UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10−Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: SeptemberJune 30, 2017
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
Commission File Number: 000-30264
NETWORK CN INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware | 90-0370486 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
Office A, 18/F., D.J. Securities Building, 171 Hoi BunLucky Plaza, Nos. 315-321 Lockhart Road, Kwun Tong, Kowloon, Wanchai, Hong Kong
(Address of principal executive offices, Zip Code)
(852) 2833-2186
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
Indicate by check mark whether the registrant has submitted electronically, and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or, an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | ||
Smaller reporting company ☒ | ||
Accelerated filer ☐ | Emerging growth company ☐ | |
Non-accelerated filer ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
☐ No ☒Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $0.001 par value | NWCN | OTC market |
The number of shares outstanding of each of the issuer’s classes of common stock, as of November 10, 2017August 13, 2021 is as follows:
Class of Securities | Shares Outstanding | |
Common Stock, $0.001 par value | 8,774,263 |
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION | |
3 |
Item 2. | ||
Item 3. | 20 | |
Item 4. | Controls and Procedures | 20 |
PART II
OTHER INFORMATION
Item 1. | Legal Proceedings | 21 |
Item | 21 | |
Item 2. | 22 | |
Item 3. | 22 | |
Item 4. | 22 | |
Item 5. | 22 | |
Item 6. |
2
PART I
FINANCIAL INFORMATION
ITEM 1.CONSOLIDATED FINANCIAL STATEMENTS
NETWORK CN INC.
CONSOLIDATED FINANCIAL STATEMENTS
Page | ||
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6 | ||
7 | ||
NETWORK CN INC.
As of June 30, | As of December 31, | |||||||
2021 | 2020 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Current Assets | ||||||||
Cash | $ | 6,163 | $ | 5,967 | ||||
Prepaid expenses and other current assets, net | 100,000 | 100,000 | ||||||
Total Current Assets | 106,163 | 105,967 | ||||||
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Equipment, Net | 496 | 599 | ||||||
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TOTAL ASSETS | $ | 106,659 | $ | 106,566 | ||||
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LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
Current Liabilities | ||||||||
Accounts payable, accrued expenses and other payables | $ | 4,658,619 | $ | 4,261,650 | ||||
Short term loan | 2,973,211 | 2,973,211 | ||||||
Total Current Liabilities | 7,631,830 | 7,234,861 | ||||||
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Non-Current Liabilities | ||||||||
1% convertible promissory note due 2025, net | 645,000 | 645,000 | ||||||
Total Non-Current Liabilities | 645,000 | 645,000 | ||||||
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TOTAL LIABILITIES | 8,276,830 | 7,879,861 | ||||||
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COMMITMENTS AND CONTINGENCIES | 0- | 0- | ||||||
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STOCKHOLDERS’ DEFICIT | ||||||||
Preferred stock, $0.001 par value, 5,000,000 shares authorized NaN issued and outstanding | 0- | 0- | ||||||
Common stock, $0.001 par value, 26,666,667 shares authorize Shares issued and outstanding: 8,774,263 and 8,774,263 as of June 30, 2021 and December 31, 2020, respectively | 8,773 | 8,773 | ||||||
Additional paid-in capital | 124,209,441 | 124,209,441 | ||||||
Accumulated deficit | (134,092,812 | ) | (133,695,748 | ) | ||||
Accumulated other comprehensive income | 1,704,427 | 1,704,239 | ||||||
TOTAL STOCKHOLDERS’ DEFICIT | (8,170,171 | ) | (7,773,295 | ) | ||||
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TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | 106,659 | $ | 106,566 |
Note | As of September 30, 2017 | As of December 31, 2016 | ||||||||||
ASSETS | ||||||||||||
Current Assets | ||||||||||||
Cash | $ | 6,439 | $ | 8,512 | ||||||||
Prepaid expenses and other current assets | 5 | 102,751 | 101,829 | |||||||||
Total Current Assets | 109,190 | 110,341 | ||||||||||
Equipment, Net | 2,925 | 896 | ||||||||||
TOTAL ASSETS | $ | 112,115 | $ | 111,237 | ||||||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||||||
Current Liabilities | ||||||||||||
Accounts payable, accrued expenses and other payables | 6 | $ | 6,446,798 | $ | 5,775,653 | |||||||
1% convertible promissory note, net | 7 | 5,000,000 | 5,000,000 | |||||||||
Total Current Liabilities | 11,446,798 | 10,775,653 | ||||||||||
TOTAL LIABILITIES | 11,446,798 | 10,775,653 | ||||||||||
COMMITMENTS AND CONTINGENCIES | 8 | - | - | |||||||||
STOCKHOLDERS’ DEFICIT | ||||||||||||
Preferred stock, $0.001 par value, 5,000,000 shares authorized None issued and outstanding | - | - | ||||||||||
Common stock, $0.001 par value, 26,666,667 shares authorized shares issued and outstanding: 8,041,995 and 8,041,995 as of September 30, 2017 and December 31, 2016, respectively | 8,042 | 8,042 | ||||||||||
Additional paid-in capital | 123,706,741 | 123,706,741 | ||||||||||
Accumulated deficit | (136,752,357 | ) | (136,083,041 | ) | ||||||||
Accumulated other comprehensive income | 1,702,891 | 1,703,842 | ||||||||||
TOTAL STOCKHOLDERS’ DEFICIT | 9 | (11,334,683 | ) | (10,664,416 | ) | |||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | 112,115 | $ | 111,237 |
The accompanying notes are an integral part of the condensed consolidated financial statements.
NETWORK CN INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS FOR THE THREE(UNAUDITED)
Three Months Ended | Six Months Ended | |||||||||||||||||
Note | June 30, 2021 | June 30, 2020 | June 30, 2021 | June 30, 2020 | ||||||||||||||
REVENUES | ||||||||||||||||||
Advertising services | $ | 0- | $ | 0- | $ | 0- | $ | 0- | ||||||||||
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COST OF REVENUES | ||||||||||||||||||
Cost of advertising services | 0- | 0- | 0- | 0- | ||||||||||||||
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GROSS LOSS | 0- | 0- | 0- | 0- | ||||||||||||||
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OPERATING EXPENSES | ||||||||||||||||||
General and administrative | (71,477 | ) | (55,745 | ) | (137,157 | ) | (132,948 | ) | ||||||||||
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Total Operating Expenses | (71,477 | ) | (55,745 | ) | (137,157 | ) | (132,948 | ) | ||||||||||
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LOSS FROM OPERATIONS | (71,477 | ) | (55,745 | ) | (137,157 | ) | (132,948 | ) | ||||||||||
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OTHER INCOME | ||||||||||||||||||
Gain from write-off of long aged payables | 11 | 0- | 0- | 0- | 386,772 | |||||||||||||
Total Other Income | 0- | 0- | 0- | 386,772 | ||||||||||||||
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INTEREST AND OTHER DEBT-RELATED EXPENSES | ||||||||||||||||||
Interest expense | 6&7 | (129,954 | ) | (129,757 | ) | (259,907 | ) | (272,661 | ) | |||||||||
Total Interest and Other Debt–Related Expenses | (129,954 | ) | (129,757 | ) | (259,907 | ) | (272,661 | ) | ||||||||||
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NET LOSS BEFORE INCOME TAXES | (201,431 | ) | (185,502 | ) | (397,064 | ) | (18,837 | ) | ||||||||||
Income taxes | 13 | 0- | 0- | 0- | 0- | |||||||||||||
NET LOSS | $ | (201,431 | ) | $ | (185,502 | ) | $ | (397,064 | ) | $ | (18,837 | ) | ||||||
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OTHER COMPREHENSIVE INCOME/(LOSS) | ||||||||||||||||||
Foreign currency translation gain/(loss) | 205 | 146 | 188 | (2 | ) | |||||||||||||
Total other comprehensive loss | 205 | 146 | 188 | (2 | ) | |||||||||||||
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COMPREHENSIVE LOSS | $ | (201,226 | ) | $ | (185,356 | ) | $ | (396,876 | ) | $ | (18,839 | ) | ||||||
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NET LOSS PER COMMON SHARE – BASIC AND DILUTED | 12 | $ | (0.023 | ) | $ | (0.0211 | ) | $ | (0.0453 | ) | $ | (0.0021 | ) | |||||
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WEIGHTED AVERAGE SHARES | ||||||||||||||||||
OUTSTANDING – BASIC AND DILUTED | 12 | 8,774,263 | 8,774,263 | 8,774,263 | 8,774,263 |
Three Months Ended | Nine Months Ended | |||||||||||||||||||
Note | September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | ||||||||||||||||
REVENUES | ||||||||||||||||||||
Advertising services | $ | - | $ | - | $ | - | $ | - | ||||||||||||
COST OF REVENUES | ||||||||||||||||||||
Cost of advertising services | - | - | - | - | ||||||||||||||||
GROSS LOSS | - | - | - | - | ||||||||||||||||
OPERATING EXPENSES | ||||||||||||||||||||
General and administrative | (89,604 | ) | (100,852 | ) | (263,391 | ) | (304,074 | ) | ||||||||||||
Stock based compensation for services | - | - | - | (20,000 | ) | |||||||||||||||
Gain from disposal of subsidiaries | 25 | - | 25 | - | ||||||||||||||||
Total Operating Expenses | (89,579 | ) | (100,852 | ) | (263,366 | ) | (324,074 | ) | ||||||||||||
LOSS FROM OPERATIONS | (89,579 | ) | (100,852 | ) | (263,366 | ) | (324,074 | ) | ||||||||||||
INTEREST AND OTHER DEBT- RELATED EXPENSES | ||||||||||||||||||||
Interest expense | 6 & 7 | (137,077 | ) | (129,571 | ) | (405,950 | ) | (382,580 | ) | |||||||||||
Total Interest and Other Debt– Related Expenses | (137,077 | ) | (129,571 | ) | (405,950 | ) | (382,580 | ) | ||||||||||||
NET LOSS BEFORE INCOME TAXES | (226,656 | ) | (230,423 | ) | (669,316 | ) | (706,654 | ) | ||||||||||||
Income taxes | - | - | - | - | ||||||||||||||||
NET LOSS | $ | (226,656 | ) | $ | (230,423 | ) | $ | (669,316 | ) | $ | (706,654 | ) | ||||||||
OTHER COMPREHENSIVE INCOME (LOSS) | ||||||||||||||||||||
Foreign currency translation gain /(loss) | 53 | (26 | ) | (951 | ) | (61 | ) | |||||||||||||
Total other comprehensive income (loss) | 53 | (26 | ) | (951 | ) | (61 | ) | |||||||||||||
COMPREHENSIVE LOSS | $ | (226,603 | ) | $ | (230,449 | ) | $ | (670,267 | ) | $ | (706,715 | ) | ||||||||
NET LOSS PER COMMON SHARE – BASIC AND DILUTED | 11 | $ | (0.0282 | ) | $ | (0.0287 | ) | $ | (0.083 | ) | $ | (0.088 | ) | |||||||
WEIGHTED AVERAGE SHARES OUTSTANDING – BASIC AND DILUTED | 11 | 8,041,995 | 8,041,995 | 8,041,995 | 8,041,995 |
The accompanying notes are an integral part of the condensed consolidated financial statements.
NETWORK CN INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended | ||||||||
June 30, 2021 | June 30, 2020 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net loss | $ | (397,064 | ) | $ | (18,837 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 103 | 438 | ||||||
Gain from write-off of long aged payables | 0- | (386,772 | ) | |||||
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Changes in operating assets and liabilities: | ||||||||
Accounts payable, accrued expenses and other payables | 396,969 | (261,159 | ) | |||||
Net cash provided by (used in) operating activities | 8 | (666,330 | ) | |||||
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CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Proceeds from convertible promissory note | 0- | 645,000 | ||||||
Proceeds from short-term loan | 0- | 21,446 | ||||||
Net cash provided by financing activities | 0- | 666,446 | ||||||
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EFFECT OF EXCHANGE RATE CHANGES ON CASH | 188 | (2 | ) | |||||
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NET INCREASE IN CASH | 196 | 114 | ||||||
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CASH, BEGINNING OF PERIOD | 5,967 | 5,510 | ||||||
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CASH, END OF PERIOD | $ | 6,163 | $ | 5,624 | ||||
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
Cash paid during the period for: | ||||||||
Income taxes | $ | 0- | $ | 0- | ||||
Interest paid | $ | 0- | $ | 615,000 |
Nine Months Ended | ||||||||
September 30, 2017 | September 30, 2016 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net loss | $ | (669,316 | ) | $ | (706,654 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization: | ||||||||
Equipment | 603 | 9,647 | ||||||
Gain from disposal of subsidiaries | (25 | ) | - | |||||
Stock-based compensation for service | - | 20,000 | ||||||
Changes in operating assets and liabilities: | ||||||||
Prepaid expenses and other current assets | (922 | ) | (1,728 | ) | ||||
Accounts payable, accrued expenses and other payables | 543,389 | 568,173 | ||||||
Net cash used in operating activities | (126,271 | ) | (110,562 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Purchase of equipment | (2,632 | ) | - | |||||
Net cash used in investing activities | (2,632 | ) | - | |||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Proceeds from short-term loan | 127,756 | 121,719 | ||||||
Repayment of capital lease obligation | - | (9,704 | ) | |||||
Proceeds from disposal of subsidiaries | 1 | - | ||||||
Net cash provided by financing activities | 127,757 | 112,015 | ||||||
EFFECT OF EXCHANGE RATE CHANGES ON CASH | (927 | ) | (61 | ) | ||||
NET (DECREASE)/INCREASE IN CASH | (2,073 | ) | 1,392 | |||||
CASH, BEGINNING OF PERIOD | 8,512 | 6,790 | ||||||
CASH, END OF PERIOD | $ | 6,439 | $ | 8,182 | ||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
Cash paid during the period for: | ||||||||
Income taxes | $ | - | $ | - | ||||
Interest paid | $ | - | $ | 681 |
The accompanying notes are an integral part of the condensed consolidated financial statements.
NETWORK CN INC.
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 SeptemberJune 30, 2017,2021, are described in Note 43 – Subsidiaries and Variable Interest Entities.
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 and was postponed due to the progress of audit. Due to the delay of completion, the Company will re-evaluate the acquisition until Ease Global can fulfill the revenue target and the internal controls over financial reporting required by the SEC. The Company will proceed to negotiate and seek approval from the board of directors and shareholders for the new share exchange terms and conditions.
Increase of authorized capital
On April 28, 2020, the Board of Directors and Majority of stockholders of the Company approved to increase the total number of authorized shares of Common Stock from 26,666,667 to 100,000,000,000.
Going Concern
The Company has experienced recurring net losses of $669,316$201,431 and $706,654$185,502 for the ninethree months ended SeptemberJune 30, 20172021 and 2016, respectively. Additionally, the Company has net cash used in operating activities of $126,2712020 respectively, and $110,562$397,064 and $18,837 for the ninesix months ended SeptemberJune 30, 20172021 and 2016,2020 respectively. As of SeptemberJune 30, 20172021, and December 31, 2016,2020, the Company has stockholders’ deficit of $11,334,683$8,170,171 and $10,664,416,$7,773,295, respectively. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s plans regarding those concerns are addressed in the following paragraph. The unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
In response to current financial conditions, the Company has undergone a drastic cost-cutting exercise, including reduction of the Company’s workforce, office rentals and other general and administrative expenses. The Company has actively explored new prominent media projects in order to provide a wider range of media and advertising services and improve our financial performance. If the project can start to operate, the Company expects that the project will improve the Company’s future financial performance. The Company expects that the new project can generate positive cashflow.
7
The existing cash and cash equivalents together with highly liquid current assets are insufficient to fund the Company’s operations for the next twelve months. The Company will need to rely upon some combination of cash generated from the Company’s operations, the proceeds from the potential exercise of the outstanding option held by Keywin Holdings Limited (“Keywin”) to purchase $2 million in shares of the Company’s common stock, or proceeds from the issuance of the Company’s equity and debt securities as well as the exercise of the conversion option by the Company’s note holders to convert the notes to the Company’s common stock, in order to maintain the Company’s operations. Based on the Company’s best estimates, the Company believes that there are sufficient financial resources to meet the cash requirements for the coming twelve months and the consolidated financial statements have been prepared on a going concern basis. However, there can be no assurance the Company will be able to continue as a going concern.
NOTE 2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) Basis of Presentation and Preparation
The accompanying unaudited condensed consolidated financial statements of Network CN Inc., its subsidiaries and variable interest entities (collectively “NCN” or the Company“Company” “we”, “our” or “us”) have been prepared in conformityaccordance with GAAP.
The unaudited condensed consolidated financial statements for the three months and six months ended June 30, 2021 and 2020 were prepared onnot audited. It is management’s opinion, however, that all material adjustments (consisting of normal recurring adjustments or a going concern basis. The Company has determined that the going concern basis of preparation is appropriate based on its estimates and judgments of future performancedescription of the Company, future eventsnature and projected cash flows. At eachamount 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 date, the Company evaluates its estimates and judgments as part of its going concern assessment. Based on its assessment, the Company believes there are sufficientdata was derived from audited financial and cash resources to finance the Company as a going concern in the next twelve months. Accordingly, management has prepared thestatements, but does not include all disclosures required by GAAP.
The accompanying unaudited condensed 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 a going concern basis.
(B) Principles of Consolidation
The unaudited condensed 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,
(C) Use of Estimates
In preparing unaudited condensed 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 condensed consolidated financial statements taken as a whole.
(D) Convertible Promissory Notes
Issuance of 1% Convertible Promissory Note
On April 2, 2009,January 14, 2020, the Company issued 1% unsecured senior convertible promissory notes to the previous 3% convertible promissory note holders who agreed to cancel these 3% convertible promissory notes inan individual with the principal amount of $5,000,000 (including all accrued and unpaid interest thereon), and all of the warrants, in exchange for the 1% unsecured senior convertible promissory notes in the principal amount of $5,000,000.$645,000. The 1% convertible promissory notes bore interest at 1% per annum, payable semi-annually in arrears, matured on April 1, 2012,January 13, 2025, and were convertible at any time into shares of the Company’s common stock at a fixed conversion price of $1.7445$1.00 per share, subject to customary anti-dilution adjustments. Pursuant to ASC Topic 470, Debt, the Company determined that the original convertible notes and the 1% convertible notes were with substantially different terms and hence the exchange was recorded as an extinguishment of original notes and issuance of new notes.
The Company determined the 1% convertible promissory notes to be conventional convertible instruments under ASC Topic 815, Derivatives and Hedging. Its embedded conversion option qualified for equity classification. The embedded beneficial conversion feature was recognized and measured by allocating a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. The debt discount resulting from the allocation of proceeds to the beneficial conversion feature is amortized over the term of the 1% convertible promissory notes from the respective dates of issuance using the effective interest method.
(E) Revenue Recognition
In accordance with ASC Topic 505, Equity,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 non-employee stock optionsconsideration the entity expects to receive in exchange for those goods or warrantsservices. To determine revenue recognition for arrangements that are measured at their fair value by usingwithin the Black-Scholes option pricing model asscope of the earlierstandard, 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 date atnature, 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 a commitment for performance to earn the equity instruments is reached (“performance commitment date”) or the date at which performance is complete (“performance completion date”). The stock-based compensation expenses are recognizedbased on a straight-line basis overvariety of factors including the shortercustomer’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 period over whichcontract, 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 be received or the vesting period. Accounting for non-employee stock options or warrants which involve only performance conditions when no performance commitment date or performance completion date has occurred as of reporting date requires measurement at the equity instruments then-current fair value. Any subsequent changes in the market value of the underlying common stock are reflected in the expense recorded in the subsequent period in which that change occurs.
We typically do not include options that would result in accordance with ASC Topic 260 by dividing the net income (loss) attributablea material right. If options to holders of common stock by the weighted average number of shares of common stock outstanding during the period. Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares including the dilutive effect of common share equivalents then outstanding.
3) Determine the transaction price - Level 1 appliesThe transaction price is determined based on the consideration to assetswhich we will be entitled in exchange for transferring goods or liabilities for whichservices 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 quoted pricesfactors outside our control that could result in active markets for identical assetsa 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 liabilities.
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 asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
(F) Recent Accounting Pronouncements
In January 2016,2020, the FASB issued ASU 2016-01 "Recognition2020-01, “Investments—Equity Securities (Topic 321), Investments—Equity Method and Measurement of Financial AssetsJoint Ventures (Topic 323), and Financial Liabilities"Derivatives and Hedging (Topic 815),” an amendment clarifying the interaction between accounting standards related to enhance the reporting model for financial instruments to provide users of financial statements with more decision-useful information. ASU 2016-01 particularly relates to the fair value and impairment of equity investments, financial instruments measured at amortized cost, and the use of the exit price notion when measuring the fair value of financial instruments for disclosure purposes. ASU 2016-01 is effective for fiscal years and interim periods beginning after December 15, 2017. Early adoption is only permitted for certain particular amendments within ASU 2016-01, where financial statements have not yet been issued. The adoption of this guidance is not expected to have a material impact on the Company’s 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 those fiscal years with early adoption permitted.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 using a retrospective transition method to each period presented. If it is impracticable to applyretrospectively and at the amendments retrospectively for somebeginning of the issues,period that includes the amendments for those issues would be applied prospectively as of the earliest date practicable. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.
NOTE 3.SUBSIDIARIES AND VARIABLE INTEREST ENTITIES
Details of the Company’s principal subsidiaries and variable interest entities as of SeptemberJune 30, 20172021 and December 31, 2020 were as follows:
Name |
| Place of Incorporation |
| Ownership/Control interest attributable to the Company |
| Principal activities | |
NCN Group Limited |
| BVI |
| 100% |
|
| Investment holding |
NCN Media Services Limited | BVI | 100% | Investment holding | ||||
Cityhorizon Limited | Hong Kong | 100% | Investment holding | ||||
NCN Group Management Limited | Hong Kong | 100% | Provision of administrative and management services | ||||
Crown Eagle Investment Limited | Hong Kong | 100% | Dormant | ||||
Crown Winner International Limited | Hong Kong | 100% | Investment holding | ||||
NCN Huamin Management Consultancy (Beijing) Company Limited * | PRC | 100% | Dormant | ||||
Huizhong Lianhe Media Technology Co., Ltd. * | PRC | 100% | Dormant | ||||
Beijing Huizhong Bona Media Advertising Co., Ltd. * | PRC | 100% | (1) | Dormant | |||
Xingpin Shanghai Advertising Limited | PRC | 100% | (1) | Dormant | |||
Chuanghua Shanghai Advertising Limited | PRC | 100% | Dormant | ||||
Jiahe Shanghai Advertising Limited | PRC | 100% | Dormant |
* The subsidiary’s registration license has been revoked.
Remarks:
1) Variable interest entity which the Company exerted 100% control through a set |
NOTE 4.PREPAID EXPENSES AND OTHER CURRENT ASSETS, NET
Prepaid expenses and other current assets, net as of SeptemberJune 30, 20172021 and December 31, 20162020 were as follows:
As of June 30, 2021 | As of December 31, 2020 | ||||||
Prepaid expenses | $ | 100,000 | $ | 100,000 | |||
Less: allowance for doubtful debts | 0- | 0- | |||||
Total | $ | 100,000 | $ | 100,000 |
As of September 30, 2017 | As of December 31, 2016 | |||||||
Prepaid expenses | $ | 102,549 | $ | 101,627 | ||||
Other deposits | 202 | 202 | ||||||
Total | $ | 102,751 | $ | 101,829 |
The Company recorded no allowance for doubtful debts for prepaid expenses and other current assets as of June 30, 2021 and December 31, 2020.
NOTE 5.ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER PAYABLES
Accounts payable, accrued expenses and other payables as of SeptemberJune 30, 20172021 and December 31, 20162020 were as follows:
As of | As of | |||||||
June 30, 2021 | December 31, 2020 | |||||||
Accrued staff benefit and related fees | $ | 1,844,324 | $ | 1,749,401 | ||||
Accrued professional fees | 42,411 | 47,266 | ||||||
Accrued interest expenses | 2,630,779 | 2,370,872 | ||||||
Other accrued expenses | 49,788 | 41,461 | ||||||
Other payables | 91,317 | 52,650 | ||||||
Total | $ | 4,658,619 | $ | 4,261,650 |
As of September 30, 2017 | As of December 31, 2016 | |||||||
Accrued staff benefit and related fees | $ | 1,618,286 | $ | 1,461,237 | ||||
Accrued professional fees | 141,600 | 166,382 | ||||||
Accrued interest expenses | 1,798,063 | 1,391,699 | ||||||
Other accrued expenses | 94,410 | 89,652 | ||||||
Short-term loans 1) | 2,784,608 | 2,656,852 | ||||||
Other payables | 9,831 | 9,831 | ||||||
Total | $ | 6,446,798 | $ | 5,775,653 |
NOTE 6.SHORT-TERM LOANS
As of SeptemberJune 30, 2017,2021 and December 31, 2020, the Company recorded an aggregated amount of $2,784,608$2,973,211 of short-term loans. Those loans were borrowed from an unrelated individual. Thoseindividuals. Except for loan of $128,205 that are unsecured, bearing yearly interest of 1% and are repayable on demand, the remaining loans are unsecured, bear a monthly interest of 1.5% and shall beare repayable in one month.on demand. However, according to the agreement, the Company shall have the option to shorten or extend the life of those short-term loans if the need arises and the Company has agreed with the lender to extend the short-term loans on the due date. As of the date of this report, those loans have not yet been repaid.
The interest expenses of the short-term loans were $128,346 and $256,691 for the three and six months ended SeptemberJune 30, 20172021, respectively, while interest expenses amounted $128,149 and 2016 were $124,473 and $116,798, while$257,346 for the ninethree and six months ended SeptemberJune 30, 2017 and 2016 amounted to $368,553 and $344,502,2020, respectively.
NOTE 7.CONVERTIBLE PROMISSORY NOTES AND WARRANTS
Issuance of New 1% Convertible Promissory Notes in 2012
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 Promissory Notes matured on April 1, 2012Note Agreement from the Company for an agreement purchase price of six hundred and onforty-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 the Note Holders agreedissue to the following: (1) extensionSubscriber up to an aggregate maximum amount of the maturity date$645,000 in principal amount of the 1%Convertible Notes prior to January 13, 2025. The Convertible Promissory Notes for a period of two years and (2) modification ofissued to the 1% Convertible Promissory Notes to beInvestor are convertible at any timethe holder’s option into shares of the Company’sCompany common stock at a conversion price of $1.3956$1.00 per share, subject to customary anti-dilution adjustments. In all other respects not specifically mentioned, the terms of the 1% Convertible Promissory Notes shall remain the same and shall be fully enforceable in accordance with its terms. Subsequently, the Company issued new 1% convertible promissory notes (the “New 1% Convertible Promissory Notes”) to the Note Holders. The New 1% Convertible Promissory Notes bear interest at 1% per annum, are payable semi-annually in arrears, mature on April 1, 2014, and are convertible at any time by the Note Holders into shares of the Company’s common stock at an initial conversion price of $1.3956 per share, subject to customary anti-dilution adjustments. In addition, in the event of a default, the Note Holders will have the right to redeem the New 1% Convertible Promissory Notes at 110% of the principal amount, plus any accrued and unpaid interest.
Convertible promissory notes, net as of SeptemberJune 30, 20172021 and December 31, 20162020 were as follows:
As of | As of | |||||||
June 30, 2021 | December 31, 2020 | |||||||
Gross carrying value | $ | 645,000 | $ | 645,000 | ||||
Less: Allocated intrinsic value of beneficial conversion feature | 0- | 0- | ||||||
Add: Accumulated amortization of debt discount | 0- | 0- | ||||||
$ | 645,000 | $ | 645,000 | |||||
| ||||||||
Current portion | $ | 0- | $ | 0- | ||||
Non-current portion | 645,000 | 645,000 | ||||||
$ | 645,000 | $ | 645,000 |
As of September 30, 2017 | As of December 31, 2016 | |||||||
Gross carrying value | $ | 5,000,000 | $ | 5,000,000 | ||||
Less: Allocated intrinsic value of beneficial conversion feature | - | - | ||||||
Add: Accumulated amortization of debt discount | - | - | ||||||
5,000,000 | 5,000,000 | |||||||
Less: Current portion | - | - | ||||||
Non-current portion | $ | 5,000,000 | $ | 5,000,000 |
Interest Expense
The interest expenses of the 1% Convertible Promissory Notes were $1,608 and $3,216 for the three and six months ended SeptemberJune 30, 2017 and 2016 were $12,603 and $12,603,2021, respectively, while interest expenses amounted $1,608 and $15,315 for the ninethree and six months ended SeptemberJune 30, 2017 and 2016 amounted to $37,397 and $37,397,2020, respectively.
NOTE 8.COMMITMENTS AND CONTINGENCIES
Contingencies
The Company accounts for loss contingencies in accordance with ASC Topic 450 and other related guidelines. As of SeptemberJune 30, 20172021 and December 31, 2016,2020, the Company’s management is of the opinion that there are no commitments and contingencies to account for.
NOTE 9.STOCKHOLDERS’ DEFICIT
Restriction on payment of dividends
The Company has not declared any dividends since incorporation. For instance, the Boardterms of Directors granted an aggregatethe outstanding promissory notes issued January 14, 2020 contain restrictions on the payment of 53,332 sharesdividends. The dividend restrictions provide that the Company or any of common stock toits subsidiaries shall not declare or pay dividends or other distributions in respect of the directorsequity securities of such entity other than dividends or distributions of cash which amounts during any 12-month period that exceed ten percent (10%) of the consolidated net income of the Company for their services rendered during the year from July 1, 2015 to June 30, 2016. Each director was granted shares ofbased on the Company’s common stock subject to a vesting period of twelve monthsmost recent audited consolidated financial statements disclosed in the following amounts: Earnest Leung, 13,333 shares; Wong Wing Kong, 13,333 shares; Frederick Wong, 13,333 sharesCompany’s annual report on Form 10-K (or equivalent form) filed with the U.S. Securities and Shirley Cheng, 13,333 shares. In connection with these stock grants and in accordance with ASC Topic 718, the Company recognized $nilExchange Commission.
NOTE 10.RELATED PARTY TRANSACTIONS
Except as set forth below, during the ninethree months and six months ended SeptemberJune 30, 20172021 and 2016,2020, the Company did not enter into any material transactions or series of transactions that would be considered material in which any officer, director or beneficial owner of 5% or more of any class of the Company’s capital stock, or any immediate family member of any of the preceding persons, had a direct or indirect material interest.
In April 2009, in connection with debt restructuring, Statezone Ltd. of which Dr. Earnest Leung, the Company’s Chief Executive Officer and a Director (being appointed on July 15, 2009 and May 11, 2009 respectively) was the sole director, provided agency and financial advisory services to the Company. Accordingly, the Company paid an aggregate service fee of $350,000 of which $250,000 has been recorded as issuance costs for 1% Convertible Promissory Notes and $100,000 has been recorded as prepaid expenses and other current assets, net since April 2009. Such $100,000 is refundable unless 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 periodprice was extended at various times from September 1, 2010 to December 31, 2015,2017 and the Keywin Option was further extended to a hundred and twenty-nine-month period ending on January 1, 2020 and the exercise price changed to $0.99. On December 31, 2019, the latest exercise period for the Keywin Option was further extended to a one hundred and five-monthsfifty-three-month period ending on January 1, 20182022.
On June 1, 2021, the Company and Keywin, of which the Company’s chief executive officer and director is the director and his spouse is the sole shareholder, entered into an Amendment, pursuant to which the Company agreed the noteholder shall have the right to purchase from the Company an aggregate of 11,764,756 shares of the Common Stock for an aggregate purchase price of $2,000,000 and the exercise price changedoption may be exercised by the noteholder at any time during the Exercise Period by giving written notice to $0.99.
NOTE 12.NET LOSS PER COMMON SHARE
Net loss per common share information for the three and ninesix months ended SeptemberJune 30, 20172021 and 20162020 was as follows:
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, 2021 | June 30, 2020 | June 30, 2021 | June 30, 2020 | |||||||||||||
Numerator: | ||||||||||||||||
Net loss attributable to NCN common stockholders | $ | (201,431 | ) | $ | (185,502 | ) | $ | (397,064 | ) | $ | (18,837 | ) | ||||
Denominator: | ||||||||||||||||
Weighted average number of shares outstanding, basic | 8,774,263 | 8,774,263 | 8,774,263 | 8,774,263 | ||||||||||||
Effect of dilutive securities | 0- | 0- | 0- | 0- | ||||||||||||
Options and warrants | 0- | 0- | 0- | 0- | ||||||||||||
Weighted average number of shares outstanding, diluted | 8,774,263 | 8,774,263 | 8,774,263 | 8,774,263 | ||||||||||||
| ||||||||||||||||
Net loss per common share – basic and diluted | $ | (0.023 | ) | $ | (0.0211 | ) | $ | (0.0453 | ) | $ | (0.0021 | ) |
13
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, 2017 | September 30, 2016 | September 30, 2017 | September30, 2016 | |||||||||||||
Numerator: | ||||||||||||||||
Net loss attributable to NCN common stockholders | $ | (226,656 | ) | $ | (230,423 | ) | $ | (669,316 | ) | $ | (706,654 | ) | ||||
Denominator: | ||||||||||||||||
Weighted average number of shares outstanding, basic | 8,041,995 | 8,041,995 | 8,041,995 | 8,041,995 | ||||||||||||
Effect of dilutive securities | - | - | - | - | ||||||||||||
Options and warrants | - | - | - | - | ||||||||||||
Weighted average number of shares outstanding, diluted | 8,041,995 | 8,041,995 | 8,041,995 | 8,041,995 | ||||||||||||
Net loss per common share – basic and diluted+ | $ | (0.0282 | ) | $ | (0.0287 | ) | $ | (0.083 | ) | $ | (0.088 | ) |
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, 20172021 and 20162020 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. TheThere were no securities that could potentially dilute basic net loss per common share in the future that were not included in the computation of diluted net loss per common share because of anti-dilutive effect as of Septemberfor the three and six months ended June 30, 20172021 and 20162020.
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 and six months ended June 30, 2021 and 2020 were summarized as follows:
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, 2021 | June 30, 2020 | June 30, 2021 | June 30, 2020 | |||||||||||||
(Consolidated and unaudited) | (Consolidated and unaudited) | |||||||||||||||
| ||||||||||||||||
United States | $ | (25,295 | ) | $ | (25,275 | ) | $ | (48,926 | ) | $ | 14,362 | |||||
Foreign | (176,136 | ) | (160,227 | ) | (348,138 | ) | (33,199 | ) | ||||||||
$ | (201,431 | ) | $ | (185,502 | ) | $ | (397,064 | ) | $ | (18,837 | ) |
Other than the number of potential common equivalent shares associated with warrants issued for services was nil, which was related to a warrant to purchase 1,333 shares of common stock issued byUnited States, the Company is subject to taxation in Hong Kong and PRC. Under Hong Kong tax laws, deferred tax assets are recognized for tax loss carried forward to the extent that the realization of the related tax benefit through future taxable profits is probable. These tax losses do not expire under current Hong Kong tax legislation. Under PRC tax laws, tax losses may be carried forward for 5 years and no carry-back is allowed. At June 30, 2021, the Company does not have available tax losses in the Hong Kong and PRC to utilize for future taxable profits.
The Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was enacted on March 27, 2020. There are several different provisions with the CARES Act that impact income taxes for corporations. The Company has evaluated the tax implications and believes these provisions did not have a consultantmaterial impact to the financial statements.
At June 30, 2021, the Company had an unused net operating loss carryforward of approximately $16,447,000 for income tax purposes. This net operating loss carryforward may result in 2006 for service rendered at an exercise pricefuture income tax benefits of $52.5,approximately $3,453,871, which was expired in August 2016.will expire on various from 2024 through 2037 as follows:
2024 to 2028 | $ | 2,279,147 | ||
2029 to 2033 | 892,375 | |||
2034 to 2037 | 217,937 | |||
Indefinitely | 64,412 | |||
$ | 3,453,871 |
14
The realization of net operating loss carryforward is uncertain at this time, a valuation allowance in the same amount has been established. Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company’s deferred tax liabilities and assets of June 30, 2021 and December 31, 2020 are as follows:
June 30, | December 31, | |||||||
2021 | 2020 | |||||||
Deferred tax liabilities | $ | 0- | $ | 0- | ||||
Deferred tax assets: | ||||||||
Effect of net operating loss carried forward | 3,453,871 | 3,443,596 | ||||||
Less: valuation allowance | (3,453,871 | ) | (3,443,596 | ) | ||||
Net deferred tax assets | $ | 0- | $ | 0- |
Movement of valuation allowance:
June 30, | December 31, | |||||||
2021 | 2020 | |||||||
| ||||||||
At the beginning of the period/year | $ | 3,443,596 | $ | 4,549,144 | ||||
Additions/(Deductions) | 10,275 | (1,105,548 | ) | |||||
At the end of the period/year | $ | 3,453,871 | $ | 3,443,596 |
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, 20162020 and subsequent SEC filings.in Part 2, Item 1A of this Form 10-Q. The Company assumes no obligation and does not intend to update any forward-looking statements, except as required by law.
COVID-19 Pandemic
In December 2019, an outbreak of COVID-19 was identified in China and was subsequently recognized as a global pandemic by the World Health Organization (“WHO”) on March 11, 2020. Since that time, COVID-19 has spread around the world and throughout the United States, including in the regions and countries in which we operate. Federal, state and local governments in the U.S and around the world have imposed restrictions on travel and business operations and are advising or requiring individuals to limit or eliminate time outside of their homes. Temporary closures of businesses have also been ordered in certain jurisdictions, and other businesses have temporarily closed voluntarily. These actions expanded significantly in March and April of 2020 throughout the U.S. Consequently, the COVID-19 outbreak has severely restricted the level of economic activity in the U.S. and around the world.
The outbreak has resulted in authorities implementing numerous measures to try to contain the virus, such as quarantines and shelter in place orders. These measures may remain in place for a significant period of time and adversely affect our business, operations and financial condition as well as the business, operations and financial conditions of our business partners. The spread of the virus has also caused us to modify our business practices (including employee work locations and cancellation of physical participation in meetings) in ways that may be detrimental to our business (including working remotely and its attendant cybersecurity risks). We may take further actions as may be required by government authorities or that we determine are in the best interests of our employees. There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus or otherwise be satisfactory to government authorities.
There has been no material adverse impact on the Company’s second quarter 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.
16 |
Use of Terms
Except as otherwise indicated by the context, references in this report to:
l | “BVI” are references to the British Virgin Islands; |
l | “China” and “PRC” are to the People’s Republic of China; |
l | the “Company”, “NCN”, “we”, “us”, or “our”, are references to Network CN Inc., a Delaware corporation and its direct and indirect subsidiaries: NCN Group Limited, or NCN Group, a BVI limited company; NCN Media Services Limited, a BVI limited company; NCN Group Management Limited, or NCN Group Management, a Hong Kong limited company; Crown Winner International Limited, or Crown Winner, a Hong Kong Limited company, and its subsidiary, and its variable interest entity, Xingpin Shanghai Advertising Limited; Crown Eagle Investments Limited, a Hong Kong limited company;; Cityhorizon Limited, or Cityhorizon Hong Kong, a Hong Kong limited company, and its subsidiary, Huizhong Lianhe Media Technology Co., Ltd., or Lianhe, a PRC limited company; Chuanghua Shanghai advertising Limited, a PRC limited company; NCN Huamin Management Consultancy (Beijing) Company Limited, or NCN Huamin, a PRC limited company; and the Company’s variable interest entity, Beijing Huizhong Bona Media Advertising Co., Ltd., or Bona, a PRC limited company; |
l | “NCN Management Services” are references to NCN Management Services Limited, a BVI limited company; |
l | “RMB” are to the Renminbi, the legal currency of China; |
l | the “Securities Act” are to the Securities Act of 1933, as amended; and the “Exchange Act” are to the Securities Exchange Act of 1934, as amended; and |
l | “U.S. dollar”, “$” and “US$” are to the legal currency of the United States. |
Overview of Our Business
Our mission is to become a nationwide leader in providing out-of-home advertising in China, primarily serving the needs of branded corporate customers. Our business direction to not just selling air-time for its media panels but also started working closely with property developers in media planning for the property at the very early stage. As a media planner we share the advertising profits with the property developers without paying significant rights fees, so we expect to achieve a positive return from these projects.
To address these unfavorable market conditions, we continue to implement cost-cutting measures, including reductions in our workforce, office rentals, selling and marketing related expenses and other general and administrative expenses. We have also re-assessed the commercial viability of each of our concession rights contracts and have terminated those of our concession rights that we determined were no longer commercially viable due to high annual fees. Management has also successfully negotiated some reductions in advertising operating rights fees under remaining contracts.
For more information relating to our business, please refer to Part I, “Item 1 - Business” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.
Recent Development
Issuance of Potential Projects
On January 14, 2020, the Company entered into a Subscription Agreement with Tsang Wai Yee Terri (“the Subscriber”) under which the Subscriber agreed to not just selling air-timepurchase the 1% Senior Unsecured Convertible Note Agreement from the Company for its media panels but started working closely with property developersan 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 media planning forprincipal amount of Convertible Notes prior to January 13, 2025. The Convertible Promissory Notes issued to the propertyInvestor are convertible at the very early stage. By doing so, we are able to attract several property developers to grant us media rights withinholder’s option into shares of Company common stock at $1.00 per share.
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On January 14, 2020, the whole property. TheseCompany entered into a Letter of Intent with Earthasia Worldwide Holdings Limited (“EWHL”) that the Company will include exhibitionacquire 100% of the EWHL’s issued and conference centres, shopping malls, etc. This new business model will create a closer working relationship betweenoutstanding stock owned by the property ownersshareholders of the EWHL and the EWHL will become a wholly owned subsidiary of the Company.
On July 23, 2020, the Company asentered into Share Exchange Agreement with Ease Global Limited (“Ease Global”), the property owners welcome a more thorough and well-planned media layout in their property at an early stage. Under this approach, we believeshareholder of Trade More Global Limited (‘Trade More”) that the property owners are more eager to work with us and even more ready to invest in the installation of media panels.
Increase of authorized capital
On April 28, 2020, the Board of Directors and Majority of stockholders of the Company approved to provide a wider rangeincrease the total number of media and advertising services, rather than focusing primarily on LED media. The Company has identified several such potential projects which it intendsauthorized shares of Common Stock from 26,666,667 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, 20172021 and SeptemberJune 30, 2016
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 endedInterest and Other Debt-Related Expenses
– Interest expense and other debt-related expenses for the three months endedIncome 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 endedNet Loss –
The Company incurred a net loss ofComparison of Six Months Ended June 30, 2021 and June 30, 2020
General and Administrative Expenses – General and administrative expenses for the six months ended June 30, 2021 increased by 3% to $137,157, compared to $132,948 for the corresponding prior year period. The increase in general and administrative expenses was mainly due to continuous cost cutting measures.
Gain from disposalwrite-off of subsidiaries
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Interest and Other Debt-Related Expenses – Interest expense and other debt-related expenses for the six months ended June 30, 2021 decreased to $259,907, or by 100%5%, as compared to $20,000$272,661 for the corresponding prior year period. The decrease in the stock-based compensation was due to no more stock being granted for services rendered during the nine months ended September, 2017.
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 theNet (Loss) IncomeLoss –
Liquidity and Capital Resources
As of SeptemberJune 30, 2017,2021, we had cash of $6,439,$6,163, as compared to $8,512$5,967 as of December 31, 2016, the decrease2020, an insignificant increase of $2,073 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 | ||||||||
September 30, 2017 | September 30, 2016 | |||||||
Net cash used in operating activities | $ | (126,271 | ) | $ | (110,562 | ) | ||
Net cash used in investing activities | (2,632 | ) | - | |||||
Net cash provided by financing activities | 127,757 | 112,015 | ||||||
Effect of exchange rate changes on cash | (927 | ) | (61 | ) | ||||
Net (decrease)/increase in cash | (2,073 | ) | 1,392 | |||||
Cash, beginning of period | 8,512 | 6,790 | ||||||
Cash, end of period | $ | 6,439 | $ | 8,182 |
Six Months Ended | ||||||||
June 30, 2021 | June 30, 2020 | |||||||
Net cash provided by / (used in) operating activities | $ | 8 | $ | (666,330 | ) | |||
Net cash provided by financing activities | - | 666,446 | ||||||
Effect of exchange rate changes on cash | 188 | (2 | ) | |||||
Net increase in cash | 196 | 114 | ||||||
Cash, beginning of period | 5,967 | 5,510 | ||||||
Cash, end of period | $ | 6,163 | $ | 5,624 |
Operating Activities
Net cash used inprovided by operating activities for the ninesix months ended SeptemberJune 30, 20172021 was $126,271,$8, as compared to net cash used in operating activities amounting to $110,562$666,330 for the corresponding prior year period. This was mainly attributable to increase in paymentrepayments for expensesaccrued short term loan interest during the ninesix months ended SeptemberJune 30, 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.
Investing Activities
Net cash used in investing activities for the ninesix months ended SeptemberJune 30, 20172021 and 2020 was $2,632 which was related to purchase of fixed assets.
Financing Activities
Net cash provided by financing activities was $127,757 $nil for the ninesix months ended SeptemberJune 30, 2017,2021, as compared to $112,015 $666,446 for the corresponding prior year period. The increasedecrease was mainly due to increase inno proceeds from short-term loans for financing our operationsconvertible promissory note during the ninesix months ended SeptemberJune 30, 2017.2020.
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Short-term Loan
As of SeptemberJune 30, 2017,2021, the Company recorded an aggregated amount of $2,784,608$2,973,211 short-term loans. Those loans were borrowed from an unrelated individual.individuals. Those loans with an aggregate amount of $2,845,006 are unsecured, bear a monthly interest of 1.5% and shall be repayable in one month and loan with an aggregate amount of $128,205 is unsecured, bear a yearly interest of 1% and shall be repayable in one month. However, according to the agreement, the Company shall have the option to shorten or extend the life of those short-term loans if the need arises and the Company has agreed with the lender to extend the short-term loans on the due date. Up to the date of this report, those loans have not yet been repaid.
Capital Expenditures
During the ninethree and six months ended SeptemberJune 30, 2017,2021 and 2020, we acquired equipment amount of $2,632.
Contractual Obligations and Commercial Commitments
The following table presents certain payments due under contractual obligations with minimum firm commitments as of SeptemberJune 30, 2017:
Payments due by period | ||||||||||||||||||||
Total | Due in 2017 | Due in 2018 – 2019 | Due in 2019-2020 | Thereafter | ||||||||||||||||
Debt Obligations (a) | $ | 5,000,000 | $ | 5,000,000 | $ | - | $ | - | $ | - | ||||||||||
Short Term Loan (b) | 2,784,608 | 2,784,608 | - | - | - |
Payments due by period | ||||||||||||||||||||
Total | Due in 2021 | Due in 2022–2023 | Due in 2023-2024 | Thereafter | ||||||||||||||||
Debt Obligations (a) | $ | 645,000 | $ | - | $ | - | $ | - | $ | 645,000 | ||||||||||
Short Term Loan (b) | 2,973,211 | 2,973,211 | - | - | - |
(a) Debt Obligations
. We issued an aggregate of(b) Short Term Loan.
We have entered into short-term loanRecent Accounting Pronouncements
The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the FASB issued ASU 2016-01 "Recognition and Measurement of Financial Assets and Financial Liabilities" to enhance the reporting model for financial instruments to provide users ofconsolidated financial statements with more decision-useful information. ASU 2016-01 particularly relates to the fair valueunless otherwise disclosed, and impairment of equity investments, financial instruments measured at amortized cost, and the use of the exit price notion when measuring the fair value of financial instruments for disclosure purposes. ASU 2016-01 is effective for fiscal years and interim periods beginning after December 15, 2017. Early adoption is only permitted for certain particular amendments within ASU 2016-01, where financial statementswe do not believe that there are any other new accounting pronouncements that have not yet been issued. The adoption of this guidance is not expected toissued that might have a material impact on the Company’s 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.
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.
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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, 2017.2021. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of SeptemberJune 30, 2017,2021, 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.
ITEM 1A. | RISK FACTORS. |
There have been no material changes to the risk factors disclosed in Item 1A of our Form 10-K for the fiscal year ended December 31, 2020, other than as disclosed below. Additional risks and uncertainties, including risks and uncertainties not presently known to us, or that we currently deem immaterial, could also have an adverse effect on our business, financial condition and/or results of operations.
The ongoing COVID-19 pandemic could adversely affect our business, results of operations and financial condition.
The outbreak of COVID-19 was declared a pandemic by the World Health Organization on March 11, 2020. Since that time, COVID-19 has spread around the world and throughout the United States, including in the regions and communities 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. The spread of the virus has 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.
Our existing cash together with highly liquid current assets are insufficient to fund the Company’s operations for the next twelve months. The Company will need to rely upon some combination of cash generated from the Company’s operations, the proceeds from the potential exercise of the outstanding option held by Keywin Holdings Limited (“Keywin”) to purchase $2 million in shares of the Company’s common stock, or proceeds from the issuance of the Company’s equity and debt securities as well as the exercise of the conversion option by the Company’s note holders to convert the notes to the Company’s common stock, in order to maintain the Company’s operations. However, it may be difficult for us to raise funds in the current economic environment. If adequate capital is not available to us, our operations and financial condition could be adversely impacted.
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The effect of COVID-19 and related events, including those described above and those not yet known or knowable, could have a negative effect on our stock price, business prospects, financial condition, and results of operations.
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. |
We have not sold any equity securities during the quarter ended SeptemberJune 30, 20172021 which sale was not previously disclosed in a current report on Form 8-K filed during that period.
None.
Not applicable.
Not applicable.
The following exhibits are filed as part of this report or incorporated by reference:
Exhibit No. | Description | ||
31.1 | Certifications of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
31.2 | Certifications of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
32.1 | Certifications of Principal Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
32.2 | Certifications of Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
101 * | Financial statements and footnotes of Network CN Inc. for the fiscal quarter ended | ||
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
* 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.
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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: | NETWORK CN INC. | |||
By: | /s/ Earnest Leung | |||
Chief Executive Officer | ||||
By: | /s/ Shirley Cheng | ||
Chief Financial Officer | |||
(Principal Financial Officer and Principal Accounting Officer ) |
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