UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
For the transition period from __________ to __________
Commission File Number:
(Exact name of registrant as specified in its charter)
| 7(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
| 1678 Jinshajiang Road |
| |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including
area code:
Not applicable
(Former name or former address, 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.
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Website, if any, every Interactive Date 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).
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 | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
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
As of November 14, 2022, there were
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
TABLE OF CONTENTS
i
CAUTIONARY NOTE REGARDING
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains statements that may be deemed to be “forward-looking statements” within the meaning of the federal securities laws. These statements relate to anticipated future events, future results of operations and or future financial performance. In some cases, you can identify forward-looking statements by their use of terminology such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “future,” “intend,” “may,” “ought to,” “plan,” “possible,” “potentially,” “predicts,” “project,” “should,” “will,” “would,” negatives of such terms or other similar terms. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. The forward-looking statements in this Quarterly Report on Form 10-Q include, without limitation, statements relating to:
| ● | our goals and strategies; | |
| ● | our future business development, results of operations and financial condition; | |
| ● | our estimates regarding expenses, future revenues, capital requirements and our need for additional financing; | |
| ● | our estimates regarding the market opportunity for our services; | |
| ● | the impact of government laws and regulations; | |
| ● | our ability to recruit and retain qualified personnel; | |
| ● | our failure to comply with regulatory guidelines; | |
| ● | uncertainty in industry demand; | |
| ● | general economic conditions and market conditions in the financial services industry; | |
| ● | future sales of large blocks or our securities, which may adversely impact our share price; and | |
| ● | depth of the trading market in our securities. |
The preceding list is not intended to be an exhaustive list of all of our forward-looking statements. Forward-looking statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties, including those described in Item 1A “Risk Factors” of our Annual Report of Form 10-K for the fiscal year ended December 31, 2021 and elsewhere in this Quarterly Report on Form 10-Q.
You should not unduly rely on any forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that future results, levels of activity, performance and events and circumstances reflected in the forward-looking statements will be achieved or will occur. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Quarterly Report on Form 10-Q, to conform these statements to actual results or to changes in our expectations.
ii
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CODE CHAIN NEW CONTINENT LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Other receivables, net | ||||||||
| Other receivable - related party | ||||||||
| Inventories | ||||||||
| Prepayments | ||||||||
| Total current assets | ||||||||
| PLANT AND EQUIPMENT, NET | ||||||||
| RIGHT-OF-USE ASSETS | ||||||||
| OTHER ASSETS | ||||||||
| Prepayments for purchases of equipment | ||||||||
| Goodwill | ||||||||
| Intangible assets, net | ||||||||
| Total other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | $ | ||||||
| Other payables and accrued liabilities | ||||||||
| Other payables - related parties | ||||||||
| Customer deposits | ||||||||
| Lease liabilities - current | ||||||||
| Taxes payable | ||||||||
| Total current liabilities | ||||||||
| OTHER LIABILITIES | ||||||||
| Lease liabilities – non-current | ||||||||
| Total other liabilities | ||||||||
| Total liabilities | ||||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| SHAREHOLDERS’ EQUITY | ||||||||
| Preferred stock, $ | ||||||||
| Common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Statutory reserves | ||||||||
| Stock subscriptions receivable | ( | ) | ||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income | ||||||||
| Total shareholders’ equity | ||||||||
| Total liabilities and shareholders’ equity | $ | $ | ||||||
| * | Giving retroactive effect to the 1-for-30 reverse stock split effective on November 9, 2022. |
1
CODE CHAIN NEW CONTINENT LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| REVENUES | ||||||||||||||||
| Enterprise brand management services | $ | $ | $ | $ | ||||||||||||
| TOTAL REVENUES | ||||||||||||||||
| COST OF REVENUES | ||||||||||||||||
| Enterprise brand management services | ||||||||||||||||
| TOTAL COST OF REVENUES | ||||||||||||||||
| GROSS PROFIT | ||||||||||||||||
| OPERATING EXPENSES (INCOME) | ||||||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Impairment of prepayments | ||||||||||||||||
| TOTAL OPERATING EXPENSES | ||||||||||||||||
| INCOME FROM OPERATIONS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| OTHER INCOME (EXPENSE) | ||||||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ||||||||||||||||
| Investment income | ||||||||||||||||
| Other expense, net | ||||||||||||||||
| Total other expense, net | ||||||||||||||||
| LOSS BEFORE INCOME TAXES FROM CONTINUING OPERATIONS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| PROVISION FOR INCOME TAXES | ||||||||||||||||
| LOSS FROM CONTINUING OPERATIONS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Discontinued operations: | ||||||||||||||||
| Loss from discontinued operations, net of taxes | ( | ) | ( | ) | ( | ) | ||||||||||
| Loss(Gain) on disposal, net of taxes | ( | ) | ( | ) | ( | ) | ||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| OTHER COMPREHENSIVE INCOME | ||||||||||||||||
| Foreign currency translation adjustment | ( | ) | ( | ) | ( | ) | ||||||||||
| COMPREHENSIVE LOSS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| WEIGHTED AVERAGE NUMBER OF COMMON SHARES | ||||||||||||||||
| Loss per share from continuing operations | ||||||||||||||||
| ( | ) | ( | ) | ( | ) | ( | ) | |||||||||
| Loss per share from discontinued operations | ||||||||||||||||
| ( | ) | ( | ) | ( | ) | ( | ) | |||||||||
| Loss per share available to common shareholders | ||||||||||||||||
| $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
2
CODE CHAIN NEW CONTINENT LIMITED AND SUBSIDIARIES
CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
For the Nine Months Ended September 30, 2021 | ||||||||||||||||||||||||||||||||||||||||
| Additional | Stock | Retained Earnings (Accumulated Deficit) | Accumulated Other | |||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-in | Subscription | Statutory | Comprehensive | |||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Receivable | Reserves | Unrestricted | Income (Loss) | Total | |||||||||||||||||||||||||||||||
| BALANCE, January 1, 2021 | ||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Issuance of common stock for Bonus | - | |||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for purchase Bitcoin mining machines | - | |||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for purchase digital currency mining machines | ||||||||||||||||||||||||||||||||||||||||
| Issuance of shares for cash | - | |||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for employee compensation | - | |||||||||||||||||||||||||||||||||||||||
| The cancellation of the common stock | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Issuance of common stock | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Foreign currency translation | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| BALANCE, September 30, 2021 (Unaudited) | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||||||
For the Nine Months Ended September 30, 2022 | ||||||||||||||||||||||||||||||||||||||||
| Additional | Stock | Accumulated Deficit | Accumulated Other | |||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-in | Subscription | Statutory | Comprehensive | |||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Receivable | Reserves | Unrestricted | Income (Loss) | Total | |||||||||||||||||||||||||||||||
| BALANCE, January 1, 2022 | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Issuance of common stock for acquisition Yuan Ma | ||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for acquisition Highlight Media | ||||||||||||||||||||||||||||||||||||||||
| The cancellation of the common stock | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Stock subscription receivable from issuance of common stock | ||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| BALANCE, September 30, 2022 (Unaudited) | $ | - | $ | $ | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||||||
3
CODE CHAIN NEW CONTINENT LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| For the Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net income to net cash used in operating activities: | ||||||||
| Depreciation of plant and equipment | ||||||||
| Amortization of intangible assets | ||||||||
| Impairment of prepayments | - | |||||||
| Issuance of common stock for employee compensation | ||||||||
| Issuance of common stock for Bonus | ||||||||
| Disposal of the company | ||||||||
| Goodwill impairments | ||||||||
| Bitcoin revenue | ( | ) | ||||||
| Change in operating assets and liabilities | ||||||||
| Accounts receivables | ( | ) | ||||||
| Other receivables | ||||||||
| Other receivable - related party | ( | ) | ||||||
| Inventories | ( | ) | ( | ) | ||||
| Prepayments | ( | ) | ( | ) | ||||
| Accounts payable | ( | ) | ||||||
| Other payables and accrued liabilities | ( | ) | ||||||
| Customer deposits | ( | ) | ||||||
| Lease liabilities | ( | ) | ||||||
| Taxes payable | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Net increase in cash from acquisition of Highlight Media | ||||||||
| Net decrease in cash from disposal of discontinued operations | ( | ) | ( | ) | ||||
| Purchase of Intangible assets | ||||||||
| Purchase of equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from issuance of common stock | ||||||||
| Proceeds from short-term loans - bank | ||||||||
| Net cash provided by financing activities | ||||||||
| EFFECT OF EXCHANGE RATE ON CASH | ( | ) | ( | ) | ||||
| NET (DECREASE)/INCREASE IN CASH | ( | ) | ||||||
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | ||||||||
| CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | $ | ||||||
| SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||
| Cash paid for income tax | $ | $ | ||||||
| Cash paid for interest | $ | $ | ||||||
| NON-CASH TRANSACTIONS OF INVESTING AND FINANCING ACTIVITIES | ||||||||
| Issuance of common stock for Bonus | $ | $ | ||||||
| Issuance of common stock for purchase Bitcoin mining machines | ||||||||
| Issuance of common stock for purchase digital currency mining machines | ||||||||
| Issuance of common stock for employee compensation | ||||||||
| Issuance of common stock for acquisition Yuan Ma | ||||||||
| Issuance of common stock for Highlight Media | ||||||||
| The cancellation of the common stock | ||||||||
| Bitcoin revenue | ||||||||
4
CODE CHAIN NEW CONTINENT LIMITED AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Nature of business and organization
Code Chain New Continent Limited (“CCNC” or the “Company”), formerly known as TMSR Holding Company Limited and JM Global Holding Company is a Nevada corporation and a holding company that has no material operation of its own. The Company’ subsidiaries, Citi Profit Investment Holding Limited (“Citi Profit”), TMSR Holdings Limited (“TMSR Holdings”), and Makesi IoT Technology (Shanghai) Co., Ltd. (“Makesi WFOE”) are also holding companies with material operations.
Makesi WFOE has a series of contractual arrangement with Shanghai Highlight Media Co., Ltd. (“Highlight Media”) (“Highlight Media”)that established a VIE structure. For accounting purposes, Makesi WFOE is the primary beneficiary of Highlight Media. Accordingly, under U.S. GAAP, CCNC treats Highlight Media as the consolidated affiliated entity and has consolidated Highlight Media’s financial results in CCNC’s financial statements. Highlight Media was founded in 2016. It is an integrated marketing service agency, focusing on enterprise brand management, crisis public relations, intelligent public opinion monitoring, media PR, financial and economic we-media operation, digital face application, large-scale exhibition services and other businesses. It is committed to becoming a modern science and technology media organization that fully empowers the development of customer enterprises in the era of artificial intelligence and big data.
Prior to September 28, 2022, we also conducted
business through Sichuan Wuge Network Games Co., Ltd. (“Wuge”). Makesi WFOE had a series of contractual arrangement with Wuge
that established a VIE structure. Wuge focused its business on research, development and application
of Internet of Things (IoT) and electronic tokens Wuge digital door signs. On September 28, 2022, Makesi WFOE entered into
a termination agreement with Wuge and the Wuge Shareholders to terminate the VIE Agreements and to cancel the Shares, based on the average
closing price of $
Prior to March 30, 2021, CCNC had an indirect
subsidiary, Tongrong Technology (Jiangsu) Co., Ltd. (“Tongrong WFOE”), which is a holding company with no material operations.
Tongrong WFOE had a series of contractual arrangement with Jiangsu Rong Hai Electric Power Fuel Co., Ltd. (“Rong Hai”)
that established a VIE structure. Rong Hai was primarily engaged in the coal wholesales and sales of coke, steel, construction materials,
mechanical equipment and steel scrap. For accounting purposes, Tongrong WFOE was the primary beneficiary of Wuge. Accordingly, under U.S.
GAAP, CCNC treated Rong Hai as the consolidated affiliated entity and has consolidated Rong Hai’s financial results in CCNC’s
financial statements prior to March 30, 2021. On March 30, 2021, CCNC entered into a share purchase agreement with a buyer unaffiliated
with the Company (the “Buyer”), and Qihai Wang, former director of the Company (the “Payee”).
The VIE structure involves unique risks to investors. The VIE agreements have not been tested in a court of law and the Chinese regulatory authorities could disallow this VIE structure, which would likely result in a material change in our operations and the value of our securities, including that it could cause the value of such securities to significantly decline or become worthless.
The accompanying consolidated financial statements reflect the activities of CCNC and each of the following entities:
| Name | Background | Ownership | ||
| Citi Profit BVI | | |||
| TMSR HK | | |||
| Makesi WFOE | | |||
| Rong Hai1 | | |||
| Wuge2 | | |||
| Highlight Media | | |||
| 1 | |
| 2 |
5
Contractual Arrangements
Rong Hai and Wuge were and Highlight Media is controlled through contractual agreements in lieu of direct equity ownership by the Company or any of its subsidiaries. Such contractual arrangements consist of a series of five agreements, consulting services agreement, equity pledge agreement, call option agreement, voting rights proxy agreement, and operating agreement (collectively the “Contractual Arrangements”).
Material terms of each of the Rong Hai VIE Agreements are described below. The Company disposed Tongrong WFOE and Rong Hai as of March 31, 2021.
Consulting Services Agreement
Pursuant to the consulting services agreement between Rong Hai and Shengrong WFOE dated November 30, 2018 and the agreement to assign consulting services agreement among Rong Hai, Shengrong WFOE and Tongrong WFOE dated April 30, 2020, Tongrong WFOE has the exclusive right to provide consulting services to Rong Hai relating to Rong Hai’s business, including but not limited to business consulting services, human resources development, and business development. Tongrong WFOE exclusively owns any intellectual property rights arising from the performance of this agreement. Tongrong WFOE has the right to determine the service fees based on Rong Hai’s actual operation on a quarterly basis.
This consulting services agreement took effect upon execution and shall remain in full force and effective until Rong Hai’s valid operation term expires. Tongrong WFOE may, at its discretion, decide to renew or terminate this consulting services agreement.
Equity Pledge Agreement.
Under the equity pledge agreement among Shengrong WFOE, Rong Hai and the shareholders of Rong Hai dated November 30, 2018, and the agreement to assign equity pledge agreement among Rong Hai, Shengrong WFOE and Tongrong WFOE dated April 30, 2020, the shareholders pledged all of their equity interests in Rong Hai to Tongrong WFOE to guarantee Rong Hai’s performance of relevant obligations and indebtedness under the consulting services agreement. In addition, the shareholders of Rong Hai have completed the registration of the equity pledge under the agreement with the competent local authority. If Rong Hai breaches its obligation under the consulting services agreement, Tongrong WFOE, as pledgee, will be entitled to certain rights, including the right to sell the pledged equity interests.
This equity pledge agreement took effect upon execution and shall remain in full force and effective until Rong Hai and Tongrong WFOE’s satisfaction of all contractual obligations and settlement of all secured indebtedness. Upon Tongrong WFOE’s request, Rong Hai shall extend its operation period to sustain the effectiveness of this equity pledge agreement.
Call Option Agreement
Under the call option agreement among Shengrong WFOE, Rong Hai and the shareholders of Rong Hai dated November 30, 2018 and the agreement to assign call option agreement among Rong Hai, Shengrong WFOE and Tongrong WFOE dated April 30, 2020, each of the shareholders of Rong Hai irrevocably granted to WFOE or its designee an option to purchase at any time, to the extent permitted under PRC law, all or a portion of his equity interests in Rong Hai. Also, Tongrong WFOE or its designee has the right to acquire any and all of its assets of Rong Hai. Without Tongrong WFOE’s prior written consent, Rong Hai’s shareholders cannot transfer their equity interests in Rong Hai, and Rong Hai cannot transfer its assets. The acquisition price for the shares or assets will be the minimum amount of consideration permitted under the PRC law at the time of the exercise of the option.
This call option agreement shall took effect upon execution. Rong Hai and Tongrong WFOE shall not terminate this call option agreement under any circumstances for any reason unless it is early terminated by Tongrong WFOE or by the requirements under the applicable laws. This call option agreement shall be terminated provided that all equity interest or assets under this option is transferred to Tongrong WFOE or its designee.
6
Voting Rights Proxy Agreement
Under the voting rights proxy agreement among Shengrong WFOE and the shareholders of Rong Hai dated November 30, 2018 and the agreement to assign voting rights proxy agreement among Rong Hai, Shengrong WFOE and Tongrong WFOE dated April 30, 2020, each shareholder of Rong Hai irrevocably appointed Shengrong WFOE as its attorney-in-fact to exercise on such shareholder’s behalf any and all rights that such shareholder has in respect of his equity interests in Rong Hai, including but limited to the power to vote on its behalf on all matters of Rong Hai requiring shareholder approval in accordance with the articles of association of Rong Hai.
The voting rights proxy agreement took effect upon execution of and shall remain in effect indefinitely for the maximum period of time permitted by law in consideration of Tongrong WFOE.
Operating Agreement
Pursuant to the operating agreement among Shengrong WFOE, Rong Hai and the shareholders of Rong Hai dated November 30, 2018 and the agreement to assign operating agreement among Rong Hai, Shengrong WFOE and Tongrong WFOE dated April 30, 2020, Rong Hai and the shareholders of Rong Hai agreed not to enter into any transaction that could materially affect Rong Hai’s assets, obligations, rights or operations without prior written consent from Tongrong WFOE, including but not limited to the amendment of the articles of association of Rong Hai. Rong Hai and its shareholders agree to accept and follow our corporate policies provided by Tongrong WFOE in connection with Rong Hai’s daily operations, financial management and the employment and dismissal of Rong Hai’s employees. Rong Hai agreed that it should seek guarantee from Tongrong WFOE first if any guarantee is needed for Rong Hai’s performance of any contract or loan in the course of its business operation.
This operating agreement took effect upon execution and shall remain in full force and effective until Rong Hai’s valid operation term expires. Either party of Tongrong WFOE and Rong Hai shall complete approval or registration procedures for the extension of its business term three months prior to the expiration of its business term, for the purpose of the maintenance of the effectiveness of this operating agreement.
Material terms of each of the VIE agreements with Wuge are described below. The VIE agreements with Wuge were terminated and the Company disposed Wuge as of September 28, 2022.
Technical Consultation and Services Agreement.
Pursuant to the technical consultation and services agreement between Wuge and Tongrong WFOE dated January 3, 2020, Tongrong WFOE has the exclusive right to provide consultation services to Wuge relating to Wuge’s business, including but not limited to business consultation services, human resources development, and business development. Tongrong WFOE exclusively owns any intellectual property rights arising from the performance of this agreement. Tongrong WFOE has the right to determine the service fees based on Wuge’s actual operation on a quarterly basis. This agreement will be effective as long as Wuge exists. Tongrong WFOE may terminate this agreement at any time by giving a 30 days’ prior written notice to Wuge.
Equity Pledge Agreement.
Under the equity pledge agreement among Tongrong WFOE, Wuge and Wuge Shareholders dated January 3, 2020, Wuge Shareholders pledged all of their equity interests in Wuge to Tongrong WFOE to guarantee Wuge’s performance of relevant obligations and indebtedness under the technical consultation and services agreement. In addition, Wuge Shareholders will complete the registration of the equity pledge under the agreement with the competent local authority. If Wuge breaches its obligation under the technical consultation and services agreement, Tongrong WFOE, as pledgee, will be entitled to certain rights, including the right to sell the pledged equity interests. This pledge will remain effective until all the guaranteed obligations are performed or the Wuge Shareholders cease to be shareholders of Wuge.
Equity Option Agreement.
Under the equity option agreement among Tongrong WFOE, Wuge and Wuge Shareholders dated January 3, 2020, each of Wuge Shareholders irrevocably granted to Tongrong WFOE or its designee an option to purchase at any time, to the extent permitted under PRC law, all or a portion of his equity interests in Wuge. Also, Tongrong WFOE or its designee has the right to acquire any and all of its assets of Wuge. Without Tongrong WFOE’s prior written consent, Wuge’s shareholders cannot transfer their equity interests in Wuge and Wuge cannot transfer its assets. The acquisition price for the shares or assets will be the minimum amount of consideration permitted under the PRC law at the time of the exercise of the option. This pledge will remain effective until all options have been exercised.
7
Voting Rights Proxy and Financial Support Agreement.
Under the voting rights proxy and financial support
agreement among Tongrong WFOE, Wuge and Wuge Shareholders dated January 3, 2020, each Wuge Shareholder irrevocably appointed Tongrong
WFOE as its attorney-in-fact to exercise on such shareholder’s behalf any and all rights that such shareholder has in respect of
his equity interests in Wuge, including but not limited to the power to vote on its behalf on all matters of Wuge requiring shareholder
approval in accordance with the articles of association of Wuge. The proxy agreement is for a term of
On January 11, 2021, Makesi WFOE entered into a series of assignment agreements (the “Assignment Agreements”) with Tongrong WFOE, Wuge and Wuge Shareholders, pursuant to which Tongrong WFOE assign all its rights and obligations under the VIE Agreements to Makesi WFOE (the “Assignment”). The VIE Agreements and the Assignment Agreements grant Makesi WFOE with the power, rights and obligations equivalent in all material respects to those it would possess as the sole equity holder of Wuge, including absolute rights to control the management, operations, assets, property and revenue of Wuge. The Assignment does not have any impact on Company’s consolidated financial statements.
Material terms of each of the VIE agreements with Highlight Media are described below:
Technical Consultation and Services Agreement.
Pursuant to the technical consultation and services agreement between Highlight Media and Makesi WFOE dated September 16, 2022, Makesi WFOE has the exclusive right to provide consultation services to Wuge relating to Wuge’s business, including but not limited to business consultation services, human resources development, and business development. Makesi WFOE exclusively owns any intellectual property rights arising from the performance of this agreement. Makesi WFOE has the right to determine the service fees based on Wuge’s actual operation on a quarterly basis. This agreement will be effective as long as Wuge exists. Makesi WFOE may terminate this agreement at any time by giving a 30 days’ prior written notice to Wuge.
Equity Pledge Agreement.
Under the equity pledge agreement among Makesi WFOE, Wuge and Wuge Shareholders dated September 16, 2022, Wuge Shareholders pledged all of their equity interests in Wuge to Makesi WFOE to guarantee Wuge’s performance of relevant obligations and indebtedness under the technical consultation and services agreement. In addition, Wuge Shareholders will complete the registration of the equity pledge under the agreement with the competent local authority. If Wuge breaches its obligation under the technical consultation and services agreement, Makesi WFOE, as pledgee, will be entitled to certain rights, including the right to sell the pledged equity interests. This pledge will remain effective until all the guaranteed obligations are performed or the Wuge Shareholders cease to be shareholders of Wuge.
Equity Option Agreement.
Under the equity option agreement among Makesi WFOE, Wuge and Wuge Shareholders dated September 16, 2022, each of Wuge Shareholders irrevocably granted to Makesi WFOE or its designee an option to purchase at any time, to the extent permitted under PRC law, all or a portion of his equity interests in Wuge. Also, Makesi WFOE or its designee has the right to acquire any and all of its assets of Wuge. Without Makesi WFOE’s prior written consent, Wuge’s shareholders cannot transfer their equity interests in Wuge and Wuge cannot transfer its assets. The acquisition price for the shares or assets will be the minimum amount of consideration permitted under the PRC law at the time of the exercise of the option. This pledge will remain effective until all options have been exercised.
Voting Rights Proxy and Financial Support Agreement.
Under the voting rights proxy and financial support agreement among Makesi WFOE, Wuge and Wuge Shareholders dated September 16, 2022, each Wuge Shareholder irrevocably appointed Makesi WFOE as its attorney-in-fact to exercise on such shareholder’s behalf any and all rights that such shareholder has in respect of his equity interests in Wuge, including but not limited to the power to vote on its behalf on all matters of Wuge requiring shareholder approval in accordance with the articles of association of Wuge. The proxy agreement is for a term of 20 years and can be extended by Makesi WFOE unilaterally by prior written notice to the other parties.
As of the date of this report, the Company primary operations are focused on the Highlight Media business that is in enterprise brand management service. All prior energy and Wuge digital door signs business have been disposed. Substantially all of the Company’s primary operations are conducted in the PRC.
Note 2 – Summary of significant accounting policies
Basis of presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for information pursuant to the rules and regulations of the Securities Exchange Commission (“SEC”).
Principles of consolidation
The unaudited condensed financial statements of the Company include the accounts of CCNC and its wholly owned subsidiaries and VIE. All intercompany transactions and balances are eliminated upon consolidation.
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Use of estimates and assumptions
The preparation of unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the periods presented. Significant accounting estimates reflected in the Company’s unaudited condensed consolidated financial statements include the useful lives of intangible assets, deferred revenues and plant and equipment, impairment of long-lived assets, collectability of receivables, inventory valuation allowance, present value of lease liabilities and realization of deferred tax assets. Actual results could differ from these estimates.
Foreign currency translation and transaction
The reporting currency of the Company is the U.S. dollar. The Company in China conducts its businesses in the local currency, Renminbi (RMB), as its functional currency. Assets and liabilities are translated at the unified exchange rate as quoted by the People’s Bank of China at the end of the period. The statement of income accounts are translated at the average translation rates and the equity accounts are translated at historical rates. Translation adjustments resulting from this process are included in accumulated other comprehensive income. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.
Translation adjustments included in accumulated
other comprehensive loss amounted to $
The PRC government imposes significant exchange restrictions on fund transfers out of the PRC that are not related to business operations. These restrictions have not had a material impact on the Company because it has not engaged in any significant transactions that are subject to the restrictions.
Investments
The Company purchases certain liquid short term investments such as money market funds and or other short term debt securities marketed by financial institutions. These investments are not insured against loss of principal. These investments are accounted for as financial instruments that are marked to fair market value at the end of each reporting period. For investments that are held to maturity debt instruments, which have short maturities, and limited risk profiles, amortized cost may be the best approximation of their fair value and used for such investments.
Accounts receivable, net
Accounts receivable include trade accounts due from customers. An allowance for doubtful accounts may be established and recorded based on management’s assessment of potential losses based on the credit history and relationships with the customers. Management reviews its receivables on a regular basis to determine if the bad debt allowance is adequate, and adjusts the allowance when necessary. Delinquent account balances are written-off against allowance for doubtful accounts after management has determined that the likelihood of collection is not probable.
Inventories
Inventories are comprised of raw materials and work in progress and are stated at the lower of cost or net realizable value using the weighted average method in Highlight Media. Management reviews inventories for obsolescence and cost in excess of net realizable value at least annually and recognize an impairment charge against the inventory when the carrying value exceeds net realizable value. As of September 30, 2022 and December 31, 2021, no obsolescence and cost in excess of net realizable value were recognized.
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Prepayments
Prepayments are funds deposited or advanced to outside vendors for future inventory or services purchases. As a standard practice in China, many of the Company’s vendors require a certain amount to be deposited with them as a guarantee that the Company will complete its purchases on a timely basis. This amount is refundable and bears no interest. The Company has legally binding contracts with its vendors, which require any outstanding prepayments to be returned to the Company when the contract ends.
Plant and equipment
Plant and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed using the straight-line method after consideration of the estimated useful lives of the assets and estimated residual value. The estimated useful lives and residual value are as follows:
| Useful Life | Estimated Value | |||||
| Building | | % | ||||
| Office equipment and furnishing | % | |||||
| Production equipment | % | |||||
| Automobile | % | |||||
| Leasehold improvements | % | |||||
The cost and related accumulated depreciation and amortization of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the consolidated statements of income and comprehensive income. Expenditures for maintenance and repairs are charged to earnings as incurred, while additions, renewals and betterments, which are expected to extend the useful life of assets, are capitalized. The Company also re-evaluates the periods of depreciation and amortization to determine whether subsequent events and circumstances warrant revised estimates of useful lives.
Intangible assets
Intangible assets represent land use rights and patents, and they are stated at cost, less accumulated amortization. Research and development costs associated with internally developed patents are expensed when incurred. Amortization expense is recognized on the straight-line basis over the estimated useful lives of the assets. All land in the PRC is owned by the government; however, the government grants “land use rights.” The Company has obtained the rights to use various parcels of land. The patents have finite useful lives and are amortized using a straight-line method that reflects the estimated pattern in which the economic benefits of the intangible asset are to be consumed. The Company amortizes the cost of the land use rights and patents, over their useful life using the straight-line method. The Company also re-evaluates the periods of amortization to determine whether subsequent events and circumstances warrant revised estimates of useful lives. The estimated useful lives are as follows:
| Useful Life | ||||
| Land use rights | ||||
| Patents | ||||
| Software |
Goodwill
Goodwill represents the excess of the consideration paid of an acquisition over the fair value of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill is not amortized and is tested for impairment at least annually, more often when circumstances indicate impairment may have occurred. Goodwill is carried at cost less accumulated impairment losses. If impairment exists, goodwill is immediately written off to its fair value and the loss is recognized in the consolidated statements of income. Impairment losses on goodwill are not reversed.
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Impairment for long-lived assets
Long-lived assets, including plant, equipment and intangible assets with finite lives are reviewed for impairment whenever events or changes in circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate that the carrying value of an asset may not be recoverable. The Company assesses the recoverability of the assets based on the undiscounted future cash flows the assets are expected to generate and recognize an impairment loss when estimated undiscounted future cash flows expected to result from the use of the asset plus net proceeds expected from disposition of the asset, if any, are less than the carrying value of the asset. If an impairment is identified, the Company would reduce the carrying amount of the asset to its estimated fair value based on a discounted cash flows approach or, when available and appropriate, to comparable market values.
Fair value measurement
The accounting standard regarding fair value of financial instruments and related fair value measurements defines financial instruments and requires disclosure of the fair value of financial instruments held by the Company. The Company considers the carrying amount of cash, notes receivable, accounts receivable, other receivables, prepayments, accounts payable, other payables and accrued liabilities, customer deposits, short term loans and taxes payable to approximate their fair values because of their short term nature.
The accounting standards define fair value, establish a three-level valuation hierarchy for disclosures of fair value measurement and enhance disclosure requirements for fair value measures. The three levels are defined as follow:
| ● | Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. |
| ● | Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments. |
| ● | Level 3 inputs to the valuation methodology are unobservable and significant to the fair value. |
Financial instruments included in current assets and current liabilities are reported in the consolidated balance sheets at face value or cost, which approximate fair value because of the short period of time between the origination of such instruments and their expected realization and their current market rates of interest.
Customer deposits
Highlight Media typically receives customer deposits for services to be rendered from its customers. As Highlight Media delivers the services, it will recognize these deposits to results of operations in accordance to its revenue recognition policy.
Revenue recognition
On January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2014-09 Revenue from Contracts with Customers (ASC 606) using the modified retrospective method for contracts that were not completed as of January 1, 2018. This did not result in an adjustment to retained earnings upon adoption of this new guidance as the Company’s revenue, other than retainage revenues, was recognized based on the amount of consideration we expect to receive in exchange for satisfying the performance obligations. However, the impact of the Company’s retainage revenue was not material as of the date of adoption, and as a result, did not result in an adjustment.
The core principle underlying the revenue recognition ASU is that the Company will recognize revenue to represent the transfer of goods and services to customers in an amount that reflects the consideration to which the Company expects to be entitled in such exchange. This will require the Company to identify contractual performance obligations and determine whether revenue should be recognized at a point in time or over time, based on when control of goods and services transfers to a customer. The Company’s revenue streams are primarily recognized at a point in time.
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The ASU requires the use of a new five-step model to recognize revenue from customer contracts. The five-step model requires that the Company (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation. The application of the five-step model to the revenue streams compared to the prior guidance did not result in significant changes in the way the Company records its revenue. Upon adoption, the Company evaluated its revenue recognition policy for all revenue streams within the scope of the ASU under previous standards and using the five-step model under the new guidance and confirmed that there were no differences in the pattern of revenue recognition except its retainage revenues.
An entity will also be required to determine if it controls the goods or services prior to the transfer to the customer in order to determine if it should account for the arrangement as a principal or agent. Principal arrangements, where the entity controls the goods or services provided, will result in the recognition of the gross amount of consideration expected in the exchange. Agent arrangements, where the entity simply arranges but does not control the goods or services being transferred to the customer, will result in the recognition of the net amount the entity is entitled to retain in the exchange.
Revenues from the goods are recognized at a point in time when legal title and control over the sign is transferred to the customer. Management has determined that for the sales of the goods there is a single performance obligation that is met when the aforementioned control is transferred. Typically, customers make payment for the product in advance; the Company will record the payment as contract liabilities under the liability account customer deposits until the Company delivers the product by transferring control. Such revenues are recognized at a point in time after all performance obligations are satisfied under the new five-step model.
Payments received prior to the relevant criteria for revenue recognition are met, are recorded as customer deposits.
The Company’s disaggregate revenue streams are summarized as follows:
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenues –Enterprise brand management services | $ | $ | $ | $ | ||||||||||||
| Total revenues | $ | $ | $ | $ | ||||||||||||
Research and Development (“R&D”) Expenses
Research and development expenses include salaries and other compensation-related expenses paid to the Company’s research and product development personnel while they are working on R&D projects, as well as raw materials used for the R&D projects. R&D expenses incurred by the Company are included in the selling, general and administrative expenses.
Income taxes
The Company accounts for income taxes in accordance with U.S. GAAP for income taxes. The charge for taxation is based on the results for the fiscal year as adjusted for items, which are non-assessable or disallowed. It is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.
Deferred taxes is accounted for using the asset and liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the consolidated financial statements and the corresponding tax basis used in the computation of assessable tax profit. In principle, deferred tax liabilities are recognized for all taxable temporary differences. Deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against which deductible temporary differences can be utilized. Deferred tax is calculated using tax rates that are expected to apply to the period when the asset is realized or the liability is settled. Deferred tax is charged or credited in the income statement, except when it is related to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Current income taxes are provided for in accordance with the laws of the relevant taxing authorities.
An uncertain tax position is recognized as a benefit
only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination
being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than
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Earnings per share
Basic earnings per share are computed by dividing
income available to common shareholders of the Company by the weighted average common shares outstanding during the period. Diluted earnings
per share takes into account the potential dilution that could occur if securities or other contracts to issue common shares were exercised
and converted into common shares.
Recently issued accounting pronouncements
In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments in this Update affect any entity that is required to apply the provisions of Topic 220, Income Statement – Reporting Comprehensive Income, and has items of other comprehensive income for which the related tax effects are presented in other comprehensive income as required by GAAP. The amendments in this Update are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption of the amendments in this Update is permitted, including adoption in any interim period, (1) for public business entities for reporting periods for which financial statements have not yet been issued and (2) for all other entities for reporting periods for which financial statements have not yet been made available for issuance. The amendments in this Update should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. The Company does not believe the adoption of this ASU would have a material effect on the Company’s unaudited condensed consolidated financial statements.
The Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the Company’s unaudited condensed consolidated balance sheets, statements of income and comprehensive income and statements of cash flows.
Note 3 – Business combination and restructuring
Highlight Media
On September 16, 2022, the Company entered into a share purchase agreement
with Shanghai Highlight Media Co., Ltd. (“Highlight Media”) and all the shareholders of Highlight Media (“Highlight
Media Shareholders”). Pursuant to the share purchase agreement, the Company agreed to issue an aggregate of
The Company’s acquisition of Highlight Media was accounted for as a business combination in accordance with ASC 805. The Company has allocated the purchase price of Highlight Media based upon the fair value of the identifiable assets acquired and liabilities assumed on the acquisition date. Other current assets and current liabilities were valued using the cost approach. Management of the Company is responsible for determining the fair value of assets acquired, liabilities assumed, plant and equipment, and intangible assets identified as of the acquisition date and considered a number of factors including valuations from independent appraisers. Acquisition-related costs incurred for the acquisitions are not material and have been expensed as incurred in general and administrative expense.
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The following table summarizes the fair value of the identifiable assets acquired and liabilities assumed at the acquisition date, which represents the net purchase price allocation at the date of the acquisition of Highlight Media based on a valuation performed by an independent valuation firm engaged by the Company:
| Total consideration at fair value | $ |
| Fair Value | ||||
| Cash | $ | |||
| Other current assets | ||||
| Plant and equipment | ||||
| Other noncurrent assets | ||||
| Goodwill | ||||
| Total asset | ||||
| Accounts payable | ||||
| Taxes Payable | ||||
| Other Payable | ||||
| Total liabilities | ||||
| Net asset acquired | $ | |||
Approximately $
Note 4 – Variable interest entity
On November 30, 2018, Tongrong WFOE entered into Contractual Arrangements with Rong Hai and its shareholders upon executing of the “Purchase Agreement”. The significant terms of these Contractual Arrangements are summarized in “Note 1 - Nature of business and organization” above. As a result, the Company classifies Rong Hai as VIE.
On January 3, 2020, Tongrong WFOE entered into Contractual Arrangements with Wuge and its shareholders upon executing of the “Purchase Agreement”. The significant terms of these Contractual Arrangements are summarized in “Note 1 - Nature of business and organization” above. As a result, the Company classifies Wuge as VIE.
On January 11, 2021, Makesi WFOE entered into a series of assignment agreements (the “Assignment Agreements”) with Tongrong WFOE, Wuge and Wuge Shareholders, pursuant to which Tongrong WFOE assign all its rights and obligations under the VIE Agreements to Makesi WFOE (the “Assignment”). The VIE Agreements and the Assignment Agreements grant Makesi WFOE with the power, rights and obligations equivalent in all material respects to those it would possess as the sole equity holder of Wuge, including absolute rights to control the management, operations, assets, property and revenue of Wuge. The Assignment does not have any impact on Company’s consolidated financial statements.
On March 30, 2021, the Company entered into a
share purchase agreement with a buyer unaffiliated with the Company (the “Buyer”), and Qihai Wang, former director of the
Company (the “Payee”). Pursuant to the agreement, the Company agreed to sell and the Buyer agreed to purchase all the issued
and outstanding ordinary shares (the “Tongrong Shares”) of Tongrong WFOE. The Payee agreed to be responsible for the payment
of the purchase price on behalf of Buyer. The purchase price for the Tongrong Shares shall be $
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On September 16, 2022, Makesi WFOE entered into Contractual Arrangements with Highlight Media and its shareholders upon executing of the “Purchase Agreement”. The significant terms of these Contractual Arrangements are summarized in “Note 1 - Nature of business and organization” above. As a result, the Company classifies Rong Hai as VIE.
In January, 2021, Tongrong Technology (Jiangsu)
Co., Ltd., a then indirect subsidiary of the Company (“Tongrong WFOE”),
Sichuan Wuge Network Games Co., Ltd. (“Wuge”), and shareholders of Wuge (the “Wuge Shareholders”) entered into
a share purchase agreement, pursuant to which the Company issued a total of
On September 28, 2022, Makesi WFOE entered into
a termination agreement (the “Termination Agreement”) with Wuge and the Wuge Shareholders to terminate the VIE Agreements
and to cancel the Shares, based on the average closing price of $
A VIE is an entity that has either a total equity investment that is insufficient to permit the entity to finance its activities without additional subordinated financial support, or whose equity investors lack the characteristics of a controlling financial interest, such as through voting rights, right to receive the expected residual returns of the entity or obligation to absorb the expected losses of the entity. The variable interest holder, if any, that has a controlling financial interest in a VIE is deemed to be the primary beneficiary and must consolidate the VIE. Makesi WFOE is deemed to have a controlling financial interest and be the primary beneficiary of Highlight Media because it has both of the following characteristics:
| (1) | The power to direct activities at Highlight Media that most significantly impact such entity’s economic performance, and |
| (2) | The obligation to absorb losses of, and the right to receive benefits from Highlight Media that could potentially be significant to such entity. |
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Accordingly, the accounts of Highlight Media are consolidated in the accompanying financial statements pursuant to ASC 810-10, Consolidation. In addition, Its financial positions and results of operations are included in the Company’s consolidated financial statements beginning on September 30, 2022.
The carrying amount of the VIE’s assets and liabilities are as follows:
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Cash and cash equivalents | ||||||||
| Accounts receivable, net | ||||||||
| Other receivables, net | ||||||||
| Other receivable - related party | ||||||||
| Inventories | ||||||||
| Prepayments | ||||||||
| Total current assets | $ | $ | ||||||
| Property, plants and equipment | ||||||||
| Other noncurrent assets | ||||||||
| Goodwill | ||||||||
| Total assets | ||||||||
| Current liabilities | ||||||||
| Non-current liabilities | ||||||||
| Total liabilities | ||||||||
| Net assets | $ | $ | ||||||
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Accounts payable | $ | $ | ||||||
| Other payables and accrued liabilities | ||||||||
| Other payables – related party | ||||||||
| Tax payables | ||||||||
| Customer Advances | ||||||||
| Lease liabilities | ||||||||
| Total current liabilities | ||||||||
| Lease liabilities - noncurrent | ||||||||
| Total liabilities | $ | $ | ||||||
The summarized operating results of the VIE’s are as follows:
| For the nine months ended September 30, | ||||
| 2022 | ||||
| Operating revenues | $ | |||
| Gross profit | ||||
| Income from operations | ||||
| Net income | $ |
Note 5 – Inventories
Inventories consist of the following:
| September 30, 2022 | December 31, 2021 | |||||||
| Raw materialsc | $ | $ | ||||||
| Finished Goods | - | |||||||
| Total inventories | $ | - | $ | |||||
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Note 6 – Plant and equipment, net
Plant and equipment consist of the following:
| September 30, 2022 | December 31, 2021 | |||||||
| Office equipment and furniture | $ | $ | ||||||
| Automobile | ||||||||
| Subtotal | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
Depreciation expense for the nine months ended
September 30, 2022 and 2021 amounted to $
Note 7 – Intangible assets, net
Intangible assets consist of the following:
| September 30, 2022 | December 31, 2021 | |||||||
| Development of technology | $ | $ | ||||||
| Software | ||||||||
| Less: accumulated amortization | ( | ) | ||||||
| Net intangible assets | $ | $ | ||||||
Amortization expense for the nine months ended
September 30, 2022 and 2021 amounted to $
Note 8 – Goodwill
The changes in the carrying amount of goodwill by business units are as follows:
| Highlight Media | Wuge | Total | ||||||||||
| Balance as of December 31, 2021 | $ | $ | $ | |||||||||
| Goodwill acquired through acquisition | ||||||||||||
| Goodwill impairments | ( | ) | ( | ) | ||||||||
| Balance as of September 30, 2022 | $ | $ | $ | |||||||||
Note 9 – Related party balances and transactions
Related party balances
| a. | Other receivable – related parties: |
| Name of related party | Relationship | September 30, 2022 | December 31, 2021 | |||||||
| $ | - | $ | ||||||||
| - | ||||||||||
| - | ||||||||||
| - | ||||||||||
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The Company advanced funds to the related party for technical services.
| b. | Other payables – related parties: |
| Name of related party | Relationship | September 30, 2022 | December 31, 2021 | |||||||
| $ | $ | |||||||||
| $ | $ | |||||||||
The above payables represent interest free loans and advances. These loans and advances are unsecured and due on demand.
Note 10 – Taxes
Income tax
United States
CCNC was organized in the state of Delaware in
April 2015 and re-incorporated in the state of Nevada in June 2018. CCNC’s U.S. net operating loss for the nine months ended September
30, 2022 amounted to approximately $
On December 22, 2017, the “Tax Cuts and Jobs Act” (“The 2017 Tax Act”) was enacted in the United States. Under the provisions of the Act, the U.S. corporate tax rate decreased from 34% to 21%. The 2017 Tax Act imposed a global intangible low-taxed income tax (“GILTI”), which is a new tax on certain off-shore earnings at an effective rate of 10.5% for tax years beginning after December 31, 2017 (increasing to 13.125% for tax years beginning after December 31, 2025) with a partial offset for foreign tax credits. The Company determined that there are no impact of GILTI for the nine months ended September 30, 2022 and 2021, which the Company believes that it will be imposed a minimum tax rate of 10.5% and to the extent foreign tax credits are available to reduce its US corporate tax, which may result in no additional US federal income tax being due.
Cayman Islands
China Sunlong is incorporated in the Cayman Islands and are not subject to tax on income or capital gains under current Cayman Islands law. In addition, upon payments of dividends by China Sunlong to its shareholders, no Cayman Islands withholding tax will be imposed.
British Virgin Islands
Citi Profit BVI is incorporated in the British Virgin Islands and are not subject to tax on income or capital gains under current British Virgin Islands law. In addition, upon payments of dividends by these entities to their shareholders, no British Virgin Islands withholding tax will be imposed.
Hong Kong
TMSR HK is incorporated in Hong Kong and are subject
to Hong Kong Profits Tax on the taxable income as reported in its statutory financial statements adjusted in accordance with relevant
Hong Kong tax laws. The applicable tax rate is
PRC
Makesi WFOE and Highlight Media are governed by
the income tax laws of the PRC and the income tax provision in respect to operations in the PRC is calculated at the applicable tax rates
on the taxable income for the periods based on existing legislation, interpretations and practices in respect thereof. Under the Enterprise
Income Tax Laws of the PRC (the “EIT Laws”), Chinese enterprises are subject to income tax at a rate of
18
Deferred tax assets
Bad debt allowances must be approved by the Chinese tax authority prior to being deducted as an expense item on the tax return.
Significant components of deferred tax assets were as follows:
| September 30, 2022 | December 31, 2021 | |||||||
| Net operating losses carried forward – U.S. | $ | $ | ||||||
| Net operating losses carried forward – PRC | ||||||||
| Bad debt allowance | ||||||||
| Valuation allowance | ( | ) | ( | ) | ||||
| Deferred tax assets, net | $ | $ | ||||||
Value added tax
Enterprises or individuals who sell commodities,
engage in repair and maintenance or import and export goods in the PRC are subject to a value added tax in accordance with PRC laws. The
value added tax (“VAT”) standard rates are
Taxes payable consisted of the following:
| September 30, 2022 | December 31, 2021 | |||||||
| VAT taxes payable | $ | | $ | |||||
| Income taxes payable | - | |||||||
| Other taxes payable | ||||||||
| Total | $ | $ | ||||||
Note 11 – Concentration of risk
Credit risk
Financial instruments that potentially subject
the Company to significant concentrations of credit risk consist primarily of cash and accounts receivable. As of September 30, 2022 and
December 31, 2021, $
Accounts receivable are typically unsecured and derived from revenue earned from customers, thereby exposed to credit risk. The risk is mitigated by the Company’s assessment of its customers’ creditworthiness and its ongoing monitoring of outstanding balances.
Note 12 – Equity
Restricted net assets
The Company’s ability to pay dividends is primarily dependent on the Company receiving distributions of funds from its subsidiaries. Relevant PRC statutory laws and regulations permit payments of dividends by Makesi WFOE only out of its retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. The results of operations reflected in the accompanying unaudited condensed consolidated financial statements prepared in accordance with U.S. GAAP differ from those reflected in the statutory financial statements of Makesi WFOE.
As a result of the foregoing restrictions, Makesi
WFOE and Highlight Media are restricted in their ability to transfer their net assets to the Company. Foreign exchange and other regulation
in the PRC may further restrict Makesi WFOE and Highlight Media from transferring funds to TMSR HK in the form of dividends, loans and
advances. As of September 30, 2022 and December 31, 2021, amounts restricted are the net assets of Makesi WFOE and Highlight Media which
amounted to $
19
Common stock
On February 23, 2021, the Company entered into an asset purchase agreement with Sichuan RiZhanYun Jisuan Co., Ltd. (the “Seller”), which was amended and restated on April 16, 2021, and further amended on May 28, 2021. Pursuant to the asset purchase agreement, the Company purchased a total of 10,000 Bitcoin mining machines (the “Assets”) for a total purchase price of RMB 40,000,000 or US$6,160,000 based on the exchange rate as of April 8, 2021 (the “Purchase Price”), payable in the form of 1,587,800 shares of common stock of the Company, valued at US$3.88 per share, which is the closing bid price of the common stock of the Company on the Nasdaq Stock Market on April 8, 2021. The Seller shall cause revenue and any other source of income from the operation of the Assets to be paid to the Company, payable in cryptocurrency to be deposited into a cryptocurrency wallet held by the Company on a daily basis. The Company shall issue to the Seller or its designees RMB 5,000,000 or US$770,000 worth of common stock of the Company (the “Bonus Shares”) if the Assets generate an average net profit per day/10,000 machines (the “Daily Profit”) on behalf of the Company during the one-year period from March 19, 2021 to March 19, 2022 (the “Valuation Period”) equals to RMB 200,000 or US$30,800 and if the Assets generate an average net profit per month/10,000 machines (the “Monthly Profit”) on behalf of the Company during the Valuation Period equals to RMB 6,000,000 or US$924,000. If the Daily Profit is more than RMB 200,000 or US$30,800 and the Monthly Profit is more than RMB 6,000,000 or US$924,000, the Company shall issue to the Seller or its designees additional shares of common stock in proportion to the amount that is in excess. If the Daily Profit is less than RMB 200,000 or US$30,800 or the Monthly Profit is less than RMB 6,000,000 or US$924,000, the Company shall not issue to the Seller or its designees any Bonus Shares and such month is deemed a “Re-evaluated Month”. At the end of the Valuation Period, the Monthly Profit of such Re-evaluated Month(s) shall be aggregated (the “Aggregate Profit”), and the Company shall issue RMB5,000,000 or US$770,000 worth of common stock of the Company for every RMB6,000,000 or US$924,000 in Aggregate Profit on a pro rata basis. Such Daily Profit and Monthly Profit shall be determined on a monthly basis on the first day of the next month. Such Bonus Shares and additional shares, when applicable, shall be issued on the fifteenth day of the next month. For any month that has 28 days or 31 days, the Monthly Profit is calculated based on the actual number of days in the month. Notwithstanding the foregoing, no share pursuant to this Agreement shall be issued earlier than May 24, 2021 in any event. The total number of shares of common stock, including the Bonus Shares, issuable to the Seller or its designees pursuant to the Agreement shall in no event be more than 19.99% of the total shares issued and outstanding of Company as of the February 23, 2021, the date of the asset purchase agreement.
On June 1, 2021, the Company issued to a designee
of the Seller
Because the Assets were never delivered to the Company and the Company has not received and is not able to accept cryptocurrency from the operation of the Assets, the Company and the Seller agreed to rescind the Agreement and cancel the Shares on September 26, 2022.
20
On February 23, 2022, the Company entered into a termination agreement (the “Termination Agreement) with the Seller to terminate the Asset Purchase Agreement and forfeit the transaction. The parties agreed that the CCNC Shares shall be cancelled within 15 business days from the date of the Termination Agreement.
On April 14, 2022, the Company entered into a
Share Purchase Agreement (“SPA”) with Shanghai Yuanma Food and Beverage Management Co., Ltd., a PRC company (“Yuan Ma”),
and all the shareholders of Yuan Ma (“Yuanma Shareholders”). Yuanma Shareholders are Wei Xu, the Chief Executive Officer and
Chairman of the Board of the Company, and Jiangsu Lingkong Network Joint Stock Co., Ltd., which is controlled by Wei Xu. Pursuant to the
SPA, the Company agreed to issue an aggregate of
On September 16, 2022, the Company entered into a Share Purchase Agreement (“SPA”) with Shanghai Highlight Media Co., Ltd., a PRC company (“Highlight Media”), and all the shareholders of Highlight Media (“Highlight Media Shareholders”).
On September 29, 2022. the Shares were issued to the Highlight Media Shareholders. The Acquisition was completed.
21
Warrants and options
On July 29, 2015, the Company sold
The sponsor of the Company purchased, simultaneously
with the closing of the Public Offering on July 29, 2015,
In July 2016, the board of directors of the Company
appointed two new directors. In August 2016, the sponsor of the Company granted an option to each of the two new directors to acquire
The aforementioned warrants and options are deemed to be effective on February 6, 2018, the date of the consummation of its initial business combination with China Sunlong, as the Company was deemed to be the accounting acquiree in the transaction and the transaction was treated as a recapitalization of China Sunlong.
After the 1-for-30 reverse stock split effective on November 9, 2022, all options, warrants and other convertible securities of the Company outstanding immediately prior to the reverse stock split were adjusted by dividing the number of shares of common stock into which the options, warrants and other convertible securities are exercisable or convertible by thirty (30) and multiplying the exercise or conversion price thereof by thirty (30), all in accordance with the terms of the plans, agreements or arrangements governing such options, warrants and other convertible securities and subject to rounding to the nearest whole share.
The summary of warrant activity is as follows:
| Exercisable Into | Weighted Average | Average Remaining | ||||||||||||||
| Warrants | Number of | Exercise | Contractual | |||||||||||||
| Outstanding | Shares | Price | Life | |||||||||||||
| December 31, 2021 | $ | |||||||||||||||
| Granted/Acquired | $ | - | ||||||||||||||
| Forfeited | $ | - | ||||||||||||||
| Exercised | - | |||||||||||||||
| September 30, 2022 | $ | |||||||||||||||
The summary of option activity is as follows:
| Exercisable Into | Weighted Average | Average Remaining | ||||||||||||||
| Options | Number of | Exercise | Contractual | |||||||||||||
| Outstanding | Shares | Price | Life | |||||||||||||
| December 31, 2021 | $ | |||||||||||||||
| Granted/Acquired | $ | - | ||||||||||||||
| Forfeited | $ | - | ||||||||||||||
| Exercised | - | |||||||||||||||
| September 30, 2022 | $ | |||||||||||||||
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Note 13 – Commitments and contingencies
Contingencies
From time to time, the Company may be subject to certain legal proceedings, claims and disputes that arise in the ordinary course of business. Although the outcomes of these legal proceedings cannot be predicted, the Company does not believe these actions, in the aggregate, will have a material adverse impact on its financial position, results of operations or liquidity.
Note 14 – Segment reporting
The Company follows ASC 280, Segment Reporting, which requires that companies disclose segment data based on how management makes decision about allocating resources to segments and evaluating their performance. The Company’s chief operating decision maker evaluates performance and determines resource allocations based on a number of factors, the primary measure being income from operations.
The Company’s remain business segment and operations is Highlight Media. The Company’s consolidated results of operations and consolidated financial position from continuing operations are almost all attributable to Highlight Media; accordingly, management believes that the consolidated balance sheets and statement of operations provide the relevant information to assess Highlight Media’s performance.
The following represents assets by division as of:
| Total assets as of | September 30, 2022 | December 31, 2021 | ||||||
| Highlight Media | $ | $ | ||||||
| Wuge | ||||||||
| CCNC, Citi Profit BVI ,TMSR HK and Makesi WFOE | ||||||||
| Total Assets | $ | $ | ||||||
| Total revenues of | September 30,
2022 | September 30, 2021 | ||||||
| Highlight Media | $ | $ | ||||||
| CCNC, Citi Profit BVI ,TMSR HK and Makesi WFOE | ||||||||
| - | - | |||||||
| Total revenues | $ | $ | ||||||
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Note 15 – Discontinued Operations
The following depicts the financial position for the discounted operations of Tongrong WOFE, Rong Hai and Wuge as of September 30, 2022 and December 31, 2021, and the result of operations for the discounted operations of Tongrong WOFE, Rong Hai and Wuge for the nine months ended September 30, 2022 and 2021.
| Results of Operations | For the nine months ended September 30, 2022 | For the nine months ended September 30, 2021 | ||||||
| REVENUES | ||||||||
| Wuge digital door signs | $ | $ | ||||||
| Fuel materials | ||||||||
| TOTAL REVENUES | ||||||||
| COST OF REVENUES | ||||||||
| Wuge digital door signs | ||||||||
| Fuel materials | ||||||||
| TOTAL COST OF REVENUES | ||||||||
| GROSS PROFIT | ||||||||
| OPERATING EXPENSES | ||||||||
| Selling, general and administrative | ||||||||
| TOTAL OPERATING EXPENSES | ||||||||
| INCOME FROM OPERATIONS | ( | ) | ||||||
| OTHER INCOME (EXPENSE) | ||||||||
| Interest income | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Investment income | ||||||||
| Other income, net | ||||||||
| Total other income, net | ||||||||
| INCOME (LOSS) BEFORE INCOME TAXES | ( | ) | ||||||
| PROVISION FOR INCOME TAXES | ||||||||
| NET INCOME (LOSS) | $ | $ | ( | ) | ||||
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Note 16 – Subsequent events
On October 4, 2022, Mr. Wei Xu tendered his resignation as the Chief Executive Officer, President, Chairman of the Board and a director of the Company, effective October 4, 2022. The resignation of Mr. Wei Xu was not a result of any disagreement with the Company’s operations, policies or procedures.
On October 4, 2022, Mr. Bibo Lin tendered his resignation as the Vice President and a director of the Company, effective October 4, 2022. The resignation of Mr. Bibo Lin was not a result of any disagreement with the Company’s operations, policies or procedures.
On October 4, 2022, approved by the Board of Directors, the Nominating and Corporate Governance Committee and the Compensation Committee, Mr. Hongxiang Yu was appointed as the Chief Executive Officer, President, Chairman of the Board and a director of the Company, effective October 4, 2022, and Ms. Shuang Zhang was appointed as the Vice President and a director of the Company, effective October 4, 2022.
On October 11, 2022, the Company notified its independent registered public accounting firm, WWC, P.C. its decision to dismiss WWC, P.C. as the Company’s auditor.
On October 11, 2022, the Audit Committee and the Board of Directors of the Company appointed Enrome LLP as its new independent registered public accounting firm to audit the Company’s financial statements.
On November 4, 2022, the Company filed a Certificate
of Amendment to the Articles of Incorporation (the “Certificate of Amendment”) with the Nevada Secretary of State to effect
a reverse stock split of the outstanding shares of common stock, par value $
25
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the results of our operations and financial condition should be read in conjunction with our unaudited condensed financial statements, and the notes to those unaudited condensed financial statements that are included elsewhere in this Report. All monetary figures are presented in U.S. dollars, unless otherwise indicated.
Our Management’s Discussion and Analysis contains not only statements that are historical facts, but also statements that are forward-looking. Forward-looking statements are, by their very nature, uncertain and risky. These risks and uncertainties include international, national, and local general economic and market conditions; our ability to sustain, manage, or forecast growth; our ability to successfully make and integrate acquisitions; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; change in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; the risk of foreign currency exchange rate; and other risks that might be detailed from time to time in our filings with the Securities and Exchange Commission.
Although the forward-looking statements in this Report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by them. Consequently, and because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. You are urged to carefully review and consider the various disclosures made by us in this report as we attempt to advise interested parties of the risks and factors that may affect our business, financial condition, and results of operations and prospects.
Overview
Code Chain New Continent Limited (“CCNC”, formerly known as JM Global Holding Company and TMSR Holding Company Limited) is a holding company incorporated in the State of Nevada with no material operations of its own. We currently conduct business through Shanghai Highlight Media Co., Ltd. (“Highlight Media”) (“Highlight Media”). For accounting purposes, Makesi IoT Technology (Shanghai) Co., Ltd. (“Makesi WFOE”) is the primary beneficiary of Highlight Media. Accordingly, under U.S. GAAP, CCNC treats Highlight Media as the consolidated affiliated entity and has consolidated Wuge’s financial results in CCNC’s financial statements. The VIE structure involves unique risks to investors. The VIE agreements have not been tested in a court of law and the Chinese regulatory authorities could disallow this VIE structure, which would likely result in a material change in our operations and the value of our securities, including that it could cause the value of such securities to significantly decline or become worthless.
Book Publishing Planning
Since 2018, Highlight Media has cooperated with authors and publishing houses in China in corporate history and entrepreneur biographies planning and publishing in the lens of the finance industry. Highlight Media published "New Industrial Era - Chinese Industrialist Zhang Yuqiang and His New Stone Story", "Endless Realm – the Growth if China Ping’An", "Unfinished Beauty – Fifteen Years of H World Group”, “All Things Are Born – TCL’s Forty Years", "From Connection to Activation - Digitalization and China's New Industrial Cycle" and other best-selling books in corporate history, finance and economics and has sold more than 200,000 copies. Highlight Media also plans and organizes online and offline activities with the publishing houses such as new book launches and book sharing sessions for customers, to promote new books and build influence and reputation for the corporate clients.
Financial Self-Media
In 2016, Highlight Media founded the financial self-media "Guangdian 2049", which was renamed as "Guangdian Finance” in 2019, focusing on new ideas, new businesses, technologies, characters, investments, management, etc. in finance and economics. Since 2019, Highlight Media has posted 195 original articles and has cumulated more than 10,000 followers. Some of the top articles have more than 27,000 views. In 2021, Highlight Media created an account "Highlight Finance" on Tou Tiao, a Chinese news and information content platform. The "Highlight Finance" account has posted 70 original articles. Some of the top articles on Highlight Finance has more than 60,000 views. Highlight Finance has been trusted by various high-quality enterprises, and has directed more than 100 original articles on finance and economics. Highlight Finance’s contracted authors have also been invited to create than 10 manuscripts for the well-known financial self-media "Qin Shuo Moments". Some of the top articles have more than 20,000 views.
Public Relations
Highlight Media also offer corporate clients with serviced regarding marketing materials, press releases, seminars, exhibitions, conferences, and public relations management. Highlight Media has established stable and long-term cooperative relations with many companies in the financial industry, such as Deshijia Ophthalmology, Haitong Hengxin, Shanshan Co., Ltd. etc., and has gained rich experience, resources and connections and strong Internet communication service capabilities.
Prior to September 28, 2022, we also conducted business through Wuge Network Games Co., Ltd. (“Wuge”). Wuge focused its business on research, development and application of Internet of Things (IoT) and electronic tokens Wuge digital door signs. On September 28, 2022, Makesi WFOE entered into a termination agreement with Wuge and the Wuge Shareholders to terminate the VIE Agreements and to cancel the Shares, based on the average closing price of $0.237 per share of the Company during the 30 trading days immediately prior to the date of the termination agreement. As a result of such termination, the Company no longer treats Wuge as a consolidated affiliated entity or consolidates the financial results and balance sheet of Wuge in the Company’s consolidated financial statements under U.S. GAAP.
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Prior to March 30, 2021, we were also engaged in coal wholesales and sales of coke, steels, construction materials, mechanical equipment and steel scrap through Jiangsu Rong Hai Electric Power Fuel Co., Ltd. (“Rong Hai”), a then VIE of the Company. On March 30, 2021, the Company entered into a share purchase agreement with a buyer unaffiliated with the Company (the “Buyer”), and Qihai Wang, former director of the Company (the “Payee”). Pursuant to the agreement, the Company agreed to sell and the Buyer agreed to purchase all the issued and outstanding ordinary shares (the “Tongrong Shares”) of Tongrong Technology (Jiangsu) Co., Ltd. (“Tongrong WFOE”), a PRC company and an indirect subsidiary of the Company. The Payee agreed to be responsible for the payment of the purchase price on behalf of Buyer. On March 31, 2021, the Company closed the sale of the Tongrong Shares and caused the CCNC Shares to be cancelled. Tongrong WFOE had a series of VIE agreements with Rong Hai and the shareholders of Rong Hai. The sale of Tongrong Shares included disposition of Rong Hai. As a result, as of March 31, 2021, operations of Tongrong WFOE and Rong Hai have been designated as discontinued operations.
Recent Development
Acquisition of Shanghai Yuanma Food and Beverage Management Co., Ltd.
On April 14, 2022, the Company entered into a Share Purchase Agreement (“SPA”) with Shanghai Yuanma Food and Beverage Management Co., Ltd., a PRC company (“Yuan Ma”), and all the shareholders of Yuan Ma (“Yuanma Shareholders”). Yuanma Shareholders are Wei Xu, the Chief Executive Officer and Chairman of the Board of the Company, and Jiangsu Lingkong Network Joint Stock Co., Ltd., which is controlled by Wei Xu.
Pursuant to the SPA, the Company agreed to issue an aggregate of 7,680,000 shares of common stock of the Company (the “Shares”), valued at $1.00 per share, to the Yuanma Shareholders, in exchange for Yuanma Shareholders’ agreement to enter into and to cause Yuan Ma to enter into certain agreements (“Yuan Ma VIE Agreements”) with WFOE, the Company’s indirectly owned subsidiary, to establish a VIE (variable interest entity) structure (the “Acquisition”). Through the Yuan Ma VIE Agreements, Makesi WFOE will receive the economic benefits of Yuan Ma and, for accounting purposes, the Company will consolidate the financial results of Yuan Ma in the consolidated financial statements under generally accepted accounting principles in the U.S. (U.S. GAAP). The Company has also agreed to hold a special meeting of the stockholders of the Company as soon as possible in connection with the Acquisition. The closing of the Acquisition is conditioned on the approval of the stockholders of the Company and any required regulatory approval.
On June 13, 2022, the Company held a special meeting of stockholders and approved the issuance of the Shares to Wei Xu. On June 21, 2022, pursuant to the SPA, Makesi WFOE entered into a series of Yuan Ma VIE Agreements with Yuan Ma and Yuanma Shareholders, and the Shares were issued to Wei Xu. The transaction contemplated in the SPA was completed. We plan to file the financial statements and pro forma financial information in a current report on Form 8-K to be filed on or before September 6, 2022.
Material terms of each of the Yuan Ma VIE Agreements are described below:
Technical Consultation and Services Agreement. Pursuant to the technical consultation and services agreement between Makesi WFOE and Yuan Ma dated June 21, 2022, Makesi WFOE has the exclusive right to provide consultation services to Yuan Ma relating to Yuan Ma’s business, including but not limited to business consultation services, human resources development, and business development. Makesi WFOE exclusively owns any intellectual property rights arising from the performance of this agreement. Makesi WFOE has the right to determine the service fees based on Yuan Ma’s actual operation on a quarterly basis. This agreement will be effective for 20 years and can be extended by Makesi WFOE unilaterally by prior written notice to the other parties. Makesi WFOE may terminate this agreement at any time by giving a 30 days’ prior written notice to Yuan Ma. If any party breaches the agreement and fails to cure within 30 days from the written notice from the non-breach party, the non-breach party may (i) terminate the agreement and request the breaching party to compensate the non-breaching party’s loss or (ii) request special performance by the breaching party and the breaching party to compensate the non-breaching party’s loss.
Equity Pledge Agreement. Under the equity pledge agreement among Makesi WFOE, Yuan Ma and Yuan Ma Shareholders dated June 21, 2022, Yuan Ma Shareholders pledged all of their equity interests in Yuan Ma to Makesi WFOE to guarantee Yuan Ma’s performance of relevant obligations and indebtedness under the technical consultation and services agreement. In addition, Yuan Ma Shareholders will complete the registration of the equity pledge under the agreement with the competent local authority. If Yuan Ma breaches its obligation under the technical consultation and services agreement, Makesi WFOE, as pledgee, will be entitled to certain rights, including the right to sell the pledged equity interests. This pledge will remain effective until all the guaranteed obligations are performed or the Yuan Ma Shareholders cease to be shareholders of Yuan Ma.
Equity Option Agreement. Under the equity option agreement among Makesi WFOE, Yuan Ma and Yuan Ma Shareholders dated June 21, 2022, each of Yuan Ma Shareholders irrevocably granted to Makesi WFOE or its designee an option to purchase at any time, to the extent permitted under PRC law, all or a portion of his equity interests in Yuan Ma. Also, Makesi WFOE or its designee has the right to acquire any and all of its assets of Yuan Ma. Without Makesi WFOE’s prior written consent, Yuan Ma’s shareholders cannot transfer their equity interests in Yuan Ma and Yuan Ma cannot transfer its assets. The acquisition price for the shares or assets will be the minimum amount of consideration permitted under the PRC law at the time of the exercise of the option. This pledge will remain effective until all options have been exercised.
Voting Rights Proxy and Financial Support Agreement. Under the voting rights proxy and financial support agreement among Makesi WFOE, Yuan Ma and Yuan Ma Shareholders dated June 21, 2022, each Yuan Ma Shareholder irrevocably appointed Makesi WFOE as its attorney-in-fact to exercise on such shareholder’s behalf any and all rights that such shareholder has in respect of his equity interests in Yuan Ma, including but not limited to the power to vote on its behalf on all matters of Yuan Ma requiring shareholder approval in accordance with the articles of association of Yuan Ma. The proxy agreement is for a term of 20 years and can be extended by Makesi WFOE unilaterally by prior written notice to the other parties.
27
Cancellation of Asset Purchase Agreement with Sichuan RiZhanYun Jisuan Co., Ltd.
On February 23, 2021, the Company entered into an asset purchase agreement with Sichuan RiZhanYun Jisuan Co., Ltd., (the “Seller”), which was amended and restated on April 16, 2021 and further amended on May 28, 2021 (the “Agreement”). Pursuant to the Agreement, the Company purchased, and the Seller sold, a total of 10,000 Bitcoin mining machines (the “Assets”) for a total purchase price of RMB 40,000,000 or US$6,160,000 based on the exchange rate as of April 8, 2021 (the “Purchase Price”), payable in the form of 1,587,800 shares of common stock of the Company. In addition, pursuant to the Agreement, the Seller agreed to cause revenue and any other source of income from the operation of the Assets to be paid to the Company, payable in cryptocurrency to be deposited into a cryptocurrency wallet held by the Company on a daily basis. The Company agreed to issue to the Seller or its designees certain bonuses, payable in the common stock of the Company upon meeting certain milestones. On June 1, 2021, the Company issued to the Seller’s designee 2,513,294 shares of common stock (the “Shares”), consisted of (i) the Purchase Price in the form of 1,587,800 shares of common stock and (ii) 925,494 bonus shares for meeting and exceeding certain milestones. Because the Assets were never delivered to the Company and the Company has not received and is not able to accept cryptocurrency from the operation of the Assets, the Company and the Seller agreed to rescind the Agreement and cancel the Shares on September 26, 2022.
Termination of the VIE Agreements with Sichuan Wuge Network Games Co., Ltd.
In January 2020, Tongrong Technology (Jiangsu) Co., Ltd., a then indirect subsidiary of the Company (“Tongrong WFOE”), Sichuan Wuge Network Games Co., Ltd. (“Wuge”), and shareholders of Wuge (the “Wuge Shareholders”) entered into a share purchase agreement, pursuant to which the Company issued a total of 4,000,000 shares of common stock of the Company (the “Shares”) to the Wuge Shareholders in exchange for Tongrong WFOE, Wuge and the Wuge Shareholders entering into certain Technical Consultation and Services Agreement., Equity Pledge Agreement, Equity Option Agreement, Voting Rights Proxy and Financial Support Agreement, which was assigned by Tongrong WFOE to Makesi IoT Technology (Shanghai) Co., Ltd., an indirect subsidiary of the Company (“Makesi WFOE”) in January 2021 (such agreements, as assigned, the “VIE Agreements”) . The VIE Agreements established a “Variable Interest Entity” (VIE) structure, and pursuant to which the Company treated Wuge as a consolidated affiliated entity and consolidated the financial results and balance sheet of Wuge in the Company’s consolidated financial statements under U.S. GAAP.
On September 28, 2022, Makesi WFOE entered into a termination agreement (the “Termination Agreement”) with Wuge and the Wuge Shareholders to terminate the VIE Agreements and to cancel the Shares, based on the average closing price of $0.237 per share of the Company during the 30 trading days immediately prior to the date of the Termination Agreement. As a result of such termination, the Company no longer treat Wuge as a consolidated affiliated entity or consolidates the financial results and balance sheet of Wuge in the Company’s consolidated financial statements under U.S. GAAP.
Acquisition of Shanghai Highlight Media Co., Ltd.
On September 16, 2022, the Company entered into a Share Purchase Agreement (“SPA”) with Shanghai Highlight Media Co., Ltd., a PRC company (“Highlight Media”), and all the shareholders of Highlight Media (“Highlight Media Shareholders”).
Pursuant to the SPA, the Company agreed to issue an aggregate of 9,000,000 shares of common stock of the Company (the “Shares”), valued at $0.25 per share, to the Highlight Media Shareholders, in exchange for Highlight Media’s and Highlight Media Shareholders’ agreement to enter into certain agreements (the “VIE Agreements”) with Makesi IoT Technology (Shanghai) Co., Ltd. (“WFOE”), the Company’s indirectly owned subsidiary, to establish a VIE (variable interest entity) structure (the “Acquisition”). A “Variable Interest Entity” does not describe a legal relationship; it is an accounting concept. Under U.S. Generally Accepted Accounting Principles (U.S. GAAP), if through contractual arrangements, Entity A will absorb the losses or receive potentially significant benefits from the operations of Entity B, then the financial results and balance sheet of Entity B should be consolidated with the financial results and balance sheet in Entity A’s consolidated financial statements. We have evaluated the guidance in FASB ASC 810 and determined that, after the VIE Agreements are signed, WFOE will be the primary beneficiary of Highlight Media for accounting purposes, because, pursuant to the VIE Agreements, once signed, Highlight Media shall pay service fees to WFOE in the amount of 100% of the Highlight Media’s after-tax net income, while WFOE shall be obligated to absorb all of losses of Highlight Media. Accordingly, under U.S. GAAP, WFOE will treat Highlight Media as a consolidated affiliated entity and will consolidate the financial results and balance sheet of Highlight Media in the consolidated financial statements under U.S. GAAP.
Material terms of each of the VIE Agreements with Highlight Media are described below:
Technical Consultation and Services Agreement. Pursuant to the technical consultation and services agreement between Highlight Media and Makesi WFOE dated September 16, 2022, Makesi WFOE has the exclusive right to provide consultation services to Wuge relating to Wuge’s business, including but not limited to business consultation services, human resources development, and business development. Makesi WFOE exclusively owns any intellectual property rights arising from the performance of this agreement. Makesi WFOE has the right to determine the service fees based on Wuge’s actual operation on a quarterly basis. This agreement will be effective as long as Wuge exists. Makesi WFOE may terminate this agreement at any time by giving a 30 days’ prior written notice to Wuge.
Equity Pledge Agreement. Under the equity pledge agreement among Makesi WFOE, Wuge and Wuge Shareholders dated September 16, 2022, Wuge Shareholders pledged all of their equity interests in Wuge to Makesi WFOE to guarantee Wuge’s performance of relevant obligations and indebtedness under the technical consultation and services agreement. In addition, Wuge Shareholders will complete the registration of the equity pledge under the agreement with the competent local authority. If Wuge breaches its obligation under the technical consultation and services agreement, Makesi WFOE, as pledgee, will be entitled to certain rights, including the right to sell the pledged equity interests. This pledge will remain effective until all the guaranteed obligations are performed or the Wuge Shareholders cease to be shareholders of Wuge.
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Equity Option Agreement. Under the equity option agreement among Makesi WFOE, Wuge and Wuge Shareholders dated September 16, 2022, each of Wuge Shareholders irrevocably granted to Makesi WFOE or its designee an option to purchase at any time, to the extent permitted under PRC law, all or a portion of his equity interests in Wuge. Also, Makesi WFOE or its designee has the right to acquire any and all of its assets of Wuge. Without Makesi WFOE’s prior written consent, Wuge’s shareholders cannot transfer their equity interests in Wuge and Wuge cannot transfer its assets. The acquisition price for the shares or assets will be the minimum amount of consideration permitted under the PRC law at the time of the exercise of the option. This pledge will remain effective until all options have been exercised.
Voting Rights Proxy and Financial Support Agreement. Under the voting rights proxy and financial support agreement among Makesi WFOE, Wuge and Wuge Shareholders dated September 16, 2022, each Wuge Shareholder irrevocably appointed Makesi WFOE as its attorney-in-fact to exercise on such shareholder’s behalf any and all rights that such shareholder has in respect of his equity interests in Wuge, including but not limited to the power to vote on its behalf on all matters of Wuge requiring shareholder approval in accordance with the articles of association of Wuge. The proxy agreement is for a term of 20 years and can be extended by Makesi WFOE unilaterally by prior written notice to the other parties.
Change of Directors and Officers
On September 15, 2022, Mr. Fei Gan tendered his resignation as a director, the chairman of the Nominating and Corporate Governance Committee, a member of the Compensation Committee, and a member of the Audit Committee of the Company, effective September 15, 2022. The resignation of Mr. Gan was not a result of any disagreement with the Company’s operations, policies or procedures.
On September 15, 2022, Mr. Siyang Hu tendered his resignation as a director and a member of the Nominating and Corporate Governance Committee, the Compensation Committee, and the Audit Committee of the Company, effective September 15, 2022. The resignation of Mr. Hu was not a result of any disagreement with the Company’s operations, policies or procedures.
On September 15, 2022, approved by the Board of Directors, the Nominating and Corporate Governance Committee and the Compensation Committee, Ms. Junhong He was appointed as a director and the chairman of the Nominating and Corporate Governance Committee, a member of the Compensation Committee, and a member of the Audit Committee of the Company, effective September 15, 2022, and Ms. Jing Zhang was appointed as a director and a member of the Nominating and Corporate Governance Committee, the Compensation Committee, and the Audit Committee of the Company, effective September 15, 2022.
The Board has determined that each of Ms. Junhong He and Ms. Jing Zhang is independent within the meaning of Nasdaq Listing Rule 5605(a)(2).
On October 4, 2022, Mr. Wei Xu tendered his resignation as the Chief Executive Officer, President, Chairman of the Board and a director of the Company, effective October 4, 2022. The resignation of Mr. Wei Xu was not a result of any disagreement with the Company’s operations, policies or procedures.
On October 4, 2022, Mr. Bibo Lin tendered his resignation as the Vice President and a director of the Company, effective October 4, 2022. The resignation of Mr. Bibo Lin was not a result of any disagreement with the Company’s operations, policies or procedures.
On October 4, 2022, approved by the Board of Directors, the Nominating and Corporate Governance Committee and the Compensation Committee, Mr. Hongxiang Yu was appointed as the Chief Executive Officer, President, Chairman of the Board and a director of the Company, effective October 4, 2022, and Ms. Shuang Zhang was appointed as the Vice President and a director of the Company, effective October 4, 2022.
On November 10, 2022, Mr. Tianxiang Zhu tendered his resignation as the Chief Operating Officer and a director of the Company, effective November 10, 2022. The resignation of Mr. Tianxiang Zhu was not a result of any disagreement with the Company’s operations, policies or procedures.
On November 10, 2022, Mr. Chengwei Mo tendered his resignation as a director, the Chair of the Audit Committee, and a member of the Nominating and Corporate Governance Committee and the Compensation Committee of the Company, effective November 10, 2022. The resignation of Mr. Chengwei Mo was not a result of any disagreement with the Company’s operations, policies or procedures.
On November 10, 2022, the Board of Directors appointed Ms. Jing Zhang as the Chair of the Audit Committee, effective November 10, 2022. The Board has determined that Ms. Zhang meets the “audit committee financial expert” standards of the SEC for service on the Audit Committee.
Change of Independent Registered Public Accounting Firm
On October 11, 2022, the Company notified its independent registered public accounting firm, WWC, P.C. its decision to dismiss WWC, P.C. as the Company’s auditor.
On October 11, 2022, the Audit Committee and the Board of Directors of the Company appointed Enrome LLP as its new independent registered public accounting firm to audit the Company’s financial statements.
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Notice of Failure to Satisfy a Continued Listing Rule and Reverse Split
On May 5, 2022, the Company received a written notice from the Listing Qualifications Department of the Nasdaq Stock Market (“Nasdaq”) regarding the Company’s failure to comply with Nasdaq Listing Rule 5550(a)(2), which requires listed securities to maintain a minimum bid price of $1.00 per share. A failure to comply with Nasdaq Listing Rule 5550(a)(2) exists when listed securities fail to maintain a closing bid price of at least $1.00 per share for 30 consecutive business days. Based on the closing bid price for the last 30 consecutive business days (including, in particular, the period March 23, 2022 through May 4, 2022), the Company failed to meet the aforesaid requirement. The Company was provided a period of 180 calendar days, until November 1, 2022, to regain compliance.
On November 2, 2022, the Company received a written notice from Nasdaq stating that, although the Company had not regained compliance with the minimum bid price requirement by November 1, 2022, in accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company is eligible for an additional 180 calendar day period, or until May 1, 2023, to regain compliance with Nasdaq Listing Rule 5550(a)(2). To regain compliance, the closing bid price of the Company’s common stock must meet or exceed $1.00 per share for a minimum of ten consecutive business days during this 180-day period.
At the Company’s special meeting of stockholders held on October 18, 2022, the stockholders approved an amendment to the Company’s articles of incorporation, as amended, to effect a reverse stock split of the outstanding shares of our common stock, at a ratio of between 1-for-10 and 1-for-30 as determined by our Board of Directors in their sole discretion, prior to the one-year anniversary of the special meeting.
On November 4, 2022, as approved and authorized by the Board of Directors on October 21, 2022, the Company filed a Certificate of Amendment to the Articles of Incorporation (the “Certificate of Amendment”) with the Nevada Secretary of State to effect a reverse stock split of the outstanding shares of common stock, par value $0.0001 per shares, of the Company at a ratio of one-for-thirty (30), which will become effective at 12:01 a.m. on November 9, 2022 (the “Reverse Stock Split”). Upon effectiveness of the Reverse Stock Split, every thirty (30) outstanding shares of common stock will be combined into and automatically become one share of common stock. No fractional shares will be issued in connection with the Reverse Stock Split and all such fractional interests will be rounded up to the nearest whole number of shares of common stock. The authorized shares prior to and following the Reverse Stock Split will remain the same at 200,000,000 shares of common stock, par value $0.0001 per shares, and 20,000,000 shares of preferred stock, par value $0.0001 per shares. The Reverse Stock Split does not alter the par value of the Company’s common stock or modify any voting rights or other terms of the common stock. The Company’s common stock will continue to trade on the Nasdaq Capital Market under the existing symbol “CCNC”. The new CUSIP number following the Reverse Stock Split is 19200A204. Although the Company will use all reasonable efforts to achieve compliance with Rule 5550(a)(2), there can be no assurance that the Company will be able to regain compliance with that rule or will otherwise be in compliance with other Nasdaq listing criteria.
Key Factors that Affect Operating Results
Highlight Media, founded in 2016, is an integrated marketing service agency, focusing on enterprise brand management, crisis public relations, intelligent public opinion monitoring, media PR, financial and economic we-media operation, digital face application, large-scale exhibition services and other businesses. It is committed to becoming a modern science and technology media organization that fully empowers the development of customer enterprises in the era of artificial intelligence and big data. Its growth strategy is substantially dependent upon our ability to market our intended products and services successfully to prospective clients in China. This requires that we heavily rely upon our sales and marketing team and marketing partners. Failure to reach potential clients will significantly affect our results of operation and could have a material adverse effect on our business, financial conditions and the results of our operations.
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The threats to network and data security are increasingly diverse and sophisticated. Despite the efforts and processes to prevent breaches, the social media platforms, systems and services of third parties that Highlight Media uses in its operations are vulnerable to cyber security risks, including cyber-attacks such as viruses and worms, phishing attacks, denial-of-service attacks, physical or electronic break-ins, employee theft or misuse, and similar disruptions from unauthorized tampering with the servers and computer systems or those of third parties that Highlight Media use in its operations, which could lead to interruptions, delays, loss of critical data, and loss of consumer confidence.
In addition, Highlight Media may be the target of email scams that attempt to acquire sensitive information or company assets. Despite the efforts to create security barriers to such threats, Highlight Media may not be able to entirely mitigate these risks. Any cyber-attack that attempts to obtain our data and assets, disrupt Highlight Media’s service, or otherwise access the social media platforms, systems and services of third parties that Highlight Media uses, if successful, could adversely affect the business, operating results, and financial condition, be expensive to remedy, and damage the reputation of Highlight Media.
The media industries involving IoT devices, software and services are characterized by the existence of a large number of patents, copyrights, trademarks and trade secrets and by frequent litigation based on allegations of infringement or other violations of intellectual property rights. Much of this litigation involves patent holding companies or other adverse patent owners who have no relevant product revenues of their own, and against whom our own patent portfolio may provide little or no deterrence.
The nature of Highlight Media’s business and its publications involves copy rights. We cannot assure you that we, our subsidiaries or the variable interest entities will prevail in any future copyright infringement litigations. Defending such claims, regardless of their merit, could be time-consuming and distracting to management, result in costly litigation or settlement, cause delays, or require us, our subsidiaries or the variable interest to enter into royalty or licensing agreements. In addition, we, our subsidiaries or the variable interest entities could be obligated to indemnify our customers against third parties’ claims of intellectual property infringement based on publications. If our products or solutions violate any third-party intellectual property rights, we could be required to withdraw them from the market, re-edit and re-publish them or seek to obtain licenses from third parties, which might not be available on reasonable terms or at all. Any efforts re-edit and re-publish our publications, obtain licenses from third parties on favorable terms might not be successful and, in any case, might substantially increase our costs and harm our business, financial condition and operating results. Withdrawal of any of our publications from the market could harm our business, financial condition and operating results.
Coronavirus (COVID-19) Update
In December 2019, a novel strain of coronavirus causing respiratory illness (“COVID-19”) surfaced in Wuhan, China, spreading at a fast rate in January and February of 2020, and confirmed cases were also reported in other parts of the world. In reaction to this outbreak, an increasing number of countries imposed travel suspensions to and from China following the World Health Organization’s “public health emergency of international concern” announcement on January 30, 2020. Since this outbreak, business activities in China and many other countries including U.S. have been disrupted by a series of emergency quarantine measures taken by the government.
As a result, our operations in China have been materially affected. Our office in Hubei Province, China were closed since the lockdown was enforced on January 23, 2020. The economic disruption caused by COVID-19 were catastrophic for the waste management business in Wuhan, which had no revenue and negative operating income since the fourth quarter of 2019 and no revenue or operating income for the first and second quarter of 2020. The waste management business lost employees, suppliers and customers and was notable to recover. As a result, we sold the waste management business located in Wuhan. In particular, on June 30, 2020, the Company disposed China Sunlong and its subsidiaries, including Shengrong Environmental Protection Holding Company Limited (“Shengrong BVI”), a British Virgin Islands company, Hong Kong Shengrong Environmental Company Limited (“Sunrong HK”), a Hong Kong company, Shengrong Environmental Protection Technology (Wuhan) Co., Ltd. (“Shengrong WFOE”), PRC company, and Wuhan HOST Coating Materials Co., Ltd. (“Wuhan HOST”), a PRC company, pursuant to a share purchase agreement with Jiazhen Li, a former Chief Executive Officer of the Company, and Long Liao and Chunyong Zheng, former shareholders of Wuhan Host. Pursuant to the share purchase agreement, the Company sold 100% equity interests in China Sunlong to Jiazhen Li in exchange for forfeition and cancellation of all 1,012,932 shares of common stock of the Company held by Long Liao and Chunyong Zheng. In addition, our offices in Jiangsu Province and Sichuan Province in China were temporarily closed from early February until early March 2020.
The extent to which COVID-19 negatively impacts our business is highly uncertain and cannot be accurately predicted. We believe that the coronavirus outbreak and the measures taken to control it may have a significant negative impact on not only our business, but economic activities globally. The magnitude of this negative effect on the continuity of our business operation in China remains uncertain. These uncertainties impede our ability to conduct our daily operations and could materially and adversely affect our business, financial condition and results of operations, and as a result could adversely affect our stock price and create more volatility.
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Results of Operations
Three Months Ended September 30, 2022 vs. September 30, 2021
| Percentage | ||||||||||||||||
| 2022 | 2021 | Change | Change | |||||||||||||
| Revenues –Enterprise brand management service | $ | - | - | $ | - | - | ||||||||||
| Total revenues | - | - | - | - | ||||||||||||
| Cost of Revenues –Enterprise brand management service | - | - | - | - | ||||||||||||
| Total cost of revenues | - | - | - | - | ||||||||||||
| Gross profit | - | - | - | - | ||||||||||||
| Operating expenses | 64,041 | 747,708 | (683,667 | ) | (91.4 | )% | ||||||||||
| Loss from operations | (64,041 | ) | (747,708 | ) | 683,667 | (91.4 | )% | |||||||||
| Other income, net | - | 556,493 | (556,493 | ) | (100.0 | )% | ||||||||||
| Loss from continuing operations | (64,041 | ) | (191,215 | ) | 127,174 | (66.5 | )% | |||||||||
| Discontinued operations: | ||||||||||||||||
| Loss from discontinued operations | - | (2,463,494 | ) | 2,463,494 | (100.0 | )% | ||||||||||
| Gain(Loss) on disposal, net of taxes | (4,027,930 | ) | 15,661 | (4,043,591 | ) | (25819.5 | )% | |||||||||
| Net Loss | (4,091,971 | ) | (2,639,048 | ) | (1,452,923 | ) | 55.1 | % | ||||||||
Operating Expenses
The Company’s operating expenses include selling, general and administrative (“SG&A”) expenses, and recovery of doubtful accounts.
SG& A expenses decreased by approximately $0.7 million from approximately $0.7 million for the three months ended September 30, 2021 to approximately $64,041 for the three months ended September 30, 2022. The decrease was mainly due to the disposition of Wuge.
Loss from Operations
As a result of the foregoing, loss from operations for the three months ended September 30, 2022 was approximately $64,041, an decrease of approximately $0.7 million, or approximately 91.4%, from approximately loss from operations of $0.7 million for the three months ended September 30, 2021. The decrease was mainly due to the disposition of Wuge.
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Net Loss
The Company’s net loss increased by approximately $1.5 million, or 55.1%, to approximately $4.0 million net loss for the three months ended September 30, 2022, from approximately $2.6 million net loss for the same period in 2021. The increase was mainly due to the disposition of Wuge.
Nine Months Ended September 30, 2022 vs. September 30, 2021
| Percentage | ||||||||||||||||
| 2022 | 2021 | Change | Change | |||||||||||||
| Revenues –Enterprise brand management services | $ | - | - | $ | - | - | ||||||||||
| Total revenues | - | - | - | - | ||||||||||||
| Cost of Revenues –Enterprise brand management services | - | - | - | - | ||||||||||||
| Total cost of revenues | - | - | - | - | ||||||||||||
| Gross profit | - | - | - | - | ||||||||||||
| Operating expenses | 13,159,069 | 21,996,804 | (8,837,735 | ) | (40.2 | )% | ||||||||||
| Loss from operations | (13,159,069 | ) | (21,996,804 | ) | 8,837,735 | (40.2 | )% | |||||||||
| Other income, net | - | 2,367,311 | (2,367,311 | ) | (100.0 | )% | ||||||||||
| Loss from continuing operations | (13,159,069 | ) | (19,629,493 | ) | 6,470,424 | (33.0 | )% | |||||||||
| Discontinued operations: | ||||||||||||||||
| Loss from discontinued operations | (6,287,250 | ) | (1,344,503 | ) | (4,942,747 | ) | 367.6 | % | ||||||||
| Loss on disposal, net of taxes | (4,027,930 | ) | (11,218,835 | ) | 7,190,905 | (64.1 | )% | |||||||||
| Net Loss | (23,474,249 | ) | (32,192,831 | ) | 8,718,582 | (27.1 | )% | |||||||||
Operating Expenses
The Company’s operating expenses include selling, general and administrative (“SG&A”) expenses, and recovery of doubtful accounts.
SG& A expenses decreased by approximately $8.8 million from approximately $22.0 million for the nine months ended September 30, 2021 to approximately $13.2 million for the nine months ended September 30, 2022 .. The decrease was mainly due to the disposition of Wuge.
Loss from Operations
As a result of the foregoing, loss from operations for the nine months ended September 30, 2022 was approximately $13.2 million, an decrease of approximately $8.8 million, or approximately 40.2%, from approximately loss from operations of $22.0 million for the nine months ended September 30, 2021. The decrease was mainly due to the disposition of Wuge.
Net Loss
The Company’s net loss decreased by approximately $8.7 million, or 27.1%, to approximately $23.5 million net loss for the nine months ended September 30, 2022, from approximately $32.2 million net loss for the same period in 2021. The decrease was mainly due to the disposition of Wuge.
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Critical Accounting Policies and Estimates
The preparation of the unaudited condensed financial statements in conformity with accounting principles generally accepted in the United States requires our management to make assumptions, estimates and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the preparation of our unaudited condensed consolidated financial statements. These accounting policies are important for an understanding of our financial condition and results of operation. Critical accounting policies are those that are most important to the portrayal of our financial conditions and results of operations and require management’s difficult, subjective, or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management’s current judgments. We believe the following critical accounting policies involve the most significant estimates and judgments used in the preparation of our unaudited condensed consolidated financial statements.
Cash and cash equivalents
The Company considers certain short-term, highly liquid investments with an original maturity of three months or less, when purchased, to be cash equivalents. Cash and cash equivalents primarily represent bank deposits and fixed deposits with maturities of less than three months.
Investments
The Company purchases certain liquid short term investments such as money market funds and or other short term debt securities marketed by large financial institutions. These investments are not insured against loss of principal. These investments are accounted for as financial instruments that are marked to fair market value at the end of each reporting period. As result of their short maturities, and limited risk profile, at times, their amortized carrying cost may be the best approximation their fair value.
Accounts receivable, net
Accounts receivable include trade accounts due from customers. An allowance for doubtful accounts may be established and recorded based on management’s assessment of potential losses based on the credit history and relationships with the customers. Management reviews its receivables on a regular basis to determine if the bad debt allowance is adequate, and adjusts the allowance when necessary. Delinquent account balances are written-off against allowance for doubtful accounts after management has determined that the likelihood of collection is not probable.
Inventories
Inventories are comprised of raw materials, work in progress and finished goods and are stated at the lower of cost or net realizable value using the weighted average method in Highlight Media. Management reviews inventories for obsolescence and cost in excess of net realizable value at least annually and records a reserve against the inventory when the carrying value exceeds net realizable value.
Prepayments
Prepayments are funds deposited or advanced to outside vendors for future inventory purchases. As a standard practice in China, many of the Company’s vendors require a certain amount to be deposited with them as a guarantee that the Company will complete its purchases on a timely basis. This amount is refundable and bears no interest. The Company has legally binding contracts with its vendors, which require any outstanding prepayments to be returned to the Company when the contract ends.
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Fair value measurement
The accounting standard regarding fair value of financial instruments and related fair value measurements defines financial instruments and requires disclosure of the fair value of financial instruments held by us. The Company considers the carrying amount of cash, notes receivable, accounts receivable, other receivables, prepayments, accounts payable, other payables and accrued liabilities, customer deposits, short term loans and taxes payable to approximate their fair values because of their short term nature.
The accounting standards define fair value, establish a three-level valuation hierarchy for disclosures of fair value measurement and enhance disclosure requirements for fair value measures. The three levels are defined as follow:
| ● | Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. |
| ● | Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments. |
| ● | Level 3 inputs to the valuation methodology are unobservable and significant to the fair value. |
Financial instruments included in current assets and current liabilities are reported in the consolidated balance sheets at face value or cost, which approximate fair value because of the short period of time between the origination of such instruments and their expected realization and their current market rates of interest.
Revenue recognition
On January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2014-09 Revenue from Contracts with Customers (ASC 606) using the modified retrospective method for contracts that were not completed as of January 1, 2018. This did not result in an adjustment to retained earnings upon adoption of this new guidance as the Company’s revenue, other than warranty revenues, was recognized based on the amount of consideration we expect to receive in exchange for satisfying the performance obligations. However, the impact of the Company’s warranty revenue was not material as of the date of adoption, and as a result, did not result in an adjustment.
The core principle underlying the revenue recognition ASU is that the Company will recognize revenue to represent the transfer of goods and services to customers in an amount that reflects the consideration to which the Company expects to be entitled in such exchange. This will require the Company to identify contractual performance obligations and determine whether revenue should be recognized at a point in time or over time, based on when control of goods and services transfers to a customer. The Company’s revenue streams are primarily recognized at a point in time.
The ASU requires the use of a new five-step model to recognize revenue from customer contracts. The five-step model requires that the Company (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation. The application of the five-step model to the revenue streams compared to the prior guidance did not result in significant changes in the way the Company records its revenue. Upon adoption, the Company evaluated its revenue recognition policy for all revenue streams within the scope of the ASU under previous standards and using the five-step model under the new guidance and confirmed that there were no differences in the pattern of revenue recognition except its warranty revenues.
An entity will also be required to determine if it controls the goods or services prior to the transfer to the customer in order to determine if it should account for the arrangement as a principal or agent. Principal arrangements, where the entity controls the goods or services provided, will result in the recognition of the gross amount of consideration expected in the exchange. Agent arrangements, where the entity simply arranges but does not control the goods or services being transferred to the customer, will result in the recognition of the net amount the entity is entitled to retain in the exchange.
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Revenues from digital doors signs are recognized at a point in time when legal title and control over the sign is transferred to the customer. Management has determined that for the sales of digital door signs there is a single performance obligation that is met when the aforementioned control is transferred. Typically, customers make payment for the product in advance; the Company will record the payment as contract liabilities under the liability account customer deposits until the Company delivers the product by transferring control. Such revenues are recognized at a point in time after all performance obligations are satisfied under the new five-step model.
Payments received prior to the relevant criteria for revenue recognition are met, are recorded as customer deposits.
Gross versus Net Revenue Reporting
Starting from July 2016, in the normal course of the Company’s trading of industrial waste materials business, the Company directly purchases the processed industrial waste materials from the Company’s suppliers under the Company’s specifications and drop ships the materials directly to the Company’s customers. The Company would inspect the materials at its customers’ site, during which inspection it temporarily assumes legal title to the materials, and after which inspection legal title is transferred to its customers. In these situations, the Company generally collects the sales proceed directly from the Company’s customers and pay for the inventory purchases to the Company’s suppliers separately. The determination of whether revenues should be reported on a gross or net basis is based on the Company’s assessment of whether it is the principal or an agent in the transaction. In determining whether the Company is the principal or an agent, the Company follows the new accounting guidance for principal-agent considerations. Since the Company is the primary obligor and is responsible for (i) fulfilling the processed industrial waste materials delivery, (ii) controlling the inventory by temporarily assume legal title to the materials after inspecting the products from our vendors before passing the materials to our customers, and (iii) bearing the back-end risk of inventory loss with respect to any product return from the Company’s customers, the Company has concluded that it is the principal in these arrangements, and therefore report revenues and cost of revenues on a gross basis.
Recently Issue Accounting Pronouncements
In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments in this Update affect any entity that is required to apply the provisions of Topic 220, Income Statement – Reporting Comprehensive Income, and has items of other comprehensive income for which the related tax effects are presented in other comprehensive income as required by GAAP. The amendments in this Update are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption of the amendments in this Update is permitted, including adoption in any interim period, (1) for public business entities for reporting periods for which financial statements have not yet been issued and (2) for all other entities for reporting periods for which financial statements have not yet been made available for issuance. The amendments in this Update should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. We do not believe the adoption of this ASU would have a material effect on our consolidated financial statements.
We do not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on our consolidated balance sheets, statements of income and comprehensive income and statements of cash flows.
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Liquidity and Capital Resources
The Company has funded working capital and other capital requirements primarily by equity contributions, loans from shareholders, cash flow from operations, short term bank loans, loans from third parties. Cash is required to repay debts and pay salaries, office expenses, income taxes and other operating expenses. As of September 30, 2022, our net working capital was approximately minus $4.3 million, over 8% of the Company’s current liabilities was from other payables – related parties due to major shareholders. Removing these liabilities, the Company had net working capital of $3.8 million and is expected to continue to generate cash flow by operations from the acquisitions of new companies and loans from related-parties in the twelve months period.
We believe that current levels of cash and cash flows from operations will be sufficient to meet its anticipated cash needs for at least the next twelve months from the date the consolidated financial statements to be issued. However, it may need additional cash resources in the future if it experiences changed business conditions or other developments, and may also need additional cash resources in the future if it wishes to pursue opportunities for investment, acquisition, strategic cooperation or other similar actions. If it is determined that the cash requirements exceed the Company’s amounts of cash and cash equivalents on hand, the Company may seek to issue debt or equity securities or obtain additional credit facility
The following summarizes the key components of the Company’s cash flows for the nine months ended September 30, 2022 and 2021.
For the Nine Months ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Net cash used in by operating activities | $ | (966,745 | ) | $ | (14,598,852 | ) | ||
| Net cash used in investing activities | (12,275,607 | ) | (95,241 | ) | ||||
| Net cash provided by financing activities | - | 22,795,019 | ||||||
| Effect of exchange rate change on cash | (1,095,699 | ) | (25,129 | ) | ||||
| Net change in cash | $ | (14,338,051 | ) | $ | 8,075,796 | |||
As of September 30, 2022 and December 31, 2021, the Company had cash in the amount of $250,279 and $14,588,330, respectively. As of September 30, 2022 and December 31, 2021, $47,498 and $14,385,549 and were deposited with various financial institutions located in the PRC, respectively. As of September 30, 2022 and December 31, 2021, $202,781 and $202,781 were deposited with one financial institution located in the United States, respectively.
Operating activities
Net cash used in operating activities was approximately $1.0 million for the nine months ended September 30, 2022, as compared to approximately $14.6 million net cash used in operating activities for the nine months ended September 30, 2021. Net cash provided by operating activities was mainly due to the increase of approximately $12.9 million impairment of prepayments, increase of approximately $4.0 million loss on disposal, the decrease of approximately $2.1 million of customer deposits, the increase of approximately $6.6 million of Goodwill impairments, and the increase of approximately $0.9 million of taxes payable.
Investing activities
Net cash used in investing activities was approximately $12.3 million for the nine months ended September 30, 2022, as compared to approximately $95,241 net cash used in investing activities for the nine months ended September 30, 2021. Net cash used in investing activities for the nine months ended September 30, 2022 was due to approximately $6,689 spending on purchase of equipment, the increase of approximately $47,498 acquisition of Highlight Media and the decrease of approximately $12.3 million disposal of discontinued operations.
Financing activities
Net cash provided by financing activities was nil for the nine months ended September 30, 2022, as compared to approximately $22.8 million net cash used in financing activities for the nine months ended September 30, 2021.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Credit Risk
Credit risk is one of the most significant risks for the Company’s business.
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and accounts receivable. Cash held at major financial institutions located in the PRC are not insured by the government. While we believe that these financial institutions are of high credit quality, it also continually monitors their credit worthiness.
Accounts receivable are typically unsecured and derived from revenue earned from customers, thereby exposed to credit risk. Credit risk is controlled by the application of credit approvals, limits and monitoring procedures. The Company manages credit risk through in-house research and analysis of the Chinese economy and the underlying obligors and transaction structures. To minimize credit risk, the Company normally require prepayment from the customers prior to begin production or delivery products. The Company identifies credit risk collectively based on industry, geography and customer type. This information is monitored regularly by management.
In measuring the credit risk of our sales to our customers, the Company mainly reflects the “probability of default” by the customer on its contractual obligations and considers the current financial position of the customer and the exposures to the customer and its likely future development.
Liquidity Risk
The Company is also exposed to liquidity risk which is risk that it is unable to provide sufficient capital resources and liquidity to meet its commitments and business needs. Liquidity risk is controlled by the application of financial position analysis and monitoring procedures. When necessary, the Company will turn to other financial institutions and the owners to obtain short-term funding to meet the liquidity shortage.
Inflation Risk
The Company is also exposed to inflation risk. Inflationary factors, such as increases in raw material and overhead costs, could impair our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, a high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross margin and operating expenses as a percentage of sales revenue if the selling prices of our products do not increase with such increased costs.
Foreign Currency Risk
A majority of the Company’s operating activities and a significant portion of the Company’s assets and liabilities are denominated in RMB, which is not freely convertible into foreign currencies. All foreign exchange transactions take place either through the Peoples’ Bank of China (“PBOC”) or other authorized financial institutions at exchange rates quoted by PBOC. Approval of foreign currency payments by the PBOC or other regulatory institutions requires submitting a payment application form together with suppliers’ invoices and signed contracts. The value of RMB is subject to changes in central government policies and to international economic and political developments affecting supply and demand in the China Foreign Exchange Trading System market.
ITEM 4. CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management, including our Chief Executive Officers, President and Chief Financial Officer (the “Certifying Officers”), we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on the foregoing, our Certifying Officers concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this Report.
Disclosure controls and procedures are controls and other procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our Certifying Officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.
There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
38
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 1A. RISK FACTORS
Investing in our common stock involves a high degree of risk. You should carefully consider the information included in this Quarterly Report on Form 10-Q and the risk factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 before making an investment in our common stock. Our business, financial condition, results of operations, or prospects could be materially and adversely affected if any of these risks occurs, and as a result, the market price of our common stock could decline and you could lose all or part of your investment. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. There are no material changes to the risk factors described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. This Quarterly Report on Form 10-Q also contains forward-looking statements that involve risks and uncertainties. See “Cautionary Note Regarding Forward-Looking Statements.” Our actual results could differ materially and adversely from those anticipated in these forward-looking statements as a result of certain factors, including those set forth below.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On September 16, 2022, the Company entered into a Share Purchase Agreement (“SPA”) with Shanghai Highlight Media Co., Ltd., a PRC company (“Highlight Media”), and all the shareholders of Highlight Media (“Highlight Media Shareholders”).
Pursuant to the SPA, the Company agreed to issue an aggregate of 9,000,000 shares of common stock of the Company (the “Shares”), valued at $0.25 per share, to the Highlight Media Shareholders, in exchange for Highlight Media’s and Highlight Media Shareholders’ agreement to enter into certain agreements (the “VIE Agreements”) with Makesi IoT Technology (Shanghai) Co., Ltd. (“WFOE”), the Company’s indirectly owned subsidiary, to establish a VIE (variable interest entity) structure (the “Acquisition”). A “Variable Interest Entity” does not describe a legal relationship; it is an accounting concept. Under U.S. Generally Accepted Accounting Principles (U.S. GAAP), if through contractual arrangements, Entity A will absorb the losses or receive potentially significant benefits from the operations of Entity B, then the financial results and balance sheet of Entity B should be consolidated with the financial results and balance sheet in Entity A’s consolidated financial statements. We have evaluated the guidance in FASB ASC 810 and determined that, after the VIE Agreements are signed, WFOE will be the primary beneficiary of Highlight Media for accounting purposes, because, pursuant to the VIE Agreements, once signed, Highlight Media shall pay service fees to WFOE in the amount of 100% of the Highlight Media’s after-tax net income, while WFOE shall be obligated to absorb all of losses of Highlight Media. Accordingly, under U.S. GAAP, WFOE will treat Highlight Media as a consolidated affiliated entity and will consolidate the financial results and balance sheet of Highlight Media in the consolidated financial statements under U.S. GAAP.
On September 29, 2022. the Shares were issued to the Highlight Media Shareholders. The Acquisition was completed.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
| Exhibit Number |
Description | |
| 31.1 | Certification of the Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a). | |
| 31.2 | Certification of the Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a). | |
| 32.1 | Certification of the Chief Executive Officer required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350. | |
| 32.2 | Certification of the Chief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350. | |
| 101.INS | Inline XBRL Instance Document. | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document. | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
39
SIGNATURES
Pursuant to the requirements of Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| CODE CHAIN NEW CONTINENT LIMITED | ||
| Date: November 14, 2022 | By: | /s/ Hongxiang Yu |
| Name: | Hongxiang Yu | |
| Title: | Chief Executive Officer, President and | |
| Chairman of the Board | ||
| Date: November 14, 2022 | By: | /s/ Yi Li |
| Name: | Yi Li | |
| Title: | Chief Financial Officer and Secretary | |
| (Principal Financial Officer and Principal Accounting Officer) |
40
EXHIBIT 31.1
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Hongxiang Yu, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2022 of Code Chain New Continent Limited.; | |
| 2 | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3 | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
| 4 | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and | |
| 5 | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors: | |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. | |
| Date: November 14, 2022 | By: | /s/ Hongxiang Yu |
|
Hongxiang Yu Chief Executive Officer, President and Chairman of the Board (Principal Executive Officer) |
EXHIBIT 31.2
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Yi Li, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2022 of Code Chain New Continent Limited.; | |
| 2 | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3 | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
| 4 | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and | |
| 5 | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors: | |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. | |
| Date: November 14, 2022 | By: | /s/ Yi Li |
|
Yi Li Chief Financial Officer (Principal Financial and Chief Accounting Officer) |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
SECTION 906 OF SARBANES-OXLEY ACT OF 2002
I, Hongxiang Yu, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:
| 1. | The Quarterly Report on Form 10-Q of Code Chain New Continent Limited. (the “Company”) for the quarterly period ended September 30, 2022 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (U.S.C. 78m or 78o(d)); and |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: November 14, 2022 | By: | /s/ Hongxiang Yu |
| Hongxiang Yu | ||
|
Chief Executive Officer, President and Chairman of the Board (Principal Executive Officer) |
The foregoing certification is being furnished solely pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code) and is not being filed as part of a separate disclosure document.
EXHIBIT 32.2
Certification Pursuant To
Section 906 of Sarbanes-Oxley Act of 2002
I, Yi Li, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:
| 1. | The Quarterly Report on Form 10-Q of Code Chain New Continent Limited (the “Company”) for the quarterly period ended September 30, 2022 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (U.S.C. 78m or 78o(d)); and |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: November 14, 2022 | By: | /s/ Yi Li |
| Yi Li | ||
|
Chief Financial Officer (Principal Financial and Chief Accounting Officer) |
The foregoing certification is being furnished solely pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code) and is not being filed as part of a separate disclosure document.
Condensed Consolidated Balance Sheets (Parentheticals) - $ / shares |
Sep. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Preferred stock, par value (in Dollars per share) | $ 0.0001 | $ 0.0001 |
| Preferred stock, shares authorized | 20,000,000 | 20,000,000 |
| Preferred stock, shares issued | ||
| Preferred stock, shares outstanding | ||
| Common stock, par value (in Dollars per share) | $ 0.0001 | $ 0.0001 |
| Common stock, shares authorized | 200,000,000 | 200,000,000 |
| Common stock, shares issued | 1,837,136 | 1,536,052 |
| Common stock, shares outstanding | 1,837,136 | 1,536,052 |
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited) (Parentheticals) - $ / shares |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
| Income Statement [Abstract] | ||||
| Weighted average number of common shares basic and diluted (in Shares) | 1,427,927 | 1,368,852 | 1,427,927 | 1,368,852 |
| Earnings per share from continuing operations basic and diluted | $ (0.04) | $ (0.15) | $ (9.22) | $ (15.66) |
| Earnings per share from discontinued operations basic and diluted | (2.82) | (1.95) | (7.22) | (10.02) |
| Earnings per share available to common shareholders basic and diluted | $ (2.87) | $ (2.11) | $ (16.44) | $ (25.68) |
Nature of Business and Organization |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Nature of business and organization | Note 1 – Nature of business and organization
Code Chain New Continent Limited (“CCNC” or the “Company”), formerly known as TMSR Holding Company Limited and JM Global Holding Company is a Nevada corporation and a holding company that has no material operation of its own. The Company’ subsidiaries, Citi Profit Investment Holding Limited (“Citi Profit”), TMSR Holdings Limited (“TMSR Holdings”), and Makesi IoT Technology (Shanghai) Co., Ltd. (“Makesi WFOE”) are also holding companies with material operations.
Makesi WFOE has a series of contractual arrangement with Shanghai Highlight Media Co., Ltd. (“Highlight Media”) (“Highlight Media”)that established a VIE structure. For accounting purposes, Makesi WFOE is the primary beneficiary of Highlight Media. Accordingly, under U.S. GAAP, CCNC treats Highlight Media as the consolidated affiliated entity and has consolidated Highlight Media’s financial results in CCNC’s financial statements. Highlight Media was founded in 2016. It is an integrated marketing service agency, focusing on enterprise brand management, crisis public relations, intelligent public opinion monitoring, media PR, financial and economic we-media operation, digital face application, large-scale exhibition services and other businesses. It is committed to becoming a modern science and technology media organization that fully empowers the development of customer enterprises in the era of artificial intelligence and big data.
Prior to September 28, 2022, we also conducted business through Sichuan Wuge Network Games Co., Ltd. (“Wuge”). Makesi WFOE had a series of contractual arrangement with Wuge that established a VIE structure. Wuge focused its business on research, development and application of Internet of Things (IoT) and electronic tokens Wuge digital door signs. On September 28, 2022, Makesi WFOE entered into a termination agreement with Wuge and the Wuge Shareholders to terminate the VIE Agreements and to cancel the Shares, based on the average closing price of $0.237 per share of the Company during the 30 trading days immediately prior to the date of the termination agreement. As a result of such termination, the Company no longer treats Wuge as a consolidated affiliated entity or consolidates the financial results and balance sheet of Wuge in the Company’s consolidated financial statements under U.S. GAAP.
Prior to March 30, 2021, CCNC had an indirect subsidiary, Tongrong Technology (Jiangsu) Co., Ltd. (“Tongrong WFOE”), which is a holding company with no material operations. Tongrong WFOE had a series of contractual arrangement with Jiangsu Rong Hai Electric Power Fuel Co., Ltd. (“Rong Hai”) that established a VIE structure. Rong Hai was primarily engaged in the coal wholesales and sales of coke, steel, construction materials, mechanical equipment and steel scrap. For accounting purposes, Tongrong WFOE was the primary beneficiary of Wuge. Accordingly, under U.S. GAAP, CCNC treated Rong Hai as the consolidated affiliated entity and has consolidated Rong Hai’s financial results in CCNC’s financial statements prior to March 30, 2021. On March 30, 2021, CCNC entered into a share purchase agreement with a buyer unaffiliated with the Company (the “Buyer”), and Qihai Wang, former director of the Company (the “Payee”). Pursuant to the agreement, on March 31, 2021, CCNC sold all the issued and outstanding ordinary shares of Tongrong WFOE to the Buyer at a purchase price of $2,464,411 and caused 426,369 shares of common stock of CCNC owned by the Payee to be cancelled. The sale of Tongrong Shares included disposition of Rong Hai. As a result, as of March 31, 2021, operations of Tongrong WFOE and Rong Hai have been designated as discontinued operations.
The VIE structure involves unique risks to investors. The VIE agreements have not been tested in a court of law and the Chinese regulatory authorities could disallow this VIE structure, which would likely result in a material change in our operations and the value of our securities, including that it could cause the value of such securities to significantly decline or become worthless.
The accompanying consolidated financial statements reflect the activities of CCNC and each of the following entities:
Contractual Arrangements
Rong Hai and Wuge were and Highlight Media is controlled through contractual agreements in lieu of direct equity ownership by the Company or any of its subsidiaries. Such contractual arrangements consist of a series of five agreements, consulting services agreement, equity pledge agreement, call option agreement, voting rights proxy agreement, and operating agreement (collectively the “Contractual Arrangements”).
Material terms of each of the Rong Hai VIE Agreements are described below. The Company disposed Tongrong WFOE and Rong Hai as of March 31, 2021.
Consulting Services Agreement
Pursuant to the consulting services agreement between Rong Hai and Shengrong WFOE dated November 30, 2018 and the agreement to assign consulting services agreement among Rong Hai, Shengrong WFOE and Tongrong WFOE dated April 30, 2020, Tongrong WFOE has the exclusive right to provide consulting services to Rong Hai relating to Rong Hai’s business, including but not limited to business consulting services, human resources development, and business development. Tongrong WFOE exclusively owns any intellectual property rights arising from the performance of this agreement. Tongrong WFOE has the right to determine the service fees based on Rong Hai’s actual operation on a quarterly basis.
This consulting services agreement took effect upon execution and shall remain in full force and effective until Rong Hai’s valid operation term expires. Tongrong WFOE may, at its discretion, decide to renew or terminate this consulting services agreement.
Equity Pledge Agreement.
Under the equity pledge agreement among Shengrong WFOE, Rong Hai and the shareholders of Rong Hai dated November 30, 2018, and the agreement to assign equity pledge agreement among Rong Hai, Shengrong WFOE and Tongrong WFOE dated April 30, 2020, the shareholders pledged all of their equity interests in Rong Hai to Tongrong WFOE to guarantee Rong Hai’s performance of relevant obligations and indebtedness under the consulting services agreement. In addition, the shareholders of Rong Hai have completed the registration of the equity pledge under the agreement with the competent local authority. If Rong Hai breaches its obligation under the consulting services agreement, Tongrong WFOE, as pledgee, will be entitled to certain rights, including the right to sell the pledged equity interests.
This equity pledge agreement took effect upon execution and shall remain in full force and effective until Rong Hai and Tongrong WFOE’s satisfaction of all contractual obligations and settlement of all secured indebtedness. Upon Tongrong WFOE’s request, Rong Hai shall extend its operation period to sustain the effectiveness of this equity pledge agreement.
Call Option Agreement
Under the call option agreement among Shengrong WFOE, Rong Hai and the shareholders of Rong Hai dated November 30, 2018 and the agreement to assign call option agreement among Rong Hai, Shengrong WFOE and Tongrong WFOE dated April 30, 2020, each of the shareholders of Rong Hai irrevocably granted to WFOE or its designee an option to purchase at any time, to the extent permitted under PRC law, all or a portion of his equity interests in Rong Hai. Also, Tongrong WFOE or its designee has the right to acquire any and all of its assets of Rong Hai. Without Tongrong WFOE’s prior written consent, Rong Hai’s shareholders cannot transfer their equity interests in Rong Hai, and Rong Hai cannot transfer its assets. The acquisition price for the shares or assets will be the minimum amount of consideration permitted under the PRC law at the time of the exercise of the option.
This call option agreement shall took effect upon execution. Rong Hai and Tongrong WFOE shall not terminate this call option agreement under any circumstances for any reason unless it is early terminated by Tongrong WFOE or by the requirements under the applicable laws. This call option agreement shall be terminated provided that all equity interest or assets under this option is transferred to Tongrong WFOE or its designee.
Voting Rights Proxy Agreement
Under the voting rights proxy agreement among Shengrong WFOE and the shareholders of Rong Hai dated November 30, 2018 and the agreement to assign voting rights proxy agreement among Rong Hai, Shengrong WFOE and Tongrong WFOE dated April 30, 2020, each shareholder of Rong Hai irrevocably appointed Shengrong WFOE as its attorney-in-fact to exercise on such shareholder’s behalf any and all rights that such shareholder has in respect of his equity interests in Rong Hai, including but limited to the power to vote on its behalf on all matters of Rong Hai requiring shareholder approval in accordance with the articles of association of Rong Hai.
The voting rights proxy agreement took effect upon execution of and shall remain in effect indefinitely for the maximum period of time permitted by law in consideration of Tongrong WFOE.
Operating Agreement
Pursuant to the operating agreement among Shengrong WFOE, Rong Hai and the shareholders of Rong Hai dated November 30, 2018 and the agreement to assign operating agreement among Rong Hai, Shengrong WFOE and Tongrong WFOE dated April 30, 2020, Rong Hai and the shareholders of Rong Hai agreed not to enter into any transaction that could materially affect Rong Hai’s assets, obligations, rights or operations without prior written consent from Tongrong WFOE, including but not limited to the amendment of the articles of association of Rong Hai. Rong Hai and its shareholders agree to accept and follow our corporate policies provided by Tongrong WFOE in connection with Rong Hai’s daily operations, financial management and the employment and dismissal of Rong Hai’s employees. Rong Hai agreed that it should seek guarantee from Tongrong WFOE first if any guarantee is needed for Rong Hai’s performance of any contract or loan in the course of its business operation.
This operating agreement took effect upon execution and shall remain in full force and effective until Rong Hai’s valid operation term expires. Either party of Tongrong WFOE and Rong Hai shall complete approval or registration procedures for the extension of its business term three months prior to the expiration of its business term, for the purpose of the maintenance of the effectiveness of this operating agreement.
Material terms of each of the VIE agreements with Wuge are described below. The VIE agreements with Wuge were terminated and the Company disposed Wuge as of September 28, 2022.
Technical Consultation and Services Agreement.
Pursuant to the technical consultation and services agreement between Wuge and Tongrong WFOE dated January 3, 2020, Tongrong WFOE has the exclusive right to provide consultation services to Wuge relating to Wuge’s business, including but not limited to business consultation services, human resources development, and business development. Tongrong WFOE exclusively owns any intellectual property rights arising from the performance of this agreement. Tongrong WFOE has the right to determine the service fees based on Wuge’s actual operation on a quarterly basis. This agreement will be effective as long as Wuge exists. Tongrong WFOE may terminate this agreement at any time by giving a 30 days’ prior written notice to Wuge.
Equity Pledge Agreement.
Under the equity pledge agreement among Tongrong WFOE, Wuge and Wuge Shareholders dated January 3, 2020, Wuge Shareholders pledged all of their equity interests in Wuge to Tongrong WFOE to guarantee Wuge’s performance of relevant obligations and indebtedness under the technical consultation and services agreement. In addition, Wuge Shareholders will complete the registration of the equity pledge under the agreement with the competent local authority. If Wuge breaches its obligation under the technical consultation and services agreement, Tongrong WFOE, as pledgee, will be entitled to certain rights, including the right to sell the pledged equity interests. This pledge will remain effective until all the guaranteed obligations are performed or the Wuge Shareholders cease to be shareholders of Wuge.
Equity Option Agreement.
Under the equity option agreement among Tongrong WFOE, Wuge and Wuge Shareholders dated January 3, 2020, each of Wuge Shareholders irrevocably granted to Tongrong WFOE or its designee an option to purchase at any time, to the extent permitted under PRC law, all or a portion of his equity interests in Wuge. Also, Tongrong WFOE or its designee has the right to acquire any and all of its assets of Wuge. Without Tongrong WFOE’s prior written consent, Wuge’s shareholders cannot transfer their equity interests in Wuge and Wuge cannot transfer its assets. The acquisition price for the shares or assets will be the minimum amount of consideration permitted under the PRC law at the time of the exercise of the option. This pledge will remain effective until all options have been exercised.
Voting Rights Proxy and Financial Support Agreement.
Under the voting rights proxy and financial support agreement among Tongrong WFOE, Wuge and Wuge Shareholders dated January 3, 2020, each Wuge Shareholder irrevocably appointed Tongrong WFOE as its attorney-in-fact to exercise on such shareholder’s behalf any and all rights that such shareholder has in respect of his equity interests in Wuge, including but not limited to the power to vote on its behalf on all matters of Wuge requiring shareholder approval in accordance with the articles of association of Wuge. The proxy agreement is for a term of 20 years and can be extended by Tongrong WFOE unilaterally by prior written notice to the other parties.
On January 11, 2021, Makesi WFOE entered into a series of assignment agreements (the “Assignment Agreements”) with Tongrong WFOE, Wuge and Wuge Shareholders, pursuant to which Tongrong WFOE assign all its rights and obligations under the VIE Agreements to Makesi WFOE (the “Assignment”). The VIE Agreements and the Assignment Agreements grant Makesi WFOE with the power, rights and obligations equivalent in all material respects to those it would possess as the sole equity holder of Wuge, including absolute rights to control the management, operations, assets, property and revenue of Wuge. The Assignment does not have any impact on Company’s consolidated financial statements.
Material terms of each of the VIE agreements with Highlight Media are described below:
Technical Consultation and Services Agreement.
Pursuant to the technical consultation and services agreement between Highlight Media and Makesi WFOE dated September 16, 2022, Makesi WFOE has the exclusive right to provide consultation services to Wuge relating to Wuge’s business, including but not limited to business consultation services, human resources development, and business development. Makesi WFOE exclusively owns any intellectual property rights arising from the performance of this agreement. Makesi WFOE has the right to determine the service fees based on Wuge’s actual operation on a quarterly basis. This agreement will be effective as long as Wuge exists. Makesi WFOE may terminate this agreement at any time by giving a 30 days’ prior written notice to Wuge.
Equity Pledge Agreement.
Under the equity pledge agreement among Makesi WFOE, Wuge and Wuge Shareholders dated September 16, 2022, Wuge Shareholders pledged all of their equity interests in Wuge to Makesi WFOE to guarantee Wuge’s performance of relevant obligations and indebtedness under the technical consultation and services agreement. In addition, Wuge Shareholders will complete the registration of the equity pledge under the agreement with the competent local authority. If Wuge breaches its obligation under the technical consultation and services agreement, Makesi WFOE, as pledgee, will be entitled to certain rights, including the right to sell the pledged equity interests. This pledge will remain effective until all the guaranteed obligations are performed or the Wuge Shareholders cease to be shareholders of Wuge.
Equity Option Agreement.
Under the equity option agreement among Makesi WFOE, Wuge and Wuge Shareholders dated September 16, 2022, each of Wuge Shareholders irrevocably granted to Makesi WFOE or its designee an option to purchase at any time, to the extent permitted under PRC law, all or a portion of his equity interests in Wuge. Also, Makesi WFOE or its designee has the right to acquire any and all of its assets of Wuge. Without Makesi WFOE’s prior written consent, Wuge’s shareholders cannot transfer their equity interests in Wuge and Wuge cannot transfer its assets. The acquisition price for the shares or assets will be the minimum amount of consideration permitted under the PRC law at the time of the exercise of the option. This pledge will remain effective until all options have been exercised.
Voting Rights Proxy and Financial Support Agreement.
Under the voting rights proxy and financial support agreement among Makesi WFOE, Wuge and Wuge Shareholders dated September 16, 2022, each Wuge Shareholder irrevocably appointed Makesi WFOE as its attorney-in-fact to exercise on such shareholder’s behalf any and all rights that such shareholder has in respect of his equity interests in Wuge, including but not limited to the power to vote on its behalf on all matters of Wuge requiring shareholder approval in accordance with the articles of association of Wuge. The proxy agreement is for a term of 20 years and can be extended by Makesi WFOE unilaterally by prior written notice to the other parties.
As of the date of this report, the Company primary operations are focused on the Highlight Media business that is in enterprise brand management service. All prior energy and Wuge digital door signs business have been disposed. Substantially all of the Company’s primary operations are conducted in the PRC. |
Summary of Significant Accounting Policies |
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| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of significant accounting policies | Note 2 – Summary of significant accounting policies
Basis of presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for information pursuant to the rules and regulations of the Securities Exchange Commission (“SEC”).
Principles of consolidation
The unaudited condensed financial statements of the Company include the accounts of CCNC and its wholly owned subsidiaries and VIE. All intercompany transactions and balances are eliminated upon consolidation.
Use of estimates and assumptions
The preparation of unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the periods presented. Significant accounting estimates reflected in the Company’s unaudited condensed consolidated financial statements include the useful lives of intangible assets, deferred revenues and plant and equipment, impairment of long-lived assets, collectability of receivables, inventory valuation allowance, present value of lease liabilities and realization of deferred tax assets. Actual results could differ from these estimates.
Foreign currency translation and transaction
The reporting currency of the Company is the U.S. dollar. The Company in China conducts its businesses in the local currency, Renminbi (RMB), as its functional currency. Assets and liabilities are translated at the unified exchange rate as quoted by the People’s Bank of China at the end of the period. The statement of income accounts are translated at the average translation rates and the equity accounts are translated at historical rates. Translation adjustments resulting from this process are included in accumulated other comprehensive income. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.
Translation adjustments included in accumulated other comprehensive loss amounted to $107,673 and $225,857 as of September 30, 2022 and December 31, 2021, respectively. The balance sheet amounts, with the exception of shareholders’ equity at September 30, 2022 and December 31, 2021 were translated at 7.11 RMB and 6.38 RMB to $1.00, respectively. The shareholders’ equity accounts were stated at their historical rate. The average translation rates applied to statement of income accounts for the nine months ended September 30, 2022 and 2021 were 6.61 RMB and 6.47 RMB, respectively. Cash flows are also translated at average translation rates for the periods, therefore, amounts reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated balance sheet.
The PRC government imposes significant exchange restrictions on fund transfers out of the PRC that are not related to business operations. These restrictions have not had a material impact on the Company because it has not engaged in any significant transactions that are subject to the restrictions.
Investments
The Company purchases certain liquid short term investments such as money market funds and or other short term debt securities marketed by financial institutions. These investments are not insured against loss of principal. These investments are accounted for as financial instruments that are marked to fair market value at the end of each reporting period. For investments that are held to maturity debt instruments, which have short maturities, and limited risk profiles, amortized cost may be the best approximation of their fair value and used for such investments.
Accounts receivable, net
Accounts receivable include trade accounts due from customers. An allowance for doubtful accounts may be established and recorded based on management’s assessment of potential losses based on the credit history and relationships with the customers. Management reviews its receivables on a regular basis to determine if the bad debt allowance is adequate, and adjusts the allowance when necessary. Delinquent account balances are written-off against allowance for doubtful accounts after management has determined that the likelihood of collection is not probable.
Inventories
Inventories are comprised of raw materials and work in progress and are stated at the lower of cost or net realizable value using the weighted average method in Highlight Media. Management reviews inventories for obsolescence and cost in excess of net realizable value at least annually and recognize an impairment charge against the inventory when the carrying value exceeds net realizable value. As of September 30, 2022 and December 31, 2021, no obsolescence and cost in excess of net realizable value were recognized.
Prepayments
Prepayments are funds deposited or advanced to outside vendors for future inventory or services purchases. As a standard practice in China, many of the Company’s vendors require a certain amount to be deposited with them as a guarantee that the Company will complete its purchases on a timely basis. This amount is refundable and bears no interest. The Company has legally binding contracts with its vendors, which require any outstanding prepayments to be returned to the Company when the contract ends.
Plant and equipment
Plant and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed using the straight-line method after consideration of the estimated useful lives of the assets and estimated residual value. The estimated useful lives and residual value are as follows:
The cost and related accumulated depreciation and amortization of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the consolidated statements of income and comprehensive income. Expenditures for maintenance and repairs are charged to earnings as incurred, while additions, renewals and betterments, which are expected to extend the useful life of assets, are capitalized. The Company also re-evaluates the periods of depreciation and amortization to determine whether subsequent events and circumstances warrant revised estimates of useful lives.
Intangible assets
Intangible assets represent land use rights and patents, and they are stated at cost, less accumulated amortization. Research and development costs associated with internally developed patents are expensed when incurred. Amortization expense is recognized on the straight-line basis over the estimated useful lives of the assets. All land in the PRC is owned by the government; however, the government grants “land use rights.” The Company has obtained the rights to use various parcels of land. The patents have finite useful lives and are amortized using a straight-line method that reflects the estimated pattern in which the economic benefits of the intangible asset are to be consumed. The Company amortizes the cost of the land use rights and patents, over their useful life using the straight-line method. The Company also re-evaluates the periods of amortization to determine whether subsequent events and circumstances warrant revised estimates of useful lives. The estimated useful lives are as follows:
Goodwill
Goodwill represents the excess of the consideration paid of an acquisition over the fair value of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill is not amortized and is tested for impairment at least annually, more often when circumstances indicate impairment may have occurred. Goodwill is carried at cost less accumulated impairment losses. If impairment exists, goodwill is immediately written off to its fair value and the loss is recognized in the consolidated statements of income. Impairment losses on goodwill are not reversed.
Impairment for long-lived assets
Long-lived assets, including plant, equipment and intangible assets with finite lives are reviewed for impairment whenever events or changes in circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate that the carrying value of an asset may not be recoverable. The Company assesses the recoverability of the assets based on the undiscounted future cash flows the assets are expected to generate and recognize an impairment loss when estimated undiscounted future cash flows expected to result from the use of the asset plus net proceeds expected from disposition of the asset, if any, are less than the carrying value of the asset. If an impairment is identified, the Company would reduce the carrying amount of the asset to its estimated fair value based on a discounted cash flows approach or, when available and appropriate, to comparable market values.
Fair value measurement
The accounting standard regarding fair value of financial instruments and related fair value measurements defines financial instruments and requires disclosure of the fair value of financial instruments held by the Company. The Company considers the carrying amount of cash, notes receivable, accounts receivable, other receivables, prepayments, accounts payable, other payables and accrued liabilities, customer deposits, short term loans and taxes payable to approximate their fair values because of their short term nature.
The accounting standards define fair value, establish a three-level valuation hierarchy for disclosures of fair value measurement and enhance disclosure requirements for fair value measures. The three levels are defined as follow:
Financial instruments included in current assets and current liabilities are reported in the consolidated balance sheets at face value or cost, which approximate fair value because of the short period of time between the origination of such instruments and their expected realization and their current market rates of interest.
Customer deposits
Highlight Media typically receives customer deposits for services to be rendered from its customers. As Highlight Media delivers the services, it will recognize these deposits to results of operations in accordance to its revenue recognition policy.
Revenue recognition
On January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2014-09 Revenue from Contracts with Customers (ASC 606) using the modified retrospective method for contracts that were not completed as of January 1, 2018. This did not result in an adjustment to retained earnings upon adoption of this new guidance as the Company’s revenue, other than retainage revenues, was recognized based on the amount of consideration we expect to receive in exchange for satisfying the performance obligations. However, the impact of the Company’s retainage revenue was not material as of the date of adoption, and as a result, did not result in an adjustment.
The core principle underlying the revenue recognition ASU is that the Company will recognize revenue to represent the transfer of goods and services to customers in an amount that reflects the consideration to which the Company expects to be entitled in such exchange. This will require the Company to identify contractual performance obligations and determine whether revenue should be recognized at a point in time or over time, based on when control of goods and services transfers to a customer. The Company’s revenue streams are primarily recognized at a point in time.
The ASU requires the use of a new five-step model to recognize revenue from customer contracts. The five-step model requires that the Company (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation. The application of the five-step model to the revenue streams compared to the prior guidance did not result in significant changes in the way the Company records its revenue. Upon adoption, the Company evaluated its revenue recognition policy for all revenue streams within the scope of the ASU under previous standards and using the five-step model under the new guidance and confirmed that there were no differences in the pattern of revenue recognition except its retainage revenues.
An entity will also be required to determine if it controls the goods or services prior to the transfer to the customer in order to determine if it should account for the arrangement as a principal or agent. Principal arrangements, where the entity controls the goods or services provided, will result in the recognition of the gross amount of consideration expected in the exchange. Agent arrangements, where the entity simply arranges but does not control the goods or services being transferred to the customer, will result in the recognition of the net amount the entity is entitled to retain in the exchange.
Revenues from the goods are recognized at a point in time when legal title and control over the sign is transferred to the customer. Management has determined that for the sales of the goods there is a single performance obligation that is met when the aforementioned control is transferred. Typically, customers make payment for the product in advance; the Company will record the payment as contract liabilities under the liability account customer deposits until the Company delivers the product by transferring control. Such revenues are recognized at a point in time after all performance obligations are satisfied under the new five-step model.
Payments received prior to the relevant criteria for revenue recognition are met, are recorded as customer deposits.
The Company’s disaggregate revenue streams are summarized as follows:
Research and Development (“R&D”) Expenses
Research and development expenses include salaries and other compensation-related expenses paid to the Company’s research and product development personnel while they are working on R&D projects, as well as raw materials used for the R&D projects. R&D expenses incurred by the Company are included in the selling, general and administrative expenses.
Income taxes
The Company accounts for income taxes in accordance with U.S. GAAP for income taxes. The charge for taxation is based on the results for the fiscal year as adjusted for items, which are non-assessable or disallowed. It is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.
Deferred taxes is accounted for using the asset and liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the consolidated financial statements and the corresponding tax basis used in the computation of assessable tax profit. In principle, deferred tax liabilities are recognized for all taxable temporary differences. Deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against which deductible temporary differences can be utilized. Deferred tax is calculated using tax rates that are expected to apply to the period when the asset is realized or the liability is settled. Deferred tax is charged or credited in the income statement, except when it is related to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Current income taxes are provided for in accordance with the laws of the relevant taxing authorities.
An uncertain tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. Penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the period incurred. The Company incurred no such penalties and interest for the nine months ended September 30, 2022 and 2021. As of September 30, 2022, the Company’s PRC tax returns filed for 2019, 2020 and 2021 remain subject to examination by any applicable tax authorities.
Earnings per share
Basic earnings per share are computed by dividing income available to common shareholders of the Company by the weighted average common shares outstanding during the period. Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts to issue common shares were exercised and converted into common shares. 9,079,348 and 10,500,000 of outstanding warrants which is equivalent to convertible of 4,539,674 and 5,250,000 common shares were excluded from the diluted earnings per share calculation due to its antidilutive effect for the nine months ended September 30, 2022 and 2021, respectively. 824,000 of outstanding options were excluded from the diluted earnings per share calculation due to its antidilutive effect for the nine months ended September 30, 2022 and 2021.
Recently issued accounting pronouncements
In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments in this Update affect any entity that is required to apply the provisions of Topic 220, Income Statement – Reporting Comprehensive Income, and has items of other comprehensive income for which the related tax effects are presented in other comprehensive income as required by GAAP. The amendments in this Update are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption of the amendments in this Update is permitted, including adoption in any interim period, (1) for public business entities for reporting periods for which financial statements have not yet been issued and (2) for all other entities for reporting periods for which financial statements have not yet been made available for issuance. The amendments in this Update should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. The Company does not believe the adoption of this ASU would have a material effect on the Company’s unaudited condensed consolidated financial statements.
The Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the Company’s unaudited condensed consolidated balance sheets, statements of income and comprehensive income and statements of cash flows. |
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Business Combination and Restructuring |
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| Business combination and restructuring | Note 3 – Business combination and restructuring
Highlight Media
On September 16, 2022, the Company entered into a share purchase agreement with Shanghai Highlight Media Co., Ltd. (“Highlight Media”) and all the shareholders of Highlight Media (“Highlight Media Shareholders”). Pursuant to the share purchase agreement, the Company agreed to issue an aggregate of 9,000,000 shares of CCNC’s common stock to the Highlight Media Shareholders, in exchange for Highlight Media Shareholders’ agreement to enter into, and their agreement to cause Highlight Media to enter into, certain VIE agreements (“VIE Agreements”) with Makesi WFOE the Company’s indirectly owned subsidiary, through which Makesi WFOE shall have the right to control, manage and operate Highlight Media in return for a service fee equal to 100% of Highlight Media’s net income (the “Acquisition”). On September 16, 2022 Makesi WFOE entered into a series of VIE Agreements with Highlight Media and the Highlight Media Shareholders. The VIE Agreements are designed to provide Makesi WFOE with the power, rights and obligations equivalent in all material respects to those it would possess as the sole equity holder of Highlight Media, including absolute rights to control the management, operations, assets, property and revenue of Highlight Media. Highlight Media, founded in 2016, is an integrated marketing service agency, focusing on enterprise brand management, crisis public relations, intelligent public opinion monitoring, media PR, financial and economic we-media operation, digital face application, large-scale exhibition services and other businesses. It is committed to becoming a modern science and technology media organization that fully empowers the development of customer enterprises in the era of artificial intelligence and big data. The Acquisition closed on September 29, 2022.
The Company’s acquisition of Highlight Media was accounted for as a business combination in accordance with ASC 805. The Company has allocated the purchase price of Highlight Media based upon the fair value of the identifiable assets acquired and liabilities assumed on the acquisition date. Other current assets and current liabilities were valued using the cost approach. Management of the Company is responsible for determining the fair value of assets acquired, liabilities assumed, plant and equipment, and intangible assets identified as of the acquisition date and considered a number of factors including valuations from independent appraisers. Acquisition-related costs incurred for the acquisitions are not material and have been expensed as incurred in general and administrative expense.
The following table summarizes the fair value of the identifiable assets acquired and liabilities assumed at the acquisition date, which represents the net purchase price allocation at the date of the acquisition of Highlight Media based on a valuation performed by an independent valuation firm engaged by the Company:
Approximately $2.1 million of goodwill arising from the acquisition consists largely of synergies expected from combining the operations of the Company and Highlight Media. None of the goodwill is expected to be deductible for income tax purposes. |
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| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Variable interest entity | Note 4 – Variable interest entity
On November 30, 2018, Tongrong WFOE entered into Contractual Arrangements with Rong Hai and its shareholders upon executing of the “Purchase Agreement”. The significant terms of these Contractual Arrangements are summarized in “Note 1 - Nature of business and organization” above. As a result, the Company classifies Rong Hai as VIE.
On January 3, 2020, Tongrong WFOE entered into Contractual Arrangements with Wuge and its shareholders upon executing of the “Purchase Agreement”. The significant terms of these Contractual Arrangements are summarized in “Note 1 - Nature of business and organization” above. As a result, the Company classifies Wuge as VIE.
On January 11, 2021, Makesi WFOE entered into a series of assignment agreements (the “Assignment Agreements”) with Tongrong WFOE, Wuge and Wuge Shareholders, pursuant to which Tongrong WFOE assign all its rights and obligations under the VIE Agreements to Makesi WFOE (the “Assignment”). The VIE Agreements and the Assignment Agreements grant Makesi WFOE with the power, rights and obligations equivalent in all material respects to those it would possess as the sole equity holder of Wuge, including absolute rights to control the management, operations, assets, property and revenue of Wuge. The Assignment does not have any impact on Company’s consolidated financial statements.
On March 30, 2021, the Company entered into a share purchase agreement with a buyer unaffiliated with the Company (the “Buyer”), and Qihai Wang, former director of the Company (the “Payee”). Pursuant to the agreement, the Company agreed to sell and the Buyer agreed to purchase all the issued and outstanding ordinary shares (the “Tongrong Shares”) of Tongrong WFOE. The Payee agreed to be responsible for the payment of the purchase price on behalf of Buyer. The purchase price for the Tongrong Shares shall be $2,464,411, payable in the form of cancelling 426,369 shares of common stock of the Company owned by the Payee (the “CCNC Shares”). The CCNC Shares are valued at $5.78 per share, based on the average closing price of the Company’s common stock during the 30 trading days immediately prior to the date of the agreement from February 12, 2021 to March 26, 2021. On March 31, 2021, the Company closed the sale of the Tongrong Shares and caused the CCNC Shares to be cancelled. Tongrong WFOE contractually controls Jaingsu Rong Hai Electric Power Fuel Co., Ltd. (“Rong Hai”), a variable interest entity of the Company. The disposition of Tongrong WFOE included disposition of Rong Hai.
On September 16, 2022, Makesi WFOE entered into Contractual Arrangements with Highlight Media and its shareholders upon executing of the “Purchase Agreement”. The significant terms of these Contractual Arrangements are summarized in “Note 1 - Nature of business and organization” above. As a result, the Company classifies Rong Hai as VIE.
In January, 2021, Tongrong Technology (Jiangsu) Co., Ltd., a then indirect subsidiary of the Company (“Tongrong WFOE”), Sichuan Wuge Network Games Co., Ltd. (“Wuge”), and shareholders of Wuge (the “Wuge Shareholders”) entered into a share purchase agreement, pursuant to which the Company issued a total of 4,000,000 shares of common stock of the Company (the “Shares”) to the Wuge Shareholders in exchange for Tongrong WFOE, Wuge and the Wuge Shareholders entering into certain Technical Consultation and Services Agreement., Equity Pledge Agreement, Equity Option Agreement, Voting Rights Proxy and Financial Support Agreement, which was assigned by Tongrong WFOE to Makesi IoT Technology (Shanghai) Co., Ltd., an indirect subsidiary of the Company (“Makesi WFOE”) in January 2021 (such agreements, as assigned, the “VIE Agreements”) . The VIE Agreements established a “Variable Interest Entity” (VIE) structure, and pursuant to which the Company treated Wuge as a consolidated affiliated entity and consolidated the financial results and balance sheet of Wuge in the Company’s consolidated financial statements under U.S. GAAP.
On September 28, 2022, Makesi WFOE entered into a termination agreement (the “Termination Agreement”) with Wuge and the Wuge Shareholders to terminate the VIE Agreements and to cancel the Shares, based on the average closing price of $0.237 per share of the Company during the 30 trading days immediately prior to the date of the Termination Agreement. As a result of such termination, the Company no longer treats Wuge as a consolidated affiliated entity or consolidates the financial results and balance sheet of Wuge in the Company’s consolidated financial statements under U.S. GAAP.
A VIE is an entity that has either a total equity investment that is insufficient to permit the entity to finance its activities without additional subordinated financial support, or whose equity investors lack the characteristics of a controlling financial interest, such as through voting rights, right to receive the expected residual returns of the entity or obligation to absorb the expected losses of the entity. The variable interest holder, if any, that has a controlling financial interest in a VIE is deemed to be the primary beneficiary and must consolidate the VIE. Makesi WFOE is deemed to have a controlling financial interest and be the primary beneficiary of Highlight Media because it has both of the following characteristics:
Accordingly, the accounts of Highlight Media are consolidated in the accompanying financial statements pursuant to ASC 810-10, Consolidation. In addition, Its financial positions and results of operations are included in the Company’s consolidated financial statements beginning on September 30, 2022.
The carrying amount of the VIE’s assets and liabilities are as follows:
The summarized operating results of the VIE’s are as follows:
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| Inventories | Note 5 – Inventories
Inventories consist of the following:
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| Plant and equipment, net | Note 6 – Plant and equipment, net
Plant and equipment consist of the following:
Depreciation expense for the nine months ended September 30, 2022 and 2021 amounted to $33,192 and $1,237,480, respectively. |
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Intangible Assets, Net |
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| Intangible assets, net | Note 7 – Intangible assets, net
Intangible assets consist of the following:
Amortization expense for the nine months ended September 30, 2022 and 2021 amounted to $98 and $100, respectively. |
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| Intangible Assets, Net [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Goodwill | Note 8 – Goodwill
The changes in the carrying amount of goodwill by business units are as follows:
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| Related party balances and transactions | Note 9 – Related party balances and transactions
Related party balances
The Company advanced funds to the related party for technical services.
The above payables represent interest free loans and advances. These loans and advances are unsecured and due on demand. |
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Taxes |
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| Taxes | Note 10 – Taxes
Income tax
United States
CCNC was organized in the state of Delaware in April 2015 and re-incorporated in the state of Nevada in June 2018. CCNC’s U.S. net operating loss for the nine months ended September 30, 2022 amounted to approximately $14.4 million. As of September 30, 2022, CCNC’s net operating loss carry forward for United States income taxes was approximately $3.0 million. The net operating loss carry forwards are available to reduce future years’ taxable income through year 2038. Management believes that the realization of the benefits from these losses appears uncertain due to the Company’s operating history and continued losses in the United States. Accordingly, the Company has provided a 100% valuation allowance on the deferred tax asset to reduce the asset to zero. Management reviews this valuation allowance periodically and makes changes accordingly.
On December 22, 2017, the “Tax Cuts and Jobs Act” (“The 2017 Tax Act”) was enacted in the United States. Under the provisions of the Act, the U.S. corporate tax rate decreased from 34% to 21%. The 2017 Tax Act imposed a global intangible low-taxed income tax (“GILTI”), which is a new tax on certain off-shore earnings at an effective rate of 10.5% for tax years beginning after December 31, 2017 (increasing to 13.125% for tax years beginning after December 31, 2025) with a partial offset for foreign tax credits. The Company determined that there are no impact of GILTI for the nine months ended September 30, 2022 and 2021, which the Company believes that it will be imposed a minimum tax rate of 10.5% and to the extent foreign tax credits are available to reduce its US corporate tax, which may result in no additional US federal income tax being due.
Cayman Islands
China Sunlong is incorporated in the Cayman Islands and are not subject to tax on income or capital gains under current Cayman Islands law. In addition, upon payments of dividends by China Sunlong to its shareholders, no Cayman Islands withholding tax will be imposed.
British Virgin Islands
Citi Profit BVI is incorporated in the British Virgin Islands and are not subject to tax on income or capital gains under current British Virgin Islands law. In addition, upon payments of dividends by these entities to their shareholders, no British Virgin Islands withholding tax will be imposed.
Hong Kong
TMSR HK is incorporated in Hong Kong and are subject to Hong Kong Profits Tax on the taxable income as reported in its statutory financial statements adjusted in accordance with relevant Hong Kong tax laws. The applicable tax rate is 16.5% in Hong Kong. The Company did not make any provisions for Hong Kong profit tax as there were no assessable profits derived from or earned in Hong Kong since inception. Under Hong Kong tax law, TMSR HK is exempted from income tax on its foreign-derived income and there are no withholding taxes in Hong Kong on remittance of dividends.
PRC
Makesi WFOE and Highlight Media are governed by the income tax laws of the PRC and the income tax provision in respect to operations in the PRC is calculated at the applicable tax rates on the taxable income for the periods based on existing legislation, interpretations and practices in respect thereof. Under the Enterprise Income Tax Laws of the PRC (the “EIT Laws”), Chinese enterprises are subject to income tax at a rate of 25% after appropriate tax adjustments.
Deferred tax assets
Bad debt allowances must be approved by the Chinese tax authority prior to being deducted as an expense item on the tax return.
Significant components of deferred tax assets were as follows:
Value added tax
Enterprises or individuals who sell commodities, engage in repair and maintenance or import and export goods in the PRC are subject to a value added tax in accordance with PRC laws. The value added tax (“VAT”) standard rates are 6% to 17% of the gross sales price and changed to 6% to 16% of gross sales starting in May 2018. The VAT standard rates changed to 6% to 13% of the gross sales prices starting in April 2019. A credit is available whereby VAT paid on the purchases of semi-finished products or raw materials used in the production of the Company’s finished products can be used to offset the VAT due on sales of the finished products and services.
Taxes payable consisted of the following:
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Concentration of Risk |
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| Concentration of Risk [Abstract] | |
| Concentration of risk | Note 11 – Concentration of risk
Credit risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and accounts receivable. As of September 30, 2022 and December 31, 2021, $47,498 and $14,385,549 and were deposited with various financial institutions located in the PRC, respectively. As of September 30, 2022 and December 31, 2021, $202,781 and $202,781 were deposited with one financial institution located in the U.S., respectively. While management believes that these financial institutions are of high credit quality, it also continually monitors their credit worthiness.
Accounts receivable are typically unsecured and derived from revenue earned from customers, thereby exposed to credit risk. The risk is mitigated by the Company’s assessment of its customers’ creditworthiness and its ongoing monitoring of outstanding balances. |
Equity |
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| Equity | Note 12 – Equity
Restricted net assets
The Company’s ability to pay dividends is primarily dependent on the Company receiving distributions of funds from its subsidiaries. Relevant PRC statutory laws and regulations permit payments of dividends by Makesi WFOE only out of its retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. The results of operations reflected in the accompanying unaudited condensed consolidated financial statements prepared in accordance with U.S. GAAP differ from those reflected in the statutory financial statements of Makesi WFOE.
Makesi WFOE and Highlight Media are required to set aside at least 10% of their after-tax profits each year, if any, to fund certain statutory reserve funds until such reserve funds reach 50% of its registered capital. In addition, Makesi WFOE may allocate a portion of its after-tax profits based on PRC accounting standards to enterprise expansion fund and staff bonus and welfare fund at its discretion. Highlight Media may allocate a portion of its after-tax profits based on PRC accounting standards to a discretionary surplus fund at its discretion. The statutory reserve funds and the discretionary funds are not distributable as cash dividends. Remittance of dividends by a wholly foreign-owned company out of China is subject to examination by the banks designated by State Administration of Foreign Exchange.
As a result of the foregoing restrictions, Makesi WFOE and Highlight Media are restricted in their ability to transfer their net assets to the Company. Foreign exchange and other regulation in the PRC may further restrict Makesi WFOE and Highlight Media from transferring funds to TMSR HK in the form of dividends, loans and advances. As of September 30, 2022 and December 31, 2021, amounts restricted are the net assets of Makesi WFOE and Highlight Media which amounted to $128,053 and $4,519,455, respectively.
Common stock
On February 22, 2021, pursuant to a securities purchase agreement (the “Purchase Agreement”) with two institutional investors, the Company , closed (a) a registered direct offering (the “Registered Direct Offering”) for the sale of (i) 4,166,666 shares of common stock, par value $0.0001 of the Company (the “Shares”) and (ii) registered investor warrants, with a term of five years, exercisable immediately upon issuance, to purchase an aggregate of up to 1,639,362 shares of common stock (the “Registered Investor Warrant Shares”) at an exercise price of $6.72 per share, subject to adjustments thereunder, including a reduction in the exercise price, in the event of a subsequent offering at a price less than the then current exercise price, to the same price as the price in such offering (a “Price Protection Adjustment”) (the “Registered Investor Warrants”), and (b) a concurrent private placement (the “Private Placement” and collectively with the Registered Direct Offering, the “Offering”) for the sale of unregistered investor warrants, with a term of five and one-half years, first exercisable on the date that is the earlier of (i) six months after the date of issuance or (ii) the date on which the Company obtains stockholder approval approving the sale of all of the securities offered and sold under the Purchase Agreement (the “Stockholder Approval”) to purchase an aggregate of up to 2,527,304 shares of common stock (the “Unregistered Investor Warrant Shares”) at an exercise price of $6.72 per share, subject to adjustments thereunder, including (x) a Price Protection Adjustment and (y) in the event the exercise price is more than $6.10, a reduction of the exercise price to $6.10, upon obtaining the Stockholder Approval (the “Unregistered Investor Warrants”). The Shares, the Registered Investor Warrants, the Unregistered Investor Warrants, the Registered Investor Warrant Shares and the Unregistered Investor Warrant Shares are collectively referred to as the “Securities.” The Company received gross proceeds from the sale of the Securities of $24,999,996, before deducting placement agent fees and other Offering expenses. The Company intends to use the net proceeds from this Offering for working capital and general business purposes.
On February 23, 2021, the Company entered into an asset purchase agreement with Sichuan RiZhanYun Jisuan Co., Ltd. (the “Seller”), which was amended and restated on April 16, 2021, and further amended on May 28, 2021. Pursuant to the asset purchase agreement, the Company purchased a total of 10,000 Bitcoin mining machines (the “Assets”) for a total purchase price of RMB 40,000,000 or US$6,160,000 based on the exchange rate as of April 8, 2021 (the “Purchase Price”), payable in the form of 1,587,800 shares of common stock of the Company, valued at US$3.88 per share, which is the closing bid price of the common stock of the Company on the Nasdaq Stock Market on April 8, 2021. The Seller shall cause revenue and any other source of income from the operation of the Assets to be paid to the Company, payable in cryptocurrency to be deposited into a cryptocurrency wallet held by the Company on a daily basis. The Company shall issue to the Seller or its designees RMB 5,000,000 or US$770,000 worth of common stock of the Company (the “Bonus Shares”) if the Assets generate an average net profit per day/10,000 machines (the “Daily Profit”) on behalf of the Company during the one-year period from March 19, 2021 to March 19, 2022 (the “Valuation Period”) equals to RMB 200,000 or US$30,800 and if the Assets generate an average net profit per month/10,000 machines (the “Monthly Profit”) on behalf of the Company during the Valuation Period equals to RMB 6,000,000 or US$924,000. If the Daily Profit is more than RMB 200,000 or US$30,800 and the Monthly Profit is more than RMB 6,000,000 or US$924,000, the Company shall issue to the Seller or its designees additional shares of common stock in proportion to the amount that is in excess. If the Daily Profit is less than RMB 200,000 or US$30,800 or the Monthly Profit is less than RMB 6,000,000 or US$924,000, the Company shall not issue to the Seller or its designees any Bonus Shares and such month is deemed a “Re-evaluated Month”. At the end of the Valuation Period, the Monthly Profit of such Re-evaluated Month(s) shall be aggregated (the “Aggregate Profit”), and the Company shall issue RMB5,000,000 or US$770,000 worth of common stock of the Company for every RMB6,000,000 or US$924,000 in Aggregate Profit on a pro rata basis. Such Daily Profit and Monthly Profit shall be determined on a monthly basis on the first day of the next month. Such Bonus Shares and additional shares, when applicable, shall be issued on the fifteenth day of the next month. For any month that has 28 days or 31 days, the Monthly Profit is calculated based on the actual number of days in the month. Notwithstanding the foregoing, no share pursuant to this Agreement shall be issued earlier than May 24, 2021 in any event. The total number of shares of common stock, including the Bonus Shares, issuable to the Seller or its designees pursuant to the Agreement shall in no event be more than 19.99% of the total shares issued and outstanding of Company as of the February 23, 2021, the date of the asset purchase agreement.
On June 1, 2021, the Company issued to a designee of the Seller 2,513,294 shares of common stock, consisted of (i) the Purchase Price in the form of 1,587,800 shares of common stock and (ii) 925,494 Bonus Shares, valued at US$2.51 per share, which is the closing bid price of the common stock of the Company on the Nasdaq Stock Market on May 12, 2021, for meeting and exceeding the Daily Profit and Monthly Profit benchmark.
Because the Assets were never delivered to the Company and the Company has not received and is not able to accept cryptocurrency from the operation of the Assets, the Company and the Seller agreed to rescind the Agreement and cancel the Shares on September 26, 2022.
On July 28, 2021, the Company entered into an asset purchase agreement with certain seller(the “Seller”) pursuant to which the Company agreed to purchase from the Seller digital currency mining machines for a total purchase price of RMB 106,388,672.43, or US$ 16,442,109.95 (based on the exchange rate between RMB and USD of 1: 6.4705 as of July 8, 2021), payable in the form of 7,647,493 shares of common stock of the Company(“CCNC Shares”). The CCNC Shares are valued at $2.15 per share. The Company plans to use the assets to further develop its digital currency mining operation. On February 23, 2022, the Company entered into a termination agreement (the “Termination Agreement) with the Seller to terminate the Asset Purchase Agreement and forfeit the transaction. The parties agreed that the CCNC Shares shall be cancelled within 15 business days from the date of the Termination Agreement.
On February 23, 2022, the Company entered into a termination agreement (the “Termination Agreement) with the Seller to terminate the Asset Purchase Agreement and forfeit the transaction. The parties agreed that the CCNC Shares shall be cancelled within 15 business days from the date of the Termination Agreement.
On April 14, 2022, the Company entered into a Share Purchase Agreement (“SPA”) with Shanghai Yuanma Food and Beverage Management Co., Ltd., a PRC company (“Yuan Ma”), and all the shareholders of Yuan Ma (“Yuanma Shareholders”). Yuanma Shareholders are Wei Xu, the Chief Executive Officer and Chairman of the Board of the Company, and Jiangsu Lingkong Network Joint Stock Co., Ltd., which is controlled by Wei Xu. Pursuant to the SPA, the Company agreed to issue an aggregate of 7,680,000 shares of common stock of the Company, valued at $1.00 per share, to the Yuanma Shareholders, in exchange for Yuanma Shareholders’ agreement to enter into and to cause Yuan Ma to enter into certain agreements (“VIE Agreements”) with Makesi IoT Technology (Shanghai) Co., Ltd. (“Makesi WFOE”), the Company’s indirectly owned subsidiary, to establish a VIE (variable interest entity) structure (the “Acquisition”). On June 13, 2022, the Company held a special meeting of stockholders and approved the issuance of the 7,680,000 shares of common stock to Wei Xu. On June 21, 2022, pursuant to the SPA, Makesi WFOE entered into a series of VIE Agreements with Yuan Ma and Yuanma Shareholders, and the 7,680,000 shares of common stock were issued to Wei Xu. The transaction contemplated in the SPA was completed.
On September 16, 2022, the Company entered into a Share Purchase Agreement (“SPA”) with Shanghai Highlight Media Co., Ltd., a PRC company (“Highlight Media”), and all the shareholders of Highlight Media (“Highlight Media Shareholders”).
Pursuant to the SPA, the Company agreed to issue an aggregate of 9,000,000 shares of common stock of the Company (the “Shares”), valued at $0.25 per share, to the Highlight Media Shareholders, in exchange for Highlight Media’s and Highlight Media Shareholders’ agreement to enter into certain agreements (the “VIE Agreements”) with Makesi IoT Technology (Shanghai) Co., Ltd. (“WFOE”), the Company’s indirectly owned subsidiary, to establish a VIE (variable interest entity) structure (the “Acquisition”). A “Variable Interest Entity” does not describe a legal relationship; it is an accounting concept. Under U.S. Generally Accepted Accounting Principles (U.S. GAAP), if through contractual arrangements, Entity A will absorb the losses or receive potentially significant benefits from the operations of Entity B, then the financial results and balance sheet of Entity B should be consolidated with the financial results and balance sheet in Entity A’s consolidated financial statements. We have evaluated the guidance in FASB ASC 810 and determined that, after the VIE Agreements are signed, WFOE will be the primary beneficiary of Highlight Media for accounting purposes, because, pursuant to the VIE Agreements, once signed, Highlight Media shall pay service fees to WFOE in the amount of 100% of Highlight Media’s after-tax net income, while WFOE shall be obligated to absorb all of losses of Highlight Media. Accordingly, under U.S. GAAP, WFOE will treat Highlight Media as a consolidated affiliated entity and will consolidate the financial results and balance sheet of Highlight Media in the consolidated financial statements under U.S. GAAP.
On September 29, 2022. the Shares were issued to the Highlight Media Shareholders. The Acquisition was completed.
Warrants and options
On July 29, 2015, the Company sold 10,000,000 units at a purchase price of $5.00 per unit (“Public Units”) in its initial public offering. Each Public Unit consists of one share of the Company’s common stock, $0.0001 par value, and one warrant. Each warrant will entitle the holder to purchase one-half of one share of common stock at an exercise price of $2.88 per half share ($5.75 per whole share). Warrants may be exercised only for a whole number of shares of common stock. No fractional shares will be issued upon exercise of the warrants. The warrants will become exercisable on 30 days after the consummation of its initial Business Combination with China Sunlong on February 6, 2018. The warrants will expire February 5, 2023. The warrants will be redeemable by the Company at a price of $0.01 per warrant upon 30 days prior written notice after the warrants become exercisable, only in the event that the last sale price of the common stock equals or exceeds $12.00 per share for any 20 trading days within a 30-trading day period ending on the third business day prior to the date on which notice of redemption is given.
The sponsor of the Company purchased, simultaneously with the closing of the Public Offering on July 29, 2015, 500,000 units at $5.00 per unit in a private placement for an aggregate price of $2,500,000. Each unit purchased is substantially identical to the units sold in the Public Offering.
The Company sold to the underwriter (and/or its designees), for $100, as additional compensation, an option to purchase up to a total of 800,000 units exercisable at $5.00 per unit (or an aggregate exercise price of $4,000,000) upon the closing of the Public Offering. Since the option is not exercisable until the earliest on the closing the initial Business Combination, the option will effectively represent the right to purchase up to 800,000 shares of common stock and 800,000 warrants to purchase 400,000 shares at $5.75 per full share for an aggregate maximum amount of $6,300,000. The units issuable upon exercise of this option are identical to those issued in the Public Offering.
In July 2016, the board of directors of the Company appointed two new directors. In August 2016, the sponsor of the Company granted an option to each of the two new directors to acquire 12,000 shares of common stock at a price of $4.90 per share vested immediately and exercisable commencing six months after closing of the initial Business Combination and expiring five years from the closing of the initial Business Combination.
The aforementioned warrants and options are deemed to be effective on February 6, 2018, the date of the consummation of its initial business combination with China Sunlong, as the Company was deemed to be the accounting acquiree in the transaction and the transaction was treated as a recapitalization of China Sunlong.
After the 1-for-30 reverse stock split effective on November 9, 2022, all options, warrants and other convertible securities of the Company outstanding immediately prior to the reverse stock split were adjusted by dividing the number of shares of common stock into which the options, warrants and other convertible securities are exercisable or convertible by thirty (30) and multiplying the exercise or conversion price thereof by thirty (30), all in accordance with the terms of the plans, agreements or arrangements governing such options, warrants and other convertible securities and subject to rounding to the nearest whole share.
The summary of warrant activity is as follows:
The summary of option activity is as follows:
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Commitments and Contingencies |
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| Commitments and Contingencies [Abstract] | |
| Commitments and contingencies | Note 13 – Commitments and contingencies
Contingencies
From time to time, the Company may be subject to certain legal proceedings, claims and disputes that arise in the ordinary course of business. Although the outcomes of these legal proceedings cannot be predicted, the Company does not believe these actions, in the aggregate, will have a material adverse impact on its financial position, results of operations or liquidity. |
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| Segment reporting | Note 14 – Segment reporting
The Company follows ASC 280, Segment Reporting, which requires that companies disclose segment data based on how management makes decision about allocating resources to segments and evaluating their performance. The Company’s chief operating decision maker evaluates performance and determines resource allocations based on a number of factors, the primary measure being income from operations.
The Company’s remain business segment and operations is Highlight Media. The Company’s consolidated results of operations and consolidated financial position from continuing operations are almost all attributable to Highlight Media; accordingly, management believes that the consolidated balance sheets and statement of operations provide the relevant information to assess Highlight Media’s performance.
The following represents assets by division as of:
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| Discontinued Operations [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Discontinued Operations | Note 15 – Discontinued Operations
The following depicts the financial position for the discounted operations of Tongrong WOFE, Rong Hai and Wuge as of September 30, 2022 and December 31, 2021, and the result of operations for the discounted operations of Tongrong WOFE, Rong Hai and Wuge for the nine months ended September 30, 2022 and 2021.
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Subsequent Events |
9 Months Ended |
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Sep. 30, 2022 | |
| Subsequent Events [Abstract] | |
| Subsequent events | Note 16 – Subsequent events
On October 4, 2022, Mr. Wei Xu tendered his resignation as the Chief Executive Officer, President, Chairman of the Board and a director of the Company, effective October 4, 2022. The resignation of Mr. Wei Xu was not a result of any disagreement with the Company’s operations, policies or procedures.
On October 4, 2022, Mr. Bibo Lin tendered his resignation as the Vice President and a director of the Company, effective October 4, 2022. The resignation of Mr. Bibo Lin was not a result of any disagreement with the Company’s operations, policies or procedures.
On October 4, 2022, approved by the Board of Directors, the Nominating and Corporate Governance Committee and the Compensation Committee, Mr. Hongxiang Yu was appointed as the Chief Executive Officer, President, Chairman of the Board and a director of the Company, effective October 4, 2022, and Ms. Shuang Zhang was appointed as the Vice President and a director of the Company, effective October 4, 2022.
On October 11, 2022, the Company notified its independent registered public accounting firm, WWC, P.C. its decision to dismiss WWC, P.C. as the Company’s auditor.
On October 11, 2022, the Audit Committee and the Board of Directors of the Company appointed Enrome LLP as its new independent registered public accounting firm to audit the Company’s financial statements.
On November 4, 2022, the Company filed a Certificate of Amendment to the Articles of Incorporation (the “Certificate of Amendment”) with the Nevada Secretary of State to effect a reverse stock split of the outstanding shares of common stock, par value $0.0001 per shares, of the Company at a ratio of one-for-thirty (30), which became effective at 12:01 a.m. on November 9, 2022 (the “Reverse Stock Split”). Upon effectiveness of the Reverse Stock Split, every thirty (30) outstanding shares of common stock were combined into and automatically become one share of common stock. No fractional shares were issued in connection with the Reverse Stock Split and all such fractional interests were rounded up to the nearest whole number of shares of common stock. The authorized shares prior to and following the Reverse Stock Split remains the same at 200,000,000 shares of common stock, par value $0.0001 per shares, and 20,000,000 shares of preferred stock, par value $0.0001 per shares. The Reverse Stock Split does not alter the par value of the Company’s common stock or modify any voting rights or other terms of the common stock. The Reverse Stock Split was approved and authorized by a majority of the Company’s stockholder at a special meeting of stockholders held on October 18, 2022 and by the Board of Directors of the Company on October 21, 2022. The Company’s common stock continues to trade on the Nasdaq Capital Market under the existing symbol “CCNC”. The new CUSIP number following the Reverse Stock Split is 19200A204. |
Accounting Policies, by Policy (Policies) |
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| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Basis of presentation | Basis of presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for information pursuant to the rules and regulations of the Securities Exchange Commission (“SEC”).
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| Principles of consolidation | Principles of consolidation
The unaudited condensed financial statements of the Company include the accounts of CCNC and its wholly owned subsidiaries and VIE. All intercompany transactions and balances are eliminated upon consolidation.
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| Use of estimates and assumptions | Use of estimates and assumptions
The preparation of unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the periods presented. Significant accounting estimates reflected in the Company’s unaudited condensed consolidated financial statements include the useful lives of intangible assets, deferred revenues and plant and equipment, impairment of long-lived assets, collectability of receivables, inventory valuation allowance, present value of lease liabilities and realization of deferred tax assets. Actual results could differ from these estimates.
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| Foreign currency translation and transaction | Foreign currency translation and transaction
The reporting currency of the Company is the U.S. dollar. The Company in China conducts its businesses in the local currency, Renminbi (RMB), as its functional currency. Assets and liabilities are translated at the unified exchange rate as quoted by the People’s Bank of China at the end of the period. The statement of income accounts are translated at the average translation rates and the equity accounts are translated at historical rates. Translation adjustments resulting from this process are included in accumulated other comprehensive income. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.
Translation adjustments included in accumulated other comprehensive loss amounted to $107,673 and $225,857 as of September 30, 2022 and December 31, 2021, respectively. The balance sheet amounts, with the exception of shareholders’ equity at September 30, 2022 and December 31, 2021 were translated at 7.11 RMB and 6.38 RMB to $1.00, respectively. The shareholders’ equity accounts were stated at their historical rate. The average translation rates applied to statement of income accounts for the nine months ended September 30, 2022 and 2021 were 6.61 RMB and 6.47 RMB, respectively. Cash flows are also translated at average translation rates for the periods, therefore, amounts reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated balance sheet.
The PRC government imposes significant exchange restrictions on fund transfers out of the PRC that are not related to business operations. These restrictions have not had a material impact on the Company because it has not engaged in any significant transactions that are subject to the restrictions.
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| Investments | Investments
The Company purchases certain liquid short term investments such as money market funds and or other short term debt securities marketed by financial institutions. These investments are not insured against loss of principal. These investments are accounted for as financial instruments that are marked to fair market value at the end of each reporting period. For investments that are held to maturity debt instruments, which have short maturities, and limited risk profiles, amortized cost may be the best approximation of their fair value and used for such investments.
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| Accounts receivable, net | Accounts receivable, net
Accounts receivable include trade accounts due from customers. An allowance for doubtful accounts may be established and recorded based on management’s assessment of potential losses based on the credit history and relationships with the customers. Management reviews its receivables on a regular basis to determine if the bad debt allowance is adequate, and adjusts the allowance when necessary. Delinquent account balances are written-off against allowance for doubtful accounts after management has determined that the likelihood of collection is not probable.
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| Inventories | Inventories
Inventories are comprised of raw materials and work in progress and are stated at the lower of cost or net realizable value using the weighted average method in Highlight Media. Management reviews inventories for obsolescence and cost in excess of net realizable value at least annually and recognize an impairment charge against the inventory when the carrying value exceeds net realizable value. As of September 30, 2022 and December 31, 2021, no obsolescence and cost in excess of net realizable value were recognized.
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| Prepayments | Prepayments
Prepayments are funds deposited or advanced to outside vendors for future inventory or services purchases. As a standard practice in China, many of the Company’s vendors require a certain amount to be deposited with them as a guarantee that the Company will complete its purchases on a timely basis. This amount is refundable and bears no interest. The Company has legally binding contracts with its vendors, which require any outstanding prepayments to be returned to the Company when the contract ends.
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| Plant and equipment | Plant and equipment
Plant and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed using the straight-line method after consideration of the estimated useful lives of the assets and estimated residual value. The estimated useful lives and residual value are as follows:
The cost and related accumulated depreciation and amortization of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the consolidated statements of income and comprehensive income. Expenditures for maintenance and repairs are charged to earnings as incurred, while additions, renewals and betterments, which are expected to extend the useful life of assets, are capitalized. The Company also re-evaluates the periods of depreciation and amortization to determine whether subsequent events and circumstances warrant revised estimates of useful lives.
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| Intangible assets | Intangible assets
Intangible assets represent land use rights and patents, and they are stated at cost, less accumulated amortization. Research and development costs associated with internally developed patents are expensed when incurred. Amortization expense is recognized on the straight-line basis over the estimated useful lives of the assets. All land in the PRC is owned by the government; however, the government grants “land use rights.” The Company has obtained the rights to use various parcels of land. The patents have finite useful lives and are amortized using a straight-line method that reflects the estimated pattern in which the economic benefits of the intangible asset are to be consumed. The Company amortizes the cost of the land use rights and patents, over their useful life using the straight-line method. The Company also re-evaluates the periods of amortization to determine whether subsequent events and circumstances warrant revised estimates of useful lives. The estimated useful lives are as follows:
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| Goodwill | Goodwill
Goodwill represents the excess of the consideration paid of an acquisition over the fair value of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill is not amortized and is tested for impairment at least annually, more often when circumstances indicate impairment may have occurred. Goodwill is carried at cost less accumulated impairment losses. If impairment exists, goodwill is immediately written off to its fair value and the loss is recognized in the consolidated statements of income. Impairment losses on goodwill are not reversed.
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| Impairment for long-lived assets | Impairment for long-lived assets
Long-lived assets, including plant, equipment and intangible assets with finite lives are reviewed for impairment whenever events or changes in circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate that the carrying value of an asset may not be recoverable. The Company assesses the recoverability of the assets based on the undiscounted future cash flows the assets are expected to generate and recognize an impairment loss when estimated undiscounted future cash flows expected to result from the use of the asset plus net proceeds expected from disposition of the asset, if any, are less than the carrying value of the asset. If an impairment is identified, the Company would reduce the carrying amount of the asset to its estimated fair value based on a discounted cash flows approach or, when available and appropriate, to comparable market values.
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| Fair value measurement | Fair value measurement
The accounting standard regarding fair value of financial instruments and related fair value measurements defines financial instruments and requires disclosure of the fair value of financial instruments held by the Company. The Company considers the carrying amount of cash, notes receivable, accounts receivable, other receivables, prepayments, accounts payable, other payables and accrued liabilities, customer deposits, short term loans and taxes payable to approximate their fair values because of their short term nature.
The accounting standards define fair value, establish a three-level valuation hierarchy for disclosures of fair value measurement and enhance disclosure requirements for fair value measures. The three levels are defined as follow:
Financial instruments included in current assets and current liabilities are reported in the consolidated balance sheets at face value or cost, which approximate fair value because of the short period of time between the origination of such instruments and their expected realization and their current market rates of interest.
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| Customer deposits | Customer deposits
Highlight Media typically receives customer deposits for services to be rendered from its customers. As Highlight Media delivers the services, it will recognize these deposits to results of operations in accordance to its revenue recognition policy.
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| Revenue recognition | Revenue recognition
On January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2014-09 Revenue from Contracts with Customers (ASC 606) using the modified retrospective method for contracts that were not completed as of January 1, 2018. This did not result in an adjustment to retained earnings upon adoption of this new guidance as the Company’s revenue, other than retainage revenues, was recognized based on the amount of consideration we expect to receive in exchange for satisfying the performance obligations. However, the impact of the Company’s retainage revenue was not material as of the date of adoption, and as a result, did not result in an adjustment.
The core principle underlying the revenue recognition ASU is that the Company will recognize revenue to represent the transfer of goods and services to customers in an amount that reflects the consideration to which the Company expects to be entitled in such exchange. This will require the Company to identify contractual performance obligations and determine whether revenue should be recognized at a point in time or over time, based on when control of goods and services transfers to a customer. The Company’s revenue streams are primarily recognized at a point in time.
The ASU requires the use of a new five-step model to recognize revenue from customer contracts. The five-step model requires that the Company (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation. The application of the five-step model to the revenue streams compared to the prior guidance did not result in significant changes in the way the Company records its revenue. Upon adoption, the Company evaluated its revenue recognition policy for all revenue streams within the scope of the ASU under previous standards and using the five-step model under the new guidance and confirmed that there were no differences in the pattern of revenue recognition except its retainage revenues.
An entity will also be required to determine if it controls the goods or services prior to the transfer to the customer in order to determine if it should account for the arrangement as a principal or agent. Principal arrangements, where the entity controls the goods or services provided, will result in the recognition of the gross amount of consideration expected in the exchange. Agent arrangements, where the entity simply arranges but does not control the goods or services being transferred to the customer, will result in the recognition of the net amount the entity is entitled to retain in the exchange.
Revenues from the goods are recognized at a point in time when legal title and control over the sign is transferred to the customer. Management has determined that for the sales of the goods there is a single performance obligation that is met when the aforementioned control is transferred. Typically, customers make payment for the product in advance; the Company will record the payment as contract liabilities under the liability account customer deposits until the Company delivers the product by transferring control. Such revenues are recognized at a point in time after all performance obligations are satisfied under the new five-step model.
Payments received prior to the relevant criteria for revenue recognition are met, are recorded as customer deposits.
The Company’s disaggregate revenue streams are summarized as follows:
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| Research and Development (“R&D”) Expenses | Research and Development (“R&D”) Expenses
Research and development expenses include salaries and other compensation-related expenses paid to the Company’s research and product development personnel while they are working on R&D projects, as well as raw materials used for the R&D projects. R&D expenses incurred by the Company are included in the selling, general and administrative expenses.
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| Income taxes | Income taxes
The Company accounts for income taxes in accordance with U.S. GAAP for income taxes. The charge for taxation is based on the results for the fiscal year as adjusted for items, which are non-assessable or disallowed. It is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.
Deferred taxes is accounted for using the asset and liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the consolidated financial statements and the corresponding tax basis used in the computation of assessable tax profit. In principle, deferred tax liabilities are recognized for all taxable temporary differences. Deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against which deductible temporary differences can be utilized. Deferred tax is calculated using tax rates that are expected to apply to the period when the asset is realized or the liability is settled. Deferred tax is charged or credited in the income statement, except when it is related to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Current income taxes are provided for in accordance with the laws of the relevant taxing authorities.
An uncertain tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. Penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the period incurred. The Company incurred no such penalties and interest for the nine months ended September 30, 2022 and 2021. As of September 30, 2022, the Company’s PRC tax returns filed for 2019, 2020 and 2021 remain subject to examination by any applicable tax authorities.
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| Earnings per share | Earnings per share
Basic earnings per share are computed by dividing income available to common shareholders of the Company by the weighted average common shares outstanding during the period. Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts to issue common shares were exercised and converted into common shares. 9,079,348 and 10,500,000 of outstanding warrants which is equivalent to convertible of 4,539,674 and 5,250,000 common shares were excluded from the diluted earnings per share calculation due to its antidilutive effect for the nine months ended September 30, 2022 and 2021, respectively. 824,000 of outstanding options were excluded from the diluted earnings per share calculation due to its antidilutive effect for the nine months ended September 30, 2022 and 2021.
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| Recently issued accounting pronouncements | Recently issued accounting pronouncements
In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments in this Update affect any entity that is required to apply the provisions of Topic 220, Income Statement – Reporting Comprehensive Income, and has items of other comprehensive income for which the related tax effects are presented in other comprehensive income as required by GAAP. The amendments in this Update are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption of the amendments in this Update is permitted, including adoption in any interim period, (1) for public business entities for reporting periods for which financial statements have not yet been issued and (2) for all other entities for reporting periods for which financial statements have not yet been made available for issuance. The amendments in this Update should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. The Company does not believe the adoption of this ASU would have a material effect on the Company’s unaudited condensed consolidated financial statements.
The Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the Company’s unaudited condensed consolidated balance sheets, statements of income and comprehensive income and statements of cash flows. |
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Nature of Business and Organization (Tables) |
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| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of consolidated financial statements reflect the activities of CCNC |
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Summary of Significant Accounting Policies (Tables) |
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| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of estimated useful lives of plant and equipment |
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| Schedule of estimated useful lives of intangible assets |
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| Schedule of disaggregate revenue |
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Business Combination and Restructuring (Tables) |
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| Business Combinations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of net purchase price allocation |
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| Schedule of the fair value of the identifiable assets acquired and liabilities assumed at the acquisition date |
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Variable Interest Entity (Tables) |
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Sep. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of carrying amount of the VIE’s assets and liabilities |
|
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| Schedule of summarized operating results of the VIE’s |
|
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Inventories (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2022 | |||||||||||||||||||||||||||||||||||||
| Inventories [Abstract] | |||||||||||||||||||||||||||||||||||||
| Schedule of inventories |
|
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Plant and Equipment, Net (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of plant and equipment |
|
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Intangible Assets, Net (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||
| Intangible Assets, Net [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of intangible assets |
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Goodwill (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Intangible Assets, Net [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of carrying amount of goodwill by business units |
|
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Related Party Balances and Transactions (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Related Party Balances and Transactions [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of other receivable – related parties |
|
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| Schedule of other payables – related parties |
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Taxes (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Taxes [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of components of deferred tax assets |
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| Schedule of taxes payable |
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Equity (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stockholders' Equity Note [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of warrant activity |
|
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| Schedule of option activity |
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Segment Reporting (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Segment Reporting [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of assets by division |
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Discontinued Operations (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Discontinued Operations [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of financial position for the discounted operations |
|
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Nature of Business and Organization (Details) - $ / shares |
3 Months Ended | 9 Months Ended | |
|---|---|---|---|
Sep. 28, 2022 |
Mar. 31, 2021 |
Sep. 30, 2022 |
|
| Accounting Policies [Abstract] | |||
| Average Price PerShare | $ 0.237 | ||
| Share purchase agreement, description | Pursuant to the agreement, on March 31, 2021, CCNC sold all the issued and outstanding ordinary shares of Tongrong WFOE to the Buyer at a purchase price of $2,464,411 and caused 426,369 shares of common stock of CCNC owned by the Payee to be cancelled. | ||
| Agreement term | 20 years |
Summary of Significant Accounting Policies (Details) - USD ($) |
9 Months Ended | 12 Months Ended | |
|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Dec. 31, 2021 |
|
| Accounting Policies [Abstract] | |||
| Other comprehensive income (in Dollars) | $ 107,673 | $ 225,857 | |
| Foreign currency translation, description | The balance sheet amounts, with the exception of shareholders’ equity at September 30, 2022 and December 31, 2021 were translated at 7.11 RMB and 6.38 RMB to $1.00, respectively. The shareholders’ equity accounts were stated at their historical rate. The average translation rates applied to statement of income accounts for the nine months ended September 30, 2022 and 2021 were 6.61 RMB and 6.47 RMB, respectively. Cash flows are also translated at average translation rates for the periods, therefore, amounts reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated balance sheet. | ||
| Income tax benefit, percentage | 50.00% | ||
| Outstanding warrants | 9,079,348 | 10,500,000 | |
| Common shares excluded from diluted earnings per share | 4,539,674 | 5,250,000 | |
| Outstanding options | 824,000 | 824,000 | |
Summary of Significant Accounting Policies (Details) - Schedule of estimated useful lives of plant and equipment |
9 Months Ended |
|---|---|
Sep. 30, 2022 | |
| Building [Member] | |
| Summary of Significant Accounting Policies (Details) - Schedule of estimated useful lives of plant and equipment [Line Items] | |
| Plant and equipment, Estimated Residual Value | 5.00% |
| Building [Member] | Minimum [Member] | |
| Summary of Significant Accounting Policies (Details) - Schedule of estimated useful lives of plant and equipment [Line Items] | |
| Plant and equipment, Useful Life | 5 years |
| Building [Member] | Maximum [Member] | |
| Summary of Significant Accounting Policies (Details) - Schedule of estimated useful lives of plant and equipment [Line Items] | |
| Plant and equipment, Useful Life | 20 years |
| Office equipment and furnishing [Member] | |
| Summary of Significant Accounting Policies (Details) - Schedule of estimated useful lives of plant and equipment [Line Items] | |
| Plant and equipment, Useful Life | 5 years |
| Plant and equipment, Estimated Residual Value | 5.00% |
| Production equipment [Member] | |
| Summary of Significant Accounting Policies (Details) - Schedule of estimated useful lives of plant and equipment [Line Items] | |
| Plant and equipment, Estimated Residual Value | 5.00% |
| Production equipment [Member] | Minimum [Member] | |
| Summary of Significant Accounting Policies (Details) - Schedule of estimated useful lives of plant and equipment [Line Items] | |
| Plant and equipment, Useful Life | 3 years |
| Production equipment [Member] | Maximum [Member] | |
| Summary of Significant Accounting Policies (Details) - Schedule of estimated useful lives of plant and equipment [Line Items] | |
| Plant and equipment, Useful Life | 10 years |
| Automobile [Member] | |
| Summary of Significant Accounting Policies (Details) - Schedule of estimated useful lives of plant and equipment [Line Items] | |
| Plant and equipment, Useful Life | 5 years |
| Plant and equipment, Estimated Residual Value | 5.00% |
| Leasehold improvements [Member] | |
| Summary of Significant Accounting Policies (Details) - Schedule of estimated useful lives of plant and equipment [Line Items] | |
| Plant and equipment, Estimated Residual Value | 0.00% |
| Property and equipment, Useful Life, description | Shorter of the remaining lease terms or estimated useful lives |
Summary of Significant Accounting Policies (Details) - Schedule of estimated useful lives of intangible assets |
9 Months Ended |
|---|---|
Sep. 30, 2022 | |
| Land use rights [Member] | |
| Summary of Significant Accounting Policies (Details) - Schedule of estimated useful lives of intangible assets [Line Items] | |
| Estimated useful lives for intangible assets | 50 years |
| Patents [Member] | Minimum [Member] | |
| Summary of Significant Accounting Policies (Details) - Schedule of estimated useful lives of intangible assets [Line Items] | |
| Estimated useful lives for intangible assets | 10 years |
| Patents [Member] | Maximum [Member] | |
| Summary of Significant Accounting Policies (Details) - Schedule of estimated useful lives of intangible assets [Line Items] | |
| Estimated useful lives for intangible assets | 20 years |
| Software [Member] | |
| Summary of Significant Accounting Policies (Details) - Schedule of estimated useful lives of intangible assets [Line Items] | |
| Estimated useful lives for intangible assets | 5 years |
Summary of Significant Accounting Policies (Details) - Schedule of disaggregate revenue - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
| Schedule Of Disaggregate Revenue Abstract | ||||
| Revenues –Enterprise brand management services | ||||
| Total revenues | ||||
Business Combination and Restructuring (Details) - USD ($) |
9 Months Ended | |
|---|---|---|
Sep. 30, 2022 |
Sep. 16, 2022 |
|
| Business Combination and Restructuring (Details) [Line Items] | ||
| Goodwill acquisition | $ 2,123,879 | |
| Impairment charge | 0 | |
| Purchase Agreement [Member] | ||
| Business Combination and Restructuring (Details) [Line Items] | ||
| Aggregate shares issued (in Shares) | 9,000,000 | |
| Percentage of service fee | 100.00% | |
| Highlight Media [Member] | ||
| Business Combination and Restructuring (Details) [Line Items] | ||
| Goodwill acquisition | $ 2,100,000 |
Business Combination and Restructuring (Details) - Schedule of net purchase price allocation |
9 Months Ended |
|---|---|
|
Sep. 30, 2022
USD ($)
| |
| Schedule Of Net Purchase Price Allocation [Abstract] | |
| Total consideration at fair value | $ 2,250,000 |
Business Combination and Restructuring (Details) - Schedule of the fair value of the identifiable assets acquired and liabilities assumed at the acquisition date - Wuge [Member] |
Sep. 30, 2022
USD ($)
|
|---|---|
| Business Combination and Restructuring (Details) - Schedule of the fair value of the identifiable assets acquired and liabilities assumed at the acquisition date [Line Items] | |
| Cash | $ 47,498 |
| Other current assets | 107,828 |
| Plant and equipment | 1,205 |
| Other noncurrent assets | |
| Goodwill | 2,121,947 |
| Total asset | 2,278,478 |
| Accounts payable | 14,170 |
| Taxes Payable | 363 |
| Other Payable | 13,945 |
| Total liabilities | 28,478 |
| Net asset acquired | $ 2,250,000 |
Variable Interest Entity (Details) - USD ($) |
1 Months Ended | ||
|---|---|---|---|
Sep. 28, 2022 |
Mar. 30, 2021 |
Jan. 31, 2021 |
|
| Accounting Policies [Abstract] | |||
| Purchase price | $ 2,464,411 | ||
| Cancelling shares of common stock | 426,369 | ||
| Average closing price per share | $ 0.237 | $ 5.78 | |
| Total of shares of common stock | 4,000,000 | ||
Variable Interest Entity (Details) - Schedule of carrying amount of the VIE’s assets and liabilities - USD ($) |
Sep. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Schedule Of Carrying Amount Of The Vie SAssets And Liabilities [Abstract] | ||
| Cash and cash equivalents | $ 47,498 | $ 14,385,549 |
| Accounts receivable, net | 30,247 | |
| Other receivables, net | 76,709 | 1,600,240 |
| Other receivable - related party | 610,948 | |
| Inventories | 3,714 | |
| Prepayments | 872 | 657,858 |
| Total current assets | 155,326 | 17,258,309 |
| Property, plants and equipment | 1,205 | 284,151 |
| Other noncurrent assets | 1,825,048 | |
| Goodwill | 2,123,879 | 6,590,339 |
| Total assets | 2,280,410 | 25,957,847 |
| Total current liabilities | 28,478 | 15,825,043 |
| Lease liabilities - noncurrent | 8,738 | |
| Non-current liabilities | 8,738 | |
| Total liabilities | 28,478 | 15,833,781 |
| Net assets | 2,251,932 | 10,124,066 |
| Accounts payable | 14,170 | 3,202,771 |
| Other payables and accrued liabilities | 13,945 | 1,622,689 |
| Other payables – related party | 2,841,242 | |
| Tax payables | 363 | 973,748 |
| Customer Advances | 7,171,255 | |
| Lease liabilities | $ 13,338 |
Variable Interest Entity (Details) - Schedule of summarized operating results of the VIE’s - Variable Interest Entities [Member] |
9 Months Ended |
|---|---|
|
Sep. 30, 2022
USD ($)
| |
| Variable Interest Entity (Details) - Schedule of summarized operating results of the VIE’s [Line Items] | |
| Operating revenues | |
| Gross profit | |
| Income from operations | |
| Net income |
Inventories (Details) - Schedule of inventories - USD ($) |
Sep. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Schedule Of Inventories Abstract | ||
| Raw materialsc | ||
| Finished Goods | 3,714 | |
| Total inventories | $ 3,714 |
Plant and Equipment, Net (Details) - USD ($) |
9 Months Ended | |
|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
|
| Property, Plant and Equipment [Abstract] | ||
| Depreciation expense | $ 33,192 | $ 1,237,480 |
Plant and Equipment, Net (Details) - Schedule of plant and equipment - USD ($) |
Sep. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Property, Plant and Equipment [Line Items] | ||
| Subtotal | $ 9,734 | $ 344,143 |
| Less: accumulated depreciation | (8,529) | (60,247) |
| Total | 1,205 | 283,896 |
| Office equipment and furniture [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Subtotal | 9,734 | 124,248 |
| Automobile [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Subtotal | $ 219,895 |
Intangible Assets, Net (Details) - USD ($) |
9 Months Ended | |
|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
|
| Intangible Assets, Net [Abstract] | ||
| Amortization expense | $ 98 | $ 100 |
Intangible Assets, Net (Details) - Schedule of intangible assets - USD ($) |
Sep. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Finite-Lived Intangible Assets [Line Items] | ||
| Less: accumulated amortization | $ (784,584) | |
| Net intangible assets | 255 | |
| Development of technology [Member] | ||
| Finite-Lived Intangible Assets [Line Items] | ||
| Intangible assets, gross | 784,227 | |
| Software [Member] | ||
| Finite-Lived Intangible Assets [Line Items] | ||
| Intangible assets, gross | $ 612 |
Goodwill (Details) - Schedule of carrying amount of goodwill business units |
9 Months Ended |
|---|---|
|
Sep. 30, 2022
USD ($)
| |
| Goodwill [Line Items] | |
| Balance as of December 31, 2021 | $ 6,590,339 |
| Goodwill acquired through acquisition | 2,123,879 |
| Goodwill impairments | (6,590,339) |
| Balance as of September 30, 2022 | 2,123,879 |
| Highlight Media [Member] | |
| Goodwill [Line Items] | |
| Balance as of December 31, 2021 | |
| Goodwill acquired through acquisition | 2,123,879 |
| Goodwill impairments | |
| Balance as of September 30, 2022 | 2,123,879 |
| Wuge [Member] | |
| Goodwill [Line Items] | |
| Balance as of December 31, 2021 | 6,590,339 |
| Goodwill impairments | (6,590,339) |
| Balance as of September 30, 2022 |
Related Party Balances and Transactions (Details) - Schedule of other receivable – related party - USD ($) |
9 Months Ended | |
|---|---|---|
Sep. 30, 2022 |
Dec. 31, 2021 |
|
| Related Party Balances and Transactions (Details) - Schedule of other receivable – related party [Line Items] | ||
| Name of related party | Total | |
| Other receivable – related party | $ 610,948 | |
| Chengdu Yuan Code Chain Technology Co. Ltd [Member] | ||
| Related Party Balances and Transactions (Details) - Schedule of other receivable – related party [Line Items] | ||
| Name of related party | Chengdu Yuan Code Chain Technology Co. Ltd | |
| Relationship | A company controlled by former shareholder of the Company | |
| Other receivable – related party | 513,387 | |
| Marchain (Shanghai) Network Technology Co., LTD [Member] | ||
| Related Party Balances and Transactions (Details) - Schedule of other receivable – related party [Line Items] | ||
| Name of related party | Marchain (Shanghai) Network Technology Co., LTD | |
| Relationship | A company controlled by shareholder of the Company | |
| Other receivable – related party | 78,423 | |
| Chenghua District Code To Code To Commerce And Trade Department [Member] | ||
| Related Party Balances and Transactions (Details) - Schedule of other receivable – related party [Line Items] | ||
| Name of related party | Chenghua District Code To Code To Commerce And Trade Department | |
| Relationship | A company controlled by employee of the Company | |
| Other receivable – related party | $ 19,138 |
Related Party Balances and Transactions (Details) - Schedule of other payables – related parties - USD ($) |
9 Months Ended | |
|---|---|---|
Sep. 30, 2022 |
Dec. 31, 2021 |
|
| Related Party Balances and Transactions (Details) - Schedule of other payables – related parties [Line Items] | ||
| Name of related party | Total | |
| Other payables - related parties | $ 466,407 | $ 466,407 |
| Chuanliu Ni [Member] | ||
| Related Party Balances and Transactions (Details) - Schedule of other payables – related parties [Line Items] | ||
| Name of related party | Chuanliu Ni | |
| Relationship | Chief Executive Officer and director of a former subsidiary | |
| Other payables - related parties | $ 325,907 | 325,907 |
| Zhong Hui Holding Limited [Member] | ||
| Related Party Balances and Transactions (Details) - Schedule of other payables – related parties [Line Items] | ||
| Name of related party | Zhong Hui Holding Limited | |
| Relationship | Shareholder of the Company | |
| Other payables - related parties | $ 140,500 | $ 140,500 |
Taxes (Details) - USD ($) $ in Millions |
1 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Apr. 30, 2019 |
May 31, 2018 |
Dec. 22, 2017 |
Sep. 30, 2022 |
|
| Taxes (Details) [Line Items] | ||||
| Net operating loss (in Dollars) | $ 14.4 | |||
| Minimum [Member] | ||||
| Taxes (Details) [Line Items] | ||||
| Value added tax | 6.00% | 6.00% | ||
| Gross sales price, percentage | 6.00% | |||
| Maximum [Member] | ||||
| Taxes (Details) [Line Items] | ||||
| Value added tax | 13.00% | 17.00% | ||
| Gross sales price, percentage | 16.00% | |||
| United States [Member] | ||||
| Taxes (Details) [Line Items] | ||||
| Net operating loss carry forward (in Dollars) | $ 3.0 | |||
| Deferred tax asset valuation allowance, description | Accordingly, the Company has provided a 100% valuation allowance on the deferred tax asset to reduce the asset to zero. | |||
| Corporate tax rate, description | On December 22, 2017, the “Tax Cuts and Jobs Act” (“The 2017 Tax Act”) was enacted in the United States. Under the provisions of the Act, the U.S. corporate tax rate decreased from 34% to 21%. The 2017 Tax Act imposed a global intangible low-taxed income tax (“GILTI”), which is a new tax on certain off-shore earnings at an effective rate of 10.5% for tax years beginning after December 31, 2017 (increasing to 13.125% for tax years beginning after December 31, 2025) with a partial offset for foreign tax credits. The Company determined that there are no impact of GILTI for the nine months ended September 30, 2022 and 2021, which the Company believes that it will be imposed a minimum tax rate of 10.5% and to the extent foreign tax credits are available to reduce its US corporate tax, which may result in no additional US federal income tax being due. | |||
| Hong Kong [Member] | ||||
| Taxes (Details) [Line Items] | ||||
| Foreign tax rate, percentage | 16.50% | |||
| PRC [Member] | ||||
| Taxes (Details) [Line Items] | ||||
| Foreign tax rate, percentage | 25.00% | |||
Taxes (Details) - Schedule of deferred tax assets - USD ($) |
Sep. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Schedule Of Deferred Tax Assets Abstract | ||
| Net operating losses carried forward – U.S. | $ 3,026,905 | $ 5,191,512 |
| Net operating losses carried forward – PRC | ||
| Bad debt allowance | ||
| Valuation allowance | (3,026,905) | (5,191,512) |
| Deferred tax assets, net |
Taxes (Details) - Schedule of taxes payable - USD ($) |
Sep. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Schedule Of Taxes Payable Abstract | ||
| VAT taxes payable | $ 363 | $ 973,748 |
| Income taxes payable | 1,272,670 | |
| Other taxes payable | ||
| Total | $ 363 | $ 2,246,418 |
Concentration of Risk (Details) - USD ($) |
Sep. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| PRC [Member] | ||
| Concentration of Risk (Details) [Line Items] | ||
| Deposit for concentration risk | $ 47,498 | $ 14,385,549 |
| US [Member] | ||
| Concentration of Risk (Details) [Line Items] | ||
| Deposit for concentration risk | $ 202,781 | $ 202,781 |
Equity (Details) - USD ($) |
1 Months Ended | 9 Months Ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 13, 2022 |
Jun. 01, 2021 |
Jun. 21, 2022 |
Jul. 28, 2021 |
Feb. 23, 2021 |
Feb. 22, 2021 |
Aug. 31, 2016 |
Jul. 29, 2015 |
Sep. 30, 2022 |
Apr. 14, 2022 |
Dec. 31, 2021 |
|
| Equity (Details) [Line Items] | |||||||||||
| Statutory reserve, description | Makesi WFOE and Highlight Media are required to set aside at least 10% of their after-tax profits each year, if any, to fund certain statutory reserve funds until such reserve funds reach 50% of its registered capital. | ||||||||||
| Purchase agreement, description | On July 28, 2021, the Company entered into an asset purchase agreement with certain seller(the “Seller”) pursuant to which the Company agreed to purchase from the Seller digital currency mining machines for a total purchase price of RMB 106,388,672.43, or US$ 16,442,109.95 (based on the exchange rate between RMB and USD of 1: 6.4705 as of July 8, 2021), payable in the form of 7,647,493 shares of common stock of the Company(“CCNC Shares”). The CCNC Shares are valued at $2.15 per share. The Company plans to use the assets to further develop its digital currency mining operation. | On February 23, 2021, the Company entered into an asset purchase agreement with Sichuan RiZhanYun Jisuan Co., Ltd. (the “Seller”), which was amended and restated on April 16, 2021, and further amended on May 28, 2021. Pursuant to the asset purchase agreement, the Company purchased a total of 10,000 Bitcoin mining machines (the “Assets”) for a total purchase price of RMB 40,000,000 or US$6,160,000 based on the exchange rate as of April 8, 2021 (the “Purchase Price”), payable in the form of 1,587,800 shares of common stock of the Company, valued at US$3.88 per share, which is the closing bid price of the common stock of the Company on the Nasdaq Stock Market on April 8, 2021. The Seller shall cause revenue and any other source of income from the operation of the Assets to be paid to the Company, payable in cryptocurrency to be deposited into a cryptocurrency wallet held by the Company on a daily basis. The Company shall issue to the Seller or its designees RMB 5,000,000 or US$770,000 worth of common stock of the Company (the “Bonus Shares”) if the Assets generate an average net profit per day/10,000 machines (the “Daily Profit”) on behalf of the Company during the one-year period from March 19, 2021 to March 19, 2022 (the “Valuation Period”) equals to RMB 200,000 or US$30,800 and if the Assets generate an average net profit per month/10,000 machines (the “Monthly Profit”) on behalf of the Company during the Valuation Period equals to RMB 6,000,000 or US$924,000. If the Daily Profit is more than RMB 200,000 or US$30,800 and the Monthly Profit is more than RMB 6,000,000 or US$924,000, the Company shall issue to the Seller or its designees additional shares of common stock in proportion to the amount that is in excess. If the Daily Profit is less than RMB 200,000 or US$30,800 or the Monthly Profit is less than RMB 6,000,000 or US$924,000, the Company shall not issue to the Seller or its designees any Bonus Shares and such month is deemed a “Re-evaluated Month”. At the end of the Valuation Period, the Monthly Profit of such Re-evaluated Month(s) shall be aggregated (the “Aggregate Profit”), and the Company shall issue RMB5,000,000 or US$770,000 worth of common stock of the Company for every RMB6,000,000 or US$924,000 in Aggregate Profit on a pro rata basis. Such Daily Profit and Monthly Profit shall be determined on a monthly basis on the first day of the next month. Such Bonus Shares and additional shares, when applicable, shall be issued on the fifteenth day of the next month. For any month that has 28 days or 31 days, the Monthly Profit is calculated based on the actual number of days in the month. Notwithstanding the foregoing, no share pursuant to this Agreement shall be issued earlier than May 24, 2021 in any event. The total number of shares of common stock, including the Bonus Shares, issuable to the Seller or its designees pursuant to the Agreement shall in no event be more than 19.99% of the total shares issued and outstanding of Company as of the February 23, 2021, the date of the asset purchase agreement. On June 1, 2021, the Company issued to a designee of the Seller 2,513,294 shares of common stock, consisted of (i) the Purchase Price in the form of 1,587,800 shares of common stock and (ii) 925,494 Bonus Shares, valued at US$2.51 per share, which is the closing bid price of the common stock of the Company on the Nasdaq Stock Market on May 12, 2021, for meeting and exceeding the Daily Profit and Monthly Profit benchmark. Because the Assets were never delivered to the Company and the Company has not received and is not able to accept cryptocurrency from the operation of the Assets, the Company and the Seller agreed to rescind the Agreement and cancel the Shares on September 26, 2022. On July 28, 2021, the Company entered into an asset purchase agreement with certain seller(the “Seller”) pursuant to which the Company agreed to purchase from the Seller digital currency mining machines for a total purchase price of RMB 106,388,672.43, or US$ 16,442,109.95 (based on the exchange rate between RMB and USD of 1: 6.4705 as of July 8, 2021), payable in the form of 7,647,493 shares of common stock of the Company(“CCNC Shares”). The CCNC Shares are valued at $2.15 per share. The Company plans to use the assets to further develop its digital currency mining operation. On February 23, 2022, the Company entered into a termination agreement (the “Termination Agreement) with the Seller to terminate the Asset Purchase Agreement and forfeit the transaction. The parties agreed that the CCNC Shares shall be cancelled within 15 business days from the date of the Termination Agreement. On February 23, 2022, the Company entered into a termination agreement (the “Termination Agreement) with the Seller to terminate the Asset Purchase Agreement and forfeit the transaction. The parties agreed that the CCNC Shares shall be cancelled within 15 business days from the date of the Termination Agreement. On April 14, 2022, the Company entered into a Share Purchase Agreement (“SPA”) with Shanghai Yuanma Food and Beverage Management Co., Ltd., a PRC company (“Yuan Ma”), and all the shareholders of Yuan Ma (“Yuanma Shareholders”). Yuanma Shareholders are Wei Xu, the Chief Executive Officer and Chairman of the Board of the Company, and Jiangsu Lingkong Network Joint Stock Co., Ltd., which is controlled by Wei Xu. Pursuant to the SPA, the Company agreed to issue an aggregate of 7,680,000 shares of common stock of the Company, valued at $1.00 per share, to the Yuanma Shareholders, in exchange for Yuanma Shareholders’ agreement to enter into and to cause Yuan Ma to enter into certain agreements (“VIE Agreements”) with Makesi IoT Technology (Shanghai) Co., Ltd. (“Makesi WFOE”), the Company’s indirectly owned subsidiary, to establish a VIE (variable interest entity) structure (the “Acquisition”). On June 13, 2022, the Company held a special meeting of stockholders and approved the issuance of the 7,680,000 shares of common stock to Wei Xu. On June 21, 2022, pursuant to the SPA, Makesi WFOE entered into a series of VIE Agreements with Yuan Ma and Yuanma Shareholders, and the 7,680,000 shares of common stock were issued to Wei Xu. The transaction contemplated in the SPA was completed. On September 16, 2022, the Company entered into a Share Purchase Agreement (“SPA”) with Shanghai Highlight Media Co., Ltd., a PRC company (“Highlight Media”), and all the shareholders of Highlight Media (“Highlight Media Shareholders”). Pursuant to the SPA, the Company agreed to issue an aggregate of 9,000,000 shares of common stock of the Company (the “Shares”), valued at $0.25 per share, to the Highlight Media Shareholders, in exchange for Highlight Media’s and Highlight Media Shareholders’ agreement to enter into certain agreements (the “VIE Agreements”) with Makesi IoT Technology (Shanghai) Co., Ltd. | |||||||||
| Issued aggregate shares | 1,837,136 | 1,536,052 | |||||||||
| Bonus shares | 925,494 | ||||||||||
| Bonus shares value per share (in Dollars per share) | $ 2.51 | ||||||||||
| Aggregate of shares of common stock | 9,000,000 | ||||||||||
| Common stock price per share (in Dollars per share) | $ 0.25 | ||||||||||
| After-tax net income percentage | 100.00% | ||||||||||
| Common Stock [Member] | |||||||||||
| Equity (Details) [Line Items] | |||||||||||
| Issued aggregate shares | 2,513,294 | 7,680,000 | |||||||||
| Shares of common stock | 1,587,800 | ||||||||||
| Valued per share (in Dollars per share) | $ 1 | ||||||||||
| Stock issued | 7,680,000 | 7,680,000 | |||||||||
| Makesi WFOE [Member] | |||||||||||
| Equity (Details) [Line Items] | |||||||||||
| Restricted net assets (in Dollars) | $ 128,053 | ||||||||||
| Makesi WFOE [Member] | |||||||||||
| Equity (Details) [Line Items] | |||||||||||
| Restricted net assets (in Dollars) | $ 4,519,455 | ||||||||||
| Warrants Options [Member] | |||||||||||
| Equity (Details) [Line Items] | |||||||||||
| Number of shares | 10,000,000 | ||||||||||
| Purchase price per share (in Dollars per share) | $ 5 | ||||||||||
| Common stock rights, description | the Company’s common stock, $0.0001 par value, and one warrant. Each warrant will entitle the holder to purchase one-half of one share of common stock at an exercise price of $2.88 per half share ($5.75 per whole share). Warrants may be exercised only for a whole number of shares of common stock. No fractional shares will be issued upon exercise of the warrants. The warrants will become exercisable on 30 days after the consummation of its initial Business Combination with China Sunlong on February 6, 2018. The warrants will expire February 5, 2023. The warrants will be redeemable by the Company at a price of $0.01 per warrant upon 30 days prior written notice after the warrants become exercisable, only in the event that the last sale price of the common stock equals or exceeds $12.00 per share for any 20 trading days within a 30-trading day period ending on the third business day prior to the date on which notice of redemption is given. | ||||||||||
| Securities Purchase Agreement [Member] | |||||||||||
| Equity (Details) [Line Items] | |||||||||||
| Securities purchase agreement, description | On February 22, 2021, pursuant to a securities purchase agreement (the “Purchase Agreement”) with two institutional investors, the Company , closed (a) a registered direct offering (the “Registered Direct Offering”) for the sale of (i) 4,166,666 shares of common stock, par value $0.0001 of the Company (the “Shares”) and (ii) registered investor warrants, with a term of five years, exercisable immediately upon issuance, to purchase an aggregate of up to 1,639,362 shares of common stock (the “Registered Investor Warrant Shares”) at an exercise price of $6.72 per share, subject to adjustments thereunder, including a reduction in the exercise price, in the event of a subsequent offering at a price less than the then current exercise price, to the same price as the price in such offering (a “Price Protection Adjustment”) (the “Registered Investor Warrants”), and (b) a concurrent private placement (the “Private Placement” and collectively with the Registered Direct Offering, the “Offering”) for the sale of unregistered investor warrants, with a term of five and one-half years, first exercisable on the date that is the earlier of (i) six months after the date of issuance or (ii) the date on which the Company obtains stockholder approval approving the sale of all of the securities offered and sold under the Purchase Agreement (the “Stockholder Approval”) to purchase an aggregate of up to 2,527,304 shares of common stock (the “Unregistered Investor Warrant Shares”) at an exercise price of $6.72 per share, subject to adjustments thereunder, including (x) a Price Protection Adjustment and (y) in the event the exercise price is more than $6.10, a reduction of the exercise price to $6.10, upon obtaining the Stockholder Approval (the “Unregistered Investor Warrants”). The Shares, the Registered Investor Warrants, the Unregistered Investor Warrants, the Registered Investor Warrant Shares and the Unregistered Investor Warrant Shares are collectively referred to as the “Securities.” The Company received gross proceeds from the sale of the Securities of $24,999,996, before deducting placement agent fees and other Offering expenses. | ||||||||||
| Director [Member] | |||||||||||
| Equity (Details) [Line Items] | |||||||||||
| Common stock price per share (in Dollars per share) | $ 4.9 | ||||||||||
| Director [Member] | Series of Individually Immaterial Business Acquisitions [Member] | |||||||||||
| Equity (Details) [Line Items] | |||||||||||
| Acquire shares of common stock | 12,000 | ||||||||||
| Sponsor [Member] | |||||||||||
| Equity (Details) [Line Items] | |||||||||||
| Number of shares | 500,000 | ||||||||||
| Purchase price per share (in Dollars per share) | $ 5 | ||||||||||
| Aggregate price (in Dollars) | $ 2,500,000 | ||||||||||
| Underwriter [Member] | |||||||||||
| Equity (Details) [Line Items] | |||||||||||
| Securities purchase agreement, description | The Company sold to the underwriter (and/or its designees), for $100, as additional compensation, an option to purchase up to a total of 800,000 units exercisable at $5.00 per unit (or an aggregate exercise price of $4,000,000) upon the closing of the Public Offering. Since the option is not exercisable until the earliest on the closing the initial Business Combination, the option will effectively represent the right to purchase up to 800,000 shares of common stock and 800,000 warrants to purchase 400,000 shares at $5.75 per full share for an aggregate maximum amount of $6,300,000. | ||||||||||
Equity (Details) - Schedule of warrant activity |
9 Months Ended |
|---|---|
|
Sep. 30, 2022
$ / shares
shares
| |
| Schedule Of Warrant Activity Abstract | |
| Warrants Outstanding, Beginning balance | 4,539,674 |
| Exercisable Into Number of Shares, Beginning balance | 151,323 |
| Weighted Average Exercise Price, Beginning balance (in Dollars per share) | $ / shares | $ 172.5 |
| Average Remaining Contractual Life, Beginning balance | 2 years 1 month 17 days |
| Warrants Outstanding, Granted/Acquired | |
| Exercisable Into Number of Shares, Granted/Acquired | |
| Weighted Average Exercise Price, Granted/Acquired (in Dollars per share) | $ / shares | |
| Warrants Outstanding, Forfeited | |
| Exercisable Into Number of Shares, Forfeited | |
| Weighted Average Exercise Price, Forfeited (in Dollars per share) | $ / shares | |
| Warrants Outstanding, Exercised | |
| Exercisable Into Number of Shares, Exercised | |
| Weighted Average Exercise Price, Exercised (in Dollars per share) | $ / shares | |
| Warrants Outstanding, Ending balance | 4,539,674 |
| Exercisable Into Number of Shares, Ending balance | 151,323 |
| Weighted Average Exercise Price, Ending balance (in Dollars per share) | $ / shares | $ 172.5 |
| Average Remaining Contractual Life, Ending balance | 4 months 9 days |
Equity (Details) - Schedule of option activity |
9 Months Ended |
|---|---|
|
Sep. 30, 2022
$ / shares
shares
| |
| Schedule Of Option Activity Abstract | |
| Options Outstanding, Beginning balance | shares | 824,000 |
| Exercisable Into Number of Shares, Beginning balance | 27,467 |
| Weighted Average Exercise Price, Beginning balance (in Dollars per share) | $ / shares | $ 150 |
| Average Remaining Contractual Life, Beginning balance | 2 years 1 month 17 days |
| Options Outstanding, Granted/Acquired | |
| Exercisable Into Number of Shares, Granted/Acquired | |
| Weighted Average Exercise Price, Granted/Acquire (in Dollars per share) | $ / shares | |
| Options Outstanding, Forfeited | |
| Exercisable Into Number of Shares, Forfeited | |
| Weighted Average Exercise Price, Forfeited (in Dollars per share) | $ / shares | |
| Options Outstanding, Exercised | |
| Exercisable Into Number of Shares, Exercised | |
| Weighted Average Exercise Price, Exercised (in Dollars per share) | $ / shares | |
| Options Outstanding, Ending balance | 824,000 |
| Exercisable Into Number of Shares, Ending balance | 27,467 |
| Weighted Average Exercise Price, Ending balance (in Dollars per share) | $ / shares | $ 150 |
| Average Remaining Contractual Life, Ending balance | 4 months 9 days |
Segment Reporting (Details) - Schedule of assets by division - Other Segments [Member] - USD ($) |
9 Months Ended | ||
|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Dec. 31, 2021 |
|
| Segment Reporting Information [Line Items] | |||
| Total Assets | $ 16,451,669 | $ 50,535,257 | |
| Total revenues | |||
| Highlight Media [Member] | |||
| Segment Reporting Information [Line Items] | |||
| Total Assets | 156,531 | ||
| Total revenues | |||
| Wuge [Member] | |||
| Segment Reporting Information [Line Items] | |||
| Total Assets | 19,367,508 | ||
| CCNC, Citi Profit BVI ,TMSR HK and Makesi WFOE [Member] | |||
| Segment Reporting Information [Line Items] | |||
| Total Assets | 16,295,138 | $ 31,167,749 | |
| Total revenues | |||
Discontinued Operations (Details) - Schedule of financial position for the discounted operations - USD ($) |
9 Months Ended | |
|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
|
| REVENUES | ||
| Wuge digital door signs | $ 7,616,615 | $ 9,541,992 |
| Fuel materials | 4,890,734 | |
| TOTAL REVENUES | 7,616,615 | 14,432,726 |
| COST OF REVENUES | ||
| Wuge digital door signs | 5,527,950 | 199,342 |
| Fuel materials | 4,690,388 | |
| TOTAL COST OF REVENUES | 5,527,950 | 4,889,730 |
| GROSS PROFIT | 2,088,665 | 9,542,996 |
| OPERATING EXPENSES | ||
| Selling, general and administrative | 1,605,935 | 10,912,323 |
| TOTAL OPERATING EXPENSES | 1,605,935 | 10,912,323 |
| INCOME FROM OPERATIONS | 482,730 | (1,369,327) |
| OTHER INCOME (EXPENSE) | ||
| Interest income | 65,251 | 34,388 |
| Interest expense | (935) | (7,708) |
| Investment income | ||
| Other income, net | 70,830 | 7,040 |
| Total other income, net | 135,146 | 33,720 |
| INCOME (LOSS) BEFORE INCOME TAXES | 617,876 | (1,335,607) |
| PROVISION FOR INCOME TAXES | 314,787 | 8,896 |
| NET INCOME (LOSS) | $ 303,089 | $ (1,344,503) |
Subsequent Events (Details) - Subsequent Event [Member] - $ / shares |
Nov. 09, 2022 |
Nov. 04, 2022 |
|---|---|---|
| Subsequent Events (Details) [Line Items] | ||
| Outstanding shares of common stock, par value per shares | $ 0.0001 | |
| Reverse stock split, description | on November 9, 2022 (the “Reverse Stock Split”). Upon effectiveness of the Reverse Stock Split, every thirty (30) outstanding shares of common stock were combined into and automatically become one share of common stock. No fractional shares were issued in connection with the Reverse Stock Split and all such fractional interests were rounded up to the nearest whole number of shares of common stock. The authorized shares prior to and following the Reverse Stock Split remains the same at 200,000,000 shares of common stock, par value $0.0001 per shares, and 20,000,000 shares of preferred stock, par value $0.0001 per shares. |
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