The following management's discussion and analysis should be read in conjunction with our consolidated financial statements and the notes thereto and the other financial information appearing elsewhere in this annual report. In addition to historical information, the following discussion contains certain forward-looking information. See "Special Note Regarding Forward-Looking Statements" above for certain information concerning those forward looking statements. Our consolidated financial statements are prepared inU.S. dollars and in accordance withU.S. GAAP. References in this Report to a particular "fiscal" year are to our fiscal year ended onDecember 31 . Overview of Our Business Our mission is to become a nationwide leader in providing out-of-home advertising inChina , 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. There was no advertising revenue for the years endedDecember 31, 2019 and 2018. Our net loss was$893,701 and$818,202 for the years endedDecember 31, 2019 and 2018 respectively. 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. Recent Developments
Completes Additional Private Placement
OnMarch 15, 2018 ,Network CN Inc. (the "Company"), sold an aggregate of 216,000 shares of the Company's common stock (the "Shares") to 19 foreign investors (the "New Investors ") pursuant to the terms of a Common Stock Purchase Agreement between the Company and theNew Investors , datedMarch 15, 2018 . The purchase price paid by the New Investor for the Shares was$0.40 per Share for an aggregate sum of Eighty-Six Thousand andFour Hundred U.S. Dollars (US$86,400 ). Net proceeds from the financing will be used for general corporate purposes. OnMay 4, 2018 , the Company sold an aggregate of 292,000 shares of the Company's common stock (the "Shares") to 11 foreign investors (the "New Investors ") pursuant to the terms of a Common Stock Purchase Agreement between the Company and theNew Investors , datedMay 4, 2018 . The purchase price paid by the New Investor for the Shares were$0.50 or$0.60 per Share for an aggregate sum of one hundred and seventy thousand, seven hundred andthirty-three U.S. dollars andthirty cents (US$170,733 ). Net proceeds from the financing will be used
for general corporate purposes. OnDecember 28, 2018 , the Company sold an aggregate of 149,398 shares of the Company's common stock (the "Shares") to 16 foreign investors (the "New Investors ") pursuant to the terms of a Common Stock Purchase Agreement between the Company and theNew Investors , datedDecember 28, 2018 . The purchase price paid by the New Investor for the Shares were$0.77 or$2.00 per Share for an aggregate sum of one hundred and forty-nine thousand, five hundred andseventy-three U.S. dollars andthirty cents (US$149,573 ). Net proceeds from the financing will be used for general corporate purposes. OnMarch 28, 2019 , the Company sold an aggregate of 35,000 shares of the Company's common stock (the "Shares") to 9 foreign investors (the "New Investors ") pursuant to the terms of a Common Stock Purchase Agreement between the Company and theNew Investors , datedMarch 28, 2019 . The purchase price paid by the New Investor for the Shares were$1.50 or$1.88 per Share for an aggregate sum of sixty-three thousand, three hundred andseventy-five U.S. dollars andthirty cents (US$63,375 ). Net proceeds from the financing will be used for general corporate purposes. OnAugust 16, 2019 , the Company sold 5,000 shares of the Company's common stock (the "Shares") to a foreign investor (the "Investor") pursuant to the terms of a Common Stock Purchase Agreement between the Company and the Investor, datedAugust 16, 2019 . The purchase price paid by the Investors for the Shares was$1.875 per Share for an aggregate sum of nine thousand three hundred andseventy-five U.S. dollars (US$9,375 ). Net proceeds from the financing have been used for general corporate purposes. 10 Table of Contents The offering was made pursuant to an exemption from registration with theSEC pursuant to Regulation S. The securities have not been registered under the Securities Act of 1933 or any state securities laws and unless so registered may not be offered or sold inthe United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933 and applicable state securities laws. The Company did not grant any registration rights to the new shareholders with respect to the Shares in the offering.
Issuance of Convertible Promissory Note
OnJanuary 14, 2020 , the Company entered into a Subscription Agreement withTsang Wai Yee Terri ("the Subscriber") under which the Subscriber agreed to purchase the 1% Senior Unsecured Convertible Note Agreement from the Company for an agreement purchase price of six hundred andforty-five thousand US Dollars ($645,000 ). On the same date, the Company signed the 1% Senior Unsecured Convertible Note Agreement under which the Company may sell and issue to the Subscriber up to an aggregate maximum amount of$645,000 in principal amount of Convertible Notes prior toJanuary 13, 2025 . The Convertible Promissory Notes issued to the Investor are convertible at the holder's option into shares of Company common stock at$1.00 per share.
Identification of Potential Projects
The Company has actively explored new projects in order to improve our financial performance. OnJanuary 20, 2020 , the Company entered into a Letter of Intent withEarthasia Worldwide Holdings Limited (the "Seller") that the Company will acquire 100% of the Seller's issued and outstanding stock owned by the shareholders of the Seller and the Seller will become a wholly owned subsidiary of the Company. Results of Operations
Comparison of Years Ended
General and Administrative Expenses. General and administrative expenses
primarily consist of compensation related expenses (including salaries paid to
executive and employees, rental expenses, depreciation expenses, fees for
professional services, travel expenses and miscellaneous office expenses.
General and administrative expenses for the year ended
Gain from write-off of long aged directors' fee payable - - Gain from write-off of long-aged directors' fee payables for the years endedDecember 31, 2019 and 2018 was $nil and$107,500 , respectively. We believe the obligation for future settlement for such long-aged payables is remote and therefore wrote them off. Stock based compensation for services - Stock-based compensation for services is stock granted to directors, executive officers and employees for services rendered calculated in accordance with Accounting Standards Codification, or ASC, Topic 718. Stock-based compensation for services for the year endedDecember 31, 2019 was$3,638 compared to$20,337 for the year endedDecember 31, 2018 . The decrease in the stock-based compensation was mainly due to more stock have been granted for services rendered for private placement for the year
endedDecember 31, 2018 . Interest and Other Debt-Related Expenses. Interest and other debt-related expenses for the year endedDecember 31, 2019 increased to$576,590 or by 1.7%, compared to$566,885 for the year endedDecember 31, 2017 . The increase was due to the increased balance of the short-term loans. 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 for the years endedDecember 31, 2019 and 2018 as the Company and all of its subsidiaries and variable interest entities operated at a tax loss in fiscal 2019 and 2018. Net Loss. The Company incurred a net loss of$893,701 for the year endedDecember 31, 2019 , an increase of 9.23% compared to a net loss of$818,202 for the year endedDecember 31, 2018 . The increase in net loss was primarily due to no gain from write-off of long aged directors' fee payable for the year endedDecember 31, 2019 . 11 Table of Contents
Liquidity and Capital Resources
Cash Flows As ofDecember 31, 2019 , current assets were$105,510 and current liabilities were$12,748,720 . Cash as ofDecember 31, 2019 was$5,510 compared to$22,684 as ofDecember 31, 2018 , a decrease of$17,174 . The decrease was due to increase payment of expenses during the year endedDecember 2019 . The following table sets forth a summary of our cash flows for the periods indicated: Years endedDecember 31, 2019 2018
Net cash used in operating activities
- -
Net cash provided by financing activities 107,915 500,871 Effect of exchange rate changes on cash
(29 ) (184 ) Net (decrease) increase in cash (17,174 ) 16,560 Cash at the beginning of year 22,684 6,124 Cash at the end of year$ 5,510 $ 22,684 Operating Activities
Net cash used in operating activities for the year endedDecember 31, 2019 was$125,060 , as compared with$484,127 for the year endedDecember 31, 2018 , a decrease of$359,067 . The decrease in net cash used in operating activities was mainly attributable the decrease payment to administrative service providers and payment for interest for short term loan. Investing Activities
Net cash used in investing activities for the year ended
Financing Activities Net cash provided by financing activities was$107,915 for the year endedDecember 31, 2019 , as compared with$500,871 for the year endedDecember 31, 2018 . The decrease was mainly due to decrease in proceeds from private placement and proceeds from short-term loans for financing our operations for the year endedDecember 31, 2019 . Short-term Loans As ofDecember 31, 2019 , the Company recorded an aggregated amount of$2,951,765 of short-term loans. Those loans were borrowed from an unrelated individual. Those loans are unsecured, bear a monthly interest of 1.5% and repayable on demand. Up to the date of this report, those loans have not yet been repaid. As ofDecember 31, 2018 , the Company recorded an aggregated amount of$2,916,600 of short-term loans. Those loans were borrowed from an unrelated individual. Those loans are unsecured, bear a monthly interest of 1.5% and repayable on demand. Up to the date of this report, those loans have not yet been repaid. Capital Expenditures
No acquisition of assets during the years ended
Contractual Obligations and Commercial Commitments
The following table presents certain payments due under contractual obligations
with minimum firm commitments as of
Payments due by period Due in Due in Due in Total 2019 2020 - 2021 2022-2023 Thereafter Debt Obligations (a)$ 5,000,000 $ 5,000,000 $ - $ - $ - Short Term Loan (b) 2,951,765 2,951,765 - - - 12 Table of Contents (a) Debt Obligations. We issued an aggregate of$5,000,000 in 1% Convertible Promissory Notes inApril 2009 to our investors and such 1% Convertible Promissory Notes matured onApril 1, 2016 . For details, please refer to the Note 10 of the consolidated financial statements.
(b) Short Term Loan. We have entered short-term loan agreement with an unrelated individual. Those loans are unsecured, bear a monthly interest of 1.5% and repayable on demand.
Going Concern 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 notes' 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. If adequate capital is not available to us, we may need to sell assets, seek to undertake a restructuring of our obligations with our creditors, or even cease our operations. 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 their expiration and our notes' holder 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.
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. Critical Accounting Policies The preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including but not limited to those related to income taxes and impairment of long-lived assets. We base our estimates on historical experience and on various other assumptions and factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Based on our ongoing review, we plan to adjust to our judgments and estimates where facts and circumstances dictate. Actual results could differ from our estimates. We believe the following critical accounting policies are important to the portrayal of our financial condition and results and require our management's most difficult, subjective or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain. Principles of Consolidation -The consolidated financial statements include the financial statements ofNetwork CN Inc. , its subsidiaries and variable interest entities for which it is the primary beneficiary. These variable interest entities are those in which the Company, through contractual arrangements, bears the risks and enjoys the rewards normally associated with ownership of the entities. Upon making this determination, the Company is deemed to be the primary beneficiary of these entities, which are then required to be consolidated for financial reporting purpose. All significant intercompany transactions and balances have been eliminated upon consolidation. Use of Estimates - The Company's consolidated financial statements have been prepared in accordance withU.S. generally accepted accounting principles (U.S. GAAP) which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and reported amounts of revenue and expense during the reporting period. Estimates are used when accounting for certain items such as accounting for income tax valuation allowances. Estimates are based on historical experience, where applicable, and assumptions that management believes are reasonable under the circumstances. Due to the inherent uncertainty involved with estimates, actual results may differ. Equipment, Net -Equipment is stated at cost less accumulated depreciation and impairment losses, if any. Depreciation is provided on a straight-line basis, less estimated residual values over the assets' estimated useful lives. The estimated useful lives are as follows:
Office equipment 3 - 5 years
13 Table of Contents
When equipment is retired or otherwise disposed of, the related cost, accumulated depreciation and provision for impairment loss, if any are removed from the respective accounts, and any gain or loss is reflected in the consolidated statements of operations and comprehensive loss. Repairs and maintenance costs on equipment are expensed as incurred.
Impairment of Long-Lived Assets -Long-lived assets, such as equipment, are reviewed for impairment whenever events or changes in circumstance indicate that the carrying amount of the assets may not be recoverable. An impairment loss is recognized when the carrying amount of a long-lived asset exceeds the sum of the undiscounted cash flows expected to be generated from the asset's use and eventual disposition. An impairment loss is measured as the amount by which the carrying amount exceeds the fair value of the asset calculated using a discounted cash flow analysis. There was no impairment of long-lived assets for the years endedDecember 31, 2019 and 2018.
Convertible Promissory Notes and Warrants
1) Debt Restructuring and Issuance of 1% Convertible Promissory Note
OnApril 2, 2009 , the Company issued 1% unsecured senior convertible promissory notes to the previous 3% convertible promissory note holders who agreed to cancel these 3% convertible promissory notes in the principal amount of$5,000,000 (including all accrued and unpaid interest thereon), and all of the warrants, in exchange for the 1% unsecured senior convertible promissory notes in the principal amount of$5,000,000 . The 1% convertible promissory notes bore interest at 1% per annum, payable semi-annually in arrears, matured onApril 1, 2012 , and were convertible at any time into shares of the Company's common stock at a fixed conversion price of$1.7445 per share, subject to customary anti-dilution adjustments. Pursuant to ASC Topic 470, Debt, the Company determined that the original convertible notes and the 1% convertible notes were with substantially different terms and hence the exchange was recorded as an extinguishment of original notes and issuance of new notes. The Company determined the 1% convertible promissory notes to be conventional convertible instruments under ASC Topic 815, Derivatives and Hedging. Its embedded conversion option qualified for equity classification. The embedded beneficial conversion feature was recognized and measured by allocating a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. The debt discount resulting from the allocation of proceeds to the beneficial conversion feature is amortized over the term of the 1% convertible promissory notes from the respective dates of issuance using
the effective interest method.
2) Extension of 1% Convertible Promissory Note
The 1% convertible promissory notes matured onApril 1, 2012 and on the same date, the Company and the note holders agreed to the following: 1) extension of the maturity date of the 1% convertible promissory notes for a period of two years and 2) modification of the 1% convertible promissory notes to be convertible at any time into shares of the Company's common stock at a conversion price of$1.3956 per share, subject to customary anti-dilution adjustments. In all other respects not specifically mentioned, the terms of the 1% convertible promissory notes remain the same and are fully enforceable in accordance with their terms. Subsequently, the Company issued to the note holders new 1% convertible promissory notes with a maturity date ofApril 1, 2014 . Pursuant to ASC Topic 470, the Company determined that the modification is substantially different and hence the modification was recorded as an extinguishment of notes and issuance of new notes. The Company allocated the amount of the reacquisition price to the repurchased beneficial conversion feature using the intrinsic value of that conversion feature at the extinguishment date and the residual amount was allocated to the convertible security. Thus, the Company recorded a gain on extinguishment of debt. The 1% Convertible Promissory Notes were scheduled to mature onApril 1, 2014 and onMarch 12, 2014 , the Company and the respective holders agreed to extend the maturity date of the 1% Convertible Promissory Notes for a period of two years. In all other respects not specifically mentioned, the terms of the 1% Convertible Promissory Notes shall remain the same and shall be fully enforceable in accordance with its terms. Subsequently, the Company issued to the note holders new 1% convertible promissory notes which mature onApril 1, 2016 . The Company allocated the amount of the reacquisition price to the repurchased beneficial conversion feature using the intrinsic value of that conversion feature at the extinguishment date and the residual amount was allocated to the convertible security. Thus, the Company recorded no gain or loss on extinguishment of debt. The Company determined the modified new 1% convertible promissory notes to be conventional convertible instruments under ASC Topic 815. Its embedded conversion option qualified for equity classification. The embedded beneficial conversion feature was recognized and measured by allocating a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. The debt discount resulting from the allocation of proceeds to the beneficial conversion feature is amortized over the term of the new 1% convertible promissory notes from the respective dates of issuance using the effective interest method.
On
Revenue Recognition -Effective
14 Table of Contents InMay 2014 , theFinancial Accounting Standards Board (FASB) issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (ASU 2014-09). We adopted ASU 2014-09 and its related amendments (collectively known as "ASC 606") effective onJanuary 1, 2018 . Under the new standard and its related amendments (collectively known as ASC 606), an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that are within the scope of the new standard, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The new standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The new standard also includes criteria for the capitalization and amortization of certain contract acquisition and fulfillment costs.
In accordance with ASC 606, we recognize when a customer obtains control of promised services. The amount of revenue recognized reflects the consideration we expect to be entitled to receive in exchange for such services. To achieve this core principle, we apply the following five steps: 1) Identify the contract(s) with a customer - A contract with a customer exists when (i) we enter into an enforceable contract with a customer that defines each party's rights regarding the goods or services to be transferred and identifies the payment terms related to those goods or services, (ii) the contract has commercial substance and, (iii) we determine that collection of substantially all consideration for goods or services that are transferred is probable based on the customer's intent and ability to pay the promised consideration. We apply judgment in determining the customer's ability and intention to pay, which is based on a variety of factors including the customer's historical payment experience or, in the case of a new customer, published credit and financial information pertaining to the customer. The contract term for contracts that provide a right to terminate a contract for convenience without significant penalty will reflect the term that each party has enforceable rights under the contract (the period through the earliest termination date). If the termination right is only provided to the customer, the unsatisfied performance obligations will be evaluated as customer options as discussed below. 2) Identify the performance obligations in the contract - Performance obligations promised in a contract are identified based on the goods or services that will be transferred to the customer that are both (i) capable of being distinct, whereby the customer can benefit from the good or service either on its own or together with other resources that are readily available from third parties or from us, and (ii) are distinct in the context of the contract, whereby the transfer of the goods or services is separately identifiable from other promises in the contract. If these criteria are not met the promised goods or services are accounted for as a combined performance obligation. Certain of our contracts (under which we deliver multiple promised services) require us to perform integration activities where we bear risk with respect to integration activities. Therefore, we must apply judgment to determine whether as a result of those integration activities and risks, the promised services are distinct on the context of the contract.
We typically do not include options that would result in a material right. If options to purchase additional services or options to renew are included in customer contracts, we evaluate the option in order to determine if our arrangement include promises that may represent a material right and needs to be accounted for as a performance obligation in the contract with the customer. 3) Determine the transaction price - The transaction price is determined based on the consideration to which we will be entitled in exchange for transferring goods or services to the customer. Our contract prices may include fixed amounts, variable amounts or a combination of both fixed and variable amounts. To the extent the transaction price includes variable consideration, we estimate the amount of variable consideration that should be included in the transaction price utilizing either the expected value method or the most likely amount method depending on the nature of the variable consideration. When determining if variable consideration should be constrained, management considers whether there are factors outside our control that could result in a significant reversal of revenue. In making these assessments, we consider the likelihood and magnitude of a potential reversal of revenue. These estimates are re-assessed each reporting period as required. 4) Allocate the transaction price to the performance obligations in the contract - If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price (SSP) basis unless the transaction price is variable and meets the criteria to be allocated entirely to a performance obligation or to a distinct good or service that forms part of a single performance obligation. For most performance obligations, we determine standalone selling price based on the price at which the performance obligation is sold separately. Although uncommon, if the standalone selling price is not observable through past transactions, we estimate the standalone selling price taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations. 15 Table of Contents
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 did not generate any revenue for the years ended
Stock-based Compensation -The Company complies with ASC Topic 718, Compensation - Stock Compensation, using a modified prospective application transition method, which establishes accounting for stock-based awards in exchange for employee services. Under this application, the Company is required to record stock-based compensation expense for all awards granted. It requires that stock-based compensation cost is measured at grant date, based on the fair value of the award, and recognized as expense over the requisite services period. The Company follows ASC topic 505-50, "Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling Goods and Services," for stock issued to consultants and other non-employees. In accordance with ACS Topic 505-50, the stock issued as compensation for services provided to the Company are accounted for based upon the fair value of the services provided or the estimated fair market value of the stock, whichever can be more clearly determined. The fair value of the equity instrument is charged directly to expense over the period during which services are rendered. Income Taxes - The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Deferred tax liabilities and assets are determined based on the difference between the financial statement basis and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company estimates the degree to which tax assets and credit carryforwards will result in a benefit based on expected profitability by tax jurisdiction. A valuation allowance for such tax assets and loss carryforwards is provided when it is determined to be more likely than not that the benefit of such deferred tax asset will not be realized in future periods. Tax benefits of operating loss carryforwards are evaluated on an ongoing basis, including a review of historical and projected future operating results, the eligible carryforward period, and other circumstances. If it becomes more likely than not that a tax asset will be used, the related valuation allowance on such assets would be reduced. The Company recognizes tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. Once this threshold has been met, the Company's measurement of its expected tax benefits is recognized in its consolidated financial statements. The Company accrues interest on unrecognized tax benefits as a component of income tax expense. Penalties, if incurred, would be recognized as a component of income tax expense. Foreign Currency Translation -The assets and liabilities of the Company's subsidiaries and variable interest entities denominated in currencies other thanU.S. dollars are translated intoU.S. dollars using the applicable exchange rates at the balance sheet date. For consolidated statements of operations and comprehensive loss' items, amounts denominated in currencies other thanU.S. dollars were translated intoU.S. dollars using the average exchange rate during the year. Equity accounts were translated at their historical exchange rates. Net gains and losses resulting from translation of foreign currency on consolidated financial statements are included in the statements of stockholders' equity as accumulated other comprehensive income (loss). Foreign currency transaction gains and losses are reflected in the consolidated statements of operations and comprehensive loss.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the recently issued accounting standards will not have a material impact on the Company's financial position or results of operations upon adoption.
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