| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES | 2. Summary
of Significant Accounting Policies and Practices Basis
of presentation The
accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted
in the United States of America (“U.S. GAAP”) for information pursuant to the rules and regulations of the SEC. Principles
of consolidation The
consolidated financial statements include the financial statements of the Company and its subsidiaries, which include the wholly-
foreign owned enterprise ("WFOE") and variable interest entities ("VIEs") over which the Company exercises
control and, when applicable, entities for which the Company has a controlling financial interest or is the primary beneficiary.
All transactions and balances among the Company and its subsidiaries have been eliminated upon consolidation. Use
of estimates and assumptions The
preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date
of the consolidated financial statements and the reported amounts of revenues and expenses during the periods presented. Significant
accounting estimates reflected in the Company’s consolidated financial statements include the useful lives of plant and
equipment and intangible assets, capitalized development costs, impairment of long-lived assets, allowance for doubtful accounts,
revenue recognition, allowance for deferred tax assets and uncertain tax position, and inventory allowance. Actual results could
differ from these estimates. Foreign
currency translation and transaction The
reporting currency of the Company is the U.S. dollar. The Company in China conducts its businesses in the local currency, Renminbi
(RMB), as its functional currency. Assets and liabilities are translated at the unified exchange rate as quoted by the People’s
Bank of China at the end of the period. The statement of income accounts is translated at the average translation rates and the
equity accounts are translated at historical rates. Translation adjustments resulting from this process are included in accumulated
other comprehensive income. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated
in a currency other than the functional currency are included in the results of operations as incurred. Translation
adjustments included in accumulated other comprehensive income (loss) amounted to $(1,478,667), $(956,929) and $517,197 as of
December 31, 2019, 2018 and 2017, respectively. The balance sheet amounts, with the exception of shareholders’ equity at
December 31, 2019, 2018 and 2017 were translated at 6.98 RMB, 6.88 RMB and 6.51 RMB, respectively. The shareholders’ equity
accounts were stated at their historical rate. The average translation rates applied to statement of income accounts for the years
ended December 31, 2019, 2018 and 2017 were 6.89 RMB, 6.62 RMB and 6.76 RMB to $1.00, respectively. Cash flows are also translated
at average translation rates for the periods, therefore, amounts reported on the statement of cash flows will not necessarily
agree with changes in the corresponding balances on the consolidated balance sheet. Cash
and cash equivalents Cash
and cash equivalents consist of cash on hand; demand deposits and time deposits placed with banks or other financial institutions
and have original maturities of less than three months. Restricted
cash Amount
mainly includes pledged deposits for bank loans of the Company. As of December 31, 2019 and 2018, restricted cash amounted to
$5,000,000 and $0, respectively. Accounts
receivable, net Accounts
receivable include trade accounts due from customers. Accounts are considered overdue after 30 days. In establishing the required
allowance for doubtful accounts, management considers historical collection experience, aging of the receivables, the economic
environment, industry trend analysis, and the credit history and financial conditions of the customers. Management reviews its
receivables on a regular basis to determine if the bad debt allowance is adequate, and adjusts the allowance when necessary. Delinquent
account balances are written-off against allowance for doubtful accounts after management has determined that the likelihood of
collection is not probable. As of December 31, 2019 and 2018, allowance for the doubtful accounts was $1,467,374 and $644,090,
respectively. Other
receivables, net Other
receivables primarily include deposits for business acquisitions, setup of research center, advances to employees, and others.
Management regularly reviews the aging of receivables and changes in payment trends and records allowances when management believes
collection of amounts due are at risk. Accounts considered uncollectable are written off against allowances after exhaustive efforts
at collection are made. As of December 31, 2019 and 2018, allowance for the doubtful accounts was $42,676 and $29,571, respectively. Inventories Inventories
are comprised of finished goods and are stated at the lower of cost or net realizable value using the weighted average method.
Management reviews inventories for obsolescence and cost in excess of net realizable value quarterly and records a reserve against
the inventory when the carrying value exceeds net realizable value. Prepayments,
net Current Prepayments
are cash deposited or advanced to suppliers for future inventory purchases. This amount is refundable and bears no interest. For
any advances to suppliers determined by management that such advances will not be in receipts of inventories or refundable, the
Company will recognize an allowance account to reserve such balances. Management reviews its advances to suppliers on a regular
basis to determine if the allowance is adequate, and adjusts the allowance when necessary. Delinquent account balances are written-off
against allowance for doubtful accounts after management has determined that the likelihood of collection is not probable. The
Company’s management continues to evaluate the reasonableness of the valuation allowance policy and update it if necessary.
As of December 31, 2019 and 2018, allowance for the doubtful accounts was $188,264 and $124,740, respectively. Non-current Non-current
prepayment represents cash deposited or advanced for software development expenditure. This amount is refundable and bears no
interest. Property
and equipment, net Property
and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets. The estimated useful lives are as follows:
Category Depreciation
method Estimated
useful lives
Electronic
devices Straight-line 3
years
Office
equipment, fixtures and furniture Straight-line 3
years
Automobile Straight-line 3
years The
cost and related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts and any gain or
loss is included in the consolidated statements of income and comprehensive income. Expenditures for maintenance and repairs are
charged to earnings as incurred, while additions, renewals and betterments, which are expected to extend the useful life of assets,
are capitalized. The Company also re-evaluates the periods of depreciation to determine whether subsequent events and circumstances
warrant revised estimates of useful lives. Intangible
assets The
Company’s intangible assets with definite useful lives primarily consist of software development costs, patents and licensed
software. The Company amortizes its intangible assets with definite useful lives over their estimated useful lives and reviews
these assets for impairment. The Company typically amortizes its intangible assets with definite useful lives on a straight-line
basis over the shorter of the contractual terms or the estimated useful lives of five to ten years. Software
development costs The
Company follows the provisions of ASC 350-40, “Internal Use Software”, to capitalize certain direct development costs
associated with internal- used software. ASC 350-40 provides guidance on capitalization of the costs incurred for computer software
developed or obtained for internal use. The Company expenses all costs incurred during the preliminary project stage of its development,
and capitalizes costs incurred during the application development stage. Costs incurred relating to upgrades and enhancements
to the application are capitalized if it is determined that these upgrades or enhancements add additional functionality to the
application. The capitalized development cost is amortized on a straight-line basis over the estimated useful life, which is generally
five years. Management evaluates the useful lives of these assets on an annual basis and tests for impairment whenever events
or changes in circumstances occur that could impact the recoverability of these assets. Research
and development Research
and development expenses include salaries and other compensation-related expenses to the Company’s research and product
development personnel, as well as office rental, depreciation and related expenses for the Company’s research and product
development team. The Company expenses all costs that are incurred in connection with the planning and implementation phases of
development, and costs that are associated with maintenance of the existing websites or software for internal use. Impairment
for long-lived assets Long-lived
assets, including property and equipment and intangible assets with finite lives are reviewed 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 value of an asset may not be recoverable. The Company assesses the recoverability of the assets based
on the undiscounted future cash flows the assets are expected to generate and recognize an impairment loss when estimated undiscounted
future cash flows expected to result from the use of the asset plus net proceeds expected from disposition of the asset, if any,
are less than the carrying value of the asset. If an impairment is identified, the Company would reduce the carrying amount of
the asset to its estimated fair value based on a discounted cash flows approach or, when available and appropriate, to comparable
market values. As of December 31, 2019, 2018 and 2017, no impairment of long-lived assets was recognized. Long-term
investments Long-term
investments include cost method investment and equity method investments. Entities
in which the Company has the ability to exercise significant influence, but does not have a controlling interest, are accounted
for using the equity method. Significant influence is generally considered to exist when the Company has voting shares between
20% and 50%, and other factors, such as representation on the Board of Directors, voting rights and the impact of commercial arrangements,
are considered in determining whether the equity method of accounting is appropriate. Under this method of accounting, the Company
records its proportionate share of the net earnings or losses of equity method investees and a corresponding increase or decrease
to the investment balances. Dividends received from the equity method investments are recorded as reductions in the cost of such
investments. The
Company accounts for investments with less than 20% of the voting shares and does not have the ability to exercise significant
influence over operating and financial policies of the investee using the cost method. The Company records cost method investments
at the historical cost in its consolidated financial statements and subsequently records any dividends received from the net accumulated
earrings of the investee as income. Dividends received in excess of earnings are considered a return of investment and are recorded
as reduction in the cost of the investments. Long-term
investments are evaluated for impairment when facts or circumstances indicate that the fair value of the long-term investments
is less than its carrying value. Impairment is recognized when a decline in fair value is determined to be other-than- temporary.
The Company reviews several factors to determine whether a loss is other-than-temporary. These factors include, but are not limited
to, the: (i) nature of the investment; (ii) cause and duration of the impairment; (iii) extent to which fair value is less than
cost; financial condition and near term prospects of the investments; and (v) ability to hold the security for a period of time
sufficient to allow for any anticipated recovery in fair value. No event had occurred and indicated that other-than-temporary
impairment existed and therefore the Company did not record any impairment charges for its investments for the years ended December
31, 2019, 2018 and 2017. Fair
value measurement The
accounting standard regarding fair value of financial instruments and related fair value measurements defines financial instruments
and requires disclosure of the fair value of financial instruments held by the Company. The
accounting standards define fair value, establish a three-level valuation hierarchy for disclosures of fair value measurement
and enhance disclosure requirements for fair value measures. The three levels are defined as follow: 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, and inputs that
are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments. Level
3 inputs to the valuation methodology are unobservable and significant to the fair value. Revenue
recognition The
Company adopted Accounting Standards Update (“ASU”) 2014-09 Revenue from Contracts with Customers (ASC 606). The ASU
requires the use of a new five-step model to recognize revenue from customer contracts. The five-step model requires that the
Company (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine
the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will
not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue
when (or as) the Company satisfies the performance obligation. Sales
of interactive toys The
Company recognizes sales of interactive toys revenues upon shipment or upon receipt of products by the customer, depending on
the terms, provided that: there are no uncertainties regarding customer acceptance; persuasive evidence of an agreement exists
documenting the specific terms of the transaction; the sales price is fixed or determinable; and collectability is reasonably
assured. Management assesses the business environment, the customer’s financial condition, historical collection experience,
accounts receivable aging, and customer disputes to determine whether collectability is reasonably assured. The
Company routinely enters into arrangements with its customers to provide sales incentives, support customer promotions, and provide
allowances for returns and defective merchandise. Such programs are based primarily on customer purchases, customer performance
of specified promotional activities, and other specified factors such as sales to consumers. The costs of these programs are recorded
as sales adjustments that reduce gross sales in the period the related sale is recognized. The
products sold in the PRC are subject to a Chinese value-added tax (“VAT”). VAT taxes are presented as a reduction
of revenue. Mobile
games Internal
developed platform The
Company operates the mobile games as live services that allow players to play for free. Within these games, players can purchase
virtual currency to obtain virtual goods to enhance the game-playing experience. On the platform, players purchase virtual currency
and/or virtual goods through various widely accepted payment methods offered in the games, including Alipay or WeChat and online
bank transfer service providers. Advance payments from customers for virtual goods that are non-refundable that specify our obligations
are recorded to deferred revenue. All other advance payments that do not meet these criteria are recorded as advances from customers.
For virtual goods purchases upon immediately use with no future game-playing benefits, the Company recognizes such virtual goods
purchase upon receipts of payment from the paying players. For virtual goods purchases for the conversion of future game-playing
benefits or throughout the players’ playing life, the Company recognizes such virtual goods purchases ratably over the estimated
average playing period of paying players for the applicable game, starting from the point in time when virtual items are delivered
to the players’ accounts and all other revenue recognition criteria are met. The Company records revenue generated from
mobile games on a gross basis as the Company is acting as the principal to fulfill all obligations related to the game operation.
Fees paid to distribution channels and payment channels are recorded as cost of revenues. The
Company considers the average period that players typically play the games and other game player behavior patterns, as well as
various other factors to arrive at the best estimates for the estimated playing period of the paying players for each game. On
a quarterly basis, the Company determined the estimated average playing period for paying players by analyzing paying players
for that game who made their first virtual goods purchase during that period and counting their cumulative login days for each
game. The Company then averages the time periods to determine the estimated paying playing period for that game. If a new game
is launched and only a limited period of paying player data is available, then the Company considers other qualitative factors,
such as the playing patterns for paying players for other games with similar characteristics and playing patterns of paying players,
such as targeted players and purchasing frequency. While the Company believes its estimates to be reasonable based on available
game player information, the Company may revise such estimates based on new information indicating a change in the game player
behavior patterns and any adjustments are applied prospectively. Based
on the Company’s analysis, the estimated average playing period of paying players is approximately one to three months,
and this estimate has been consistent since the Company’s initial analysis. No change has been made in such estimate during
any of the periods presented. Future usage patterns may differ from historical usage patterns and therefore the estimated average
playing periods may change in the future. Third-party
platform In
addition, the Company also licenses third-parties to operate the Company’s mobile games developed internally through mobile
platforms and receives revenue-based royalty payments from all the third-party licensee operators on a monthly basis. The
revenue- based royalty payments are recognized when all other revenue recognition criteria are met. The Company records the mobile
game royalty revenue on a net basis, as the Company does not have the primary responsibility for fulfillment and acceptability
of the game services. Shipping
and handling Shipping
and handling costs amounted to $125,640, $114,558 and $150,776 for the years ended December 31, 2019, 2018 and 2017, respectively.
Shipping and handling costs are expensed as incurred and included in selling expenses. Advertising
costs Advertising
costs amounted to $31,176, $87,956 and $291,782 for the years ended December 31, 2019, 2018 and 2017, respectively. Advertising
costs are expensed as incurred and included in selling expenses. Operating
leases A
lease for which substantially all the benefits and risks incidental to ownership remain with the lessor is classified by the lessee
as an operating lease. All leases of the Company are currently classified as operating leases. The Company records the total expenses
on a straight-line basis over the lease term, and the accounting of operating lease in this report has been updated to reflect
the adoption of FASB’s new guidance on the recognition and measurement of leases. Government
subsidies Government
subsidies mainly represent amounts granted by local government authorities as an incentive for companies to promote development
of the local technology industry. The Company receives government subsidies related to government sponsored projects, and records
such government subsidies as a liability when it is received. The Company records government subsidies as other income when there
is no further performance obligation. Total
government subsidies amounted to $221,467, $94,088 and $328,346 for the years ended December 31, 2019, 2018 and 2017, respectively. Value
added taxes Revenue
represents the invoiced value of service, net of VAT. The VAT is based on gross sales price and VAT rates range up to 17%, 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 tax payable. All of the
VAT returns filed by the Company’s subsidiaries in China have been and remain subject to examination by the tax authorities
for five years from the date of filing. Income
taxes The
Company accounts for current income taxes in accordance with the laws of the relevant tax authorities. The charge for taxation
is based on the results for the fiscal year as adjusted for items, which are non-assessable or disallowed. It is calculated using
tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred
taxes are accounted for using the asset and liability method in respect of temporary differences arising from differences between
the carrying amount of assets and liabilities in the consolidated financial statements and the corresponding tax basis used in
the computation of assessable tax profit. In principle, deferred tax liabilities are recognized for all taxable temporary differences.
Deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against which deductible
temporary differences can be utilized. Deferred tax is calculated using tax rates that are expected to apply to the period when
the asset is realized or the liability is settled. Deferred tax is charged or credited in the income statement, except when it
is related to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity. Deferred
tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion
or all of the deferred tax assets will not be realized. Current income taxes are provided for in accordance with the laws of the
relevant taxing authorities. Comprehensive
income Comprehensive
income consists of two components, net income 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 income. Other comprehensive (loss) income consists of a foreign currency translation adjustment resulting from the Company
not using the U.S. dollar as its functional currencies. Earnings
per share The
Company computes earnings per share (“EPS”) in accordance with ASC 260, “Earnings per Share”. ASC 260
requires companies to present basic and diluted EPS. Basic EPS is measured as net income divided by the weighted average ordinary
share outstanding for the period. Diluted EPS presents the dilutive effect on a per share basis of the potential ordinary shares
(e.g., convertible securities, options and warrants) as if they had been converted at the beginning of the periods presented,
or issuance date, if later. Potential ordinary shares that have an anti-dilutive effect (i.e., those that increase income per
share or decrease loss per share) are excluded from the calculation of diluted EPS. For the years ended December 31, 2019 and
2018, there were no dilutive shares. Employee
benefits The
full-time employees of the Company are entitled to staff welfare benefits including medical care, housing fund, pension benefits,
unemployment insurance and other welfare, which are government mandated defined contribution plans by law. The Company is 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.
Total expenses for the plans were $81,118, $81,735 and $63,566 for the years ended December 31, 2019, 2018 and 2017, respectively. Statutory
reserves Pursuant
to the laws applicable to the PRC, PRC entities must make appropriations from after-tax profit to the non-distributable "statutory
surplus reserve fund". Subject to certain cumulative limits, the "statutory surplus reserve fund" requires annual
appropriations of 10% of after-tax profit until the aggregated appropriations reach 50% of the registered capital (as determined
under accounting principles generally accepted in the PRC ("PRC GAAP") at each year-end). For foreign invested enterprises
and joint ventures in the PRC, annual appropriations should be made to the "reserve fund". For foreign invested enterprises,
the annual appropriation for the "reserve fund" cannot be less than 10% of after-tax profits until the aggregated appropriations
reach 50% of the registered capital (as determined under PRC GAAP at each year-end). If the Company has accumulated loss from
prior periods, the Company is able to use the current period net income after tax to offset against the accumulate loss. Recently
issued accounting pronouncements In
December 2016, the FASB issued ASU 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts
with Customers” (“ASU 2016-20”), which makes minor corrections or minor improvements to the Codification that
are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most
entities. The amendments are intended to address implementation and provide additional practical expedients to reduce the cost
and complexity of applying the new revenue standard. These amendments have the same effective date as the new revenue standard.
In September 2017, the FASB issued ASU No. 2017-13, to clarify the effective dates that public business entities and other entities
were required to adopt ASC Topic 606 for annual reporting. As an “emerging growth company,” or EGC, the Company has
elected to take advantage of the extended transition period provided in the Securities Act Section 7(a)(2)(B) for complying with
new or revised accounting standards applicable to private companies. The amendments in this ASU are effective for annual reporting
periods beginning after December 15, 2018, including interim periods within annual reporting periods beginning after December
15, 2019. The Company adopted Topic 606 on January 1, 2019 using the modified retrospective transition method and there is no
material impact as of the date of adoption of Topic 606. In
September 2017, the FASB issued ASU No. 2017-13, to clarify the effective dates that public business entities and other entities
were required to adopt ASC Topic 842 for annual reporting. A public business entity that otherwise would not meet the definition
of a public business entity except for a requirement to include or the inclusion of its financial statements or financial information
in another entity’s filing with the SEC adopting ASC Topic 842 for annual reporting periods beginning after December 15,
2019, and interim reporting periods within annual reporting periods beginning after December 15, 2020. ASU No. 2017-13 also amended
that all components of a leveraged lease be recalculated from inception of the lease based on the revised after tax cash flows
arising from the change in the tax law, including revised tax rates. The difference between the amounts originally recorded and
the recalculated amounts must be included in income of the year in which the tax law is enacted. The Company has not early adopted
this update and it will become effective on January 1, 2020. In
August 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-15, Statement of Cash Flows (Topic 230): Classification
of Certain Cash Receipts and Cash Payments, to address diversity in how certain cash receipts and cash payments are presented
and classified in the statement of cash flows. The amendments provide guidance on the following eight specific cash flow issues:
(1) Debt Prepayment or Debt Extinguishment Costs;(2) Settlement of Zero-Coupon Debt Instruments or Other Debt Instruments with
Coupon Interest Rates That Are Insignificant in Relation to the Effective Interest Rate of the Borrowing; (3) Contingent Consideration
Payments Made after a Business Combination; (4) Proceeds from the Settlement of Insurance Claims; (5) Proceeds from the Settlement
of Corporate-Owned Life Insurance Policies, including Bank-Owned; (6) Life Insurance Policies; (7) Distributions Received from
Equity Method Investees; (8) Beneficial Interests in Securitization Transactions; and Separately Identifiable Cash Flows and Application
of the Predominance Principle. The amendments are effective for public business entities for fiscal years beginning after December
15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period.
The amendments should be applied using a retrospective transition method to each period presented. If it is impracticable to apply
the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the
earliest date practicable. The adoption of this ASU on January 1, 2018 would not have a material effect on the Company’s
consolidated financial statements. In
July 2017, the FASB Issued ASU 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and
Derivatives and Hedging (Topic 815). The amendments in Part I of the Update change the reclassification analysis of certain equity-
lined financial instruments (or embedded features) with down round features. The amendments in Part II of this Update re-characterize
the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a
scope exception. For public business entities, the amendments in Part I of this Update are effective for fiscal years, and interim
periods within those fiscal years, beginning after December 15, 2018. For all other entities, the amendments in Part I of this
Update are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after
December 15, 2020. Early adoption is permitted for all entities, including adoption in an interim period. If an entity early adopts
the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes
that interim period. The amendments in Part II of this Update do not require any transition guidance because those amendments
do not have an accounting effect. The Company does not believe the adoption of this ASU would have a material effect on the Company’s
consolidated financial statements. In
December 2019, the FASB issued ASU 2019-12 to simplify the accounting in ASC 740, Income Taxes. This guidance removes certain
exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim
period, and the recognition of deferred tax liabilities for outside basis differences. This guidance also clarifies and simplifies
other areas of ASC 740. This ASU will be effective beginning on January 1, 2021. Early adoption is permitted. Certain amendments
in this update must be applied on a prospectiv |
