The accompanying notes are an integral part of the consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
NOTE 1 ORGANIZATION AND
PRINCIPAL ACTIVITIES
Network CN Inc. was originally incorporated on September 10,
1993 in Delaware with headquarters in the Hong Kong Special Administrative Region of the People’s Republic of China (“PRC”
or “China”). Since August 2006, Network CN Inc., its subsidiaries and variable interest entities for which it is
the primary beneficiary (collectively “NCN” or the “Company” “we”, “our” or “us”)
has been principally engaged in the provision of out-of-home advertising in China through the operation of a network of roadside light
emitting diode (“LED”) digital video panels, mega-size LED digital video billboards and light boxes in major cities.
Details of the Company’s principal subsidiaries and variable
interest entities as of December 31, 2020 are described in Note 3 – Subsidiaries and Variable Interest Entities.
Private Placement
On March 28, 2019, the Company sold
an aggregate of 35,000 shares of the Company’s common stock (the “Shares”) to 9 foreign investors (the “New Investors”)
pursuant to the terms of a Common Stock Purchase Agreement between the Company and the New Investors, dated March 28, 2019. The purchase
price paid by the New Investor for the Shares were $1.50 or $1.88 per Share for an aggregate sum of sixty-three thousand, three hundred
and seventy-five U.S. dollars and thirty cents (US$63,375). Net proceeds from the financing will be used for general corporate purposes.
On August 16, 2019, the Company sold
5,000 shares of the Company’s common stock (the “Shares”) to a foreign investor (the “Investor”) pursuant
to the terms of a Common Stock Purchase Agreement between the Company and the Investor, dated August 16, 2019. The purchase price paid
by the Investors for the Shares was $1.875 per Share for an aggregate sum of nine thousand three hundred and seventy-five U.S. dollars
(US$9,375). Net proceeds from the financing have been used for general corporate purposes.
Identification of New projects
On January 14, 2020, the Company entered into
a Letter of Intent with Earthasia Worldwide Holdings Limited (“EWHL”) that the Company will acquire 100% of the EWHL’s
issued and outstanding stock owned by the shareholders of the EWHL and the EWHL will become a wholly owned subsidiary of the Company.
On July 23, 2020, the Company entered into Share
Exchange Agreement with Ease Global Limited (“Ease Global”), the shareholder of Trade More Global Limited (‘Trade More”)
that the Company will purchase, One Thousand and One Hundred (1,100) currently issued shares of common stock of Trade More from Ease
Global and in exchange for Forty-nine Million (49,000,000) shares of newly-issued shares of common stock of the Company. The closing
of the Exchange shall occur on September 2, 2020 or such other date as agreed by the parties of the Share Exchange Agreement. Upon completion
of the Exchange, 78% of issued shares of common stock of the Company shall be held by the Ease Global while all of the shares of capital
stock of Trade More shall be held by the Company. EWHL is a wholly owned subsidiary of Trade More.
The closing of Exchange was not completed on September
2, 2020 and was postponed due to the progress of audit. Due to the delay of completion, the Company will re-evaluate the acquisition until
Ease Global can fulfill the revenue target and the internal controls over financial reporting required by the SEC. The Company will proceed
to negotiate and seek approval from the board of directors and shareholders for the new share exchange terms and conditions.
Increase of authorized capital
On April 28, 2020, the Board of Directors
and Majority of stockholders of the Company approved to increase the total number of authorized shares of Common Stock from 26,666,667
to 100,000,000,000.
Going Concern
The Company has net cash used in operating activities of $665,693
and $125,060 for the years ended December 31, 2020 and 2019 respectively. As of December 31, 2020 and 2019, the Company has stockholders’
deficit of $7,773,295 and $12,642,772, respectively. These factors raise substantial doubt about the Company’s ability to continue
as a going concern. The Company’s plans regarding those concerns are addressed in the following paragraph. The consolidated financial
statements do not include any adjustments that might result from the outcome of this uncertainty.
In response to current financial conditions, the Company has
actively explored new prominent media projects in order to provide a wider range of media and advertising services and improve our financial
performance. If the project can start to operate, the Company expects that the project will improve the Company’s future financial
performance. The Company expects that the new project can generate positive cashflow.
The existing cash and cash equivalents together with highly
liquid current assets are insufficient to fund the Company’s operations for the next twelve months. The Company will need to rely
upon some combination of cash generated from the Company’s operations, the proceeds from the potential exercise of the outstanding
option held by Keywin Holdings Limited (“Keywin”) to purchase $2 million in shares of the Company’s common stock, or
proceeds from the issuance of the Company’s equity and debt securities as well as the exercise of the conversion option by the Company’s
note holders to convert the notes to the Company’s common stock, in order to maintain the Company’s operations. Based on the
Company’s best estimates, the Company believes that there are sufficient financial resources to meet the cash requirements for the
coming twelve months and the consolidated financial statements have been prepared on a going concern basis. However, there can be no assurance
the Company will be able to continue as a going concern. These uncertainties may result in adverse effects on continuation of the Company
as a going concern. The accompany consolidated financial statements do not reflect any adjustments that might result from the outcome
of these uncertainties.
NOTE 2 SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(A) Basis of Presentation and Preparation
These consolidated financial statements of the Company have
been prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”).
(B) Principles of Consolidation
The consolidated financial statements include the financial
statements of Network CN Inc., its subsidiaries and variable interest entities for which it is the primary beneficiary. These variable
interest entities are those in which the Company, through contractual arrangements, bears the risks and enjoys the rewards normally associated
with ownership of the entities. Upon making this determination, the Company is deemed to be the primary beneficiary of these entities,
which are then required to be consolidated for financial reporting purpose. All significant intercompany transactions and balances have
been eliminated upon consolidation.
(C) Use of Estimates
The Company's consolidated financial statements requires management
to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial
statements and reported amounts of revenue and expense during the reporting period. Estimates are used when accounting for certain items
such as accounting for income tax valuation allowances. Estimates are based on historical experience, where applicable, and assumptions
that management believes are reasonable under the circumstances. Due to the inherent uncertainty involved with estimates, actual results
may differ.
(D) Cash
Cash includes cash on hand, cash accounts, and interest-bearing
savings accounts placed with banks and financial institutions. For the purposes of the statements of cash flow, the Company considers
all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents. There were
no cash equivalents balance as of December 31, 2020 and December 31, 2019.
(E) Equipment, Net
Equipment is stated at cost less accumulated depreciation and
impairment losses, if any. Depreciation is provided on a straight-line basis, less estimated residual values over the assets’ estimated
useful lives. The estimated useful lives are as follows:
Office equipment
|
3 - 5 years
|
When equipment is retired or otherwise disposed of, the related
cost, accumulated depreciation and provision for impairment loss, if any, are removed from the respective accounts, and any gain or loss
is reflected in the consolidated statements of operations and comprehensive loss. Repairs and maintenance costs on equipment are expensed
as incurred.
(F) Impairment of Long-Lived Assets
Long-lived assets, such as equipment, are reviewed for impairment
whenever events or changes in circumstance indicate that the carrying amount of the assets may not be recoverable. An impairment loss
is recognized when the carrying amount of a long-lived asset exceeds the sum of the undiscounted cash flows expected to be generated from
the asset’s use and eventual disposition. An impairment loss is measured as the amount by which the carrying amount exceeds the
fair value of the asset calculated using a undiscounted cash flow analysis. There was no impairment of long-lived assets for the years
ended December 31, 2020 and 2019.
(G) Convertible Promissory Notes and Warrants
1) Debt Restructuring and Issuance of 1% Convertible Promissory Note
On April 2, 2009, the Company issued 1% unsecured senior convertible
promissory notes to the previous 3% convertible promissory note holders who agreed to cancel these 3% convertible promissory notes in
the principal amount of $5,000,000 (including all accrued and unpaid interest thereon), and all of the warrants, in exchange for the 1%
unsecured senior convertible promissory notes in the principal amount of $5,000,000. The 1% convertible promissory notes bore interest
at 1% per annum, payable semi-annually in arrears, matured on April 1, 2012, and were convertible at any time into shares of the Company’s
common stock at a fixed conversion price of $1.7445 per share, subject to customary anti-dilution adjustments. Pursuant to ASC Topic 470,
Debt, the Company determined that the original convertible notes and the 1% convertible notes were with substantially different terms
and hence the exchange was recorded as an extinguishment of original notes and issuance of new notes.
The Company determined the 1% convertible promissory notes to
be conventional convertible instruments under ASC Topic 815, Derivatives and Hedging. Its embedded conversion option qualified for equity
classification. The embedded beneficial conversion feature was recognized and measured by allocating a portion of the proceeds equal to
the intrinsic value of that feature to additional paid-in capital. The debt discount resulting from the allocation of proceeds to the
beneficial conversion feature is amortized over the term of the 1% convertible promissory notes from the respective dates of issuance
using the effective interest method.
2) Extension of 1% Convertible Promissory Note
The 1% convertible promissory notes
matured on April 1, 2012 and on the same date, the Company and the note holders agreed to the following: 1) extension of the maturity
date of the 1% convertible promissory notes for a period of two years and 2) modification of the 1% convertible promissory notes to be
convertible at any time into shares of the Company’s common stock at a conversion price of $1.3956 per share, subject to customary
anti-dilution adjustments. In all other respects not specifically mentioned, the terms of the 1% convertible promissory notes remain the
same and are fully enforceable in accordance with their terms. Subsequently, the Company issued to the note holders new 1% convertible
promissory notes with a maturity date of April 1, 2014. Pursuant to ASC Topic 470, the Company determined that the modification is substantially
different and hence the modification was recorded as an extinguishment of notes and issuance of new notes. The Company allocated the amount
of the reacquisition price to the repurchased beneficial conversion feature using the intrinsic value of that conversion feature at the
extinguishment date and the residual amount was allocated to the convertible security. Thus, the Company recorded a gain on extinguishment
of debt. The 1% Convertible Promissory Notes were scheduled to mature on April 1, 2014 and on March 12, 2014, the Company and the respective
holders agreed to extend the maturity date of the 1% Convertible Promissory Notes for a period of two years. In all other respects not
specifically mentioned, the terms of the 1% Convertible Promissory Notes shall remain the same and shall be fully enforceable in accordance
with its terms. Subsequently, the Company issued to the note holders new 1% convertible promissory notes which was matured on April 1,
2016. The Company allocated the amount of the reacquisition price to the repurchased beneficial conversion feature using the intrinsic
value of that conversion feature at the extinguishment date and the residual amount was allocated to the convertible security. Thus, the
Company recorded no gain or loss on extinguishment of debt.
The Company determined the modified new 1% convertible promissory
notes to be conventional convertible instruments under ASC Topic 815. Its embedded conversion option qualified for equity classification.
The embedded beneficial conversion feature was recognized and measured by allocating a portion of the proceeds equal to the intrinsic
value of that feature to additional paid-in capital. The debt discount resulting from the allocation of proceeds to the beneficial conversion
feature is amortized over the term of the new 1% convertible promissory notes from the respective dates of issuance using the effective
interest method.
On April 29, 2016, the Company received
a reservation of rights letter from the note holders to reserves all of its powers, rights and privileges.
3) Issuance of 1% Convertible Promissory Note
On January 14, 2020, the Company issued 1% unsecured senior
convertible promissory notes to an individual with the principal amount of $645,000. The 1% convertible promissory notes bore interest
at 1% per annum, payable semi-annually in arrears, matured on January 13, 2025, and were convertible at any time into shares of the Company’s
common stock at a fixed conversion price of $1.00 per share, subject to customary anti-dilution adjustments.
The Company determined the 1% convertible promissory notes to
be conventional convertible instruments under ASC Topic 815, Derivatives and Hedging. Its embedded conversion option qualified for equity
classification. The embedded beneficial conversion feature was recognized and measured by allocating a portion of the proceeds equal to
the intrinsic value of that feature to additional paid-in capital. The debt discount resulting from the allocation of proceeds to the
beneficial conversion feature is amortized over the term of the 1% convertible promissory notes from the respective dates of issuance
using the effective interest method.
4) Gain on extinguishment of debt
On December 16, 2020, the Company received Abandonment of interest from the note
holders to abandon, relinquish, and surrender all their rights and obligations under the Notes and they confirmed to receive no consideration
in exchange for the Notes. Thus, the Company recognized a gain on extinguishment of debt of $5,299,726 at the date of extinguishment and
included in the statements of operations for the year ended December 31, 2020.
(H) Revenue Recognition
In accordance with ASC 606, Revenue From Contracts with Customers,
an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration
the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that are within
the scope of the standard, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the
performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance
obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The standard requires
disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The standard
also includes criteria for the capitalization and amortization of certain contract acquisition and fulfillment costs.
The Company recognize revenue when a customer obtains control
of promised services. The amount of revenue recognized reflects the consideration we expect to be entitled to receive in exchange for
such services. To achieve this core principle, we apply the following five steps:
1) Identify the contract(s) with a customer - A contract with
a customer exists when (i) we enter into an enforceable contract with a customer that defines each party’s rights regarding the
goods or services to be transferred and identifies the payment terms related to those goods or services, (ii) the contract has commercial
substance and, (iii) we determine that collection of substantially all consideration for goods or services that are transferred is probable
based on the customer’s intent and ability to pay the promised consideration. We apply judgment in determining the customer’s
ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience or,
in the case of a new customer, published credit and financial information pertaining to the customer. The contract term for contracts
that provide a right to terminate a contract for convenience without significant penalty will reflect the term that each party has enforceable
rights under the contract (the period through the earliest termination date). If the termination right is only provided to the customer,
the unsatisfied performance obligations will be evaluated as customer options as discussed below.
2) Identify the performance obligations in the contract - Performance
obligations promised in a contract are identified based on the goods or services that will be transferred to the customer that are both
(i) capable of being distinct, whereby the customer can benefit from the good or service either on its own or together with other resources
that are readily available from third parties or from us, and (ii) are distinct in the context of the contract, whereby the transfer of
the goods or services is separately identifiable from other promises in the contract. If these criteria are not met the promised goods
or services are accounted for as a combined performance obligation. Certain of our contracts (under which we deliver multiple promised
services) require us to perform integration activities where we bear risk with respect to integration activities. Therefore, we must apply
judgment to determine whether as a result of those integration activities and risks, the promised services are distinct on the context
of the contract.
We typically do not include options that would result in a material
right. If options to purchase additional services or options to renew are included in customer contracts, we evaluate the option in order
to determine if our arrangement include promises that may represent a material right and needs to be accounted for as a performance obligation
in the contract with the customer.
3) Determine the transaction price - The transaction price is
determined based on the consideration to which we will be entitled in exchange for transferring goods or services to the customer. Our
contract prices may include fixed amounts, variable amounts or a combination of both fixed and variable amounts. To the extent the transaction
price includes variable consideration, we estimate the amount of variable consideration that should be included in the transaction price
utilizing either the expected value method or the most likely amount method depending on the nature of the variable consideration. When
determining if variable consideration should be constrained, management considers whether there are factors outside our control that could
result in a significant reversal of revenue. In making these assessments, we consider the likelihood and magnitude of a potential reversal
of revenue. These estimates are re-assessed each reporting period as required.
4) Allocate the transaction price to the performance obligations
in the contract - If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance
obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance
obligation based on a relative standalone selling price (SSP) basis unless the transaction price is variable and meets the criteria to
be allocated entirely to a performance obligation or to a distinct good or service that forms part of a single performance obligation.
For most performance obligations, we determine standalone selling price based on the price at which the performance obligation is sold
separately. Although uncommon, if the standalone selling price is not observable through past transactions, we estimate the standalone
selling price taking into account available information such as market conditions and internally approved pricing guidelines related to
the performance obligations.
5) Recognize revenue when (or as) we satisfy a performance obligation:
we satisfy performance obligations either over time or at a point-in-time as discussed in further detail below. Revenue is recognized
when the related performance obligation is satisfied by transferring control of a promised good or service to a customer.
The Company has yet to generate revenue from operations for
the years ended December 31, 2020 and 2019.
(I) Stock-based Compensation
The Company complies with ASC Topic 718, Compensation –
Stock Compensation, using a modified prospective application transition method, which establishes accounting for stock-based awards in
exchange for employee services. Under this application, the Company is required to record stock-based compensation expense for all awards
granted. It requires that stock-based compensation cost is measured at grant date, based on the fair value of the award, and recognized
as expense over the requisite services period.
The Company follows ASC topic 505-50, “Accounting for
Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling Goods and Services,” for
stock issued to consultants and other non-employees. In accordance with ACS Topic 505-50, the stock issued as compensation for services
provided to the Company are accounted for based upon the fair value of the services provided or the estimated fair market value of the
stock, whichever can be more clearly determined. The fair value of the equity instrument is charged directly to expense over the period
during which services are rendered.
(J) Income Taxes
The Company recognizes deferred tax liabilities and assets for
the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Deferred
tax liabilities and assets are determined based on the difference between the financial statement basis and tax basis of assets and liabilities
using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company estimates the degree to which
tax assets and credit carryforwards will result in a benefit based on expected profitability by tax jurisdiction. A valuation allowance
for such tax assets and loss carryforwards is provided when it is determined to be more likely than not that the benefit of such deferred
tax asset will not be realized in future periods. Tax benefits of operating loss carryforwards are evaluated on an ongoing basis, including
a review of historical and projected future operating results, the eligible carryforward period, and other circumstances. If it becomes
more likely than not that a tax asset will be used, the related valuation allowance on such assets would be reduced.
The Company recognizes tax benefits from uncertain tax positions
only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical
merits of the position. Once this threshold has been met, the Company's measurement of its expected tax benefits is recognized in its
consolidated financial statements. The Company accrues interest on unrecognized tax benefits as a component of income tax expense. Penalties,
if incurred, would be recognized as a component of income tax expense.
(K) Comprehensive Income (Loss)
The Company follows ASC Topic 220, Comprehensive Income, for
the reporting and display of its comprehensive income (loss) and related components in the consolidated financial statements and thereby
reports a measure of all changes in equity of an enterprise that results from transactions and economic events other than transactions
with the shareholders. Items of comprehensive income (loss) are reported in both the consolidated statements of operations and comprehensive
income and the consolidated statement of stockholders’ deficit.
Accumulated other comprehensive income as presented on the consolidated
balance sheets consisted of the accumulative foreign currency translation adjustment at period end.
(L) Earnings (Loss) Per Common Share
Basic earnings (loss) per common share are computed in accordance
with ASC Topic 260, Earning per Share, by dividing the net income (loss) attributable to holders of common stock by the weighted average
number of shares of common stock outstanding during the period. Diluted earnings (loss) per common share is computed by dividing net income
(loss) by the weighted average number of common shares including the dilutive effect of common share equivalents then outstanding.
The diluted net profit/(loss) per common share is the same as
the basic net profit/(loss) per share for the years ended December 31, 2020 and 2019 as all potential common shares including stock options
and warrants are anti-dilutive and are therefore excluded from the computation of diluted net profit/(loss) per share.
(M) Foreign Currency Translation
The assets and liabilities of the Company’s subsidiaries
and variable interest entity denominated in currencies other than U.S. dollars are translated into U.S. dollars using the applicable exchange
rates at the balance sheet date. For consolidated statements of operations and comprehensive loss’ items, amounts denominated in
currencies other than U.S. dollars were translated into U.S. dollars using the average exchange rate during the period. Equity accounts
were translated at their historical exchange rates. Net gains and losses resulting from translation of foreign currency on consolidated
financial statements are included in the statements of stockholders’ equity as accumulated other comprehensive income (loss).
Foreign currency transaction gains and losses are reflected in the unaudited consolidated statements of operations and comprehensive income.
(N) Fair Value of Financial Instruments
ASC Topic 820, Fair Value Measurements and Disclosure, defines
fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted
to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and it considers
assumptions that market participants would use when pricing the asset or liability.
It establishes a fair value hierarchy that requires an entity
to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s
categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
It establishes three levels of inputs that may be used to measure fair value:
Level 1 - Level 1 applies to assets or liabilities for
which there are quoted prices in active markets for identical assets or liabilities.
Level 2 - Level 2 applies to assets or liabilities for
which there are inputs other than quoted prices included within Level 1 that are observable for the asset or liability such as quoted
prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient
volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be
derived principally from, or corroborated by, observable market data.
Level 3 - Level 3 applies to assets or liabilities for
which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets
or liabilities.
The carrying value of the Company’s financial instruments,
which consist of cash, prepaid expenses and other current assets, accounts payable, accrued expenses and other payables, and convertible
promissory notes approximates fair value due to the short-term maturities.
The carrying value of the Company’s financial instruments
related to warrants associated with convertible promissory notes is stated at a value being equal to the allocated proceeds of convertible
promissory notes based on the relative fair value of notes and warrants. In the measurement of the fair value of these instruments, the
Black-Scholes option pricing model is utilized, which is consistent with the Company’s historical valuation techniques. These derived
fair value estimates are significantly affected by the assumptions used. As the allocated value of the financial instruments related to
warrants associated with convertible promissory notes is recorded in additional paid-in capital, the financial instruments related to
warrants were not required to mark to market as of each subsequent reporting period.
(O) Recently Adapted Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board ("FASB")
issued Accounting Standards Update ("ASU") 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses
on Financial Instruments, codified as ASC 326. Subsequent amendments to the guidance were issued as follows: ASU 2018-19 in November
2018; ASU 2019-04 in April 2019; ASU 2019-05 in May 2019; ASU's 2019-10 and 2019-11 in November 2019; and ASU 2020-02 in February 2020.
This ASU provides financial statement users with more decision-useful information about the expected credit losses on financial instruments
and other commitments to extend credit held by a reporting entity at each reporting date. The amendments in ASU 2016-13 replace the incurred
loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of
a broader range of reasonable and supportable information to inform credit loss estimates. The Company adopted ASU 2016-13 as of January
1, 2020. The adoption of ASU 2016-13 did not have a material impact on the consolidated financial statements or related disclosures.
In August 2018, the FASB issued ASU 2018-03, Fair Value Measurement
(Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement ("ASU 2018-13").
The amendments modify the disclosure requirements in Topic 820. ASU 2018-13 is effective for all entities for fiscal years, and interim
periods within those fiscal years, beginning after December 15, 2019. The amendments on (i) changes in unrealized gains and losses, (ii)
the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and (iii) the narrative
description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in
the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective
date. The Company adopted this guidance on January 1, 2020. The adoption did not have a material impact on the Company's Consolidated
Financial Statements or related disclosures.
(P) Recent Accounting Pronouncements
In December 2019, the
FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for
income taxes. This guidance will become effective for the Company in the first quarter of fiscal year 2021 on a prospective basis. The
Company is currently evaluating the impact of the new guidance on its consolidated financial statements.
In January 2020, the FASB
issued ASU 2020-01, “Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic
323), and Derivatives and Hedging (Topic 815),” an amendment clarifying the interaction between accounting standards related to
equity securities, equity method investments, and certain derivative instruments. The guidance is effective for fiscal years beginning
after December 15, 2020. ASU 2020-01 will become effective for the Company in fiscal 2022. The Company is currently evaluating the impact
of the new guidance on its consolidated financial statements.
In October 2020, the FASB
issued ASU 2020-10, “Codification Improvements,” this ASU affects a wide variety of Topics in the Codification. They apply
to all reporting entities within the scope of the affected accounting guidance. More specifically, this ASU, among other things, contains
amendments that improve the consistency of the Codification by including all disclosure guidance in the appropriate Disclosure Section
(Section 50). Many of the amendments arose because the FASB provided an option to give certain information either on the face of the financial
statements or in the notes to financial statements and that option only was included in the Other Presentation Matters Section (Section
45) of the Codification. The option to disclose information in the notes to financial statements should have been codified in the Disclosure
Section as well as the Other Presentation Matters Section (or other Section of the Codification in which the option to disclose in the
notes to financial statements appears). Those amendments are not expected to change current practice. The amendments are effective for
annual periods beginning after December 15, 2021, and interim periods within annual periods beginning after December 15, 2022. Early application
of the amendments is permitted for and varies based on the entity. The amendments should be applied retrospectively and at the beginning
of the period that includes the adoption date. The Company is currently evaluating the impact of the new guidance on its consolidated
financial statements.
NOTE 3 SUBSIDIARIES
AND VARIABLE INTEREST ENTITIES
Details of the Company’s principal consolidated subsidiaries
and variable interest entities as of December 31, 2020 were as follows:
Name
|
|
Place of
Incorporation
|
|
Ownership/Control
interest
attributable to
the Company
|
|
Principal activities
|
NCN Group Limited
|
|
BVI
|
|
100%
|
|
Investment holding
|
NCN Media Services Limited
|
|
BVI
|
|
100%
|
|
Investment holding
|
Cityhorizon Limited
|
|
Hong Kong
|
|
100%
|
|
Investment holding
|
NCN Group Management Limited
|
|
Hong Kong
|
|
100%
|
|
Provision of administrative and management services
|
Crown Eagle Investment Limited
|
|
Hong Kong
|
|
100%
|
|
Dormant
|
Crown Winner International Limited
|
|
Hong Kong
|
|
100%
|
|
Investment holding
|
NCN Huamin Management Consultancy (Beijing)
Company Limited *
|
|
PRC
|
|
100%
|
|
Dormant
|
Huizhong Lianhe Media Technology Co., Ltd. *
|
|
PRC
|
|
100%
|
|
Dormant
|
Beijing Huizhong Bona Media Advertising Co.,
Ltd.*
|
|
PRC
|
|
100% (1)
|
|
Dormant
|
Xingpin Shanghai Advertising Limited
|
|
PRC
|
|
100% (1)
|
|
Dormant
|
Chuanghua Shanghai Advertising Limited
|
|
PRC
|
|
100%
|
|
Dormant
|
Jiahe Shanghai Advertising Limited
|
|
PRC
|
|
100%
|
|
Dormant
|
* The subsidiary’s registration license has been revoked.
Remarks:
1) Variable interest entity which the Company exerted 100%
control through a set of commercial arrangements.
NOTE 4 PREPAID
EXPENSES AND OTHER CURRENT ASSETS, NET
Prepaid expenses and other current assets, net as of December
31, 2020 and 2019 were as follows:
|
|
2020
|
|
|
2019
|
|
Prepaid expenses
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
Rental and other deposits
|
|
|
-
|
|
|
|
-
|
|
Sub-total
|
|
|
100,000
|
|
|
|
100,000
|
|
Less: allowance for doubtful debts
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
For the years ended December 31, 2020 and 2019, the Company
recorded no allowance for doubtful debt for prepaid expenses and other current assets.
NOTE 5 EQUIPMENT,
NET
Equipment, net as of December 31, 2020 and 2019 consisted of
the following:
|
|
2020
|
|
|
2019
|
|
Office equipment
|
|
$
|
3,828
|
|
|
$
|
6,873
|
|
Less: accumulated depreciation
|
|
|
(3,229
|
)
|
|
|
(6,435
|
)
|
Total
|
|
$
|
599
|
|
|
$
|
438
|
|
Depreciation expenses for the years ended December 31, 2020
and 2019 amounted to $456 and $878 respectively.
Pledge of Equipment
No equipment has been pledged by the Company.
NOTE 6 ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER PAYABLES
Accounts payable, accrued expenses and other payables as of
December 31, 2020 and 2019 consisted of the following:
|
|
2020
|
|
|
2019
|
|
Accrued staff benefits and related fees
|
|
$
|
1,749,401
|
|
|
$
|
1,916,879
|
|
Accrued professional fees
|
|
|
47,266
|
|
|
|
95,737
|
|
Accrued interest expenses
|
|
|
2,370,872
|
|
|
|
2,752,993
|
|
Other accrued expenses
|
|
|
41,461
|
|
|
|
30,537
|
|
Other payables
|
|
|
52,650
|
|
|
|
809
|
|
Total
|
|
$
|
4,261,650
|
|
|
$
|
4,796,955
|
|
NOTE 7 SHORT-TERM LOANS
As of December 31, 2020 and 2019, the Company recorded an aggregated
amount of $2,973,211 and $2,951,765 of short-term loans, respectively. Those loans were borrowed from unrelated individuals. Except for
loan of $128,205 that are unsecured, bearing yearly interest of 1% and are repayable on demand, the remaining loans are unsecured, bear
a monthly interest of 1.5% and are repayable on demand. However, according to the agreement, the Company shall have the option to shorten
or extend the life of those short-term loans if the need arises and the Company has agreed with the lender to extend the short-term loans
on the due date. As of the date of this report, those loans have not yet been repaid.
The interest expenses of the short-term loans for the years
ended December 31, 2020 and 2019 amounted to $514,038 and $526,590, respectively.
NOTE 8 CONVERTIBLE
PROMISSORY NOTES AND WARRANTS
(1) Debt Restructuring and Issuance of 1% Convertible Promissory Notes
On November 19, 2007, the Company entered into a Note and Warrant
Purchase Agreement, as amended (the “Purchase Agreement”) with Shanghai Quo Advertising Co. Ltd and affiliated investment
funds of Och-Ziff Capital Management Group (the “Investors”) pursuant to which it agreed to issue in three tranches, 3% Senior
Secured Convertible Promissory Notes due June 30, 2011, in the aggregate principal amount of up to $50,000,000 (the “3% Convertible
Promissory Notes”) and warrants to acquire an aggregate amount of 457,143 shares of the Company’s Common Stock (the “Warrants”).
Between November 19 - 28, 2007, the Company issued 3% Convertible Promissory Notes in the aggregate principal amount of $15,000,000, Warrants
to purchase shares of the Company’s common stock at $187.5 per share and Warrants to purchase shares of the Company’s common
stock at $262.5 per share. On January 31, 2008, the Company amended and restated the previously issued 3% Convertible Promissory Notes
and issued to the Investors 3% Convertible Promissory Notes in the aggregate principal amount of $50,000,000 (the “Amended and Restated
Notes”), Warrants to purchase shares of the Company’s common stock at $187.5 per share and Warrants to purchase shares of
the Company’s common stock at $262.5 per share. In connection with the Amended and Restated Notes, the Company entered into a Security
Agreement, dated as of January 31, 2008 (the “Security Agreement”), pursuant to which the Company granted to the collateral
agent for the benefit of the Investors, a first-priority security interest in certain of the Company’s assets, and 66% of the equity
interest in the Company.
On April 2, 2009, the Company entered into a new financing arrangement
with the previous holders of the Amended and Restated Notes (the “Note Holders”), and Keywin.
Pursuant to a note exchange and option agreement, dated April
2, 2009 (the “Note Exchange and Option Agreement”), between the Company and Keywin, Keywin exchanged its Amended and Restated
Note in the principal amount of $45,000,000, and all accrued and unpaid interest thereon, for 4,093,806 shares of the Company’s
common stock and an option to purchase an aggregate of 1,637,522 shares of the Company’s common stock, for an aggregate purchase
price of $2,000,000 (the “Keywin Option”). The Keywin Option was originally exercisable for a three-month period which commenced
on April 2, 2009, but pursuant to several subsequent amendments, the exercise period has been extended to a hundred and fifty-three-month
period ending on January 1, 2022, subject to the Company’s right to unilaterally terminate the exercise period upon 30 days’
written notice. As of December 31, 2020, the Keywin Option has not been exercised.
Pursuant to a note exchange agreement, dated April 2, 2009,
among the Company and the Note Holders, the parties agreed to cancel their Amended and Restated Notes in the principal amount of $5,000,000
(including all accrued and unpaid interest thereon), and all of the warrants, in exchange for the Company’s issuance of the 1% unsecured
senior convertible promissory notes due 2012 in the principal amount of $5,000,000 (the “1% Convertible Promissory Notes”).
The 1% Convertible Promissory Notes bear interest at 1% per annum, are payable semi-annually in arrears, mature on April 1, 2012, and
are convertible at any time by the holder into shares of the Company’s common stock at an initial conversion price of $1.7445 per
share, subject to customary anti-dilution adjustments. In addition, in the event of a default, the holders will have the right to redeem
the 1% Convertible Promissory Notes at 110% of the principal amount, plus any accrued and unpaid interest. The parties also agreed to
terminate the Security Agreement and release all security interests arising out of the Purchase Agreement and the Amended and Restated
Notes.
2) Extension of 1% Convertible Promissory Notes and Issuance of New 1% Convertible
Promissory Notes in 2012
The 1% Convertible Promissory Notes matured on April 1, 2012
and on the same date, the Company and the Note Holders agreed to the following: (1) extension of the maturity date of the 1% Convertible
Promissory Notes for a period of two years and (2) modification of the 1% Convertible Promissory Notes to be convertible at any time into
shares of the Company’s common stock at a conversion price of $1.3956 per share, subject to customary anti-dilution adjustments.
In all other respects not specifically mentioned, the terms of the 1% Convertible Promissory Notes shall remain the same and shall be
fully enforceable in accordance with its terms. Subsequently, the Company issued new 1% convertible promissory notes (the “New 1%
Convertible Promissory Notes”) to the Note Holders. The New 1% Convertible Promissory Notes bear interest at 1% per annum, are payable
semi-annually in arrears, mature on April 1, 2014, and are convertible at any time by the Note Holders into shares of the Company’s
common stock at an initial conversion price of $1.3956 per share, subject to customary anti-dilution adjustments. In addition, in the
event of a default, the Note Holders will have the right to redeem the New 1% Convertible Promissory Notes at 110% of the principal amount,
plus any accrued and unpaid interest.
Gain on extinguishment of debt
Pursuant to ASC Topic 470-20-40-3, the Company allocated the
amount of the reacquisition price to the repurchased beneficial conversion feature using the intrinsic value of that conversion feature
at the extinguishment date and the residual amount was allocated to the convertible security. Thus, the Company recognized a gain on extinguishment
of debt of $1,877,594 at the date of extinguishment and included in the statements of operations for the year ended December 31, 2012.
3) Extension of 1% Convertible Promissory Notes and Issuance of New 1% Convertible
Promissory Notes in 2014
The 1% Convertible Promissory Notes
matured on April 1, 2014 and on March 12, 2014, the Company and the respective holders agreed to extend the maturity date of the 1% Convertible
Promissory Notes for a period of two years until April 1, 2016. In all other respects not specifically mentioned, the terms of the 1%
Convertible Promissory Notes shall remain the same and shall be fully enforceable in accordance with its terms.
Pursuant to ASC Topic 470-50 and ASC Topic 470-50-40, the Company
determined that the original convertible notes and the modified convertible notes had substantially different terms and hence the fair
value of the embedded beneficial conversion feature of the modified convertible notes, which would be recognized and measured by allocating
a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital and any debt discount will be amortized
over the term of the modified convertible notes from the effective date of the new agreement using the effective interest method. As of
April 1, 2014, the Company determined the fair value of the embedded beneficial conversion feature of the modified convertible notes is
$nil.
4)No extension of 1% Convertible Promissory Notes at the maturity date on April
1, 2016
On April 29, 2016, the Company received
a reservation of rights letter from the note holders to reserves all of its powers, rights and privileges.
5) Issuance of New 1% Convertible Promissory Notes in 2020
On January 14, 2020, the Company entered into a Subscription
Agreement with Tsang Wai Yee Terri (“the Subscriber”) under which the Subscriber agreed to purchase the 1% Senior Unsecured
Convertible Note Agreement from the Company for an agreement purchase price of six hundred and forty-five thousand US Dollars ($645,000).
On the same date, the Company signed the 1% Senior Unsecured Convertible Note Agreement under which the Company may sell and issue to
the Subscriber up to an aggregate maximum amount of $645,000 in principal amount of Convertible Notes prior to January 13, 2025. The Convertible
Promissory Notes issued to the Investor are convertible at the holder’s option into shares of Company common stock at $1.00 per
share.
6) Gain on extinguishment of debt
On December 16, 2020, the Company received Abandonment of interest from the note
holders to abandon, relinquish, and surrender all their rights and obligations under the Notes and they confirmed to receive no consideration
in exchange for the Notes. Thus, the Company recognized a gain on extinguishment of debt of $5,299,726 at the date of extinguishment and
included in the statements of operations for the year ended December 31, 2020.
The following table details the accounting treatment of the
convertible promissory notes:
|
|
New 1%
Convertible
Promissory
Notes, due in
2016
|
|
|
New 1%
Convertible
Promissory
Notes, due in
2025
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Net carrying value of convertible promissory notes as of
December 31, 2019
|
|
$
|
5,000,000
|
|
|
$
|
-
|
|
|
$
|
5,000,000
|
|
Proceeds of new 1% convertible promissory notes
|
|
|
-
|
|
|
|
645,000
|
|
|
|
645,000
|
|
Abandonment of note
|
|
|
(5,000,000
|
)
|
|
|
-
|
|
|
|
(5,000,000
|
)
|
Net carrying value of convertible promissory notes as of
December 31, 2020
|
|
$
|
-
|
|
|
$
|
645,000
|
|
|
$
|
645,000
|
|
Interest Expense
The following table details the interest expenses:
|
|
Years Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
New 1% convertible promissory notes, due in 2016
|
|
$
|
12,329
|
|
|
$
|
50,000
|
|
New 1% convertible promissory notes, due in 2025
|
|
|
6,238
|
|
|
|
-
|
|
Total
|
|
$
|
18,567
|
|
|
$
|
50,000
|
|
NOTE 9 COMMITMENTS
AND CONTINGENCIES
Contingencies
The Company accounts for loss contingencies in accordance with
ASC Topic 450 and other related guidelines. As of December 31, 2020 and 2019, the Company’s management is of the opinion that there
are no commitments and contingencies to account for.
NOTE 10 STOCKHOLDERS’
DEFICIT
(A)
Stock, Options and Warrants Issued for Services
On March 28, 2019, the Company completed
private placement of 35,000 shares of restricted common stock at either $1.5 or $1.88 per share. The transaction took place with 9 investors
and generated gross proceeds of $63,375 for the year ended December 31, 2019.
On August 16, 2019, the Company completed
private placement of 5,000 shares of restricted common stock at $1.875 per share. The transaction took place with an investor and generated
gross proceeds of $9,375 for the year ended December 31, 2019.
(B) Restriction on payment of dividends
The Company has not declared any dividends since incorporation.
For instance, the terms of the outstanding promissory notes issued January 14, 2020 contain restrictions on the payment of dividends.
The dividend restrictions provide that the Company or any of its subsidiaries shall not declare or pay dividends or other distributions
in respect of the equity securities of such entity other than dividends or distributions of cash which amounts during any 12-month period
that exceed ten percent (10%) of the consolidated net income of the Company based on the Company’s most recent audited consolidated
financial statements disclosed in the Company’s annual report on Form 10-K (or equivalent form) filed with the U.S. Securities and
Exchange Commission.
NOTE 11 RELATED
PARTY TRANSACTIONS
Except as set forth below, during the years ended December 31,
2020 and 2019, the Company did not enter into any material transactions or series of transactions that would be considered material
in which any officer, director or beneficial owner of 5% or more of any class of the Company’s capital stock, or any immediate family
member of any of the preceding persons, had a direct or indirect material interest.
In April 2009, in connection with debt restructuring, Statezone
Ltd. of which Dr. Earnest Leung, the Company’s Chief Executive Officer and a Director (being appointed on July 15, 2009 and May
11, 2009, respectively) was the sole director, provided agency and financial advisory services to the Company. Accordingly, the Company
paid an aggregate service fee of $350,000, of which $250,000 has been recorded as issuance costs for 1% Convertible Promissory Notes and
$100,000 has been recorded as prepaid expenses and other current assets, net since April 2009. Such $100,000 is refundable unless the
Keywin Option is exercised and completed. As of December 31, 2019, $100,000 was recorded as prepaid expenses and other current assets.
On July 1, 2009, the Company and Keywin, of which the Company’s
chief executive officer and director is the director and his spouse is the sole shareholder, entered into an Amendment, pursuant to which
the Company agreed to extend the exercise period for the Keywin Option under the Note Exchange and Option Agreement between the Company
and Keywin, to purchase an aggregate of 1,637,522 shares of our common stock for an aggregate purchase price of $2,000,000, from a three-month
period ended on July 1, 2009, to a six-month period ended October 1, 2009. The exercise period for the Keywin option was subsequently
further extended to a nine-month period ended January 1, 2010, pursuant to the Second Amendment. On January 1, 2010, the Company and Keywin
entered into the third Amendment, pursuant to which the Company agreed to further extend the exercise period to an eighteen-month period
ended on October 1, 2010, and provide the Company with the right to unilaterally terminate the exercise period upon 30 days’ written
notice. On September 30, 2010, the exercise price was extended at various times from September 1, 2010 to December 31, 2017 and the Keywin
Option was further extended to a hundred and twenty-nine-month period ending on January 1, 2020 and the exercise price changed to $0.99.
On December 31, 2019, the latest exercise period for the Keywin Option was further extended to a hundred and fifty-three-month period
ending on January 1, 2022.
NOTE 12 GAIN FROM WRITE-OFF OF LONG-AGED PAYABLES
The Company considered the payment of the outstanding payables
have not been claimed and it is in the best interests of Company to write off the long-aged payables. The Company
has resolved that they are of the opinion that the obligation for future settlement of accrued long-aged payables are remote, therefore
the related accruals have been written off. $394,522 were written off for the year ended December 31, 2020.
NOTE 13 NET
PROFIT/(LOSS) PER COMMON SHARE
Net profit/(loss) per share information for the years ended
December 31, 2020 and 2019 was as follows:
|
|
2020
|
|
|
2019
|
|
Numerator:
|
|
|
|
|
|
|
Net profit/(loss) attributable to NCN common stockholders
|
|
$
|
4,869,156
|
|
|
$
|
(893,701
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding, basic
|
|
|
8,774,263
|
|
|
|
8,762,339
|
|
Effect of dilutive securities
|
|
|
|
|
|
|
|
|
Options and warrants
|
|
|
-
|
|
|
|
-
|
|
Weighted average number of shares outstanding, diluted
|
|
|
8,774,263
|
|
|
|
8,762,339
|
|
|
|
|
|
|
|
|
|
|
Net profit/(loss) per common share – basic and diluted
|
|
$
|
0.555
|
|
|
$
|
(0.102
|
)
|
The diluted net profit/(loss) per common share is the same as
the basic net profit/(loss) per common share for the years ended December 31, 2020 and 2019 as the ordinary shares issuable under stock
options and warrants outstanding are anti-dilutive and are therefore excluded from the computation of diluted net profit/(loss) per common
share.
NOTE 14 INCOME TAXES
Income is subject to taxation in various countries in which
the Company and its subsidiaries operate or are incorporated. The profit/(loss) before income taxes by geographical locations for the
years ended December 31, 2020 and 2019 were summarized as follows:
|
|
2020
|
|
|
2019
|
|
United States
|
|
$
|
5,264,518
|
|
|
$
|
(168,330
|
)
|
Foreign
|
|
|
(395,362
|
)
|
|
|
(725,371
|
)
|
|
|
$
|
4,869,156
|
|
|
$
|
(893,701
|
)
|
Other than the United States, the Company is subject to taxation
in Hong Kong and PRC. Under Hong Kong tax laws, deferred tax assets are recognized for tax loss carried forward to the extent that the
realization of the related tax benefit through future taxable profits is probable. These tax losses do not expire under current Hong Kong
tax legislation. Under PRC tax laws, tax losses may be carried forward for 5 years and no carry-back is allowed. At December 31, 2020
the Company does not have available tax losses in the Hong Kong and PRC to utilize for future taxable profits.
The Coronavirus Aid, Relief and Economic Security Act (the “CARES
Act”) was enacted on March 27, 2020. There are several different provisions with the CARES Act that impact income taxes for
corporations. The Company has evaluated the tax implications and believes these provisions did not have a material impact to the financial
statements.
At December 31, 2020, the Company had an unused net operating
loss carryforward of approximately $16,398,074 for income tax purposes. This net operating loss carryforward may result in future income
tax benefits of approximately $3,443,596, which will expire on various from 2024 through 2037 as follows:
2024 to 2028
|
|
$
|
2,279,147
|
|
2029 to 2033
|
|
|
892,375
|
|
2034 to 2037
|
|
|
217,937
|
|
Indefinitely
|
|
|
54,137
|
|
|
|
$
|
3,443,596
|
|
The realization of net operating loss carryforward is uncertain
at this time, a valuation allowance in the same amount has been established. Deferred income taxes reflect the net effects of temporary
differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax
purposes.
Significant components of the Company’s deferred tax liabilities
and assets of December 31, 2020 and 2019 are as follows:
|
|
2020
|
|
|
2019
|
|
Deferred tax liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Effect of net operating loss carried forward
|
|
|
3,443,596
|
|
|
|
4,549,144
|
|
Less: valuation allowance
|
|
|
(3,443,596
|
)
|
|
|
(4,549,144
|
)
|
Net deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
Movement of valuation allowance:
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
At the beginning of the year
|
|
$
|
4,549,144
|
|
|
$
|
4,513,795
|
|
Current year (reduction)/addition
|
|
|
(1,105,548
|
)
|
|
|
35,349
|
|
At the end of the year
|
|
$
|
3,443,596
|
|
|
$
|
4,549,144
|
|
F-19