This section of this Form 10-Q includes a number of forward-looking statements
that reflect our current views with respect to future events and financial
performance. Forward-looking statements are often identified by words like
believe, expect, estimate, anticipate, intend, project and similar expressions,
or words which, by their nature, refer to future events. You should not place
undue certainty on these forward-looking statements. These forward-looking
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from our predictions.
Organization and Business Operations
China VTV Limited (the "Company," "we," "us," or "our") was incorporated under
the laws of the State of Nevada on February 19, 2015. On February 9, 2018, we
filed with the Nevada Secretary of State to change the name of our corporation
from "T-Bamm" to "China VTV Limited".
China VTV Ltd. ("China VTV HK") was incorporated on January 9, 2015 under the
laws of Hong Kong. The business of China VTV is developing an Over-The-Top (the
"OTT") streaming media platform that distributes streaming media as a standalone
product directly to viewers over the Internet, bypassing telecommunications,
multichannel television, and broadcast television platforms that traditionally
act as a controller or distributor of such content. China VTV HK provides news,
entertainment shows, TV episodes and other programs on its website and social
media accounts.
Pursuant to the Share Exchange Agreement dated March 15, 2019, on May 6, 2019,
we issued an aggregate of 115,550,000 shares of our common stock to the
shareholders of China VTV HK in exchange for all of the issued and outstanding
equity interests of China VTV HK and five individuals who provided prior
services to China VTV HK. As a result, China VTV HK has become our wholly-owned
subsidiary. The acquisition of China VTV HK is treated as a reverse acquisition,
and the business of China VTV became our business.
We have generated limited revenue to date and consequently our operations are
subject to all risks inherent in the establishment of a new business
enterprise. During the period from inception, February 19, 2015, through
November 30, 2019, we had an accumulated deficit of $7,561,281.
Going Concern
Our auditor has indicated in their report on our financial statements for the
fiscal year ended February 28, 2019, that conditions exist that raise
substantial doubt about our ability to continue as a going concern due to our
recurring losses from operations, deficit in equity, and the need to raise
additional capital to fund operations. A "going concern" opinion could impair
our ability to finance our operations through the sale of debt or equity
securities.
Strategic Development with CybEye and Chief Technology Officer
On September 30, 2019, we entered into a strategic development agreement (the
"Strategic Development Agreement") with CybEye Image, Inc. ("CybEye"), pursuant
to which CybEye is developing and providing technical support and maintenance to
the Company's online streaming media OTT Platform and incorporating blockchain
technologies to the Company's OTT Platform to enhance security. CybEye is a
mobile video-messaging APP platform company that builds customized applications
for various industries. The Strategic Development Agreement shall continue in
full force and effect until September 29, 2022. During the term of the Strategic
Development Agreement, CybEye will develop the OTT Platform only for the
Company, and will not engage in providing any services to other media companies.
Subject to the terms and conditions of the Strategic Development Agreement, the
Company shall issue to CybEye two million and five hundred thousand (2,500,000)
shares of its unissued and registered common stock at one time and forty
thousand (40,000) shares its unissued and registered common stock per month
during the term of the Strategic Development Agreement upon the effectiveness of
a registration statement to register those shares. Pursuant to the terms of the
Strategic Development Agreement, upon listing of the Company's common stock on a
national stock exchange market, the Company shall make a cash payment of
$150,000 to CybEye instead of the stock payment at the end of each whole month
for CybEye's services pursuant to this Agreement.
4
Table of Contents
In connection with the Strategic Development Agreement, on September 30, 2019,
the Company and CybEye entered into a non-exclusive licensing agreement (the
"Licensing Agreement"), pursuant to which the Company and its affiliates were
granted a fully-paid perpetual non-exclusive right and license to use and
develop any intellectual property and proprietary information, including,
without limitation, any patents and trademarks as set forth in Schedule A
thereto, which CybEye owns, to carry out the purposes and goals of the Strategic
Development Agreement. On December 13, 2019, the Company and CybEye entered into
an amendment to the Licensing Agreement dated September 30, 2019, pursuant to
which the term of the Licensing Agreement was amended to twenty (20) years (from
September 30, 2019 to September 29, 2039) and the Company agreed to issue
2,500,000 shares of its common stock to CybEye as set forth in the Strategic
Development Agreement dated September 30, 2019. A copy of such amendment was
filed in a current report on Form 8-K on December 17, 2019.
In addition, on September 30, 2019, the Company and Mr. Bing Liu (the
"Executive") entered into an executive employment agreement (the "Executive
Employment Agreement"), in accordance with which, subject to the approval of the
board of directors of the Company (the "Board"), the Executive shall be elected
as a member of the Board and the Chief Technology Officer ("CTO") of the
Company. The Executive Employment Agreement has a term (the "Term") of three (3)
years, unless terminated earlier pursuant to the termination provisions therein.
In accordance with the Employment Agreement, the Executive shall receive
incentive stock options to purchase five hundred thousand (500,000) shares of
the Company's common stock each year during the Term of the employment pursuant
to the stock option agreement (the "Stock Option Agreement"). Upon termination
of the Strategic Development Agreement, the Executive Employment Agreement shall
also be terminated, unless otherwise mutually agreed in writing. In connection
with the Executive Employment Agreement, on September 30, 2019 (the "Grant
Date"), the Company and the Executive entered into the Stock Option Agreement
under the Company's 2019 stock plan (the "Plan"), whereby the Company issued the
Executive options (the "Options") to purchase an aggregate of five hundred
thousand (500,000) shares of the Company's common stock, at an exercise price of
$12.00 per share. The Stock Option Agreement provides that the Options shall
become exercisable on September 29, 2020, one year from the Grant Date, and
shall expire on September 29, 2026. Subject to the terms of the Stock Option
Agreement and Plan, the Options shall vest in equal amounts each quarter from
the Grant Date.
Copies of the Strategic Development Agreement, Licensing Agreement, Executive
Employment Agreement and Stock Option Agreement were filed in a current report
on Form 8-K on October 3, 2019.
As of the date of this quarterly report, our blockchain-operated App is
available for both iPhone and Android mobile phone users. At the time of this
report, we were trying to recruit more mobile phone users to use our App to
watch our online media programs.
Acquisition of Butterfly Effect
On December 18, 2019, the Company, VTV Global Culture Media (Beijing) Co., Ltd.,
a Chinese wholly foreign owned entity and a wholly-owned subsidiary of the
Company ("WFOE"), Butterfly Effect Culture Media (Beijing) Co., Ltd., a
corporation formed under the laws of China (the "Target") and each and all of
the shareholders of the Target (each, a "Target Shareholder", and collectively,
"Target Shareholders") entered into a business acquisition agreement (the
"Acquisition Agreement"), pursuant to which the Company through its WFOE agreed
to acquire the Target through a series of management agreements (the "VIE
Agreements") to effectively control and own the Target (the "Acquisition"). In
accordance with the Acquisition Agreement, in consideration for the effective
control over the Target, the Company shall issue an aggregate of 24,000,000
shares of its common stock (the "Common Stock") at the stipulated price of $4.00
per share (the "Stock Consideration") to the Target Shareholders in accordance
with the percentage (the "Target Shareholder Equity Percentage") as set forth in
the Acquisition Agreement. In addition, subject to the terms and conditions in
the Acquisition Agreement, the Company and its subsidiaries agreed to pay a
total of RMB 288,000,000 (the "Cash Consideration") to the Target Shareholders
pro rata with the Target Shareholder Equity Percentage over a period of time as
set forth therein.
5
Table of Contents
In accordance with the terms and conditions of the Acquisition Agreement, the
Company agreed to dedicate forty percent (40%) of the net proceeds actually
received in any public or private equity offering (the "Qualified Offering"), in
which the Company raises at least $20,000,000 USD in gross proceeds before
deducting any underwriter or placement agent's discount and commissions and any
offering expenses, to be used to pay the Target Shareholders pro rata with the
Target Shareholder Equity Percentage until the total amount of the Cash
Consideration is paid in full, without the obligation to pay any interest
thereon.
In addition, the Acquisition Agreement provides that in the event that the
Target fails to meet the net profit milestones as set forth in the Acquisition
Agreement, each Target Shareholder shall return the Common Stock or equivalent
amount of cash (the "Claw-back") according to the formula specified in the
Acquisition Agreement. However, subject to the Claw-back provision, the
Acquisition Agreement prescribes that if the Company does not make payments of
at least half of the Cash Consideration to the Target Shareholders within one
(1) year commencing on the first trading day (excluding the first trading day)
of the Common Stock on a national stock exchange, i) the Target shall have the
right to appoint the majority of the Company's Board and manage and operate the
Company and its subsidiaries and ii) each of the Target Shareholders shall have
the right to receive the number of shares of the Common Stock equal to the
result of (the total amount of Cash Consideration - the sum of cash received by
the Target Shareholders)/ $2.00 per share* Target Shareholder Equity Percentage.
The Company and Target are in the process of completing this acquisition
transaction as set forth in the Acquisition Agreement, a copy of which was filed
in a current report on Form 8-K on December 23, 2019.
Change of Directors
On November 29, 2019, the board of directors (the "Board") of the Company
appointed Mr. Bing Liu as a member of the Board and the Company's Chief
Technology Officer ("CTO"), Ms. Gehui Xu and Mr. Chi-Chung Cheng as members of
the Board, effective immediately. Each of Mr. Bing Liu, Ms. Gehui Xu and Mr.
Chi-Chung Cheng serves as a member of the Board until the next annual
shareholder meeting and until his or her successor shall be duly elected and
qualified or his or her early resignation.
Mr. Bing Liu, 60 years old, is the founder and Chief Executive Officer of
CybEye, Inc., which was incorporated in October 2011. He owns fourteen U.S.
patents and has the expertise in social networking platform, internet security,
cloud computing and multi-lingual processing. Mr. Bing Liu received a Bachelor
and a Masters of Computer Science from Tsinghua University in China. The Company
has thus determined that it is in its best interest of the shareholders to
appoint Mr. Liu the CTO and a member of its Board to fill a vacancy on the
Board.
Ms. Gehui Xu, 51 years old, was a well-known television hostess at China Central
Television Station from 1991 until 1995 and started her career as a television
hostess at Hong Kong Phoenix Television Station in 1996. Ms. Gehui Xu received
the award as one of the Top Ten Television Hostesses in China in 1994. Ms. Gehui
Xu currently hosts three TV programs at Hong Kong Phoenix Television Station.
Ms. Xu received a Bachelor's Degree in English from Beijing Foreign Language
College. Therefore, the Company has determined that it is in its best interest
of the shareholders to elect Ms. Gehui Xu to the Board to fill a vacancy on the
Board.
Mr. Chi-Chung Cheng, 53 years old, has been a director of ETtoday Dongsen News
Cloud Co., Ltd. since 2018. From 2011 to 2018, Mr. Chi-Chung Cheng was the
Chairman, Chief Executive Officer and a director of SMI Holdings Group Limited
(a company previously listed on the Hong Kong Stock Exchange). Mr. Chi-Chung
Cheng received a Bachelor's Degree from Taiwan University and an MBA Degree from
Tsinghua University. Therefore, the Company has determined that it is in its
best interest of the shareholders to appoint Mr. Chi-Chung Cheng to the Board to
fill a vacancy on the Board.
On January 10, 2020, the Board reviewed and accepted Mr. Hongbin Dong's
resignation letter as a member of the Board, effective January 6, 2020. In
addition, on January 10, 2020, the Board appointed Mr. Hongbin Dong as the
Chairman of the supervisory board of the Company effective immediately, where
Mr. Hongbin Dong oversees the general operations of the Company and advises on
the executive compensation.
On January 10, 2020, the Board elected Ms. Qiongfang Shi as a member of the
Board in connection with the Acquisition Agreement with Butterfly Effect,
effective immediately. Ms. Qiongfang Shi serves as a member of the Board until
the next annual shareholder meeting and until her successor shall be duly
elected and qualified or her early resignation.
6
Table of Contents
Ms. Qiongfang Shi, 39 years old, has been a member of the board of directors of
Butterfly Effect since July 2015. Previously Ms. Shi served as the Vice
President of Jiubang Digital Technology (Guangzhou) Co., Ltd. from November 2010
to June 2015. In addition, Ms. Shi has had various roles in the areas of Chinese
literature, sales and marketing and project management. Ms. Qiongfang Shi
received an associate's degree in international accounting from Guangdong
Industry Technical College in 2000, an associate's degree in property management
from Guangzhou Caimao Guanli Ganbu College in 2004, and has been pursuing an MBA
at Communication University of China since September 2019.
Results of Operations
Three Months Ended November 30, 2019, Compared to Three Months Ended November
30, 2018
For The Three Months Ended
November 30,
2019 2018
Net revenue $ 18 $ -
Cost of revenue 6 -
Gross profit 12 -
Research and development expenses - 1,386
Stock-based compensation expenses 4,292,109
General and administrative expenses 136,748 11,850
Total operating expense 4,428,857 13,236
Loss from operations before income taxes (4,428,845 ) (13,236 )
Provision for income tax - -
Net loss $ (4,428,845 ) $ (13,236 )
Revenue
We did not generate revenue during the three months ended November 30, 2019 or
the same period ended November 30, 2018. Net revenue increased slightly by $18
for the three months ended November 30, 2019 was a result of foreign currency
translation difference.
Cost of Revenue
We did not incur cost of revenue during the three months ended November 30, 2019
or the same period ended November 30, 2018. Cost of revenue increased slightly
by $6 for the three months ended November 30, 2019 was a result of foreign
currency translation difference.
Research and Development Expenses
We did not engage in any research and development activities during the three
months ended November 30, 2019 and 2018. Research and development expenses
during the three months ended November 30, 2018 amounted to $1,386 were due to
foreign currency translation difference.
7
Table of Contents
Stock-based Compensation Expenses
Stock-based compensation expenses increased by $4,292,109, or 100%, for the
three months ended November 30, 2019, as compared to $0 for the three months
ended November 30, 2018. The increase in stock-based compensation expenses were
primarily due to the compensation expense recognized for common stock issued to
employees, stock option granted, and compensation cost recognized due to
Strategic Development Agreement.
General and Administrative Expenses
General and administrative expenses increased by $124,898, 1,054%, to $136,748
for the three months ended November 30, 2019, as compared to $11,850 for the
three months ended November 30, 2018. The increase in general and administrative
expenses was primarily due to the increase in professional legal fees of
$55,444, the increase in executive compensation of $52,952, the increase in
depreciation expense of $9,330 and the increase in travel expenses of $4,240
during the three months ended November 30, 2019, compared to the same period
ended in November 30, 2018.
Net Loss
Our net loss increased by $4,415,609, or 33361%, to $4,428,845 for the three
months ended November 30, 2019, as compared to $13,236 for the three months
ended November 30, 2018. The increase in net loss was a result of increase in
stock-based compensation and general and administrative expenses.
Nine Months Ended November 30, 2019, Compared to Nine Months Ended November 30,
2018
For The Nine Months Ended
November 30,
2019 2018
Net revenue $ 3,846 $ -
Cost of revenue 1,282 -
Gross profit 2,564 -
Research and development expenses - 863,528
Stock-based compensation expenses 4,292,109
General and administrative expenses 356,817 45,984
Total operating expense 4,648,926 909,512
Loss from operations before income taxes (4,646,362 ) (909,512 )
Provision for income tax - -
Net loss $ (4,646,362 ) $ (909,512 )
Revenue
During the nine months ended November 30, 2019, we generated revenue of $3,846,
100% increase compared to $0 during the nine months ended November 30, 2018, as
a result of one-time advertising revenue.
Cost of Revenue
Cost of Revenue mainly consisted of the fees we pay to telecommunications
carriers and other service providers for telecommunications and other content
delivery-related services. During the nine months ended November 30, 2019, we
had cost of revenue of $1,282, 100% increase compared to $0 during the nine
months ended November 30, 2018, as a result of the increase in advertising
revenue.
8
Table of Contents
Research and Development Expenses
Research and development expenses mainly consist of the costs incurred in the
development and improvement of the Company's OTT service platform. Research and
development expenses decreased by $863,528, or 100%, to $0 for the nine months
ended November 30, 2019, as compared to $863,528 for the nine months ended
November 30, 2018. The decrease in those expenses was primarily because we did
not engage in any research and development activities for the nine months ended
November 30, 2019.
Stock-based Compensation Expenses
Stock-based compensation expenses increased by $4,292,109, 100%, for the nine
months ended November 30, 2019, as compared to $0 for the nine months ended
November 30, 2018. The increase in stock-based compensation expenses were
primarily due to the compensation expense recognized for common stock issued to
employees, stock option granted, and compensation cost recognized due to
Strategic Development Agreement.
General and Administrative Expenses
General and administrative expenses increased by $310,833, or 676%, to $356,817
for the nine months ended November 30, 2019, as compared to $45,984 for the nine
months ended November 30, 2018. The increase in general and administrative
expenses was primarily due to the increase in professional legal fees of
$111,597, the increase in executive compensation of $140,121, and the increase
in travel expenses of $24,235 during the nine months ended November 30, 2019,
compared to the same period ended in November 30, 2018.
Net Loss
Our net loss increased by $3,736,850, or 411%, to $4,646,362 for the nine months
ended November 30, 2019, as compared to $909,512 for the nine months ended
November 30, 2018. The increase in net loss was a result of the increase in
stock-based compensation and general and administrative expenses, offset by the
decrease in research and development expenses.
Capital Resources and Liquidity
For the Nine Months
Ended November 30,
2019 2018
Net cash provided by (used in) operating activities 98,221 (940,883 )
Net cash used in investing activities (111,684 ) -
Net cash provided by financing activities - 893,528
Effect of exchange rate changes on cash and cash
equivalents (13 ) 3,594
Net decrease in cash and cash equivalents (13,476 ) (43,761 )
Cash and Cash Equivalents
Beginning 17,548 51,451
Ending $ 4,072 $ 7,690As of November 30, 2019, we had cash and cash equivalent of $4,072 compared to
$17,548 as of February 28, 2019. We will have to seek funding from outside
sources to satisfy our liquidity requirements for the next three months. As of
November 30, 2019, we had incurred operating losses of $7,561,281 since the
inception. As of November 30, 2019, we had a working capital deficit of
$1,049,394.
9
Table of Contents
Net cash provided by operating activities was $98,221 during the nine months
ended November 30, 2019, compared to net cash used in operating activities of
$940,883 for the nine months ended November 30, 2018. The increase in the cash
provided by operating activities was primarily due to the decrease in net loss
and the increase in net proceeds provided by accrued expenses and related
parties for working capital purpose during the nine months ended November 30,
2019.
Net cash used in investing activities was $111,684 during the nine months ended
November 30, 2019, compared to $0 for the nine months ended November 30, 2018.
The increase in net cash used in investing activities was due to the purchase of
office equipment and furniture during the nine months ended November 30, 2019.
Net cash provided by financing activities was $0 during the nine months ended
November 30, 2019, compared to $893,528 for the nine months ended November 30,
2018. The decrease in net cash provided by financing activities was primarily
because we did not have capital contribution from shareholders during the nine
months ended November 30, 2019.
Our net change in cash and cash equivalents was $(13,476) for the nine months
ended November 30, 2019 and $(43,761) for the nine months ended November 30,
2018.
Going Concern
We require additional funding to meet our ongoing obligations and to fund
anticipated operating losses. Our auditor has expressed substantial doubt about
our ability to continue as a going concern. Our ability to continue as a going
concern is dependent on raising capital to fund our initial business plan and
ultimately to attain profitable operations. These consolidated financial
statements do not include any adjustments relating to the recoverability and
classification of recorded asset amounts, or amounts and classification of
liabilities that might result from this uncertainty.
We expect to incur marketing, professional and administrative expenses as well
expenses associated with maintaining our filings with the Securities and
Exchange Commission. We will require additional funds during this time and will
seek to raise the necessary additional capital. If we are unable to obtain
additional financing, we may be required to reduce the scope of our business
development activities, which could harm our business plans, financial condition
and operating results. Additional funding may not be available on favorable
terms, if at all. We intend to continue to fund its business by way of equity or
debt financing and advances from related parties. Any inability to raise capital
as needed would have a material adverse effect on our business, financial
condition and results of operations.
If we cannot raise additional funds, we will have to cease business operations.
As a result, our common stock investors would lose all of their investment.
Off-balance sheet arrangements
As of November 30, 2019, other than the situation described in the section
titled Capital Recourses and Liquidity, we had no off-balance sheet arrangements
that had or were reasonably likely to have a current or future effect or change
on the company's financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources that are
material to investors. The term "off-balance sheet arrangement" generally means
any transaction, agreement or other contractual arrangement to which an entity
unconsolidated with the company is a party, under which the company has (i) any
obligation arising under a guarantee contract, derivative instrument or variable
interest; or (ii) a retained or contingent interest in assets transferred to
such entity or similar arrangement that serves as credit, liquidity or market
risk support for such assets.
10
Table of Contents
Critical Accounting Policies and Estimates
Basis of Presentation
The interim financial information referred to above has been prepared and
presented in conformity with accounting principles generally accepted in the
United States of America applicable to interim financial information and with
the instructions to Form 10-Q and Article 8 of Regulation S-X. The interim
financial information has been prepared on a basis consistent with prior interim
periods and years and includes all disclosures that are necessary and required
by applicable laws and regulations. This report on Form 10-Q should be read in
conjunction with the Company's financial statements and notes thereto included
in the Company's Form 10-K for the fiscal year ended February 28, 2019.
Principal of Consolidation
The accompanying consolidated financial statements, including the accounts of
the Company and its wholly-owned subsidiary, China VTV Ltd., a Hong Kong
corporation. All material intercompany accounts, transactions, and profits have
been eliminated in consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amount of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all cash on hand and in banks, certificates of deposit and
other highly-liquid investments with original maturities of three months or
less, when purchased, to be cash and cash equivalents. As of November 30, 2019,
and February 28, 2019, the Company had $4,072 and $17,548 in cash and cash
equivalents, respectively.
11
Table of Contents
Property, Plant, and Equipment
Property, plant, and equipment is carried at cost net of accumulated
depreciation. Repairs and maintenance are expensed as incurred. Expenditures
that improve the functionality of the related asset or extend the useful life
are capitalized. When property and equipment is retired or otherwise disposed
of, the related gain or loss is included in operating income. Leasehold
improvements are depreciated on the straight-line method over the shorter of the
remaining lease term or estimated useful life of the asset. Depreciation is
calculated on the straight-line method, including property, plant, and equipment
under capital leases, generally based on the following useful lives:
Estimated Life
Office Equipment and Furniture 3 years
Impairment of Long-Lived Assets:
The Company has adopted Accounting Standards Codification subtopic 360-10,
Property, Plant and Equipment ("ASC 360-10"). ASC 360-10 requires that
long-lived assets and certain identifiable intangibles held and used by the
Company be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. The
Company evaluates its long-lived assets for impairment annually or more often if
events and circumstances warrant. Events relating to recoverability may include
significant unfavorable changes in business conditions, recurring losses, or a
forecasted inability to achieve break-even operating results over an extended
period. Should impairment in value be indicated, the carrying value of
intangible assets will be adjusted, based on estimates of future discounted cash
flows resulting from the use and ultimate disposition of the asset. ASC 360-10
also requires assets to be disposed to be reported at the lower of the carrying
amount or the fair value less costs to sell.
Reclassification
Certain reclassifications have been made to the prior year financial statements
to conform to the current year presentation. The reclassification had no impact
on previously reported net loss nor accumulated deficit.
Revenue Recognition
In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with
Customers (Topic 606) ("ASU 2014-09"), which amends the accounting standards for
revenue recognition. ASU 2014-09 is based on principles that govern the
recognition of revenue at an amount an entity expects to be entitled when
products are transferred to a customer. Topic 606 requires the Company to
recognize revenues when control of the promised goods or services and receipt of
payment is probable. The Company recognizes revenue based on the five criteria
for revenue recognition established under Topic 606: 1) identify the contract,
2) identify separate performance obligations, 3) determine the transaction
price, 4) allocate the transaction price among the performance obligations, and
5) recognize revenue as the performance obligations are satisfied.
12
Table of Contents
The Company adopted Topic 606 effective March 1, 2019 and began to generate
revenue during the nine months ended November 30, 2019. The Company sells
advertising services to third-party advertising agencies and advertisers.
Advertising contracts are signed to establish the price and advertising services
to be provided. Pursuant to the advertising contracts, the Company provides
advertisement placements on its OTT platform in different formats, including but
not limited to video, banners, links, logos, brand placement and buttons. The
Company performs a credit assessment of the customer to assess the
collectability of the contract price prior to entering into contracts. For
contracts where the Company provides customers with multiple performance
obligations, primarily for advertisements to be displayed in different spots,
placed under different forms and occur at different times, the Company would
evaluate all the performance obligations in the arrangement to determine whether
each performance obligation is distinct. Consideration is allocated to each
performance obligation based on its standalone selling price and revenue is
recognized as each performance obligation is satisfied by displaying the
advertisements in accordance with the advertising contracts.
Research and Development Expenses
Research and development costs are generally expensed as incurred. Research and
development expenses mainly consist of the costs incurred in the development and
improvement of the Company's OTT service platform. Research and development
expenses were $0 and $863,528 for the nine months ended November 30, 2019 and
2018, respectively.
Share-Based Payments
The Company follows the provisions of ASC Topic 718, Compensation - Stock
Compensation ("ASC 718"), which requires the measurement and recognition of
compensation expense for all share-based payment awards made to employees,
non-employee directors, and consultants, including employee stock options. Stock
compensation expense based on the grant date fair value estimated in accordance
with the provisions of ASC 718 is recognized as an expense over the requisite
service period and the Company made a policy election to recognize forfeitures
when they occur.
The fair value of each option grant is estimated using the Black-Scholes
option-pricing model, which requires assumptions regarding the expected
volatility of the stock options, the expected life of the options, an
expectation regarding future dividends on the Company's common stock, and
estimation of an appropriate risk-free interest rate. The Company's expected
common stock price volatility assumption is based upon the historical volatility
of similar companies due to limited history of our stock price. The expected
life assumption for stock options grants was based upon the simplified method
provided for under ASC 718-10, which averages the contractual term of the
options with the vesting term. The dividend yield assumption of zero is based
upon the fact that the Company has never paid cash dividends and presently has
no intention of paying cash dividends in the future. The risk-free interest rate
used for each grant was based upon prevailing short-term interest rates over the
expected life of the options.
Translation Adjustment
The accounts of China VTV were maintained, and its financial statements were
expressed, in Hong Kong Dollar ("HKD"). Such financial statements were
translated into U.S. Dollars ("$" or "USD") in accordance ASC 830, "Foreign
Currency Matters", with the HKD as the functional currency. Pursuant to the ASC
830, all assets and liabilities are translated at the current exchange rate,
stockholders' equity (deficit) are translated at the historical rates, and
income statement items are translated at an average exchange rate for the
period.
The resulting translation adjustments are reported under accumulated other
comprehensive income (loss) as a component of stockholders' equity (deficit).
Comprehensive Income (Loss)
Comprehensive income (loss) includes accumulated foreign currency translation
gains and losses. The Company has reported the components of comprehensive
income (loss) on its consolidated statements of stockholders' equity (deficit)
and consolidated statements of operations and comprehensive income (loss).
13
Table of Contents
Fair Value Measurements
FASB ASC 820, "Fair Value Measurements" defines fair value for certain financial
and nonfinancial assets and liabilities that are recorded at fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. It requires that an entity measure its financial
instruments to base fair value on exit price, maximize the use of observable
units and minimize the use of unobservable inputs to determine the exit price.
It establishes a hierarchy which prioritizes the inputs to valuation techniques
used to measure fair value. This hierarchy increases the consistency and
comparability of fair value measurements and related disclosures by maximizing
the use of observable inputs and minimizing the use of unobservable inputs by
requiring that observable inputs be used when available. Observable inputs are
inputs that reflect the assumptions market participants would use in pricing the
assets or liabilities based on market data obtained from sources independent of
the Company. Unobservable inputs are inputs that reflect the Company's own
assumptions about the assumptions market participants would use in pricing the
asset or liability developed based on the best information available in the
circumstances. The hierarchy prioritizes the inputs into three broad levels
based on the reliability of the inputs as follows:
· Level 1 - Inputs are quoted prices in active markets for identical assets
or liabilities that the Company has the ability to access at the
measurement date. Valuation of these instruments does not require a high
degree of judgment as the valuations are based on quoted prices in active
markets that are readily and regularly available.
· Level 2 - Inputs other than quoted prices in active markets that are
either directly or indirectly observable as of the measurement date, 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 - Valuations based on inputs that are unobservable and not
corroborated by market data. The fair value for such assets and
liabilities is generally determined using pricing models, discounted cash
flow methodologies, or similar techniques that incorporate the assumptions
a market participant would use in pricing the asset or liability.
The carrying values of certain assets and liabilities of the Company, such as
accounts payable and accrued expenses, approximate to fair value due to their
relatively short maturities.
Recently Issued Accounting Pronouncements
Management has considered all recent accounting pronouncements issued and their
potential effect on the consolidated financial statements. The Company's
management believes that these recent pronouncements will not have a material
effect on its consolidated financial statements.
14
Table of Contents© Edgar Online, source Glimpses
CHINA VTV LTD. 
