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 leader in advertising media and actively serve brand customers. Our service is to provide our brand customers with integrated intelligent marketing solutions based on big data. We are committed to actively developing a new core retail channel "Community Channel" in the Chinese advertising field and strive to continue to develop this core to the whole ofChina in the future of each large and small community that makes us a leader in the core of the advertising industry. Total advertising revenue for the years endedDecember 31, 2022 and 2021 was$106,498 and $nil, respectively. Our net loss profit was$925,278 and$1,215,636 for the years endedDecember 31, 2022 and 2021 respectively. The Company will continually explore new media projects in order to provide a wider range of media and advertising services. 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 2021 results of operations to date. The effect of COVID-19 and related events, those not yet known or knowable, could have a negative effect on the stock price, business prospects, financial condition, and results of operations of the Company, including as a result of quarantines, market volatility, market downturns and business closures. For the reasons discussed above, the Company cannot reasonably estimate with any degree of certainty the future impact COVID-19 may have on the Company's results of operations, financial position, and liquidity. Notwithstanding any actions by national, state, and local governments to mitigate the impact of COVID-19 or by the Company to address the adverse impacts of COVID-19, there can be no assurance that any of the foregoing activities will be successful in mitigating or preventing significant adverse effects on the Company. Recent Developments
Our Business in
The Company actively developing its advertising network and explored new media project inChengdu andTianjin, China . The Company has established two newly subsidiaries,NCN (Chengdu) Culture Media Co., Ltd , ("NCN Chengdu") andNCN (Tianjin) Culture Co., Ltd ("NCN Tianjin"), a wholly foreign-owned enterprise inChengdu andTianjin, China . The Company owns 100% of the established subsidiary companies. InJanuary 2023 , NCN Chengdu andTianjin started its operation and acquired rights to operate advertising panels inChengdu andTianjin . OnJanuary 1, 2023 , NCN Chengdu and NCN Tianjin entered into employment contracts which the employees agreed to bring in the advertising rights inChengdu andTianjin
to the Company. 9 Table of Contents Our Business inNingbo The Company explored new media project inNingbo, China and decided to restart its business and expects that will improve the Company's future financial performance. InApril 2022 , the Company has established a newly subsidiary,NCN (Ningbo) Culture Media Co., Ltd ("NCN Ningbo"), a wholly foreign-owned enterprise inNingbo, China . The Company owns 100% of the established subsidiary company, NCN Ningbo. InAugust 2022 , NCN Ningbo started its operation and acquired rights to operate advertising panels inNingbo, China and sell advertising airtime to our customers directly. OnFebruary 1, 2023 , the Company agreed to issue 606,881 restricted shares of the Company's common stock to the employee,Chen Zhu . OnOctober 1, 2022 , NCN Ningbo entered into an employment contract withChen Zhu ("the employee") under which the employee agreed to bring in the advertising rights inNingbo to the Company and the Company will reward him for 606,881 shares of the Company's common stock. Pursuant to the terms of employment contract, if the employee can achieve the annual sales and profit before tax goal in 2023 and 2024, the Company will issue bonus shares of 303,441 and 303,441 restricted shares of the Company's common stock to the employee, respectively.
Issuance of Convertible Promissory Note
OnJanuary 18, 2022 , the Company entered into a Subscription Agreement under which the Subscriber agreed to purchase the 1% Senior Unsecured Convertible Note Agreement from the Company for an agreement purchase price of$2,500,000 . 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$2,500,000 in principal amount of Convertible Notes prior toJanuary 19, 2027 . The Convertible Promissory Notes issued to the Investor are convertible at the holder's option into shares of Company common stock at$1.25 per share. Exercise of conversion option OnOctober 28, 2021 ,Keywin Holdings Limited ("Keywin") exercised its option to purchase an aggregate of 11,764,756 shares of the Company' common stock for an aggregate purchase price of$2,000,000 . Private Placement OnMay 3, 2021 , the Company entered into Common Stock Agreement with the New investor that the Company will sell an aggregate of 200,000 shares of the Company's common stock to the New investor. Pursuant to the terms of a Common Stock Agreement between the Company and the New investor, the purchase price paid by the New investor for the shares were$3 per share for an aggregate
sum of$600,000 . 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. OnOctober 11, 2021 , we filed a Certificate of Amendment to our Certificate of Incorporation with theDelaware Secretary of State to increase our authorized shares of common stock from 26,666,667 to 100,000,000,000 and the increase had approved byDelaware secretary of state onApril 5, 2022 . OnMarch 22, 2023 , the Board of Directors and Majority of stockholders of the Company approved to decrease the total number of authorized shares of Common Stock from 100,000,000,000 to 100,000,000. Results of Operations
Comparison of Years Ended
Revenues. Our revenues consist primarily of income from out-of-home advertising panels. We recognize revenue in the period when advertisements are either aired or published. Revenues for the year endedDecember 31, 2022 was$106,498 , as compared to $nil for the prior year, the increase was attributed to the start of business inNingbo, China inAugust 2022 . Cost of Revenues. Cost of revenues primarily consists of fees to obtain rights to operate advertising panels. Cost of revenues for the year endedDecember 31, 2022 was$82,898 as compared to $nil for the prior year, the increase was attributed to the start of business inNingbo, China inAugust 2022 .
Gross Profit. Our gross profit for the year 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, fees for professional services, travel expenses and miscellaneous office expenses. General and administrative expenses for the year endedDecember 31, 2022 increased by 31.9% to$631,938 compared to$479,018 for the year endedDecember 31, 2021 . The increase in general and administrative expenses was mainly due to the increase in franchise tax, salary, audit fee and office expenses such as rent. 10 Table of Contents Stock Based Compensation for services - Stock Based Compensation for services for the year endedDecember 31, 2022 was$24,000 , compared to$217,475 for the year endedDecember 31, 2021 . The decrease was mainly due to no stock granted to directors in 2022. Gain from Write-off of Long Aged Payables - Gain from write-off of long-aged payables for the year endedDecember 31, 2022 was $nil, compared to$708 for the year endedDecember 31, 2021 . We believe the obligation for future settlement for such long-aged payables is remote and therefore wrote them off. Government Grant - Government Grant for the year endedDecember 31, 2022 was$3,286 , compared to $nil for the year endedDecember 31, 2021 . Government grants mainly represent amounts granted byHong Kong government for subsidize the salary.
Interest and Other Debt-Related Expenses. Interest and other debt-related
expenses for the year ended
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, 2022 and 2021 as the Company and all of its subsidiaries and variable interest entities operated at a tax loss in fiscal 2022 and 2021.
Net Loss. The Company incurred a net loss of
Liquidity and Capital Resources
Cash Flows As ofDecember 31, 2022 , current assets were$103,216 and current liabilities were$3,972,398 . Cash as ofDecember 31, 2022 was$20,351 compared to$21,677 as ofDecember 31, 2021 , a decrease of$1,326 . This was mainly attributable to the increase in payments for expenses during the year endedDecember 31, 2022 .
The following table sets forth a summary of our cash flows for the Years Ended
2022 2021
Net cash used in operating activities
(1,078 ) (2,422 )
Net cash provided by financing activities 197,161 459,077 Effect of exchange rate changes on cash
994 201 Net (decrease) / increase in cash (1,326 ) 15,710 Cash at the beginning of year 21,677 5,967 Cash at the end of year$ 20,351 $ 21,677 Operating Activities
Net cash used in operating activities for the year endedDecember 31, 2022 was$198,403 , as compared with$441,146 for the year endedDecember 31, 2021 , a reduction of$242,743 . The decrease in net cash used in operating activities was mainly attributable to the increase of payment to administrative service providers and utilization of prior year's prepayment. Investing Activities
Net cash used in investing activities for the years ended
Financing Activities
Net cash provided by financing activities was
11 Table of Contents Short-term Loans As ofDecember 31, 2022 and 2021, the Company recorded an aggregated amount of$1,165,372 and$2,973,211 of short-term loans, respectively. Those loans were borrowed from a shareholder and an unrelated individual. Except for the loan of$128,205 from an unrelated individual that are unsecured, bearing yearly interest of 1% and are repayable on demand, the remaining loans are unsecured, bear a monthly interest of 1.5% and are repayable on demand. However, according to the agreement, the Company shall have the option to shorten or extend the life of those short-term loans if the need arises and the Company has agreed with the lender to extend the short-term loans on the due date. OnJanuary 18, 2022 , the Company issued convertible notes ofUS$2,500,000 which is for setting off against the short-term loans and interest payable. As of the date of this report, the balance of$1,165,372 have not yet been repaid. Capital Expenditures
The Company acquired of assets
Contractual Obligations and Commercial Commitments
The following table presents certain payments due under contractual obligations
with minimum firm commitments as of
Payments due by period Due in Due in Due in Total 2023 2024 - 2025 2026-2027 Thereafter
Debt Obligations (a)$ 645,000 $ -$ 645,000 $ - $ - Debt Obligations (a)$ 2,500,000 $ - $ -$ 2,500,000 - Short Term Loan (b)$ 1,165,372 $ 1,165,372 $ - $
- $ -
(a) Debt Obligations. We issued an aggregate of
(b) Short Term Loan Those loans were borrowed from a shareholder and an unrelated individual. Except for loan of$128,205 from an unrelated individual that are unsecured, bearing yearly interest of 1% and are repayable on demand, the remaining loans are unsecured, bear a monthly interest of 1.5% and are repayable on demand. However, according to the agreement, the Company shall have the option to shorten or extend the life of those short-term loans if the need arises and the Company has agreed with the lender to extend the short-term loans on the due date. OnJanuary 18, 2022 , the Company issued convertible notes ofUS$2,500,000 which is for setting off against the short-term loans and interest payable. As of the date of this report, the balance of$1,165,372 have not
yet been repaid. 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 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 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. 12 Table of Contents
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.
(A) Basis of Presentation and Preparation
These consolidated financial statements of the Company have been prepared in conformity with generally accepted accounting principles inthe United States of America ("GAAP").
(B) 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. (C) Use of Estimates
The Company's consolidated financial statements 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. (D) Cash Cash includes cash on hand, cash accounts, and interest-bearing savings accounts placed with banks and financial institutions. For the purposes of the statements of cash flow, the Company considers all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents. There were no cash equivalents balance as ofDecember 31, 2022
andDecember 31, 2021 . (E) 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
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.
(F) 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 undiscounted cash flow analysis. There was no impairment of long-lived assets for the years endedDecember 31, 2021 and 2020. (G) Intangible Assets Intangible assets mainly acquired through purchased intangible assets. Purchased intangible assets are initially recognized and measured at cost. The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are subsequently amortized over their useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. 13 Table of Contents
Identifiable intangible assets that have determinable lives continue to be amortized over their estimated useful lives using the straight-line method as follows:
Advertising rights fee contracts 3 years
(H) Accounts Receivable Net of Allowance for Expected Credit Losses
Accounts receivable primarily represents revenue recognized that was not invoiced at the balance sheet date and is primarily billed and collected in the following month. Trade accounts receivable are carried at the original invoiced amount less an estimated allowance for expected credit losses based on the probability of future collection. Management determines the adequacy of the allowance based on historical loss patterns, the number of days that customer invoices are past due, reasonable and supportable forecasts of future economic conditions to inform adjustments over historical loss data, and an evaluation of the potential risk of loss associated with specific accounts. When management becomes aware of circumstances that may further decrease the likelihood of collection, it records a specific allowance against amounts due, which reduces the receivable to the amount that management reasonably believes will be collected. The Company records changes in the estimate to the allowance for expected credit losses through provision for expected credit losses and reverses the allowance after the potential for recovery is considered remote. (I) Leases
The Company adopted Accounting Standards Codification (ASC) Topic
842, Leases (ASC 842) effective as of
Operating lease right-of-use (ROU) assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized based on the present value of lease payments over the lease term at the commencement date of the lease. ROU assets also include any initial direct costs incurred and any lease payments made at or before the lease commencement date, less any lease incentive received. The Company uses its incremental borrowing rate in determining the present value of lease payments based on the information available at the date of lease commencement. The incremental borrowing rate reflects the rate of interest that a lessee would have to pay to borrow, on a collateralized basis over a similar term, an amount equal to the lease payments in a similar economic environment. Lease expense for an operating lease is recognized on a straight-line basis over the lease term. The Company elected to not separate non-lease components from the associated lease components and to not recognize right-of-use assets and lease liabilities for leases with a term of twelve months or less.
(J) Convertible Promissory Notes and Warrants
New 1% Convertible Promissory Notes, due in 2025
OnJanuary 14, 2020 , the Company issued 1% unsecured senior convertible promissory notes to an individual with the principal amount of$645,000 . The 1% convertible promissory notes bore interest at 1% per annum, payable semi-annually in arrears, matured onJanuary 13, 2025 , and were convertible at any time into shares of the Company's common stock at a fixed conversion price of$1.00 per share, subject to customary anti-dilution adjustments. The Company determined the 1% convertible promissory notes to be conventional convertible instruments under ASC Topic 815, Derivatives and Hedging. Its embedded conversion option qualified for equity classification. The 1% convertible promissory notes did not have any embedded conversion option which shall be bifurcated and separately accounted for as a derivative under ASC 815, nor did they contain a cash conversion feature. The Company accounted for the Notes in accordance with ASC 470, as a single debt instrument. No beneficial conversion feature (the "BCF") was recognized as the set conversion price for the Notes was greater than the fair value of the Company's share price at date of issuance.
New 1% Convertible Promissory Notes, due in 2027
OnJanuary 18, 2022 , the Company entered into a Subscription Agreement under which the Subscriber agreed to purchase the 1% Senior Unsecured Convertible Note Agreement from the Company for an agreement purchase price of two million five hundred thousand US Dollars ($2,500,000 ). On the same date, the Company signed the with 1% Senior Unsecured Convertible Note Agreement under which the Company may sell and issue to the Subscriber up to an aggregate maximum amount of$2,500,000 in principal amount of Convertible Notes prior toJanuary 19, 2027 . The Convertible Promissory Notes issued to the Investor are convertible at the holder's option into shares of Company common stock at$1.25 per share. 14 Table of Contents The Company evaluates the conversion feature to determine whether it was beneficial as described in ASC 470-20. The intrinsic value of a beneficial conversion feature inherent to a convertible note payable, which is not bifurcated and accounted for separately from the convertible notes payable and may not be settled in cash upon conversion, is treated as a discount to the convertible notes payable. This discount is amortized over the period from the date of issuance to the date the notes is due using the effective interest method. If the notes payable are retired prior to the end of their contractual term, the unamortized discount is expensed in the period of retirement to interest expense. In general, the beneficial conversion feature is measured by comparing the effective conversion price, after considering the relative fair value of detachable instruments included in the financing transaction, if any, to the fair value of the shares of common stock at the commitment date to be received upon conversion. (K) Revenue Recognition In accordance with ASC 606, Revenue From Contracts with Customers, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that are within the scope of the standard, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The standard also includes criteria for the capitalization and amortization of certain contract acquisition and fulfillment costs. The Company recognize revenue when a customer obtains control of promised services. The amount of revenue recognized reflects the consideration we expect to be entitled to receive in exchange for such services. To achieve this core principle, we apply the following five steps: 1) Identify the contract(s) with a customer - A contract with a customer exists when (i) we enter into an enforceable contract with a customer that defines each party's rights regarding the goods or services to be transferred and identifies the payment terms related to those goods or services, (ii) the contract has commercial substance and, (iii) we determine that collection of substantially all consideration for goods or services that are transferred is probable based on the customer's intent and ability to pay the promised consideration. We apply judgment in determining the customer's ability and intention to pay, which is based on a variety of factors including the customer's historical payment experience or, in the case of a new customer, published credit and financial information pertaining to the customer. The contract term for contracts that provide a right to terminate a contract for convenience without significant penalty will reflect the term that each party has enforceable rights under the contract (the period through the earliest termination date). If the termination right is only provided to the customer, the unsatisfied performance obligations will be evaluated as customer options as discussed below. 2) Identify the performance obligations in the contract - Performance obligations promised in a contract are identified based on the goods or services that will be transferred to the customer that are both (i) capable of being distinct, whereby the customer can benefit from the good or service either on its own or together with other resources that are readily available from third parties or from us, and (ii) are distinct in the context of the contract, whereby the transfer of the goods or services is separately identifiable from other promises in the contract. If these criteria are not met the promised goods or services are accounted for as a combined performance obligation. Certain of our contracts (under which we deliver multiple promised services) require us to perform integration activities where we bear risk with respect to integration activities. Therefore, we must apply judgment to determine whether as a result of those integration activities and risks, the promised services are distinct on the context of the contract.
We typically do not include options that would result in a material right. If options to purchase additional services or options to renew are included in customer contracts, we evaluate the option in order to determine if our arrangement include promises that may represent a material right and needs to be accounted for as a performance obligation in the contract with the customer. 3) Determine the transaction price - The transaction price is determined based on the consideration to which we will be entitled in exchange for transferring goods or services to the customer. Our contract prices may include fixed amounts, variable amounts or a combination of both fixed and variable amounts. To the extent the transaction price includes variable consideration, we estimate the amount of variable consideration that should be included in the transaction price utilizing either the expected value method or the most likely amount method depending on the nature of the variable consideration. When determining if variable consideration should be constrained, management considers whether there are factors outside our control that could result in a significant reversal of revenue. In making these assessments, we consider the likelihood and magnitude of a potential reversal of revenue. These estimates are re-assessed each reporting period as required. 4) Allocate the transaction price to the performance obligations in the contract - If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price (SSP) basis unless the transaction price is variable and meets the criteria to be allocated entirely to a performance obligation or to a distinct good or service that forms part of a single performance obligation. For most performance obligations, we determine standalone selling price based on the price at which the performance obligation is sold separately. Although uncommon, if the standalone selling price is not observable through past transactions, we estimate the standalone selling price taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations. 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.
(L) 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. (M) 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.
(N) Comprehensive Income (Loss)
The Company follows ASC Topic 220, Comprehensive Income, for the reporting and display of its comprehensive income (loss) and related components in the consolidated financial statements and thereby reports a measure of all changes in equity of an enterprise that results from transactions and economic events other than transactions with the shareholders. Items of comprehensive income (loss) are reported in both the consolidated statements of operations and comprehensive income and the consolidated statement of stockholders' deficit. Accumulated other comprehensive income as presented on the consolidated balance sheets consisted of the accumulative foreign currency translation adjustment at period end.
(O) Earnings (Loss) Per Common Share
Basic earnings (loss) per common share are computed in accordance with ASC Topic 260, Earning per Share, by dividing the net income (loss) attributable to holders of common stock by the weighted average number of shares of common stock outstanding during the period. Diluted earnings (loss) per common 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. The diluted net profit/(loss) per common share is the same as the basic net profit/(loss) per share for the years endedDecember 31, 2021 and 2020 as all potential common shares including stock options and warrants are anti-dilutive and are therefore excluded from the computation of diluted net profit/(loss) per share. 16 Table of Contents
(P) Foreign Currency Translation
The assets and liabilities of the Company's subsidiaries and variable interest entity 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 period. 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 unaudited consolidated statements of operations and comprehensive income.
(Q) Fair Value of Financial Instruments
ASC Topic 820, Fair Value Measurements and Disclosure, defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability. It establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. It establishes three levels of inputs that may be used to measure fair value:
Level 1 - Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2 - Level 2 applies to assets or liabilities for which there are inputs other than quoted prices included within Level 1 that are observable 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.
Level 3 - Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
The carrying value of the Company's financial instruments, which consist of cash, prepaid expenses and other current assets, accounts payable, accrued expenses and other payables, and convertible promissory notes approximates fair value due to the short-term maturities.
The carrying value of the Company's financial instruments related to warrants associated with convertible promissory notes is stated at a value being equal to the allocated proceeds of convertible promissory notes based on the relative fair value of notes and warrants. In the measurement of the fair value of these instruments, the Black-Scholes option pricing model is utilized, which is consistent with the Company's historical valuation techniques. These derived fair value estimates are significantly affected by the assumptions used. As the allocated value of the financial instruments related to warrants associated with convertible promissory notes is recorded in additional paid-in capital, the financial instruments related to warrants were not required to mark to market as of each subsequent reporting period. The carrying value of the Company's financial instruments related to options is measuring its fair value using the Black-Scholes option pricing model, which is consistent with the Company's historical valuation techniques. The fair value of option is recorded as dividend.
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.
© Edgar Online, source