The accompanying notes are an integral part of the consolidated financial
statements.
The accompanying notes are an integral part of the consolidated financial
statements.
(1) On October 28, 2021,
Keywin exercised its option to purchase an aggregate of 11,764,756 shares of the Company’ common stock for an aggregate purchase
price of $2,000,000 which for setting off against the Company’s obligation to repay part of the short term loan interest payable,
there was no cash proceeds from the exercise of Keywin option.
The accompanying notes are an integral part of the consolidated financial
statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
| 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, 2021 are described in Note 3 – Subsidiaries and Variable Interest Entities.
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 2021 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.
Recent development
Issuance of Convertible
Promissory Note
On January 18, 2022,
the Company entered into a Subscription Agreement under which the Subscriber agreed to purchase the 1% Senior Unsecured Convertible Note
Agreement from the Company for an agreement purchase price of two million five hundred thousand US Dollars ($2,500,000). On the same date,
the Company signed the with 1% Senior Unsecured Convertible Note Agreement under which the Company may sell and issue to the Subscriber
up to an aggregate maximum amount of $2,500,000 in principal amount of Convertible Notes prior to January 19, 2027. The Convertible Promissory
Notes issued to the Investor are convertible at the holder’s option into shares of Company common stock at $1.25 per share.
Exercise of conversion
option
On
October 28, 2021, Keywin Holdings Limited (“Keywin”) exercised its option to purchase an aggregate of 11,764,756 shares of
the Company’ common stock for an aggregate purchase price of $2,000,000 which for setting off against the Company’s
obligation to repay part of the short term loan interest payable, there was no cash proceeds from the exercise of Keywin option.
Private Placement
On
May 3, 2021, the Company entered into Common Stock Agreement with the foreign investor (the "New investor") that the Company
will sell an aggregate of 200,000 shares of the Company's common stock to the New investor. Pursuant to the terms of a Common Stock Agreement
between the Company and the New investor, the purchase price paid by the New investor for the shares were $3 per share for an aggregate
sum of six hundred thousand U.S. dollars. The Company received $459,077 cash proceeds from the investor and $140,923 was settled for the
interest payable of short-term loans.
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. On October 11, 2021, we filed a Certificate of Amendment to our Certificate of Incorporation with
the Delaware Secretary of State to increase our authorized shares of common stock from 26,666,667 to 100,000,000,000 and the increase
had approved by Delaware secretary of state on April 5, 2022
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 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 which was due to the progress of audit. Since Ease Global cannot fulfill the revenue target and
complete the audit, the Company considered the Share Exchange Agreement was lapsed.
Going Concern
The Company has net cash used in operating activities
of $441,146 and $665,693 for the years ended December 31, 2021 and 2020 respectively. As of December 31, 2021 and 2020, the Company has
stockholders’ deficit of $6,171,255 and $7,773,295, 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, 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, 2021 and December 31, 2020.
(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:
| Schedule of estimated useful lives |
|
| 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, 2021 and 2020.
(G) Leases
The Company adopted Accounting Standards Codification
(ASC) Topic 842, Leases (ASC 842) effective as of January 1, 2019. Under ASC 842, the Company determines if an arrangement is
or contains a lease at contract inception.
Operating lease right-of-use (ROU) assets represent
the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation
to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized based on the present value of
lease payments over the lease term at the commencement date of the lease. ROU assets also include any initial direct costs incurred and
any lease payments made at or before the lease commencement date, less any lease incentive received. The Company uses its incremental
borrowing rate in determining the present value of lease payments based on the information available at the date of lease commencement.
The incremental borrowing rate reflects the rate of interest that a lessee would have to pay to borrow, on a collateralized basis over
a similar term, an amount equal to the lease payments in a similar economic environment. Lease expense for an operating lease is recognized
on a straight-line basis over the lease term.
The Company elected to not separate non-lease
components from the associated lease components and to not recognize right-of-use assets and lease liabilities for leases with a term
of twelve months or less. Variable lease payments are primarily related to property taxes, insurance and common area maintenance, and
are recognized as lease costs when incurred.
(H) Convertible Promissory Notes and Warrants
New 1% Convertible Promissory Notes, due
in 2016
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.
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.
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 from continuing operations
of $5,299,726 for the years ended December 31 2020.
New 1% Convertible Promissory Notes, due in 2025
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 1% convertible promissory notes did not have any embedded conversion option which shall be bifurcated and
separately accounted for as a derivative under ASC 815, nor did they contain a cash conversion feature. The Company accounted for the
Notes in accordance with ASC 470, as a single debt instrument. No beneficial conversion feature (the “BCF”) was recognized
as the set conversion price for the Notes was greater than the fair value of the Company’s share price at date of issuance.
(I) 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, 2021 and 2020.
(J) 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.
(K) 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.
(L) 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.
(M) 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, 2021 and 2020 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.
(N) 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.
(O) 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. The carrying value of the Company’s
financial instruments related to options is measuring its fair value using the Black-Scholes option pricing model, which is consistent
with the Company’s historical valuation techniques. The fair value of option is recorded as dividend.
(P) Recent Accounting Pronouncements
In December 2019, the
Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2019-12, Income Taxes
(Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 simplifies the accounting for income
taxes by removing certain exceptions and enhances and simplifies various aspects of the income tax accounting guidance in ASC 740. ASU
2019-12 was effective January 1, 2021. The adoption of ASU 2019-12 did not have any impact on the Company’s consolidated financial
statement presentation or disclosures.
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. The Company adopted ASU 2020-01 effective January 1, 2021. The adoption of ASU 2020-01 did not have any impact
on its consolidated financial statements.
In August 2020, the FASB
issued ASU 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts
in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU
2020-06”). ASU 2020-06 simplifies the accounting for convertible debt by eliminating the beneficial conversion and cash conversion
accounting models. Upon adoption of ASU 2020-06, convertible debt proceeds, unless issued with a substantial premium or an embedded conversion
feature that is not clearly and closely related to the host contract, will no longer be allocated between debt and equity components.
This modification will reduce the issue discount and result in less non-cash interest expense in financial statements. ASU 2020-06 also
updates the earnings per share calculation and requires entities to assume share settlement when the convertible debt can be settled in
cash or shares. For contracts in an entity’s own equity, the type of contracts primarily affected by ASU 2020-06 are freestanding
and embedded features that are accounted for as derivatives under the current guidance due to a failure to meet the settlement assessment
by removing the requirements to (i) consider whether the contract would be settled in registered shares, (ii) consider whether collateral
is required to be posted, and (iii) assess shareholder rights. ASU 2020-06 is effective for fiscal years beginning after December 15,
2023. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, and only if adopted as of the beginning
of such fiscal year. 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.
In May 2021, the FASB issued ASU 2021-04, Earnings
Per Share (Topic 260), Debt — Modifications and Extinguishments (Subtopic 470-50), Compensation — Stock Compensation (Topic
718), and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain
Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (“ASU 2021-04”). ASU 2021-04 provides guidance
as to how an issuer should account for a modification of the terms or conditions or an exchange of a freestanding equity-classified written
call option (i.e., a warrant) that remains classified after modification or exchange as an exchange of the original instrument for a new
instrument. An issuer should measure the effect of a modification or exchange as the difference between the fair value of the modified
or exchanged warrant and the fair value of that warrant immediately before modification or exchange and then apply a recognition model
that comprises four categories of transactions and the corresponding accounting treatment for each category (equity issuance, debt origination,
debt modification, and modifications unrelated to equity issuance and debt origination or modification). ASU 2021-04 is effective for
all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should
apply the guidance provided in ASU 2021-04 prospectively to modifications or exchanges occurring on or after the effective date. Early
adoption is permitted for all entities, including adoption in an interim period. If an entity elects to early adopt ASU 2021- 04 in an
interim period, the guidance should be applied as of the beginning of the fiscal year that includes that interim period. The adoption
of ASU 2021-04 is not expected to have any impact on the Company’s consolidated financial statement presentation or disclosures.
| NOTE 3 | SUBSIDIARIES AND VARIABLE INTEREST ENTITIES |
Details of the Company’s principal consolidated
subsidiaries and variable interest entities as of December 31, 2021 were as follows:
| Schedule of subsidiaries and variable interest entities |
|
|
|
|
|
|
| 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 (2) |
|
PRC |
|
100% |
|
Not applicable |
| Huizhong Lianhe Media Technology Co., Ltd. (2) |
|
PRC |
|
100% |
|
Not applicable |
Beijing Huizhong Bona Media Advertising Co.,
Ltd.(2) |
|
PRC |
|
100% (1) |
|
Not applicable |
| Xingpin Shanghai Advertising Limited(3) |
|
PRC |
|
100% (1) |
|
Dormant |
| Chuanghua Shanghai Advertising Limited (3) |
|
PRC |
|
100% |
|
Dormant |
| Jiahe Shanghai Advertising Limited (2) |
|
PRC |
|
100% |
|
Not applicable |
Remarks:
| 1) | Variable interest entity which the Company exerted 100% control through a set of commercial arrangements. |
Note:
| 2) | The subsidiary/variable interest entity ’s business license has been revoked. |
| 3) | The subsidiary/variable interest entity was classified as abnormal operation business. |
| NOTE 4 | PREPAID
EXPENSES AND OTHER CURRENT ASSETS, NET |
Prepaid expenses and other current assets, net
as of December 31, 2021 and 2020 were as follows:
| Schedule of prepaid expenses and other current assets | |
| | | |
| | |
| | |
2021 | | |
2020 | |
| Prepaid expenses | |
$ | 4,443 | | |
$ | 100,000 | |
| Rental and other deposits | |
| 15,385 | | |
| - | |
| Total | |
$ | 19,828 | | |
$ | 100,000 | |
Equipment, net as of December 31, 2021 and 2020
consisted of the following:
| Schedule of equipment, net | |
| | | |
| | |
| | |
2021 | | |
2020 | |
| Office equipment | |
$ | 3,039 | | |
$ | 3,828 | |
| Less: accumulated depreciation | |
| (407 | ) | |
| (3,229 | ) |
| Total | |
$ | 2,632 | | |
$ | 599 | |
Depreciation for the years ended December 31,
2021 and 2020 amounted to $389 and $456 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, 2021 and 2020 consisted of the following:
| Schedule of accounts payable, accrued expenses and other payables | |
| | | |
| | |
| | |
2021 | | |
2020 | |
| Accrued staff benefits and related fees | |
$ | 1,943,544 | | |
$ | 1,749,401 | |
| Accrued professional fees | |
| 61,057 | | |
| 47,266 | |
| Accrued interest expenses | |
| 472,773 | | |
| 2,370,872 | |
| Other accrued expenses | |
| 19,316 | | |
| 41,461 | |
| Other payables | |
| 100,491 | | |
| 52,650 | |
| Total | |
$ | 2,597,181 | | |
$ | 4,261,650 | |
As of December 31, 2021 and 2020, the Company
recorded an aggregated amount of $2,973,211 of short-term loans. Those loans were borrowed from a shareholder and an unrelated individual.
Except for loan of $128,205 from an unrelated individual 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. On January 18, 2022, the Company issued convertible notes of US$2,500,000 which
is for setting off against the short-term loans and interest payable. As of the date of this report, the balance of $968,211 have not
yet been repaid.
The interest expenses of the short-term loans
for the years ended December 31, 2021 and 2020 amounted to $513,383 and $514,036, respectively.
| NOTE 8 | CONVERTIBLE
PROMISSORY NOTES AND WARRANTS |
New 1% Convertible Promissory Notes, due
in 2016
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 and 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. On June
1, 2021, 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 Keywin to purchase an aggregate of 11,764,756 shares
of the Company’s common stock for an aggregate purchase price of $2,000,000. On October 28, 2021, Keywin exercised its option
to purchase an aggregate of 11,764,756 shares of the Company’ common stock for an aggregate purchase price of $2,000,000.
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.
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.
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.
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.
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 from continuing operations
of $5,299,726 for the year ended December 31, 2020.
5) Issuance of New 1% Convertible Promissory Notes, due 2025 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.
The following table details the accounting treatment
of the convertible promissory notes:
| Schedule of 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 & 2021 | |
$ | - | | |
$ | 645,000 | | |
$ | 645,000 | |
Interest Expense
The following table details the interest expenses:
| Schedule of interest expenses | |
| | | |
| | |
| | |
Years Ended December 31, | |
| | |
2021 | | |
2020 | |
| New 1% convertible promissory notes, due in 2016 | |
$ | - | | |
$ | 12,329 | |
| New 1% convertible promissory notes, due in 2025 | |
| 6,468 | | |
| 6,238 | |
| Total | |
$ | 6,468 | | |
$ | 18,567 | |
On September
27, 2021, the Company entered into a lease agreement for office in Hong Kong with a two-year term, commencing on September 27, 2021 and
expiring on September 26, 2023.
The operating
lease expense for the years ended December 31, 2021 and 2020 were as follows:
| Schedule of operating lease expense | |
2021 | | |
2020 | |
| | |
| | | |
| | |
| Operating lease cost – straight line | |
$ | 15,385 | | |
$ | - | |
As of December 31, 2021,
future minimum commitments under the Company’s non-cancelable operating lease, in accordance with ASC 842, are as follows:
| Schedule of future minimum operating lease payments | |
| | |
| Fiscal years ending December 31, | |
Operating
leases | |
| 2022 | |
$ | 46,154 | |
| 2023 | |
| 30,769 | |
| 2024 | |
| - | |
| 2025 | |
| - | |
| Thereafter | |
| - | |
| Total undiscounted cash flows | |
| 76,923 | |
| Les: imputed interest | |
| (1,402 | ) |
| Present value of lease liabilities | |
$ | 75,521 | |
As of December
31, 2021, the remaining weighted-average lease term was 1.74 years and the weighted-average incremental borrowing rate used
to determine the operating lease liabilities was 2.33%.
Supplementary cash flow information related to
lease where the Company was the lessee for the years ended December 31, 2021 and 2020 was as follows:
| Schedule of supplementary cash flow information | |
| | | |
| | |
| | |
2021 | | |
2020 | |
| | |
| | |
| |
| Operating cash outflows from operating lease | |
$ | 15,385 | | |
$ | - | |
| | |
| | | |
| | |
| NON-CASH OPERATING ACTIVITIES | |
| | | |
| | |
| Right-of-use assets obtained in exchange for new operating lease liabilities | |
| 90,277 | | |
| - | |
| NOTE 10 | COMMITMENTS
AND CONTINGENCIES |
Contingencies
The Company accounts for loss contingencies in
accordance with ASC Topic 450 and other related guidelines. As of December 31, 2021 and 2020, the Company’s management is of the
opinion that there are no commitments and contingencies to account for.
| NOTE 11 | STOCKHOLDERS’
DEFICIT |
(A) Stock, Options and Warrants Issued for Services
On October 28, 2021,
Keywin exercised its option to purchase an aggregate of 11,764,756 shares of the Company’ common stock for an aggregate purchase
price of $2,000,000.
On November 30, 2021,
the Company completed private placement of 200,000 shares of restricted common stock at $3 per share. The transaction took place with
an investor and generated gross proceeds of $600,000 for the year ended December 31, 2021. In March
2018, the Company entered into an escrow agent services agreement with an escrow agent. Pursuant to the agreement, the Company agreed
to pay 5% of escrow funds from invest as compensation, the escrow agent was granted 10,000 shares for his services rendered and the Company
issued 10,000 shares to the consultant. In connection with this stock grants and in accordance with ASC Topic 718, the Company recognized
$30,000 of non-cash stock-based compensation included in general and administrative expenses on the consolidated statements of operation
for the year ended December 31, 2021.
On
December 30, 2021, the Board of Director granted an aggregate of 132,172
shares of common stock to the directors of the Company for their services rendered
during the year 2021 and 2022. Each director was granted shares of the Company’s common stock and vested in 2021: Earnest Leung,
52,172
shares; Wong Wing Kong, 15,000
shares; and Shirley Cheng, 50,000
shares and Frederick Wong granted 15,000
shares and vested in 2022. In connection with these stock grants and in accordance
with ASC Topic 718, the Company recognized $187,475
and $nil of non-cash stock-based compensation included in general and administrative
expenses on the consolidated statements of operations for the year ended December 31, 2021 and 2020, respectively.
(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 12 | RELATED
PARTY TRANSACTIONS |
Except as set forth below, during the years ended
December 31, 2021 and 2020, 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. On October 28, 2021, Keywin exercised its option and $100,000
was recorded in general and administrative expenses during the year ended December 31, 2021.
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. On June 1, 2021, 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 Keywin to purchase an aggregate of 11,764,756
shares of the Company’s common stock for an aggregate purchase price of $2,000,000.
The fair value of the purchase option was determined utilizing Black-Scholes option pricing model on the date before the modification
and after modification, accordingly, the Company recorded $3,544,430
and $nil as dividend for the year ended December 31, 2021 and 2020, respectively.
On October
28, 2021, Keywin exercised its option to purchase an aggregate of 11,764,756 shares of the Company’s common stock for an aggregate
purchase price of $2,000,000 which for setting off against the Company’s obligation to repay part of the short term loan
interest payable, there was no cash proceeds from the exercise of Keywin option..
As of
December 31, 2021 and 2020, the Company recorded an aggregated amount of $2,845,006
of short-term loans from a shareholder that the loans are unsecured, bear a monthly interest of 1.5%
and repayable on demand. However, according to the agreements, 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 shareholder to extend the short-term loans on the due
date. As of December 31, 2021 and 2020, the Company recorded an interest payable recorded in accounts payable, accrued
expenses and other payables of $470,315
and $2,363,485,
respectively. The interest expenses of the short-term loans from continuing operations for the years ended December 31, 2021
and 2020 amounted to $512,101
and $512,863,
respectively. On January 18, 2022, the shareholder agreed to purchase the 1% Senior
Unsecured Convertible Note Agreement from the Company and converted the short-term loan and interest payable to convertible
note. As of the date of this report, except the loan and interest payable balance of $2,500,000
converted to convertible note, the remaining loans have not yet been repaid.
| NOTE 13 | 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 $708 and $394,522 were written off for the year ended December 31, 2021 and 2020,
respectively.
| NOTE 14 | NET (LOSS)
PROFIT PER COMMON SHARE |
Net (loss) profit per share information for the
years ended December 31, 2021 and 2020 was as follows:
| Schedule of net (loss) profit per common share | |
| | | |
| | |
| | |
2021 | | |
2020 | |
| Numerator: | |
| | | |
| | |
| Net (loss) profit attributable to NCN common stockholders | |
$ | (1,215,636 | ) | |
$ | 4,869,156 | |
| Denominator: | |
| | | |
| | |
| Weighted average number of shares outstanding, basic* | |
| 11,023,767 | | |
| 8,774,263 | |
| Effect of dilutive securities | |
| | | |
| | |
| Options and warrants | |
| - | | |
| - | |
| Weighted average number of shares outstanding, diluted | |
| 11,023,767 | | |
| 8,774,263 | |
| | |
| | | |
| | |
| Net (loss) profit per common share – basic and diluted | |
$ | (0.11 | ) | |
$ | 0.55 | |
* Including 253,172 and 136,000 shares that were
granted and vested but not yet issued for the years ended December 31, 2021 and 2020, respectively.
The diluted net (loss) profit per common share
is the same as the basic net (loss) profit per common share for the years ended December 31, 2021 and 2020 as the ordinary shares issuable
under stock options and warrants outstanding are anti-dilutive and are therefore excluded from the computation of diluted net (loss) profit
per common share.
Income is subject to taxation in various countries
in which the Company and its subsidiaries operate or are incorporated. The (loss) profit before income taxes by geographical locations
for the years ended December 31, 2021 and 2020 were summarized as follows:
| Schedule of (income) loss before income taxes by geographical locations | |
| | | |
| | |
| | |
2021 | | |
2020 | |
| United States | |
$ | ) | |
$ | |
| Foreign | |
| ) | |
| ) |
| | |
$ | ) | |
$ | |
The provision for income taxes consisted of the following:
| Schedule of provision for income taxes | |
| | | |
| | |
| | |
Year ended December 31, | |
| | |
2021 | | |
2020 | |
| Statutory income tax rate | |
| 21 | % | |
| 21 | % |
| Income tax credit computed at statutory income rate | |
| (255,284 | ) | |
| 1,022,523 | |
| Reconciling items: | |
| | | |
| | |
| Non-deductible expenses | |
| 156,211 | | |
| 82,304 | |
| Share-based payments | |
| 45,670 | | |
| - | |
| Tax effect of tax exempt entity | |
| 516 | | |
| 722 | |
| Valuation allowance on deferred tax assets | |
| 52,886 | | |
| (1,105,549 | ) |
| Income tax | |
$ | - | | |
$ | - | |
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, 2021 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, 2021, the Company had an unused
net operating loss carryforward of approximately $16,649,913 for income tax purposes. This net operating loss carryforward may result
in future income tax benefits of approximately $3,496,482, which will expire on various from 2024 through 2037 as follows:
| Schedule of operating loss carryforward | |
| | |
| 2024 to 2028 | |
$ | 2,332,033 | |
| 2029 to 2033 | |
| 892,375 | |
| 2034 to 2037 | |
| 217,937 | |
| Indefinitely | |
| 54,137 | |
| | |
$ | 3,496,482 | |
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, 2021 and 2020 are as follows:
| Schedule of deferred tax liabilities and deferred tax assets | |
| | | |
| | |
| | |
2021 | | |
2020 | |
| Deferred tax liabilities | |
$ | - | | |
$ | - | |
| Deferred tax assets: | |
| | | |
| | |
| Effect of net operating loss carried forward | |
| 3,496,482 | | |
| 3,443,596 | |
| Less: valuation allowance | |
| (3,496,482 | ) | |
| (3,443,596 | ) |
| Net deferred tax assets | |
$ | - | | |
$ | - | |
Movement of valuation allowance:
| Schedule of movement of valuation allowance | |
| | | |
| | |
| | |
2021 | | |
2020 | |
| | |
| | |
| |
| At the beginning of the year | |
$ | 3,443,596 | | |
$ | 4,549,144 | |
| Current year addition (reduction) | |
| 52,886 | | |
| (1,105,548 | ) |
| At the end of the year | |
$ | 3,496,482 | | |
$ | 3,443,596 | |
On January 18, 2022,
the Company entered into a Subscription Agreement with 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 two million five hundred thousand US Dollars ($2,500,000).
On the same date, the Company signed the with 1% Senior Unsecured Convertible Note Agreement under which the Company may sell and issue
to the Subscriber up to an aggregate maximum amount of $2,500,000 in principal amount of Convertible Notes prior to January 19, 2027.
The Convertible Promissory Notes issued to the Investor are convertible at the holder’s option into shares of Company common stock
at $1.25 per share. The issuance of convertible note is for setting off against the Company’s obligation to repay part of the short-term
loan and interest payable, there was no cash proceeds from the issuance of convertible notes.
F-24