The accompanying notes are an integral part of the consolidated financial
statements.
The accompanying notes are an integral part of the consolidated financial
statements.
NETWORK CN INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| | |
| | | |
| | |
| | |
For the Three Months Ended | |
| | |
March 31, 2022 | | |
March 31, 2021 | |
| CASH FLOWS FROM OPERATING ACTIVITIES: | |
| | | |
| | |
| Net loss | |
$ | (272,841 | ) | |
$ | (195,633 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
| Depreciation and amortization | |
| 11,395 | | |
| 52 | |
| Amortization of debt discount | |
| 18,785 | | |
| - | |
| Stock/Option issued for services | |
| 24,000 | | |
| - | |
| Changes in operating assets and liabilities: | |
| | | |
| | |
| Prepaid expenses and other current assets | |
| 4,443 | | |
| - | |
| Operating lease liabilities | |
| (11,142 | ) | |
| - | |
| Accounts payable, accrued expenses and other payables | |
| 120,133 | | |
| 195,704 | |
| Net cash (used in)/provided by operating activities | |
| (105,227 | ) | |
| 123 | |
| | |
| | | |
| | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | |
| | | |
| | |
| Purchase of equipment | |
| (1,078 | ) | |
| - | |
| Net cash used in investing activities | |
| (1,078 | ) | |
| - | |
| | |
| | | |
| | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | |
| | | |
| | |
| Proceeds from short-term loans | |
| 86,174 | | |
| - | |
| Net cash provided by financing activities | |
| 86,174 | | |
| - | |
| | |
| | | |
| | |
| EFFECT OF EXCHANGE RATE CHANGES ON CASH | |
| - | | |
| (17 | ) |
| | |
| | | |
| | |
| NET (DECREASE)/INCREASEIN CASH | |
| (20,131 | ) | |
| 106 | |
| | |
| | | |
| | |
| CASH, BEGINNING OF PERIOD | |
| 21,677 | | |
| 5,967 | |
| | |
| | | |
| | |
| CASH, END OF PERIOD | |
$ | 1,546 | | |
$ | 6,073 | |
| | |
| | | |
| | |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | |
| | | |
| | |
| Cash paid during the period for: | |
| | | |
| | |
| Income taxes | |
$ | - | | |
$ | - | |
| Interest paid | |
$ | - | | |
$ | - | |
| | |
| | | |
| | |
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING
ACTIVITIES: | |
| | | |
| | |
| Settlement of short term loan by conversion to convertible note | |
$ | 2,005,000 | | |
$ | -- | |
| Settlement of short term loan interest payable by conversion to convertible note | |
$ | 495,000 | | |
$ | - | |
The accompanying notes are an integral part of the 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 March 31, 2022, 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 experienced recurring net losses
$272,841 for the three months ended March 31, 2022. As of March 31, 2022, and December 31, 2021, the Company has stockholders’ deficit
of $6,020,096 and $6,171,255, 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 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
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 ended March 31, 2022 and 2021 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, 2021, previously filed with the Securities and Exchange Commission on
December 23, 2022. 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) Convertible Promissory Notes
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.
New 1% Convertible Promissory Notes, due in 2027
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.
The Company evaluates the conversion feature to
determine whether it was beneficial as described in ASC 470-20. The intrinsic value of a beneficial conversion feature inherent to a convertible
note payable, which is not bifurcated and accounted for separately from the convertible notes payable and may not be settled in cash upon
conversion, is treated as a discount to the convertible notes payable. This discount is amortized over the period from the date of issuance
to the date the notes is due using the effective interest method. If the notes payable are retired prior to the end of their contractual
term, the unamortized discount is expensed in the period of retirement to interest expense. In general, the beneficial conversion feature
is measured by comparing the effective conversion price, after considering the relative fair value of detachable instruments included
in the financing transaction, if any, to the fair value of the shares of common stock at the commitment date to be received upon conversion.
(E) 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 March 31, 2022 and 2021.
(F) 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 subsidiaries
and variable interest entities as of March 31, 2022 was 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% | |
Investment holding |
| Crown Winner International Limited | |
Hong Kong | |
100% | |
Investment holding |
| NCN Group (Global) Limited | |
Hong Kong | |
100% | |
Investment holding |
| ChenXing (Beijing) Advertising Co., Ltd | |
PRC | |
100% | |
Investment holding |
| Ruibo (Shenzhen) Advertising Co., Ltd | |
PRC | |
100% | |
Investment holding |
NCN Huamin Management Consultancy
(Beijing) Company Limited (2) | |
PRC | |
100% | |
Dormant |
| Huizhong Lianhe Media Technology Co., Ltd. (2) | |
PRC | |
100% | |
Dormant |
| Beijing Huizhong Bona Media Advertising Co., Ltd.(2) | |
PRC | |
100% (1) | |
Dormant |
| Xingpin Shanghai Advertising Limited (3) | |
PRC | |
100% (1) | |
Dormant |
| Chuanghua Shanghai Advertising Limited (3) | |
PRC | |
100% | |
Dormant |
| Jiahe Shanghai Advertising Limited (2) | |
PRC | |
100% | |
Dormant |
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 March 31, 2022 and December 31, 2021 were as follows:
| Schedule
of prepaid expenses and other current assets | |
| | | |
| | |
| | |
As of March 31, 2022 | | |
As of December 31, 2021 | |
| Prepaid expenses | |
$ | 15,385 | | |
$ | 19,828 | |
| Less: allowance for doubtful debts | |
| - | | |
| - | |
| Total | |
$ | 15,385 | | |
$ | 19,828 | |
The Company recorded no allowance for doubtful
debts for prepaid expenses and other current assets as of March 31, 2022 and 2021.
NOTE 5. ACCOUNTS
PAYABLE, ACCRUED EXPENSES AND OTHER PAYABLES
Accounts payable, accrued expenses and other payables
as of March 31, 2022 and December 31, 2021 were as follows:
| Schedule of accounts payable, accrued expenses
and other payables | |
| | | |
| | |
| | |
As of March 31, 2022 | | |
As of December 31, 2021 | |
| Accrued staff benefit and related fees | |
$ | 1,986,693 | | |
$ | 1,943,544 | |
| Accrued professional fees | |
| 66,024 | | |
| 61,057 | |
| Accrued interest expenses | |
| 54,635 | | |
| 485,479 | |
| Other accrued expenses | |
| 14,471 | | |
| 6,610 | |
| Other payables | |
| 100,491 | | |
| 100,491 | |
| Total | |
$ | 2,222,314 | | |
$ | 2,597,181 | |
NOTE 6.
SHORT-TERM LOANS
As of March 31, 2022 and December 31, 2021, the
Company recorded an aggregated amount of $1,054,385 and $2,973,211 of short-term loans, respectively. 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 $1,054,385 have not yet been repaid.
The interest
expenses of the short-term loans for the three months ended March 31, 2022 and 2021 were $64,251 and $129,953, respectively.
NOTE 7. CONVERTIBLE
PROMISSORY NOTES
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.
Issuance of New 1% Convertible Promissory Notes, due 2027 in 2022
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.
The following table details the accounting treatment
of the convertible promissory notes:
| Schedule
of convertible promissory notes | |
| | | |
| | | |
| | |
| | |
New 1%
Convertible
Promissory
Notes, due in
2025 | | |
New 1%
Convertible
Promissory
Notes, due in
2027 | | |
Total | |
Net carrying value of convertible promissory notes as of
December 31, 2021 | |
$ | 645,000 | | |
$ | - | | |
$ | 645,000 | |
| Proceeds of new 1% convertible promissory note | |
| - | | |
| 2,500,000 | | |
| 2,500,000 | |
Less: Allocated intrinsic value of beneficial conversion
feature (Note a) | |
| | | |
| (400,000 | ) | |
| (400,000 | ) |
| Add: Accumulated amortization of debt discount | |
| | | |
| 18,785 | | |
| 18,785 | |
Net carrying value of convertible promissory notes as of
March 31, 2022 | |
$ | 645,000 | | |
$ | 2,118,785 | | |
$ | 2,763,785 | |
Note:
| (a) | At the time of issuance, the Company evaluated the intrinsic value of the beneficial conversion feature
(“BCF”) associated with the conversion feature of the convertible promissory note. The BCF was recorded into additional paid-in
capital. Additionally, the convertible promissory note was considered to have an embedded BCF because the effective conversion price was
less than the fair value of the Company’s common stock on notes issuance date. The value of the BCF was recorded as a discount on
the convertible promissory note. Hence, in connection with the issuance of the convertible promissory note, the Company recorded a total
debt discount of $400,000 that will be amortized over the term of the Note using effective interest rate method. |
Amortization of debt discount
The following table details the amortization of
debt discount:
| Schedule
of amortization of debt discount | |
| |
| |
| | |
| | |
For the Three Months Ended | |
| | |
March 31, 2022 |
| |
March 31, 2021 | |
| New 1% convertible promissory notes, due in 2025 | |
$ | - |
| |
$ | - | |
| New 1% convertible promissory notes, due in 2027 | |
| 18,785 |
| |
| - | |
| Total | |
$ | 18,785 |
| |
$ | - | |
Interest Expense
The following table details the interest expenses:
| Schedule
of interest expenses | |
| | | |
| | |
| | |
For the Three Months Ended | |
| | |
March 31, 2022 | | |
March 31, 2021 | |
| New 1% convertible promissory notes, due in 2025 | |
$ | 1,590 | | |
$ | 1,607 | |
| New 1% convertible promissory notes, due in 2027 | |
| 4,932 | | |
| - | |
| Total | |
$ | 6,522 | | |
$ | 1,607 | |
NOTE 8 LEASE
LIABILITIES
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 as of March 31, 2022 and December 31, 2021 were as follows:
| Schedule of operating lease expense | |
| | |
| |
| | |
As of
March 31, 2022 | | |
As of
December 31, 2021 | |
| Operating lease cost – straight line | |
$ | 11,538 | | |
$ | 15,385 | |
As of March 31, 2022, 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 March 31, | | |
Operating leases | |
| 2022 | | |
$ | 34,615 | |
| 2023 | | |
| 30,769 | |
| 2024 | | |
| - | |
| 2025 | | |
| - | |
| Thereafter | | |
| - | |
| Total undiscounted cash flows | | |
| 65,385 | |
| Less: imputed interest | | |
| (1,005 | ) |
| Present value of lease liabilities | | |
$ | 64,379 | |
As of March
31, 2022 and December 31, 2021, the remaining weighted-average lease term was 1.42 years and 1.74 years, respectively 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 three months March 31, 2022 and 2021 was as follows:
| Schedule of supplementary
cash flow information | |
| | |
| |
| | |
For the Three Months Ended | |
| | |
March 31, 2022 | | |
March 31, 2021 | |
| Operating cash outflows from operating lease | |
$ | 11,142 | | |
$ | - | |
NOTE 9. COMMITMENTS
AND CONTINGENCIES
Contingencies
The Company accounts for loss contingencies in
accordance with ASC Topic 450 and other related guidelines. As of March 31, 2022 and December 31, 2021, the Company’s management
is of the opinion that there are no commitments and contingencies to account for.
NOTE 10. STOCKHOLDERS’
DEFICIT
Stock, Options and Warrants Issued for Services
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 $24,000 and $nil
of non-cash stock-based compensation included in general and administrative expenses on the consolidated statements of operations for
the three months ended March 31, 2022 and 2021, respectively.
Restriction on payment of dividends
The Company has not declared any dividends since
incorporation.
NOTE 11. RELATED
PARTY TRANSACTIONS
Except as set forth below, during the three months
ended March 31, 2022 and 2021, 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.
As of March
31, 2022 and December 2021, the Company recorded an aggregated amount of $926,178 and $2,845,005 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 March 31, 2022 and December 2021, the Company recorded an interest payable recorded
in accounts payable, accrued expenses and other payables of $32,631 and $470,315, respectively.
The interest expenses of the short-term loans for the three months March 31, 2022 and 2021 amounted to $57,409 and $128,025, 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 12. NET
LOSS PER COMMON SHARE
Net (loss per common share information for the
three months ended March 31, 2022 and 2021 was as follows:
| Schedule of net (loss) profit per common share | |
| | | |
| | |
| | |
For the Three Months Ended | |
| | |
March 31, 2022 | | |
March 31, 2021 | |
| Numerator: | |
| | |
| |
| Net (loss)/profit attributable to NCN common stockholders | |
$ | (272,841 | ) | |
$ | (195,633 | ) |
| Denominator: | |
| | | |
| | |
| Weighted average number of shares outstanding, basic | |
| 21,018,190 | | |
| 8,774,263 | |
| Effect of dilutive securities | |
| - | | |
| - | |
| Options and warrants | |
| - | | |
| - | |
| Weighted average number of shares outstanding, diluted | |
| 21,018,190 | | |
| 8,774,263 | |
| | |
| | | |
| | |
| Net (loss)/profit per common share – basic and diluted | |
$ | (0.01 | ) | |
$ | (0.02 | ) |
The diluted net (loss)/profit per common share
is the same as the basic net (loss)/profit per common share for the three months ended March 31, 2022 and 2021 as all potential common
shares are anti-dilutive and are therefore excluded from the computation of diluted net (loss)/profit per common share. There were no
securities that could potentially dilute basic net (loss)/profit per common share in the future that were not included in the computation
of diluted net (loss)/profit per common share because of anti-dilutive effect for the three months ended March 31, 2022 and 2021.
NOTE 13.
INCOME TAXES
Income is subject to taxation in various countries
in which the Company and its subsidiaries operate or are incorporated. The loss before income taxes by geographical locations for the
three months ended March 31, 2022 and 2021 were summarized as follows:
| Schedule of (income) loss before income taxes
by geographical locations | |
| | |
| |
| | |
For the Three Months Ended | |
| | |
March 31, 2022 | | |
March 31, 2021 | |
| United States | |
$ | ) | |
$ | ) |
| Foreign | |
| ) | |
| ) |
| | |
$ | ) | |
$ | ) |
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 March 31,
2022, 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 March 31, 2022, the Company had an unused net
operating loss carryforward of approximately $16,421,705 for income tax purposes. This net operating loss carryforward may result in future
income tax benefits of approximately $3,448,559, which will expire on various from 2024 through 2037 as follows:
| Schedule of operating loss carryforward | |
| | |
| 2024 to 2028 | |
$ | 2,279,147 | |
| 2029 to 2033 | |
| 892,375 | |
| 2034 to 2037 | |
| 217,937 | |
| Indefinitely | |
| 122,088 | |
| | |
$ | 3,511,548 | |
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 March 31, 2022 and December 31, 2021 are as follows:
| Schedule of deferred tax liabilities and deferred
tax assets | |
| | | |
| | |
| | |
As of March 31, 2022 | | |
As of December 31, 2021 | |
| Deferred tax liabilities | |
$ | - | | |
$ | - | |
| Deferred tax assets: | |
| | | |
| | |
| Effect of net operating loss carried forward | |
| 3,511,548 | | |
| 3,496,482 | |
| Less: valuation allowance | |
| (3,511,548 | ) | |
| (3,496,482 | ) |
| Net deferred tax assets | |
$ | - | | |
$ | - | |
Movement of valuation allowance:
| Schedule of movement of valuation allowance | |
| | | |
| | |
| | |
As of March 31, 2022 | | |
As of December 31, 2021 | |
| At the beginning of the period/year | |
$ | 3,496,482 | | |
$ | 3,443,596 | |
| Additions/(Deductions) | |
| 15,065 | | |
| 52,886 | |
| At the end of the period/year | |
$ | 3,511,548 | | |
$ | 3,496,482 | |