UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 6-K

 

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13A-16 OR 15D-16 UNDER

THE SECURITIES EXCHANGE ACT OF 1934

 

For the month of January 2022

 

Commission File Number: 001-38799

 

SCIENJOY HOLDING CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

 

3rd Floor, JIA No. 34, Shenggu Nanli

Chaoyang District, Beijing

People’s Republic of China

(Address of principal executive office)

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F ☒ Form 40-F ☐

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐

 

 

 

 

 

 

This Form 6-K is hereby incorporated by reference into the registration statements of the Company on Form S-8 (Registration Number 333-256373), Form F-3 (Registration Number 333-256714), and Form F-3 (Registration Number 333- 254818), to the extent not superseded by documents or reports subsequently filed or furnished by the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.

 

1

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  Scienjoy Holding Corporation
     
Date: March 14, 2022 By: /s/ Xiaowu He
  Name:  Xiaowu He
  Title: Chief Executive Officer

 

2

 

 

EXHIBIT INDEX

 

Exhibit No.   Description
23.1   Consent of ZH CPA, LLC
99.1  

SELECTED HISTORICAL FINANCIAL INFORMATION OF TIANJIN YIERYI TECHNOLOGY CO., LTD. (AKA HONGLE)

99.2   UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
99.3  

TIANJIN YIERYI TECHNOLOGY CO., LTD. (AKA HONGLE), CONSOLIDATED FINANCIAL STATEMENTS

 

 

3

 

 

Exhibit 23.1 

 

 

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

We hereby to consent to the incorporation by reference in the Registration Statement of Scienjoy Holding Corporation on Form S-8 (Registration Number 333-256373), Form F-3 (Registration Number 333-256714), and Form F-3 (Registration Number 333- 254818) of our report dated on December 29, 2021, relating to our audits of the accompanying consolidated balance sheets of Tianjin Yieryi Technology Co., Ltd. and its subsidiaries (collectively the “Company”) of September 30, 2021 and December 31, 2020, and the related consolidated statements of operations and comprehensive income, changes in stockholders’ equity, and cash flows for the nine-month period ended September 30, 2021 and for the year ended December 31, 2020, which appears in Exhibit 99.3 of Scienjoy Holding Corporation’s Form 6-K filed on March 14, 2022.

 

/s/ ZH CPA, LLC

 

Denver, Colorado

 

March 14, 2022

 

 

 

1600 Broadway, Suite 1600, Denver, CO, 80202, USA. Phone: 1.303.386.7224 Fax: 1.303.386.7101 Email: admin@zhcpa.us

 

Exhibit 99.1

 

SELECTED HISTORICAL FINANCIAL INFORMATION
OF TIANJIN YIERYI TECHNOLOGY CO., LTD. (AKA HONGLE)

 

The data below as for the years ended December 31, 2020 has been derived from Hongle’s audited consolidated financial statements* for such year, which are included elsewhere in this prospectus. The data for the nine-month periods ended September 30, 2021 has been derived from Hongle’s audited consolidated financial statements* for such periods, which are included elsewhere in this prospectus. Hongle’s consolidated financial statements* are prepared and presented in accordance with U.S. GAAP.

 

Hongle’s historical results are not necessarily indicative of results to be expected for any future period. The information is only a summary and should be read in conjunction with Hongle’s consolidated financial statements* and related notes.

 

Summary Consolidated Balance Sheets

 

    As of
December 31,
    As of
September 30,
 
    2020*     2020*     2021*     2021*  
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”)   RMB     US$     RMB     US$  
                         
Cash and cash equivalents   ¥ 5,629     $ 863     ¥ 1,605     $ 249  
Accounts receivable, net     875       134       1,602       249  
Total current assets     19,549       2,996       13,064       2,028  
Total non-current assets     443       68       363       56  
TOTAL ASSETS     19,992       3,064       13,427       2,084  
Accounts payable     1,435       220       1,598       248  
Deferred revenue     5,571       854       5,583       866  
Total current liabilities     114,400       17,533       97,847       15,186  
TOTAL LIABILITIES     114,400       17,533       97,847       15,186  
Total deficits     (94,408 )     (14,469 )     (84,420 )     (13,102 )
TOTAL LIABILITIES AND DEFICITS   ¥ 19,992     $ 3,064     ¥ 13,427     $ 2,084  

 

Summary Consolidated Statement of Operations

 

    For year ended
December 31,
    For the nine months ended
September 30,
 
    2020*     2020*     2021*     2021*  
Amounts in thousands of RMB and US$   RMB     US$     RMB     US$  
Total revenue   ¥ 169,280     $ 25,943     ¥ 126,511     $ 19,634  
Cost of revenues     (138,768 )     (21,267 )     (107,285 )     (16,650 )
Gross profit     30,512       4,676       19,226       2,984  
Sales and marketing expenses     (5,586 )     (856 )     (1,906 )     (296 )
General and administrative expenses     (1,756 )     (269 )     (1,314 )     (203 )
Research and development expenses     (6,084 )     (933 )     (6,512 )     (1,011 )
Provision for doubtful accounts     -       -       (165 )     (26 )
Income from operations     17,086       2,618       9,329       1,448  
Interest income, net     17       3       9       1  
Other income, net     1,081       166       652       101  
Foreign exchange gain (loss), net     2       -       (2     -  
Income before income taxes     18,186       2,787       9,988       1,550  
Income tax benefits (expenses)     -       -       -       -  
Net income   ¥ 18,186       2,787     ¥ 9,988     $ 1,550  

 

Summary Consolidated Cash Flow Data

 

   For the year ended
December 31,
   For the nine months ended
September 30,
 
   2020*   2020*   2021*   2021* 
(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”)  RMB   US$   RMB   US$ 
Net cash (used in) provided by operating activities  ¥(6,060)  $(929)  ¥37,092   $5,757 
Net cash provided by investing activities   3,547    544    3,528    548 
Net cash provided by (used in) financing activities   4,144    635    (44,644)   (6,929)

 

*

Hongle’s financial information for the year ended December 31, 2020 and for the nine months ended September 30, 2021 are derived from financial information of Weiliantong contained in Yieryi’s audited consolidated financial statements for the related periods, except for cash flow data. During such periods, Hongle platform’s business were carried in both Yieryi and Weiliantong. As of December 31,2021, all Hongle platform’s business were only carried in Weiliantong.

 

Exhibit 99.2

 

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

Introduction

 

We are providing the following unaudited pro forma combined financial information to aid you in your analysis of the financial aspects of the Hongle Acquisition.

 

The unaudited pro forma combined balance sheet as of September 30, 2021 gives pro forma effect to the Hongle Acquisition as if it had been consummated as of that date. The unaudited pro forma combined statements of operations for the nine months ended September 30, 2021 give pro forma effect to the Hongle Acquisition as if it had had occurred as of January 1, 2021. The unaudited pro forma combined statements of operations for the year ended December 31, 2020 give pro forma effect to the Hongle Acquisition as if both had occurred as of January 1, 2020. This information should be read together with Scienjoy’s and Hongle’s respective audited and unaudited financial statements and related notes.

 

The unaudited pro forma combined balance sheet as of September 30, 2021 has been prepared using the following:

 

Scienjoy’s unaudited historical consolidated balance sheet as of September 30, 2021, as included elsewhere in this prospectus; and

 

Hongle’s unaudited historical condensed balance sheet as of September 30, 2021, as included elsewhere in this prospectus.

 

The unaudited pro forma combined statement of operations for the nine months ended September 30, 2021 has been prepared using the following:

 

Scienjoy’s unaudited historical consolidated statement of income for the nine months ended September 30, 2021, as included elsewhere in this prospectus.

 

Hongle’s unaudited historical condensed statement of operations for the nine months ended September 30, 2021, as included elsewhere in this prospectus.

 

The unaudited pro forma combined statement of operations for the year ended December 31, 2020 has been prepared using the following:

 

Scienjoy’s audited historical consolidated statement of income for the year ended December 31, 2020 as included elsewhere in this prospectus;

 

Hongle’s audited historical statement of operations for the period ended December 31, 2020 as included elsewhere in this prospectus; and

 

Description of the Hongle Acquisition

 

On December 29, 2021, Beijing local time, SHC entered into an Equity Acquisition Framework Agreement (the “Framework Agreement”) with Golden Shield Enterprises Limited (“Golden Shield”), Beijing Weiliantong Technology Co., Ltd. (“Weiliantong”, together with Golden Shield, the “Target Companies”, and each a “Target Company”), Tianjin Yieryi Technology Co., Ltd. (“Yieryi”), Wolter Global Investment Limited (“Wolter Global”, together with Yieryi, the “Sellers”, and each a “Seller”) and Qingdao Weilaijin Industry Investment Fund Partnership (Limited Partnership) (“Weilaijin”), which is one of the shareholders of Yieryi. Pursuant to the Framework Agreement, SHC, or its affiliates designated by SHC, will acquire all of the outstanding equity interests of (i) Weiliantong from Yieryi and (ii) Golden Shield from Wolter Global (the “Acquisitions”). Yieryi and Wolter Global are under common control.

 

 

 

The transactions contemplated under the Framework Agreement have closed on January 1, 2022 (the “Closing”). Upon the closing of transactions contemplated in the Framework Agreement, SHC acquired 100% of the issued and outstanding securities of Weiliantong and Golden Shield for an aggregate consideration of RMB280 million (approximately US$43.8 million), including RMB100 million (approximately US$15.6 million) in cash and RMB180 million (approximately US$28.2 million) in our Class A ordinary shares. The cash consideration includes RMB13.8 million (approximately US$2.2 million) cash to Yieryi and repayment of (i) the outstanding loans of Yieryi in an aggregate amount of RMB77.4 million (approximately US$12.1 million) and (ii) a third-party loan incurred by Weiliantong in an amount of RMB8.8 million (approximately US$1.4 million). The shares consideration consists of RMB20.8 million (approximately US$3.3 million) in our Class A ordinary shares to be issued to Weilaijin (the “Weilaijin Share Consideration”), a shareholder of Yieryi, and RMB159.2 million (approximately US$24.9 million) in our Class A ordinary shares to be issued to Wolter Global (the “Wolter Global Share

 

Accounting for the Business Combination

 

Business combinations are accounted for using the purchase method of accounting in accordance with FASB ASC 805, Business Combinations. The assets acquired and the liabilities assumed are measured at their fair values as of that date. Goodwill is recognized and measured as the excess of the total consideration transferred at the acquisition date over the fair values of the identifiable net assets acquired. Consideration transferred in a business acquisition is measured at the fair value as at the date of acquisition.

 

Basis of Pro Forma Presentation

 

The historical financial information has been adjusted to give pro forma effect to events that are related and/or directly attributable to the Business Combination, are factually supportable, and as it relates to the unaudited pro forma combined statement of operations, are expected to have a continuing impact on the results of the post-combination company. The adjustments presented on the unaudited pro forma combined financial statements have been identified and presented to provide relevant information necessary for an accurate understanding of the post-combination company upon consummation of the Business Combination.

 

The unaudited pro forma combined financial information is for illustrative purposes only. The financial results may have been different had the companies always been combined. You should not rely on the unaudited pro forma combined financial information as being indicative of the historical financial position and results that would have been achieved had the companies always been combined or the future financial position and results that the post-combination company will experience. All intercompany transactions between the Hongle and the Company have been eliminated through pro forma adjustments.

 

Calculation of Purchase Price Consideration and Purchase Price Allocation

 

The fair value of consideration transferred on the closing date includes the value of cash consideration and vested equity awards attributable to pre-combination service. The purchase price is calculated as follows (in thousands):

 

Cash consideration unpaid as of  September 30, 2021   ¥ 13,800  
Equity awards attributable to business acquisition     148,325  
Contingent consideration – earn-out liability     19,875  
Total purchase price consideration   ¥ 182,000  

 

2

 

Preliminary Purchase Price Allocation

 

Under the purchase method of accounting the total purchase price has been allocated to Hongle’s intangible assets acquired and liabilities assumed based on their estimated fair value at September 30, 2021. Management of Scienjoy has allocated the purchase price to the fair value of certain assets and liabilities of Hongle purchased in the business combination. Based upon the valuation the total purchase price was allocated as follows (in thousands):

 

The allocation of the purchase price and the estimated useful lives associated with certain assets is as follows (in thousands):

 

Assets acquired  RMB (in’000) 
Cash and cash equivalents  ¥1,605 
Accounts receivable, net   1,602 
Other current assets   9,857 
Property and equipment, net   184 
Other long term assets   136 
Intangible assets   190,023 
Goodwill   80,337 
Total assets acquired  ¥283,744 
Liabilities assumed     
Accounts payable  ¥(1,598)
Accrued liabilities   (1,866)
Deferred revenue   (5,583)
Loan payables   (11,400)
Due to related parties   (77,400)
Deferred tax liability   (3,897)
Total liabilities assumed  ¥(101,744)
Net assets acquired  ¥182,000 

 

   Amount   Estimated
Useful Life
Identifiable intangible assets:        
Software  ¥3,023   5
Trademark   23,000   10
License   164,000   Infinite
Total intangible assets:  ¥190,023    

 

Identifiable intangible assets. Software primarily relates to the programs run the Hongle platforms. Licenses relate to the operations of Hongle platforms for online transmission of audio-visual programs. Trade name primarily relates to Hongle, which is recognized as a popular mobile live streaming platforms.

 

Goodwill. Approximately RMB 80,337 has been allocated to goodwill. Goodwill represents the excess of the purchase price over the fair value of the underlying net tangible and intangible assets. In accordance with FASB ASC 350, Intangibles - Goodwill and Other, goodwill will not be amortized but instead will be tested for impairment at least annually (more frequently if certain indicators are present). In the event that the management of the combined company determines that the value of goodwill has become impaired, the combined company will incur an accounting charge for the amount of impairment during the fiscal quarter in which the determination is made.

  

3

 

UNAUDITED PRO FORMA COMBINED BALANCE SHEET

AS OF SEPTEMBER 30, 2021

(In thousands)

 

   (A)   (B)   Pro Forma      Pro Forma 
   Hongle   Scienjoy   Adjustments   Notes  Combined 
   RMB   RMB   RMB      RMB   US$ (3) 
                        
Assets                            
Current assets:                            
Cash and cash equivalents   1,605    291,879    (100,000)  (1)(4)   193,484    30,028 
Accounts receivable, net   1,602    228,478    -       230,080    35,708 
Amounts due from related parties   -    13,007    -       13,007    2,019 
Prepaid expenses and other current assets   9,857    26,750    -       36,607    5,681 
Investment in marketable securities   -    40,606            40,606    6,302 
Total Current Assets   13,064    600,720    (100,000)      513,784    79,738 
                             
Non-current assets:                            
Property and equipment, net   184    1,475    -       1,659    257 
Intangible assets, net   43    236,686    186,306   (1)(3)   423,035    65,654 
Long term investments   -    53,000            53,000    8,225 
Long term deposits and other assets   136    12,139    -       12,275    1,905 
Goodwill   -    92,069    80,337   (1)   172,406    26,757 
Deferred tax assets   -    5,147    -       5,147    799 
Total Non-Current Assets   363    400,516    266,643       667,522    103,597 
Total Assets   13,427    1,001,236    166,643       1,181,306    183,335 
                             
Liabilities and Shareholders’ Equity                            
Current liabilities:                            
Accounts payable   1,598    35,406    -       37,004    5,742 
Accrued salary and employee benefits   1,808    12,155    -       13,963    2,167 
Accrued expenses and other current liabilities   58    7,365    -       7,423    1,152 
Current portion of contingent consideration – earn-out liability   -    52,783    10,183   (1)   62,966    9,772 
Income tax payable        11,245            11,245    1,745 
Loan payables   11,400    11,468    (8,800)  (4)   14,068    2,183 
Due to related party   77,400    -    (77,400)      -    - 
Warrants liabilities   -    5,090    -       5,090    790 
Deferred revenue   5,583    70,744    -       76,327    11,846 
Total Current Liabilities   97,847    206,256    (76,017)      228,086    35,397 
                             
Non-current liabilities:                            
Contingent consideration – earn-out liability   -    8,175    9,692       17,867    2,773 
Loan payables                     -      
Deferred tax liabilities   -    58,992    3,346   (1)(3)   62,338    9,675 
Total Non-Current Liabilities   -    67,167    13,038       80,205    12,448 
Total Liabilities   97,847    273,423    (62,979)      308,291    47,845 
                             
Commitments and Contingencies                            
                             
Shareholders’ Equity                            
Ordinary shares   10,150    133,719    138,175   (1)   282,044    43,773 
Statutory reserves   -    28,824    -       28,824    4,473 
Retained earnings (Accumulated deficit)   (94,570)   549,643    91,447   (1)   546,520    84,819 
Accumulated other comprehensive loss   -    15,627    -   (1)   15,627    2,425 
Total Shareholders’ Equity (Deficit)   (84,420)   727,813    229,622       873,015    135,490 
Total Liabilities and Shareholders’ Equity   13,427    1,001,236    166,643       1,181,306    183,335 

 

Pro Forma Adjustments to the Unaudited Combined Balance Sheet

 

(A)

Derived from financial information of the subsidiary contained in the audited consolidated balance sheet of Hongle as of September 30, 2021. See Hongle’s financial statements and the related notes appearing elsewhere in this filling document

(B)Derived from the unaudited condensed consolidated balance sheet of Scienjoy as of September 30, 2021. See Scienjoy’s financial statements and the related notes appearing elsewhere in filling document.
(1)Reflects the result of the Hongle Acquisition in goodwill, intangible assets, deferred tax liabilities, contingent consideration – earn-out liability and equity as if it has been consummated.
(2)Translations of balances in the pro forma combined balance sheet from RMB into USD (or “US$”) as of 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.
(3)Amortization of software and trademark and related income tax effect.
(4)Reflects the result of Hongle Acquisition that Sicenjoy pays Hongle’s outstanding loan payable balances on behalf of Hongle.

 

4

 

UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2021

(In thousands, except per share amounts)

 

   (A)   (B)   Pro Forma      Pro Forma 
   Hongle   Scienjoy   Adjustments   Notes  Combined 
   RMB   RMB   RMB      RMB   US$ (3) 
                        
Net revenues   126,511    1,171,191    -       1,297,702    201,400 
Cost of revenues   (107,285)   (938,797)   (3,450)  (4)   (1,049,532)   (162,885)
Gross profit   19,226    232,394    (3,450)  (4)   248,170    38,515 
                             
Sales and marketing expenses   (1,906)   (3,746)   -       (5,652)   (877)
General and administrative expenses   (1,314)   (38,606)   (224)  (4)   (40,144)   (6,230)
Provision (recovery of) for doubtful accounts   (165)   (3,405)   -       (3,570)   (554)
Research and development expenses   (6,512)   (39,793)   -       (46,305)   (7,186)
Operating income (loss)   9,329    146,844    (3,674)  (4)   152,499    23,668 
                             
Other income (expense):                            
Interest income, net   9    1,882    -       1,891    293 
Foreign exchange gain (loss), net   (2)   (34)   -       (36)   (6)
Other expense (income), net   652    (84)   -       568    88 
Change in fair value of contingent consideration   -    45,463    --       45,463    7,056 
Change in fair value of warrants liability   -    21,830            21,830    3,388 
Change in fair value of investment in marketable security   -    27,648    -       27,648    4,291 
Income before income taxes   9,988    243,549    (3,674)  (4)   249,863    38,778 
Provision for income taxes   -    (6,044)   551   (4)   (5,493)   (853)
Net income   9,988    237,505    (3,123)  (4)   244,370    37,925 
                             
Weighted average shares outstanding, basic and diluted        30,728,931        (1)   35,148,844    35,148,844 
Basic and diluted net income per share        30,728,931        (1)   35,148,844    35,148,844 
                             
Basic net income per share        7.73            6.95    1.08 
Diluted net income per share        7.73            6.95    1.08 

 

5

 

UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS

YEAR ENDED DECEMBER 31, 2020

(In thousands, except per share amounts)

 

   (A)   (B)   Pro Forma      Pro Forma 
   Hongle   Scienjoy   Adjustments   Notes  Combined 
   RMB   RMB   RMB      RMB   US$ (3) 
                        
Net revenues   169,280    1,222,183    -       1,391,463    215,951 
Cost of revenues   (138,768)   (959,939)   (4,600)  (4)   (1,103,307)   (171,231)
Gross profit   30,512    262,244    (4,600)  (4)   288,156    44,720 
                             
Sales and marketing expenses   (5,586)   (10,121)   -       (15,707)   (2,438)
General and administrative expenses   (1,756)   (33,889)   (298)  (4)   (35,943)   (5,578)
Provision for doubtful accounts        8,253            8,253    1,281 
Research and development expenses   (6,084)   (31,780)           (37,864)   (5,876)
Operating income (loss)   17,086    194,707    (4,898)  (4)   206,895    32,109 
                             
Other income (expense):                            
Interest income, net   17    2,960    -       2,977    462 
Foreign exchange gain (loss), net   2    703    -       705    109 
Other expense, net   1,081    (4,702)   -       (3,621)   (562)
Change in fair value of contingent consideration   -    3,904    -       3,904    606 
Change in fair value of warrants liability   -    (14,068)   -       (14,068)   (2,183)
Income before income taxes   18,186    183,504    (4,898)  (4)   196,792    30,541 
Provision for income taxes   -    (7,404)   735   (4)   (6,669)   (1,035)
Net income   18,186    176,100    (4,163)  (4)   190,123    29,506 
                             
Weighted average shares outstanding, basic        23,287,706        (2)   27,707,619    27,707,619 
Weighted average shares outstanding, diluted        26,828,666        (2)   31,248,579    31,248,579 
                             
Basic net income per share        7.56            6.86    1.06 
Diluted  net income per share        6.56            6.08    0.94 

 

Pro Forma Adjustments to the Unaudited Combined Statements of Operations

 

(A) Derived from financial information of the subsidiary contained in the audited consolidated statement of operations and comprehensive income of Hongle for the year ended December 31, 2020 and for the nine months ended September 30, 2021. See Hongle’s financial statements and the related notes appearing elsewhere in this proxy statement.
(B) Derived from the unaudited consolidated statement of income and comprehensive income of Scienjoy for the nine months ended September 30, 2021 and the audited consolidated statement of income and comprehensive income of Scienjoy for the year ended December 31, 2020. See Scienjoy’s financial statements and the related notes appearing elsewhere in this proxy statement.
(1)The calculation of weighted average shares outstanding for basic and diluted net income per share assumes that the Hongle Acquisition is being reflected as if it had occurred as of January 1, 2021, the calculation of weighted average shares outstanding for basic and diluted net income per share assumes that the shares have been outstanding for the entire period presented.
(2)The calculation of weighted average shares outstanding for basic and diluted net income per share assumes that the Hongle Acquisition is being reflected as if it had occurred as of January 1, 2020, the calculation of weighted average shares outstanding for basic and diluted net income per share assumes that the shares have been outstanding for the entire period presented.
(3)

Translations of balances in the pro forma combined statements of operations from RMB into USD (or “US$”) for the nine months ended September 30, 2021 and for the year ended December 31, 2020 are solely for the convenience of the reader and were calculated at the rate of US$1.00 = RMB6.4434, representing the noon buying rate in The City of New York for cable transfers of RMB as certified for customs purposes by the Federal Reserve Bank of New York on the last trading day of September 30, 2021. No representation is made that the RMB amounts represent or could have been, or could be, converted, realized or settled into US$ at that rate, or at any other rate.

(4)Amortization of software and trademark and related income tax effect.

 

6

Exhibit 99.3

 

 

 

TIANJIN YIERYI TECHNOLOGY CO., LTD.,

 

CONSOLIDATED FINANCIAL STATEMENTS

 

For the year ended December 31, 2020

AND For the nine months ended September 30, 2021

 

 

 

 

 

 

 

 

 

TIANJIN YIERYI TECHNOLOGY CO., LTD.,

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

  Page
   
Report of Independent Registered Public Accounting Firm F-2
   
Consolidated Balance Sheets as of December 31, 2020 and September 30, 2021 F-3–F-4
   
Consolidated Statements of Operations and Comprehensive Income for the Year Ended December 31, 2020 and the Nine Months Ended September 30, 2021 F-5
   
Consolidated Statements of Changes in Equity for the Year Ended December 31, 2020 and the Nine Months Ended September 30, 2021 F-6
   
Consolidated Statements of Cash Flows for the Year Ended December 31, 2020 and the Nine Months Ended September 30, 2021 F-7-F-8
   
Notes to the Consolidated Financial Statements F-9–F-25
   
Financial Information of The Subsidiary (“WLT”) F-26-F-28

 

F-1

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Stockholders and Board of Directors of

Tianjin Yieryi Technology Co., Ltd.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Tianjin Yieryi Technology Co., Ltd. and its subsidiaries (collectively the “Company”) as of September 30, 2021 and December 31, 2020, and the related consolidated statements of operations and comprehensive income, changes in stockholders’ equity, and cash flows for the nine-month period ended September 30, 2021 and for the year ended December 31, 2020, and the related notes and schedules (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2021 and December 31, 2020, and the results of its operations and its cash flows for the nine-month period ended September 30, 2021 and for the year ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ ZH CPA, LLC  
   
We have served as the Company’s auditor since 2021.
   
Denver, Colorado
   
December 29, 2021  
   

 

 

1600 Broadway, Suite 1600, Denver, CO, 80202, USA. Phone: 1.303.386.7224 Fax: 1.303.386.7101 Email: admin@zhcpa.us

 

F-2

 

 

TIANJIN YIERYI TECHNOLOGY CO., LTD.,

 

CONSOLIDATED Balance Sheets

(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”))

 

    As of December 31,     As of September 30,  
    2020     2020     2021     2021  
    RMB     US$     RMB     US$  
                         
ASSETS                        
Current assets:                        
Cash and cash equivalents   6,090     $ 933     3,208     $ 498  
Accounts receivable, net     2,475       379       1,602       249  
Prepaid expenses and other current assets, net     546       84       1,236       192  
VAT recoverable     8,013       1,228       7,210       1,119  
Loan receivables-third parties     3,590       550       -        -   
                                 
Total current assets     20,714       3,174       13,256       2,058  
                                 
Non-current assets:                                
Property and equipment, net     329       50       234       36  
Intangible assets, net     49       8       43       7  
Long term deposits and other assets     133       20       136       21  
                                 
Total non-current assets     511       78       413       64  
                                 
TOTAL ASSETS   21,225     $ 3,252     13,669     $ 2,122  

 

F-3

 

 

TIANJIN YIERYI TECHNOLOGY CO., LTD.,

 

CONSOLIDATED Balance Sheets (CONTINUED)

(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”))

 

    As of December 31,     As of September 30,  
    2020     2020     2021     2021  
    RMB     US$     RMB     US$  
                         
LIABILITIES AND DEFICIT                      
Current liabilities:                      
Accounts payable   1,938     $ 298     1,950     $ 304  
Deferred revenue     5,571       854       5,583       866  
Accrued salary and employee benefits     1,118       171       1,810       281  
Accrued expenses and other current liabilities     -       -       58       9  
Loan payables - third parties     89,544       13,723       11,400       1,769  
                                 
Total current liabilities     98,171       15,046       20,801       3,229  
                                 
Total liabilities     98,171       15,046       20,801       3,229  
                                 
Commitments and contingencies                                
                                 
DEFICIT:                                
Capital contribution     40,200       6,161       90,200       13,999  
Accumulated deficit     (117,146 )     (17,955 )     (97,332 )     (15,106 )
                                 
Total deficit     (76,946 )     (11,794 )     (7,132 )     (1,107 )
                                 
TOTAL LIABILITIES AND DEFICIT   21,225     $ 3,252     13,669     $ 2,122  

 

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

 

F-4

 

 

TIANJIN YIERYI TECHNOLOGY CO., LTD.,

 

Consolidated statements of operations and comprehensive income

(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”))

 

    For the year ended
December 31,
    For the nine months ended
September 30,
 
    2020     2020     2021     2021  
    RMB     US$     RMB     US$  
                         
Revenues   183,174     $ 28,073     158,012     $ 24,523  
                                 
Cost of revenues     (157,083 )     (24,074 )     (128,418 )     (19,930 )
                                 
Gross profit     26,091       3,999       29,594       4,593  
                                 
Sales and marketing expenses     (5,586 )     (856 )     (1,907 )     (296 )
General and administrative expenses     (2,785 )     (427 )     (1,988 )     (309 )
Research and development expenses     (6,083 )     (932 )     (6,512 )     (1,011 )
Provision for doubtful accounts     -       -       (165 )     (26 )
                                 
Income from operations     11,637       1,784       19,022       2,951  
                                 
Other Operating income     1,214       186       780       121  
Interest income     20       3       14       2  
Other loss, net     (7 )     (1 )     -       -  
Foreign exchange gain (loss), net     2       -       (2 )     -  
                                 
Income before income taxes     12,866       1,972       19,814       3,074  
                                 
Income tax expenses     -       -       -       -  
                                 
Net income   12,866     $ 1,972     19,814     $ 3,074  

 

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

 

F-5

 

 

TIANJIN YIERYI TECHNOLOGY CO., LTD.,

 

CONSOLIDATED statements of CHANGES IN EQUITY

(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”))

 

    Capital
contribution
    Accumulated
deficit
    Total deficit  
    RMB     RMB     RMB  
                   
Balance as of January 1, 2020    40,200         (130,012)         (89,812)  
                         
Net income     -       12,866       12,866  
                         
Balance as of December 31, 2020   40,200     (117,146)     (76,946)  
                         
Net income     -       19,814       19,814  
Capital contribution     50,000       -       50,000  
Balance as of September 30, 2021   90,200     (97,332)     (7,132)  
Balance as of September 30, 2021 (US$)   $ 13,999     $ (15,106 )   $ (1,107 )

 

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

 

F-6

 

 

TIANJIN YIERYI TECHNOLOGY CO., LTD.,

 

CONSOLIDATED statements of cash flows

(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”))

 

    For the year ended
December 31,
    For the nine months ended
September 30,
 
    2020     2020     2021     2021  
    RMB     US$     RMB     US$  
                         
Cash flows from operating activities                        
Net income   12,866     $ 1,972     19,814     $ 3,074  
Adjustments to reconcile net income to net cash provided by operating activities:                                
Depreciation of property and equipment     157       24       113       18  
Amortization of intangible assets     8       1       6       1  
Provision for doubtful accounts     -       -       165       26  
Foreign exchange gain (loss)     -2       -       2       -  
Changes in operating assets and liabilities:                                
Accounts receivable     8,407       1,288       708       110  
Prepaid expense and other current assets     (383 )     (59 )     (691 )     (107 )
VAT recoverable     426       65       843       131  
Accounts payable     (25,844 )     (3,961 )     12       2  
Deferred revenue     1,457       223       12       2  
Accrued salary and employee benefits     832       129       692       107  
Accrued expenses and other current liabilities     -       -       58       9  
Net cash provided by (used in) operating activities   (2,076 )    $ (318 )   21,734     $ 3,373  

 

F-7

 

 

TIANJIN YIERYI TECHNOLOGY CO., LTD.,

 

CONSOLIDATED statements of cash flows (CONTINUED)

(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”))

 

    For the year ended
December 31,
    For the nine months ended
September 30,
 
    2020     2020     2021     2021  
    RMB     US$     RMB     US$  
                         
Cash flows from investing activities                        
                         
Purchases of property and equipment and intangible assets   (86)     $ (13 )   (59)     $ (9 )
loan receivable     3,510       538       3,590       557  
Long term deposits and other assets     123       19       (3 )     -  
                                 
Net cash provided by investing activities     3,547       544       3,528       548  
                                 
Cash flows from financing activities                                
Capital contribution     -       -       50,000       7,760  
Repayment of loan payables - third parties     (111 )     (18 )     (78,144 )     (12,128 )
                                 
Net cash used in financing activities     (111 )     (18 )     (28,144 )     (4,368 )
                                 
Net increase (decrease) in cash and cash equivalents     1,360       208       (2,882 )     (447 )
Cash and cash equivalents at beginning of the year     4,730       725       6,090       945  
Cash and cash equivalents at end of the year   6,090     $ 933     3,208     $ 498  
                                 
Supplemental disclosures of cash flow information                                
Income taxes paid     -       -     221     $ 34  

 

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

 

F-8

 

 

TIANJIN YIERYI TECHNOLOGY CO., LTD.,

 

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

 

(a) 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

 

F-9

 

 

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.

  

(b) Use of estimates

 

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.

 

(c) Foreign currency

 

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.

 

F-10

 

 

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.

 

(h) Intangible assets

 

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

 

F-11

 

 

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.

 

F-12

 

 

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.

 

F-13

 

 

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)

 

(l) Deferred revenue

 

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.

 

(m) Cost of revenues

 

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 5,586US$856and 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.

 

(q) Employee benefits

 

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.

 

(r) Leases

 

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.

 

F-14

 

 

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)

 

(s) Income taxes

 

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.

 

(u) Statutory reserves

 

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.

 

F-15

 

 

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

 

F-16

 

 

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.

 

F-17

 

 

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$”))

 

3. Concentration of risk

 

(a) Credit risk

 

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.

 

(e) COVID-19

 

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.

 

F-18

 

 

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.

 

F-19

 

 

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$”))

 

5. Loan  receivable

 

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.

 

F-20

 

 

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  

  

F-21

 

 

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$”))

 

8. Loan payables

 

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.

 

9. INCOME TAXES

 

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.

 

F-22

 

 

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.

 

F-23

 

 

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.

 

12. Equity

 

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  

 

F-24

 

 

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  

 

F-25

 

 

FINANCIAL INFORMATION OF THE SUBSIDIARY (“WLT”)

 

BEIJING WEILIANTONG TECHNOLOGY CO., LTD.,

Balance Sheets

(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”))

 

    As of December 31     As of September 30  
    2020     2020     2021     2021  
    RMB     US$     RMB     US$  
                         
ASSETS                        
Current assets                        
Cash and cash equivalents   ¥ 5,629     $ 863     ¥ 1,605     $ 249  
Accounts receivable, net     875       134       1,602       249  
Prepaid expenses and other current assets, net     2,359       361       3,074       477  
VAT recoverable     7,096       1,088       6,783       1,053  
Loan receivable-third parties     3,590       550       -        -   
                                 
Total current assets     19,549       2,996       13,064       2,028  
                                 
Non-current assets                                
Property and equipment, net     262       40       184       29  
Intangible assets, net     49       8       43       7  
Long term deposits and other assets     132       20       136       20  
                                 
Total non-current assets     443       68       363       56  
                                 
TOTAL ASSETS   ¥ 19,992     $ 3,064     ¥ 13,427     $ 2,084  

 

F-26

 

 

FINANCIAL INFORMATION OF THE SUBSIDIARY (“WLT”)

 

BEIJING WEILIANTONG TECHNOLOGY CO., LTD., 

Balance Sheets (CONTINUED)

(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”))

 

    As of December 31     As of September 30  
    2020     2020     2021     2021  
    RMB     US$     RMB     US$  
                         
LIABILITIES AND EQUITY                        
Current liabilities                        
Accounts payable   ¥ 1,435     $ 220     ¥ 1,598     $ 248  
Deferred revenue     5,571       854       5,583       866  
Accrued salary and employee benefits     1,100       169       1,808       281  
Accrued expenses and other current liabilities     -        -        58       9  
Loan payable-third parties     56,044       8,589       11,400       1,769  
Amount due to related parties     50,250       7,701       77,400       12,013  
                                 
Total current liabilities     114,400       17,533       97,847       15,186  
                                 
Commitments and contingencies                                
                                 
DEFICIT:                                
Capital contribution     10,150       1,556       10,150       1,575  
Accumulated deficit     (104,558 )     (16,025 )     (94,570 )     (14,677 )
                                 
Total deficit     (94,408 )     (14,469 )     (84,420 )     (13,102 )
                                 
TOTAL LIABILITIES AND DEFICIT   ¥ 19,992     $ 3,064     ¥ 13,427     $ 2,084  

 

F-27

 

 

FINANCIAL INFORMATION OF THE SUBSIDIARY (“WLT”)

 

BEIJING WEILIANTONG TECHNOLOGY CO., LTD.,

statements of INCOME

(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”))

 

    As of December 31,     As of September 30  
    2020     2020     2021     2021  
    RMB     US$     RMB     US$  
                         
Revenues   ¥ 169,280     $ 25,943     ¥ 126,511     $ 19,634  
              -                  
Cost of revenues     (138,768 )     (21,267 )     (107,285 )     (16,650 )
                                 
Gross profit     30,512       4,676       19,226       2,984  
                                 
Sales and marketing expenses     (5,586 )     (856 )     (1,906 )     (296 )
General and administrative expenses     (1,756 )     (269 )     (1,314 )     (203 )
Research and development expenses     (6,084 )     (933 )     (6,512 )     (1,011 )
Provision for doubtful accounts     -       -       (165 )     (26 )
                                 
Income from operations     17,086       2,618       9,329       1,448  
                                 
Other Operating loss (income)     1,088       167       652       101  
Interest income     17       3       9       1  
Other income (loss), net     (7 )     (1 )     -       -  
Foreign exchange gain (loss), net     2       -       -2       -  
                                 
Income before income taxes   ¥ 18,186     $ 2,787     ¥ 9,988     $ 1,550  
                                 
Income tax expenses     -        -                -   
                                 
Net income   ¥ 18,186     $ 2,787     ¥ 9,988     $ 1,550  

 

 

F-28