UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Amendment No. 1)
(Mark One)
OR
For
the fiscal year ended
OR
OR
Date of event requiring this shell company report _____________
For the transition period from _____________ to _____________
Commission
File Number:
(Exact name of Registrant as specified in its charter)
_________________________________
(Translation of Registrant’s name into English)
(Jurisdiction of incorporation or organization)
People’s
Republic of
(Address of principal executive offices)
Chief Executive Officer
Furong
District,
People’s
Republic of
Tel:
Email: jack.wu@bitbrother.com
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
| Title of each class | Name of each exchange on which registered | |
Securities registered or to be registered pursuant to Section 12(g) of the Act.
Not Applicable
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
Not Applicable
(Title of Class)
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
As
of June 30, 2021, the issuer had
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
☐ Yes ☒
If
this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934. ☐ Yes ☒
Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. ☒
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be
submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for
such shorter period that the registrant was required to submit such
files). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | ☒ | |
| Emerging growth company | |||||
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.
☐
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
| International Financial Reporting Standards as issued by the International Accounting Standards Board ☐ | Other ☐ |
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
☐ Item 17 ☐ Item 18
If
this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). ☐ Yes
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. ☐ Yes ☐ No
TABLE OF CONTENTS
| Page Number | ||||
| EXPLANATORY NOTE | ii | |||
| ITEM 18. | FINANCIAL STATEMENTS | 1 | ||
| ITEM 19. | EXHIBITS | 2 | ||
i
EXPLANATORY NOTE
This Amendment No. 1 (“Amendment No. 1”) to our annual report on Form 20-F for the year ended June 30, 2021 originally filed with the U.S. Securities and Exchange Commission on November 15, 2021 (the “Original 2021 Form 20-F”) is being filed solely to correct the number of authorized ordinary shares and its par value in the line under Shareholders’ Equity of the consolidated balance sheet to be “unlimited,” and “no par value,” which was previously listed as 150,000,000 and $0.0001 par value, respectively, due to a clerical error.
As required by Rule 12b-15 of the Securities and Exchange Act of 1934, as amended, we are also filing as exhibits to Amendment No. 1 the certifications required under Section 302 of the Sarbanes-Oxley Act of 2002.
Other than the matters described above, this Amendment No. 1 does not amend or modify any information included in any of the disclosure presented in the Original 2021 Form 20-F.
The Original 2021 Form 20-F, as amended by this Amendment No. 1, speaks as of the original filing date of the Original 2021 Form 20-F and does not reflect events that may have occurred subsequent to the original filing date of the Original 2021 Form 20-F.
ii
ITEM 18. FINANCIAL STATEMENTS
The financial statements are filed as part of this report beginning on page F-1.
Results of Operations and Financial Condition
Following are the audited financial results for the years ended June 30, 2021, 2020 and 2019 of Bit Brother Limited.
1
BIT BROTHER LIMITED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| Consolidated Financial Statements for the Years Ended June 30, 2021, 2020 and 2019 | Pages | |
| Report of Independent Registered Public Accounting Firm | F-2 | |
| Consolidated Balance Sheets as at June 30, 2021 and 2020 | F-3 | |
| Consolidated Statements of Operations and Comprehensive (Loss) Income for the Years Ended June 30, 2021, 2020 and 2019 | F-4 | |
| Consolidated Statements of Shareholders’ Equity for the Years Ended June 30, 2021, 2020 and 2019 | F-5 | |
| Consolidated Statements of Cash Flows for the Years Ended June 30, 2021, 2020 and 2019 | F-6 | |
| Notes to Consolidated Financial Statements | F-7 – F-36 |
F-1
Report of Independent Registered Public Accounting Firms
To the Board of Directors and Stockholders of Bit Brother Ltd
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Bit Brother Ltd (the “Company”) as of June 30, 2021 and 2020 , and the related consolidated statements of operations and comprehensive losses, stockholders’ deficit and cash flows for each of the three years in the period ended June 30, 2021 , and the related notes (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2021 and 2020 , and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2021 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
| /s/ Centurion ZD CPA & Co. | |
| Centurion ZD CPA & Co. (as successor to Centurion ZD CPA Ltd.) | |
| Certified Public Accountants | |
| Hong Kong, November 12, 2021 |
We have served as the Company’s auditor since 2015.
F-2
BIT BROTHER LTD (/fka URBAN TEA, INC.)
CONSOLIDATED BALANCE SHEETS
(Expressed in U.S. dollars, except for shares)
| June 30, 2021 | June 30, 2020 | |||||||
| ASSETS | ||||||||
| Cash | $ | $ | ||||||
| Short-term investments | ||||||||
| Trade receivables | ||||||||
| Inventories | ||||||||
| Loan due from a third party | ||||||||
| Due from related parties | - | |||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Investments in equity investees | ||||||||
| Goodwill | ||||||||
| Property and equipment, net | ||||||||
| Deposits for plant, property and equipment | ||||||||
| Intangible assets | ||||||||
| Right of use assets | ||||||||
| Other noncurrent assets | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND EQUITY | ||||||||
| Trade payable | $ | $ | ||||||
| Unearned income | ||||||||
| Other current liabilities | ||||||||
| Income tax payable | - | |||||||
| Lease liabilities, current | ||||||||
| Warrants liabilities | ||||||||
| Total current liabilities | ||||||||
| Lease liabilities, noncurrent | ||||||||
| Total Liabilities | ||||||||
| Shareholders’ Equity | ||||||||
| $ | $ | |||||||
| Preferred shares, par value $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income (loss) | ( | ) | ( | ) | ||||
| Total Bit Brother Ltd. (fka Urban Tea, Inc.) Shareholders’ Equity | ||||||||
| Non-controlling interests | ||||||||
| Total Liabilities and Equity | $ | $ | ||||||
| * |
See notes to the consolidated financial statements
F-3
BIT BROTHER LTD (/fka URBAN TEA, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Expressed in U.S. dollars, except share and per share data)
| For the Years Ended June 30, | ||||||||||||
| 2021 | 2020 | 2019 | ||||||||||
| Revenue | $ | $ | $ | |||||||||
| Cost of revenues | ( | ) | ( | ) | ( | ) | ||||||
| Gross profit | ||||||||||||
| Operating expenses | ||||||||||||
| General and administrative expenses | ( | ) | ( | ) | ( | ) | ||||||
| Total operating expenses | ( | ) | ( | ) | ( | ) | ||||||
| Other income, net | ||||||||||||
| Interest expenses | ||||||||||||
| Change in fair value of warrants | ||||||||||||
| Equity investment loss | ( | ) | ( | ) | ||||||||
| Other income | ||||||||||||
| Total other income, net | ||||||||||||
| Net loss from continuing operations before income taxes | ( | ) | ( | ) | ( | ) | ||||||
| Income tax expenses | ( | ) | ||||||||||
| Net loss from continuing operations | ( | ) | ( | ) | ( | ) | ||||||
| Net income (loss) from discontinued operations | ||||||||||||
| Loss from discontinued operations | ( | ) | ||||||||||
| Gain on disposal of discontinued operations | ||||||||||||
| Net income (loss) from discontinued operations | ||||||||||||
| Net income (loss) | ( | ) | ( | ) | ||||||||
| Less: Net loss attributable to non-controlling interests | ( | ) | ||||||||||
| Net (loss) income attributable to Bit Brother Ltd. (fka Urban Tea, Inc.) Shareholders | ( | ) | ( | ) | ||||||||
| Other comprehensive (loss) income | ||||||||||||
| Foreign currency translation adjustment | ( | ) | ( | ) | ||||||||
| Reclassified to net loss from discontinued operations | ( | ) | ||||||||||
| ( | ) | ( | ) | ( | ) | |||||||
| Comprehensive income (loss) | ( | ) | ( | ) | ||||||||
| Less: Total comprehensive loss attributable to non-controlling interests | ( | ) | ||||||||||
| Comprehensive (loss) income attributable to Bit Brother Ltd. (fka Urban Tea, Inc.) Shareholders | $ | ( | ) | $ | ( | ) | $ | |||||
| (Loss) income per share- basic and diluted | $ | ( | ) | $ | ( | ) | $ | |||||
| Net loss per share from continuing operations – basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Net income (loss) per share from discontinued operations – basic and diluted | $ | $ | $ | |||||||||
| Weighted Average Shares Outstanding-Basic and Diluted* | ||||||||||||
| * |
See notes to the consolidated financial statements
F-4
BIT BROTHER LTD (/fka URBAN TEA, INC.)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’S EQUITY (DEFICIT)
(Expressed in U.S. dollars, except share data)
| Share capital | Additional | Accumulated other | Non- | |||||||||||||||||||||||||
| Ordinary | paid-in | Accumulated | comprehensive | controlling | ||||||||||||||||||||||||
| Share* | Amount | capital | deficit | (loss) income | interests | Total | ||||||||||||||||||||||
| Balance as of July 1, 2018 | $ | $ | $ | ( | ) | $ | $ | $ | ( | ) | ||||||||||||||||||
| Issuance of ordinary shares for professional services | ||||||||||||||||||||||||||||
| Issuances of ordinary shares in connection with certain private placements | ||||||||||||||||||||||||||||
| Issuance of ordinary shares in connection with registered direct offering, net of transaction cost | ||||||||||||||||||||||||||||
| Disposition of Elite and its subsidiary | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Net income for the year | - | |||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||||||||
| Balance as at June 30, 2019 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||
| Balance as at July 1, 2019 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||
| Issuances of ordinary shares in connection with acquisition of a subsidiary (Note 6) | ||||||||||||||||||||||||||||
| Issuance of ordinary shares for professional services | ||||||||||||||||||||||||||||
| Issuances of ordinary shares in connection with a private placement | ||||||||||||||||||||||||||||
| Net loss for the year | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance as at June 30, 2020 | 4,518,865 | $ | 452 | $ | 25,572,545 | $ | (10,280,741 | ) | $ | (352,649 | ) | $ | 5,659,589 | $ | 20,599,196 | |||||||||||||
| Balance as at July 1, 2020 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||||||
| Issuance of ordinary shares for professional services | ||||||||||||||||||||||||||||
| Issuances of ordinary shares in connection with certain private placements | ||||||||||||||||||||||||||||
| Issuance of ordinary shares in connection with registered direct offering, net of transaction cost | ||||||||||||||||||||||||||||
| Issuance of ordinary shares in connection with exercise of warrant | ||||||||||||||||||||||||||||
| Issuance of ordinary shares in connection with earn-out payment | ||||||||||||||||||||||||||||
| Net income for the year | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance as at June 30, 2021 | ( | ) | ( | ) | ||||||||||||||||||||||||
| * |
See notes to the consolidated financial statements
F-5
BIT BROTHER LTD (/fka URBAN TEA, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the Years Ended June 30, | ||||||||||||
| 2021 | 2020 | 2019 | ||||||||||
| Cash Flows from Operating Activities: | ||||||||||||
| Net (loss) income | $ | ( | ) | $ | ( | ) | $ | |||||
| Less: net income (loss) from discontinued operations | ||||||||||||
| Net loss from continuing operations | ( | ) | ( | ) | ( | ) | ||||||
| Adjustments to reconcile net income to net cash used in operating activities: | ||||||||||||
| Change in fair value of warrants | ( | ) | ( | ) | ( | ) | ||||||
| Issuance cost in connection with registered direct offerings | ||||||||||||
| Share based compensation expenses | ||||||||||||
| Reversal of provision for doubtful allowance | ( | ) | ||||||||||
| Depreciation of property and equipment | ||||||||||||
| Loss from disposal of property and equipment | ||||||||||||
| Amortization of intangible assets | ||||||||||||
| Amortization of right of use assets | ||||||||||||
| Equity investment loss | ||||||||||||
| Changes in assets and liabilities: | ||||||||||||
| Trade receivables | ( | ) | ( | ) | ( | ) | ||||||
| Inventories | ( | ) | ||||||||||
| Prepayments | ( | ) | ||||||||||
| Due from related parties | ||||||||||||
| Other current assets | ( | ) | ( | ) | ||||||||
| Other noncurrent assets | ( | ) | ||||||||||
| Trade payable | ( | ) | ||||||||||
| Unearned income | ||||||||||||
| Income tax payable | ||||||||||||
| Other current liabilities | ( | ) | ( | ) | ||||||||
| Lease liabilities | ( | ) | ( | ) | ||||||||
| Net cash used in operating activities from continuing operations | ( | ) | ( | ) | ( | ) | ||||||
| Net cash provided by (used in) operating activities from discontinued operations | ||||||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ( | ) | ||||||
| Cash Flows from Investing Activities: | ||||||||||||
| Investment in asset acquisition | ( | ) | ||||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ( | ) | ||||||
| Payment of deposits in property and equipment | ( | ) | ( | ) | ||||||||
| Proceeds from disposal of property and equipment | ( | ) | ||||||||||
| Purchases of intangible assets | ( | ) | ||||||||||
| Collection of short-term investments | ( | ) | ||||||||||
| Investment in short-term investments | ( | ) | ||||||||||
| Loans to third parties | ( | ) | ||||||||||
| Collection of loans from a third party | ||||||||||||
| Proceeds from disposal of Elite and its subsidiaries | ||||||||||||
| Cash in connection with discontinued operations | ||||||||||||
| Investments in joint ventures | ( | ) | ( | ) | ||||||||
| Acquisition of a subsidiary, net of cash acquired | ( | ) | ||||||||||
| Net cash used in investing activities from continuing operations | ( | ) | ( | ) | ( | ) | ||||||
| Net cash used in investing activities from discontinued operations | ( | ) | ||||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ( | ) | ||||||
| Cash Flows from Financing Activities: | ||||||||||||
| Cash raised in private placement of ordinary shares | ||||||||||||
| Cash raised in registered direct offering, net of transaction costs | ||||||||||||
| Capital injection from shareholders | ||||||||||||
| Net cash provided by financing activities from continuing operations | ||||||||||||
| Net cash used in financing activities from discontinued operations | ( | ) | ||||||||||
| Net cash provided by financing activities | ||||||||||||
| Effect of exchange rate changes on cash and cash equivalents | ( | ) | ( | ) | ||||||||
| Increase in cash and cash equivalents | ||||||||||||
| Cash and cash equivalents at beginning of year | ||||||||||||
| Cash and cash equivalents at end of year | $ | $ | $ | |||||||||
| Supplemental disclosures of cash flow information: | ||||||||||||
| Interest paid | $ | $ | $ | |||||||||
| Tax paid | $ | $ | $ | |||||||||
| Major non-cash transactions: | ||||||||||||
| Issuance of ordinary shares for professional services | $ | $ | $ | |||||||||
| Issuance of ordinary shares for acquisition of a subsidiary | $ | $ | $ | |||||||||
| Issuance of ordinary shares for earn-out payment | $ | $ | $ | |||||||||
See notes to the consolidated financial statements
F-6
| 1. | ORGANIZATION AND PRINCIPAL ACTIVITIES |
Bit Brother Ltd. (formerly known as Urban Tea, Inc. or Delta Technology Holdings Limited) (“BTB” or the “the Company”) is a holding company that was incorporated on November 28, 2011, under the laws of the British Virgin Islands.
On February 8, 2019, the Company received the stamped Certificate of Change of Name from the British Virgin Islands Registrar of Corporate Affairs dated February 4, 2019 pursuant to which the Company’s name has been changed to “Urban Tea, Inc.” (the “first Name Change”). In addition to the first Name Change, the Company effectuated a change of its ticker symbol from “DELT” to “MYT,” (the “Symbol Change”) on February 14, 2019. As a result of the first Name Change and the Symbol Change, the Company’s CUSIP number changed to G9396G100.
On May 20, 2021, the Company received the stamped Certificate of Change of Name from the British Virgin Islands Registrar of Corporate Affairs dated May 20, 2021 pursuant to which the Company’s name has been changed from “Urban Tea, Inc.” to “Bit Brother Limited.” (the “second Name Change”). In addition to the second Name Change, the Company effectuated a change of its ticker symbol from “MYT” to “BTB,” (the “Symbol Change”) on June 16, 2021. As a result of the second Name Change and the Symbol Change, the Company’s CUSIP number changed to G1144D109.
On May 22, 2018, Delta Technology Holdings Limited establish a U.S. subsidiary named as Delta Technology Holdings USA Inc. Delta Technology Holdings USA Inc issued 20 shares without par value to Delta Technology Holdings Limited. In May 2021, the Delta Technology Holdings USA Inc changed its company name into Bit Brother New York Inc (“BTB NY”).
On
August 28, 2018, the Company formed NTH Holdings Limited (“NTH BVI”), a wholly owned subsidiary, in British Virgin Island
(“BVI”). NTH BVI is authorized to issue a maximum of
On September 11, 2018, NTH BVI formed a wholly owned subsidiary, Tea Language Group Limited (“NTH HK”) in Hong Kong. On October 19, 2018, the Company, through NTH HK, established Mingyuntang (Shanghai) Tea Co. Ltd. (“Shanghai MYT”). On March 22, 2021, the Company, through NTH HK, established Qingdao Ethermainland Digital Technology Co., Ltd. (“BTB Qingdao”).
On November 19, 2018, Shanghai MYT entered into a series of variable interest entity (“VIE”) agreements with Hunan Mingyuntang Brand Management Company (“Hunan MYT”) and its shareholder Peng Fang. The VIE Agreements are designed to provide Shanghai MYT with the power, rights and obligations equivalent in all material respects to those it would possess as the sole equity holder of Hunan MYT, including absolute control rights and the rights to the management, operations, assets, property and revenue of Hunan MYT. The purpose of the VIE Agreements is solely to give Shanghai MYT the exclusive control over Hunan MYT’s management and operations. Hunan MYT commenced the operation in December 2018, which was engaged in specialty tea product distribution and retail business by provision of high-quality tea beverages in its tea shop chain.
On
October 2, 2019, Shanghai MYT entered into a series of variable interest entity agreements (“39Pu VIE Agreements”) with 39Pu
and three shareholders who collectively owned
On April 21, 2021, Bit Brother NY acquired a wholly owned subsidiary, Futureway International Management Limited (“BTB HK”) in Hong Kong. On May 25, 2021, Bit Brother HK formed Hunan Futureway Investment Limitded (“BTB WFOE”), a wholly owned subsidiary in China.
F-7
| 1. | ORGANIZATION AND PRINCIPAL ACTIVITIES (CONTINUED) |
On May 13, 2021, BTB Qingdao entered into a series of variable interest entity agreements (“BTB VIE Agreements”) with Hunan Bit Brother Holding Limited (“BTB Hunan”) and Hunan Bit Brothers Digital Technology Co., Ltd (“BTB Hunan Digital”) and all of their shareholders. The BTB VIE Agreements are designed to provide BTB Qingdao with the power, rights and obligations equivalent in all material respects to those it would possess as the controlling equity holder of both BTB Hunan and BTB Hunan Digital, including absolute control rights and the rights to the management, operations, assets, property and revenue of both BTB Hunan and BTB Hunan Digital. The purpose of the both BTB Hunan and BTB Hunan Digital VIE Agreements is solely to give BTB Qingdao the exclusive control over both BTB Hunan and BTB Hunan Digital’s management and operations.
Both BTB Hunan and BTB Hunan Digital shall conduct the Company’s planned business including but not limited to global cryptocurrency mine distribution, HashRate leasing, global cryptocurrency cross-regional payment and settlement system, cryptocurrency mining pool building and running, cryptocurrency deposit and loan, non-homogeneous tokens, and cryptocurrency exchange services. Both BTB Hunan and BTB Hunan Digital shall begin applying for the required licenses and certifications in different countries and regions.
The accompanying consolidated financial statements reflect the activities of Hunan Mingyuntang, 39Pu and each of the following holding entities:
| Name | Background | Ownership | |||
| Delta Technology Holdings USA Inc. (“Urban Tea USA”) |
● ● ● |
Incorporated on May 22, 2018 A holding company |
|||
| NTH BVI | ● ● ● |
Incorporated on August 28, 2018 A holding company |
|||
| BTB HK | ● ● ● |
Incorporated on July 10, 2020 A holding company |
|||
| NTH HK | ● ● ● |
Incorporated on September 11, 2018 A holding company |
|||
| BTB WFOE | ● ● ● ● |
Incorporated on May 25, 2021 Registered capital of $800 million A holding company |
|||
| Shanghai MYT | ● ● ● ● |
Incorporated on October 19 Registered capital of $1 million A holding company |
|||
| Qingdao BTB | ● ● ● ● |
Incorporated on March 22, 2021 Registered capital of $800 million A holding company |
|||
| BTB Hunan | ● ● ● ● |
Incorporated on May 13, 2021 Registered capital of $7,749,761 (RMB 50 million) Engaged in specialty blockchain business |
|||
| BTB Digital Hunan | ● ● ● ● |
Incorporated on May 20, 2021 Registered capital of $7,768,450 (RMB 50 million) Engaged in specialty blockchain business |
|||
F-8
| 1. | ORGANIZATION AND PRINCIPAL ACTIVITIES (CONTINUED) |
| Hunan MYT | ● ● ● ● |
Incorporated on October 17, 2018 Registered capital of $4,330,590 (RMB 30 million) Engaged in specialty tea product distribution and retail business by provision of high-quality tea beverages in its tea shop chain |
|||
| 39Pu | ● ● ● ● |
Incorporated on April 14, 2011 Registered capital of $3,522,424 (RMB 20.9 million) with registered capital fully paid-up Engaged in dark tea distribution |
DISPOSAL OF ELITE
On
February 9, 2019, the Company, Elite Ride Limited (“Elite”), the Company’s wholly owned subsidiary, and HG Capital
Group Limited, a private limited company duly organized under the laws of Hong Kong (the “Purchaser”) entered into certain
Share Purchase Agreement (the “Purchase Agreement”). Pursuant to the Purchase Agreement, the Purchaser agreed to purchase
Elite in exchange for a cash purchase price of $
Elite,
via its
On
March 29, 2019, the shareholders of the Company approved and adopted the SPA and related transactions providing for the disposal by the
Company of
On
April 13, 2019, the Company received the $
F-9
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
| (a) | Basis of presentation and principle of consolidation |
| (b) | Consolidation of Variable Interest Entity |
Material terms of the Hunan MYT VIE Agreements and 39Pu VIE Agreements are described below:
Exclusive Business Cooperation Agreement
Pursuant to the Exclusive Business Cooperation Agreements, Shanghai MYT and 39Pu each provides Hunan MYT with technical support, consulting services and management services on an exclusive basis, utilizing its advantages in technology, human resources, and information. Additionally, Hunan MYT and 39Pu each granted an irrevocable and exclusive option to Shanghai MYT to purchase from each of Hunan MYT and 39Pu, any or all of Hunan MYT’s and 39Pu assets at the lowest purchase price permitted under the PRC laws. Should Shanghai MYT exercise such option, the parties shall enter into a separate asset transfer or similar agreement. For services rendered to Hunan MYT and 39Pu by Shanghai MYT under the agreement, Shanghai MYT is entitled to collect a service fee calculated based on the time of services rendered multiplied by the corresponding rate, plus amount of the services fees or ratio decided by the board of directors of Shanghai MYT based on the value of services rendered by Shanghai MYT and the actual income of Hunan MYT and 39Pu from time to time, which is substantially equal to all of the net income of Hunan MYT and 51% of net income of 39Pu, respectively.
The Exclusive Business Cooperation Agreement shall remain in effect for ten years unless it is terminated by Shanghai MYT with 30-day prior written notice. Hunan MYT or 39Pu does not have the right to terminate the agreement unilaterally. Shanghai MYT may unilaterally extend the term of this agreement with prior written notice.
Exclusive Option Agreement
Under the Exclusive Option Agreement between Peng Fang and Shanghai MYT, irrevocably granted Shanghai MYT (or its designee) an exclusive option to purchase, to the extent permitted under PRC law, once or at multiple times, at any time, part or all of their equity interests in Hunan MYT. The option price is equal to the capital paid in by Peng Fang subject to any appraisal or restrictions required by applicable PRC laws and regulations.
Under the Exclusive Option Agreement between three shareholders of 39Pu and Shanghai MYT, the three shareholders irrevocably granted Shanghai MYT (or its designee) an exclusive option to purchase, to the extent permitted under PRC law, once or at multiple times, at any time, part or all of their equity interests in 39Pu. The option price is equal to the capital paid in by the three shareholders subject to any appraisal or restrictions required by applicable PRC laws and regulations.
The agreement remains effective for a term of ten years and may be renewed at Shanghai MYT’s election.
Share Pledge Agreement
Under the Share Pledge Agreement, Peng Fang and the three shareholders of 39Pu each pledged all of their equity interests in Hunan MYT and 39Pu to Shanghai MYT to guarantee the performance of Hunan MYT’s and 39Pu’s obligations under the Exclusive Business Cooperation Agreement. Under the terms of the agreement, in any event of default, as set forth in the Share Pledge Agreement, including that Hunan MYT or Peng Fang, 39Pu or the three shareholders breach their respective contractual obligations under the Exclusive Business Cooperation Agreement, Shanghai MYT, as pledgee, will be entitled to certain rights, including, but not limited to, the right to dispose of the pledged equity interest in accordance with applicable PRC laws. Shanghai MYT shall have the right to collect any and all dividends declared or generated in connection with the equity interest during the term of pledge.
The Share Pledge Agreement shall be effective until all payments due under the Exclusive Business Cooperation Agreement have been paid by Hunan MYT and 39Pu, respectively. Shanghai MYT shall cancel or terminate the Share Pledge Agreement upon Hunan MYT’s and 39Pu’s full payment of fees payable under the Exclusive Business Cooperation Agreement.
F-10
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
| (b) | Consolidation of Variable Interest Entity (continued) |
Timely Reporting Agreement
To ensure Hunan MYT and 39Pu promptly provide all of the information that Shanghai MYT and the Company need to file various reports with the SEC, a Timely Reporting Agreement was entered between Shanghai MYT, and Hunan MYT and 39Pu, respectively. Under the Timely Reporting Agreement, Hunan MYT and 39Pu each agreed that it is obligated to make its officers and directors available to the Company and promptly provide all information required by the Company so that the Company can file all necessary SEC and other regulatory reports as required.
Although it is not explicitly stipulated in the Timely Reporting Agreement, the parties agreed its term shall be the same as that of the Exclusive Business Cooperation Agreement.
Power of Attorney
Under the Power of Attorney, Peng Fang and the three shareholders of 39Pu each authorized Shanghai MYT to act on her behalf as her exclusive agent and attorney with respect to all rights as shareholder, including but not limited to: (a) attending shareholders’ meetings; (b) exercising all the shareholder’s rights, including voting, that shareholders are entitled to under the laws of China and the Articles of Association of Hunan MYT and 39Pu, including but not limited to the sale or transfer or pledge or disposition of shares in part or in whole; and (c) designating and appointing on behalf of shareholders the legal representative, the executive director, supervisor, the chief executive officer and other senior management members of Hunan MYT and 39Pu.
Although it is not explicitly stipulated in the Power of Attorney, the term of the Power of Attorney shall be the same as the term of that of the Exclusive Option Agreement.
This Power of Attorney is coupled with an interest and shall be irrevocable and continuously valid from the date of execution of this Power of Attorney, so long as Peng Fang is a shareholder of Company.
The VIE Agreements became effective immediately upon their execution.
Material terms of the BTB VIE Agreements among BTB Qingdao, BTB Hunan, BTB Hunan Digital and their shareholders are identical to those of Hunan MYT VIE Agreements.
VIE is an entity that have either a total equity investment that is insufficient to permit the entity to finance its activities without additional subordinated financial support, or whose equity investors lack the characteristics of a controlling financial interest, such as through voting rights, right to receive the expected residual returns of the entity or obligation to absorb the expected losses of the entity. The variable interest holder, if any, that has a controlling financial interest in a VIE is deemed to be the primary beneficiary and must consolidate the VIE. Shanghai MYT is deemed to have a controlling financial interest and be the primary beneficiary of Hunan MYT and 39Pu, because it has both of the following characteristics:
| 1. | power to direct activities of a VIE that most significantly impact the entity’s economic performance, and |
| 2. | obligation to absorb losses of the entity that could potentially be significant to the VIE or right to receive benefits from the entity that could potentially be significant to the VIE. |
Pursuant
to the VIE Agreements, Hunan MYT and 39Pu pay service fees equal to
In addition, as all of these VIE agreements are governed by PRC law and provide for the resolution of disputes through arbitration in the PRC, they would be interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures. The legal environment in the PRC is not as developed as in other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could further limit the Company’s ability to enforce these VIE agreements. Furthermore, these contracts may not be enforceable in China if PRC government authorities or courts take a view that such contracts contravene PRC laws and regulations or are otherwise not enforceable for public policy reasons. In the event the Company is unable to enforce these VIE agreements, it may not be able to exert effective control over Hunan MYT or 39Pu and its ability to conduct its business may be materially and adversely affected.
F-11
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
| (b) | Consolidation of Variable Interest Entity (continued) |
All of the Company’s main current operations are conducted through Hunan MYT since November 2018, and through 39Pu since October 2019. Current regulations in China permit Hunan MYT and 39Pu to pay dividends to the Company only out of their accumulated distributable profits, if any, determined in accordance with their articles of association and PRC accounting standards and regulations. The ability of Hunan MYT and 39Pu to make dividends and other payments to the Company may be restricted by factors including changes in applicable foreign exchange and other laws and regulations. All of the Company’s main current operations are conducted through Hunan MYT since November 2018, and through 39Pu since October 2019. Current regulations in China permit Hunan MYT and 39Pu to pay dividends to the Company only out of their accumulated distributable profits, if any, determined in accordance with their articles of association and PRC accounting standards and regulations. The ability of Hunan MYT and 39Pu to make dividends and other payments to the Company may be restricted by factors including changes in applicable foreign exchange and other laws and regulations.
The following financial statement balances and amounts only reflect the financial position and financial performances of the Company’s four VIEs, which were included in the consolidated financial statements as of and for the years ended June 30, 2021 and 2020:
| June 30, 2021 | June 30, 2020 | |||||||
| ASSETS | ||||||||
| Cash | $ | $ | ||||||
| Short-term investments | ||||||||
| Inventories | ||||||||
| Loan due from a third party | ||||||||
| Other current assets | ||||||||
| Property and equipment, net | ||||||||
| Deposits for plant, property and equipment | ||||||||
| Right of use assets | ||||||||
| Other noncurrent assets | ||||||||
| Total Assets | $ | $ | ||||||
| Due to BTB* | $ | $ | ||||||
| Other current liabilities | ||||||||
| Total Liabilities | $ | $ | ||||||
| * |
| For the Years Ended June 30, | ||||||||||||
| 2021 | 2020 | 2019 | ||||||||||
| Revenue | $ | $ | $ | |||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ||||||
| (c) | Use of estimates |
| (d) | Segment reporting |
In accordance with ASC 280, Segment Reporting, operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”), or decision making group, in deciding how to allocate resources and in assessing performance. 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. Management, including the chief operating decision maker, reviews operation results by the revenue of different services.
F-12
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
| (d) | Segment reporting (continued) |
For the year ended June 30, 2021, the Company has three operating business lines, including retail business by provision of high-quality tea beverages in its tea shop chain business conducted by Hunan MYT, dark tea distribution business by 39Pu and planned blockchain business to be conducted by Hunan BTB. Based on management’s assessment, the Company has determined that the three operating business lines are three operating segments as defined by ASC 280.
For the year ended June 30, 2020, the Company has two operating business lines, including retail business by provision of high-quality tea beverages in its tea shop chain business conducted by Hunan MYT, dark tea distribution business by 39Pu. Based on management’s assessment, the Company has determined that the two operating business lines are two operating segments as defined by ASC 280.
| (e) | Foreign currency translation |
The Company’s financial statements are presented in the U.S. dollar (US$), which is the Company’s reporting currency and functional currency. The Company’s subsidiaries in the PRC use Renminbi (“RMB”) as their functional currencies. Transactions in foreign currencies are initially recorded at the functional currency rate ruling at the date of transaction. Any differences between the initially recorded amount and the settlement amount are recorded as a gain or loss on foreign currency transaction in the consolidated statements of income. Monetary assets and liabilities denominated in foreign currency are translated at the functional currency rate of exchange ruling at the balance sheet date. Any differences are taken to profit or loss as a gain or loss on foreign currency translation in the statements of income.
In accordance with ASC 830, Foreign Currency Matters, the Company translated the assets and liabilities into U.S. dollar using the rate of exchange prevailing at the applicable balance sheet date and the statements of income and cash flows are translated at an average rate during the reporting period. Adjustments resulting from the translation are recorded in shareholders’ equity as part of accumulated other comprehensive income.
| (f) | Fair value measurement |
The Company has adopted ASC Topic 820, Fair Value Measurement and Disclosure, which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. It does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. It establishes a three-level valuation hierarchy of valuation techniques based on observable and unobservable inputs, which may be used to measure fair value and include the following:
| Level 1 | – | Quoted prices in active markets for identical assets or liabilities. |
| Level 2 | – | Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
| Level 3 | – | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
Classification within the hierarchy is determined based on the lowest level of input that is significant to the fair value measurement. As of June 30, 2021 and 2020, the carrying value of financial items of the Company including cash and cash equivalents, trade receivables, loan due from third parties, due from a related party, other receivables, trade payables and other payables approximate their fair values due to their short-term nature and are classified within Level 1 of the fair value hierarchy.
Short-term investments are held to their maturities and are carried at cost, which approximates fair value.
The inputs used to measure the estimated fair value of warrants are classified as Level 3 fair value measurement due to the significance of unobservable inputs using company-specific information. The valuation methodology used to estimate the fair value of warrant liabilities is discussed in Note 14.
F-13
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
| (f) | Fair value measurement (continued) |
As
of June 30, 2021, the Company’s warrant liabilities were comprised of private placement warrants relating to a private placement
closed on November 21, 2017 (“private placement warrants”), and the warrants issued to the agent for the registered direct
offering on May 24, 2019 (“placement agent warrants”) (Note 14), at the fair value of $
| (g) | Cash and cash equivalents |
Cash and cash equivalents consist of bank deposits with original maturities of three months or less, which are unrestricted as to withdrawal and use the Company maintained accounts at banks.
| (h) | Short-term investments |
Short-term investments consist primarily of investments in financial products with variable return rate and maturities between three months and one year. Short-term investments are held to their maturities and are carried at cost, which approximates fair value.
| (i) | Trade receivables |
Trade receivables are recorded at the invoiced amount and do not bear interest. The Company extends unsecured credit to its customers in the ordinary course of business but mitigates the associated risks by performing credit checks and actively pursuing past due accounts. An allowance for doubtful accounts is established and recorded based on management’s assessment of potential losses based on the credit history and relationships with the customers. Management reviews its receivables on a regular basis to determine if 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.
The Company considered the amounts of receivables in dispute and believes an allowance for these receivables were not necessary as at June 30, 2021 and 2020.
| (j) | Inventories |
| (k) | Property and equipment |
Property,
plant and equipment are recorded at cost. The cost of an item of property and equipment initially recognized includes its purchase price
and any cost that is directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating
the manner intended by management. Significant additions or improvements extending useful lives of assets are capitalized. Maintenance
and repairs are charged to expense as incurred. Depreciation is computed using the straight-line method with residual value rate of
| Electronic equipment | ||
| Office equipment | ||
| Vehicles | ||
| Leasehold improvements |
The Company reviews property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
F-14
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
| (k) | Property and equipment (continued) |
Costs of repairs and maintenance are expensed as incurred and asset improvements are capitalized. The cost and related accumulated depreciation of assets disposed of or retired are removed from the accounts, and any resulting gain or loss is reflected in the consolidated statements of operations.
| (l) | Intangible assets |
Purchased
intangible assets are recognized and measured at fair value upon acquisition. Separately identifiable intangible assets that have determinable
lives continue to be amortized over their estimated useful lives using the straight-line method with residual value rate of
| Trademark |
The Company reviews intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
| (m) | Impairment of long-lived assets |
The Company reviews long-lived assets for impairment annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Long-lived assets are reviewed for recoverability at the lowest level in which there are identifiable cash flows, usually at the store level. The carrying amount of a long-lived asset is not considered recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use of the asset. If the asset is determined not to be recoverable, then it is considered to be impaired and the impairment to be recognized is the amount by which the carrying amount of the asset exceeds the fair value of the asset, determined using discounted cash flow valuation techniques, as defined in ASC 360, Property, Plant, and Equipment.
The Company determined the sum of the undiscounted cash flows expected to result from the use of the asset by projecting future revenue and operating expense for each store under consideration for impairment. The estimates of future cash flows involve management judgment and are based upon assumptions about expected future operating performance. The actual cash flows could differ from management’s estimates due to changes in business conditions, operating performance and economic conditions. The Company’s evaluation resulted in no long-lived asset impairment charges during the years ended June 30, 2021, 2020 and 2019.
| (n) | Investments in equity investees |
| (o) | Revenue recognition |
The Company adopted ASC 606, Revenue from Contracts with Customers (“ASC 606”) beginning on July 1, 2018 using the modified retrospective approach. ASC 606 establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied.
The Company has assessed the impact of the guidance by reviewing its existing customer contracts and current accounting policies and practices to identify differences that will result from applying the new requirements, including the evaluation of its performance obligations, transaction price, customer payments, transfer of control and principal versus agent considerations. Based on the assessment, the Company concluded that there was no change to the timing and pattern of revenue recognition for its current revenue streams in scope of ASC 606 and therefore there was no material changes to the Company’s consolidated financial statements upon adoption of ASC 606.
F-15
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
| (o) | Revenue recognition (continued) |
In according with ASC 606, revenues are recognized when control of the promised services is transferred to customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those services.
The Company generated revenues primarily from sales of tea products, beverages and light meals in its tea shop chains by Hunan MYT which commenced in November 2018, and from sales of dark tea products by 39Pu which commenced in October 2019.
Sales of tea products, beverages and light meals in retail shop chains by Hunan MYT
Customers place order and pay for tea products, beverage drinks and light meals in the Company’s tea shop chains. Revenues are recognized at the point of delivery to customers. Customers that purchase prepaid cards are issued additional points for free at the time of purchase. Cash received from the sales of prepaid vouchers are recognized as unearned income. Consideration collected for prepaid cards is equally allocated to each point as an element, including the points issued for free, to determine the transaction price for each point. The allocated transaction price are recognized as revenues upon the redemption of the points for purchases.
Sales of dark tea products by 39Pu
The Company identifies a single performance obligation from contracts. The Company recognizes revenues on a gross basis as the Company is acting as a principal in these transactions and is responsible for fulfilling the promise to provide the specified goods, subject to inventory risks and has the discretion in establishing prices. The transaction fees are fixed. Payments received in advance from customers are recorded as “advance from customers” in the consolidated balance sheets. Advance from customers is recognized as revenue when the Company delivers the courses to its customers. Such advance payment received are non-refundable. In cases where fees are collected after the sales, revenue and accounts receivable are recognized upon delivery of products to the Company.
Disaggregation of revenue
The Company disaggregates its revenue from contracts by segments, as the Company believes it best depicts how the nature, amount, timing and uncertainty of the revenue and cash flows are affected by economic factors. The Company’s disaggregation of revenues for the years ended June 30, 2021, 2020 and 2019 is as follows:
| For the Years Ended June 30, | ||||||||||||
| 2021 | 2020 | 2019 | ||||||||||
| Sales of tea products, beverages and light meals in retail shop chains | $ | $ | $ | |||||||||
| Sales of dark tea products | ||||||||||||
| $ | $ | $ | ||||||||||
| (p) | Income taxes |
The Company accounts for income taxes in accordance with the U.S. GAAP for income taxes. Under the asset and liability method as required by this accounting standard, the recognition of deferred income tax liabilities and assets for the expected future tax consequences of temporary differences between the income tax basis and financial reporting basis of assets and liabilities. Provision for income taxes consists of taxes currently due plus deferred taxes.
The charge for taxation is based on the results for the 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 tax is accounted for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis. Deferred tax assets are recognized to the extent that it is probable that taxable income to be utilized with prior net operating loss carried forward. 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. 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.
F-16
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
| (p) | Income taxes (continued) |
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
| (q) | Income (loss) per share |
| (r) | Comprehensive income (loss) |
Comprehensive income (loss) includes net income (loss) and other comprehensive foreign currency adjustments income. Comprehensive income (loss) is reported in the consolidated statements of operations and comprehensive income (loss).
Accumulated other comprehensive (loss) income, as presented on the consolidated balance sheets are the cumulative foreign currency translation adjustments.
| (s) | Commitments and contingencies |
In the normal course of business, the Company is subject to loss contingencies, such as legal proceedings and claims arising out of its business, that cover a wide range of matters, including, among others, government investigations and tax matters. In accordance with ASC No. 450 Subtopic 20, “Loss Contingencies”, the Company records accruals for such loss contingencies when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated.
| (t) | Share-based payments |
Share-based awards granted to the Company’s employees and non-employees are measured at fair value on grant date and measurement date, respectively, and share-based compensation expense is recognized (i) immediately at the grant date if no vesting conditions are required, or (ii) using the accelerated attribution method, net of estimated forfeitures, over the requisite service period. The fair value of restricted shares is determined with reference to the fair value of the underlying shares.
At each date of measurement, the Company reviews internal and external sources of information to assist in the estimation of various attributes to determine the fair value of the share-based awards granted by the Company, including but not limited to the fair value of the equity value of the Company, expected life, expected volatility and expected forfeiture rates. The Company is required to consider many factors and make certain assumptions during this assessment. If any of the assumptions used to determine the fair value of the share-based awards changes significantly, share-based compensation expense may differ materially in the future from that recorded in the current reporting period. Moreover, the estimates of fair value of the awards are not intended to predict actual future events or the value that ultimately will be realized by grantees who receive share-based awards, and subsequent events are not indicative of the reasonableness of the original estimates of fair value made by the Company for accounting purposes.
| (u) | Leases |
The Company adopted ASU 2016-02, Leases (Topic 842), on July 1, 2019, using a modified retrospective approach reflecting the application of the standard to leases existing at, or entered into after, the beginning of the earliest comparative period presented in the consolidated financial statements.
F-17
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
| (u) | Leases (continued) |
The Company leases its offices which are classified as operating leases in accordance with Topic 842. Under Topic 842, lessees are required to recognize the following for all leases (with the exception of short-term leases) on the commencement date: (i) lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (ii) right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.
At the commencement date, the Company recognizes the lease liability at the present value of the lease payments not yet paid, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate for the same term as the underlying lease. The right-of-use asset is recognized initially at cost, which primarily comprises the initial amount of the lease liability, plus any initial direct costs incurred, consisting mainly of brokerage commissions, less any lease incentives received. All right-of-use assets are reviewed for impairment. No impairment for right-of-use lease assets as of June 30, 2021.
| (v) | Discontinued operation |
In accordance with ASU No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, a disposal of a component of an entity or a group of components of an entity is required to be reported as discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results when the components of an entity meets the criteria in paragraph 205-20-45-1E to be classified as held for sale. When all of the criteria to be classified as held for sale are met, including management, having the authority to approve the action, commits to a plan to sell the entity, the major current assets, other assets, current liabilities, and noncurrent liabilities shall be reported as components of total assets and liabilities separate from those balances of the continuing operations. At the same time, the results of all discontinued operations, less applicable income taxes (benefit), shall be reported as components of net income (loss) separate from the net income (loss) of continuing operations in accordance with ASC 205-20-45.
The Company disposed of its manufacturing and sales of organic compounds segment in April 2019, which met all the conditions required in order to be classified as a discontinued operation (Note 1). Accordingly, the operating results of the manufacturing and sales of organic compounds segment are reported as a gain from discontinued operations in the accompanying consolidated financial statements for all periods presented. For additional information, see Note 4, “Disposal of ELITE”.
| (w) | Asset acquisition |
The Company measures and recognizes asset acquisitions that are not deemed to be business combinations based on the cost to acquire the assets, which includes transaction costs. Goodwill is not recognized in asset acquisitions. In an asset acquisition, the cost allocated to transfer costs of ownership of tea shops is charged to general and administrative expenses at the acquisition date.
| (x) | Business combination |
The Company accounted for its business combination using the acquisition method of accounting in accordance with ASC 805 “Business Combinations”. The cost of an acquisition is measured as the aggregate of the acquisition date fair values of the assets transferred and liabilities incurred by the Company to the sellers and equity instruments issued. Transaction costs directly attributable to the acquisition are expensed as incurred. Identifiable assets and liabilities acquired or assumed are measured separately at their fair values as of the acquisition date, irrespective of the extent of any non-controlling interests. The excess of (i) the total costs of acquisition, fair value of the non-controlling interests and acquisition date fair value of any previously held equity interest in the acquiree over (ii) the fair value of the identifiable net assets of the acquiree is recorded as goodwill.
F-18
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
| (y) | Goodwill |
Goodwill represents the excess of the purchase consideration over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed of the acquired entity or business as a result of the Company’s acquisitions of interests in its subsidiary. Goodwill is not amortized but is tested for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that it might be impaired. The Company first assesses qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. In the qualitative assessment, the Company considers primary factors such as industry and market considerations, overall financial performance of the reporting unit, and other specific information related to the operations. Based on the qualitative assessment, if it is more likely than not that the fair value of each reporting unit is less than the carrying amount, the quantitative impairment test is performed.
In performing the two-step quantitative impairment test, the first step compares the fair values of each reporting unit to its carrying amount, including goodwill. If the fair value of each reporting unit exceeds its carrying amount, goodwill is not considered to be impaired and the second step will not be required. If the carrying amount of a reporting unit exceeds its fair value, the second step compares the implied fair value of goodwill to the carrying value of a reporting unit’s goodwill. The implied fair value of goodwill is determined in a manner similar to accounting for a business combination with the allocation of the assessed fair value determined in the first step to the assets and liabilities of the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to the assets and liabilities is the implied fair value of goodwill. This allocation process is only performed for the purposes of evaluating goodwill impairment and does not result in an entry to adjust the value of any assets or liabilities. Application of a goodwill impairment test requires significant management judgment, including the identification of reporting units, assigning assets, liabilities and goodwill to reporting units, and determining the fair value of each reporting unit.
For the years ended June 30, 2021, 2020 and 2019, the Company did not provide impairment charge against goodwill.
| (z) | Non-controlling interest |
Non-controlling interests represent the equity interests in the subsidiaries that are not attributable, either directly or indirectly, to the Company.
| (aa) | Recently announced accounting standards |
In June 2016, the FASB issued ASU No. 2016-13, “Measurement of Credit Losses on Financial Instruments (Topic 326)”, which significantly changes the way entities recognize impairment of many financial assets by requiring immediate recognition of estimated credit losses expected to occur over their remaining life, instead of when incurred. In November 2018, the FASB issued ASU No. 2018-19, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses”, which amends Subtopic 326-20 (created by ASU No.2016-13) to explicitly state that operating lease receivables are not in the scope of Subtopic 326-20. Additionally, in April 2019, the FASB issued ASU No.2019-04, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments”, in May 2019, the FASB issued ASU No. 2019-05, “Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief”, and in November 2019, the FASB issued ASU No. 2019-10, “Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates”, and ASU No. 2019-11, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses”, to provide further clarifications on certain aspects of ASU No. 2016-13 and to extend the nonpublic entity effective date of ASU No. 2016-13. The changes (as amended) are effective for the Company for annual and interim periods in fiscal years beginning after December 15, 2022, and the Company is in the process of evaluating the potential effect on its consolidated financial statements.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes. The Board is issuing this Update as part of its initiative to reduce complexity in accounting standards (the Simplification Initiative). The objective of the Simplification Initiative is to identify, evaluate, and improve areas of GAAP for which cost and complexity can be reduced while maintaining or improving the usefulness of the information provided to users of financial statements. The specific areas of potential simplification in this Update were submitted by stakeholders as part of the Simplification Initiative. For public business entities, the amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company expects that the adoption of this ASU will not have a material impact on its financial statements.
The Company believes that other recent accounting pronouncement updates will not have a material effect on the Company’s financial statements.
F-19
| 3. | RISKS |
| (a) | Credit risk |
Assets
that potentially subject the Company to significant concentration of credit risk primarily consist of cash and cash equivalents. The
maximum exposure of such assets to credit risk is their carrying amount as at the balance sheet dates. As of June 30, 2021, approximately
$
The Company’s operations are carried out in Mainland China. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC as well as by the general state of the PRC’s economy. In addition, the Company’s business may be influenced by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, rates and methods of taxation, and the extraction of mining resources, among other factors.
| (b) | Liquidity risk |
The Company is also exposed to liquidity risk which is risk that it is unable to provide sufficient capital resources and liquidity to meet its commitments and business needs. Liquidity risk is controlled by the application of financial position analysis and monitoring procedures. When necessary, the Company will turn to other financial institutions and the owners to obtain short-term funding to meet the liquidity shortage.
| (c) | Foreign currency risk |
Substantially
all of the Company’s operating activities and the Company’s major assets and liabilities are denominated in RMB, except for
the cash deposit of approximately $
| (d) | VIE risk |
It is possible that the Hunan MYT VIE Agreements and 39Pu VIE Agreements would not be enforceable in China if PRC government authorities or courts were to find that such contracts contravene PRC laws and regulations or are otherwise not enforceable for public policy reasons. In the event that the Company were unable to enforce these contractual arrangements, the Company would not be able to exert effective control over the VIE. Consequently, the VIE’s results of operations, assets and liabilities would not be included in the Company’s consolidated financial statements. If such were the case, the Company’s cash flows, financial position, and operating performance would be materially adversely affected. The Company’s contractual arrangements among Shanghai MYT, Hunan MYT and the Hunan MYT Shareholders, and among Shanghai MYT, 39Pu and the three shareholders of 39Pu are approved and in place. Management believes that such contracts are enforceable, and considers the possibility remote that PRC regulatory authorities with jurisdiction over the Company’s operations and contractual relationships would find the contracts to be unenforceable.
The Company’s operations and businesses rely on the operations and businesses of Hunan MYT and 39Pu, the VIEs of the Company, each of which holds certain recognized revenue-producing assets including tea beverage related raw materials, lease arrangements, and dark tea products. The VIEs also have an assembled workforce, focused primarily on promotion and marketing, whose costs are expensed as incurred. The Company’s operations and businesses may be adversely impacted if the Company loses the ability to use and enjoy assets held by its VIEs.
| (e) | Other risk |
The Company’s business, financial condition and results of operations may also be negatively impacted by risks related to natural disasters, extreme weather conditions, health epidemics and other catastrophic incidents, such as the COVID-19 outbreak and spread, which could significantly disrupt the Company’s operations.
F-20
| 4. | DISPOSAL OF ELITE |
On
February 9, 2019, the Company, Elite and HG Capital Group Limited entered into certain Share Purchase Agreement (the “Purchase
Agreement”). Pursuant to the Purchase Agreement, the Purchaser agreed to purchase Elite in exchange of cash purchase price of $
In
accordance with ASC 205-20-45, Elite met the criteria as a discontinued operation. As of April 13, 2019, the assets relevant to the sale
of Elite with a carrying value of $
The following is a reconciliation of the amounts of major classes of income from operations classified as discontinued operations in the consolidated statements of operations and comprehensive loss for the years ended June 30, 2021, 2020 and 2019:
| For the Years Ended June 30, | ||||||||||||
| 2021 | 2020 | 2019 | ||||||||||
| Discontinued Operations: | ||||||||||||
| Revenue | $ | $ | $ | |||||||||
| Cost of revenues | ( | ) | ||||||||||
| Selling expenses | ( | ) | ||||||||||
| General and administrative expenses | ( | ) | ||||||||||
| Allowance for doubtful accounts and obsolescence stock | ( | ) | ||||||||||
| Other expenses, net | ( | ) | ||||||||||
| Income tax benefits | ||||||||||||
| Net gain from discontinued operations | ||||||||||||
| Net income (loss) from discontinued operations | $ | $ | $ | |||||||||
| 5. | ASSET ACQUISITION |
In
November 2018 and January 2019, Hunan MYT entered into one Asset Purchase Agreement with Your Ladyship Tea Beverage Co., Ltd. (“Your
Ladyship Tea”) to acquire assets, including inventories, property and equipment, tea shop rental contracts, related to three tea
shops, respectively. The total cash consideration was $
In allocating the purchase price, the Company recorded all assets acquired and liabilities assumed at fair value. As the acquisition did not meet the definition of a business combination under FASB ASC Topic 805, Business Combinations, the Company accounted for the transaction as an asset acquisition. In an asset acquisition, goodwill is not recognized, but rather any excess consideration transferred over the fair value of the net assets acquired is allocated on a relative fair value basis to the identifiable net assets.
The Company determined the estimated fair values using Level 3 inputs after review and consideration of relevant information, including quoted market prices and estimates made by management. The inventory was valued using the comparative sales method and the property and equipment and rental contracts were valued using the cost approach. Based on the fair value analysis of the net assets acquired, the fair value of assets acquired are as follows:
| Fair value | ||||
| Inventories | $ | |||
| Property and equipment, net | ||||
| Teashop rental contracts | ||||
| Transfer costs* | ||||
| $ | ||||
| * | the transfer cost was charged to expenses at the acquisition date. |
F-21
| 6. | ACQUISITION OF 39PU |
On
October 2, 2019,
As of December 31, 2020, 39Pu’s met financial performance requirement for the 12 months from January 1, 2020 through December 31, 2020, accordingly for the three months ended December 31, 2019 not reaching the earn-out payment condition. In addition, due to the effects of COVID-19, the financial performance of 39Pu for the year ended June 30, 2020 did not meet the earn-out payment condition.
The
acquisition had been accounted for as a business combination and the results of operations of 39Pu have been included in the Company’s
consolidated financial statements from the acquisition date. The Company made estimates and judgments in determining the fair value of
acquired assets and liabilities, based on an independent preliminary valuation report and management’s experiences with similar
assets and liabilities. The following table summarizes the estimated fair values for major classes of assets acquired and liabilities
assumed at the date of acquisition, using the exchange rate of
| Fair value | ||||
| ASSETS | ||||
| Net tangible assets | $ | |||
| Goodwill | ||||
| Foreign exchange adjustments | ||||
| Less: Noncontrolling interests | ( | ) | ||
| Total purchase consideration | $ | |||
| Including: initial investment | ||||
| earn-out payment | ||||
The following is a reconciliation of the fair value of major classes of assets acquired and liabilities assumed which comprised of net tangible assets on October 2, 2019.
| Fair value | ||||
| Carrying amounts of major classes of acquired assets | ||||
| Cash | $ | |||
| Short-term investments | ||||
| Inventories | ||||
| Property and equipment, net | ||||
| Other assets | ||||
| Total assets | ||||
| Less: total liabilities | ( | ) | ||
| Net tangible assets | $ | |||
The
amount of operating income and net loss that resulted from the acquisition and included in the consolidated statements of operations
and comprehensive income (loss) during the year ended June 30, 2020 were $
The accounting literature establishes guidelines regarding the presentation of this unaudited pro forma information. Therefore, this unaudited pro forma information is not intended to represent, nor does the Company believe it is indicative of, the consolidated results of operations of the Company that would have been reported had the acquisition been completed as of July 1, 2019. Furthermore, this unaudited pro forma information does not give effect to the anticipated business and tax synergies of the acquisition and is not representative or indicative of the anticipated future consolidated results of operations of the Company.
F-22
| 6. | ACQUISITION OF 39PU (CONTINUED) |
The unaudited pro forma consolidated financial information reflects the historical results of the 39Pu, adjusted to reflect the acquisition had it been completed as of July 1, 2019. The most significant pro forma adjustments to the historical results of operations relate to the application of purchase accounting for the acquisition. The unaudited pro forma financial information includes various assumptions, including those related to the finalization of the purchase price allocation.
UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENTS
For the Year Ended June 30, 2020
| Urban Tea | 39Pu | Pro Forma Financial Data | ||||||||||
| Revenue | $ | $ | $ | |||||||||
| Cost of revenues | ( | ) | ( | ) | ( | ) | ||||||
| Gross profit | ||||||||||||
| Total operating expenses | ( | ) | ( | ) | ( | ) | ||||||
| Total other income, net | ||||||||||||
| Net loss before income taxes | ( | ) | ( | ) | ||||||||
| Income tax expenses | ||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||
| Less: Net loss attributable to non-controlling interests | ||||||||||||
| Net (loss) income attributable to BIT BROTHER LTD (fka URBAN TEA, INC.)’s Shareholders | $ | ( | ) | $ | $ | ( | ) | |||||
| (Loss) income per share- basic and diluted | $ | ( | ) | $ | $ | ( | ) | |||||
| Weighted Average Shares Outstanding-Basic and Diluted |
| * | No pro forma adjustments were noted during the period. |
| 7. | SHORT-TERM INVESTMENTS |
As of June 30, 2021 and 2020, the balance of short-term investments was comprised of investments of various financial products from Chinese banks and financial institutions, with variable return rate and with maturities between three months and one year. The Company classified these financial assets as held-to-maturity financial assets and recorded the assets at amortized cost, which approximates fair value. As of June 30, 2021 and 2020, the Company did not provide OTTI on short-term investments.
F-23
| 8. | INVENTORIES |
Inventories consisted of the following:
| June 30, 2021 | June 30, 2020 | |||||||
| Merchant products | $ | $ | ||||||
| Raw materials | ||||||||
| Packaging and other supplies | ||||||||
| Other products | ||||||||
| Less: inventory write-down | ||||||||
| $ | $ | |||||||
| 9. | LOANS DUE FROM THIRD PARTIES |
As of June 30, 2021 and 2020, the Company’s loans due from third parties was as following:
| June 30, 2021 | June 30, 2020 | |||||||
| Sichuan Senmiao Ronglian Technology Co, Ltd. (“Senmiao Ronglian”) (a) | $ | $ | ||||||
| Qingdao Gangganghao Technology Co., Ltd. (b) | ||||||||
| Qingdao Honghuanglv Media Co., Ltd. (b) | ||||||||
| Qingdao Xiaohuangbei Technology Co., Ltd. (b) | ||||||||
| Qingdao Dabutong Network Technology Co., Ltd. (b) | ||||||||
| Hunan Peiyuan Media Co., Ltd. (b) | ||||||||
| Li Xian (b) | ||||||||
| Lu Hongwen (b) | ||||||||
| $ | $ | |||||||
| (a) |
| (b) |
F-24
| 10. | INVESTMENT IN AN EQUITY INVESTEE |
As of June 30, 2021 and 2020, the Company’s investment in an equity investee was as following:
| June 30, 2021 | June 30, 2020 | |||||||
| Urban Tea Management Inc. (“Meno”) | $ | $ | ||||||
| Guokui Management Inc. (“Guokui”) | ||||||||
| Chuangyeying Brand Management Co., Ltd. (“CYY”) | ||||||||
| Store Master Food Trading Co., Ltd. (“Store Master”) | ||||||||
| Less: Share of results of equity investees | ( | ) | ( | ) | ||||
| $ | $ | |||||||
As
of June 30, 2021, the Company made investments aggregating $
On
September 23, 2020, the Company entered into a share purchase agreement, pursuant to which the Company agreed to pay $
In
October 2020, the Company, through its WFOE, acquired
Pursuant to the articles of association of these equity investees, the operating and financing activities shall be unanimously approved by the Company and other shareholders, thus the Company does not control the equity investee but exercised significant influence over the equity investee. In accordance with ASC 323 “Investments — Equity Method and Joint Ventures”, the Company accounted for the investments using equity method.
For
the years ended June 30, 2021, 2020, and 2019, the equity investees incurred net loss aggregating $
F-25
| 11. | PROPERTY AND EQUIPMENT, NET |
The property and equipment consisted of the following:
| June 30, 2021 | June 30, 2020 | |||||||
| Building | $ | $ | ||||||
| Office equipment | ||||||||
| Electronic equipment | ||||||||
| Vehicles | ||||||||
| Leasehold improvements | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| $ | $ | |||||||
The
Company depreciated property and equipment from the next month to when the assets was available for use. For the years ended June 30,
2021, 2020, and 2019, the depreciation expenses were $
F-26
| 12. | DEPOSITS FOR PROPERTY AND EQUIPMENT |
Deposits for property and equipment consisted of the following:
| June 30, 2021 | June 30, 2020 | |||||||
| Deposits for leasehold improvements (1) | $ | $ | ||||||
| Deposits for mining equipment (2) | ||||||||
| $ | $ | |||||||
| (1) |
| (2) |
F-27
| 13. | OPERATING LEASE |
As of June 30, 2021, the Company leases offices space and tea shop stores under certain non-cancelable operating leases, with terms ranging between one and ten years. In February 2021, the Company leased a piece of land with plans to plant black tea products with lease term of ten years.
The Company considers those renewal or termination options that are reasonably certain to be exercised in the determination of the lease term and initial measurement of right of use assets and lease liabilities. Lease expense for lease payment is recognized on a straight-line basis over the lease term.
The Company determines whether a contract is or contains a lease at inception of the contract and whether that lease meets the classification criteria of a finance or operating lease. When available, the Company uses the rate implicit in the lease to discount lease payments to present value; however, most of the Company’s leases do not provide a readily determinable implicit rate. Therefore, the Company discount lease payments based on an estimate of its incremental borrowing rate.
The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The table below presents the operating lease related assets and liabilities recorded on the balance sheets.
| June 30, 2021 | June 30, 2020 | |||||||
| Rights of use lease assets | $ | $ | ||||||
| Operating lease liabilities, current | ||||||||
| Operating lease liabilities, noncurrent | ||||||||
| Total operating lease liabilities | $ | $ | ||||||
The weighted average remaining lease terms and discount rates for all of operating leases were as follows as of June 30, 2021 and 2020:
| June 30, 2021 | June 30, 2020 | |||||||
| Remaining lease term and discount rate | ||||||||
| Weighted average remaining lease term (years) | ||||||||
| Weighted average discount rate | % | % | ||||||
Rent
expense for the years ended June 30, 2021, 2020, and 2019 was $
The following is a schedule, by years, of maturities of lease liabilities as of June 30, 2021:
| Twelve months ended June 30, | Lease payment | |||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 and thereafter | ||||
| Total lease payments | ||||
| Less: imputed interest | ( | ) | ||
| Present value of lease liabilities | $ | |||
F-28
| 14. | EQUITY |
Ordinary shares
On August
25, 2020,
As
of June 30, 2020, there were
On
July 30, 2020, the Company and
certain institutional investors entered into a securities purchase agreement, pursuant to which the Company agreed to sell to such investors
an aggregate of
On
August 14, 2020, the Company and
certain institutional investors entered into a securities purchase agreement, pursuant to which the Company agreed to sell to such investors
an aggregate of
On
March 26, 2021, the Company and
certain individual investors entered into a securities purchase agreement, pursuant to which the Company agreed to sell to such investors
an aggregate of
On
April 28, 2021, the Company and
certain institutional investors entered into a securities purchase agreement, pursuant to which the Company agreed to sell to such investors
an aggregate of
For
the year ended June 30, 2021, the Company issued
On
January 12, 2021,
During
February through March 2021, certain institutional investors, who subscribed for ordinary shares in direct offering in May 24, 2019,
exercised warrants to purchase
As
of June 30, 2021, the Company had
Warrants
A summary of warrants activity for the years ended June 30, 2021, 2020 and 2019 was as follows:
| Number of shares | Weighted average life | Expiration dates |
||||||||
| Balance of warrants outstanding as of July 1, 2018 | ||||||||||
| Grants of registered direct offering warrants | ||||||||||
| Grants of placement agent warrants | ||||||||||
| Balance of warrants outstanding as of June 30, 2019 | ||||||||||
| Balance of warrants outstanding as of June 30, 2020 | ||||||||||
| Exercise of direct offering warrants | ( | ) | ||||||||
| Grants of registered direct offering warrants | ||||||||||
| Grants of placement agent warrants | ||||||||||
| Balance of warrants outstanding as of June 30, 2021 | ||||||||||
F-29
| 14. | EQUITY (CONTINUED) |
Private placement warrants
On
November 21, 2017, the company issued
As
at June 30, 2021 and 2020, there were
The key assumption used in estimates are as follows:
| June 30, 2021 | June 30, 2020 | |||||||
| Terms of warrants | ||||||||
| Exercise price | ||||||||
| Risk free rate of interest | % | % | ||||||
| Dividend yield | % | |||||||
| Annualized volatility of underlying stock | % | % | ||||||
Registered direct offering warrants on May 24, 2019
In
connection with the direct offering closed on May 24, 2019, the Company issued warrants to investors to purchase a total of
The
warrants have customary anti-dilution protections including a “full ratchet” anti-dilution adjustment provision which are
triggered in the event the Company sells or grants any additional shares of common stock, options, warrants or other securities that
are convertible into common stock at a price lower than $
Based on an evaluation as discussed in FASB ASC 815-15, “Embedded Derivatives” and FASB ASC 815-40-15, “Contracts in Entity’s Own Equity – Scope and Scope Exceptions,” the Company determined that the registered direct offering warrants were not considered indexed to its own stock because neither the occurrence of a sale of equity securities by the issuer at market nor the issuance of another equity contract with a lower strike price is an input to the fair value of a fixed-for-fixed option or forward on equity shares. As such, the registered direct offering warrants were classified as a liability. Liability classification requires the warrant to be re-measured to their fair value for each reporting period.
As
of May 24, 2019 and June 30, 2019, 2020 and 2021, the Company estimated fair value of the registered direct offering warrants at $
On the May 24, 2019 and June 30, 2019 and 2020 and 2021, the Company estimated the fair value of Series A Warrants using the following assumption.
| On May 24, 2019 | On June 30, 2019 | On June 30, 2020 | On June 30, 2021 | |||||||||||||
| Terms of warrants | ||||||||||||||||
| Exercise price | ||||||||||||||||
| Risk free rate of interest | % | % | % | % | ||||||||||||
| Dividend yield | % | % | ||||||||||||||
| Annualized volatility of underlying stock | % | % | % | % | ||||||||||||
F-30
| 14. | EQUITY (CONTINUED) |
Placement Agent Warrants
On
April 3, 2019, the Company entered into a letter agreement with FT Global Capital, Inc., as exclusive placement agent (the “Placement
Agent”), pursuant to which the Placement Agent has agreed to act as placement agent on a best efforts basis in connection with
the above offering. In addition to the cash payments, the Company has also agreed to issue to the Placement Agent a warrant to purchase
a number of ordinary shares equal to
As
of May 24, 2019 and June 30, 2019,2020 and 2021, the Company estimated fair value of the Placement
Agent Warrants at $
Allocation of Issuance Costs
In
connection with the Private Placement closed on May 24, 2019, the Company incurred direct and incremental issuance costs of $
Registered direct offering warrants on April 30, 2021
In
connection with the direct offering closed on April 30, 2021, the Company issued warrants to investors to purchase a total of
The warrants did not meet the definition of liabilities or derivatives, and as such they are classified as an equity.
On
April 30, 2021, the Company estimated fair value of the warrants at $
The key assumption used in estimates are as follows:
| On April 30, 2020 | ||||
| Terms of warrants | ||||
| Exercise price | ||||
| Risk free rate of interest | % | |||
| Dividend yield | % | |||
| Annualized volatility of underlying stock | % | |||
F-31
| 14. | EQUITY (CONTINUED) |
Private placement warrants on April 20, 2021
In
connection with the private placement closed on April 20, 2021, the Company issued warrants to investors to purchase a total of
On
April 20, 2021, the Company estimated fair value of the warrants at $
The key assumption used in estimates are as follows:
| On April 20, 2021 | ||||
| Terms of warrants | ||||
| Exercise price | ||||
| Risk free rate of interest | % | |||
| Dividend yield | % | |||
| Annualized volatility of underlying stock | % | |||
| 15. | INCOME (LOSS) PER SHARE |
The following table sets forth the computation of basic and diluted loss per common share for the years ended June 30, 2021, 2020 and 2019, respectively:
| For the Years Ended June 30, | ||||||||||||
| 2021 | 2020 | 2019 | ||||||||||
| Net (loss) income attributable to Bit Brother Ltd’s (fka Urban Tea, Inc.) Shareholders | $ | ( | ) | $ | ( | ) | $ | |||||
| Net loss from continuing operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Net income (loss) from discontinued operations | $ | $ | $ | |||||||||
| Weighted Average Shares Outstanding-Basic and Diluted | ||||||||||||
| (Loss) income per share- basic and diluted | $ | ( | ) | $ | ( | ) | $ | |||||
| Net loss per share from continuing operations – basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Net income (loss) per share from discontinued operations – basic and diluted | $ | $ | $ | |||||||||
Basic income (loss) per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period. Diluted income (loss) per share is the same as basic loss per share due to the lack of dilutive items in the Company for the years ended June 30, 2021, 2020, and 2019 The number of warrants is excluded from the computation as the anti-dilutive effect.
F-32
| 16. | INCOME TAXES |
British Virgin Islands
Under the current tax laws of BVI, the Company’s subsidiary incorporated in the BVI is not subject to tax on income or capital gains.
The United States of America
Delta Technology Holdings USA Inc is incorporated in the State of Delaware in the U.S., and is subject to U.S. federal corporate income taxes. BTB NY is incorporated in the State of New York in the U.S., and is subject to U.S. federal corporate income taxes.
On
December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was signed into law, which has made significant changes
to the Internal Revenue Code. Those changes include, but are not limited to, a U.S. corporate tax rate decrease from
As
of June 30, 2021 and 2020, the Company’s federal net operating loss carryforward for U.S. income taxes was $
Utilization of the Company’s U.S. net operating loss carryforwards may be subject to a substantial annual limitation due to the ownership change limitations set forth in Internal Revenue Code Section 382 and similar state provisions. Such an annual limitation could result in the expiration of the net operating loss and tax credit carryforwards before utilization.
Hong Kong
NTH
HK and BTB HK are incorporated in Hong Kong and is subject to Hong Kong Profits Tax on the taxable income as reported in its statutory
financial statements adjusted in accordance with relevant Hong Kong tax laws.
PRC
Shanghai
MYT, BTB WFOE, Hunan MYT, 39Pu are, BTB Hunan and BTB Digital Hunan are subject to PRC Enterprise Income Tax (“EIT”) on the
taxable income in accordance with the relevant PRC income tax laws. The EIT rate for companies operating in the PRC is
Income taxes that are attributed to the continuing operations are consist of:
| For the Years Ended June 30, | ||||||||||||
| 2021 | 2020 | 2019 | ||||||||||
| Current income tax expenses | $ | $ | $ | |||||||||
| Deferred income tax expenses | ||||||||||||
| Income tax expenses | $ | $ | $ | |||||||||
F-33
| 16. | INCOME TAXES (CONTINUED) |
Below is a reconciliation of the statutory tax rate to the effective tax rate of continuing operations:
| For the Years Ended June 30, | ||||||||||||
| 2021 | 2020 | 2019 | ||||||||||
| PRC statutory income tax rate | % | % | % | |||||||||
| Effect of different tax rates available to different jurisdictions | ( | )% | ( | )% | % | |||||||
| Effect of non-deductible expenses | ( | )% | ( | )% | ( | )% | ||||||
| Effect of change in valuation allowance and others | ( | )% | ( | )% | ( | )% | ||||||
| ( | )% | $ | % | $ | % | |||||||
Deferred tax assets as of June 30, 2021 and 2020 consist of the following:
| June 30, 2021 | June 30, 2020 | |||||||
| Net operating loss carrying forward | $ | $ | ||||||
| Less: valuation allowance | ( | ) | ( | ) | ||||
| $ | $ | |||||||
As
of June 30, 2021 and 2020, the Company had net operating loss carryforwards of $
Uncertain tax positions
The Company evaluates each uncertain tax position (including the potential application of interest and penalties) based on the technical merits, and measure the unrecognized benefits associated with the tax positions. As of June 30, 2021 and 2020, the Company did not have any significant unrecognized uncertain tax positions or any unrecognized liabilities, interest or penalties associated with unrecognized tax benefit. The Company does not believe that its uncertain tax benefits position will materially change over the next twelve months.
| 17. | RELATED PARTY TRANSACTIONS AND BALANCES |
As
of June 30, 2021,
As
of June 30, 2020, the Company had balance of $
During
the year ended June 30, 2020, the Company sold dark tea products of $
| 18. | COMMITMENTS AND CONTINGENCIES |
In the normal course of business, the Company is subject to loss contingencies, such as legal proceedings and claims arising out of its business, that cover a wide range of matters, including, among others, government investigations and tax matters. In accordance with ASC No. 450, the Company records accruals for such loss contingencies when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated.
F-34
| 19. | SEGMENG REPORTING |
The Company presents segment information after elimination of inter-company transactions. In general, revenue, cost of revenue and operating expenses are directly attributable, or are allocated, to each segment. The Company allocates costs and expenses that are not directly attributable to a specific segment, such as those that support infrastructure across different segments, to different segments mainly on the basis of usage, revenue or headcount, depending on the nature of the relevant costs and expenses. The Company does not allocate assets to its segments as the CODM does not evaluate the performance of segments using asset information.
As
of June 30, 2021, the Company had
As
of June 30, 2020, the Company had
The following tables present the summary of each segment’s revenue, loss from operations, loss before income taxes and net loss which is considered as a segment operating performance measure, for the years ended June 30, 2021, 2020 and 2019:
| For the year ended June 30, 2021 | ||||||||||||||||||||
| Tea shop chains | Distribution of dark tea products | Blockchain business | Unallocated | Total | ||||||||||||||||
| Revenues | $ | $ | $ | $ | $ | |||||||||||||||
| Operating expenses | $ | $ | $ | $ | $ | |||||||||||||||
| Net income (loss) from continuing operations before income taxes | $ | ( | ) | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||
| Net income (loss) | $ | ( | ) | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||
| For the year ended June 30, 2020 | ||||||||||||||||
| Tea shop chains | Distribution of dark tea products | Unallocated | Total | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Operating expenses | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss from continuing operations before income taxes | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| For the year ended June 30, 2019 | ||||||||||||||||
| Tea shop chains | Distribution of dark tea products | Unallocated | Total | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Operating expenses | $ | ( | ) | $ | $ | $ | ( | ) | ||||||||
| Net loss from continuing operations before income taxes | $ | ( | ) | $ | $ | $ | ( | ) | ||||||||
| Net income from discontinued operations before income taxes | $ | $ | $ | $ | ||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||
F-35
| 21. | SUBSEQUENT EVENT |
| 1. | Registered direct offering |
On
July 16, 2021, the “Company” entered into certain securities purchase agreement (the “Purchase Agreement”) with
certain non-affiliated institutional investors (the “Purchasers”) pursuant to which the Company agreed to sell
The
Company entered into a placement agency agreement dated July 16, 2021 with Maxim Group LLC, as exclusive placement agent (the “Placement
Agent”), pursuant to which the Placement Agent agreed to act as the sole lead/exclusive placement agent in connection with the
Offering. The Company agreed to pay the Placement Agent an aggregate fee equal to
| 2. | Private placements |
On September 16, 2021, the “Company” entered into certain securities purchase agreement (the “SPA”) with certain “non-U.S. Persons” (the “Purchasers”) as defined in Regulation S of the Securities Act of 1933, as amended (the “Securities Act”) pursuant to which the Company agreed to sell an aggregate of 14,152,000 units (the “Units”), each Unit consisting of one ordinary share of the Company, no par value (“Share”) and three warrants to purchase one Share each (“Warrant”) with an initial exercise price of $0.8875 per Share, at a price of $0.71 per Unit, for an aggregate purchase price of approximately $10.05 million (the “Offering”). The net proceeds to the Company from such Offering will be approximately $10 million and shall be used by the Company for working capital and general corporate purposes.
The Warrants are exercisable six (6) months from the date of issuance at an initial exercise price of $0.8875 per Share, for cash (the “Warrant Shares”). The Warrants may also be exercised cashlessly if at any time after the six-month anniversary of the issuance date, there is no effective registration statement registering, or no current prospectus available for, the resale of the Warrant Shares. The Warrants shall expire five and a half (5.5) years from its date of issuance. The Warrants are subject to customary anti-dilution provisions reflecting stock dividends and splits or other similar transactions.
On
October 7, 2021, the Offering consummated when all the closing conditions of the SPA have been satisfied and the Company issued
On October 14, 2021, the Company entered into
certain unit securities purchase agreement with certain “non-U.S. Persons” as defined in Regulation S of the Securities
Act pursuant to which the Company agreed to sell an aggregate of
The Warrants are exercisable
On October 14, 2021, the Company entered into
certain ordinary shares securities purchase agreement with certain “non-U.S. Persons” as defined in Regulation S of the Securities
Act pursuant to which the Company agreed to sell an aggregate of
On November 5, 2021, the October Units Offering and October Shares Offering consummated when all the closing conditions of the Unit SPA and the SPA have been satisfied and the Company issued the Units and Shares to the Purchasers.
On November 5, 2021,
The Warrants are exercisable six (6) months from the date of issuance at an initial exercise price of $0.875 per Share, for cash (the “Warrant Shares”). The Warrants may also be exercised cashlessly if at any time after the six-month anniversary of the issuance date, there is no effective registration statement registering, or no current prospectus available for, the resale of the Warrant Shares. The Warrants shall expire five and a half (5.5) years from its date of issuance. The Warrants are subject to customary anti-dilution provisions reflecting stock dividends and splits or other similar transactions.
F-36
ITEM 19. EXHIBITS
The list of exhibits in the Exhibit Index to this report is incorporated herein by reference.
2
SIGNATURE
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Amendment No. 1 to its annual report on its behalf.
Date: November 16, 2021 |
BIT BROTHER LIMITED |
| /s/ Xianlong Wu | |
| Xianlong Wu | |
| Chief Executive Officer and Chairman |
3
EXHIBIT INDEX
4
| * | Filed herewith. |
| ** | Furnished herewith. |
5