The Company accounts for loss contingencies in accordance with ASC Topic 450 and other related guidelines. Set forth below is a descriptionAs of certain loss contingencies as of SeptemberJune 30, 20152017 and management’s opinion as to the likelihood of loss in respect of loss contingency.
NOTE 11. NOTE 10. | STOCKHOLDERS’ DEFICIT |
(A) Stock, Options and Warrants Issued for Services
1. In August 2006, the Company issued a warrant to purchase up to 1,333 shares of restricted common stock to a consultant at an exercise price $52.5 per share. One-fourth of the shares underlying the warrant became exercisable every 45 days beginning from the date of issuance. The warrant remains exercisable until August 25, 2016. The fair market value of the warrant was estimated on the grant date using the Black-Scholes option pricing model as with the following assumptions and estimates: expected dividend 0%, volatility 192%, a risk-free rate of 4.5% and an expected life of one (1) year. The value of the warrant recognized for the three and nine months ended September 30, 2015 and 2014 was $nil. As of September 30, 2015, none of the warrant was exercised.
2. In December 2012, the Company entered into two consultancy agreements with two consultants. Pursuant to the agreements, these two consultants were granted 400,000 shares and 166,667 shares, respectively, for their services rendered. In December 2012, the Company issued 266,667 and 166,667 shares of par value of $0.001 each to these two consultants, respectively. In connection with these stock grants and in accordance with ASC Topic 718, the Company recognized $390,000 of non-cash stock-based compensation included in general and administrative expenses on the consolidated statements of operations for the year ended December 31, 2012. In January 2014, the Company issued the remaining 133,333 shares of par value of $0.001 to one of the consultants. In connection with these stock grants and in accordance with ASC Topic 718, the Company recognized $nil of non-cash stock-based compensation included in general and administrative expenses on the unaudited condensed consolidated statements of operation for the three months ended September 30, 2015 and September 30, 2014, while the Company recognized $nil and $55,600 of non-cash stock-based compensation included in general and administrative expenses on the unaudited condensed consolidated statements of operation for the nine months ended September 30, 2015 and September 30, 2014.
3. In August 2013, the Board of Directors granted an aggregate of 24,000 shares of common stock to the directors of the Company for their services rendered during the year from July 1, 2013 to June 30, 2014. Each director was granted shares of the Company’s common stock subject to a vesting period of twelve months in the following amounts: Earnest Leung, 8,000 shares; Gerald Godfrey, 8,000 shares; and Charles Liu, 8,000 shares. The Company recognized $nil of non-cash stock-based compensation included in general and administrative expenses on the unaudited condensed consolidated statements of operation for the three months ended September 30, 2015 and 2014, respectively, while during the nine months ended September 30, 2015 and 2014 such amounts were $nil and $12,582, respectively.
4. On February 24, 2014, the Company completed three private placements of 500,000 shares of restricted common stock at $1.5 per share. The transaction took place with three investors and generated gross proceeds of $750,000 during the period ended September, 2014.
5. In February 2015, the Company agreed to issue an aggregate of 56,250 shares of common stock to the independent director, Charles Liu as director’s fee from November 16, 2011 to June 30, 2014.
6. In February 2015, the Board of Directors granted an aggregate of 39,999 shares of common stock to the directors of the Company for their services rendered during the year from July 1, 2014 to June 30, 2015. Each director was granted shares of the Company’s common stock subject to a vesting period of twelve months in the following amounts: Earnest Leung, 13,333 shares; Wong Wing Kong, 13,333 shares; and Shirley Cheng, 13,333 shares. In connection with these stock grants and in accordance with ASC Topic 718, the Company recognized $nil of non-cash stock-based compensation included in general and administrative expenses on the unaudited condensed consolidated statements of operation for the three months ended September 30, 2015 and 2014, respectively, while during the nine months ended September 30, 2015 and 2014 such amounts were $27,309 and $nil, respectively.
7. In April 2015, the Company entered into a consultancy agreement with a consultant. Pursuant to the agreement, the consultant was granted 266,667 shares for his services rendered. In April 2015, the Company issued 266,667 shares of par value of $0.001 each to the consultant. In connection with this stock grants and in accordance with ASC Topic 718, the Company recognized $nil of non-cash stock-based compensation included in general and administrative expenses on the unaudited condensed consolidated statements of operations for the three months ended September 30, 2015, while $324,000 was recognized during the nine months ended September 30, 2015.
8. In August 2015, the Board of Directors granted an aggregate of 53,332 shares of common stock to the directors of the Company for their services rendered during the year from July 1, 2015 to June 30, 2016. Each director was granted shares of the Company’s common stock subject to a vesting period of twelve months in the following amounts: Earnest Leung, 13,333 shares; Wong Wing Kong, 13,333 shares; Frederick Wong, 13,333 shares and Shirley Cheng, 13,333 shares. In connection with these stock grants and in accordance with ASC Topic 718, the Company recognized $667$nil and $10,000 of non-cash stock-based compensation included in general and administrative expenses on the unaudited condensed consolidated statements of operation for the three months ended SeptemberJune 30, 2015, 2017 and 2016, while during the ninesix months ended SeptemberJune 30, 20152017 and 2016 such amounts were $667.$nil and $20,000, respectively.
NOTE 12. NOTE 11. | RELATED PARTY TRANSACTIONS |
Except as set forth below, during the three and ninesix months ended SeptemberJune 30, 20152017 and 2014,2016, 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 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 priceperiod was extended at various times from September 1, 2010 to December 31, 2014,2015, the latest exercise period for the Keywin Option was further extended to an eighty-one-montha one hundred and five-months period ending on January 1, 20162018 and the exercise price changed to $0.99.
During the nine months ended September 30, 2015 and 2014, the Company repaid loans of $nil and $85,244 to its director, respectively. As of September 30, 2015 and December 31, 2014, the Company recorded an amount of $nil payable to director.
NOTE 13. NET LOSS PER COMMON SHARE
NOTE 12. | NET LOSS PER COMMON SHARE |
Net loss per common share information for the three and ninesix months ended SeptemberJune 30, 20152017 and 20142016 was as follows:
| | Three Months Ended | | | Six Months Ended | |
| | June 30, 2017 | | | June 30, 2016 | | | June 30, 2017 | | | June 30, 2016 | |
Numerator: | | | | | | | | | | | | |
Net loss attributable to NCN common stockholders | | $ | (232,047 | ) | | $ | (242,699 | ) | | $ | (442,660 | ) | | $ | (476,266 | ) |
Denominator : | | | | | | | | | | | | | | | | |
Weighted average number of shares outstanding, basic | | | 8,041,995 | | | | 8,041,881 | | | | 8,041,995 | | | | 8,041,881 | |
Effect of dilutive securities | | | - | | | | - | | | | - | | | | - | |
Options and warrants | | | - | | | | - | | | | - | | | | - | |
Weighted average number of shares outstanding, diluted | | | 8,041,995 | | | | 8,041,881 | | | | 8,041,995 | | | | 8,041,881 | |
| | | | | | | | | | | | | | | | |
Net loss per common share – basic and diluted+ | | $ | (0.0289 | ) | | $ | (0.0302 | ) | | $ | (0.055 | ) | | $ | (0.0592 | ) |
| | Three Months Ended | | | Nine Months Ended | |
| | September 30, 2015 | | | September 30, 2014 | | | September 30, 2015 | | | September 30, 2014 | |
Numerator: | | | | | | | | | | | | |
Net loss attributable to NCN common stockholders | | $ | (259,703 | ) | | $ | (272,811 | ) | | $ | (568,054 | ) | | $ | (2,392,542 | ) |
Denominator : | | | | | | | | | | | | | | | | |
Weighted average number of shares outstanding, basic | | | 8,041,881 | | | | 7,727,964 | | | | 7,986,272 | | | | 7,648,731 | |
Effect of dilutive securities | | | - | | | | - | | | | - | | | | - | |
Options and warrants | | | - | | | | - | | | | - | | | | - | |
Weighted average number of shares outstanding, diluted | | | 8,041,881 | | | | 7,727,964 | | | | 7,986,272 | | | | 7,648,731 | |
| | | | | | | | | | | | | | | | |
Net loss per common share – basic and diluted+ | | $ | (0.032 | ) | | $ | (0.035 | ) | | $ | (0.071 | ) | | $ | (0.313 | ) |
The diluted net loss per common share is the same as the basic net loss per common share for the three and ninesix months ended SeptemberJune 30, 20152017 and 20142016 as all potential common shares including stock options and warrants are anti-dilutive and are therefore excluded from the computation of diluted net loss per common share. The securities that could potentially dilute basic net loss per common share in the future that were not included in the computation of diluted net loss income per common share because of anti-dilutive effect as of SeptemberJune 30, 20152017 and 20142016 were summarized as follows:
| | Three Months Ended | | | Six Months Ended | |
| | June 30, 2017 | | | June 30, 2016 | | | June 30, 2017 | | | June 30, 2016 | |
Potential common equivalent shares: | | | | | | | | | | | | | | | | |
Stock warrants for services* | | | - | | | | - | | | | - | | | | - | |
Conversion feature associated with convertible promissory notes to common stock | | | - | | | | - | | | | - | | | | - | |
Common stock to be granted to consultants for services (including non- vested shares)* | | | - | | | | 1,333 | | | | - | | | | 1,333 | |
Stock options granted to Keywin | | | - | | | | - | | | | - | | | | - | |
Total | | | - | | | | 1,333 | | | | - | | | | 1,333 | |
| | Three Months Ended | | | Nine Months Ended | |
| | September 30, 2015 | | | September 30, 2014 | | | September 30, 2015 | | | September 30, 2014 | |
Potential common equivalent shares: | | | | | | | | | | | | |
Stock warrants for services* | | | - | | | | - | | | | - | | | | - | |
Conversion feature associated with convertible promissory notes to common stock | | | - | | | | - | | | | - | | | | - | |
Common stock to be granted to consultants for services (including non- vested shares)* | | | 1,333 | | | | 1,333 | | | | 1,333 | | | | 1,333 | |
Stock options granted to Keywin | | | - | | | | 164,226 | | | | - | | | | 119,953 | |
Total | | | 1,333 | | | | 165,559 | | | | 1,333 | | | | 121,286 | |
Remarks:
*As of SeptemberJune 30, 2015,2017, the number of potential common equivalent shares associated with warrants issued for services was nil,nil. As of June 30, 2016, the number of potential common equivalent shares associated with warrants issued for services was 1,333 which was related to a warrant to purchase 1,333 shares of common stock issued by the Company to a consultant in 2006 for service rendered at an exercise price of $52.50,$52.5, which will expirewas expired in August 2016.
+ The per share computation reflect the changes in number of shares as restated to give retroactive effective to the 1 for 15 shares reverse stock split which occurred on August 11, 2015.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
Special Note Regarding Forward Looking Statements
This Quarterly Report on Form 10-Q, including the following “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements include, among others, those concerning our expected financial performance and strategic and operational plans, as well as all assumptions, expectations, predictions, intentions or beliefs about future events. You are cautioned that any such forward-looking statements are not guarantees of future performance and that a number of risks and uncertainties could cause actual results of the Company to differ materially from those anticipated, expressed or implied in the forward-looking statements. The words “believe”, “expect”, “anticipate”, “project”, “targets”, “optimistic”, “intend”, “aim”, “will” or similar expressions are intended to identify forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. Risks and uncertainties that could cause actual results to differ materially from those anticipated include risks related to our potential inability to raise additional capital; changes in domestic and foreign laws, regulations and taxes; uncertainties related to China’s legal system and economic, political and social events in China; Securities and Exchange Commission regulations which affect trading in the securities of “penny stocks”; changes in economic conditions, including a general economic downturn or a downturn in the securities markets; and any of the factors and risks mentioned in the “Risk Factors” sections of our Annual Report on Form 10-K for fiscal year ended December 31, 20142016 and subsequent SEC filings. The Company assumes no obligation and does not intend to update any forward-looking statements, except as required by law.
Use of Terms
Except as otherwise indicated by the context, references in this report to:
| l | l “BVI” are references to the British Virgin Islands;
|
| l“Botong” are references to Huizhi Botong Media Advertising Beijing Co., Ltd., a PRC limited company; |
l “China” and “PRC” are to the People’s Republic of China;
|
| l“Cityhorizon BVI” are references to Cityhorizon Limited, a BVI limited company; |
l the “Company”, “NCN”, “we”, “us”, or “our”, are references to Network CN Inc., a Delaware corporation and its direct and indirect subsidiaries: NCN Group Limited, or NCN Group, a BVI limited company; NCN Media Services Limited, a BVI limited company; NCN Group Management Limited, or NCN Group Management, a Hong Kong limited company; Crown Winner International Limited, or Crown Winner, a Hong Kong Limited company, and its subsidiary, Business Boom Investments Limited, a BVI Limited company and its variable interest entity, Xingpin Shanghai Advertising Limited; Crown Eagle Investments Limited, a Hong Kong limited company; NCN Group (HK) Limited, a Hong Kong limited company; Cityhorizon Limited, or Cityhorizon Hong Kong, a Hong Kong limited company, and its subsidiary, Huizhong Lianhe Media Technology Co., Ltd., or Lianhe, a PRC limited company; Linkrich Enterprise Advertising and Investment Limited, or Linkrich Enterprise, a Hong Kong limited company, and its subsidiaries, Yi Gao Shanghai Advertising Limited, or Yi Gao, a PRC limited company and Chuanghua Shanghai advertising Limited, a PRC limited company; NCN Huamin Management Consultancy (Beijing) Company Limited, or NCN Huamin, a PRC limited company; and the Company’s variable interest entity, Beijing Huizhong Bona Media Advertising Co., Ltd., or Bona, a PRC limited company;
|
| l | l “NCN Management Services” are references to NCN Management Services Limited, a BVI limited company;
|
| l | l “RMB” are to the Renminbi, the legal currency of China;
|
| l | the “Securities Act” are to the Securities Act of 1933, as amended; and the “Exchange Act” are to the Securities Exchange Act of 1934, as amended; and |
| l | l “U.S. dollar”, “$” and “US$” are to the legal currency of the United States; andStates.
|
Overview of Our Business
Our mission is to become a nationwide leader in providing out-of-home advertising in China, primarily serving the needs of branded corporate customers. We seek to acquire rights to install and operate roadside advertising panels and mega-size advertising panels in the major cities in China. In most cases, we are responsible for installing advertising panels, although in some cases, advertising panels might have already been installed, and we will be responsible for operating and maintaining the panels. Once the advertising panels are put into operation, we sell advertising airtime to our customers directly. Since late 2006, we have been operating an advertising network of roadside LED digital video panels, mega-size LED digital video billboards and light boxes in major Chinese cities. Light Emitting Diode, or LED, technology has evolved to become a new and popular form of advertising in China, capable of delivering crisp, super-bright images both indoors and outdoors. During 2013, we extended ourOur business direction to not just selling air-time for its media panels but also started working closely with property developers in media planning for the property at the very early stage. As a media planner we share the advertising profits with the property developers without paying significant rights fees, so we expect to achieve a positive return from these projects.
Total advertising revenues were $nil and $667,752 for the nine months ended September 30, 2015 and 2014, respectively and we have net loss of $568,054 and $2,392,542 for the nine months ended September 30, 2015 and 2014, respectively. Our results of operations were negatively affected by a variety of factors, which led to less than expected revenues and cash inflows during the fiscal year 2015, including the following:
|
l the rising costs to acquire advertising rights due to competition among bidders for those rights;
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l strong competition from other media companies; and
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l many customers continued to be cost-conscious in their advertising budget especially on our new digital form of media.
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19
To address these unfavorable market conditions, we continue to implement cost-cutting measures, including reductions in our workforce, office rentals, selling and marketing related expenses and other general and administrative expenses. We have also re-assessed the commercial viability of each of our concession rights contracts and have terminated those of our concession rights that we determined were no longer commercially viable due to high annual fees. Management has also successfully negotiated some reductions in advertising operating rights fees under remaining contracts. Since the latter half of 2011, we have expanded our focus from LED media and have actively explored new prominent media projects in order to provide a wider range of media and advertising services and improve our financial performance.
For more information relating to our business, please refer to Part I, “Item 1 - Business” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2014.2016.
Recent Development
Reverse Split
On July 30, 2015 we filed a Certificate of Amendment to our Certificate of Incorporation with the Delaware Secretary of State to effect a 1-for-15 reverse stock split of the Company’s outstanding common stock (the “Reverse Split”) together with a reduction in the authorized common stock from 400,000,000 to 26,666,667 shares.
Our common stock commenced trading on a post-split basis on August 11, 2015.
Shareholders received one new share of common stock in replacement of every fifteen shares held on April 22, 2015, the record date for the Reverse Split. The Reverse Split did not change the aggregate value of any stockholder’s shares of common stock or any stockholder’s ownership percentage of the common stock, except for minimal changes resulting from the treatment of fractional shares. We did not issue any fractional shares as a result of the Reverse Split. The number of shares issued to each stockholder was rounded up to the nearest whole number if, as a result of the Reverse Split, the number of shares owned by any stockholder would not be a whole number.
The Reverse Split proportionately reduced all issued and outstanding shares of our common stock, as well as common stock underlying stock options, warrants and other common stock based equity grants outstanding and the respective exercise prices were proportionately increased in accordance with the terms of the agreements governing such securities. Shares of common stock reserved for issuance upon the conversion of our convertible notes were also proportionately reduced and the respective conversion prices were proportionately increased.
Identification of Potential Projects
We have extended our business direction to not just selling air-time for its media panels but started working closely with property developers in media planning for the property at the very early stage. By doing so, we are able to attract several property developers to grant us media rights within the whole property. These will include exhibition and conference centres, shopping malls, etc. This new business model will create a closer working relationship between the property owners and the Company as the property owners welcome a more thorough and well-planned media layout in their property at an early stage. Under this approach, we believe the property owners are more eager to work with us and even more ready to invest in the installation of media panels.
The Company will continually explore new media projects in order to provide a wider range of media and advertising services, rather than focusing primarily on LED media. The Company has identified several such potential projects which it intends to aggressively pursue in the coming year.
Results of Operations
The following results of operations is based upon and should be read in conjunction with the Company’s unaudited condensed consolidated financial statements and the notes thereto included in Part I – Financial Information, “Item 1. Financial Statement.” All amounts are expressed in U.S. dollars.
Comparison of Three Months Ended SeptemberJune 30, 20152017 and SeptemberJune 30, 20142016
Revenues – Our revenues consist primarily of income from out-of-home advertising panels. We recognize revenue in the period when advertisements are displayed. Revenues from advertising services for the three months ended September 30, 2015 were $nil, as compared to $204,234 for the corresponding prior year period. The decrease was attributed to the termination of two media advertising projects in Shanghai and Zuhai in June 2014 and September 2014, respectively.
Cost of Revenues – Cost of revenues primarily consists of fees to obtain rights to operate advertising panels, advertising agency service fees, media display equipment depreciation expenses and other miscellaneous expenses. Cost of revenues for the three months ended September 30, 2015 was $nil, a decrease of 100% as compared to $161,469 for the three months ended September 30, 2014. The decrease was attributed to the termination of two media advertising projects in Shanghai and Zuhai in June 2014 and September 2014, respectively.
Gross Profit/Loss – Our gross profit for the three months ended September 30, 2015 was $nil, as compared to $42,765 for the corresponding prior year period.
Selling and Marketing Expenses – Selling and marketing expenses primarily consist of advertising and other marketing related expenses, compensation and related expenses for personnel engaged in sales and sales support functions. Selling and marketing expenses for the three months ended September 30, 2015 decreased by 100% to $nil, as compared to $9,947 for the corresponding prior period. The decrease was mainly due to the reduction of our workforce.
General and Administrative Expenses – General and administrative expenses primarily consist of compensation related expenses (including salaries paid to executive and employees, employee bonuses and other staff welfare and benefits, rental expenses, depreciation expenses, fees for professional services, travel expenses and miscellaneous office expenses). General and administrative expenses for the three months ended SeptemberJune 30, 20152017 decreased by 37%9% to $137,343,$96,424, as compared to $218,573$105,392 for the corresponding prior year period. The decrease in general and administrative expenses was mainly due to (1) our continuous cost cutting measures(2) a decrease in headcount compare to 2014 and (3) decrease in rental expenses in 20152016.
Gain from write-off of long aged payables – Gain from write-off of long-aged payables was $nil for the three months ended September 30, 2015 and 2014.
Gain from disposal of subsidiaries – Gain from disposal of subsidiaries was $nil for the three months ended September 30, 2015 and 2014.
Stock based compensation for services – Stock-based compensation for services is stock granted to directors, executive officers and employees for services rendered calculated in accordance with Accounting Standards Codification, or ASC, Topic 718.718, Stock-based compensation for services was $667$10,000 for the three months ended SeptemberJune 30, 2015. This decreased by 89%, as compared to $6,291 for the corresponding prior year period.2016. The decrease by 100% in the stock-based compensation was mainly due to a decrease in theno stock price at the date of the stock granthad been granted for services rendered during the three months ended SeptemberJune 30, 2015.2017.
Other income – Other income for the three months ended September 30, 2015 was $1, compared to other income of $1,732 for the corresponding prior year period. The decrease in other income was mainly due to the decrease in consultancy income in 2015.
Interest and Other Debt-Related Expenses – Interest expense and other debt-related expenses for the three months ended SeptemberJune 30, 20152017 increased to $121,694,$135,623, or by 37%7%, as compared to $88,788127,307 for the corresponding prior year period. The increase was mainly due to the increase of short term loans.loan.
Income Taxes – The Company derives all of its income in the PRC and is subject to income tax in the PRC. No income tax was recorded during the three months ended SeptemberJune 30, 20152017 and 2014,2016, because the Company and all of its subsidiaries and variable interest entity operated at a taxable loss during the respective periods.
Net Loss – The Company incurred a net loss of $259,703$232,047 for the three months ended SeptemberJune 30, 2015,2017, a decrease of 5%4%, as compared to $272,811$242,699 for the corresponding prior year period. The decrease in net loss was primarily due to continuous cost cuttingdecrease in general and administrative expenses set off by the increase in interest expenses during the three months ended September 30, 2015.from short term loan.
Comparison of NineSix Months Ended SeptemberJune 30, 20152017 and June 30, 20142016
Revenues – Revenues from advertising services for the nine months ended September 30, 2015 were $nil, as compared to $667,752 for the corresponding prior year period, a decrease of 100%. The decrease was attributed to the termination of two media advertising projects in Shanghai and Zuhai in June 2014 and September 2014, respectively.
Cost of Revenues – Cost of revenues for the nine months ended September 30, 2015 was $nil, a decrease of 100% as compared to $1,032,972 for the nine months ended September 30, 2014. The decrease was attributed to the termination of two media advertising projects in Shanghai and Zuhai in June 2014 and September 2014, respectively.
Gross Loss – Our gross loss for the nine months ended September 30, 2015 was $nil, as compared to $365,220 for the corresponding prior year period. The decrease was attributed to the termination of two media advertising projects in Shanghai and Zuhai in June 2014 and September 2014, respectively.
Selling and Marketing Expenses – Selling and marketing expenses for the nine months ended September 30, 2015 decreased by 100% to $nil, compared to $51,339 for the corresponding prior period. The decrease was mainly due to the restructuring of our sales team so as to enhance our operational effectiveness and efficiency and our continuous cost cutting measures.
General and Administrative Expenses – General and administrative expenses for the ninesix months ended SeptemberJune 30, 20152017 decreased by 45%22% to $436,176,$173,787, compared to $715,296$223,222 for the corresponding prior year period. The decrease in general and administrative expenses was mainly due to continuous cost cutting measures.
Gain from write-off of long aged payables – Gain from write-off of long-aged payables was $437,749 for the nine months ended September 30, 2015. We believe the obligation for future settlement for such long-aged payables is remote and therefore wrote them off.
Gain from disposal of subsidiaries – Gain from disposal of subsidiaries was $129,726 for the nine months ended September 30, 2015 which was due to the disposal of Linkrich Enterprise Advertising and Investment Limited and Yi Gao Shanghai Advertising Limited.
Stock based compensation for services – Stock-based compensation for services is stock granted to directors, executive officers and employees for services rendered calculated in accordance with Accounting Standards Codification, or ASC, Topic 718. Stock-based compensation for services was $351,976 for the nine months ended September 30, 2015. This increased by 373%, as compared to $74,473 for the corresponding prior year period. The increase in the stock-based compensation was mainly due to more stock having been granted for services rendered during the nine months ended September, 2015.
Interest and Other Debt-Related Expenses – Interest expense and other debt-related expenses for the ninesix months ended SeptemberJune 30, 2015 decreased2017 increased to $347,380,$268,873, or by 71%6%, compared to $1,193,049 for the corresponding prior year period. The decrease was mainly due to the decrease in amortization of debt discount as a result of the convertible promissory notes in April 2014 and offset by the increase in interest paid for the short term loans.
Other income – Other income for the nine months ended September 30, 2015 was $3, compared to other income of $6,835 for$253,009for the corresponding prior year period. The decrease in other incomeincrease was mainly due to the decrease in consultancy income in 2015. increase of short term loan.
Income Taxes – The Company derives all of its income in the PRC and is subject to income tax in the PRC. No income tax was recorded during the ninesix months ended SeptemberJune 30, 20152017 and 20142016 as the Company and all of its subsidiaries and its variable interest entities operated at a taxable loss during the respective periods.
Net (Loss) Income – The Company incurred a net loss of $568,054$442,660 for the ninesix months ended SeptemberJune 30, 2015,2017, compared to of $2,392,542$476,231 for the corresponding prior year period. The decrease in net loss was primarily due to the continuous cost-cutting during the nine months ended September 30, 2015 and decrease in amortization of debt discount.general and administrative expenses set off by the increase in interest expenses from short term loan.
Liquidity and Capital Resources
As of SeptemberJune 30, 2015,2017, we had cash of $6,823,$6,580, as compared to $22,645$8,512 as of December 31, 2014, a2016, the decrease of $15,822. The decrease was$1,932 mainly attributable to the cash utilized by operating activities.
The following table sets forth a summary of our cash flows for the periods indicated:
| | Nine Months Ended | | | Six Months Ended | |
| | September 30, 2015 | | September, 2014 | | | June 30, 2017 | | | June 30, 2016 | |
Net cash used in operating activities | | $ | (353,646 | ) | | $ | (981,266 | ) | | $ | (97,851 | ) | | $ | (73,345 | ) |
Net cash (used in) provided by investing activities | | | (1,535 | ) | | | 15,858 | | |
Net cash provided by financing activities | | | 339,169 | | | | 966,266 | | | | 96,923 | | | | 72,935 | |
Effect of exchange rate changes on cash | | | 190 | | | | 5,850 | | | | (1,004 | ) | | | (35 | ) |
Net decrease in cash | | | (15,822 | ) | | | (6,708 | ) | |
Net increase/(decrease) in cash | | | | 21,286 | | | | (45 | ) |
Cash, beginning of period | | | 22,645 | | | | 111,889 | | | | 8,512 | | | | 6,790 | |
Cash, end of period | | $ | 6,823 | | | $ | 118,597 | | | $ | 6,580 | | | $ | 6,345 | |
Operating Activities
Net cash used in operating activities for the ninesix months ended SeptemberJune 30, 20152017 was $353,646$97,851, as compared to $981,266net cash used in operating activities amounting to $73,345 for the corresponding prior year period. This was mainly attributable to decreased payments of short term loan interest and decreased receiptsincrease in advance from customerspayment for expenses during the ninesix months ended SeptemberJune 30, 2015.2017.
Our cash flow projections indicate that our current assets and projected revenues from our existing project will not be sufficient to fund operations over the next twelve months. This raises substantial doubt about our ability to continue as a going concern. We intend to rely on Keywin’s exercise of its outstanding option to purchase $2 million in shares of our common stock or on the issuance of additional equity and debt securities as well as on our note holders’ exercise of their conversion option to convert our notes to our common stock, in order to fund our operations. However, it may be difficult for us to raise funds in the current economic environment. We cannot give assurance that we will be able to generate sufficient revenue or raise new funds, or that Keywin will exercise its option before its expiration and our note holders will exercise their conversion option before the note is due. In any such case, we may not be able to continue as a going concern.
Started from May 2015, our address of principal executive offices was moved to 2nd Floor, Goldsland Building, 22-26 Minden Avenue,Tsim Sha Tsui, Kowloon, Hong Kong. No rent was charged by the landlord.
Investing Activities
Net cash used in investing activities for the ninesix months ended SeptemberJune 30, 20152017 and 2016 was $1,535, as compared to the net cash provided by investing activities of $15,858 for the corresponding prior year period. The decrease was mainly attributable to sales proceeds from the selling of motor vehicle from our Shanghai offices during the nine months ended September 30, 2014.$nil.
Financing Activities
Net cash provided by financing activities was $339,169 $96,923 for the ninesix months ended SeptemberJune 30, 2015,2017, as compared to $966,266 $72,935 for the corresponding prior year period. The decreaseincrease was mainly due to receiptsincrease in proceeds from private placementshort-term loans for financing our operations during the ninesix months ended SeptemberJune 30, 2014.2017.
Short-term LoansLoan
As of SeptemberJune 30, 2015,2017, the Company recorded an aggregated amount of $2,442,146$2,753,775 short-term loans. Those loans were borrowed from an unrelated individual. Those loans are unsecured, bear a monthly interest of 1.5% and shall be repayable in one month. However, according to the agreement, the Company shall have the option to shorten or extend the life of those short-term loans if the need arises and the Company has agreed with the lender to extend the short-term loans on the due date. Up to the date of this report, those loans have not yet been repaid.
Capital Expenditures
During the ninesix months ended SeptemberJune 30, 20152017 and 2014,2016, we acquired equipment of $1,535did not acquire equipment.
Contractual Obligations and $14,268, respectively, which were primarily financed by short term loans and the cash flows generated from our operations.Commercial Commitments
The following table presents certain payments due under contractual obligations with minimum firm commitments as of SeptemberJune 30, 2015:2017:
| | Payments due by period | | Payments due by period | |
| | Total | | Due in 2015 | | Due in 2016 – 2017 | | Due in 2018-2019 | | Thereafter | | Total | | Due in 2017 | | Due in 2018 – 2019 | | Due in 2019-2020 | | Thereafter | |
Debt Obligations (a) | | $ | 5,000,000 | | | $ | - | | | $ | 5,000,000 | | | $ | - | | | $ | - | | | $ | 5,000,000 | | | $ | 5,000,000 | | | $ | - | | | $ | - | | | $ | - | |
Short Term Loan (b) | | 2,442,146 | | 2,442,146 | | - | | - | | - | | | | 2,753,775 | | | | 2,753,775 | | | | - | | | | - | | | | - | |
Capital Lease Obligation (c) | | 20,725 | | 12,825 | | 7,900 | | - | | - | | |
(a) Debt Obligations. We issued an aggregate of $5,000,000 in 1% Convertible Promissory Notes in April 2009 to our investors and such 1% Convertible Promissory Notes matured on April 1, 2014. On March 12, 2014, the Company and the Note Holders tentatively agreed to extend the maturity date of the 1% Convertible Promissory Notes for a period of two years.2016. For details, please refer to the Note 108 of the consolidated financial statements.
(b) Short Term Loan. We have aentered into short-term loan agreement with an unrelated individual. Those loans are unsecured, bear a monthly interest of 1.5% and repayable on demand or have due date in a month. However, according to the agreement, the Company shall have the option to shorten or extend the life of those short-term loans if the need arises and the Company has agreed with the lender to extend the short-term loans on the due date. Up to the date of this report, those loans have not yet been repaid.
(c) Capital Lease Obligation. We have purchased a motor vehicle under capital leases.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires our management to make assumptions, estimates and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the preparation of our financial statements. These accounting policies are important for an understanding of our financial condition and results of operation. Critical accounting policies are those that are most important to the portrayal of our financial conditions and results of operations and require management’s difficult, subjective, or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management’s current judgments. There have been no material changes to the critical accounting policies previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014.
Recent Accounting Pronouncements
In May 2014,January 2016, the FASB has issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The amendments in ASU 2014-09 affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer2016-01 "Recognition and Measurement of nonfinancial assets unless those contracts are within the scope of other standards (e.g., insurance contracts or lease contracts). This ASU will supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance, and creates a Topic 606 Revenue from Contracts with Customers. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (1) Identify the contract(s) with a customer. (2) Identify the performance obligations in the contract. (3) Determine the transaction price. (4) Allocate the transaction price to the performance obligations in the contract. (5) Recognize revenue when (or as) the entity satisfies a performance obligation. For a public entity, the amendments are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. For all other entities, they are effective for annual reporting periods beginning after December 15, 2017 and interim periods within annual periods beginning after December 15, 2018. A nonpublic entity may elect to apply the guidance in this ASU early with certain restrictions. In August 2015, the FASB has issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. The amendments in ASU 2015-14 defer the effective date of ASU 2014-09 for all entities by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. All other entities should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. All other entities may apply the guidance in ASU 2014-09 earlier as of an annual reporting period beginning after December 15, 2016, including interim reporting periods within that reporting period. All other entities also may apply the guidance in ASU 2014-09 earlier as of an annual reporting period beginning after December 15, 2016, and interim reporting periods within annual reporting periods beginning one year after the annual reporting period in which the entity first applies the guidance in ASU 2014-09. The Company has not determined the effect the adoption of the standard will have on its consolidated financial statements.
In June 2014, the FASB has issued ASU 2014-12, Compensation – Stock Compensation (Topic 718) - Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. The amendments in ASU 2014-12 require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in Topic 718, Compensation – Stock Compensation, as it relates to awards with performance conditions that affect vesting to account for such awards. The performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved. The standard is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Early adoption is permitted. The effective date is the same for both public business entities and all other entities. Entities may apply the amendments in this ASU either: (a) prospectively to all awards granted or modified after the effective date; or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. The Company has not determined the effect the adoption of the standard will have on its consolidated financial statements.
In August 2014, the FASB has issued ASU 2014-13, Consolidation (Topic 810) - Measuring the Financial Assets and Financial Liabilities" to enhance the Financial Liabilitiesreporting model for financial instruments to provide users of a Consolidated Collateralized Financing Entity. The amendments infinancial statements with more decision-useful information. ASU 2014-13 provide an alternative2016-01 particularly relates to Topic 820, Fair Value Measurement, for measuring the fair value and impairment of equity investments, financial assetsinstruments measured at amortized cost, and the financial liabilitiesuse of a consolidated collateralized financing entity to eliminate the difference inexit price notion when measuring the fair value of the financial assets of a collateralized financing entity, as determined under GAAP, when they differ from the fair value of its financial liabilities even when the financial liabilities have recourse only to the financial assets. When the measurement alternative is elected, both the financial assets and the financial liabilities of the collateralized financing entity should be measured using the more observable of the fair value of the financial assets or the fair value of the financial liabilities. The amendments clarify that when the measurement alternative is elected, a reporting entity’s consolidated net income (loss) should reflect the reporting entity’s own economic interests in the collateralized financing entity, including: (1) changes in the fair value of the beneficial interests retained by the reporting entity, and (2) beneficial interests that represent compensationinstruments for services. The standarddisclosure purposes. ASU 2016-01 is effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2015. For all other entities, the changes are effective for annual periods ending after December 15, 2016,fiscal years and interim periods beginning after December 15, 2016.2017. Early adoption is only permitted as of the beginning of an annual period. Thefor certain particular amendments may be applied using a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the annual period of adoption. The amendments may also be applied retrospectively to all relevant prior periods beginning with the annual period in whichwithin ASU 2009-17 was initially adopted. 2016-01, where financial statements have not yet been issued. The Company has not determinedis currently assessing the effect the adoptionimpact of the standard will haveASU 2016-01 on its consolidated financial statements..position, results of operations and cash flows.
In August 2014,February 2016, the FASB has issued ASU 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties2016-02 "Leases" to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about an Entity’s Abilityleasing arrangements. ASU 2016-02 creates a new Accounting Standards Codification Topic 842 "Leases" to Continue as a Going Concern. The amendmentsreplace the previous Topic 840 "Leases." ASU 2016-02 affects both lessees and lessors, although for the latter the provisions are similar to the previous model, but updated to align with certain changes to the lessee model and also the new revenue recognition provisions contained in ASU 2014-15 are intended to define management’s responsibility to evaluate whether there2014-09 (see above). ASU 2016-02 is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures. Under GAAP, financial statements are prepared under the presumption that the reporting organization will continue to operate as a going concern, except in limited circumstances. The going concern basis of accounting is critical to financial reporting because it establishes the fundamental basis for measuring and classifying assets and liabilities. Currently, GAAP lacks guidance about management’s responsibility to evaluate whether there is substantial doubt about the organization’s ability to continue as a going concern or to provide related footnote disclosures. This ASU provides guidance to an organization’s management, with principles and definitions that are intended to reduce diversity in the timing and content of disclosures that are commonly provided by organizations today in the financial statement footnotes. The standard is effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. Early application is permitted for annual or interim reporting periods for which the financial statements have not previously been issued. The Company has not determined the effect the adoption of the standard will have on its consolidated financial statements.
In November 2014, the FASB has issuedASU 2014-16, Derivatives and Hedging (Topic 815): Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity. The amendments in ASU 2014-16 do not change the current criteria in U.S. GAAP for determining when separation of certain embedded derivative features in a hybrid financial instrument is required. The amendments clarify how current U.S. GAAP should be interpreted in evaluating the economic characteristics and risks of a host contract in a hybrid financial instrument that is issued in the form of a share. Specifically, the amendments clarify that an entity should consider all relevant terms and features, including the embedded derivative feature being evaluated for bifurcation, in evaluating the nature of the host contract. Furthermore, the amendments clarify that no single term or feature would necessarily determine the economic characteristics and risks of the host contract. Rather, the nature of the host contract depends upon the economic characteristics and risks of the entire hybrid financial instrument. The amendments in this ASU also clarify that, in evaluating the nature of a host contract, an entity should assess the substance of the relevant terms and features (i.e., the relative strength of the debt-like or equity-like terms and features given the facts and circumstances) when considering how to weight those terms and features. The standard is effective for public business entities for fiscal years and interim periods within those fiscal years, beginning after December 15, 2015. For2018. Early adoption is permitted. The Company is currently assessing the impact of ASU 2016-02 on its consolidated financial position, results of operations and cash flows.
In June 2016, the FASB issued ASU 2016-13 "Financial Instruments - Credit Losses" to introduce new guidance for the accounting for credit losses on instruments within its scope. ASU 2016-13 requires among other things, the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, the ASU 2016-13 amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. ASU 2016-13 is effective for fiscal years and interim periods beginning after December 15, 2019. Early adoption is permitted. The Company is currently assessing the impact of ASU 2016-13 on its consolidated financial position, results of operations and cash flows.
In August 2016, the FASB issued ASU 2016-15 "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments", to address diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. It addresses the following eight specific cash flow issues: debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or other entities,debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies (COLIs) (including bank-owned life insurance policies (BOLIs)); distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle. The amendments are effective for fiscal years beginning after December 15, 2015,2017, and interim periods within those fiscal years beginning after December 15, 2016. Earlywith early adoption including adoption in an interim period, is permitted. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The effects of initially adopting these amendments should be applied onusing a modified retrospective basistransition method to existing hybrid financial instruments issued ineach period presented. If it is impracticable to apply the formamendments retrospectively for some of a sharethe issues, the amendments for those issues would be applied prospectively as of the beginningearliest date practicable. The Company is currently assessing the impact of ASU 2016-15 on its statement of consolidated cash flows.
In January 2017, the fiscal year for whichFASB issued ASU 2017-01 "Business Combinations (Topic 805): Clarifying the Definition of a Business”, to clarify the definition of a business. The amendments affect all companies and other reporting organizations that must determine whether they have acquired or sold a business. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The amendments are effective. Retrospective application is permittedintended to all relevant prior periods. The Company does not believe the adoptionhelp companies and other organizations evaluate whether transactions should be accounted for as acquisitions (or disposals) of this standard will have a material effect on its consolidated financial statements.
In January 2015, the FASB has issued ASU 2015-01, Income Statement - Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items.assets or businesses. The amendments in ASU 2015-01 eliminates from U.S. GAAP the concept of extraordinary items. Subtopic 225-20, Income Statement - Extraordinary and Unusual Items, required that an entity separately classify, present, and disclose extraordinary events and transactions. Presently, an event or transaction is presumed to be an ordinary and usual activity of the reporting entity unless evidence clearly supports its classification as an extraordinary item. If an event or transaction meets the criteria for extraordinary classification, an entity is required to segregate the extraordinary item from the results of ordinary operations and show the item separately in the income statement, net of tax, after income from continuing operations. The entity also is required to disclose applicable income taxes and either present or disclose earnings-per-share data applicable to the extraordinary item. The standard isare effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively. A reporting entity also may apply the amendments retrospectively to all prior periods presented in the financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. An entity that prospectively applies this ASU should disclose both the nature and the amount of an item included in income from continuing operations after adoption that adjusts an extraordinary item previously classified and presented before the date of adoption, if applicable. The Company does not believe the adoption of this standard will have a material effect on its consolidated financial statements.
In February 2015, the FASB has issued ASU 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis, The amendments in ASU 2015-02 are intended to improve targeted areas of consolidation guidance for legal entities such as limited partnerships, limited liability corporations, and securitization structures (collateralized debt obligations, collateralized loan obligations, and mortgage-backed security transactions). In addition to reducing the number of consolidation models from four to two, the new standard simplifies the FASB Accounting Standards Codification™ and improves current GAAP by: (1) placing more emphasis on risk of loss when determining a controlling financial interest, (2) reducing the frequency of the application of related-party guidance when determining a controlling financial interest in a variable interest entity (VIE), (3)-changing consolidation conclusions for public and private companies in several industries that typically make use of limited partnerships or VIEs. The standard is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. For all other entities, the requirements are effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. Early adoption is permitted, including adoption in an interim period. ASU 2015-02 may be applied retrospectively in previously issued financial statements for one or more years with a cumulative-effect adjustment to retained earnings as of the beginning of the first year restatedpermitted. The Company does not believeis currently assessing the adoptionimpact of this standard will have a material effectASU 2017-01 on its consolidated financial statements.position, results of operations and cash flows.
In April 2015, the FASB has issued ASU 2015-04, Compensation - Retirement Benefits (Topic 715): Practical Expedient for the Measurement Date of an Employer’s Defined Benefit Obligation and Plan Assets. The amendments in ASU 2015-04 permit an entity with a fiscal year-end that does not coincide with a month-end a practical expedient that permits the entity to measure defined benefit plan assets and obligations using the month-end that is closest to the entity’s fiscal year-end and apply that practical expedient consistently from year to year. The practical expedient should be applied consistently to all plans if an entity has more than one plan. Employee benefit plans are not within the scope of the amendments. The standard is effective for public business entities for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. For all other entities, the amendments are effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. Earlier adoption is permitted. The amendments should be applied prospectively. The Company does not believe the adoption of this standard will have a material effect on its consolidated financial statements.
In May 2015,2017, the FASB has issued ASU 2015-07, Fair Value Measurement2017-09 “Compensation—Stock Compensation (Topic 820)718): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent).Scope of Modification Accounting”, to provide guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting under Topic 718. The amendments in ASU 2015-07 remove the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. The amendments also remove the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical expedient. Rather, those disclosures are limited to investments for which the entity has elected to measure the fair value using that practical expedient. The standard is effective for public business entities for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years and interim periods beginning after December 15, 2016, and interim periods within those fiscal years. A reporting entity should apply the amendments retrospectively to all periods presented.2017. Early adoption is permitted. The Company does not believeis currently assessing the adoptionimpact of this standard will have a material effectASU 2017-09 on its consolidated financial statements.position, results of operations and cash flows.
In May 2015,July 2017, the FASB has issued ASU 2015-08, Business Combinations2017-11 “Earnings Per Share (Topic 805)260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): Pushdown(Part I) Accounting – Amendmentsfor Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception”, to SEC Paragraphs Pursuant to Staff Accounting Bulletin No. 115.simplify the accounting for certain financial instruments with down round features. The amendments in ASU 2015-08 amend various SEC paragraphs pursuantrequire companies to disregard the issuancedown round feature when assessing whether the instrument is indexed to its own stock, for purposes of Staff Accounting Bulletin No. 115, Topic 5: Miscellaneous Accounting, regarding various pushdown accounting issues.determining liability or equity classification. Companies that provide earnings per share (EPS) data will adjust their basic EPS calculation for the effect of the feature when triggered (i.e., when the exercise price of the related equity-linked financial instrument is adjusted downward because of the down round feature) and will also recognize the effect of the trigger within equity. The Company does not believe the adoption of this standard will have a material effect on its consolidated financial statements.
In June 2015,amendments also address navigational concerns within the FASB has issued ASU 2015-10, Technical CorrectionsAccounting Standards Codification® related to an indefinite deferral available to private companies with mandatorily redeemable financial instruments and Improvements. The amendments in ASU 2015-10 represent changes to clarify the Codification, correct unintended application of guidance, or make minor improvements to the Codificationcertain noncontrolling interests, one that are not expected to have acreated significant effect on current accounting practice or create a significant administrative cost to most entities. In addition, some of the amendments are intended to make the Codification easier to understand and easier to apply by eliminating inconsistencies, providing needed clarifications, and improving the presentation of guidance“pending content” in the Codification. The FASB decided to reclassify the indefinite deferral as a scope exception, which does not have an accounting effect. The amendments that require transition guidance are effective for all entities for fiscal years and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. All other amendments will be effective upon issuance. The Company does not believe the adoption of this standard will have a material effect on its consolidated financial statements.
In July 2015, the FASB has issued ASU 2015-12, Plan Accounting: Defined Benefit Pension Plans (Topic 960), Defined Contribution Pension Plans (Topic 962), and Health and Welfare Benefit Plans (Topic 965) - I. Fully Benefit-Responsive Investment Contracts, II. Plan Investment Disclosures, and III. Measurement Date Practical Expedient. The amendments are in 3 parts. Among other things: Part 1 amendments designate contract value as the only required measure for fully benefit-responsive investment contracts; Part II amendments eliminate the requirement that plans disclose: (a) individual investments that represent 5 percent or more of net assets available for benefits; and (b) the net appreciation or depreciation for investments by general type requirements for both participant-directed investments and nonparticipant-directed investments. Part III amendments provide a practical expedient to permit plans to measure investments and investment-related accounts (e.g., a liability for a pending trade with a broker) as of a month-end date that is closest to the plan’s fiscal year-end, when the fiscal period does not coincide with month-end. Parts I and II are effective on a retrospective basis, and Part III is effective on a prospective basis, for fiscal years beginning after December 15, 2015.2018. Early adoption is permitted. The Company does not believeis currently assessing the adoptionimpact of this standard will have a material effectASU 2017-11 on its consolidated financial statements.
In August 2015, the FASB has issued ASU 2015-15 Interest—Imputationposition, results of Interest (Subtopic 835-30) - Presentationoperations and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements (Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting). On April 7, 2015, the FASB issued ASU 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which requires entities to present debt issuance costs related to a recognized debt liability as a direct deduction from the carrying amount of that debt liability. The guidance in ASU 2015-03 (see paragraph 835-30-45-1A) does not address presentation or subsequent measurement of debt issuance costs related to line-of-credit arrangements. Given the absence of authoritative guidance within ASU 2015-03 for debt issuance costs related to line-of-credit arrangements, the SEC staff stated that they would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. ASU 2015-15 adds these SEC comments to the "S" section of the Codification. The Company does not believe the adoption of this standard will have a material effect on its consolidated financial statements.cash flows.
In September 2015, the FASB has issued ASU 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. The amendments in ASU 2015-16 require that an acquirer recognize adjustments to estimated amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments require that the acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the estimated amounts, calculated as if the accounting had been completed at the acquisition date. The amendments also require an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the estimated amounts had been recognized as of the acquisition date. It is effective for public business entities for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. The amendments should be applied prospectively to adjustments to provisional amounts that occur after the effective date with earlier application permitted for financial statements that have not been issued. The Company does not believe the adoption of this standard will have a material effect on its consolidated financial statements.
Off Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our investors.
| QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. |
Not applicable.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) that are designed to ensure that information that would be required to be disclosed in Exchange Act reports is recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including to our Chief Executive Officer and Interim Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
As required by Rule 13a-15 under the Exchange Act, our management evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of SeptemberJune 30, 2015.2017. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of SeptemberJune 30, 2015,2017, and as of the date that the evaluation of the effectiveness of our disclosure controls and procedures was completed, our disclosure controls and procedures were effective to satisfy the objectives for which they are intended.
Changes in Internal Control Over Financial Reporting
We regularly review our system of internal control over financial reporting and make changes to our processes and systems to improve controls and increase efficiency, while ensuring that we maintain an effective internal control environment. Changes may include such activities as implementing new, more efficient systems, consolidating activities, and migrating processes.
There has been no change to our internal control over financial reporting during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II
OTHER INFORMATION
From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these, or other matters, may arise from time to time that may harm our business.
On July 5, 2013, Yi Gao received a notice from the People's Court of Huangpu District, Shanghai that Shanghai Shenpu advertising Co. Ltd (“Shenpu”), as plaintiff, had initiated a contract dispute against Yi Gao seeking an aggregate of RMB1,807,215 (equivalent to approximately US$291,000 at the then-prevailing exchange rate) for unpaid rights fee, penalty and production cost. On August 7, 2013, Yi Gao received a court verdict from the People's Court of Huangpu District, Shanghai that Yi Gao is liable to repay the unpaid fee of RMB650,000, penalty and production cost. On August 26, 2013, Yi Gao submitted an appeal to People's Court of Huangpu District, Shanghai that the penalty calculated is not reasonable. On November 13, 2013, Yi Gao withdrew the appeal. As a result, Yi Gao is liable to pay an aggregate of RMB765,463 (equivalent to approximately US$124,870 at the then-prevailing exchange rate) to Shenpu. On February 19, 2014, Yi Gao paid RMB45,221 to Shenpu. In June 2015, the Company’s subsidiary, NCN Media Services Limited, disposed of its entire 100% equity interests of Linkrich Enterprise Advertising and Investment Limited and Yi Gao Shanghai Advertising Limited to an individual.
Not applicable.
| UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. |
We have not sold any equity securities during the quarter ended SeptemberJune 30, 20152017 which sale was not previously disclosed in a current report on Form 8-K filed during that period.
| DEFAULTS UPON SENIOR SECURITIES. |
None.
Not applicable.
We have no information to include that was required to be but was not disclosed in a report on Form 8-K during the period covered by this Form 10-Q. There have been no material changes to the procedures by which security holders may recommend nominees to our board of directors.Not applicable.
The following exhibits are filed as part of this report or incorporated by reference:
Exhibit No. | | Description |
31.1 | | |
| | |
31.2 | | |
| | |
32.1 | | |
| | |
32.2 | | |
| | |
101 * | | Financial statements and footnotes of Network CN Inc. for the fiscal quarter ended September 30, 2015,March 31, 2013, formatted in XBRL (eXtensible Business Reporting Language) pursuant to Rule 405 of Regulation S-T (furnished herewith) |
* Pursuant to Rule 406T of Regulation S-T, the interactive data files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, or Section 18 of the Securities Act of 1934, as amended, and otherwise are not subject to liability under those sections.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: November 13, 2015August 14, 2017 | NETWORK CN INC. |
| | |
| | |
| By: | /s/ Earnest Leung |
| Earnest Leung, Chief Executive Officer |
| (Principal Executive Officer) |
| By: | /s/ Shirley Cheng |
| Shirley Cheng, Chief Financial Officer |
| (Principal Financial Officer and Principal Accounting Officer) |
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