Exhibit 99.1
SUNRISE NEW ENERGY CO., LTD.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
| As of June 30, 2022 | As of December 31, 2021 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts and notes receivable, net | ||||||||
| Inventories | ||||||||
| Due from related parties | ||||||||
| Short-term investment | ||||||||
| Advance to suppliers | ||||||||
| Prepaid expenses and other current assets | ||||||||
| TOTAL CURRENT ASSETS | ||||||||
| NON-CURRENT ASSETS | ||||||||
| Restricted cash | ||||||||
| Long term prepayments and other non-current assets | ||||||||
| Plants, property and equipment, net | ||||||||
| Construction in progress | ||||||||
| Intangible assets, net | ||||||||
| Long-term investments | ||||||||
| Operating lease right-of-use assets | ||||||||
| Deferred tax assets | ||||||||
| TOTAL NON-CURRENT ASSETS | ||||||||
| TOTAL ASSETS | ||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | ||||||||
| Deferred revenue | ||||||||
| Deferred revenue-related parties | ||||||||
| Deferred government subsidy | ||||||||
| Due to related parties | ||||||||
| Income taxes payable | ||||||||
| Operating lease liabilities, current | ||||||||
| Accrued expenses and other current liabilities | ||||||||
| TOTAL CURRENT LIABILITIES | ||||||||
| NON-CURRENT LIABILITIES | ||||||||
| Operating lease liabilities, non-current | ||||||||
| TOTAL NON-CURRENT LIABILITIES | ||||||||
| TOTAL LIABILITES | ||||||||
| EQUITY | ||||||||
| Ordinary shares ( | ||||||||
| Additional paid-in capital | ||||||||
| Statutory reserves | ||||||||
| Retained earnings | ||||||||
| Accumulated other comprehensive income | ||||||||
| Total shareholders’ equity attributable to controlling shareholders | ||||||||
| Non-controlling interests | ||||||||
| TOTAL EQUITY | ||||||||
| TOTAL LIABILITIES AND EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
SUNRISE NEW ENERGY CO., LTD.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
For the six months ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| REVENUE, NET | $ | $ | ||||||
| COSTS AND OPERATING EXPENSES | ||||||||
| Service costs | ||||||||
| Cost of goods sold | ||||||||
| Selling expenses | ||||||||
| General and administrative expenses | ||||||||
| Research and development expenses | ||||||||
| Total costs and operating expenses | ||||||||
| LOSS FROM OPERATIONS | ( | ) | ( | ) | ||||
| OTHER (EXPENSES) INCOME | ||||||||
| Investment losses | ( | ) | ( | ) | ||||
| Interest income | ||||||||
| Other income, net | ||||||||
| Total other expenses | ( | ) | ( | ) | ||||
| LOSS BEFORE INCOME TAXES | ( | ) | ( | ) | ||||
| Income taxes provision (benefit) | ( | ) | ||||||
| NET LOSS | ( | ) | ( | ) | ||||
| Less: net profit (loss) attributable to non-controlling interests | ( | ) | ||||||
| NET LOSS ATTRIBUTABLE TO CONTROLLING SHAREHOLDERS | $ | ( | ) | $ | ( | ) | ||
| OTHER COMPREHENSIVE INCOME (LOSS) | ||||||||
| Foreign currency translation adjustment | ( | ) | ||||||
| TOTAL COMPREHENSIVE LOSS | ( | ) | ( | ) | ||||
| Less: comprehensive loss attributable to non-controlling interest | ( | ) | ( | ) | ||||
| COMPREHENSIVE LOSS ATTRIBUTABLE TO CONTROLLING SHAREHOLDERS | $ | ( | ) | $ | ( | ) | ||
| LOSS PER SHARE | ||||||||
| $ | ( | ) | $ | ( | ) | |||
| WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING | ||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
SUNRISE NEW ENERGY CO., LTD.
UNAUDITED CONDENSED CONSOLIDATION STATEMENTS OF CHANGES IN EQUITY
| Ordinary shares | Additional paid-in | Statutory | Retained | Accumulated other comprehensive | Total
equity attributable to controlling | Non- controlling | Total | |||||||||||||||||||||||||||||
| Shares | Amount | Capital | reserves | earnings | (loss) income | shareholders | interests | equity | ||||||||||||||||||||||||||||
| Balance at December 31, 2020 | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Issued shares of ordinary shares, net of offering cost | ||||||||||||||||||||||||||||||||||||
| Capital contributions from non-controlling interests | - | |||||||||||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Statutory reserves | - | ( | ) | |||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||||||||||||||||
| Balance at June 30, 2021 (Unaudited) | ||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | ||||||||||||||||||||||||||||||||||||
| Capital contributions from non-controlling interests | - | |||||||||||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Statutory reserves | - | ( | ) | |||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Balance at June 30, 2022 (Unaudited) | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
3
SUNRISE NEW ENERGY CO., LTD.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjusted to reconcile net loss to cash used in operating activities | ||||||||
| Depreciation and amortization | ||||||||
| Deferred tax expense(benefits) | ( | ) | ||||||
| Investment losses | ||||||||
| Bad debt expense | ||||||||
| Amortization of right-of-use assets | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts and notes receivable, net | ( | ) | ||||||
| Due from related parties | ||||||||
| Operating lease liabilities | ( | ) | ||||||
| Inventories | ( | ) | ||||||
| Advance to suppliers | ( | ) | ||||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Accounts payable | ||||||||
| Income taxes payable | ( | ) | ( | ) | ||||
| Deferred revenue | ||||||||
| Deferred government subsidy | ||||||||
| Right-of-use asset | ( | ) | ||||||
| Accrued expenses and other current liabilities | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| Purchase of plants, property and equipment | ( | ) | ( | ) | ||||
| Purchase of construction in progress | ( | ) | ||||||
| Prepayment for construction and equipment | ( | ) | ||||||
| Loans to third parties | ( | ) | ||||||
| Purchase of long-term investments | ( | ) | ||||||
| Purchase of short-term investments | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities | ||||||||
| Loans from related parties | ||||||||
| Proceeds from issuance of ordinary shares in connection with initial public offering, net of issuance cost | ||||||||
| Proceeds from capital contributions by non-controlling shareholders | ||||||||
| Net cash provided by financing activities | ||||||||
| Effect of foreign exchange rate on cash and cash equivalents | ||||||||
| Net increase in cash and cash equivalents | ||||||||
| Cash, cash equivalents and restricted cash, beginning of period | ||||||||
| Cash, cash equivalents and restricted cash, end of period | $ | $ | ||||||
| Cash, cash equivalent and restricted cash, end of period | ||||||||
| Less: Non-current restricted cash | ||||||||
| Cash and equivalent cash, end of period | ||||||||
| Supplemental non cash transactions | ||||||||
| Capital contribution through intangible assets from NCI | ||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
SUNRISE NEW ENERGY CO., LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – ORGANIZATION AND BUSINESS DESCRIPTION
Sunrise New Energy Co., Ltd. (“EPOW”), previously known as Global Internet of People, Inc., or GIOP, is a limited liability company established under the laws of the Cayman Islands on February 22, 2019. It is a holding company with no business operation.
On March 22, 2019, EPOW incorporated Global Mentor Board Information Technology Limited (“GMB HK”), a limited liability company formed in accordance with laws and regulations of Hong Kong. GMB HK is currently not engaging in any active business and is merely acting as a holding company of Beijing Mentor Board Union Information Technology Co, Ltd. (“EPOW BJ” or “WFOE”). EPOW BJ or WFOE was incorporated by GMB HK as a Foreign Enterprise in China on June 3, 2019.
Global Mentor Board (Beijing) Information Technology Co., Ltd. (“SDH”) is a limited liability company incorporated on December 5, 2014 under the laws of China. In 2017 and 2018, SDH established several subsidiaries in China, including Global Mentor Board (Hangzhou) Technology Co., Ltd. (“GMB (Hangzhou)”), Global Mentor Board (Shanghai) Enterprise Management Consulting Co., Ltd. (“GMB Consulting”), Linking (Shanghai) Network Technology Co., Ltd. (“GMB Linking”), Shanghai Voice of Seedling Cultural Media Co., Ltd. (“GMB Culture”), which has a majority owned subsidiary, Mentor Board Voice of Seedling(Shanghai) Cultural Technology Co., Ltd. (“GMB Technology”), Shidong (Beijing) Information Technology Co., Ltd. (“GMB (Beijing)”), Zibo Shidong Digital Technology Co., Ltd. (“GMB Zibo”) and its major owned subsidiaries, Shidong Trading Service (Zhejiang) Co., Ltd (“Shidong Trading”) and Shanghai Jiagui Haifeng Technology Co., Ltd. (“Jiagui Haifeng”), and Shanghai Nanyu Culture Communication Co., Ltd. SDH(“Nanyu Culture”), and its subsidiaries are primarily engaged in providing peer-to-peer knowledge sharing and enterprise services to clients in the PRC.
As described below, EPOW, through a restructuring which is accounted for as a reorganization of entities under common control (the “Reorganization”), became the ultimate parent entity of its subsidiaries, and the primary beneficiary of the variable interest entity (the “VIE”), SDH, for accounting purposes under U.S. GAAP. EPOW, its subsidiaries, the VIE and the VIE’s subsidiaries, are collectively hereinafter referred as the “Company”.
Reorganization
On June 10, 2019, EPOW BJ or WFOE entered into a series of contractual arrangements with the owners of SDH. These agreements include an Exclusive Technical and Consulting Service Agreement, an Exclusive Service Agreement, an Exclusive Option Agreement and Powers of Attorney (collectively “VIE Agreements”). Pursuant to the above VIE Agreements, WFOE has the exclusive right to provide SDH with comprehensive technical support, consulting services and other services in relation to the principal business during the term the VIE Agreement. All the above contractual arrangements obligate WFOE to absorb a majority of the risk of loss from business activities of SDH and entitle WFOE to receive a majority of their residual returns. In essence, WFOE is the primary beneficiary of SDH for accounting purpose under U.S. GAAP. Therefore, SDH should be considered as a VIE under the Statement of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810 “Consolidation”.
EPOW, together with its wholly-owned subsidiary, GMB HK, and WFOE and its VIE and VIE’s subsidiaries were effectively controlled by the same shareholders before and after the Reorganization and, therefore, the reorganization is considered under common control. The consolidation of the Company has been accounted for at historical cost and prepared on the basis as if the Reorganization had become effective as of the beginning of the first period presented in the condensed consolidated financial statements.
On December 22, 2021, EPOW BJ incorporated Shidong Cloud (Beijing) Education Technology Co., Ltd.
On October 8, 2021, EPOW incorporated SDH (HK) New Energy Tech Co., Ltd. (“SDH New Energy”), a limited liability company formed in accordance with laws and regulations of Hong Kong. SDH New Energy is acting as a holding company of Zhuhai (Zibo) Investment Co., Ltd (“Zhuhai Zibo”) and Zhuhai (Guizhou) New Energy Investment Co., Ltd. (“Zhuhai New Energy”).
Zhuhai Zibo and Zhuhai New Energy were incorporated by SDH New Energy as a Foreign Enterprises in China on October 5, 2021 and November 23, 2021, respectively.
In July, 2021, GMB Technology transferred all the shares of GMB Linking to another shareholder.
On November 8, 2021, Sunrise (Guizhou) New Energy Materials Co., Ltd. (“Guizhou New Energy”) is a limited liability company incorporated by Zhuhai Zibo.
On January 7, 2022, Beijing Mentor Board Health Technology Co., Ltd. (“GMB Health”) is a limited liability company incorporated by EPOW BJ.
On March 4, 2022, Shanghai Yuantai Fengdeng Agricultural Technology Co., Ltd. (“Yuantai Fengdeng”) was incorporated by GMB Zibo.
On April 26, 2022, Guizhou New Energy incorporated Sunrise (Guxian) New Energy Materials Co., Ltd. (“Sunrise Guxian”).
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The condensed consolidated financial statements reflect the activities of the Company and each of the following entities:
| Name | Date
of Incorporation | Place
of incorporation | Percentage of
effective ownership | Principal Activities | ||||||
| Wholly owned subsidiaries | ||||||||||
| Global
Mentor Board Information Technology Limited (“GMB HK”) | 2019 | % | ||||||||
| Beijing
Mentor Board Union Information Technology Co, Ltd. (“EPOW BJ” or “WFOE”) | 2019 | % | ||||||||
| Shidong Cloud (Beijing) Education Technology Co., Ltd (“Shidong Cloud”) | 2021 | % | ||||||||
| SDH (HK) New Energy Tech Co., Ltd. (“SDH New Energy”) | 2021 | % | ||||||||
| Zhuhai (Zibo) Investment Co., Ltd. (“Zhuhai Zibo”) | 2021 | % | ||||||||
| Zhuhai (Guizhou) New Energy Investment Co., Ltd. (“Zhuhai New Energy”) | 2021 | % | ||||||||
| Sunrise (Guizhou) New Energy Materials Co., Ltd. (“Guizhou New Energy”) | 2021 | % | ||||||||
| Sunrise (Guxian) New Energy Materials Co., Ltd. (“Sunrise Guxian”) | 2022 | % | ||||||||
| Variable Interest Entity (“VIE”) and subsidiaries of VIE | ||||||||||
| Global
Mentor Board (Beijing) Information Technology Co., Ltd. (“SDH” or “VIE”) | 2014 | |||||||||
| Global
Mentor Board (Hangzhou) Technology Co., Ltd. (“GMB (Hangzhou)”) | 2017 | % | ||||||||
| Global
Mentor Board (Shanghai) Enterprise Management Consulting Co., Ltd. (“GMB Consulting”) | 2017 | % | ||||||||
| Shanghai
Voice of Seedling Cultural Media Co., Ltd. (“GMB Culture”) | 2017 | % | ||||||||
| Shidong(Beijing)Information
Technology Co., LTD. (“GMB (Beijing)”) | 2018 | % | ||||||||
| Mentor
Board Voice of Seeding (Shanghai) Cultural Technology Co., Ltd. (“GMB Technology”) | 2018 | % | ||||||||
| Shidong Zibo Digital Technology Co., Ltd. (“GMB Zibo”) | 2020 | % | ||||||||
| Shidong Trading Service (Zhejiang) Co., Ltd. (“Shidong Trading”) | 2021 | % | ||||||||
| Shanghai Jiagui Haifeng Technology Co., Ltd. (“Jiagui Haifeng”) | 2021 | % | | |||||||
| Shanghai Yuantai Fengdeng Agricultural Technology Co., Ltd.( Yuantai Fengdeng) | 2022 | % | ||||||||
| Shanghai Nanyu Culture Communication Co., Ltd. (“Nanyu Culture”) | 2021 | % | ||||||||
| Beijing Mentor Board Health Technology Co., Ltd (“GMB Health”) | 2022 | % | ||||||||
6
The VIE contractual arrangements
Neither the Company nor the Company’s subsidiaries own any equity interest in SDH. Instead, the Company controls and receives the economic benefits of SDH’s business operation through a series of contractual arrangements. WFOE, SDH and its shareholders entered into a series of contractual arrangements, also known as VIE Agreements, in June 2019. The VIE agreements are designed to provide WFOE with the power, rights and obligations equivalent in all material respects to those it would possess as the sole equity holder of SDH, including absolute control rights and the rights to the assets, property and revenue of SDH.
Each of the VIE Agreements is described in detail below:
Exclusive Technical and Consulting Services Agreement
Pursuant to the Exclusive Technical and Consulting Services Agreement between SDH and WFOE (the “Exclusive Service Agreement”), WFOE provides SDH with technical support, consulting services, business support and other management services relating to its day-to-day business operations and management, on an exclusive basis, utilizing its advantages in technology, human resources, and information. For services rendered to SDH by WFOE under the Exclusive Service Agreement, WFOE is entitled to collect a service fee approximately equal to SDH’s earnings before corporate income tax, i.e., SDH’s revenue after deduction of operating costs, expenses and other taxes, subject to adjustment based on services rendered and SDH’s operation needs.
The Exclusive Service Agreement became effective on June 10, 2019 and will remain effective unless otherwise terminated as required by laws or regulations, or by relevant governmental or regulatory authorities or otherwise terminated earlier in accordance with the provisions of this agreement or relevant agreements separately executed between the parties. Nevertheless, this agreement shall be terminated after all the equity interest in SDH held by its shareholders and/or all the assets of SDH have been legally transferred to WFOE and/or its designee in accordance with the Exclusive Option Agreement (described below).
The CEO of WFOE, Mr. Haiping Hu, is currently managing SDH pursuant to the terms of the Exclusive Service Agreement. The Exclusive Service Agreement does not prohibit related party transactions. The Company’s audit committee is required to review and approve in advance any related party transactions, including transactions involving WFOE or SDH.
Equity Pledge Agreement
Under
the Equity Pledge Agreement between WFOE, and shareholders of SDH, together holding
7
The Equity Pledge Agreement is effective until: (1) the secured debt in the scope of pledge is cleared off; and (2) Pledgors transfer all the pledged equity interests to Pledgees according to the Equity Pledge Agreement, or another entity or individual designated by it.
The purposes of the Equity Pledge Agreement are to (1) guarantee the performance of SDH’s obligations under the Exclusive Service Agreement; (2) make sure the SDH Shareholders do not transfer or assign the pledged equity interests, or create or allow any encumbrance that would prejudice WFOE’s interests without WFOE’s prior written consent. In the event SDH breaches its contractual obligations under the Exclusive Service Agreement, WFOE will be entitled to dispose of the pledged equity interests.
Exclusive Option Agreement
Under
the Exclusive Option Agreement, the EPOW Shareholders irrevocably granted WFOE (or its designee) an exclusive option to purchase, to
the extent permitted under PRC law, once or at multiple times, at any time, part or all of their equity interests in SDH or the assets
of SDH. The option price to be paid by WFOE to each shareholder of SDH is RMB
Under the Exclusive Option Agreement, WFOE may at any time under any circumstances, purchase, or have its designee purchase, at its discretion, to the extent permitted under PRC law, all or part of the SDH Shareholders’ equity interests in SDH or the assets of SDH. The Equity Pledge Agreement, together with the Equity Pledge Agreement, the Exclusive Service Agreement, and Powers of Attorney, enable WFOE to be the primary beneficiary of SDH.
The Exclusive Option Agreement remains effective until all the equity or assets of SDH are legally transferred under the name of WFOE and/or another entity or individual designated by it, or unilaterally terminated by WFOE within 30-day prior written notice.
Powers of Attorney
Under each of the Powers of Attorney, the SDH Shareholders authorized WFOE to act on their behalf as their exclusive agent and attorney with respect to all rights as shareholders, including, but not limited to: (a) attending shareholders’ meetings; (b) exercising all the shareholder’s rights, including voting, that shareholders are entitled to under the laws of China and the Articles of Association, including, but not limited to, the sale or transfer or pledge or disposition of shares, in part or in whole; and (c) designating and appointing on behalf of shareholders the legal representative, the executive director, supervisor, the chief executive officer, and other senior management members of SDH.
The Powers of Attorney are irrevocable and continuously valid from the date of execution of the Powers of Attorney, so long as the SDH Shareholders own the equity interests of SDH.
Spousal Consent
Pursuant to the Spousal Consent, each spouse of the individual shareholders of SDH irrevocably agreed that the equity interest in SDH held by their respective spouses would be disposed of pursuant to the Equity Interest Pledge Agreement, the Exclusive Option Agreement, and the Powers of Attorney. Each spouse of the shareholders agreed not to assert any rights over the equity interest in SDH held by their respective spouses. In addition, in the event that any spouse obtains any equity interest in SDH through the respective shareholder for any reason, he or she agreed to be bound by the contractual arrangements.
8
Risks in relation to the VIE structure
The Company believes that the contractual arrangements with its VIE and its respective shareholders are in compliance with PRC laws and regulations and are legally enforceable. However, uncertainties in the PRC legal system could limit the Company’s ability to enforce the contractual arrangements. If the legal structure and contractual arrangements were found to be in violation of PRC laws and regulations, the PRC government could:
| ● | revoke the business and operating licenses of the Company’s PRC subsidiary and the VIE; |
| ● | discontinue or restrict the operations of any related-party transactions between the Company’s PRC subsidiary and the VIE; |
| ● | limit the Company’s business expansion in China by way of entering into contractual arrangements; |
| ● | impose fines or other requirements with which the Company’s PRC subsidiary and the VIE may not be able to comply; |
| ● | require the Company or the Company’s PRC subsidiary and the VIE to restructure the relevant ownership structure or operations; or |
| ● | restrict or prohibit the Company’s use of the proceeds of the any public offering to finance. |
The Company’s ability to conduct its wisdom sharing and enterprise consulting business may be negatively affected if the PRC government were to carry out any of the aforementioned actions. As a result, the Company may not be able to consolidate the VIE in its condensed consolidated financial statements as it may lose the ability to receive economic benefits from the VIE. The Company, however, does not believe such actions would result in the liquidation or dissolution of the Company, its PRC subsidiary and the VIE.
Total assets and liabilities presented on the Company’s condensed consolidated balance sheets and revenue, expense, net income presented on condensed consolidated statement of operations and comprehensive income as well as the cash flow from operating, investing and financing activities presented on the condensed consolidated statement of cash flows are substantially the financial position, operation and cash flow of the Company’s VIE and VIE’s subsidiaries. The Company has not provided any financial support to SDH for the six months ended June 30, 2022 and 2021. The following financial statements of the VIE and VIE’s subsidiaries were included in the condensed consolidated financial statements as of June 30, 2022 and December 31, 2021 and for the six months ended June 30, 2022 and 2021:
| As of June 30, 2022 | As of December 31, 2021 | |||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventories | ||||||||
| Due from related parties | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Plants, property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Long-term investments | ||||||||
| Operating lease right-of-use assets | ||||||||
| Long term deferred assets | ||||||||
| Deferred tax assets | ||||||||
| Total non-current assets | ||||||||
| Total assets | $ | $ | ||||||
| Accounts payable | $ | $ | ||||||
| Deferred revenue | ||||||||
| Deferred government subsidy | ||||||||
| Income taxes payable | ||||||||
| Due to related parties | ||||||||
| Operating lease liabilities, current | ||||||||
| Accrued expenses and other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Total liabilities | $ | $ | ||||||
9
| For the six months ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Total net revenue | $ | $ | ||||||
| Net (loss) income | $ | ( | ) | $ | ||||
| For the six months ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Net cash used in operating activities | $ | ( | ) | $ | ( | ) | ||
| Net cash used in investing activities | $ | ( | ) | $ | ( | ) | ||
| Net cash provided by financing activities | $ | $ | ||||||
Under
the Contractual Arrangements with the consolidated VIE, the Company has the power to direct activities of the consolidated VIE and VIE’s
subsidiaries through the WFOE, and can have assets transferred freely out of the consolidated VIE and VIE’ subsidiaries without
restrictions. Therefore, the Company considers that there is no asset of the consolidated VIE and VIE’ subsidiaries that can only
be used to settle obligations of the respective VIE and the VIE’s subsidiaries except for registered capital of the VIE and VIE’s
subsidiaries amounting to both $
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and have been consistently applied. The condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Company’s consolidated financial statements as at December 31, 2021 and 2020.
Principles of consolidation
The condensed consolidated financial statements include the financial statements of the Company, its subsidiaries, as well as the VIE and VIE’s subsidiaries for which the Company is the ultimate primary beneficiary for accounting purpose only under U.S. GAAP.
A subsidiary is an entity in which the Company,
directly or indirectly, controls more than one half of the voting power, has the power to appoint or remove the majority of the members
of the board of directors, to cast a majority of votes at the meeting of the board of directors or to govern the financial and operating
policies of the investee under a statute or agreement among the shareholders or equity holders. The Company owns
All transactions and balances between the Company, its subsidiaries, VIE and VIE’s subsidiaries have been eliminated upon consolidation.
Non-controlling interests
Non-controlling
interests are recognized to reflect the portion of their equity that is not attributable, directly or indirectly, to the Company as the
controlling shareholder. As of June 30, 2022, for the Company’s consolidated subsidiaries, the VIE and VIE’ s subsidiaries,
non-controlling interests represent: a) a minority shareholder’s
As
of December 31, 2021, for the Company’s consolidated subsidiaries, the VIE and VIE’ s subsidiaries, non-controlling interests
represent: a) a minority shareholder’s
10
Non-controlling interests are presented as a separate line item in the equity section of the Company’s Consolidated Balance Sheets and have been separately disclosed in the Company’s Consolidated Statements of Operations and Comprehensive Income to distinguish the interests from those of the Company.
Use of estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires the management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates and judgments are based on historical information, information that is currently available to the Company and on various other assumptions that the Company believes to be reasonable under the circumstances. Significant estimates required to be made by management, include, but are not limited to, the assessment of the allowance for doubtful accounts, depreciable lives of plants, property and equipment, and realization of deferred tax assets. Actual results could differ from those estimates.
Foreign currency translation
The Company’s principal country of operations is the PRC. The financial position and results of its operations are determined using RMB, the local currency, as the functional currency. The Company’s consolidated financial statements are reported using the U.S. Dollars (“US$” or “$”). The results of operations and the consolidated statements of cash flows denominated in foreign currency are translated at the average rate of exchange during the reporting period. Assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the applicable rates of exchange in effect at that date. The equity denominated in the functional currency is translated at the historical rate of exchange at the time of capital contribution. Because cash flows are translated based on the average translation rate, amounts related to assets and liabilities reported on the consolidated statements of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated balance sheets. Translation adjustments arising from the use of different exchange rates from period to period are included as a separate component of accumulated other comprehensive income (loss) included in consolidated statements of changes in shareholders’ equity. Gains and losses from foreign currency transactions are included in the Company’s Consolidated Statements of Operations and Comprehensive Income.
The value of RMB against US$ and other currencies may fluctuate and is affected by, among other things, changes in the PRC’s political and economic conditions. Any significant revaluation of RMB may materially affect the Company’s financial condition in terms of US$ reporting. The following table outlines the currency exchange rates that were used in preparing the consolidated financial statements:
| June
30, 2022 | December
31, 2021 | June
30, 2021 | ||||
| Period-end spot rate | US$ | US$ | US$ | |||
| Average rate | US$ | US$ | US$ |
Fair value measurements
The Company follows the provisions of ASC 820, Fair Value Measurements and Disclosures. ASC 820 clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:
Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.
Level 2 - Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities 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 are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.
11
The carrying amounts reported in the balance sheets for cash, restricted cash, accounts receivable, due from related parties, prepaid expenses and other current assets, deferred revenue, income taxes payable, accounts payable, due to related parties, accrued expenses and other current liabilities approximate their fair value based on the short-term maturity of these instruments.
The Company’s non-financial assets, such as plants, property and equipment would be measured at fair value only if they were determined to be impaired.
As a practical expedient, the Company uses Net Asset Value (“NAV”) or its equivalent to measure the fair value of its certain fund investment. NAV is primarily determined based on information provided by external fund administrators. The Group’s investments valued at NAV as a practical expedient are private equity funds, which represent the short-term investment on the balance sheet.
Cash and cash equivalents
Cash and cash equivalents include cash on hand and demand deposits in accounts maintained with commercial banks, as well as highly liquid investments which are unrestricted as to withdrawal or use and are readily convertible to known amounts of cash. The interest incomes of highly liquid investments are reported in the Company’s Consolidated Statements of Operations and Comprehensive Income. The Company maintains the bank accounts in Mainland China and Hong Kong. Cash balances in bank accounts in Mainland China and Hong Kong are not insured by the Federal Deposit Insurance Corporation or other programs.
Restricted cash
Restricted cash represent bank deposits with designated use, which cannot be withdrawn without certain approval or notice. Restricted cash, which matures in more than twelve months after the balance sheet date, is classified as noncurrent assets in the consolidated balance sheets.
Restricted cash classified as a long-term asset on the Company’s consolidated balance sheets consists of cash equivalents restricted as to withdrawal or use. Such restricted cash relates to an escrowed fund of listing companies.
The
escrowed fund shall be held by the Escrow Agent for the purpose of satisfying the initial $
Short-term investments
The Company evaluates whether an investment is other-than-temporarily impaired based on the specific facts and circumstances. Factors that are considered in determining whether an other-than-temporary decline in value has occurred include the market value of the security in relation to its cost basis, the financial condition of the investee, and the intent and ability to retain the investment for a sufficient period of time to allow for recovery in the market value of the investment.
Accounts receivable, net
Accounts receivable mainly represent amounts due from clients in the ordinary course of business and are recorded net of allowance for doubtful accounts.
12
The
Company mitigates the associated risks by performing credit checks and actively pursuing past due accounts. An allowance for doubtful
accounts is established and recorded based on management’s assessment of historical bad debts, creditworthiness and financial conditions
of the clients, current economic trends and changes in client payment patterns. Past due accounts are generally written off against the
allowance for bad debts only after all collection attempts have been exhausted and the potential for recovery is considered remote. The
allowance was $
Inventories
The inventories as of June 30, 2022 consisted of raw materials, consigned processing materials, materials in transit and finished goods. Finished goods were mainly graphite anode materials, health service gift cards, learning course gift cards, Chinese tea, latex pillows and health care products, all of which are products available for sale, and are stated at the lower of cost and net realizable value.
Part of the Company’s finished goods are obtained through fee exchange arrangements with its customers, which are entered into at the Company’s discretion to receive inventory in exchange of collection of account receivables and deferred revenue due from the customers. The Company accounts for these nonmonetary exchanges based on the fair values of the assets involved. The cost of inventories acquired in exchange is initially measured at the fair value of the accounts receivable the Company surrendered to obtain them.
A valuation allowance is recorded to write down the cost of inventories to the estimated net realizable value, if lower, due to slow-moving or damaged products, which is dependent upon factors such as historical and forecasted consumer demand, and promotional environment. Net realizable value is determined by the estimated selling prices offset by estimated additional cost of sale, selling expenses and business taxes. There was no valuation allowance provided for the inventory for the six months ended June 30, 2022 and 2021.
Lease
On January 1, 2019, the Company adopted Accounting Standards Update (“ASU”) 2016-02 (FASB ASC Topic 842). The adoption of Topic 842 resulted in the presentation of operating lease right-of-use assets and operating lease liabilities on the consolidated balance sheet. See Note 10 for additional information.
At inception of a contract, the Company assesses whether a contract is, or contains, a lease. A contract is or contains a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for a consideration. To assess whether a contract is or contains a lease, the Company assess whether the contract involves the use of an identified asset, whether it has the right to obtain substantially all the economic benefits from the use of the asset and whether it has the right to control the use of the asset.
The right-of-use assets and related lease liabilities are recognized at the lease commencement date. The Company recognizes operating lease expenses on a straight-line basis over the lease term.
Operating lease right-of-use of assets
The right-of-use of asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and less any lease incentive received.
Operating lease liabilities
Lease liability is initially measured at the present value of the outstanding lease payments at the commencement date, discounted using the Company incremental borrowing rate. Lease payments included in the measurement of the lease liability comprise fixed lease payments, variable lease payments that depend on an index or a rate, amounts expected to be payable under a residual value guarantee and any exercise price under a purchase option that the Company is reasonably certain to exercise.
13
Lease liability is measured at amortized cost using the effective interest rate method. It is remeasured when there is a change in future lease payments, if there is a change in the estimate of the amount expected to be payable under a residual value guarantee, or if there is any change in the Company assessment of option purchases, contract extensions or termination options.
Short-term leases
The Company has elected to not recognize right-of-use assets and lease liabilities for short-term leases that have a lease term of 12 months or less. Lease payments associated with these leases are expensed as incurred.
Plants, property and equipment, net
Plants, property and equipment are stated at cost less accumulated depreciation. Depreciation of plants, property and equipment is provided using the straight-line method over their expected useful lives, as follows:
| Building | ||
| Electronic equipment | ||
| Furniture, fixtures and equipment | ||
| Vehicle | ||
| Leasehold improvements |
Expenditures for maintenance and repairs, which do not materially extend the useful lives of the assets, are charged to expense as incurred. Expenditures for major renewals and betterments which substantially extend the useful life of assets are capitalized. The cost and related accumulated depreciation of assets retired or sold are removed from the respective accounts, and any gain or loss is recognized in the consolidated statements of Operation and Comprehensive Income in other income or expenses.
Intangible assets, net
The Company’s intangible assets represent the land use right, intellectual property rights and the copyright of course videos, including but not limited to course videos which cover subjects such as entrepreneurship development, financial service, corporate governance, team management, marketing strategy, etc. Intangible assets are stated at cost less accumulated amortization and amortized on a straight-line basis over their estimated useful lives. The estimated useful lives of intangible assets are determined to be a) 50 years in accordance with the useful life of the land use right; b) 6.25 years in accordance with the period the Company estimates to generate economic benefits from the patent rights; and c) 5 to 10 years in accordance with the period the Company estimates to generate economic benefits from the copyrights of course videos.
Long-term investments
Equity method investments in investees represents the Company’s investments in privately held companies, over which it has significant influence but does not own a majority equity interest or otherwise control. The Company applies the equity method to account for an equity investment, in common stock or in-substance common stock, according to ASC 323 “Investment — Equity Method and Joint Ventures”.
An investment in in-substance common stock is an investment in an entity that has risk and reward characteristics that are substantially similar to that entity’s common stock. The Company considers subordination, risks and rewards of ownership and obligation to transfer value when determining whether an investment in an entity is substantially similar to an investment in that entity’s common stock.
14
Under the equity method, the Company’s share of the post-acquisition profits or losses of the equity investee is recognized in the consolidated income statements and its share of post-acquisition movements in accumulated other comprehensive income is recognized in shareholders’ equity. When the Company’s share of losses in the equity investee equals or exceeds its interest in the equity investee, the Company does not recognize further losses, unless the Company has incurred obligations or made payments or guarantees on behalf of the equity investee. No investment loss for long-term investments was recorded in the Company’s Unaudited Condensed Consolidated Statements of Comprehensive Income for the six months ended June 30, 2022 and 2021.
For other equity investments that do not have readily determinable fair values and over which the Company has neither significant influence nor control through investments in common stock or in-substance common stock, the Company accounts for these investments at cost minus any impairment, if necessary.
The Company continually reviews its investments in equity investees to determine whether a decline in fair value below the carrying value is other than temporary. The primary factors the Company considers in its determination are the length of time that the fair value of the investment is below the Company’s carrying value; the financial condition, operating performance and the prospects of the equity investee. If the decline in fair value is deemed to be other than temporary, the carrying value of the equity investee is written down to fair value. No impairment charges were recorded in investment losses in the Company’s Unaudited Condensed Consolidated Statements of Operation and Comprehensive Loss for the six months ended June 30, 2022 and 2021.
Impairment of long-lived assets
The Company reviews its long-lived assets for impairment, including plants, property and equipment, construction in progress, intangible assets, long-term investments and right-of-use asset, 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 may no longer be recoverable. When these events occur, the Company measures impairment by comparing the carrying value of the long-lived assets to the estimated undiscounted future 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 Company would recognize an impairment loss, which is the excess of carrying amount over the fair value of the assets, using the expected future discounted cash flows. No impairments of long-lived assets were recognized as of June 30, 2022 and December 31, 2021.
Government subsidies
The
Company’s PRC based subsidiary received government subsidies from local government. Government subsidies are recognized when there
is reasonable assurance that the attached conditions will be complied with. When the government subsidy relates to an expense item, it
is net against the expense and recognized in the consolidated statements of income and comprehensive income over the period necessary
to match the subsidy on a systematic basis to the related expenses. Where the subsidy relates to an asset acquisition, it is recognized
as income in the consolidated statements of income and comprehensive income in proportion to the useful life of the related assets. Government
grants received for the six months ended June 30, 2022 and 2021 were $
Revenue recognition
The Company recognizes revenue under Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers. The core principle of the new revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The following five steps are applied to achieve that core principle:
| Step 1: | Identify the contract with the customer |
| Step 2: | Identify the performance obligations in the contract |
| Step 3: | Determine the transaction price |
| Step 4: | Allocate the transaction price to the performance obligations in the contract |
| Step 5: | Recognize revenue when the company satisfies a performance obligation |
15
The Company mainly offers and generates revenue from five kinds of services to its clients in China, member services, enterprise services, online services and other services. Enterprise services include comprehensive tailored services, sponsorship advertising services, and consulting services.
Revenue recognition policies for each type of the Company’s services are discussed as follows:
Sales of graphite anode materials
Revenues from sales of graphite anode materials are recognized when the products are delivered to clients, which is when control of products has been transferred upon the delivery to the clients, and are recorded net of value-added tax. Shipping and handling charges are included in total net revenues. The Company typically does not charge shipping fees on orders exceeding a certain sale amount. Shipping and handling costs are considered fulfillment expenses and presented as part of our operating expenses.
Member services
The Company offers three tiers of member services, Platinum, Diamond and Protégé, which differ in membership fees as well as the level of the services provided. Members pay a fixed fee for exchange of the right to participate in organized activities offered by the Company, such as study tours and forums, typically within one-year membership period. Any non-participating activities will expire and not be refunded beyond the agreed-upon period. Each member is entitled to choose from same activities offered by the Company for a total of seven times but different level of membership will receive different level of privileges at each activity, such as seating arrangement or private consultation opportunity etc. The activities for Platinum Members are also open to non-members, who pay a pre-set fee for participating in a single activity, while the Company does not offer Diamond and Protégé services to non-members separately.
Each activity represents a separate performance obligation, which is typically 5 days or less. The Company uses an expected cost plus margin approach to estimate the stand-alone selling prices of each activity. As Members can benefit from each activity on their own in the same way and there is no material difference in the Company’s delivering costs, such as number of staffs involved and size of each activity. Therefore, membership fees are equally allocated to seven performance obligations when the Company determines transaction price of each performance obligation.
The Company recognizes membership fees as revenue upon completion of each activity as the duration of each activity is short. Membership fees from non-participating activity will be recognized when the agreed-upon period has expired. Membership fees collected in advance are recorded as deferred revenue on the consolidated balance sheets.
Enterprise services
The Company charges its clients service fees for providing enterprise services, which mainly include comprehensive tailored services, sponsorship advertising services and consulting services.
Comprehensive tailored services
The comprehensive tailored services provide tailored packaged services to small and medium business, including conference and salon organization, booth exhibition services, on-site Mentors’ guidance, and other value-added services. The Company typically signs one-year framework agreements and a tailored services contract with the clients, which list the types of tailored services as ordered by the clients to fit their specific needs. Each tailored service is a separate performance obligation under ASC 606, as these performance obligations are distinct, the clients can benefit from each service on their own and the Company’s promises to deliver the services are separately identifiable from each other in the services contract. The performance of each tailored service is usually on a specific date designated by the clients.
16
The Company establishes a uniform list for the unit price of each type of tailored services with reference to quoted market prices. If no quoted market price is available, the price will be estimated by using an expected cost plus a margin approach.
The Company recognizes the price for each tailored service as revenue when the service has been provided on a specific date designated and the receipt of each tailored services is confirmed by the clients. If a client does not request certain items of the tailored services included in the services contract during the agreed-upon period, the Company will not refund the service fees and the revenue will be recognized upon expiration of service contracts. The tailored services fees collected before providing services are recorded as deferred revenue on the consolidated balance sheets.
Sponsorship advertising service
The Company provides sponsorship advertising service for its clients at certain activities it held, i.e. study tours and forums. The sponsorship advertising services are mainly to display banners with the clients’ information and distribute clients’ brochures through the activities, so that the clients can enhance their corporate and product image.
The fee the Company charges for sponsorship advertising service depends on multiple specific factors, including number of event participants, location, public interest, etc. The Company considers all factors and determines pricing for each contract separately. The sponsorship advertising fees are recognized as revenue when services have been provided on a specific date designated and receipt of sponsorship advertising services are confirmed by clients. Sponsorship advertising fees collected before providing services are recorded as deferred revenue on the consolidated balance sheets.
Consulting services
The Company provides consulting services to small and medium-sized enterprises by helping them to develop strategies and solutions including: corporate reorganization, product promotion and marketing, industry supply chain integration, corporate governance, financing and capital structure, etc. The consulting services are tailored to meet each client’s specific needs and requirements.
Consulting fees are based on the specifics of the services provided, for instance, time and efforts required, etc. The Company considers comprehensive factors and determines prices with reference to quoted market prices. If no quoted market price is available, price will be estimated by using an expected cost plus a margin approach.
Consulting fees are recognized as revenue when services have been provided and receipt of consulting services is confirmed by clients as the duration of services is short, typically one month or less. Consulting fees collected before providing any service are presented as deferred revenue on the consolidated balance sheets.
Online services
The Company provides two types of online services to the Company’s APP Users, which are question and answer (Q&A) sessions with chosen Mentors and online streaming of courses and programs. Top-up credits are paid by Users through the Company’s APP platform, using which Users can purchase the online services.
17
Users can raise questions to chosen Mentors or Experts with a fixed fee per Q&A session preset by Mentors or Experts. The Q&A session is usually provided by chosen Mentors or Experts within a course of a 72-hour period. The Company charges 30% of the Q&A fees as a facilitator of online services. The Q&A fees are allocated to the Company and chosen Mentors or Experts automatically by the APP on a 30%/70% split upon completion of Q&A sessions. The Company recognizes these online service fees as revenue at completion of Q&A sessions on a net basis, i.e., in the amount of 30% of allocated Q&A fees, as the Company merely provides a platform for its Users and is not the primary obligor of the Q&A session, neither has risks and rewards as principal.
The
Company grants Users the access to view various online courses and programs. Users can subscribe as an annual VIP at a rate of RMB
Other revenues
Other revenues are mainly generated from rendering of other services and sale of merchandises.
The Company sells merchandises and recognizes the revenue at the amount to which it expects to be entitled on a gross basis at the point of time when clients obtain the control of the merchandises.
Other services fees are mainly derived from non-member participation of study tours and forums at the service level of Platinum Members. The Company charges non-members a fixed fee for each Member activity and the price for non-members is determined based on our allocated Member pricing for each activity. Fees are usually collected on site at the date of each activity and revenues are recognized at the completion of such activity.
Cost of goods sold
The cost of goods sold for the six months ended
June 30, 2022 was primarily the cost of finished goods of graphite anode materials, including single granular coke, secondary granular
coke, and mixed batches of single particle and secondary coke. The cost of goods sold for the six months ended June 30, 2021 was mainly
the cost of electrolytic copper. Cost of goods sold was $
Service costs
Service
costs primarily include (1) the cost of holding events and activities, such as venue rental fees, conference equipment fees, (2) professional
and consulting fees paid to third parties for our activity; (3) the fees paid to Mentors and Experts; and (4) labor costs. Service costs
were $
18
Income taxes
The Company accounts for income taxes under ASC 740. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period including the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
The provisions of ASC 740-10-25, “Accounting for Uncertainty in Income Taxes,” prescribe a more-likely-than-not threshold for consolidated financial statement recognition and measurement of a tax position taken (or expected to be taken) in a tax return. This interpretation also provides guidance on the recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, and related disclosures.
The Company believes there were no uncertain tax positions at June 30, 2022 and December 31, 2021, respectively. The Company does not expect that its assessment regarding unrecognized tax positions will materially change over the next 12 months. The Company is not currently under examination by an income tax authority, nor has been notified that an examination is contemplated.
Loss per share
The
Company computes earnings per share (“EPS”) in accordance with ASC 260, “Earnings per Share” (“ASC 260”).
ASC 260 requires companies with complex capital structures to present basic and diluted EPS. Basic EPS are computed by dividing income
available to ordinary shareholders of the Company by the weighted average ordinary shares outstanding during the period. Diluted EPS
takes into account the potential dilution that could occur if securities or other contracts to issue ordinary shares were exercised and
converted into ordinary shares. For the six months ended June 30, 2022 and 2021, the diluted shares were
Comprehensive loss
Comprehensive loss consists of two components, net loss and other comprehensive loss(income). Other comprehensive loss(income) refers to revenue, expenses, gains and losses that under U.S. GAAP are recorded as an element of shareholders’ equity but are excluded from net loss. Other comprehensive loss(income) consists of foreign currency translation adjustment resulting from the Company translating its financial statements from functional currency into reporting currency.
Significant risks
Currency risk
A majority of the Company’s expense transactions are denominated in RMB and a significant portion of the Company and its subsidiaries’ assets and liabilities are denominated in RMB. RMB is not freely convertible into foreign currencies. In the PRC, certain foreign exchange transactions are required by law to be transacted only by authorized financial institutions at exchange rates set by the People’s Bank of China (“PBOC”). Remittances in currencies other than RMB by the Company in China must be processed through the PBOC or other Company foreign exchange regulatory bodies which require certain supporting documentation in order to affect the remittance.
The
Company maintains certain bank accounts in the PRC. On May 1, 2015, China’s new Deposit Insurance Regulation came into effect,
pursuant to which banking financial institutions, such as commercial banks, established in the PRC are required to purchase deposit insurance
for deposits in RMB and in foreign currency placed with them. Such Deposit Insurance Regulation would not be effective in providing complete
protection for the Company’s accounts, as its aggregate deposits are much higher than the compensation limit, which is RMB
Other than the deposit insurance mechanism in the PRC mentioned above, the Company’s bank accounts are not insured by Federal Deposit Insurance Corporation insurance or other insurance.
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Concentration and credit risk
Financial instruments that potentially subject the Company to the concentration of credit risks consist of cash and short-term investments. The maximum exposures of such assets to credit risk are their carrying amounts as of the balance sheet dates. The Company deposits its cash and short-term investments with financial institutions located in jurisdictions where the subsidiaries are located. The Company believes that no significant credit risk exists as these financial institutions have high credit quality.
The
Company’s also exposure to credit risk associated with its trading and other activities is measured on an individual counterparty
basis, as well as by group of counter-parties that share similar attributes. There was $
Interest rate risk
Fluctuations in market interest rates may negatively affect our financial condition and results of operations. The Company is exposed to floating interest rate risk on cash deposit and floating rate borrowings, and the risks due to changes in interest rates are not material. The Company has not used any derivative financial instruments to manage our interest risk exposure.
Other uncertainty risk
The Company’s major operations are conducted in the PRC. Accordingly, the political, economic, and legal environments in the PRC, as well as the general state of the PRC’s economy may influence the Company’s business, financial condition, and results of operations.
The Company’s major operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic, and legal environment. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, and rates and methods of taxation, among other things. Although the Company has not experienced losses from these situations and believes that it is in compliance with existing laws and regulations including its organization and structure disclosed in Note 1, this may not be indicative of future results.
Recently issued accounting pronouncements
The Company considers the applicability and impact of all accounting standards updates (“ASUs”). Management periodically reviews new accounting standards that are issued. The Company is an “emerging growth company” (“EGC”) as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, EGC can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses”, which will require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Further, the FASB issued ASU No. 2019-04, ASU 2019-05, ASU 2019-10, ASU 2019-11 and ASU 2020-02 to provide additional guidance on the credit losses standard. For all other entities, the amendments for ASU 2016-13 are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, with early adoption permitted. Adoption of the ASUs is on a modified retrospective basis. The Company will adopt ASU 2016-13 from January 1, 2023. The Company is in the process of evaluating the effect of the adoption of this ASU.
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NOTE 3 – ACCOUNTS RECEIVABLE AND NOTES RECEIVABLE, NET
Accounts receivable consisted of the following:
As
of 2022 | As
of 2021 | |||||||
| Accounts receivable and notes receivable | $ | $ | ||||||
| Less: allowance for doubtful accounts | ( | ) | ( | ) | ||||
| Accounts receivable and notes receivable, net | $ | $ | ||||||
The movement of allowance of doubtful accounts is as follows:
| For
the Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Balance at beginning of the period | $ | $ | ||||||
| Additions | ||||||||
| Foreign currency translation adjustments | ( | ) | ||||||
| Balance at end of the period | $ | $ | ||||||
$
NOTE 4 – INVENTORIES, NET
Other than cash purchase, a portion of the Company’s inventories are obtained through fee exchange arrangements with its customers, which are entered into at the Company’s discretion to receive inventory in exchange for collection of accounts receivable due from the customers. These inventories are all commodities available for sale.
Inventories as of June 30, 2022 and December 31, 2021 consist of the following:
As
of 2022 | As
of 2021 | |||||||
| Raw materials | ||||||||
| Consigned processing materials | ||||||||
| Finished Goods | ||||||||
| Graphite anode materials | ||||||||
| Healthcare service gift cards | ||||||||
| Chinese tea | ||||||||
| Learning course gift cards | ||||||||
| Latex pillows | ||||||||
| Healthcare products | ||||||||
| Others | ||||||||
| Total | $ | $ | ||||||
No inventory valuation allowance was recorded for the six months ended June 30, 2022 and 2021.
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NOTE 5 – SHORT-TERM INVESTMENT
The Company entered into an investment agreement with Viner Total investment Fund (the “Fund”) to invest in the Fund. The Fund is an exempted company incorporated in the Cayman Islands and managed by Mainstream Fund Services (HK). The Fund is invested in a wide range of instruments with no specific limitations. The redemption of such shares for cash can be made with a one-month advanced written notice (such advanced written notice period can be extended by the administrator).
The
value of private equity funds are measured at fair value with gains and losses recognized in earnings. As a practical expedient, the
Company uses Net Asset Value (“NAV”) or its equivalent to measure the fair value of the Fund. NAV is primarily determined
based on information provided by external fund administrators. In February 2021, the Company invested in the shares of Viner Total Investment
Fund, with the total investment of $
NOTE 6 – PREPAID EXPENSES AND OTHER CURRENT ASSETS
| As
of June 30, 2022 | As
of December 31, 2021 | |||||||||||
| Prepaid expenses | (1) | $ | $ | |||||||||
| Loans to third parties | (2) | |||||||||||
| Prepayment for investment | (3) | |||||||||||
| Other receivables | ||||||||||||
| Interest receivable | ||||||||||||
| Prepaid VAT | ||||||||||||
| Deposits for operating lease | ||||||||||||
| Subtotal | ||||||||||||
| Allowance for other receivables | ( | ) | ( | ) | ||||||||
| Total | $ | $ | ||||||||||
| (1) | Prepaid expenses as of December 31, 2021 mainly consisted of prepaid service fee paid by EPOW BJ and amounted to $ |
22
NOTE 7 – LONG TERM PREPAYMENTS AND OTHER NON-CURRENT ASSETS
| As
of June 30, 2022 | As
of December 31, 2021 | |||||||||||
| Prepaid for land use right | (1) | |||||||||||
| Prepaid for construction and equipment | (1) | |||||||||||
| Loans to third party | (2) | |||||||||||
| Long-term prepaid expense | ||||||||||||
| Total | $ | $ | ||||||||||
| (1) |
| (2) |
Note 8 – PLANTS, PROPERTY AND EQUIPMENT, NET
Plants, property and equipment, stated at cost less accumulated depreciation, consisted of the following:
| As
of June 30, 2022 | As
of December 31, 2021 | |||||||
| Building | $ | $ | ||||||
| Vehicles | ||||||||
| Electronic equipment | ||||||||
| Furniture, fixtures and equipment | ||||||||
| Leasehold improvements | ||||||||
| Plants, property and equipment, cost | ||||||||
| Less: Accumulated depreciation | ||||||||
| Plants, property and equipment, net | $ | $ | ||||||
Depreciation
expense was $
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NOTE 9 – INTANGIBLE ASSETS, NET
Intangible assets, stated at cost less accumulated amortization, consisted of the following:
| As
of June 30, 2022 | As
of December 31, 2021 | |||||||
| Copyrights of course videos | $ | $ | ||||||
| Patent right | ||||||||
| Land use rights | ||||||||
| Intangible assets, cost | ||||||||
| Less: accumulated amortization | ||||||||
| Intangible assets, net | $ | $ | ||||||
For
the six months ended June 30, 2022 and 2021, amortization expense amounted to $
| Year ending December 31, | Amount | |||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total | $ | |||
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NOTE 10 – LONG-TERM INVESTMENTS
The Company’s long-term investments consist of the following:
| As of June 30, 2022 | As of December 31, 2021 | |||||||
| Equity method investments: | ||||||||
| Shidong (Suzhou) Investment Co., Ltd. (“Suzhou Investment”) | $ | $ | ||||||
| Equity investments without readily determinable fair value: | ||||||||
| Shenzhen Jiazhong Creative Capital LLP (“Jiazhong”) | ||||||||
| Beijing Xingshuizhixing Technology Co., Ltd. (“Xingshuizhixing”) | ||||||||
| Zhejiang Wangxin Health Technology Co., Ltd. (“Wangxin”) | ||||||||
| Hangzhou Zhongfei Aerospace Health Management Co., Ltd. (“Zhongfei”) | ||||||||
| Shanghai Zhongren Yinzhirun Investment Management Partnership (“Yinzhirun”) | ||||||||
| Jiangxi Cheyi Tongcheng Car Networking Tech Co., Ltd.(“Cheyi”) | ||||||||
| Chengdu Zhongfuze Management LLP(“Zhongfuze”) | ||||||||
| Shanghai Outu Home Furnishings Co., Ltd. (“Outu”) | ||||||||
| Zhejiang Qianshier Household Co., Ltd.(“Qianshier”) | ||||||||
| Taizhoujia Menkou Auto Greengrocer’s Delivery Technology Co., Ltd. (“Taizhoujia”) | ||||||||
| Zhejiang Yueteng Information Technology Co., Ltd. (“Yueteng”) | ||||||||
| Shidong Funeng(Ruzhou) Industry Development Co., Ltd.( “Funeng”) | ||||||||
| Total | $ | $ | ||||||
Equity method investments
Investment in Suzhou Investment
In
December 2017, the Company acquired
Equity investments without readily determinable fair value
Investment in Jiazhong
In
December 2020, the Company acquired
25
Investment in Xingshuizhixing
GM
IT signed an investment agreement with Beijing Zhitong Zhenye Technology Co., Ltd. and Li Jiyou to invest RMB
Investment in Wangxin
On
April 11, 2021, GMB Zibo signed an equity transfer agreement with Wangxin, which mainly provides health consulting service, to acquire
its
Investment in Yinzhirun
In
December 2016, the Company acquired
Investment in Yunshang E-commerce
In
March 2017, the Company acquired
Investment in Car Service
In
November 2017, the Company acquired
26
NOTE 10 – LONG-TERM INVESTMENTS (continued)
Investment in Funeng
In
August 2019, the Company subscribed capital with cash consideration of RMB
Investment in Zhongfuze
In
September 2019, the Company acquired
Investment in Outu
In
December 2019, the Company acquired
Investment in Taizhoujia
In
June 2020, the Company acquired
Investment in Yueteng
In
June 2020, the Company acquired
27
Investment in Qianshier
In
December 2020, the Company acquired
Investment in Zhongfei
In
November 2020, the Company acquired
Investment in Cheyi
In
November 2020, the Company acquired
NOTE 11 – LEASES
The
Company’s VIE and VIE’s subsidiaries lease office space under non-cancelable operating lease agreements with expiration dates
in 2022 or 2024. The lease terms may include options to extend or terminate the lease when it is reasonably certain the Company will
exercise that option. Certain of the arrangements have free rent periods or escalating rent payment provisions. Leases with an initial
term of
28
As
of June 30, 2022, the Company’s operating leases had a weighted average remaining lease term of
The components of lease expense for the six months ended June 30, 2022 and 2021 were as follows:
| Statement of Income Location | For the six months ended June 30, 2022 | For the six months ended June 30, 2021 | ||||||||
| Lease Costs | ||||||||||
| Operating lease expense | General and administrative expenses | $ | $ | |||||||
Maturity of lease liabilities under the non-cancelable operating leases as of June 30, 2022 were as follows:
| Operating | ||||
| 2022 | $ | |||
| Total lease payments | ||||
| Less: interest | ||||
| Present value of lease liabilities | $ | |||
NOTE 12 – DEFERRED REVENUE
The details of deferred revenue are as follows:
| As
of June 30, 2022 | As
of December 31, 2021 | |||||||
| Advance from member services | $ | $ | ||||||
| Advance from enterprise services | ||||||||
| Total | $ | $ | ||||||
NOTE 13 – DEFERRED GOVERNMENT SUBSIDY
GMB
BJ planned to relocate the Company address from Beijing to Zibo city, and it applied for subsidy of RMB
29
NOTE 14– ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Components of accrued expenses and other current liabilities are as follows:
| As of June 30, 2022 | As of December 31, 2021 | |||||||
| VAT payable | ||||||||
| Accrued payroll and welfare | ||||||||
| Rental fee payable | ||||||||
| Interest payable | ||||||||
| Accrued expenses | ||||||||
| Others | ||||||||
| Total | $ | $ | ||||||
NOTE 15 – TAXES
a. Value-Added Tax (“VAT”)
The
Company is subject to VAT and related surcharges in China for providing member services and other in-depth services.
All of the tax returns of the Company have been and remain subject to examination by the PRC tax authorities for five years from the date of filing.
b. Income tax
Cayman Islands
Under the current tax laws of the Cayman Islands, the Company is not subject to tax on its income or capital gains. In addition, no Cayman Islands withholding tax will be imposed upon the payment of dividends by the Company to its shareholders.
Hong Kong
In
accordance with the relevant tax laws and regulations of Hong Kong, a company registered in Hong Kong is subject to income taxes within
Hong Kong at the applicable tax rate on taxable income.
China
The
Company’s subsidiaries are incorporated in the PRC, and are subject to the PRC Enterprise Income Tax Laws (“EIT Laws”)
with the statutory income tax rate of
In
accordance with the implementation rules of EIT Laws, a qualified “High and New Technology Enterprise” (“HNTE”)
is eligible for a preferential tax rate of
30
From
January 1, 2021 to December 31, 2030, due to the operation of Guizhou New Energy and Sunrise Guxian located in the western region, these
two companies are eligible to enjoy a preferential tax rate of
The components of the income tax provision (benefit) are as follows:
| For
the six months ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Current | ||||||||
| Cayman Islands | $ | $ | ||||||
| BVI | ||||||||
| Hong Kong | ||||||||
| China | ||||||||
| Deferred | - | |||||||
| Cayman Islands | ||||||||
| BVI | ||||||||
| Hong Kong | ||||||||
| China | ( | ) | ||||||
| Total | $ | $ | ( | ) | ||||
Reconciliation
between the provision (benefit) for income taxes computed by applying the PRC EIT rate of
| For the six months ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Loss before income taxes | $ | ( | ) | $ | ( | ) | ||
| PRC EIT rate | % | % | ||||||
| Income taxes computed at statutory EIT rate | $ | ( | ) | $ | ( | ) | ||
| Reconciling items: | ||||||||
| Effect of tax holiday and preferential tax rate | ||||||||
| Change in valuation allowance | - | |||||||
| Effect of non-deductible expense | ||||||||
| Super deduction of qualified R&D expenditures | ( | ) | ( | ) | ||||
| Income tax expense (benefit) | $ | $ | ( | ) | ||||
| Effective tax rate | ( | )% | % | |||||
31
Deferred tax assets
According to PRC tax regulations, net operating losses can be carried forward to offset future operating income for five years. Significant components of deferred tax assets were as follows:
| As of June 30, 2022 | As of December 31, 2021 | |||||||
| Net operating loss carry forwards | $ | $ | ||||||
| Provision for doubtful debts | ||||||||
| Deferred tax assets, gross | ||||||||
| Less: Valuation allowance | ( | ) | ( | ) | ||||
| Deferred tax assets, net | $ | $ | ||||||
The
Company has accumulated operating loss of approximately $
The Company 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. For the six months ended June 30, 2022 and 2021, the Company had no unrecognized tax benefits.
For the Company’s operating subsidiaries, the tax years ended December 31, 2017, through December 31, 2021 remain open for statutory examination by PRC tax authorities.
NOTE 16 – RELATED PARTY BALANCE AND TRANSACTIONS
The following is a list of related parties which the Company has transactions with:
| (a) | Ningbo Zhuhai Investment Co., Ltd. (“Zhuhai Investment”), a company controlled by Mr. Haiping Hu. | |
| (b) | Bally, Corp. (“Bally”), a company controlled by Mr. Haiping Hu. | |
| (c) | Mr. Xuanming Wang, General Manager and legal representative of GMB (Hangzhou). | |
| (d) | Mr. Haiwei Zuo, Vice Chairman of the Board, | |
| (e) | Shanghai Hui Yang Investment Co., | |
| (f) | Shidong (Suzhou) Investment Co., Ltd., a company of which Mr. Haiping Hu is the CEO. | |
| (g) | Mr. Sousheng Guo, Director, |
32
| a. | Due from related parties |
As of June 30, 2022 and December 31, 2021, the balances of amounts due from related parties were as follows:
| As
of June 30, 2022 | As
of December 31, 2021 | |||||||||||
| Due from related parties | ||||||||||||
| Bally | $ | |||||||||||
| Zhuhai Investment | (1) | |||||||||||
| Mr. Xuanming Wang | ||||||||||||
| Mr. Haiwei Zuo | ||||||||||||
| Shidong (Suzhou) Investment Co., Ltd. | (2) | |||||||||||
| Total | $ | $ | ||||||||||
| (1) | The balance as of June 30, 2022 and December 31, 2021 represented the prepaid rental fee by GMB IT. |
| (2) | The balance as of June 30, 2022 and December 31, 2021 represented the working capital loan lent by GMB Zibo with no interest. |
| b. | Due to related parties |
As of June 30, 2022 and December 31, 2021, the balances of amounts due to related parties were as follows:
| As of June 30, 2022 | As of December 31, 2021 | |||||||||||
| Due to related parties | ||||||||||||
| Shanghai Hui Yang Investment Co. | (1) | |||||||||||
| $ | $ | - | ||||||||||
| (1) | The balance as of June 30, 2022 represented the loans from the related party, with the annual interest rate of |
| c. | Deferred revenue -related parties |
As of June 30, 2022 and December 31, 2021, the balances of deferred revenue of related parties were as follows:
| As
of June 30, 2022 | As
of December 31, 2021 | |||||||||||
| Deferred revenue of related parties | ||||||||||||
| Shanghai Hui Yang Investment Co. | (1) | |||||||||||
| Total | $ | $ | - | |||||||||
| (1) | The balance as of June 30, 2022 represented the advance from the related party for tailored services. |
| d. | Related party transactions |
The
Company rents office spaces from Zhuhai Investment. For the six months ended June 30, 2022 and 2021, total rental fees paid to Zhuhai
Investment were $
The
Company sold titanium of $
33
NOTE 17 – SHAREHOLDERS’ EQUITY
Ordinary shares
EPOW
was established under the laws of the Cayman Islands on February 22, 2019. The authorized number of ordinary shares was
On
April 2, 2020, the shareholders of the Company unanimously authorized a one-for-0.88 reverse stock split of the Company’s outstanding
and issued ordinary shares (the “First Reverse Stock Split”), which became effective on April 3, 2020.
On
April 24, 2020, the shareholders of the Company unanimously authorized another one-for-0.68 reverse stock split of the Company’s
issued and outstanding ordinary shares (the “Second Reverse Stock Split”), which became effective on April 24, 2020.
On
February 11, 2021, the Company closed its initial public offering (“IPO”) on Nasdaq. The Company offered
Non-controlling interest
Non-controlling interest consists of the following:
| As of June 30, 2022 | As of December 31, 2021 | |||||||
| GMB (Beijing) | $ | $ | ||||||
| GMB Culture | ||||||||
| Jiagui Haifeng | ( | ) | ( | ) | ||||
| Shidong Trading | ( | ) | ( | ) | ||||
| GMB Consulting | ||||||||
| GMB Technology | ( | ) | ( | ) | ||||
| Shidong Cloud | - | |||||||
| Guizhou New Energy | ||||||||
| Sunrise Guxian | ( | ) | ||||||
| Total | $ | $ | ||||||
34
In July, 2021, GMB Technology transferred all the shares of GMB Linking to another shareholder with no gain or loss recognized.
Jiagui
Haifeng was established by GMB Zibo and Lifeng Wang in November, 2021.
Shidong
Trading was established by GMB Zibo and Xuanming Wang in April, 2021.
Shidong
Cloud was established by EPOW BJ and Beijing Yunqianyi Information Technology Co., Ltd. in December, 2021.
Guizhou New Energy was established by Zhuhai (Zibo) Investment and five other companies in November, 2021.
Sunrise Guxian was established by Guizhou New Energy and seven other companies in April, 2022.
For
the six months ended June 30, 2022, the Company made capital contributions of $
For
the six months ended June 30, 2022, the Company made capital contributions of $
The actual capital contributions made by the Company and the non-controlling shareholders for the six months ended June 30, 2022 had no effect on the Company’s equity percentage in its subsidiaries.
Statutory reserves
In
accordance with the Regulations on Enterprises of PRC, the Company’s WFOE, the VIE and VIE’s subsidiaries in the PRC are
required to provide for statutory reserves, which are appropriated from net profits as reported in the Company’s PRC statutory
accounts.
NOTE 18 – COMMITMENTS AND CONTINGENCIES
Contingencies
The Company may be involved in various legal proceedings, claims and other disputes arising from the commercial operations, projects, employees and other matters which, in general, are subject to uncertainties and in which the outcomes are not predictable. The Company determines whether an estimated loss from a contingency should be accrued by assessing whether a loss is deemed probable and can be reasonably estimated. Although the outcomes of these legal proceedings cannot be predicted, the Company does not believe these actions, in the aggregate, will have a material adverse impact on its financial position, results of operations or liquidity. As of June 30, 2022, the Company was not aware of any litigation or lawsuits against it.
35
NOTE 19 – SEGMENT REPORTING
ASC 280, “Segment Reporting”, establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organizational structure as well as information about geographical areas, business segments and major customers in financial statements for details on the Company’s business segments.
The Company uses the management approach to determine reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s chief operating decision maker (“CODM”) for making decisions, allocating resources and assessing performance. The Company’s CODM has been identified as the CEO, who reviews consolidated results when making decisions about allocating resources and assessing performance of the Company.
Based on the management’s assessment, the Company determined that it has only one operating segment and therefore one reportable segment as defined by ASC 280. The Company’s assets are substantially all located in the PRC and substantially all of the Company’s revenue and expenses are derived in the PRC. Therefore, no geographical segments are presented.
The following table presents revenue by major revenue type for the six months ended June 30, 2022 and 2021, respectively:
For the six months ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Sales of graphite anode materials | $ | $ | ||||||
| Member services | ||||||||
| Enterprise services | ||||||||
| -Comprehensive tailored services | ||||||||
| -Sponsorship advertising services | ||||||||
| -Consulting services | ||||||||
| Online services | ||||||||
| Other revenues | ||||||||
| Revenue, net | $ | $ | ||||||
NOTE 20 – SUBSEQUENT EVENTS
The Company has evaluated subsequent events through December [ ], 2022, the date of issuance of the condensed consolidated financial statements, there were no subsequent events that occurred that would require recognition or disclosure in the condensed consolidated financial statements.
36