| Summary of significant accounting policies | Note
2 – Summary of significant accounting policies 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. All significant intercompany
transactions and balances have been eliminated in consolidation. Reclassification Certain prior year amounts have been reclassified to conform to the
current period presentation. These reclassifications had no impact on net earnings or equity. Non-controlling
Interest Non-controlling
interest on the consolidated balance sheets is resulted from the consolidation of Hangzhou Dewang, a 51.05% owned subsidiary. The
portion of the income or loss applicable to the non-controlling interest in subsidiary is reflected in the consolidated statements of
operations and comprehensive loss. Use
of estimates and assumptions The
preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities at the balance sheet date and revenues and expenses during the reporting periods. Significant
accounting estimates reflected in the Company’s consolidated financial statements including, but not limited to, estimates for
inventory write-down, useful lives and impairment of long-lived assets, income taxes including valuation allowance for deferred tax assets,
and allowance for doubtful accounts. Changes in facts and circumstances may result in revised estimates. Actual results could differ
from those estimates, and as such, differences may be material to the consolidated financial statements. Foreign
currency translation and transaction The accompanying consolidated financial statements are presented in
the United States dollar (“$”), which is the reporting currency of the Company. The functional currency of HK Ebang Communications
and HK Ebang Information is United State dollars, and the functional currency of Ebang International, HK Ebang Technology and all BVI
entities is Hong Kong dollar (“HKD”). The functional currency of the PRC subsidiaries is Renminbi (“RMB”). Assets and liabilities denominated in currencies
other than the reporting currency are translated into the reporting currency at the rates of exchange ruling at the balance sheet date.
Translation gains and losses are recognized in the consolidated statements of operations and comprehensive loss as other comprehensive
income or loss. Transactions in currencies other than the reporting currency are measured and recorded in the reporting currency at the
exchange rate prevailing on the transaction date. The cumulative gain or loss from foreign currency transactions is reflected in the consolidated
statements of operations and comprehensive loss as other income (other expenses). For Ebang International, HK Ebang Technology and
all BVI entities, except for the equity, the balance sheet accounts at December 31, 2020 and 2019 and results of operations and cash flows
for the years ended December 31, 2020, 2019 and 2018 were translated at HKD7.8 to $1.00. For all PRC subsidiaries, the balance sheet accounts,
with the exception of equity, at December 31, 2020 and 2019 were translated at RMB6.5277 and RMB6.9680 to $1.00, respectively. The equity
accounts were translated at their historical rate. The average translation rates applied to statements of operations for the years ended
December 31, 2020, 2019 and 2018 were RMB6.9001, RMB6.9088 and RMB6.6146 to $1.00, respectively. Cash flows were also translated at average
translation rates for the periods, therefore, amounts reported on the statements of cash flows will not necessarily agree with changes
in the corresponding balances on the consolidated balance sheets. 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 Restricted cash mainly represents the bank deposit
used to pledge the bank acceptance notes and bank deposit pledged in exchange for guarantee services. It also represents the bank deposits
judicially frozen by the court. As of December 31, 2020 and 2019, the Company had restricted cash balance of $454,312 and $2,313,905,
respectively. See Note 17 – Contingencies for more details. Notes receivable and
notes payable Notes receivable, generally due within twelve
months and with specific payment terms and definitive due dates, are comprised of the bank acceptance notes issued by some customers to
pay certain outstanding receivable balances to the Company. Notes payable represents bank acceptance notes issued by the Company to its
vendors in the normal course of business. Bank acceptance notes do not bear interest. As of December 31, 2020 and 2019, notes receivables
in the amount of $765,967 and nil, respectively, were pledged to endorsing banks to issue bank acceptance notes payable. Debt investments Debt investments include the Company's investments in bonds and such
investments are recorded as available-for-sale securities. Available-for-sale securities are reported at fair value, with unrealized gains
and losses recorded in accumulated other comprehensive loss on the consolidated balance sheets. Realized gains and losses from the sale
of available-for-sale securities are determined on an aggregate approach basis and are included in the consolidated statements of operations
and comprehensive loss. If the fair value of an available-for-sale debt
security is below its amortized cost, the Company assesses whether it intends to sell the security or if it is more likely than not the
Company will be required to sell the security before recovery. If either of those two conditions is met, the Company would recognize a
charge in earnings equal to the entire difference between the security's amortized cost basis and its fair value. If the Company does
not intend to sell a security or it is not more likely than not that it will be required to sell the security before recovery, the unrealized
loss is separated into an amount representing the credit loss, which is recognized in earnings, and the amount related to all other factors,
which is recognized in accumulated other comprehensive loss. Premiums and discounts are amortized or accreted over the life of the
related available-for-sale security as an adjustment to yield using the effective-interest method. Interest income are recognized when
earned. Current
expected credit losses In 2016, the FASB issued ASU No. 2016-13, “Financial
Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (including all amendment subsequently
issued thereto, “ASC Topic 326”), which amends previously issued guidance regarding the impairment of financial instruments
by creating an impairment model that is based on expected losses rather than incurred losses. The Company adopted this ASC Topic 326 on
January 1, 2020 using a modified retrospective approach. The adoption did not have a material impact on the Company’s previously
reported consolidated financial statements in any prior period nor did it result in a cumulative effect adjustment to beginning accumulated
deficit. As of January 1, 2020, the Company’s financial assets, primarily accounts receivable and other receivable, are within the
scope of ASC Topic 326. The Company has identified the relevant risk characteristics of its customers and the related receivables and
other current assets which include type of the products and services the Company provides, nature of the customers or a combination of
these characteristics. Receivables with similar risk characteristics have been grouped into pools. For each pool, the Company considers
the historical credit loss experience, current economic conditions, supportable forecasts of future economic conditions, and any recoveries
in assessing the lifetime expected credit losses. Other key factors that influence the expected credit loss analysis include customer
demographics, payment terms offered in the normal course of business to customers, and industry-specific factors that could impact the
Company’s receivables. Additionally, external data and macroeconomic factors are also considered. Inventories,
net Inventories,
consisting of finished goods, work in process, and raw materials. Inventories are stated at the lower of cost and net realizable value.
Cost of inventory is determined using the weighted average cost method. Adjustments are recorded to write down the cost of inventory
to the estimated net realizable value due to slow-moving and obsolete inventory, which is dependent upon factors such as historical and
forecasted consumer demand, and promotional environment. The Company takes ownership, risks and rewards of the products purchased. Property,
plant and equipment, net Property,
plant 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:
Buildings 20
years
Computer
software 10
years
Leasehold
improvements Over
the shorter of the lease term or expected useful lives
Office
equipment 3-5
years
Motor
vehicles 5
years
Mechanical
equipment 3-10
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 operations and comprehensive loss. 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. Construction
in progress represents assets under construction. All direct costs relating to the construction are capitalized as construction in progress.
Construction in progress is not depreciated until the asset is placed in service. Intangible
assets, net The Company’s intangible assets with definite
useful lives primarily consist of software, non-patent technology, license and land use right. The Company typically amortizes its software,
non-patent technology and license with definite useful lives on a straight-line basis over the shorter of the contractual terms or the
estimated useful lives. According
to the law of PRC, the government owns all the land in the PRC. Companies or individuals are authorized to possess and use the land only
through land use rights granted by the Chinese government for a specified period of time. The Company amortizes its land use rights using
the straight-line method over the periods the rights are granted. The
estimated useful lives are as follows:
Land use right 50 years
Software 65 months
License 10 year
Non-patent technology 1 year Impairment
for long-lived assets Long-lived assets, including property, plant
and equipment, right-of-use assets and intangible assets with finite lives are reviewed for impairment whenever events or changes in
circumstances 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.
For the years ended December 31, 2020, 2019 and 2018, no impairment of long-lived assets was recognized. 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. Unobservable inputs 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. ASC
820 describes three main approaches to measuring the fair value of assets and liabilities: (1)
market approach; (2) income approach; and (3) cost approach. The market approach uses prices and other relevant information generated
from market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to convert
future amounts to a single present value amount. The measurement is based on the value indicated by current market expectations about
those future amounts. The cost approach is based on the amount that would currently be required to replace an asset. In August 2018, the FASB
issued ASU No. 2018-13 “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements
for Fair Value Measurement”. This ASU modifies the disclosures related to recurring and nonrecurring fair value measurements. Disclosures
related to the transfer of assets between Level 1 and Level 2 hierarchies have been eliminated and various additional disclosures related
to Level 3 fair value measurements have been added, modified or removed. The Company adopted this ASU on January 1, 2020 and it did not
have a material impact on its consolidated financial statements. The
financial asset carried at fair value on a recurring basis at December 31, 2020 and 2019 is as follows:
Quoted Significant Significant Total
Debt investments
As of December 31, 2020 $ - 40,835,000 - 40,835,000
As of December 31, 2019 $ - - - - Financial instruments included in current assets
and current liabilities except for debt investments, operating lease liability – related party, current and due to related party
are reported in the consolidated balance sheets at face value or cost, which approximate fair value because of the short period of time
between the origination of such instruments and their expected realization and their current market rates of interest. Related
party transactions Parties are considered to be related if one party has the ability,
directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operational
decisions. Parties are also considered to be related if they are subject to common control or common significant influence. Related parties
may be individuals or corporate entities. A transaction is considered to be a related party transaction when there is a transfer of resources
or obligations between related parties. Transactions
involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive,
free market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related
party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions unless such representations
can be substantiated. It is not, however, practical to determine the fair value of amounts due from/to related parties due to their related
party nature. Revenue
recognition The
Company has adopted the new revenue standard, ASC 606, Revenue from Contracts with Customers (Topic 606) for all periods presented. Consistent
with the criteria of Topic 606, the Company recognizes revenue to depict the transfer of promised goods or services to customers in an
amount that reflects the consideration to which the entity expects to receive in exchange for those goods or services. Value-added tax
that the Company collects concurrent with revenue-producing activities is excluded from revenue. Products
revenue The Company generates revenue primarily from the sale of bitcoin mining
machines and related accessories directly to a customer, such as a business or individual engaged in bitcoin mining activities. The Company
recognizes revenue at a point in time when the control of the products has been transferred to customers. The transfer of control is considered
complete when products have been picked up by or shipped to customers. The Company’s sales arrangements for bitcoin mining machines
usually require a full prepayment before the delivery of products. The advance payment is not considered a significant financing component
because the period between the Company transfers a promised good to a customer and when the customer pays for that good is short. As the
bitcoin price experienced a significant downtrend during 2018, the Company started to offer credit sales to certain customers. The payment
terms under credit sales generally consist of full payment of consideration within one year after shipping date. The
Company also generates revenue from the sale of telecommunication products directly to a customer, such as a business or individual engaged
in telecommunication businesses. The Company recognizes revenue at a point in time when products are delivered and customer acceptance
is made. For the sales arrangements of telecommunications products, the Company generally requires payment upon issuance of invoices. The
Company elected to account for shipping and handling fees that occur after the customer has obtained control of goods, for instance,
free onboard shipping point arrangements, as a fulfilment cost and accrues for such costs. Service
revenue The
Company also generate a small portion of revenue from management and maintenance services under separate contracts. Revenue from management
and maintenance services include service fees for provision of mining machine hosting services to customers, and provision of maintenance
service. Revenue from the maintenance service to the customer is recognized at a point in time when services are provided. Revenue from
the management service to the customer is recognized as the performance obligation is satisfied over time over the service period. Revenue
disaggregation Management has concluded that the disaggregation level is the same
under both the revenue standard and the segment reporting standard. Revenue under the segment reporting standard is measured on the same
basis as under the revenue standard. See Note 14 for information regarding revenue disaggregation by product lines and countries. Contract
liabilities Contract liabilities are recorded when consideration is received from
a customer prior to transferring the goods or services to the customer or other conditions under the terms of a sales contract. As of
December 31, 2020 and 2019, the Company recorded contract liabilities of $832,842 and $1,015,675, respectively, which was presented as
advances from customers on the accompanying consolidated balance sheets. During the years ended December 31, 2020, 2019 and 2018, the
Company recognized $279,423, $1,832,391 and $121,604,493, of contract liabilities as revenue, respectively. Segment
reporting The
Company uses the “management approach” in determining reportable operating segments. The management approach considers the
internal organization and reporting used by the Company’s chief operating decision maker for making operating decisions and assessing
performance as the source for determining the Company’s reportable segments. The Company’s chief operating decision maker
has been identified as the chief executive officer of the Company who reviews financial information based on U.S. GAAP. The chief operating
decision maker now reviews results analyzed by marketing channel. This analysis is only presented at the revenue level with no allocation
of direct or indirect costs. Consequently, the Company has determined that it has only one operating segment. Selling
and handling expenses Selling
and handling costs amounted to $96,997, $97,719 and $1,233,527 for the years ended December 31, 2020, 2019 and 2018, respectively. Selling
and handling costs are expensed as incurred and included in selling expenses. General
and administrative expenses General
and administrative expenses consist primarily of research and development expenses, salary and welfare for general and administrative
personnel, rental expenses, depreciation and amortization in associated with general and administrative personnel, allowance for doubtful
accounts, entertainment expense, general office expense and professional service fees. The
Company recognizes research and development expenses as expense when incurred. Research and development expenses amounted to $8,459,765,
$13,367,396 and $43,488,851 for the years ended December 31, 2020, 2019 and 2018, respectively. Operating
leases Prior
to the adoption of ASC 842 on January 1, 2019: Leases,
mainly leases of factory buildings, offices and employee dormitories, where substantially all the rewards and risks of ownership of assets
remain with the lessor are accounted for as operating leases. Payments made under operating leases are recognized as an expense on a
straight-line basis over the lease term. The Company had no finance leases for any of the periods stated herein. Upon
and hereafter the adoption of ASC 842 on January 1, 2019: The
Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”)
assets, operating lease liability, and operating lease liability, non-current in the Company’s consolidated balance sheets. ROU
assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s
obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date
based on the present value of lease payments over the lease term. When determining the lease term, the Company includes options to extend
or terminate the lease when it is reasonably certain that it will exercise that option, if any. As the Company’s leases do not
provide an implicit rate, the Company used an incremental borrowing rate based on the information available at commencement date in determining
the present value of lease payments. The Company has elected to adopt the following lease policies in conjunction with the adoption of
ASU 2016-02: (i) for leases that have lease terms of 12 months or less and does not include a purchase option that is reasonably certain
to exercise, the Company elected not to apply ASC 842 recognition requirements; and (ii) the Company elected to apply the package of
practical expedients for existing arrangements entered into prior to January 1, 2019 to not reassess (a) whether an arrangement is or
contains a lease, (b) the lease classification applied to existing leases, and(c) initial direct costs. Government
grants Government
grants represent cash subsidies received from PRC government. Cash subsidies which have no defined rules and regulations to govern the
criteria necessary for companies to enjoy the benefits are recognized when received. Such subsidies are generally provided as incentives
from the local government to encourage the expansion of local business. Total government grants received amounted to $4,006,567, $6,298,893
and $798,680 for the years ended December 31, 2020, 2019 and 2018, respectively. Value-added
taxes Revenue is recognized net of value-added taxes
(“VAT”). VAT is based on gross sales price and the VAT rate applicable to the Company is 17% for the period from the beginning
of 2018 till the end of April 2018, then changed to 16% from May 2018 to the end of March 2019, and changed to 13% since April 2019. 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 as VAT payable if output VAT is larger than input VAT and is recorded as VAT recoverable
if input VAT is larger than output VAT. All of the VAT returns filed by the Company’s subsidiaries in China, have been and remain
subject to examination by the tax authorities. Pursuant
to Caishui (2011) No. 100 issued by the State Tax Bureau of the PRC, Zhejiang Ebang and Ebang IT are qualified as enterprises selling
self-developed software products and enjoying a tax refund for the excess of 3% of their actual tax burden after the VAT is levied at
the 17% or 16% or 13% tax rate since January 2011. Tax refund is recognized when received. During the years ended December 31, 2020,
2019 and 2018, total VAT refund received was nil, $9,138 and $27,368,030 from the sales of bitcoin mining machine, respectively. 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. An
uncertain tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained
in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that
is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test,
no tax benefit is recorded. No penalties and interest incurred related to underpayment of income tax are classified as income tax expense
in the period incurred. Comprehensive
loss Comprehensive
loss consists of two components, net loss and other comprehensive loss. Other comprehensive loss refers to revenues, expenses, gains
and losses that under GAAP are recorded as an element of shareholders’ equity but are excluded from net loss. Other comprehensive
loss consists of a foreign currency translation adjustment resulting from the Company not using the United States 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 (loss) attributable to Ebang International Holdings Inc.
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. As the Company recognized a net loss for
the year ended December 31, 2020, the outstanding warrants were not recognized in the diluted EPS calculations as they would be antidilutive.
There were no dilutive shares or other instruments outstanding as of December 31, 2019 and 2018. 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. Concentration
of credit risk Financial
instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts
receivable. The Company places the cash and cash equivalents with financial institutions with high credit ratings and quality. The
Company conducts credit evaluations of customers, and generally do not require collateral or other security from its customers. The Company
establishes an allowance for doubtful accounts primarily based upon various factors surrounding the credit risk of specific customers
and general economic conditions, refer to the current expected credit loss policy. Recently
issued accounting pronouncements In
December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”.
ASU 2019-12 simplifies the accounting for income taxes by removing exceptions within the general principles of Topic 740 regarding the
calculation of deferred tax liabilities, the incremental approach for intraperiod tax allocation, and calculating income taxes in an
interim period. In addition, the ASU adds clarifications to the accounting for franchise tax (or similar tax), which is partially based
on income, evaluating tax basis of goodwill recognized from a business combination, and reflecting the effect of any enacted changes
in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. The ASU is
effective for fiscal years beginning after December 15, 2020, and will be applied either retrospectively or prospectively based upon
the applicable amendments. Early adoption is permitted. The adoption of this guidance will not have a material impact on the Company’s
consolidated financial statements. Except
as mentioned above, the Company does not believe other recently issued but not yet effective accounting standards, if currently adopted,
would have a material effect on the Company’s consolidated financial statements. |
