NETWORK CN INC. 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 toChina's legal system and economic, political and social events inChina ;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 endedDecember 31, 2020 and 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 InDecember 2019 , an outbreak of COVID-19 was identified inChina and was subsequently recognized as a global pandemic by theWorld Health Organization ("WHO") onMarch 11, 2020 . Since that time, COVID-19 has spread around the world and throughoutthe United States , including in the regions and countries in which we operate. Federal, state and local governments in theU.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 theU.S. Consequently, the COVID-19 outbreak has severely restricted the level of economic activity in theU.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 first 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 Table of Contents Use of Terms
Except as otherwise indicated by the context, references in this report to:
l "BVI" are references to the
l "China" and "PRC" are to
l the "Company", "NCN", "we", "us", or "our", are references to
a
Limited, or
limited company;
Kong limited company;
entity,
a
Co., Ltd., or Lianhe, a PRC limited company; Chuanghua Shanghai advertising
Limited, a PRC limited company; NCN Huamin Management Consultancy (
variable interest entity,
or Bona, a PRC limited company;
l "NCN Management Services" are references to
BVI limited company;
l "RMB" are to the Renminbi, the legal currency of
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 "
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. 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 endedDecember 31, 2020 .Recent Development
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. 17 Table of Contents OnJanuary 14, 2020 , the Company entered into a Letter of Intent withEarthasia 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. OnJuly 23, 2020 , the Company entered into Share Exchange Agreement withEase Global Limited ("Ease Global"), the shareholder ofTrade 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 onSeptember 2, 2020 or such 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.
Increase of authorized capital
OnApril 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. Results of Operations The following results of operations is based upon and should be read in conjunction with the Company's unaudited consolidated financial statements and the notes thereto included in Part I - Financial Information, "Item 1. Financial Statement." All amounts are expressed inU.S. dollars.
Comparison of Three Months Ended
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 endedMarch 31, 2021 decreased by 14.9% to$65,680 , as compared to$77,204 for the corresponding prior year period. The decrease in general and administrative expenses for the three months endedMarch 2021 compared toMarch 31, 2020 was due to decrease in salary. Gain from write-off of long aged payables- Gain from write-off of long-aged payables for the three months endedMarch 31, 2020 was$386,772 , compared to $nil for the three months endedMarch 31, 2021 . We believe the obligation for future settlement for such long-aged payables is remote and therefore wrote
them off. Interest and Other Debt-Related Expenses - Interest expense and other debt-related expenses for the three months endedMarch 31, 2021 decreased to$129,953 , or by 9%, as compared to$142,903 for the corresponding prior year period. The decrease was mainly due to the decreased in interest to convertible note result from the abandonment of convertible note from the noteholders inDecember 2020 . Income Taxes - The Company derives all of its income in the PRC and is subject to income tax in the PRC. No income tax was recorded during the three months endedMarch 31, 2021 and 2020, because the Company and all of its subsidiaries and variable interest entities operated at a taxable loss during the respective periods.
Net Loss - The Company incurred a net loss of
Liquidity and Capital Resources
As of
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The following table sets forth a summary of our cash flows for the periods
indicated:
Three Months Ended
March 31, 2021 March 31, 2020 Net cash provided by/(used in) operating activities $ 123$ (644,871 ) Net cash provided by financing activities -
645,000
Effect of exchange rate changes on cash (17 ) (148 ) Net (decrease)/increase in cash 106
(19 )
Cash, beginning of period 5,967 5,510
Cash, end of period $ 6,073 $ 5,491
Operating Activities
Net cash provided by operating activities for the three months endedMarch 31, 2021 was$123 , as compared to net cash used in operating activities amounting to$644,871 for the corresponding prior year period. This was mainly attributable to increase in repayment for accrued short term loan interest during the three months endedMarch 31, 2020 . 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 three months ended
Financing Activities Net cash provided by financing activities was $nil for the three months endedMarch 31, 2021 , as compared to$645,000 for the corresponding prior year period. The decrease was mainly due to no proceeds from convertible promissory note during the three months endedMarch 31, 2021 . Short-term Loan As ofMarch 31, 2021 , the Company recorded an aggregated amount of$2,973,211 short-term loans. Those loans were borrowed from unrelated 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 three months 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 2021 2022-2023 2023-2024 Thereafter
Debt Obligations (a) $ 645,000 $ - $ - $ - $ 645,000
Short Term Loan (b) 2,973,211 2,973,211 - - -
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(a) Debt Obligations. We issued an aggregate of
(b) Short Term Loan. We have entered into short-term loan agreements with unrelated 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.
Recent Accounting Pronouncements
The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the consolidated financial statements unless otherwise disclosed, and we do not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on our financial position or results of operations.
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.
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