|
ITEM 1.
|
CONSOLIDATED FINANCIAL STATEMENTS.
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NETWORK CN INC.
CONSOLIDATED FINANCIAL STATEMENTS
NETWORK CN INC.
CONSOLIDATED BALANCE SHEETS
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|
Note
|
|
As of June 30,
2020
|
|
|
As of December 31,
2019
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
$
|
5,624
|
|
|
$
|
5,510
|
|
Prepaid expenses and other current assets, net
|
|
4
|
|
|
100,000
|
|
|
|
100,000
|
|
Total Current Assets
|
|
|
|
|
105,624
|
|
|
|
105,510
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment, Net
|
|
|
|
|
-
|
|
|
|
438
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
|
|
$
|
105,624
|
|
|
$
|
105,948
|
|
|
|
|
|
|
|
|
|
|
|
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LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
|
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Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
Accounts payable, accrued expenses and other payables
|
|
5
|
|
$
|
4,149,024
|
|
|
$
|
4,796,955
|
|
Short term loan
|
|
6
|
|
|
2,973,211
|
|
|
|
2,951,765
|
|
1% convertible promissory note due 2016, net
|
|
7
|
|
|
5,000,000
|
|
|
|
5,000,000
|
|
Total Current Liabilities
|
|
|
|
|
12,122,235
|
|
|
|
12,748,720
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
1% convertible promissory note due 2025, net
|
|
7
|
|
|
645,000
|
|
|
|
-
|
|
Total Non- Current Liabilities
|
|
|
|
|
645,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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TOTAL LIABILITIES
|
|
|
|
|
12,767,235
|
|
|
|
12,748,720
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
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STOCKHOLDERS’ DEFICIT
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|
|
|
|
|
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|
|
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Preferred stock, $0.001 par value, 5,000,000 shares authorized
None issued and outstanding
|
|
|
|
|
-
|
|
|
|
-
|
|
Common stock, $0.001 par value, 26,666,667 shares authorize.
Shares issued and outstanding: 8,774,263 and 8,774,263 as of June
30, 2020 and December 31, 2019, respectively
|
|
|
|
|
8,773
|
|
|
|
8,773
|
|
Additional paid-in capital
|
|
|
|
|
124,209,441
|
|
|
|
124,209,441
|
|
Accumulated deficit
|
|
|
|
|
(138,583,741
|
)
|
|
|
(138,564,904
|
)
|
Accumulated other comprehensive income
|
|
|
|
|
1,703,916
|
|
|
|
1,703,918
|
|
TOTAL STOCKHOLDERS’ DEFICIT
|
|
8
|
|
|
(12,661,611
|
)
|
|
|
(12,642,772
|
)
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
|
|
$
|
105,624
|
|
|
$
|
105,948
|
|
See accompanying notes to unaudited consolidated
financial statements.
NETWORK CN INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE LOSS (UNAUDITED)
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
Note
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|
June 30,
2020
|
|
|
June 30,
2019
|
|
|
June 30,
2020
|
|
|
June 30,
2019
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|
REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising services
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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COST OF REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of advertising services
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS LOSS
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
|
|
(55,745
|
)
|
|
|
(81,588
|
)
|
|
|
(132,948
|
)
|
|
|
(158,572
|
)
|
Stock based compensation for services
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,169
|
)
|
Total Operating Expenses
|
|
|
|
|
(55,745
|
)
|
|
|
(81,588
|
)
|
|
|
(132,948
|
)
|
|
|
(161,741
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS
|
|
|
|
|
(55,745
|
)
|
|
|
(81,588
|
)
|
|
|
(132,948
|
)
|
|
|
(161,741
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain from write-off of long aged payables
|
|
10
|
|
|
-
|
|
|
|
-
|
|
|
|
386,772
|
|
|
|
-
|
|
Interest income
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3
|
|
Total Other Income
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
386,772
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST AND OTHER DEBT-RELATED EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
6&7
|
|
|
(129,757
|
)
|
|
|
(143,987
|
)
|
|
|
(272,661
|
)
|
|
|
(287,562
|
)
|
Total Interest and Other Debt–Related Expenses
|
|
|
|
|
(129,757
|
)
|
|
|
(143,987
|
)
|
|
|
(272,661
|
)
|
|
|
(287,562
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS BEFORE INCOME TAXES
|
|
|
|
|
(185,502
|
)
|
|
|
(225,575
|
)
|
|
|
(18,837
|
)
|
|
|
(449,300
|
)
|
Income taxes
|
|
12
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
NET LOSS
|
|
|
|
$
|
(185,502
|
)
|
|
$
|
(225,575
|
)
|
|
$
|
(18,837
|
)
|
|
$
|
(449,300
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER COMPREHENSIVE INCOME/(LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation gain/(loss)
|
|
|
|
|
146
|
|
|
|
(299
|
)
|
|
|
(2
|
)
|
|
|
(225
|
)
|
Total other comprehensive loss
|
|
|
|
|
146
|
|
|
|
(299
|
)
|
|
|
(2
|
)
|
|
|
(225
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE LOSS
|
|
|
|
$
|
(185,356
|
)
|
|
$
|
(225,874
|
)
|
|
$
|
(18,839
|
)
|
|
$
|
(449,525
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS PER COMMON SHARE – BASIC AND DILUTED
|
|
11
|
|
$
|
(0.0211
|
)
|
|
$
|
(0.0257
|
)
|
|
$
|
(0.0021
|
)
|
|
$
|
(0.0513
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE SHARES OUTSTANDING – BASIC AND DILUTED
|
|
11
|
|
|
8,774,263
|
|
|
|
8,769,013
|
|
|
|
8,774,263
|
|
|
|
8,751,552
|
|
See accompanying notes to unaudited consolidated
financial statements.
NETWORK CN INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
Six Months Ended
|
|
|
|
June 30, 2020
|
|
|
June 30, 2019
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net loss
|
|
$
|
(18,837
|
)
|
|
$
|
(449,300
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
438
|
|
|
|
439
|
|
Stock-based compensation for service
|
|
|
-
|
|
|
|
3,169
|
|
Gain from write-off of long aged payables
|
|
|
(386,772
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets, net
|
|
|
-
|
|
|
|
(2,246
|
)
|
Accounts payable, accrued expenses and other payables
|
|
|
(261,159
|
)
|
|
|
370,439
|
|
Net cash used in operating activities
|
|
|
(666,330
|
)
|
|
|
(77,499
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from private placement
|
|
|
-
|
|
|
|
63,375
|
|
Proceeds from convertible promissory note
|
|
|
645,000
|
|
|
|
-
|
|
Proceeds from short-term loan
|
|
|
21,446
|
|
|
|
-
|
|
Net cash provided by financing activities
|
|
|
666,446
|
|
|
|
63,375
|
|
|
|
|
|
|
|
|
|
|
EFFECT OF EXCHANGE RATE CHANGES ON CASH
|
|
|
(2
|
)
|
|
|
(225
|
)
|
|
|
|
|
|
|
|
|
|
NET INCREASE/(DECREASE) IN CASH
|
|
|
114
|
|
|
|
(14,349
|
)
|
|
|
|
|
|
|
|
|
|
CASH, BEGINNING OF PERIOD
|
|
|
5,510
|
|
|
|
22,684
|
|
|
|
|
|
|
|
|
|
|
CASH, END OF PERIOD
|
|
$
|
5,624
|
|
|
$
|
8,335
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
Interest paid
|
|
$
|
615,000
|
|
|
$
|
44,387
|
|
See accompanying notes to unaudited consolidated
financial statements.
NETWORK CN INC.
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
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, the Company has been principally engaged in
the provision of out-of-home advertising in China through the operation of a network of roadside 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 June 30, 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.
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 experienced recurring net
losses $185,502 and $225,575 for the three months ended June 30, 2020 and 2019, respectively, and $18,837 and $449,300 for the
six months ended June 30, 2020 and 2019, respectively. Additionally, the Company has net cash used in operating activities of $666,330
and $77,499 for the six months ended June 30, 2020 and 2019, respectively. As of June 30, 2020, and December 31, 2019, the Company
has stockholders’ deficit of $12,661,611 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 unaudited 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 undergone a drastic cost-cutting exercise, including reduction of the Company’s workforce, office rentals
and other general and administrative expenses. 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.
|
NOTE 2
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
(A)
Basis of Presentation and Preparation
The accompanying unaudited consolidated
financial statements of Network CN Inc., its subsidiaries and variable interest entities (collectively “NCN” or the
“Company” “we”, “our” or “us”) have been prepared in accordance with generally
accepted accounting principles in the United States (“GAAP”) and the rules and regulations of the Securities and Exchange
Commission for interim financial information. Accordingly, they do not include all the information and footnotes necessary for
a comprehensive presentation of our financial position and results of operations.
The unaudited consolidated financial statements
for the three months and six months ended June 30, 2020 and 2019 were not audited. It is management’s opinion, however, that
all material adjustments (consisting of normal recurring adjustments or a description of the nature and amount of any adjustments
other than normal recurring adjustments) have been made which are necessary for a fair presentation of financial statements. The
results for the interim period are not necessarily indicative of the results to be expected for the full fiscal year. The year-end
consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by
GAAP.
The accompanying unaudited consolidated
financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included
in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, previously filed with the Securities
and Exchange Commission on March 30, 2020. The disclosures made in the unaudited interim consolidated financial statements generally
do not repeat those in the annual statements.
(B) Principles of Consolidation
The unaudited consolidated financial statements
include the financial statements of Network CN Inc., its subsidiaries and its variable interest entities for which it is the primary
beneficiary. A variable interest entity is an entity in which the Company, through contractual arrangements, bears the risks and
enjoys the rewards normally associated with ownership of the entity. Upon making this determination, the Company is deemed to be
the primary beneficiary of the entity, which is then required to be consolidated for financial reporting purposes. All significant
intercompany transactions and balances have been eliminated upon consolidation.
(C) Use of Estimates
In preparing unaudited consolidated financial
statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements and the
reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. Differences
from those estimates are reported in the period they become known and are disclosed to the extent they are material to the unaudited
consolidated financial statements taken as a whole.
(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
flows, 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 June 30, 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 unaudited 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 discounted cash flow analysis. There was no impairment
of long-lived assets for the six months ended June 30, 2020 and 2019.
(G) Convertible Promissory Notes
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 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.
(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 periods ended June 30, 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 loss 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 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 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 loss per share is the same
as the basic net loss per share for the three months and six months ended June 30, 2020 and 2019, as all potential ordinary shares
including stock options and warrants are anti-dilutive and are therefore excluded from the computation of diluted net 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 unaudited 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 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 loss.
(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.
|
NOTE 3.
|
SUBSIDIARIES AND VARIABLE INTEREST ENTITIES
|
Details of the Company’s principal
subsidiaries and variable interest entities as of June 30, 2020 and December 31, 2019 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 June 30, 2020 and December 31, 2019 were as follows:
|
|
As of
June 30, 2020
|
|
|
As of
December 31, 2019
|
|
Prepaid expenses
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
Other deposits
|
|
|
-
|
|
|
|
-
|
|
Sub-total
|
|
|
100,000
|
|
|
|
100,000
|
|
Less: allowance for doubtful debts
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
The Company recorded no allowance for doubtful
debts for prepaid expenses and other current assets for the three and six months ended June 30, 2020 and 2019.
|
NOTE 5.
|
ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER PAYABLES
|
Accounts payable, accrued expenses and
other payables as of June 30, 2020 and December 31, 2019 were as follows:
|
|
As of
June 30, 2020
|
|
|
As of
December 31, 2019
|
|
Accrued staff benefit and related fees
|
|
$
|
1,643,454
|
|
|
$
|
1,916,879
|
|
Accrued professional fees
|
|
|
59,195
|
|
|
|
95,737
|
|
Accrued interest expenses
|
|
|
2,407,668
|
|
|
|
2,752,993
|
|
Other accrued expenses
|
|
|
37,925
|
|
|
|
30,537
|
|
Other payables
|
|
|
782
|
|
|
|
809
|
|
Total
|
|
$
|
4,149,024
|
|
|
$
|
4,796,955
|
|
As of June 30, 2020, and December 31, 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 were $128,149 and $257,346 for the three and six months ended June 30, 2020, respectively, while interest expenses amounted
$131,247 and $262,494 for the three and six months ended June 30, 2019, respectively.
|
NOTE 7.
|
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 one hundred and five-months period ending on January 1, 2018 and the exercise price changed to $0.99, subject
to the Company’s right to unilaterally terminate the exercise period upon 30 days’ written notice. As of March 31,2016,
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.
No gain or loss 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 no gain or loss on extinguishment of debt at the date of extinguishment for the year ended December 31,
2014.
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 reserve 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.
Convertible promissory notes, net as of
June 30, 2020 and December 31, 2019 were as follows:
|
|
As of
June 30, 2020
|
|
|
As of
December 31, 2019
|
|
Gross carrying value
|
|
$
|
5,645,000
|
|
|
$
|
5,000,000
|
|
Less: Allocated intrinsic value of beneficial conversion feature
|
|
|
-
|
|
|
|
-
|
|
Add: Accumulated amortization of debt discount
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
5,645,000
|
|
|
$
|
5,000,000
|
|
|
|
|
|
|
|
|
|
|
Current portion
|
|
$
|
5,000,000
|
|
|
$
|
5,000,000
|
|
Non-current portion
|
|
|
645,000
|
|
|
|
-
|
|
|
|
$
|
5,645,000
|
|
|
$
|
5,000,00
|
|
Interest Expense
The interest expenses of the 1% Convertible
Promissory Notes were $1,608 and $15,315 for the three and six months ended June 30, 2020, respectively, while interest expenses
amounted $12,740 and $25,068 for the three and six months ended June 30, 2019, respectively.
|
NOTE 8.
|
STOCKHOLDERS’ DEFICIT
|
Stock, Options and Warrants Issued
for Services
On March 28, 2019,
the Company completed private placements 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 six months ended June 30, 2019.
|
NOTE 9.
|
RELATED PARTY TRANSACTIONS
|
Except as set forth below, during the three
months and six months ended June 30, 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 Keywin Option is exercised and completed.
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 10.
|
GAIN FROM WRITE-OFF OF LONG-AGED PAYABLES
|
The Company considered the payment of the
outstanding payables have not been claimed due to loss of contact 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. $Nil and $386,772 were written off for the three and
six months ended June 30, 2020, respectively. No written off for the three and six months ended June 30, 2019.
|
NOTE 11.
|
NET LOSS PER COMMON SHARE
|
Net loss per common share information for the three and six
months ended June 30, 2020 and 2019 was as follows:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30, 2020
|
|
|
June 30, 2019
|
|
|
June 30, 2020
|
|
|
June 30, 2019
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to NCN common stockholders
|
|
$
|
(185,502
|
)
|
|
$
|
(225,575
|
)
|
|
$
|
(18,837
|
)
|
|
$
|
(449,300
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding, basic
|
|
|
8,774,263
|
|
|
|
8,769,013
|
|
|
|
8,774,263
|
|
|
|
8,751,552
|
|
Effect of dilutive securities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Options and warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Weighted average number of shares outstanding, diluted
|
|
|
8,774,263
|
|
|
|
8,769,013
|
|
|
|
8,774,263
|
|
|
|
8,751,552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share – basic and diluted
|
|
$
|
(0.0211
|
)
|
|
$
|
(0.0257
|
)
|
|
$
|
(0.0021
|
)
|
|
$
|
(0.0513
|
)
|
The diluted net loss per common share is
the same as the basic net loss per common share for the three and six months ended June 30, 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 loss
per common share. There were no securities that could potentially dilute basic net loss per common share in the future that were
not included in the computation of diluted net loss per common share because of anti-dilutive effect as of June 30, 2020 and 2019.
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 three and six months ended June 30, 2020 and 2019 were summarized as follows:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30, 2020
|
|
|
June 30, 2019
|
|
|
June 30, 2020
|
|
|
June 30, 2019
|
|
|
|
(Consolidated and unaudited)
|
|
|
(Consolidated and unaudited)
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
(25,275
|
)
|
|
$
|
(46,891
|
)
|
|
$
|
14,362
|
|
|
$
|
(91,694
|
)
|
Foreign
|
|
|
(160,227
|
)
|
|
|
(178,684
|
)
|
|
|
(33,199
|
)
|
|
|
(357,606
|
)
|
|
|
$
|
(185,502
|
)
|
|
$
|
(225,575
|
)
|
|
$
|
(18,837
|
)
|
|
$
|
(449,300
|
)
|
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 June 30, 2020 the Company does not have available tax losses in the Hong Kong and PRC to utilize for
future taxable profits.
At June 30, 2020, the Company had an unused
net operating loss carryforward of approximately $21,648,230 for income tax purposes. This net operating loss carryforward may
result in future income tax benefits of approximately $4,546,128, which will expire on various from 2024 through 2037 as follows:
2024 to 2028
|
|
$
|
3,384,695
|
|
2029 to 2033
|
|
|
892,375
|
|
2034 to 2037
|
|
|
217,937
|
|
Indefinitely
|
|
|
51,121
|
|
|
|
$
|
4,546,128
|
|
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 June 30, 2020 and December 31, 2019 are as follows:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Deferred tax liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Effect of net operating loss carried forward
|
|
|
4,546,128
|
|
|
|
4,549,144
|
|
Less: valuation allowance
|
|
|
(4,546,128
|
)
|
|
|
(4,549,144
|
)
|
Net deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
Movement of valuation allowance:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
At the beginning of the year
|
|
$
|
4,549,144
|
|
|
$
|
4,513,795
|
|
(Deductions)/Additions
|
|
|
(3,016
|
)
|
|
|
35,349
|
|
At the end of the period/year
|
|
$
|
4,546,128
|
|
|
$
|
4,549,144
|
|
|
NOTE 13.
|
SUBSEQUENT EVENT
|
In December 2019, a novel strain of coronavirus
surfaced, and has spread around the world, with resulting business and social disruption. The coronavirus was declared a Public
Health Emergency of International Concern by the World Health Organization on January 30, 2020. The operations and business results
of the Company could be materially adversely affected. The extent to which the coronavirus may impact business activity will depend
on future developments, remains uncertain and cannot be predicted, including new information which may emerge concerning the severity
of the coronavirus and the actions required to contain the coronavirus or treat its impact, among others.
The Company continues to monitor the progression
of the pandemic and its potential effect on our financial position, results of operations and cash flows.
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.
|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
|
Special Note Regarding Forward Looking
Statements
This Quarterly Report on Form 10-Q, including
the following “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, contains
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Such statements include, among others, those concerning our expected financial performance
and strategic and operational plans, as well as all assumptions, expectations, predictions, intentions or beliefs about future
events. You are cautioned that any such forward-looking statements are not guarantees of future performance and that a number of
risks and uncertainties could cause actual results of the Company to differ materially from those anticipated, expressed or implied
in the forward-looking statements. The words “believe”, “expect”, “anticipate”, “project”,
“targets”, “optimistic”, “intend”, “aim”, “will” or similar expressions
are intended to identify forward-looking statements. All statements other than statements of historical fact are statements that
could be deemed forward-looking statements. Risks and uncertainties that could cause actual results to differ materially from those
anticipated include risks related to our potential inability to raise additional capital; changes in domestic and foreign laws,
regulations and taxes; uncertainties related to China’s legal system and economic, political and social events in China;
Securities and Exchange Commission regulations which affect trading in the securities of “penny stocks”; changes in
economic conditions, including a general economic downturn or a downturn in the securities markets; and any of the factors and
risks mentioned in the “Risk Factors” sections of our Annual Report on Form 10-K for fiscal year ended December 31,
2019 and in Part 2, Item 1A of this Form 10-Q. The Company assumes no obligation and does not intend to update any forward-looking
statements, except as required by law.
COVID-19 Pandemic
In December 2019, an outbreak of COVID-19
was identified in China and was subsequently recognized as a global pandemic by the World Health Organization (“WHO”)
on March 11, 2020. Since that time, COVID-19 has spread around the world and throughout the United States, including in the regions
and countries in which we operate. Federal, state and local governments in the U.S and around the world have imposed restrictions
on travel and business operations and are advising or requiring individuals to limit or eliminate time outside of their homes.
Temporary closures of businesses have also been ordered in certain jurisdictions, and other businesses have temporarily closed
voluntarily. These actions expanded significantly in March and April of 2020 throughout the U.S. Consequently, the COVID-19 outbreak
has severely restricted the level of economic activity in the U.S. and around the world.
The outbreak has resulted in authorities
implementing numerous measures to try to contain the virus, such as quarantines and shelter in place orders. These measures may
remain in place for a significant period of time and adversely affect our business, operations and financial condition as well
as the business, operations and financial conditions of our business partners. The spread of the virus has also caused us to modify
our business practices (including employee work locations and cancellation of physical participation in meetings) in ways that
may be detrimental to our business (including working remotely and its attendant cybersecurity risks). We may take further actions
as may be required by government authorities or that we determine are in the best interests of our employees. There is no certainty
that such measures will be sufficient to mitigate the risks posed by the virus or otherwise be satisfactory to government authorities.
There has been no material adverse impact
on the Company’s first two quarter 2020 results of operations to date. The effect of COVID-19 and related events, those not
yet known or knowable, could have a negative effect on the stock price, business prospects, financial condition, and results of
operations of the Company, including as a result of quarantines, market volatility, market downturns and business closures.
For the reasons discussed above, the Company
cannot reasonably estimate with any degree of certainty the future impact COVID-19 may have on the Company’s results of operations,
financial position, and liquidity. Notwithstanding any actions by national, state, and local governments to mitigate the impact
of COVID-19 or by the Company to address the adverse impacts of COVID-19, there can be no assurance that any of the foregoing activities
will be successful in mitigating or preventing significant adverse effects on the Company.
Use of Terms
Except as otherwise indicated by the context,
references in this report to:
|
l
|
“BVI”
are references to the British Virgin Islands;
|
|
l
|
“China”
and “PRC” are to the People’s Republic of China;
|
|
l
|
the “Company”, “NCN”, “we”, “us”, or “our”,
are references to Network CN Inc., a Delaware corporation and its direct and indirect subsidiaries: NCN Group Limited, or NCN Group,
a BVI limited company; NCN Media Services Limited, a BVI limited company; NCN Group Management Limited, or NCN Group Management,
a Hong Kong limited company; Crown Winner International Limited, or Crown Winner, a Hong Kong Limited company, and its subsidiary,
and its variable interest entity, Xingpin Shanghai Advertising Limited; Crown Eagle Investments Limited, a Hong Kong limited company;;
Cityhorizon Limited, or Cityhorizon Hong Kong, a Hong Kong limited company, and its subsidiary, Huizhong Lianhe Media Technology
Co., Ltd., or Lianhe, a PRC limited company; Chuanghua Shanghai advertising Limited, a PRC limited company; NCN Huamin Management
Consultancy (Beijing) Company Limited, or NCN Huamin, a PRC limited company; and the Company’s variable interest entity,
Beijing Huizhong Bona Media Advertising Co., Ltd., or Bona, a PRC limited company;
|
|
l
|
“NCN
Management Services” are references to NCN Management Services Limited, a BVI limited company;
|
|
l
|
“RMB”
are to the Renminbi, the legal currency of China;
|
|
l
|
the “Securities Act” are to the Securities Act of 1933, as amended;
and the “Exchange Act” are to the Securities Exchange Act of 1934, as amended; and
|
|
l
|
“U.S.
dollar”, “$” and “US$” are to the legal currency of the United States.
|
Overview of Our Business
Our mission is to become a nationwide leader
in providing out-of-home advertising in China, primarily serving the needs of branded corporate customers. Our business direction
to not just selling air-time for its media panels but also started working closely with property developers in media planning for
the property at the very early stage. As a media planner we share the advertising profits with the property developers without
paying significant rights fees, so we expect to achieve a positive return from these projects.
To address these unfavorable market conditions,
we continue to implement cost-cutting measures, including reductions in our workforce, office rentals, selling and marketing related
expenses and other general and administrative expenses. We have also re-assessed the commercial viability of each of our concession
rights contracts and have terminated those of our concession rights that we determined were no longer commercially viable due to
high annual fees. Management has also successfully negotiated some reductions in advertising operating rights fees under remaining
contracts.
For more information relating to our business,
please refer to Part I, “Item 1 - Business” of our Annual Report on Form 10-K for the fiscal year ended December
31, 2019.
Recent Development
Completes Additional
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.
The offering was
made pursuant to an exemption from registration with the SEC pursuant to Regulation S. The securities have not been registered
under the Securities Act of 1933 or any state securities laws and unless so registered may not be offered or sold in the United
States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities
Act of 1933 and applicable state securities laws. The Company did not grant any registration rights to the new shareholders with
respect to the Shares in the offering.
Issuance of Convertible
Promissory Note
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.
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.
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.
Results of Operations
The following results of operations
is based upon and should be read in conjunction with the Company’s unaudited consolidated financial statements and the notes
thereto included in Part I – Financial Information, “Item 1. Financial Statement.” All amounts are expressed
in U.S. dollars.
Comparison of Three Months Ended
June 30, 2020 and June 30, 2019
General and Administrative Expenses
– General and administrative expenses primarily consist of compensation related expenses (including salaries paid
to executive and employees, employee bonuses and other staff welfare and benefits, rental expenses, depreciation expenses, fees
for professional services, travel expenses and miscellaneous office expenses). General and administrative expenses for the three
months ended June 30, 2020 decreased by 32% to $55,745, as compared to $81,588 for the corresponding prior year period. The decrease
in general and administrative expenses was mainly due to the decrease in salaries.
Interest and Other Debt-Related Expenses
– Interest expense and other debt-related expenses for the three months ended June 30, 2020 decreased to $129,757,
or by 10%, as compared to $143,987 for the corresponding prior year period. The decrease was mainly due to the decreased in interest
to 1% convertible promissory note due 2016.
Income Taxes – The
Company derives all of its income in the PRC and is subject to income tax in the PRC. No income tax was recorded during the three
months ended June 30, 2020 and 2019, because the Company and all of its subsidiaries and variable interest entities operated at
a taxable loss during the respective periods.
Net Loss – The Company incurred
a net loss of $185,502 for the three months ended June 30, 2020, a decrease of 18%, as compared to a net loss of $225,575 for the
corresponding prior year period. The decrease in net loss was mainly driven by decrease in salary and interest to 1% convertible
promissory note due 2016.
Comparison of Six Months Ended June
30, 2020 and June 30, 2019
General and Administrative Expenses
– General and administrative expenses for the six months ended June 30, 2020 decreased by 16% to $132,948, compared to $158,572
for the corresponding prior year period. The decrease in general and administrative expenses was mainly due to decrease of salaries.
Gain from write-off of long aged payables
– Gain from write-off of long-aged payables for the six months ended June 30, 2020 was $386,772, compared to $nil for
the six months ended June 30, 2019. We believe the obligation for future settlement for such long-aged payables is remote and therefore
wrote them off.
Stock based compensation for services
– Stock-based compensation for services is stock granted to directors, executive officers and employees for services
rendered calculated in accordance with Accounting Standards Codification, or ASC, Topic 718, Stock-based Compensation, for services
was $3,169 for the six months ended June 30, 2019. The decrease in the stock-based compensation was mainly due to no stock had
been granted for services rendered during the six months ended June 30, 2020.
Interest and Other Debt-Related Expenses
– Interest expense and other debt-related expenses for the six months ended June 30, 2020 decreased to $272,661, or by 5%,
compared to $287,562 for the corresponding prior year period. The decrease was mainly due to the decreased in interest to 1% convertible
promissory note due 2016.
Income Taxes – The Company
derives all of its income in the PRC and is subject to income tax in the PRC. No income tax was recorded during the six months
ended June 30, 2020 and 2019 as the Company and all of its subsidiaries and its variable interest entities operated at a taxable
loss during the respective periods.
Net Loss – The Company incurred
a net loss of $18,837 for the six months ended June 30, 2020, compared to of $449,300 for the corresponding prior year period.
The decrease in net loss was mainly driven by the increase in gain from write-off of long aged payables.
Liquidity and Capital Resources
As of June 30, 2020, we had cash of $5,624,
as compared to $5,510 as of December 31, 2019, an increase of $114 with the increase of proceeds from convertible promissory
note and short-term loan.
The following table sets forth a summary of our cash flows for
the periods indicated:
|
|
Six Months Ended
|
|
|
|
June 30, 2020
|
|
|
June 30, 2019
|
|
Net cash used in operating activities
|
|
$
|
(666,330
|
)
|
|
$
|
(77,499
|
)
|
Net cash provided by financing activities
|
|
|
666,446
|
|
|
|
63,375
|
|
Effect of exchange rate changes on cash
|
|
|
(2
|
)
|
|
|
(225
|
)
|
Net increase/(decrease) in cash
|
|
|
114
|
|
|
|
(14,349
|
)
|
Cash, beginning of period
|
|
|
5,510
|
|
|
|
22,684
|
|
Cash, end of period
|
|
$
|
5,624
|
|
|
$
|
8,335
|
|
Operating Activities
Net cash used in operating activities for
the six months ended June 30, 2020 was $666,330, as compared to net cash used in operating activities amounting to $77,499 for
the corresponding prior year period. This was mainly attributable to increase in payments to short term loan interest during
the six months ended June 30, 2020.
Our cash flow projections indicate
that our current assets and projected revenues from our existing project will not be sufficient to fund operations over the
next twelve months. This raises substantial doubt about our ability to continue as a going concern. We intend to rely on
Keywin’s exercise of its outstanding option to purchase $2 million in shares of our common stock or on the issuance of
additional equity and debt securities as well as on our note holders’ exercise of their conversion option to convert
our notes to our common stock, in order to fund our operations. However, it may be difficult for us to raise funds in the
current economic environment. We cannot give assurance that we will be able to generate sufficient revenue or raise new
funds, or that Keywin will exercise its option before its expiration and our note holders will exercise their conversion
option before the note is due. In any such case, we may not be able to continue as a going concern.
Investing Activities
Net cash used in investing activities for
the six months ended June 30, 2020 and 2019 was $nil.
Financing Activities
Net cash provided by financing activities
was $666,446 for the six months ended June 30, 2020, as compared to $63,375 for the corresponding prior year period. The increase
was mainly due to increase in proceeds from convertible promissory note and proceeds from short-term loans for financing our operations
during the six months ended June 30, 2020.
Short-term Loan
As of June 30, 2020, the Company recorded
an aggregated amount of $2,973,211 short-term loans. Those loans were borrowed from an unrelated individual. Those loans with an
aggregate amount of $2,823,560 are unsecured, bear a monthly interest of 1.5% and shall be repayable in one month and loan with
an aggregate amount of $128,205
is unsecured, bear a yearly interest of
1% and shall be repayable in one month. 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. Up to the date of this report, those loans have not yet been repaid.
Capital Expenditures
During the three and six months ended June
30, 2020 and 2019, we did not acquire equipment.
Contractual Obligations and Commercial Commitments
The following table presents certain payments
due under contractual obligations with minimum firm commitments as of June 30, 2020:
|
|
Payments due by period
|
|
|
|
Total
|
|
|
Due in
2020
|
|
|
Due in
2021 – 2022
|
|
|
Due in
2022-2023
|
|
|
Thereafter
|
|
Debt Obligations (a)
|
|
$
|
5,645,000
|
|
|
$
|
5,000,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
645,000
|
|
Short Term Loan (b)
|
|
|
2,973,211
|
|
|
|
2,973,211
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
(a) Debt Obligations. We
issued an aggregate of $5,000,000 in 1% Convertible Promissory Notes in April 2009 to our investors and such 1% Convertible Promissory
Notes matured on April 1, 2016. In 2020, we issued a new % Senior Unsecured Convertible Note which matured on January 13, 2025.
For details, please refer to the Note 7 of the consolidated financial statements.
(b) Short Term Loan. We have
entered into short-term loan agreements with unrelated individuals. Those loans with an aggregate amount of $2,845,006 are unsecured,
bear a monthly interest of 1.5% and shall be repayable in one month and loan with an aggregate amount of $128,205 is unsecured,
bear a yearly interest of 1% and shall be repayable in one month. 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. Up to the date of this report, those loans have not yet been repaid.
Recent Accounting Pronouncements
The Company has implemented all new accounting
pronouncements that are in effect. These pronouncements did not have any material impact on the consolidated financial statements
unless otherwise disclosed, and we do not believe that there are any other new accounting pronouncements that have been issued
that might have a material impact on our financial position or results of operations.
Off Balance Sheet Arrangements
We do not have any off-balance sheet arrangements
that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our investors.