| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 2. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(a). Basis
of presentation The
accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States
of America (“US GAAP”). The
accompanying consolidated financial statements contemplate the realization of assets and the satisfaction of liabilities in the normal
course of business. The realization of assets and the satisfaction of liabilities in the normal course of business are dependent on,
among other things, the Group’s ability to operate profitably, to generate cash flows from operations, and its ability to attract
investors and to borrow funds on reasonable economic terms. (b). Going
concern As of December 31, 2023, the
Group had an accumulated deficit of $110,833,045 and negative working capital $19,607,862. In addition, for the years ended December
31, 2021, 2022 and 2023, the Group recorded an amount of net cash used in operating activities of $11,887,122, $10,923,346 and
$15,789,498, respectively. These conditions raised substantial doubts about the Group’s ability to continue as a going
concern. Historically, the Group has
relied principally on both operational sources of cash and non-operational sources of borrowings from banks, related parties and
third parties, and proceeds from equity financing to fund its operations and business development. To meet the cash requirements for
the next 12 months from the issuance date of the consolidated financial statements, the Group obtained financial support from
controlling shareholder, and are in plans to obtain further financing including borrowings from financial institutions. In addition,
the Group is focusing on the improvement of operation efficiency, implementation of strict cost control and budget and enhancement
of internal controls to create a synergy of resources. The Group’s ability to continue as a going concern is dependent on
management’s ability to successfully execute its business plan, which includes generating revenue while controlling operating
cost and expenses to generate positive operating cash flows and obtaining funds from outside sources of financing to generate
positive financing cash flows. There can be no assurance that the Group will be successful in achieving strategic plans, that the
Group’s future capital raises will be sufficient to support its ongoing operations, or that any additional financing will be
available in a timely manner or on acceptable terms, if at all. If the Group is unable to raise sufficient financing or events or
circumstances occur such that the Group does not successful execute strategic plans, the Group will be required to reduce certain
discretionary spending, alter or scale back research and development programs, or be unable to fund capital expenditures, which
would have a material adverse effect on our financial position, results of operations, cash flows, and ability to achieve intended
business objectives. The accompanying consolidated
financial statements have been prepared on the basis the Group will be able to continue as a going concern for a period of one year
after the issuance of the consolidated financial statements.
(c). Principles
of consolidation The
consolidated financial statements include the financial statements of the Company, its subsidiaries, the VIE in which the Company, through
its WFOE, has a controlling financial interest, and the VIE’s subsidiaries. Subsidiaries
are those entities in which the Company, directly or indirectly, controls more than one half of the voting power or has the power to
govern the financial and operating policies, to appoint or remove the majority of the members of the board of directors, or to cast a
majority of votes at the meeting of directors. A VIE is an entity in which the Company, or its WFOE, through contractual arrangements,
is fully and exclusively responsible for the management of the entity, absorbs all risk of losses of the entity (excluding non-controlling
interests), receives the benefits of the entity that could be significant to the entity (excluding non-controlling interests), and has
the exclusive right to exercise all voting rights of the entity, and therefore the Company or its WFOE is the primary beneficiary of
the entity for accounting purposes. However, the contractual arrangements with the VIE and its shareholders may not be as effective as
equity ownership in providing operational control. All
intercompany transactions and balances among the Company, its subsidiaries, the VIE, and the VIE’s subsidiaries have been eliminated
upon consolidation.
(d). Use
of estimates The preparation of the consolidated financial statements in accordance
with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, related
disclosures of contingent assets and liabilities at the balance sheet date, and the reported revenues and expenses during the reported
periods in the consolidated financial statements and accompanying notes. Significant accounting estimates include, but not limited to,
the allowance for credit losses, net realizable value of inventories, depreciable lives and recoverability of property and equipment,
the realization of deferred income tax assets and other equity investments, transaction price allocation between software income and maintenance
service income. 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.
(e). Cash
and cash equivalents Cash
and cash equivalents consist of cash on hand, the Group’s demand deposit placed with financial institutions, which have original
maturities of less than three months and unrestricted as to withdrawal and use. (f). Restricted cash Restricted cash amounting to $20,676
represents cash pledged with CHINA CITIC BANK as collateral for bank guarantee issued by the bank in respect of project performance. The restricted
cash for the project that is expected to be completed within one year is classified as a current asset.
(g). Accounts
receivable, net Accounts receivable, net are stated at the original amount less
an allowance for credit losses. Accounts receivable are recognized in the period when the Group has provided services to its customers
and when its right to consideration is unconditional. Before January 1, 2023, the Group reviews the accounts receivable on a periodic
basis and makes specific allowances when there is doubt as to the collectability of individual balances. The Group considers many factors
in assessing the collectability of its receivables, such as the age of the amounts due, the customer’s payment history, credit-worthiness
and other specific circumstances related to the accounts. An allowance for credit losses is recorded in the period in which a loss is
determined to be probable. Accounts receivable balances are written off after all collection efforts have been exhausted. Adoption
of Accounting Standards Update (“ASU”) 2016-13 In June 2016, the FASB issued ASU 2016-13: Financial Instruments-Credit
Losses (Topic 326), which requires entities to measure all expected credit losses for financial assets held at the reporting date based
on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model
and is applicable to the measurement of credit losses on financial assets measured at amortized cost. The Group adopted ASU 2016-13 from
January 1, 2023 using modified-retrospective transition approach with a cumulative-effect adjustment to shareholders’ equity amounting
to $5,888,082 recognized as of January 1, 2023.
(h). Contract
costs Contract
costs represented the costs directly related to a contract with a customer including labor costs and direct materials used in fulfilling
the contract and other allocations of costs that relate directly to the contract or to contract activities. The contract costs are determined
principally by the specific identification method, and recognized as cost of revenues on a systematic basis that is consistent with the
transfer to the customer of the related services.
(i). Inventories Inventories,
primarily consisting of robot, displayer, server and software, are stated at the lower of cost or net realizable value, with net realized
value represented by estimated selling prices in the ordinary course of business, less reasonably predictable costs of disposal and transportation.
Cost of inventory is determined using the specific identification method. Adjustments are recorded to write down the cost of inventory
to the estimated net realizable value due to slow-moving merchandise and damaged products, which is dependent upon factors such as historical
and forecasted consumer demand. There was nil
(j). Property
and equipment, net Property
and equipment are stated at cost less accumulated depreciation and impairment, if any, and depreciated on a straight-line basis over
the estimated useful lives of the assets. Cost represents the purchase price of the asset and other costs incurred to bring the asset
into its intended use. Estimated useful lives are as follows:
Category Estimated
useful lives
Electronic equipment 5 years
Office equipment 5 years
Leasehold
improvement Shorter of the lease term or the estimated useful life of the assets Repair
and maintenance costs are charged to expenses as incurred, whereas the cost of renewals and betterment that extends the useful lives
of property and equipment are capitalized as additions to the related assets. Retirements, sales and disposals of assets are recorded
by removing the costs, accumulated depreciation and impairment with any resulting gain or loss recognized in the consolidated statements
of income/(loss).
(k). Intangible
assets, net Intangible
assets are carried at cost less accumulated amortization and any recorded impairment. Intangible assets are amortized using the straight-line
approach over the estimated economic useful lives of the assets as follows:
Category Estimated
useful lives
Software 5 years
(l). Impairment
of long-lived assets The
Group reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an
asset may no longer be recoverable. When these events occur, the Group 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 Group 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. There
was no impairment of long-lived assets for the years ended December 31, 2021, 2022 and 2023.
(m). Long-term
investments For
an investee over which the Group holds less than 20% voting interest and has no ability to exercise significant influence, the investments
are accounted for under the cost method. For
an investee over which the Group has the ability to exercise significant influence, but does not own a majority equity interest or otherwise
control, the Group accounted for those using the equity method. Significant influence is generally considered to exist when the Group
has an ownership interest in the voting stock of the investee between 20% and 50%. Other factors, such as representation on the investee’s
board of directors, voting rights and the impact of commercial arrangements, are also considered in determining whether the equity method
of accounting is appropriate. Under the equity method of accounting, the Group’s share of the investee’s results of operations
is reported as share of losses of equity method investments in the consolidated statements of comprehensive income/(loss). The process of assessing and determining
whether impairment on an investment is other than temporary requires a significant amount of judgment. To determine whether an impairment
is other than temporary, management considers whether it has the ability and intent to hold the investment until recovery and whether
evidence indicating the carrying value of the investment is recoverable outweighs evidence to the contrary. Evidence considered in this
assessment includes the reasons for the impairment, the severity and duration of the decline in value, any change in value subsequent
to the period end, and forecasted performance of the investee. There was nil nil
(n). Fair value measurement Accounting
guidance defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required
or permitted to be recorded at fair value, the Group considers the principal or most advantageous market in which it would transact and
it considers assumptions that market participants would use when pricing the asset or liability. Accounting
guidance establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of
unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based
upon the lowest level of input that is significant to the fair value measurement. The three levels of inputs are:
(a) Level
1 — Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
(b) Level
2 — Include other inputs that are directly or indirectly observable in the marketplace.
(c) Level
3 — Unobservable inputs which are supported by little or no market activity. Accounting
guidance also 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. Financial
assets and liabilities of the Group primarily consist of cash and cash equivalents, accounts receivable, amounts due from related parties,
other receivables included in prepayments and other current assets, equity investment, short-term borrowings, accounts payable, amounts
due to related parties, other payables included in accrued expenses and other current liabilities. The Group’s non-financial assets,
such as property and equipment as well as intangible assets, would be measured at fair value only if they were determined to be impaired.
(o). Commitments
and contingencies In
the normal course of business, the Group is subject to commitments and contingencies, including operating lease commitments, legal proceedings
and claims arising out of its business that relate to a wide range of matters, such as government investigations and tax matters. The
Group recognizes a liability for such contingency if it determines it is probable that a loss has occurred and a reasonable estimate
of the loss can be made. The Group may consider many factors in making these assessments on liability for contingencies, including historical
and the specific facts and circumstances of each matter.
(p). Revenue
recognition The
Group’s revenues are mainly generated from (1) sale of software products; (2) sale of hardware products; (3) technology development
services; (4) maintenance and support service, and (5) sale of cloud platform products, etc. The
Group recognizes revenue pursuant to ASC 606, Revenue from Contracts with Customers
1. Identification
of the contract, or contracts, with the customer;
2. Identification
of the performance obligations in the contract;
3. Determination
of the transaction price;
4. Allocation
of the transaction price to the performance obligations in the contract; and
5. Recognition
of the revenue when, or as, a performance obligation is satisfied. The
Group enters into two major kinds of revenue arrangements with customers. The first kind of contract can include various combinations
of software products, hardware products and maintenance and support service which are generally distinct and accounted for as separate
performance obligations. The other kind of contract is sale of cloud platform products, which include software products and cloud platform
service as two separate performance obligations. As a result, the Group’s contracts may contain multiple performance obligations.
The Group determines whether arrangements are distinct based on whether the customer can benefit from the product or service on its own
or together with other resources that are readily available and whether our commitment to transfer the product or service to the customer
is separately identifiable from other obligations in the contract. Sale
of software products The
Group’s software products sold to customers comprising customized software products for specific needs. The software products sold
by the Group are intended to provide the customer with full control of software, which means that revenues from the sale of such products
are recognized at the point-in-time at which the control over the products is transferred to the customer upon the acceptance. Typically,
the software delivery period is less than six months from the date of signing the contract. Payments are made by the customers in multiple
instalments according to the payment schedule determined in the contract. Sale
of hardware products Hardware
products sold to customers comprising the hardware designed for specific needs. Revenue is recognized at the point-in-time when the customer
is able to use and benefit from the hardware products, which is generally upon delivery to the customer. Technology
development services The
technology development service provided to customers comprises: (1) development of new customized software and applications based on
customers’ specifications and needs; and (2) functional customization development based on original software products sold. Pursuant
to contract terms, customers can benefit from the software products sold and technology development services on their own, or with readily
available resources, meanwhile the Group fulfils its performance obligations by transferring software products and technology development
services independently. Therefore, the software products and technology development services are distinct performance obligations. The
transaction prices for two performance obligations were determined separately in the contract, which also reflects their stand-alone
selling price (“SSP”) respectively. Revenue is recognized at the point-in-time when the service is completed and the customer
can benefit from it upon acceptance. Payments are made by the customers in multiple installments according to the payment schedule determined
in the contract. Maintenance
and support service Maintenance and support (“M&S”) service is provided
for software products contracts and consists of unspecified future software updates, upgrades, and enhancements as well as technical product
support services, and the provision of unspecified updates and upgrades on a when-and-if-available basis. Maintenance and support services
are renewable, generally on an annual basis, at the option of the customer. Maintenance represents stand-alone obligations for which revenue
is recognized ratably over the term of the arrangement. Sale
of cloud platform products Cloud
platform products sold to customers comprising software products uploaded in the cloud platform. The Group does not provide any cancellation
and refund provisions to customers. Pursuant to contract terms, customers can benefit from the software products and cloud platform from
each on its own, meanwhile the Group fulfils its promise by transferring software products and cloud platform services independently.
Therefore, the software products and the cloud platform services are distinct performance obligations. The transaction prices for two
performance obligations were determined separately in the contract, which also reflects their stand-alone selling price (“SSP”)
respectively. Since customers continuously consume the benefits from both software products and cloud platform, the Group recognizes
revenue from sale of cloud platform products over time when the Group provides the customer a right to access the Group’s intellectual
property throughout the service period. The timing and pattern of transfer the right to access software products and cloud platform is
the same. The service period is usually 1 year and customer made quarterly payment after usage. Contracts
with multiple performance obligations Most
contracts with customers contain multiple performance obligations that are distinct and are accounted for separately. The transaction
price is allocated to the separate performance obligations on a relative SSP basis. The Group determines SSP for all performance obligations
using observable inputs, such as standalone sales and historical contract pricing. SSP is consistent with the Group’s overall pricing
objectives, taking into consideration the type of software products, maintenance and support services, and professional services purchased
by the customer. SSP also reflects the amount the Group would charge for that performance obligation if it were sold separately in a
standalone sale, and the price the Group would sell to similar customers in similar circumstances. The
following table disaggregates the Group’s revenue for the years ended December 31, 2021, 2022 and 2023:
For the Year Ended
2021 2022 2023
By revenue type
Sale of software products $ 14,878,256 $ 3,547,113 $ 1,566,455
Sale of hardware products 75,011 46,295 75,363
Technology development service 9,246,992 16,419,889 7,839,700
M&S service 2,772,795 2,429,526 2,676,185
Sale of cloud platform products 5,550,959 25,742,135 47,007,556
Total $ 32,524,013 $ 48,184,958 $ 59,165,259 Remaining
performance obligations Remaining performance obligations represent the transaction price
of orders meeting the definition of a contract in the new revenue standard for which work has not been performed or has been partially
performed and excludes unexercised contract options. The Company has elected to apply the practical expedient, which allows companies
to exclude remaining performance obligations with an original expected duration of one year or less. The aggregate amount of the transaction
price allocated to remaining performance obligations for such contracts with a duration of more than one year was approximately $265,290
at December 31, 2023. The Company expects to recognize revenue on approximately $187,995 and $71,861 of the remaining performance obligations
over the next 12 and 24 months, respectively. Contract
balances When
the Group begins to deliver the products or services pursuant to the performance obligations in the contract, the Group presents the
contract in the consolidated balance sheet as a contract asset or a contract liability, depending on the relationship between the Group’s
performance and the customer’s payment. The contract assets consist of accounts receivable and contract costs. Accounts receivable
represent revenue recognized for the amounts invoiced and/or prior to invoicing when the Group has satisfied its performance obligation
and has unconditional right to the payment. Contract costs are deferred for the contract preparation and will be recognized as cost of
revenues when goods or services are transferred to customers. During the years ended December 31, 2021, 2022 and 2023, the Group
recognized $10,885,731, $17,379,144 and $19,741,689 of contract costs as cost of revenues. The contract liabilities consist of deferred
revenue, which represent the billings or cash received for services in advance of revenue recognition and is recognized as revenue when
all of the Group’s revenue recognition criteria are met. The Group’s deferred revenue amounted to $2,553,808 and $1,654,145
as of December 31, 2022 and 2023, respectively. During the years ended December 31, 2021, 2022 and 2023, the Group recognized $900,686,
$1,545,866 and $1,800,557 revenue that was included in deferred revenue balance at January 1, 2021, 2022 and 2023, respectively.
(q). Cost
of revenues Cost
of revenues consists primarily of (i) purchased software, (ii) payroll, (iii) cloud hosting service fees, and other costs
related to the business operation.
(r). Research
and development expenses Research
and development costs are expensed as incurred in accordance with ASC 730. Software development costs required to be capitalized under
ASC 985-20. The Company determined that technology feasibility for the software product is not reached. There is no software development
costs capitalized for the years ended December 31, 2021, 2022 and 2023. Research and development expenses consist primarily of (i)
Software development costs, (ii) payroll and related expenses for research and development professionals, and (iii) depreciation and
rental related to technology and development functions. Research and development expenses are expensed as incurred.
(s). Selling
and marketing expenses Selling
and marketing expenses mainly consist of (i) staff cost, rental and depreciation related to selling and marketing functions, and
(ii) advertising costs and market promotion expenses. Advertising costs, which consist primarily of online advertisements, are expensed
as incurred.
(t). General
and administrative expenses General
and administrative expenses mainly consist of (i) staff cost, rental and depreciation related to general and administrative personnel,
(ii) professional service fees, and (iii) other corporate expenses.
(u). Government
grants Government
grant is recognized when there is reasonable assurance that the Group will comply with the conditions attached to it and the grant will
be received. Government grant for the purpose of giving immediate financial support to the Group with no future related costs or obligation
is recognized in the Group’s consolidated statements of comprehensive income/(loss) when the grant becomes receivable. The Group
recognized government grants $853,011, $216,893 and $966,899 in other income, net for the years ended December 31, 2021, 2022
and 2023, respectively.
(v). Employee
benefits The
Group’s subsidiaries and VIE and the VIE’s subsidiary in PRC participate in a government mandated, multiemployer, defined
contribution plan, pursuant to which certain retirement, medical, housing and other welfare benefits are provided to employees. PRC labor
laws require the entities incorporated in the PRC to pay to the local labor bureau a monthly contribution calculated at a stated contribution
rate on the monthly basic compensation of qualified employees. The Group has no further commitments beyond its monthly contribution.
(w). Leases On
January 1, 2020, the Group adopted Accounting Standards Update (“ASU”) 2016-02, Lease (FASB ASC Topic 842).
The adoption of Topic 842 resulted in the presentation of operating lease right-of-use (“ROU”) assets and operating
lease liabilities on the consolidated balance sheet. The Group has elected the package of practical expedients, which allows the Group
not to reassess (1) whether any expired or existing contracts as of the adoption date are or contain a lease, (2) lease classification
for any expired or existing leases as of the adoption date and (3) initial direct costs for any expired or existing leases as of
the adoption date. Lastly, the Group elected the short-term lease exemption for all contracts with lease terms of 12 months or less. At
inception of a contract, the Group 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 of a consideration. To assess whether a contract
is or contains a lease, the Group 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 Group 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 Group’s 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 Group is reasonably certain to exercise. Lease liability is measured at amortized
cost using the effective interest rate method. It is re-measured 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 Group assessment
of option purchases, contract extensions or termination options.
(x). Income taxes The Group 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. Current income taxes are provided for in accordance with the laws of the relevant taxing authorities. 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 Group’s operating subsidiaries in PRC are subject to examination by
the relevant tax authorities. According to the PRC Tax Administration and Collection Law, the statute of limitations is three years if
the underpayment of taxes is due to computational errors made by the taxpayer or the withholding agent. The statute of limitations is
extended to five years under special circumstances, where the underpayment of taxes is more than RMB 100,000 ($14,123). In the case of
transfer pricing issues, the statute of limitation is ten years. There is no statute of limitation in the case of tax evasion. Penalties
and interest incurred related to underpayment of income tax are classified as income tax expense in the period incurred. The Group did not accrue any liability,
interest or penalties related to uncertain tax positions in its provision for income taxes line of its consolidated statements of income
for the years ended December 31, 2021, 2022 and 2023, respectively. The Group does not expect that its assessment regarding unrecognized
tax positions will materially change over the next 12 months.
(y). Value added tax (“VAT”) The Group is subject to VAT and related
surcharges on revenue generated |
