisis, future government actions in response to the crisis and the overall impact of the COVID-19 pandemic
on the global economy and capital markets, among many other factors, all of which remain highly uncertain and unpredictable. Given this
uncertainty, we are currently unable to quantify the expected impact of the COVID-19 pandemic on its future operations, financial condition,
liquidity and results of operations if the current situation continues, and therefore we cannot guarantee that COVID-19 will not adversely
impact our future results of operations and financial condition.
TIANJIN YIERYI TECHNOLOGY CO., LTD.,
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2020 AND SEPTEMBER 30, 2021
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”))
|
4. |
ACCOUNTS RECEIVABLE, NET |
Accounts receivable and allowance for doubtful
accounts consist of the following:
| | |
As of December 31, | | |
As of September 30, | |
| | |
2020 | | |
2020 | | |
2021 | | |
2021 | |
| | |
RMB | | |
US$ | | |
RMB | | |
US$ | |
| | |
| | |
| | |
| | |
| |
| Accounts receivable | |
￥ | 2,475
| | |
$ | 379 | | |
￥ | 1,602
| | |
$ | 249 | |
| | |
| | | |
| | | |
| | | |
| | |
| Accounts receivable, net | |
￥ | 2,475
| | |
$ | 379 | | |
￥ | 1,602
| | |
$ | 249 | |
Accounts receivable has been substantially collected
subsequently, therefore, no allowance for doubtful accounts were recorded during nine months period ended September 30, 2021 and year
ended December 31, 2020.
TIANJIN YIERYI TECHNOLOGY CO., LTD.,
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2020 AND SEPTEMBER 30, 2021
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”))
Loan receivables consist of the following:
| | |
As of December 31, | | |
As of September 30, | |
| | |
2020 | | |
2020 | | |
2021 | | |
2021 | |
| | |
RMB | | |
US$ | | |
RMB | | |
US$ | |
| | |
| | |
| | |
| | |
| |
| Loan receivables- third parties | |
￥ | 3,590 | | |
$ | 550 | | |
| - | | |
| - | |
Loan receivable from arm-length parties were
non-interest bearing and mature within one year. The amount has been fully collected as at September 30, 2021.
|
6. |
PROPERTY AND EQUIPMENT, NET |
Property and equipment, including those held
under capital leases, consists of the following:
| | |
As
of December 31， | | |
As
of September 30， | |
| | |
2020 | | |
2020 | | |
2021 | | |
2021 | |
| | |
RMB | | |
US$ | | |
RMB | | |
US$ | |
| | |
| | |
| | |
| | |
| |
| At cost: | |
| | |
| | |
| | |
| |
| Computer
and transmission equipment | |
￥ | 766 | | |
$ | 117 | | |
￥ | 758 | | |
$ | 118 | |
| Furniture,
fixtures and office equipment | |
| 122 | | |
| 19 | | |
| 137 | | |
| 21 | |
| | |
| | | |
| | | |
| | | |
| | |
| Total | |
| 888 | | |
| 136 | | |
| 895 | | |
| 139 | |
| | |
| | | |
| | | |
| | | |
| | |
| Less:
accumulated depreciation | |
| (559 | ) | |
| (86 | ) | |
| (661 | ) | |
| (103 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Property
and equipment, net | |
￥ | 329 | | |
$ | 50 | | |
￥ | 234 | | |
$ | 36 | |
For the year ended December 31, 2020 and the
nine months ended September 30, 2021, depreciation expense in R&D was RMB134 (US$21) and RMB96(US$15), respectively; depreciation
expense in G&A was RMB22(US$3) and RMB17(US$3), respectively.
TIANJIN YIERYI TECHNOLOGY CO., LTD.,
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2020 AND SEPTEMBER 30, 2021
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”))
|
7. |
INTANGIBLE ASSETS, NET |
The following table presents the Group’s
intangible assets as of the respective balance sheet dates:
| | |
As
of December 31， | | |
As
of September 30， | |
| | |
2020 | | |
2020 | | |
2021 | | |
2021 | |
| | |
RMB | | |
US$ | | |
RMB | | |
US$ | |
| | |
| | |
| | |
| | |
| |
| At
cost: | |
| | |
| | |
| | |
| |
| Trademark | |
￥ | 55 | | |
$ | 9 | | |
￥ | 55 | | |
$ | 8 | |
| Software | |
| 30 | | |
| 5 | | |
| 30 | | |
| 5 | |
| | |
| | | |
| | | |
| | | |
| | |
| Total | |
| 85 | | |
| 14 | | |
| 85 | | |
| 13 | |
| | |
| | | |
| | | |
| | | |
| | |
| Less:
accumulated amortization | |
| (36 | ) | |
| (6 | ) | |
| (42 | ) | |
| (6 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Intangible
assets, net | |
￥ | 49 | | |
$ | 8 | | |
￥ | 43 | | |
$ | 7 | |
For the year ended December 31, 2020 and the
nine months ended September 30, 2021, amortization expense was RMB8(US$1) and RMB 6(US$1), respectively.
The estimated annual amortization expense
for each of the five succeeding fiscal years is as follow:
| | |
Amortization | | |
Amortization | |
| Twelve months ending September 30, | |
RMB | | |
US$ | |
| 2022 | |
￥ | 9 | | |
$ | 1 | |
| 2023 | |
| 9 | | |
| 1 | |
| 2024 | |
| 9 | | |
| 1 | |
| 2025 | |
| 9 | | |
| 1 | |
| 2026 | |
| 5 | | |
| 1 | |
| Thereafter | |
| 2 | | |
| 0 | |
| Total | |
￥ | 43 | | |
$ | 7 | |
TIANJIN YIERYI TECHNOLOGY CO., LTD.,
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2020 AND SEPTEMBER 30, 2021
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”))
Loan payables consist of the following:
| | |
As of December 31， | | |
As of September 30， | |
| | |
2020 | | |
2020 | | |
2021 | | |
2021 | |
| | |
RMB | | |
US$ | | |
RMB | | |
US$ | |
| | |
| | |
| | |
| | |
| |
| Loan payables- third parties | |
￥ | 89,544 | | |
$ | 13,723 | | |
￥ | 11,400 | | |
$ | 1,769 | |
Loan payables due to third parties were non-interest
bearing. The loan balance as of September 30, 2021 represent loan due to Qingdao Weilan Zhiyuan Cultural Media Co.,Ltd., which will be
due on June 30, 2022.
Enterprise income tax
The PRC
The Group that is each incorporated in the PRC
are subject to Corporate Income Tax (“CIT”) on the taxable income as reported in their respective statutory financial statements
adjusted in accordance with the new PRC Enterprise Income Tax Laws (“PRC Income Tax Laws”) effective from January 1, 2008.
Pursuant to the PRC Income Tax Laws, the Group is subject to a CIT statutory rate of 25%.
Under the PRC Income Tax Laws, an enterprise
which qualifies as a High and New Technology Enterprise (“the HNTE”) is entitled to a preferential tax rate of 15% provided
it continues to meet HNTE qualification standards on an annual basis. WLT qualifies as an HNTE and the status is expiring in 2023 and
there exists uncertainties with the reapplication outcome.
Super deduction on research and development (“R&D”)
expenses
Under the EIT law of the PRC, qualified enterprises
can enjoy a 175% super deduction for eligible R&D expenses in 2020 and 2021. For the year ended December 31, 2020 and the nine months
ended September 30, 2021, RMB6,083 ($932) and RMB6,365 ($988) of R&D expense was eligible for the super deduction, which accounts
for an RMB1,596 ($245) and RMB1,671 ($259) decrease in tax expense, respectively.
Uncertain tax positions
The Group evaluates the level of authority for
each uncertain tax position (including the potential application of interest and penalties) based on the technical merits, and measures
the unrecognized benefits associated with the tax positions. As of December 31, 2020 and September 30, 2021, the Group did not have any
significant unrecognized uncertain tax positions. The entities within the Group did not incur any interest and penalty related to potential
underpaid income tax expenses for the year ended December 31, 2020 and the nine months ended September 30, 2021, and also does not anticipate
any significant increases or decreases in unrecognized tax benefits in the next 12 months from September 30, 2021.
TIANJIN YIERYI TECHNOLOGY CO., LTD.,
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2020 AND SEPTEMBER 30, 2021
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”))
|
10. |
INCOME TAXES (CONTINUED) |
The income tax expenses/(benefits) comprises:
| | |
For
the year
ended
December 31， | | |
For the nine
months ended
September 30, | |
| | |
2020 | | |
2020 | | |
2021 | | |
2021 | |
| | |
RMB | | |
US$ | | |
RMB | | |
US$ | |
| | |
| | |
| | |
| | |
| |
| Current income tax expenses | |
| - | | |
| - | | |
| - | | |
| - | |
| Deferred income tax | |
| - | | |
| - | | |
| - | | |
| - | |
| Income tax expenses for the year | |
￥ | - | | |
$ | - | | |
￥ | - | | |
$ | - | |
A reconciliation of the differences between the
statutory tax rate and the effective tax rate for EIT for the year ended December 31, 2020 and September 30, 2021is as follows:
| | |
For
the years ended
December 31， | | |
For the nine
months ended
September 30, | |
| | |
2020 | | |
2021 | |
| | |
| | |
| |
| Income tax computed at PRC statutory tax rate | |
| 25 | % | |
| 25 | % |
| Effect of tax-preferential entities | |
| (14 | )% | |
| (5 | )% |
| Additional tax deduction for qualified research and development expenses | |
| (5 | )% | |
| (4 | )% |
| Unrecognized deductible loss | |
| (6 | )% | |
| (16 | )% |
| Income tax expenses | |
| - | | |
| - | |
The components of deferred taxes are as follows:
| | |
For
the year ended
December 31， | | |
For the nine months ended
September 30, | |
| | |
2020 | | |
2020 | | |
2021 | | |
2021 | |
| | |
RMB | | |
US$ | | |
RMB | | |
US$ | |
| | |
| | |
| | |
| | |
| |
| Deferred tax assets: | |
| | |
| | |
| | |
| |
| Accumulated loss carry forward | |
| 17,790 | | |
| 2,726 | | |
| 14,538 | | |
| 2,256 | |
| | |
| | | |
| | | |
| | | |
| | |
| Less: valuation allowance | |
| (17,790 | ) | |
| (2,726 | ) | |
| (14,538 | ) | |
| (2,256 | ) |
| Total deferred tax assets | |
￥ | - | | |
$ | - | | |
￥ | - | | |
$ | - | |
Based on the tax income from the previous year
and the prediction of the amount of tax income during the future, the management believes that it is unlikely that the operating results
of the future year will accrue enough taxable income to compensate for the losses during the previous year, so it is difficult to carry
forward in the future period if deferred tax assets are recognized, Therefore no deferred tax arising from tax loss carryforwards were
recognized on the consolidated balance sheet as of December 31, 2020 and September 30, 2021.
TIANJIN YIERYI TECHNOLOGY CO., LTD.,
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2020 AND SEPTEMBER 30, 2021
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”))
| 10. |
INCOME TAXES (CONTINUED) |
| | |
As
of December 31， | | |
As
of September 30， | |
| | |
2020 | | |
2020 | | |
2021 | | |
2021 | |
| | |
RMB | | |
US$ | | |
RMB | | |
US$ | |
| | |
| | |
| | |
| | |
| |
| 2020 | |
| | | |
| | | |
| 5,304 | | |
| 823 | |
| 2019 | |
| 21,148 | | |
| 3,241 | | |
| 21,148 | | |
| 3,282 | |
| 2018 | |
| 39,155 | | |
| 6,001 | | |
| 39,155 | | |
| 6,077 | |
| 2017 | |
| 39,084 | | |
| 5,990 | | |
| 39,084 | | |
| 6,066 | |
| 2016 | |
| 17,833 | | |
| 2,733 | | |
| 4,170 | | |
| 647 | |
| 2015 | |
| 50 | | |
| 8 | | |
| | | |
| | |
| Tax loss carry over | |
￥ | 117,270 | | |
$ | 17,972 | | |
￥ | 108,861 | | |
$ | 16,895 | |
According to relevant tax regulation in the PRC,
tax losses can be carried forward for 5 years (10 years for high-tech companies)
|
11. |
COMMITMENTS AND CONTINGENCIES |
|
(a) |
Operating Leases Commitments |
The Group leases facilities in the PRC under
non-cancelable operating leases expiring on different dates. Total rental expense under all operating leases was RMB677(US$104) and RMB283
(US$44) for the year ended December 31, 2020 and the nine months ended September 30, 2021, respectively.
As of December 31, 2020 and September 30, 2021,
the Group had future minimum lease payments under non-cancelable operating leases with initial terms of one-year or more in relation
to office premises consist of the following:
| | |
Payments due by period | |
| | |
Total | | |
Less than 1year | | |
1-3 years | | |
Over 3years | |
| | |
RMB | | |
US$ | | |
RMB | | |
US$ | | |
RMB | | |
US$ | | |
RMB | | |
US$ | |
| 2020.12.31 | |
¥ | 157 | | |
$ | 24 | | |
¥ | 157 | | |
$ | 24 | | |
| - | | |
| - | | |
| - | | |
| - | |
| 2021.09.30 | |
¥ | 223 | | |
$ | 35 | | |
¥ | 223 | | |
$ | 35 | | |
| - | | |
| - | | |
| - | | |
| - | |
|
(b) |
Capital and Other Commitments |
The Group did not have significant capital
and other commitments as of December 31, 2020 and September 30,2021.
Capital contribution
The company is a limited company, so it is a
paid-in capital concept, there is no ordinary share issued under this concept. For the nine months ended September 30, 2021, there are
two new capital investments in YEY, the capital contribution of shareholders is shown in the table below:
| | |
As of 31-Dec-20 | | |
As of 30-Sept-21 | |
| | |
RMB | | |
US$ | | |
RMB | | |
US$ | |
| Junpeng Guo | |
¥ | 40,200 | | |
$ | 6,161 | | |
¥ | 40,200 | | |
$ | 6,239 | |
| Zhihui Qiyuan (Hainan) Investment Co., Ltd | |
| - | | |
| - | | |
| 30,000 | | |
| 4,656 | |
| Qingdao Future Gold Industry
Investment Fund Partnership (Limited Partnership) | |
| - | | |
| - | | |
| 20,000 | | |
| 3,104 | |
| Total | |
¥ | 40,200 | | |
$ | 6,161 | | |
¥ | 90,200 | | |
$ | 13,999 | |
TIANJIN YIERYI TECHNOLOGY CO., LTD.,
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31,
2020 AND SEPTEMBER 30, 2021
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”))
|
13. |
SEGMENT INFORMATION AND REVENUE ANALYSIS |
|
The Group follows ASC 280, Segment Reporting,
which requires that companies to disclose segment data based on how management makes decision about allocating resources to each segment
and evaluating their performances. The Group has one reporting segment. The Group’s chief operating decision maker has been identified
as the Chief Executive Officer, who reviews consolidated results when making decisions about allocating resources and assessing performance
of the Group. The Group considers itself to be operating within one reportable segment. The Group’s revenue and net income are
substantially derived from live streaming and other income. All revenues of the Group come from PRC, the assets are all in PRC.
Disaggregated information of revenues by business
lines are as follows:
| | |
For
the year ended
December 31， | | |
For the nine months ended
September 30, | |
| | |
2020 | | |
2020 | | |
2021 | | |
2021 | |
| | |
RMB | | |
US$ | | |
RMB | | |
US$ | |
| | |
| | |
| | |
| | |
| |
| Live streaming | |
￥ | 179,567 | | |
$ | 27,520 | | |
￥ | 155,146 | | |
$ | 24,078 | |
| Time based revenue | |
| 3,607 | | |
| 553 | | |
| 2,866 | | |
| 445 | |
| | |
| | | |
| | | |
| | | |
| | |
| Total revenue | |
￥ | 183,174 | | |
$ | 28,073 | | |
￥ | 158,012 | | |
$ | 24,523 | |
