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GD Culture Group Ltd

GD Culture Group LtdGDC決算レポート

Nasdaq · 非必須消費財 · 金属及び鉱物の卸売業（石油を含まない）

GD Culture Group Ltd is a cultural industry enterprise focused on creating and distributing film, television and variety show content, planning and hosting cultural performances, art exhibitions and themed cultural events, with core business markets covering mainland China and Southeast Asia. It also operates cross-border cultural exchange projects targeting global audiences.

What changed in GD Culture Group Ltd's 10-K — 2021 vs 2022

Top changes in GD Culture Group Ltd's 2022 10-K

381 paragraphs added · 381 removed · 221 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

70 edited+86 added−60 removed66 unchanged
But, unlike business tax, a taxpayer is allowed to offset the qualified input VAT paid on taxable purchases against the output VAT chargeable on the revenue from services provided. Regulations Relating to Foreign Exchange and Dividend Distribution Foreign Exchange Regulation The principal regulations governing foreign currency exchange in China are the Foreign Exchange Administration Regulations.
But, unlike business tax, a taxpayer is allowed to offset the qualified input VAT paid on taxable purchases against the output VAT chargeable on the revenue from services provided. 14 Regulations Relating to Foreign Exchange and Dividend Distribution Foreign Exchange Regulation The principal regulations governing foreign currency exchange in China are the Foreign Exchange Administration Regulations.
Furthermore, failure to comply with the various SAFE registration requirements described above could result in liability under PRC law for evasion of foreign exchange controls. 16 We have notified substantial beneficial owners of common stock who we know are PRC residents of their filing obligation.
Furthermore, failure to comply with the various SAFE registration requirements described above could result in liability under PRC law for evasion of foreign exchange controls. We have notified substantial beneficial owners of common stock who we know are PRC residents of their filing obligation.
Domain name registrations are handled through domain name service agencies established under the relevant regulations, and applicants become domain name holders upon successful registration. 14 Regulations on Tax PRC Corporate Income Tax The PRC corporate income tax, or CIT, is calculated based on the taxable income determined under the applicable CIT Law and its implementation rules, which became effective on January 1, 2008 and amended on February 24, 2017.
Domain name registrations are handled through domain name service agencies established under the relevant regulations, and applicants become domain name holders upon successful registration. 13 Regulations on Tax PRC Corporate Income Tax The PRC corporate income tax, or CIT, is calculated based on the taxable income determined under the applicable CIT Law and its implementation rules, which became effective on January 1, 2008 and amended on February 24, 2017.
The laws also permit workers and employers in all types of enterprises to sign individual contracts, which are to be drawn up in accordance with the collective contract. 13 Intellectual property protection in China Patent. The PRC has domestic laws for the protection of copyrights, patents, trademarks and trade secrets.
The laws also permit workers and employers in all types of enterprises to sign individual contracts, which are to be drawn up in accordance with the collective contract. 12 Intellectual property protection in China Patent. The PRC has domestic laws for the protection of copyrights, patents, trademarks and trade secrets.
The following tables present selected condensed consolidated financial data of the company and its subsidiaries and the VIE for the fiscal years ended December 31, 2021 and 2020, and balance sheet data as of December 31, 2021 and 2020, which have been derived from our audited consolidated financial statements for those years.
The following tables present selected condensed consolidated financial data of the company and its subsidiaries and the VIE for the fiscal years ended December 31, 2022 and 2021, and balance sheet data as of December 31, 2022 and 2021, which have been derived from our audited consolidated financial statements for those years.
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.
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.
As such, we believe we are currently not be subject to the cyber security review by the CAC. However, the definition of “network platform operator” is unclear and it is also unclear on how it will be interpreted and implemented by the relevant PRC governmental authorities.
As such, we believe Highlight Media is not currently subject to the cyber security review by the CAC. However, the definition of “network platform operator” is unclear and it is also unclear on how it will be interpreted and implemented by the relevant PRC governmental authorities.
Wuge may be required to suspend its business, be liable for improper use or appropriation of personal information provided by our customers or face other penalties.” 6 On July 6, 2021, the relevant PRC governmental authorities made public the Opinions on Strictly Cracking Down Illegal Securities Activities in Accordance with the Law.
Highlight Media may be required to suspend its business, be liable for improper use or appropriation of personal information provided by our customers or face other penalties.” 4 On July 6, 2021, the relevant PRC governmental authorities made public the Opinions on Strictly Cracking Down Illegal Securities Activities in Accordance with the Law.
See “Risk Factors—Risks Related to Doing Business in China — The recent joint statement by the SEC and PCAOB, proposed rule changes submitted by Nasdaq, and the Holding Foreign Companies Accountable Act all call for additional and more stringent criteria to be applied to emerging market companies” Consolidation We conduct all of our business in China through Wuge, the VIE.
See “Risk Factors—Risks Related to Doing Business in China — The recent joint statement by the SEC and PCAOB, proposed rule changes submitted by Nasdaq, and the Holding Foreign Companies Accountable Act all call for additional and more stringent criteria to be applied to emerging market companies” Consolidation We conduct all of our business in China through Highlight Media.
Our Company, our subsidiaries, and Wuge do not have any plan to distribute earnings or settle amounts owed under the VIE agreements in the foreseeable future. During the fiscal years ended December 31, 2021, there was no cash transfers and transfers of other assets between our Company, our subsidiaries, and Wuge.
Our Company, our subsidiaries, and Highlight Media do not have any plan to distribute earnings or settle amounts owed under the VIE agreements in the foreseeable future. During the fiscal years ended December 31, 2022 and 2021, there was no cash transfers and transfers of other assets between our Company, our subsidiaries, and Highlight Media.
The Registered Warrants have a term of five years and are exercisable immediately 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 Warrants have a term of five years and are exercisable immediately at an exercise price of $201,60 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 Unregistered Warrants have a term of five and one-half years and are 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 the securities sold under the Securities Purchase Agreement, to purchase an aggregate of up to 2,527,304 shares of common stock.
The Unregistered Warrants have a term of five and one-half years and are 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 the securities sold under the Securities Purchase Agreement, to purchase an aggregate of up to 84,244 shares of common stock.
See “Risk factors — Risk Factors Related to Doing Business in China — Wuge may become subject to a variety of laws and regulations in the PRC regarding privacy, data security, cybersecurity, and data protection.
See “Risk factors — Risk Factors Related to Doing Business in China — Highlight Media may become subject to a variety of laws and regulations in the PRC regarding privacy, data security, cybersecurity, and data protection.
Prior to expanding Wuge’s business beyond that of its business license, Wuge is required to apply and receive approval from the PRC government. Employment laws We and Wuge are subject to laws and regulations governing our relationship with our employees, including: wage and hour requirements, working and safety conditions, citizenship requirements, work permits and travel restrictions.
Prior to expanding Highlight Media’s business beyond that of its business license, Highlight Media is required to apply and receive approval from the PRC government. Employment laws We and Highlight Media are subject to laws and regulations governing our relationship with our employees, including: wage and hour requirements, working and safety conditions, citizenship requirements, work permits and travel restrictions.
We believe Wuge has the ability to attract and retain high quality engineering talent in China based on our competitive salaries, annual performance-based bonus system, and equity incentive program for senior employees and executives. 17
We believe Highlight Media has the ability to attract and retain high quality engineering talent in China based on our competitive salaries, annual performance-based bonus system, and equity incentive program for senior employees and executives.
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.
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.
We do not believe Wuge is a “network platform operator” who control over one million personal information as mentioned above, given that: (i) Wuge does not possess a large amount of personal information in our business operations and (ii) data processed in Wuge’s business does not have a bearing on national security and thus may not be classified as core or important data by the authorities.
We believe neither Highlight Media is not a “network platform operator” who control over one million personal information as mentioned above, given that: (i) Highlight Media does not possess a large amount of personal information in our business operations and (ii) data processed in Highlight Media’s business does not have a bearing on national security and thus may not be classified as core or important data by the authorities.
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 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 Highlight Media’s actual operation on a quarterly basis. This agreement will be effective as long as Highlight Media exists.
Environmental Matters As of December 31, 2021, Wuge was not subject to any fines or legal action involving non-compliance with any relevant environmental regulation, nor are we aware of any threatened or pending action, including by any environmental regulatory authority.
Environmental Matters As of December 31, 2022, Highlight Media was not subject to any fines or legal action involving non-compliance with any relevant environmental regulation, nor are we aware of any threatened or pending action, including by any environmental regulatory authority.
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.
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.
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.
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 Unregistered Warrants have 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 such stockholder approval.
The Unregistered Warrants have an exercise price of $201.60 per share, subject to adjustments thereunder, including (x) a Price Protection Adjustment and (y) in the event the exercise price is more than $183.00, a reduction of the exercise price to $183.00, upon obtaining such stockholder approval.
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.
The 14,213 shares are valued at $783.40 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.
Asset Purchase Agreement dated February 23, 2021, as amended on April 16, 2021 and May 28, 2021 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.
Asset Purchase Agreement dated February 23, 2021, as amended on April 16, 2021 and May 28, 2021 and the Cancellation of such Asset Purchase Agreement in September 2022 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”).
If we do not receive or maintain the approvals, or we inadvertently conclude that such approvals are not required, or applicable laws, regulations, or interpretations change such that we are required to obtain approval in the future, we may be subject to an investigation by competent regulators, fines or penalties, or an order prohibiting us from conducting an offering, and these risks could result in a material adverse change in our operations and the value of our securities, significantly limit or completely hinder our ability to offer or continue to offer securities to investors, or cause such securities to significantly decline in value or become worthless.
If we do not receive or maintain the approvals, or we inadvertently conclude that such approvals are not required, or applicable laws, regulations, or interpretations change such that we are required to obtain approval in the future, we may be subject to an investigation by competent regulators, fines or penalties, or an order prohibiting us from conducting an offering, and these risks could result in a material adverse change in our operations and the value of our securities, significantly limit or completely hinder our ability to offer or continue to offer securities to investors, or cause such securities to significantly decline in value or become worthless. 5 Implication of the Holding Foreign Company Accountable Act The Holding Foreign Companies Accountable Act, or the HFCAA, was enacted on December 18, 2020.
As of March 31, 2022, the Company has not made any contribution nor has the joint venture been established. 12 Asset Purchase Agreement dated July 28, 2021 and Termination Agreement dated February 23, 2022 On July 28, 2021, the Company entered into an asset purchase agreement with certain seller pursuant to which the Company purchased 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).
Asset Purchase Agreement dated July 28, 2021 and Termination Agreement dated February 23, 2022 On July 28, 2021, the Company entered into an asset purchase agreement with certain seller pursuant to which the Company purchased 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).
In exchange, the Company issued 7,647,493 shares of common stock of the Company, valued at $2.15 per share, on August 26, 2021. On February 23, 2022, the Company entered into a termination agreement with the seller to terminate the asset purchase agreement dated July 28, 2021 and forfeit the transaction.
In exchange, the Company issued 254,917 shares of common stock of the Company, valued at $64.50 per share, on August 26, 2021. On February 23, 2022, the Company entered into a termination agreement with the seller to terminate the asset purchase agreement dated July 28, 2021 and forfeit the transaction.
Makesi WFOE may terminate this agreement at any time by giving a 30 days’ prior written notice to Wuge. 5 Equity Pledge Agreement.
Makesi WFOE may terminate this agreement at any time by giving a 30 days’ prior written notice to Highlight Media. 3 Equity Pledge Agreement.
It is unclear whether non-PRC shareholders of our company would be able to claim the benefits of any tax treaties between their country of tax residence and the PRC in the event that we are treated as a PRC resident enterprise.
It is unclear whether non-PRC shareholders of our company would be able to claim the benefits of any tax treaties between their country of tax residence and the PRC in the event that we are treated as a PRC resident enterprise. Any such tax may reduce the returns on your investment in our common stock.
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 purchase price for the Tongrong Shares shall be $2,464,411, payable in the form of cancelling 14,213 shares of common stock of the Company owned by the Payee.
Under the voting rights proxy and financial support agreement among Tonrong WFOE, Wuge and Wuge Shareholders dated January 3, 2020 and the assignment agreement between Tonrong WFOE and Makesi WFOE dated January 11, 2021, 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.
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.
None of our Company, our subsidiaries or variable interest entity is currently a party to any such claims or proceedings which, if decided adversely to the Company, would either, individually or in the aggregate, have a material adverse effect on our business, financial condition, results of operations or cash flows.
None of our Company, our subsidiaries or variable interest entity is currently a party to any such claims or proceedings which, if decided adversely to the Company, would either, individually or in the aggregate, have a material adverse effect on our business, financial condition, results of operations or cash flows. 16 Employees As of March 31, 2023, Highlight Media had 20 full-time employees.
Additionally, the Company issued to the Placement Agent warrants to purchase up to 208,333 shares of common stock, with a term of five years first exercisable six months after the date of issuance and at an exercise price of $6.00 per share. 11 Stockholder Approval Pursuant to the Securities Purchase Agreement, we are required to hold a meeting of our stockholders not later than April 29, 2021 to seek such approval as may be required from our stockholders (the “Stockholder Approval”), in accordance with applicable law, the applicable rules and regulations of the Nasdaq Stock Market, our certificate of incorporation and bylaws and the Nevada Revised Statutes with respect to the issuance of the securities in the Offering, including the Warrants sold in the Private Placement, so that the issuance by us of shares of common stock in excess of the 6,954,059 shares (19.99% of the shares of common stock outstanding as of February 17, 2021, the date prior to entering into the Securities Purchase Agreement) in the aggregate (the “Issuable Maximum”), will be in compliance with Nasdaq Listing Rules 5635(a) and 5635(d) as described herein, and investors in the Offering will be able to exercise the Warrants prior to six months after the closing of the Offering.
Stockholder Approval Pursuant to the Securities Purchase Agreement, we are required to hold a meeting of our stockholders not later than April 29, 2021 to seek such approval as may be required from our stockholders (the “Stockholder Approval”), in accordance with applicable law, the applicable rules and regulations of the Nasdaq Stock Market, our certificate of incorporation and bylaws and the Nevada Revised Statutes with respect to the issuance of the securities in the Offering, including the Warrants sold in the Private Placement, so that the issuance by us of shares of common stock in excess of the 231,802 shares (19.99% of the shares of common stock outstanding as of February 17, 2021, the date prior to entering into the Securities Purchase Agreement) in the aggregate (the “Issuable Maximum”), will be in compliance with Nasdaq Listing Rules 5635(a) and 5635(d) as described herein, and investors in the Offering will be able to exercise the Warrants prior to six months after the closing of the Offering. 9 On April 29, 2021, we held a special meeting of stockholders and approved the issuance of shares of common stock in excess of the 231,802 shares.
As a result, the Company changed its state of incorporation from Delaware to Nevada and implemented a 2-for-1 forward stock split of the Company’s common stock.
As a result, the Company changed its state of incorporation from Delaware to Nevada and implemented a 2-for-1 forward stock split of the Company’s common stock. The Company is currently a holding company with no material operations of its own.
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 disposition of Tongrong WFOE included disposition of Rong Hai.
On March 31, 2021, the Company closed the sale of the Tongrong Shares and caused the GDC Shares to be cancelled. Tongrong WFOE had a series of VIE agreements with Rong Hai and the shareholders of Rong Hai. The disposition of Tongrong WFOE included disposition of Rong Hai. Acquisition of Shanghai Yuanma Food and Beverage Management Co., Ltd.
February 2021 Offering Registered Direct Offering and Private Placement On February 18, 2021, we entered into a securities purchase agreement (the “Securities Purchase Agreement”) with certain purchasers, pursuant to which, on February 22, 2021, we sold (i) 4,166,666 shares of common stock, (ii) registered warrants (the “Registered Warrants”) to purchase an aggregate of up to 1,639,362 shares of common stock and (iii) unregistered warrants (the “Unregistered Warrants”) to purchase up to 2,527,304 shares (the “Warrant Shares”) of common stock in a registered direct offering (the “Registered Direct Offering”) and a concurrent private placement (the “Private Placement,” and together with the Registered Direct Offering, the “Offering”).
Recent Business Development 8 February 2021 Offering Registered Direct Offering and Private Placement On February 18, 2021, we entered into a securities purchase agreement (the “Securities Purchase Agreement”) with certain purchasers, pursuant to which, on February 22, 2021, we sold (i) 138,889 shares of common stock, (ii) registered warrants (the “Registered Warrants”) to purchase an aggregate of up to 54,646 shares of common stock and (iii) unregistered warrants (the “Unregistered Warrants”) to purchase up to 84,244 shares (the “Warrant Shares”) of common stock in a registered direct offering (the “Registered Direct Offering”) and a concurrent private placement (the “Private Placement,” and together with the Registered Direct Offering, the “Offering”).
The 7,647,493 shares of common stock of the Company were cancelled on March 14, 2022.
The 254,917 shares of common stock of the Company were cancelled on March 14, 2022.
Our website is www.ccnctech.com. 1 Corporate History Overview Code Chain New Continent Limited, formerly known as TMSR Holding Company Limited and JM Global Holding Company, was a blank check company incorporated in Delaware on April 10, 2015.
GDC, formerly known as Code Chain New Continent Limited, TMSR Holding Company Limited and JM Global Holding Company, was a blank check company incorporated in Delaware on April 10, 2015.
Under the equity option agreement among Tongrong WFOE, Wuge and Wuge Shareholders dated January 3, 2020 and the assignment agreement between Tonrong WFOE and Makesi WFOE dated January 11, 2021, 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.
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.
Effective as of May 18, 2020, the Company changed its corporate name from “TMSR Holding Company Limited” to “Code Chain New Continent Limited” pursuant to a Certificate of Amendment to the Company’s Articles of Incorporation.
Name Change Effective as of January 10, 2023, the Company changed its corporate name from “Code Chain New Continent Limited” to “GD Culture Group Limited” pursuant to a Certificate of Amendment to the Company’s Articles of Incorporation.
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.
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 52,927 shares of common stock of the Company.
If it is later determined that the PCAOB is unable to inspect or investigate our auditor completely, investors may be deprived of the benefits of such inspection.
Our current auditor, Enrome LLP, has been inspected by the PCAOB on a regular basis as well. If it is later determined that the PCAOB is unable to inspect or investigate our auditor completely, investors may be deprived of the benefits of such inspection.
Any such tax may reduce the returns on your investment in our common stock. 15 Value-Added Tax and Business Tax In November 2011, the Ministry of Finance and the State Administration of Taxation promulgated the Pilot Plan for Imposition of Value-Added Tax to Replace Business Tax.
Value-Added Tax and Business Tax In November 2011, the Ministry of Finance and the State Administration of Taxation promulgated the Pilot Plan for Imposition of Value-Added Tax to Replace Business Tax.
The registered capital of the Joint Venture shall be one million U.S. dollars, to be contributed by the Company. The Company will hold 51% interest of the Joint Venture.
The registered capital of the joint venture shall be one million U.S. dollars, to be contributed by the Company. The Company will hold 51% interest of the joint venture. As of March 31, 2023, the Company has not made any contribution nor has the joint venture been established.
Profits retained from prior fiscal years may be distributed together with distributable profits from the current fiscal year. Legal Proceedings From time to time, we may be involved in various claims and legal proceedings arising in the ordinary course of business.
Legal Proceedings From time to time, we may be involved in various claims and legal proceedings arising in the ordinary course of business.
On March 7, 2022, the Company entered into a termination agreement with Shenzhen Jindeniu Electronics Limited to terminate the asset purchase agreement dated September 27, 2021. Considerations to the transaction, including advanced payments by the Company, have been returned to respective parties and the transaction is deemed void.
On March 7, 2022, the Company entered into a termination agreement with Shenzhen Jindeniu Electronics Limited to terminate the asset purchase agreement dated September 27, 2021.
Pursuant to the technical consultation and services agreement between Wuge and Tongrong WFOE dated January 3, 2020 and the assignment agreement between Tonrong WFOE and Makesi WFOE dated January 11, 2021, 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.
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.
Under the equity pledge agreement among Tongrong WFOE, Wuge and Wuge Shareholders dated January 3, 2020 and the assignment agreement between Tonrong WFOE and Makesi WFOE dated January 11, 2021, 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.
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.
Item 1. Business General 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 Wuge Network Games Co., Ltd. (“Wuge”).
Item 1. Business Overview GD Culture Group Limited (“GDC” or the “Company”, formerly known as JM Global Holding Company, TMSR Holding Company Limited and Code Chain New Continent Limited) is a holding company with no material operations of its own. We currently conduct business through Shanghai Highlight Media Co., Ltd. (“Highlight Media”).
For more details on the VIE structure, please see “Item 1. Business – Corporate Structure - Contractual Arrangements between Wuge And Makesi WFOE” and “Item 1A. Risk Factors – Risks Related to Our Corporate Structure”. Wuge focuses its business on research, development and application of Internet of Things (IoT) and electronic tokens Wuge digital door signs.
For more details on the VIE structure, please see “Item 1. Business – Corporate Structure - Contractual Arrangements between Highlight Media and Highlight WFOE” and “Item 1A. Risk Factors – Risks Related to Our Corporate Structure”.
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. 4 Corporate Structure The Company is a holding company incorporated in the State of Nevada with no material operations of its own.
These uncertainties may impede our ability to conduct our 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.
On January 11, 2021, Tongrong WFOE entered into a series of assignment agreements with Makesi Iot Technology (Shanghai) Co., Ltd. (“Makesi WFOE”), pursuant to which Tongrong WFOE assign all its rights and obligations under the VIE Agreements to Makesi WFOE.
On February 27, 2023, Highlight WFOE entered into a series of assignment agreements (with Makesi WFOE, Highlight Media and Highlight Media Shareholders, pursuant to which Makesi WFOE assign all its rights and obligations under the VIE Agreements to Highlight WFOE.
(the “Joint Venture”), a digital energy carbon neutral innovation platform which uses digital technology to open up the upstream and downstream of the energy industry chain to achieve carbon neutrality and boost the transformation and upgrading of the industry and carbon emission reduction.
Joint Venture Agreement dated June 1, 2021 On June 1, 2021, the Company entered into a joint venture agreement with Zhongyou Technology (Shenzhen) Co., Ltd. to jointly establish Zero Carbon Energy (Shenzhen) Co., Ltd., a digital energy carbon neutral innovation platform which uses digital technology to open up the upstream and downstream of the energy industry chain to achieve carbon neutrality and boost the transformation and upgrading of the industry and carbon emission reduction.
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. Recent Regulatory Developments On January 4, 2022, the Cyberspace Administration of China, or CAC, issued the revised Measures on Cyberspace Security Review (the “Revised Measures”), which came into effect on February 15, 2022.
Recent Regulatory Developments On January 4, 2022, the Cyberspace Administration of China, or CAC, issued the revised Measures on Cyberspace Security Review (the “Revised Measures”), which came into effect on February 15, 2022.
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”).
Considerations to the transaction, including advanced payments by the Company, have been returned to respective parties and the transaction is deemed void. 10 Disposition of Tongrong WFOE 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”).
Governmental Regulations Business license Any company that conducts business in the PRC must have a business license that covers a particular type of work. Wuge’s business license covers its present business of research, development and application of software technology and related technology and consulting services.
Governmental Regulations Business license Any company that conducts business in the PRC must have a business license that covers a particular type of work. Highlight Media’s business license covers its present business of Book Publishing Planning, Financial Self-Media and Public Relations.
For accounting purposes, we receive the economic benefits of Wuge through the VIE agreements, which enable us to consolidate the financial results of Wuge in our consolidated financial statements under U.S. GAAP and the structure involves unique risks to investors.
As a result, we consolidate the financial results of Highlight Media in our consolidated financial statements under U.S. GAAP. Such VIE structure involves unique risks to investors.
As these opinions are recently issued, official guidance and related implementation rules have not been issued yet and the interpretation of these opinions remains unclear at this stage. See “Risk Factors — Risk Factors Related to Doing Business in China — The Chinese government exerts substantial influence over the manner in which we must conduct our business activities.
As these opinions are recently issued, official guidance and related implementation rules have not been issued yet and the interpretation of these opinions remains unclear at this stage.
SELECTED CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS) For the Year Ended December 31, 2021 CCNC Subsidiaries VIE Eliminations Consolidated Total Revenue $ - $ - $ 25,029,949 $ - $ 25,029,949 Net income (loss) $ (24,721,486 ) $ - $ 3,721,527 $ (5,970,933 ) $ (26,970,892 ) Comprehensive income (loss) $ (24,721,486 ) $ - $ 3,750,662 $ (6,709,848 ) $ (27,680,672 ) For the Year Ended December 31, 2020 CCNC Subsidiaries VIE Eliminations Consolidated Total Revenue $ - $ - $ 591,455 $ - $ 591,455 Net income (loss) $ (1,445,522 ) $ - $ (158,591 ) $ 4,114,569 $ 2,510,456 Comprehensive income (loss) $ (1,445,522 ) $ - $ (72,076 ) $ 5,795,958 $ 4,278,360 8 SELECTED CONDENSED CONSOLIDATED BALANCE SHEETS As of December 31, 2021 CCNC Subsidiaries VIE Eliminations Consolidated Total Cash $ 202,781 $ - $ 14,385,549 $ - $ 14,588,330 Total current assets $ 1,457,545 $ - $ 17,258,309 $ (2,784,501 ) $ 15,931,353 Investments in subsidiaries and VIE $ 27,660,000 $ - $ $ (27,660,000 ) $ Total assets $ 51,739,299 $ - $ 19,367,508 $ (20,571,550 ) $ 50,535,257 Total liabilities $ 5,471,427 $ - $ 15,833,781 $ (2,849,942 ) $ 18,455,266 Total shareholders’ equity $ 46,267,872 $ - $ 3,533,727 $ (17,721,608 ) $ 32,079,991 Total liabilities and shareholders’ equity $ 51,739,299 $ - $ 19,367,508 $ (20,571,550 ) $ 50,535,257 As of December 31, 2020 CCNC Subsidiaries VIE Eliminations Consolidated Total Cash $ - $ - $ 308,110 $ 690,607 $ 998,717 Total current assets $ 7,527,552 $ - $ 1,048,385 $ 3,403,256 $ 11,979,193 Investments in subsidiaries and VIE $ 27,660,000 $ - $ $ (27,660,000 ) $ Total assets $ 35,187,552 $ - $ 2,304,566 $ (12,356,999 ) $ 25,135,119 Total liabilities $ 2,046,099 $ - $ 2,521,501 $ (1,345,236 ) $ 3,222,364 Total shareholders’ equity $ 33,141,453 $ - $ (216,935 ) $ (11,011,763 ) $ 21,912,755 Total liabilities and shareholders’ equity $ 35,187,552 $ - $ 2,304,566 $ (12,356,999 ) $ 25,135,119 SELECTED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the Year Ended December 31, 2021 CCNC Subsidiaries VIE Eliminations Consolidated Total Net cash provided by (used in) operating activities $ (13,402,262 ) $ - $ 14,262,544 $ (6,371,334 ) $ (5,511,052 ) Net used in investing activities $ - $ - $ (308,778 ) $ (961,706 ) $ (1,270,484 ) Net cash provided by (used in) financing activities $ 22,539,996 $ - $ 255,766 $ - $ 22,795,762 For the Year Ended December 31, 2020 CCNC Subsidiaries VIE Eliminations Consolidated Total Net cash provided by (used in) operating activities $ (4,472,402 ) $ 537,243.00 $ 1,972,313 $ 1,960,745 $ (2,101 ) Net used in investing activities $ (7,200,000 ) $ (3,165,786.00 ) $ (1,183,234 ) $ 7,018,212 $ (4,530,808 ) Net cash used in financing activities $ 2,511,657 $ - $ 547,538 $ - $ 3,059,195 9 Asset Transfer between our Company, our Subsidiaries and the VIE As of the date of this annual report, our Company, our subsidiaries, and Wuge have not distributed any earnings or settled any amounts owed under the VIE agreements.
SELECTED CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS) For the year Ended Dec 31, 2022 CCNC Subsidiaries VIEs Discontinued Operations Eliminations Consolidated Total Revenue $ $ $ 153,304 $ $ - $ 153,304 Net income (loss) $ (1,701,594 ) $ $ 117,406 $ (30,397,303 ) $ 1,159,536 $ (30,821,955 ) Comprehensive income (loss) $ (1,701,594 ) $ $ 15,951 $ (30,397,303 ) $ 1,214,594 $ (30,868,352 ) For the year Ended Dec 31, 2021 CCNC Subsidiaries VIEs Discontinued Operations Eliminations Consolidated Total Revenue $ - $ $ - $ $ - $ - Net income (loss) $ (24,721,486 ) $ $ - $ (7,425,540 ) $ 5,176,134 $ (26,970,892 ) Comprehensive income (loss) $ (24,721,486 ) $ $ $ (7,425,540 ) $ 4,466,354 $ (27,680,672 ) 6 SELECTED CONDENSED CONSOLIDATED BALANCE SHEETS As of December 31, 2022 GDC Subsidiaries VIE Eliminations Consolidated Total Cash $ 173,228 $ - $ 215,880 $ - $ 389,108 Total current assets $ 173,228 $ - $ 488,693 $ 948,000 $ 1,609,921 Investments in subsidiaries and VIE $ 29,910,000 $ - $ $ (29,910,000 ) $ Total assets $ 30,083,228 $ - $ 489,195 $ (26,771,515 ) $ 3,800,908 Total liabilities $ - $ - $ 333,784 $ - $ 333,784 Total shareholders’ equity $ 30,083,228 $ - $ 155,411 $ (26,771,515 ) $ 3,467,124 Total liabilities and shareholders’ equity $ 30,083,228 $ - $ 489,195 $ (26,771,515 ) $ 3,800,908 As of December 31, 2021 GDC Subsidiaries VIE Eliminations Consolidated Total Cash $ 202,781 $ - $ 14,385,549 $ - $ 14,588,330 Total current assets $ 1,457,545 $ - $ 17,258,309 $ (2,784,501 ) $ 15,931,353 Investments in subsidiaries and VIE $ 27,660,000 $ - $ $ (27,660,000 ) $ Total assets $ 51,739,299 $ - $ 19,367,508 $ (20,571,550 ) $ 50,535,257 Total liabilities $ 5,471,427 $ - $ 15,833,781 $ (2,849,942 ) $ 18,455,266 Total shareholders’ equity $ 46,267,872 $ - $ 3,533,727 $ (17,721,608 ) $ 32,079,991 Total liabilities and shareholders’ equity $ 51,739,299 $ - $ 19,367,508 $ (20,571,550 ) $ 50,535,257 SELECTED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the Year Ended December 31, 2022 GDC Subsidiaries VIE Eliminations Consolidated Total Net cash provided by (used in) operating activities $ (101,723 ) $ - $ 250,296 $ (1,034,784 ) $ (886,211 ) Net used in investing activities $ $ - $ - $ (12,493,352 ) $ (12,493,352 ) Net cash provided by financing activities $ - $ - $ - $ - $ - For the Year Ended December 31, 2021 GDC Subsidiaries VIE Eliminations Consolidated Total Net cash provided by (used in) operating activities $ (13,402,262 ) $ - $ 14,262,544 $ (6,371,334 ) $ (5,511,052 ) Net used in investing activities $ - $ - $ (308,778 ) $ (961,706 ) $ (1,270,484 ) Net cash provided by financing activities $ 22,539,996 $ - $ 255,766 $ - $ 22,795,762 7 Asset Transfer between our Company, our Subsidiaries and the VIE As of the date of this annual report, our Company, our subsidiaries, and Highlight Media have not distributed any earnings or settled any amounts owed under the VIE agreements.
As Wuge continues to expand our business, we believe it is critical to hire and retain top talent, especially in the areas of marketing and technology engineering.
Highlight Media have not experienced any significant labor disputes and consider its relationship with the employees to be good. The employees are not covered by any collective bargaining agreement. As Highlight Media continues to expand our business, we believe it is critical to hire and retain top talent, especially in the areas of marketing and technology engineering.
We are currently not required to obtain approval from Chinese authorities to list on U.S exchanges, however, if Wuge or the holding company were required to obtain approval in the future and were denied permission from Chinese authorities to list on U.S. exchanges, we will not be able to continue listing on U.S. exchange and the value of our common stock may significantly decline or become worthless, which would materially affect the interest of the investors.” As of the date of this annual report, we have not received any inquiry, notice, warning, or sanctions regarding listing abroad or offshore offering from the CSRC or any other PRC governmental authorities.
We are currently not required to obtain approval from Chinese authorities to list on U.S exchanges, however, if Highlight Media or GDC were required to obtain approval in the future and were denied permission from Chinese authorities to list on U.S. exchanges, we will not be able to continue listing on U.S. exchange and the value of our common stock may significantly decline or become worthless, which would materially affect the interest of the investors.” On December 24, 2021, CSRC issued Provisions of the State Council on the Administration of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments) (the “Administration Provisions”), and the Administrative Measures for the Filing of Overseas Securities Offering and Listing by Domestic Companies (the “Measures”), which are open for public comments by January 23, 2022.
Pursuant to the share purchase agreement, the Company agreed to issue an aggregate of 4,000,000 shares of the common stock of the Company to the Wuge Shareholders, in exchange for Wuge Shareholders’ agreement to enter into, and their agreement to cause Wuge to enter into, certain VIE agreements (“VIE Agreements”) with Tongrong WFOE, the Company’s then indirect subsidiary, through which Tongrong WFOE shall receive economic benefits of Wuge and consolidate the financial results of Wuge in the consolidated financial statement of the Company under U.S.
Pursuant to the Share Purchase Agreement, the Company agreed to issue an aggregate of 256,000 shares of common stock of the Company (the “Shares”), valued at $30.00 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 structure.
The Wuge Shareholders are Wei Xu, who became a director of the Company as a result of the acquisition and was subsequently appointed as the Chief Executive Officer, President and Chairman of the Board of the Company, Bibo Lin, who was subsequently appointed as a vice president and a director of the Company, Jiangsu Lingkong Network Joint Stock Co., Ltd., which is controlled by Wei Xu, and Anhui Shuziren Network Technology Co., Ltd., which is controlled by Wei Xu.
On April 14, 2022, the Company entered into a Share Purchase Agreement with Yuan Ma and all the shareholders of Yuan Ma (“Yuanma Shareholders”). Yuanma Shareholders are Wei Xu, a former Chief Executive Officer, President and Chairman of the Board of the Company, and Jiangsu Lingkong Network Joint Stock Co., Ltd., which is controlled by Wei Xu.
As a result, for account purposes, Makesi WFOE shall have receive economic benefits of Wuge and consolidate the financial results of Wuge in the consolidated financial statement of the Company under U.S. GAAP for accounting purposes.
As a result, we consolidate the financial results of Yuan Ma in our consolidated financial statements under U.S. GAAP.
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.
On June 1, 2021, the Company issued to the Seller’s designee 83,776 shares of common stock (the “Shares”), consisted of (i) the Purchase Price in the form of 52,927 shares of common stock and (ii) 30,850 bonus shares for meeting and exceeding certain milestones.
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.
As a result, Wuge ceased to be a VIE of Makesi WFOE and operations of Wuge have been designated as discontinued operations.
However, it is uncertain when the Administration Provision and the Measures will take effect or if they will take effect as currently drafted. Implication of the Holding Foreign Company Accountable Act The Holding Foreign Companies Accountable Act, or the HFCAA, was enacted on December 18, 2020.
However, it is uncertain when the Administration Provision and the Measures will take effect or if they will take effect as currently drafted. On February 17, 2023, the CSRC released the Trial Administrative Measures for Administration of Overseas Securities Offerings and Listings by Domestic Companies (the “Trial Measures”) and five supporting guidelines, which came into effect on March 31, 2023.
In connection with the name change, effective as of the opening of trading on May 18, 2020, the Company’s common stock is trading on the Nasdaq Capital Market under the ticker symbol “CCNC” and the Company’s warrants to purchase one-half of one shares of Common Stock at a price of $2.88 per half share ($5.75 per whole share) is quoting on the OTC Pink Market under the ticker symbol “CCNCW”.
In connection with the name change, effective as of the opening of trading on January 10, 2023, the Company’s common stock is trading on the Nasdaq Capital Market under the ticker symbol “GDC”. Contractual Arrangements between Yuan Ma And Makesi WFOE Technical Consultation and Services Agreement.
In addition, the office of the then VIE Rong Hai in Jiangsu Province and the office of Wuge in 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.
However, the extent to which the COVID-19 pandemic may negatively impact the general economy and our business is highly uncertain and cannot be accurately predicted.
For accounting purposes, we receive the economic benefits of Wuge through the VIE agreements, which enable us to consolidate the financial results of Wuge in our consolidated financial statements under U.S. GAAP and the structure involves unique risks to investors.
As a result, we consolidate the financial results of Highlight Media in our consolidated financial statements under U.S. GAAP.
Removed
Wuge digital door signs combine the five-W elements (when, where, who, why, what), geographic location via the Beidou satellite system and identity information using Code Chain technology. It is the digitalization of a physical store by means of animation and other technical means presented on the internet and Internet of Things (IoT).
Added
Highlight WFOE is the primary beneficiary of Highlight Media for accounting purposes, because, pursuant to certain VIE agreements between Highlight WFOE, Highlight Media and shareholders of Highlight Media, Highlight Media shall pay Highlight WFOE service fees in the amount of 100% of Highlight Media’s net income, while Highlight WFOE is obligated to absorb all of losses of Highlight Media.
Removed
It is based on the geographic location of the store. Wuge door sign can be used in our mobile application Wuge Social, available on Android platform. The mobile application provides a display of the map and store based on real cities and uses the IoT Grid as the access point to access e-commerce by Code Chain.
Added
Highlight Media, founded in 2016, is an integrated marketing service agency, focusing on serving businesses in China in connection with brand management, image building, public relations, social media management and event planning. Highlight Media is committed to becoming a modern technology media organization that provide clients with customized services.
Removed
Through the mobile application and Wuge Manor, the game within the mobile application, users can have access to hundreds of vendors and business owners in China, participate in activities those businesses set up and collect points, which can be redeemed as equipment in the game or coupons usable when making purchase at that business.
Added
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.
Removed
Code Chain access to e-commerce includes Online to Offline (O2O) “scanning QR Code” and social media that seamlessly link offline and online and connect real and virtual directly, so that each IoT Grid becomes an e-commerce access to realize the decentralization of e-commerce access and complete the basic layout for blockchain e-commerce. Wuge digital door sign can be purchased.
Added
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.
Removed
Such purchaser can use Wuge Social to promote the store of which the Wuge digital door sign was purchased and receive commissions and other incentive from the store owner.
Added
Prior to September 28, 2022, we were also engaged in research, development and application of Internet of Things (IoT) and electronic tokens Wuge digital door signs through Wuge Network Games Co., Ltd. (“Wuge”), a then VIE of the Company.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest will be diluted, and the terms of any such offerings may include liquidation or other preferences that may adversely affect the then existing shareholders rights.
To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest will be diluted, and the terms of any such offerings may include liquidation or other preferences that may adversely affect the then existing shareholders rights.
Debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include covenants limiting or restricting our ability to take specific actions such as incurring debt or making capital expenditures.
Debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include covenants limiting or restricting our ability to take specific actions such as incurring debt or making capital expenditures.
It is not clear whether “registration” is a mere formality or involves the kind of substantive review process undertaken by SAFE and its relevant branches in the past. 24 Substantial uncertainties exist with respect to the interpretation of the PRC Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance and business operations.
It is not clear whether “registration” is a mere formality or involves the kind of substantive review process undertaken by SAFE and its relevant branches in the past. Substantial uncertainties exist with respect to the interpretation of the PRC Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance and business operations.
This participation right could delay, limit or hinder our ability to enter into equity financings and to raise funds from third parties. As a “smaller reporting company” under applicable law, we will be subject to lessened disclosure requirements. Such reduced disclosure may make our common stock less attractive to investors.
This participation right could delay, limit or hinder our ability to enter into equity financings and to raise funds from third parties. 37 As a “smaller reporting company” under applicable law, we will be subject to lessened disclosure requirements. Such reduced disclosure may make our common stock less attractive to investors.
According to the Cybersecurity Review Measures, operators of critical information infrastructure must pass a cybersecurity review when purchasing network products and services which do or may affect national security. 29 In November 2016, the Standing Committee of China’s National People’s Congress passed China’s first Cybersecurity Law (“CSL”), which became effective in June 2017.
According to the Cybersecurity Review Measures, operators of critical information infrastructure must pass a cybersecurity review when purchasing network products and services which do or may affect national security. In November 2016, the Standing Committee of China’s National People’s Congress passed China’s first Cybersecurity Law (“CSL”), which became effective in June 2017.
As a result, our common stock may decline in value dramatically or even become worthless should we become subject to new requirement to obtain permission from the PRC government to list on U.S. exchange in the future. 27 Fluctuations in exchange rates could adversely affect our business and the value of our securities.
As a result, our common stock may decline in value dramatically or even become worthless should we become subject to new requirement to obtain permission from the PRC government to list on U.S. exchange in the future. Fluctuations in exchange rates could adversely affect our business and the value of our securities.
In addition, fluctuations of the RMB against other currencies may increase or decrease the cost of imports and exports, and thus affect the price-competitiveness of our products against products of foreign manufacturers or products relying on foreign inputs. Since July 2005, the RMB is no longer pegged to the U.S. dollar.
In addition, fluctuations of the RMB against other currencies may increase or decrease the cost of imports and exports, and thus affect the price-competitiveness of our products against products of foreign manufacturers or products relying on foreign inputs. 25 Since July 2005, the RMB is no longer pegged to the U.S. dollar.
Such laws and regulations often vary in scope, may be subject to differing interpretations, and may be inconsistent among different jurisdictions. We expect to obtain information about various aspects of our operations as well as regarding our employees and third parties. We also maintain information about various aspects of our operations as well as regarding our employees.
Such laws and regulations often vary in scope, may be subject to differing interpretations, and may be inconsistent among different jurisdictions. 26 We expect to obtain information about various aspects of our operations as well as regarding our employees and third parties. We also maintain information about various aspects of our operations as well as regarding our employees.
On December 18, 2020, the Holding Foreign Companies Accountable Act was signed into law. 31 On March 24, 2021, the SEC announced that it had adopted interim final amendments to implement congressionally mandated submission and disclosure requirements of the Act.
On December 18, 2020, the Holding Foreign Companies Accountable Act was signed into law. On March 24, 2021, the SEC announced that it had adopted interim final amendments to implement congressionally mandated submission and disclosure requirements of the Act.
The PRC Data Security Law also provides for a national security review procedure for data activities that may affect national security and imposes export restrictions on certain data an information. 26 On August 17, 2021, the State Council promulgated the Regulations on the Protection of the Security of Critical Information Infrastructure, or the Regulations, which took effect on September 1, 2021.
The PRC Data Security Law also provides for a national security review procedure for data activities that may affect national security and imposes export restrictions on certain data an information. 24 On August 17, 2021, the State Council promulgated the Regulations on the Protection of the Security of Critical Information Infrastructure, or the Regulations, which took effect on September 1, 2021.
Risks Related to Our Corporate Structure If the PRC government deems that the VIE agreements in relation to Wuge, our consolidated variable interest entity or VIE, do not comply with PRC regulatory restrictions on foreign investment in the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations and our common stock may decline in value dramatically or even become worthless.
Risks Related to Our Corporate Structure If the PRC government deems that the VIE agreements in relation to Highlight Media, our consolidated variable interest entity or VIE, do not comply with PRC regulatory restrictions on foreign investment in the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations and our common stock may decline in value dramatically or even become worthless.
Under the current contractual arrangements, as a legal matter, if Wuge or any of its shareholders executing the VIE agreements fails to perform its, his or her respective obligations under these contractual arrangements, we may have to incur substantial costs and resources to enforce such arrangements, and rely on legal remedies available under PRC laws, including seeking specific performance or injunctive relief, and claiming damages, which we cannot assure you will be effective.
Under the current contractual arrangements, as a legal matter, if Highlight Media or any of its shareholders executing the VIE agreements fails to perform its, his or her respective obligations under these contractual arrangements, we may have to incur substantial costs and resources to enforce such arrangements, and rely on legal remedies available under PRC laws, including seeking specific performance or injunctive relief, and claiming damages, which we cannot assure you will be effective.
Any limitation on the ability of Makesi WFOE to make dividend payments to us, or any tax implications of making dividend payments to us, could limit our ability to pay our parent company expenses or pay dividends to holders of our common stock. We are a holding company with no material operation of our own.
Any limitation on the ability of Highlight WFOE to make dividend payments to us, or any tax implications of making dividend payments to us, could limit our ability to pay our parent company expenses or pay dividends to holders of our common stock. We are a holding company with no material operation of our own.
We rely on the shareholders of Wuge to comply with PRC laws and regulations, which protect contracts and provide that directors and executive officers owe a duty of loyalty to our Company and require them to avoid conflicts of interest and not to take advantage of their positions for personal gains, and the laws of Nevada, which provide that the directors have a duty of care and a duty of loyalty to act honestly in good faith with a view to our best interests.
We rely on the shareholders of Highlight Media to comply with PRC laws and regulations, which protect contracts and provide that directors and executive officers owe a duty of loyalty to our Company and require them to avoid conflicts of interest and not to take advantage of their positions for personal gains, and the laws of Nevada, which provide that the directors have a duty of care and a duty of loyalty to act honestly in good faith with a view to our best interests.
We are currently not required to obtain approval from Chinese authorities to list on U.S exchanges, however, if Wuge or the holding company were required to obtain approval in the future and were denied permission from Chinese authorities to list on U.S. exchanges, we will not be able to continue listing on U.S. exchange and the value of our common stock may significantly decline or become worthless, which would materially affect the interest of the investors.
We are currently not required to obtain approval from Chinese authorities to list on U.S exchanges, however, if Highlight Media or the holding company were required to obtain approval in the future and were denied permission from Chinese authorities to list on U.S. exchanges, we will not be able to continue listing on U.S. exchange and the value of our common stock may significantly decline or become worthless, which would materially affect the interest of the investors.
If (i) the applicable PRC authorities invalidate the VIE agreements for violation of PRC laws, rules and regulations, (ii) Wuge or its shareholders terminate the contractual arrangements, (iii) Wuge or its shareholders fail to perform its/his/her obligations under these contractual arrangements, or (iv) if these regulations change or are interpreted differently in the future, we may have to modify such structure to comply with regulatory requirements.
If (i) the applicable PRC authorities invalidate the VIE agreements for violation of PRC laws, rules and regulations, (ii) Highlight Media or its shareholders terminate the contractual arrangements, (iii) Highlight Media or its shareholders fail to perform its/his/her obligations under these contractual arrangements, or (iv) if these regulations change or are interpreted differently in the future, we may have to modify such structure to comply with regulatory requirements.
Additionally, if such a transfer takes place, the competent tax authority may require Makesi WFOE to pay enterprise income tax for ownership transfer income with reference to the market value, in which case the amount of tax could be substantial. 20 Risks Related to Doing Business in China PRC regulation of loans to, and direct investments in, PRC entities by offshore holding companies may delay or prevent us from using proceeds from future financing activities to make loans or additional capital contributions to our PRC operating subsidiaries.
Additionally, if such a transfer takes place, the competent tax authority may require Highlight WFOE to pay enterprise income tax for ownership transfer income with reference to the market value, in which case the amount of tax could be substantial. 19 Risks Related to Doing Business in China PRC regulation of loans to, and direct investments in, PRC entities by offshore holding companies may delay or prevent us from using proceeds from future financing activities to make loans or additional capital contributions to our PRC operating subsidiaries.
Under PRC laws and regulations, our PRC subsidiary, Makesi WFOE, which is a wholly foreign-owned enterprise in China, may pay dividends only out of its accumulated profits as determined in accordance with PRC accounting standards and regulations.
Under PRC laws and regulations, our PRC subsidiary, Highlight WFOE, which is a wholly foreign-owned enterprise in China, may pay dividends only out of its accumulated profits as determined in accordance with PRC accounting standards and regulations.
Furthermore, if Makesi WFOE or Wuge is/are found to be in violation of any existing or future PRC laws or regulations, or fail to obtain or maintain any of the required permits or approvals, the relevant PRC regulatory authorities would have broad discretion to take action in dealing with such violations or failures, including, without limitation: ● revoking the business license and/or operating licenses of Makesi WFOE or Wuge; ● discontinuing or placing restrictions or onerous conditions on our operations through any transactions among Makesi WFOE and Wuge; ● imposing fines, confiscating the income from Makesi WFOE or Wuge, or imposing other requirements with which Makesi WFOE or Wuge may not be able to comply; ● placing restrictions on our right to collect revenues; ● shutting down our servers or blocking our app/websites; ● requiring us to restructure our ownership structure or operations, including terminating the contractual arrangements with Wuge and deregistering the equity pledges of Wuge, which in turn would affect our ability to consolidate or derive economic interests from Wuge; or 18 ● restricting or prohibiting our use of the proceeds of future financings to finance our business and operations in China. ● taking other regulatory or enforcement actions against us that could be harmful to our business.
Furthermore, if Highlight WFOE is found to be in violation of any existing or future PRC laws or regulations, or fail to obtain or maintain any of the required permits or approvals, the relevant PRC regulatory authorities would have broad discretion to take action in dealing with such violations or failures, including, without limitation: ● revoking the business license and/or operating licenses of Highlight WFOE or Highlight Media; ● discontinuing or placing restrictions or onerous conditions on our operations through any transactions among Highlight WFOE and Highlight Media; 17 ● imposing fines, confiscating the income from Highlight WFOE or Highlight Media, or imposing other requirements with which Highlight WFOE or Highlight Media may not be able to comply; ● placing restrictions on our right to collect revenues; ● shutting down our servers or blocking our app/websites; ● requiring us to restructure our ownership structure or operations, including terminating the contractual arrangements with Highlight Media and deregistering the equity pledges of Highlight Media, which in turn would affect our ability to consolidate or derive economic interests from Highlight Media; or ● restricting or prohibiting our use of the proceeds of future financings to finance our business and operations in China. ● taking other regulatory or enforcement actions against us that could be harmful to our business.
If the imposition of any of these government actions causes us to lose our right to direct the activities of Wuge or our right to receive substantially all the economic benefits and residual returns from Wuge and we are not able to restructure our ownership structure and operations in a satisfactory manner, we would no longer be able to consolidate the financial results of Wuge in our consolidated financial statements.
If the imposition of any of these government actions causes us to lose our right to direct the activities of Highlight Media or our right to receive substantially all the economic benefits and residual returns from Highlight Media and we are not able to restructure our ownership structure and operations in a satisfactory manner, we would no longer be able to consolidate the financial results of Highlight Media in our consolidated financial statements.
The Chinese government has recently published new policies that significantly affected certain industries such as the education and Internet industries, and we cannot rule out the possibility that it will in the future release regulations or policies regarding our industry that could adversely affect the business, financial condition, and results of operations of Wuge.
The Chinese government has recently published new policies that significantly affected certain industries such as the education and Internet industries, and we cannot rule out the possibility that it will in the future release regulations or policies regarding our industry that could adversely affect the business, financial condition, and results of operations of Highlight Media.
For example, if Wuge’s shareholders were to refuse to transfer their equity interests in such variable interest entity to us or our designated persons when we exercise the purchase option pursuant to these contractual arrangements, we may have to take a legal action to compel them to fulfill their contractual obligations.
For example, if Highlight Media’s shareholders were to refuse to transfer their equity interests in such variable interest entity to us or our designated persons when we exercise the purchase option pursuant to these contractual arrangements, we may have to take a legal action to compel them to fulfill their contractual obligations.
However, if we were to engage in any business conduct involving third parties identified as prohibited or restricted on the Negative List, Wuge as well as its subsidiary may be subject to laws and regulations on foreign investment. In addition, our shareholders would also be prohibited or restricted to invest in certain sectors on the Negative List.
However, if we were to engage in any business conduct involving third parties identified as prohibited or restricted on the Negative List, Highlight Media as well as its subsidiary may be subject to laws and regulations on foreign investment. In addition, our shareholders would also be prohibited or restricted to invest in certain sectors on the Negative List.
In addition, as the Chinese government has been updating the Negative List in recent years and reducing the sectors prohibited or restricted for foreign investment, it is probable in the future that, even if Wuge is identified as a FIE, it is still allowed to acquire or hold equity of enterprises in sectors currently prohibited or restricted for foreign investment.
In addition, as the Chinese government has been updating the Negative List in recent years and reducing the sectors prohibited or restricted for foreign investment, it is probable in the future that, even if Highlight Media is identified as a FIE, it is still allowed to acquire or hold equity of enterprises in sectors currently prohibited or restricted for foreign investment.
Furthermore, the PRC legal system is based in part on government policies, internal rules, and regulations that may have retroactive effect and may change quickly with little advance notice. As a result, Wuge may not be aware of its violation of these policies and rules until sometime after the violation.
Furthermore, the PRC legal system is based in part on government policies, internal rules, and regulations that may have retroactive effect and may change quickly with little advance notice. As a result, Highlight Media may not be aware of its violation of these policies and rules until sometime after the violation.
The Chinese government has significant oversight and discretion over the conduct of Wuge and may intervene or influence their operations at any time as the government deems appropriate to further regulatory, political, and societal goals, which could result in a material change in the operations of Wuge and/or the value of our common stock.
The Chinese government has significant oversight and discretion over the conduct of Highlight Media and may intervene or influence their operations at any time as the government deems appropriate to further regulatory, political, and societal goals, which could result in a material change in the operations of Highlight Media and/or the value of our common stock.
Such risks exist throughout the period in which we intend to operate the business through the contractual arrangements with Wuge. All of these contractual arrangements are governed by PRC law and provide for the resolution of disputes through arbitration in the PRC. The VIE agreements have not been tested in a court of law.
Such risks exist throughout the period in which we intend to operate the business through the contractual arrangements with Highlight Media. All of these contractual arrangements are governed by PRC law and provide for the resolution of disputes through arbitration in the PRC. The VIE agreements have not been tested in a court of law.
Any capital contributions or loans that we, as an offshore entity, make to our Company’s PRC subsidiary and Wuge are subject to the above PRC regulations. We may not be able to obtain necessary government registrations or approvals on a timely basis, if at all.
Any capital contributions or loans that we, as an offshore entity, make to our Company’s PRC subsidiary and Highlight Media are subject to the above PRC regulations. We may not be able to obtain necessary government registrations or approvals on a timely basis, if at all.
If we fail to obtain such approvals or make such registration, our ability to make equity contributions or provide loans to our Company’s PRC subsidiary and Wuge or to fund their operations may be negatively affected, which may adversely affect their liquidity and ability to fund their working capital and expansion projects and meet their obligations and commitments.
If we fail to obtain such approvals or make such registration, our ability to make equity contributions or provide loans to our Company’s PRC subsidiary and Highlight Media or to fund their operations may be negatively affected, which may adversely affect their liquidity and ability to fund their working capital and expansion projects and meet their obligations and commitments.
In addition, we cannot predict the effects of future developments in the PRC legal system on the business operations of Wuge, including the promulgation of new laws, or changes to existing laws or the interpretation or enforcement thereof. These uncertainties could limit the legal protections available to us and our investors, including you.
In addition, we cannot predict the effects of future developments in the PRC legal system on the business operations of Highlight Media, including the promulgation of new laws, or changes to existing laws or the interpretation or enforcement thereof. These uncertainties could limit the legal protections available to us and our investors, including you.
In addition, it is unclear what impact the PRC government actions would have on us and on our ability to consolidate the financial results of Wuge in our consolidated financial statements, if the PRC government authorities were to find our corporate structure and contractual arrangements to be in violation of PRC laws and regulations.
In addition, it is unclear what impact the PRC government actions would have on us and on our ability to consolidate the financial results of Highlight Media in our consolidated financial statements, if the PRC government authorities were to find our corporate structure and contractual arrangements to be in violation of PRC laws and regulations.
If Wuge undergoes a voluntary or involuntary liquidation proceeding, its shareholders or unrelated third-party creditors may claim rights to some or all of these assets, thereby hindering our ability to operate our business, which could materially and adversely affect our business and our ability to generate revenues.
If Highlight Media undergoes a voluntary or involuntary liquidation proceeding, its shareholders or unrelated third-party creditors may claim rights to some or all of these assets, thereby hindering our ability to operate our business, which could materially and adversely affect our business and our ability to generate revenues.
Failure to effectively manage Wuge could result in difficulty or delays in deploying the Company’s services to customers, declines in quality or customer satisfaction, increases in costs, difficulties in introducing new features or other operational difficulties. Any of these difficulties could adversely impact the Company’s business performance and results of operations.
Failure to effectively manage Highlight Media could result in difficulty or delays in deploying the Company’s services to customers, declines in quality or customer satisfaction, increases in costs, difficulties in introducing new features or other operational difficulties. Any of these difficulties could adversely impact the Company’s business performance and results of operations.
If we had direct ownership of Wuge, we would be able to exercise our rights as a shareholder to effect changes in the board of directors of Wuge, which in turn could implement changes, subject to any applicable fiduciary obligations, at the management and operational level.
If we had direct ownership of Highlight Media, we would be able to exercise our rights as a shareholder to effect changes in the board of directors of Highlight Media, which in turn could implement changes, subject to any applicable fiduciary obligations, at the management and operational level.
In addition, if Wuge or all or part of its assets become subject to liens or rights of third-party creditors, we may be unable to continue some or all of our business activities, which could materially and adversely affect our business, financial condition and results of operations.
In addition, if Highlight Media or all or part of its assets become subject to liens or rights of third-party creditors, we may be unable to continue some or all of our business activities, which could materially and adversely affect our business, financial condition and results of operations.
However, even if Wuge were to be identified as a FIE, the validity of our contractual arrangements with Wuge and its shareholders as well as our corporate structure would not be adversely affected. We would still be able to receive benefits from Wuge in accordance with the contractual agreements.
However, even if Highlight Media were to be identified as a FIE, the validity of our contractual arrangements with Highlight Media and its shareholders as well as our corporate structure would not be adversely affected. We would still be able to receive benefits from Highlight Media in accordance with the contractual agreements.
Wuge is required to obtain and maintain certain licenses or approvals from different regulatory authorities in order to operate their respective current businesses. These licenses and approvals are essential to the operation of their businesses, for example, the value-added telecommunication business carried out by Wuge.
Highlight Media is required to obtain and maintain certain licenses or approvals from different regulatory authorities in order to operate their respective current businesses. These licenses and approvals are essential to the operation of their businesses, for example, the value-added telecommunication business carried out by Highlight Media.
We, however, could, at all times, exercise our option under the Exclusive Option Agreement to cause them to transfer all of their equity ownership in Wuge to a PRC entity or individual designated by us as permitted by the then applicable PRC laws.
We, however, could, at all times, exercise our option under the Exclusive Option Agreement to cause them to transfer all of their equity ownership in Highlight Media to a PRC entity or individual designated by us as permitted by the then applicable PRC laws.
If we cannot resolve any conflicts of interest or disputes between us and the shareholders of Wuge , we would have to rely on legal proceedings, which could result in disruption of our business and subject us to substantial uncertainty as to the outcome of any such legal proceedings.
If we cannot resolve any conflicts of interest or disputes between us and the shareholders of Highlight Media, we would have to rely on legal proceedings, which could result in disruption of our business and subject us to substantial uncertainty as to the outcome of any such legal proceedings.
Contractual arrangements in relation to Wuge may be subject to scrutiny by the PRC tax authorities and they may determine that we or Wuge owe/owes additional taxes, which could negatively affect our results of operations and the value of your investment.
Contractual arrangements in relation to Highlight Media may be subject to scrutiny by the PRC tax authorities and they may determine that we or Highlight Media owe/owes additional taxes, which could negatively affect our results of operations and the value of your investment.
If Wuge fails to maintain the requisite licenses and approvals required under PRC law, our business, financial condition and results of operations may be materially and adversely affected. Foreign investment is highly regulated by the PRC government and local authorities.
If Highlight Media fails to maintain the requisite licenses and approvals required under PRC law, our business, financial condition and results of operations may be materially and adversely affected. Foreign investment is highly regulated by the PRC government and local authorities.
Pursuant to the VIE agreements, Makesi WFOE has the exclusive right to purchase all or any part of the equity interests in Wuge from the shareholders of Wuge for a nominal price, unless the relevant government authorities or then applicable PRC laws request that a minimum price amount be used as the purchase price, in such case the purchase price shall be the lowest amount under such request.
Pursuant to the VIE agreements, Highlight WFOE has the exclusive right to purchase all or any part of the equity interests in Highlight Media from the shareholders of Highlight Media for a nominal price, unless the relevant government authorities or then applicable PRC laws request that a minimum price amount be used as the purchase price, in such case the purchase price shall be the lowest amount under such request.
Such uncertainties, including uncertainties over the scope and effect of the contractual, property (including intellectual property), and procedural rights, and any failure to respond to changes in the regulatory environment in China could materially and adversely affect Wuge’s business and impede Wuge’s ability to continue its operations.
Such uncertainties, including uncertainties over the scope and effect of the contractual, property (including intellectual property), and procedural rights, and any failure to respond to changes in the regulatory environment in China could materially and adversely affect Highlight Media’s business and impede Highlight Media’s ability to continue its operations.
We may face material and adverse tax consequences if the PRC tax authorities determine that the contractual arrangements between our WFOE, our variable interest entity Wuge and the shareholders of Wuge were not entered into on an arm’s length basis in such a way as to result in an impermissible reduction in taxes under applicable PRC laws, rules and regulations, and adjust Wuge’s income in the form of a transfer pricing adjustment.
We may face material and adverse tax consequences if the PRC tax authorities determine that the contractual arrangements between our WFOE, our variable interest entity Highlight Media and the shareholders of Highlight Media were not entered into on an arm’s length basis in such a way as to result in an impermissible reduction in taxes under applicable PRC laws, rules and regulations, and adjust Highlight Media’s income in the form of a transfer pricing adjustment.
Under the Data Security Law enacted on September 1, 2021 and the Measures for Cybersecurity Review (2021) implemented on February 15, 2022, given that (i) Wuge is not an Operator, (Ii) Wuge does not possess more than one million users’ personal information, and (iIi) data processed in Wuge’s business does not have a bearing on national security and thus may not be classified as core or important data by the authorities.
Under the Data Security Law enacted on September 1, 2021 and the Measures for Cybersecurity Review (2021) implemented on February 15, 2022, given that (i) Highlight Media is not an Operator, (Ii) Highlight Media does not possess more than one million users’ personal information, and (iIi) data processed in Highlight Media’s business does not have a bearing on national security and thus may not be classified as core or important data by the authorities.
Wuge, the VIE with with Makesi WFOE has contractual arrangement with, generates primarily all of its revenue in Renminbi, which is not freely convertible into other currencies. As a result, any restriction on currency exchange may limit the ability of our PRC subsidiary to use its Renminbi revenues to pay dividends to us.
Highlight Media, the VIE with which Highlight WFOE has contractual arrangement with, generates primarily all of its revenue in Renminbi, which is not freely convertible into other currencies. As a result, any restriction on currency exchange may limit the ability of our PRC subsidiary to use its Renminbi revenues to pay dividends to us.
For example, the shareholders may be able to cause our agreements with Wuge to be performed in a manner adverse to us by, among other things, failing to remit payments due under the contractual arrangements to us on a timely basis.
For example, the shareholders may be able to cause our agreements with Highlight Media to be performed in a manner adverse to us by, among other things, failing to remit payments due under the contractual arrangements to us on a timely basis.
Although the FIL has deleted the particular reference to the concept of “actual control” and contractual arrangements compared to the 2015 FIL Draft, there is still uncertainty regarding whether Wuge would be identified as a FIE in the future.
Although the FIL has deleted the particular reference to the concept of “actual control” and contractual arrangements compared to the 2015 FIL Draft, there is still uncertainty regarding whether Highlight Media would be identified as a FIE in the future.
Furthermore, if China adopts more stringent standards with respect to certain areas such as environmental protection or corporate social responsibilities, Wuge may incur increased compliance costs or become subject to additional restrictions in their operations.
Furthermore, if China adopts more stringent standards with respect to certain areas such as environmental protection or corporate social responsibilities, Highlight Media may incur increased compliance costs or become subject to additional restrictions in their operations.
As a result, our common stock may decline in value dramatically or even become worthless should we become unable to assert our contractual rights over the assets of Wuge that conducts all or substantially our operations.
As a result, our common stock may decline in value dramatically or even become worthless should we become unable to assert our contractual rights over the assets of Highlight Media that conducts all or substantially our operations.
The legislation over the past three decades has significantly increased the protection afforded to various forms of foreign or private-sector investment in China. Wuge is subject to various PRC laws and regulations generally applicable to companies in China.
The legislation over the past three decades has significantly increased the protection afforded to various forms of foreign or private-sector investment in China. Highlight Media is subject to various PRC laws and regulations generally applicable to companies in China.
Our business may be materially and adversely affected if Wuge declares bankruptcy or become subject to a dissolution or liquidation proceeding. The Enterprise Bankruptcy Law of the PRC, or the Bankruptcy Law, came into effect on June 1, 2007.
Our business may be materially and adversely affected if Highlight Media declares bankruptcy or become subject to a dissolution or liquidation proceeding. The Enterprise Bankruptcy Law of the PRC, or the Bankruptcy Law, came into effect on June 1, 2007.
Wuge and its shareholders could breach their contractual arrangements with us by, among other things, failing to conduct their operations in an acceptable manner or taking other actions that are detrimental to our interests.
Highlight Media and its shareholders could breach their contractual arrangements with us by, among other things, failing to conduct their operations in an acceptable manner or taking other actions that are detrimental to our interests.
As a result, our liquidity and our ability to fund and expand our business may be negatively affected. Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on our business and results of operations. All of Wuge’s operations and assets are located in China.
As a result, our liquidity and our ability to fund and expand our business may be negatively affected. 20 Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on our business and results of operations. All of Highlight Media’s operations and assets are located in China.
We are a holding company incorporated in Nevada. As a holding company with no material operations of our own, we conduct substantially all of our operations through Wuge, the consolidated variable interest entity (or VIE) established in PRC.
We are a holding company incorporated in Nevada. As a holding company with no material operations of our own, we conduct substantially all of our operations through Highlight Media, the consolidated variable interest entity (or VIE) established in PRC.
However, under the current contractual arrangements, we rely on the performance by Wuge and its shareholders of their obligations under the contracts. The shareholders of Wuge may not act in the best interests of our Company or may not perform their obligations under these contracts.
However, under the current contractual arrangements, we rely on the performance by Highlight Media and its shareholders of their obligations under the contracts. The shareholders of Highlight Media may not act in the best interests of our Company or may not perform their obligations under these contracts.
Any such disruption in the business operations of Wuge could materially and adversely affect our business, financial condition and results of operations. 33 You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing original actions against us or our management, in China, based upon United States laws, including the U.S. federal securities laws, or other foreign laws.
Any such disruption in the business operations of Highlight Media could materially and adversely affect our business, financial condition and results of operations. 31 You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing original actions against us or our management, in China, based upon United States laws, including the U.S. federal securities laws, or other foreign laws.
Accordingly, Wuge’s business, prospects, financial condition and results of operations may be influenced to a significant degree by political, economic and social conditions in China generally and by continued economic growth in China as a whole.
Accordingly, Highlight Media’s business, prospects, financial condition and results of operations may be influenced to a significant degree by political, economic and social conditions in China generally and by continued economic growth in China as a whole.
If Wuge fails to obtain or maintain any of the required licenses or approvals for its business, we may be subject to various penalties, such as fines and the discontinuation or restriction of its operations.
If Highlight Media fails to obtain or maintain any of the required licenses or approvals for its business, we may be subject to various penalties, such as fines and the discontinuation or restriction of its operations.
Currently, we do not have arrangements to address potential conflicts of interest the shareholders of Wuge may encounter, on one hand, and as a beneficial owner of our Company, on the other hand.
Currently, we do not have arrangements to address potential conflicts of interest the shareholders of Highlight Media may encounter, on one hand, and as a beneficial owner of our Company, on the other hand.
The Bankruptcy Law provides that an enterprise will be liquidated if the enterprise fails to settle its debts as and when they fall due and if the enterprise’s assets are, or are demonstrably, insufficient to clear such debts. Wuge holds certain assets that are important to our business operations.
The Bankruptcy Law provides that an enterprise will be liquidated if the enterprise fails to settle its debts as and when they fall due and if the enterprise’s assets are, or are demonstrably, insufficient to clear such debts. 22 Highlight Media holds certain assets that are important to our business operations.
In addition, if such conflicts of interest arise, we could also, in the capacity of attorney-in-fact of the then existing shareholders of Wuge as provided under the power of attorney, directly appoint new directors of Wuge .
In addition, if such conflicts of interest arise, we could also, in the capacity of attorney-in-fact of the then existing shareholders of Highlight Media as provided under the power of attorney, directly appoint new directors of Highlight Media.
Any limitation on the ability of our PRC subsidiary to pay dividends or make other distributions to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business. 19 Shareholders of Wuge may have potential conflicts of interest with us, which may materially and adversely affect our business and financial condition.
Any limitation on the ability of our PRC subsidiary to pay dividends or make other distributions to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business. 18 Shareholders of Highlight Media may have potential conflicts of interest with us, which may materially and adversely affect our business and financial condition.
In addition, if Makesi WFOE requests the shareholders of Wuge to transfer their equity interests in Wuge at nominal or no value pursuant to these contractual arrangements, such transfer could be viewed as a gift and subject Makesi WFOE to PRC income tax.
In addition, if Highlight WFOE requests the shareholders of Highlight Media to transfer their equity interests in Highlight Media at nominal or no value pursuant to these contractual arrangements, such transfer could be viewed as a gift and subject Highlight WFOE to PRC income tax.
The PRC legal system is based on written statutes. Unlike common law systems, it is a system in which legal cases have limited value as precedents. In the late 1970s, the PRC government began to promulgate a comprehensive system of laws and regulations governing economic matters in general.
Unlike common law systems, it is a system in which legal cases have limited value as precedents. In the late 1970s, the PRC government began to promulgate a comprehensive system of laws and regulations governing economic matters in general.
Furthermore, the PRC tax authorities may impose late payment fees and other penalties on Wuge for the adjusted but unpaid taxes according to the applicable regulations. Our results of operations could be materially and adversely affected if Wuge’s tax liabilities increase or if they are required to pay late payment fees and other penalties.
Furthermore, the PRC tax authorities may impose late payment fees and other penalties on Highlight Media for the adjusted but unpaid taxes according to the applicable regulations. Our results of operations could be materially and adversely affected if Highlight Media’s tax liabilities increase or if they are required to pay late payment fees and other penalties.
This may restrict our ability to implement our acquisition strategy and could adversely affect our business and prospects. 21 As an offshore holding company with PRC subsidiaries, we may finance our subsidiaries by means of loans or capital contributions and finance Wuge by means of loans.
This may restrict our ability to implement our acquisition strategy and could adversely affect our business and prospects. As an offshore holding company with PRC subsidiaries, we may finance our subsidiaries by means of loans or capital contributions and finance Highlight Media by means of loans.
If Wuge undergoes a voluntary or involuntary liquidation proceeding, unrelated third-party creditors may claim rights to some or all of these assets, thereby hindering our ability to operate our business, which could materially and adversely affect Wuge’s business, financial condition and results of operations.
If Highlight Media undergoes a voluntary or involuntary liquidation proceeding, unrelated third-party creditors may claim rights to some or all of these assets, thereby hindering our ability to operate our business, which could materially and adversely affect Highlight Media’s business, financial condition and results of operations.
The shareholders of Wuge will be subject to PRC individual income tax on the difference between the equity transfer price and the then current registered capital of Wuge.
The shareholders of Highlight Media will be subject to PRC individual income tax on the difference between the equity transfer price and the then current registered capital of Highlight Media.
Even if Wuge were to be identified as a FIE in the future, we believe that our current business would not be adversely affected.
Even if Highlight Media were to be identified as a FIE in the future, we believe that our current business would not be adversely affected.
A transfer pricing adjustment could, among other things, result in a reduction of expense deductions recorded by Wuge for PRC tax purposes, which could, in turn, increase their tax liabilities without reducing Makesi WFOE’s tax expenses.
A transfer pricing adjustment could, among other things, result in a reduction of expense deductions recorded by Highlight Media for PRC tax purposes, which could, in turn, increase their tax liabilities without reducing Highlight WFOE’s tax expenses.
Because of these lessened regulatory requirements, our stockholders would be left without information or rights available to stockholders of more mature companies. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
Because of these lessened regulatory requirements, our stockholders would be left without information or rights available to stockholders of more mature companies. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile. Item 1B. Unresolved Staff Comments None.
In addition, the PRC Foreign Investment Law also provides several protective rules and principles for foreign investors and their investments in the PRC, including, among others, that a foreign investor may freely transfer into or out of China, in Renminbi or a foreign currency, its contributions, profits, capital gains, income from disposition of assets, royalties of intellectual property rights, indemnity or compensation lawfully acquired, and income from liquidation, among others, within China; local governments shall abide by their commitments to the foreign investors; governments at all levels and their departments shall enact local normative documents concerning foreign investment in compliance with laws and regulations and shall not impair legitimate rights and interests, impose additional obligations onto FIEs, set market access restrictions and exit conditions, or intervene with the normal production and operation activities of FIEs; except for special circumstances, in which case statutory procedures shall be followed and fair and reasonable compensation shall be made in a timely manner, expropriation or requisition of the investment of foreign investors is prohibited; and mandatory technology transfer is prohibited.
In addition, the PRC Foreign Investment Law also provides several protective rules and principles for foreign investors and their investments in the PRC, including, among others, that a foreign investor may freely transfer into or out of China, in Renminbi or a foreign currency, its contributions, profits, capital gains, income from disposition of assets, royalties of intellectual property rights, indemnity or compensation lawfully acquired, and income from liquidation, among others, within China; local governments shall abide by their commitments to the foreign investors; governments at all levels and their departments shall enact local normative documents concerning foreign investment in compliance with laws and regulations and shall not impair legitimate rights and interests, impose additional obligations onto FIEs, set market access restrictions and exit conditions, or intervene with the normal production and operation activities of FIEs; except for special circumstances, in which case statutory procedures shall be followed and fair and reasonable compensation shall be made in a timely manner, expropriation or requisition of the investment of foreign investors is prohibited; and mandatory technology transfer is prohibited. 23 Notwithstanding the above, the PRC Foreign Investment Law stipulates that foreign investment includes “foreign investors invest through any other methods under laws, administrative regulations or provisions prescribed by the State Council”.
If we exercise the option to acquire equity ownership of Wuge, the ownership transfer may subject us to certain limitation and substantial costs.
If we exercise the option to acquire equity ownership of Highlight Media, the ownership transfer may subject us to certain limitation and substantial costs.
On July 10, 2021, the Cyberspace Administration of China issued a revised draft of the Measures for Cybersecurity Review for public comments (the “Review Measures”), and on December 28, 2021, the Cyberspace Administration of China jointly with the relevant authorities published Measures for Cybersecurity Review (2021) which took effect on February 15, 2022 and replace the Review Measures, which required that, operators of critical information infrastructure purchasing network products and services, and data processors (together with the operators of critical information infrastructure, the “Operators”) carrying out data processing activities that affect or may affect national security, shall conduct a cybersecurity review, any operator who controls more than one million users’ personal information must go through a cybersecurity review by the cybersecurity review office if it seeks to be listed in a foreign country.
The Measures for Cybersecurity Review (2021) required that, among others, in addition to “operator of critical information infrastructure” any “operator of network platform” holding personal information of more than one million users which seeks to list in a foreign stock exchange should also be subject to cybersecurity review. 27 On July 10, 2021, the Cyberspace Administration of China issued a revised draft of the Measures for Cybersecurity Review for public comments (the “Review Measures”), and on December 28, 2021, the Cyberspace Administration of China jointly with the relevant authorities published Measures for Cybersecurity Review (2021) which took effect on February 15, 2022 and replace the Review Measures, which required that, operators of critical information infrastructure purchasing network products and services, and data processors (together with the operators of critical information infrastructure, the “Operators”) carrying out data processing activities that affect or may affect national security, shall conduct a cybersecurity review, any operator who controls more than one million users’ personal information must go through a cybersecurity review by the cybersecurity review office if it seeks to be listed in a foreign country.
Wuge may be required to suspend its business, be liable for improper use or appropriation of personal information provided by our customers and face other penalties. Wuge may become subject to a variety of laws and regulations in the PRC regarding privacy, data security, cybersecurity, and data protection. These laws and regulations are continuously evolving and developing.
Highlight Media may become subject to a variety of laws and regulations in the PRC regarding privacy, data security, cybersecurity, and data protection. Highlight Media may be required to suspend its business, be liable for improper use or appropriation of personal information provided by our customers and face other penalties.
If we continue to use cash at our historical rates of use we will need significant additional financing, which we may seek through a combination of private and public equity offerings, debt financings and collaborations and strategic and licensing arrangements.
We have incurred losses in each year since our inception. If we continue to use cash at our historical rates of use we will need significant additional financing, which we may seek through a combination of private and public equity offerings, debt financings and collaborations and strategic and licensing arrangements.
We are currently authorized to issue 200,000,000 shares of common stock. As of March 31, 2022, we had [38,429,617] shares of common stock issued and outstanding. We may seek additional capital through a combination of private and public equity offerings, debt financings and collaborations and strategic and licensing arrangements.
We are currently authorized to issue 200,000,000 shares of common stock. As of March 31, 2023, we had 1,711,544 shares of common stock issued and outstanding. 36 We may seek additional capital through a combination of private and public equity offerings, debt financings and collaborations and strategic and licensing arrangements.
The implementing rules of the EIT Law define de facto management as “substantial and overall management and control over the production and operations, personnel, accounting, and properties” of the enterprise. 22 On April 22, 2009, the State Administration of Taxation of China issued the Notice Concerning Relevant Issues Regarding Cognizance of Chinese Investment Controlled Enterprises Incorporated Offshore as Resident Enterprises pursuant to Criteria of de facto Management Bodies, or the Notice, further interpreting the application of the EIT Law and its implementation to offshore entities controlled by a Chinese enterprise or group.
On April 22, 2009, the State Administration of Taxation of China issued the Notice Concerning Relevant Issues Regarding Cognizance of Chinese Investment Controlled Enterprises Incorporated Offshore as Resident Enterprises pursuant to Criteria of de facto Management Bodies, or the Notice, further interpreting the application of the EIT Law and its implementation to offshore entities controlled by a Chinese enterprise or group.
Historically there has not been a large short position in our common stock. However, in the future investors may purchase shares of our common stock to hedge existing exposure or to speculate on the price of our common stock. Speculation on the price of our common stock may involve long and short exposures.
However, in the future investors may purchase shares of our common stock to hedge existing exposure or to speculate on the price of our common stock. Speculation on the price of our common stock may involve long and short exposures.

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Item 2. Properties

Properties — owned and leased real estate

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Item 2. Properties Wuge’s office is located at 119 Zhaojuesi South Road, Room 2-1, Chengshu City, Sichuan, China. The rent for this office is approximately RMB 400,000 per year. We consider our current office space adequate for our current operations.
Item 2. Properties Highlight Media’s office is located at Flat 1512, 15F, Lucky Centre, No.165-171 Wan Chai Road, Wan Chai, Hong Kong, China. The rent for this office is approximately RMB 200,000 per year. We consider our current office space adequate for our current operations.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

5 edited+4 added−33 removed27 unchanged
The Plan was approved by our board of directors on December 12, 2019 and was approved by our stockholders at our annual meeting in 2019. The purpose of the Plan is to grant stock and options to purchase our common stock to our employees, directors and key consultants.
We established our 2019 Equity Incentive Plan (the “Plan”). The Plan was approved by our board of directors on December 12, 2019 and was approved by our stockholders at our annual meeting in 2019. The purpose of the Plan is to grant stock and options to purchase our common stock to our employees, directors and key consultants.
In addition, our board of directors is not currently contemplating and does not anticipate declaring any stock dividends in the foreseeable future. (d) Securities Authorized for Issuance Under Equity Compensation Plans. We established our 2019 Equity Incentive Plan (the “Plan”).
(c) Dividends We have not paid any cash dividends on our common stock to date and do not intend to pay cash dividends in the foreseeable future. In addition, our board of directors is not currently contemplating and does not anticipate declaring any stock dividends in the foreseeable future. (d) Securities Authorized for Issuance Under Equity Compensation Plans.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities (a) Market Information Our common stock and warrants are traded on the Nasdaq Capital Market and OTC Market under the symbols “CCNC” and “CCNCW, respectively.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities (a) Market Information Our common stock is traded on the Nasdaq Capital Market and OTC Market under the symbols “GDC”. (b) Holders On March 31, 2023, there are approximately 325 holders of record of our common stock.
The 7,647,493 shares of common stock of the Company were cancelled on March 14, 2022. (f) Purchases of Equity Securities by the Issuer and Affiliated Purchasers None.
See “Part I – Item 1. Business – Recent Business Development – Acquisition of Shanghai Highlight Media Co., Ltd. The Company cancelled 133,333 shares of common stock on March 9, 2023. See “Part I – Item 1. Business – Recent Business Development – Disposition of Wuge” 41 (f) Purchases of Equity Securities by the Issuer and Affiliated Purchasers None.
In exchange, the Company issued 7,647,493 shares of common stock of the Company, valued at $2.15 per share, on August 26, 2021. On February 23, 2022, the Company entered into a termination agreement with the seller to terminate the asset purchase agreement dated July 28, 2021 and forfeit the transaction.
Business – Recent Business Development – Asset Purchase Agreement dated February 23, 2021, as amended on April 16, 2021 and May 28, 2021 and the Cancellation of such Asset Purchase Agreement in September 2022” The Company issued 254,917 shares of common stock on August 26, 2021.
Removed
(b) Holders On March 31, 2022, there are approximately 324 holders of record of our common stock and 2 holders of record of our warrants. (c) Dividends We have not paid any cash dividends on our common stock to date and do not intend to pay cash dividends in the foreseeable future.
Added
(e) Recent Sales of Unregistered Securities The Company issued (i) 138,889 shares of common stock, (ii) registered warrants to purchase an aggregate of up to 54,646 shares of common stock and (iii) unregistered warrants to purchase up to 84,244 of common stock in a registered direct offering on February 22, 2021. See “Part I – Item 1.
Removed
(e) Recent Sales of Unregistered Securities Acquisition of Sichuan Wuge Network Games Co., Ltd. On January 24, 2020, the Company issued an aggregate of 4,000,000 shares of its common stock, par value $0.0001 per share, to all the shareholders of Sichuan Wuge Network Games Co., Ltd.
Added
Business – Recent Business Development – February 2021 Offering.” The Company issued 83,776 shares of common stock on June 1, 2021. On September 26, 2022, the Company and the shareholder agreed to cancel such 83,776 shares of common stock. See “Part I – Item 1.
Removed
(“Wuge”), pursuant to a share purchase agreement with Wuge, in exchange for the Wuge’s shareholders’ approval to cause Wuge to enter into, certain contractual agreements with Tongrong Technology (Jiangsu) Co., Ltd. (“Tongrong WFOE”), the Company’s indirectly owned subsidiary.
Added
On March 14, 2022, the 254,917 shares of common stock were cancelled See “Part I – Item 1. Business – Recent Business Development – Asset Purchase Agreement dated July 28, 2021 and Termination Agreement dated February 23, 2022” The Company cancelled 14,213 shares of common stock on March 31, 2021. See “Part I – Item 1.
Removed
Wuge’s shareholders are Wei Xu, who became a director of the Company as a result of the acquisition and was subsequently appointed as the Chief Executive Officer, President and Chairman of the Board of the Company, Bibo Lin, who was subsequently appointed as a vice president and director of the Company, Jiangsu Lingkong Network Joint Stock Co., Ltd., which is controlled by Wei Xu, and Anhui Shuziren Network Technology Co., Ltd., which is controlled by Wei Xu.
Added
Business – Recent Business Development – Disposition of Tongrong WFOE” The Company issued 256,000 shares of common stock on June 21, 2022. See “Part I – Item 1. Business – Recent Business Development – Acquisition of Shanghai Yuanma Food and Beverage Management Co., Ltd. The Company issued 300,000 shares of common stock on September 29, 2022.
Removed
On January 11, 2021, Tongrong WFOE entered into a series of assignment agreements with Makesi Iot Technology (Shanghai) Co., Ltd. (“Makesi WFOE”), pursuant to which Tongrong WFOE assign all its rights and obligations under the VIE agreements to Makesi WFOE.
Removed
As a result, for account purposes, Makesi WFOE shall have receive economic benefits of Wuge and consolidate the financial results of Wuge in the consolidated financial statement of the Company under U.S. GAAP for accounting purposes.
Removed
August 2020 Private Placement On August 11, 2020, pursuant to certain securities purchase agreements, dated May 1, 2020, the Company issued 1,674,428 shares of its common stock, at a per share purchase price of $1.50, to eleven investors. The gross proceeds to the Company from this private placement were approximately $2.51 million.
Removed
None of the investors is a “U.S. person” as defined under Regulation S.
Removed
The shares of common stock issued in the private placement are exempt from the registration requirements of the Securities Act, pursuant to Regulation S promulgated thereunder. 41 February 2021 Offering Registered Direct Offering and Private Placement On February 18, 2021, we entered into a securities purchase agreement (the “Securities Purchase Agreement”) with certain purchasers, pursuant to which, on February 22, 2021, we sold (i) 4,166,666 shares of common stock, (ii) registered warrants (the “Registered Warrants”) to purchase an aggregate of up to 1,639,362 shares of common stock and (iii) unregistered warrants (the “Unregistered Warrants”) to purchase up to 2,527,304 shares (the “Warrant Shares”) of common stock in a registered direct offering (the “Registered Direct Offering”) and a concurrent private placement (the “Private Placement,” and together with the Registered Direct Offering, the “Offering”).
Removed
The terms of the Offering were previously reported in a Form 8-K filed with the SEC on February 18, 2021 and the closing of the Offering was reported in a Form 8-K filed with the Commission on February 22, 2021.
Removed
The gross proceeds of the Offering of $24,999,996, before deducting placement agent fees and other expenses, are being used for working capital and general business purposes.
Removed
The Registered Warrants have a term of five years and are exercisable immediately 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”).
Removed
The Unregistered Warrants have a term of five and one-half years and are 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 the securities sold under the Securities Purchase Agreement, to purchase an aggregate of up to 2,527,304 shares of common stock.
Removed
The Unregistered Warrants have 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 such stockholder approval.
Removed
The Offering was conducted pursuant to a placement agency agreement, dated February 18, 2021 (the “Placement Agency Agreement”), between the Company and Univest Securities, LLC (the “Placement Agent”), on a “reasonable best efforts” basis.
Removed
The Company paid the Placement Agent a cash fee of $2,310,000, including $2,000,000 in commission which was equal to eight percent (8.0%) of the aggregate gross proceeds raised in this Offering, $250,000 in non-accountable expense which was equal to one percent (1%) of the aggregate gross proceeds raised in the Offering, and $60,000 in accountable expenses.
Removed
Additionally, the Company issued to the Placement Agent warrants to purchase up to 208,333 shares of common stock, with a term of five years first exercisable six months after the date of issuance and at an exercise price of $6.00 per share.
Removed
Stockholder Approval Pursuant to the Securities Purchase Agreement, we are required to hold a meeting of our stockholders not later than April 29, 2021 to seek such approval as may be required from our stockholders (the “Stockholder Approval”), in accordance with applicable law, the applicable rules and regulations of the Nasdaq Stock Market, our certificate of incorporation and bylaws and the Nevada Revised Statutes with respect to the issuance of the securities in the Offering, including the Warrants sold in the Private Placement, so that the issuance by us of shares of common stock in excess of the 6,954,059 shares (19.99% of the shares of common stock outstanding as of February 17, 2021, the date prior to entering into the Securities Purchase Agreement) in the aggregate (the “Issuable Maximum”), will be in compliance with Nasdaq Listing Rules 5635(a) and 5635(d) as described herein, and investors in the Offering will be able to exercise the Warrants prior to six months after the closing of the Offering.
Removed
In the event that despite our reasonable best efforts we are unable to obtain the Stockholder Approval by that date, we are required to hold an additional special meeting of stockholders and obtain Stockholder Approval by July 31, 2021.
Removed
In the event that despite our reasonable best efforts we are unable to obtain Stockholder Approval by that date, we are required to hold additional meetings of our stockholders each fiscal quarter until Stockholder Approval has been obtained.
Removed
Until we have obtained Stockholder Approval, we may not consummate any subsequent financings at less than an effective price of $6.72 per share of our common stock. 42 Asset Purchase Agreement dated February 23, 2021, as amended on April 16, 2021 and May 28, 2021 On February 23, 2021, the Company entered into an asset purchase agreement with Sichuan RiZhanYun Jisuan Co., Ltd.
Removed
(the “Seller”), which was amended and restated on April 16, 2021, and further amended on May 28, 2021.
Removed
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.
Removed
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.
Removed
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.
Removed
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.
Removed
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”.
Removed
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.
Removed
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.
Removed
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.
Removed
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.
Removed
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$2.51 per share, which is the closing bid price of the common stock of the Company on the Nasdaq Stock Market on May 12, 2021, for meeting and exceeding the Daily Profit and Monthly Profit benchmark.
Removed
Asset Purchase Agreement dated July 28, 2021 and Termination Agreement dated February 23, 2022 On July 28, 2021, the Company entered into an asset purchase agreement with certain seller pursuant to which the Company purchased from the seller digital currency mining machines for a total purchase price of RMB 106,388,672.43, or US$ 16,442,109.95 (based on the exchange rate between RMB and USD of 1: 6.4705 as of July 8, 2021).

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

42 edited+12 added−26 removed42 unchanged
The Company has legally binding contracts with its vendors, which require any outstanding prepayments to be returned to the Company when the contract ends. 48 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 has legally binding contracts with its vendors, which require any outstanding prepayments to be returned to the Company when the contract ends. 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.
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. 52
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. 50
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 year ended December 31, 2021 and 2020.
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 year ended December 31, 2022 and 2021.
The technology 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.
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.
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.
These uncertainties may impede our ability to conduct our 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.
If our products or solutions violate any third-party intellectual property rights, we could be required to withdraw them from the market, re-develop them or seek to obtain licenses from third parties, which might not be available on reasonable terms or at all.
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.
In addition, we may be the target of email scams that attempt to acquire sensitive information or company assets. Despite our efforts to create security barriers to such threats, we may not be able to entirely mitigate these risks.
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.
Investing activities Net cash used in investing activities was approximately $1.3 million for the year ended December 31, 2021, as compared to approximately $4.5 million net cash used in investing activities for the year ended December 31, 2020.
Investing activities Net cash used in investing activities was approximately $12.5 million for the year ended December 31, 2022, as compared to approximately $1.3 million net cash used in investing activities for the year ended December 31, 2021.
Despite our efforts and processes to prevent breaches, Wuge’s products devices and those of third parties that we use in our 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 our servers and computer systems or those of third parties that we use in our operations, which could lead to interruptions, delays, loss of critical data, and loss of consumer confidence.
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, we, our subsidiaries or our variable interest entity could be obligated to indemnify our customers against third parties’ claims of intellectual property infringement based on our products or solutions.
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.
The increase was mainly due to the disposal of certain subsidiaries and employee compensation. 47 Critical Accounting Policies and Estimates The preparation of 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.
Critical Accounting Policies and Estimates The preparation of 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.
Operating activities Net cash used in operating activities was approximately $5.5 million for the year ended December 31, 2021, as compared to approximately $2,101 net cash used in operating activities for the year ended December 31, 2020.
Operating activities Net cash used in operating activities was approximately $0.9 million for the year ended December 31, 2022, as compared to approximately $5.5 million net cash used in operating activities for the year ended December 31, 2021.
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.
Pursuant to the agreement, the Company agreed to sell and the Buyer agreed to purchase all the issued and outstanding ordinary shares of Wuge, 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 the Buyer.
Total revenues increased by approximately $25.0 million, to approximately $25.0 million for the year ended December 31, 2021, compared to approximately $0 million for the year ended December 31, 2020.
Total revenues increased by approximately $153,304, to approximately $153,304 for the year ended December 31, 2022, compared to approximately $0 million for the year ended December 31, 2021.
Any cyber attack that attempts to obtain our data and assets, disrupt our service, or otherwise access our systems, or those of third parties we use, if successful, could adversely affect our business, operating results, and financial condition, be expensive to remedy, and damage our reputation.
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.
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.
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. 43 The nature of Highlight Media’s business and its publications involves copy rights.
As of December 31, 2021 and 2020, $14,385,549 and $998,717 and were deposited with various financial institutions located in the PRC, respectively. As of December 31, 2021 and 2020, $202,781 and $0 were deposited with one financial institution located in the United States, respectively.
As of December 31, 2022 and 2021, $215,880 and $14,385,549 and were deposited with various financial institutions located in the PRC, respectively. As of December 31, 2022 and 2021, $173,228 and $202,781 were deposited with one financial institution located in the United States, respectively.
Operating Expenses The Company’s operating expenses include selling, general and administrative (“SG&A”) expenses, and recovery of doubtful accounts. SG& A expenses increased by approximately $22.2 million, by approximately 3006.1% , from approximately $22.9 million for the year ended December 31, 2021 to approximately 0.7 million for the year ended December 31, 2020.
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 $19.1 million, by approximately 97.6%, from approximately $0.5 million for the year ended December 31, 2022 to approximately 19.5 million for the year ended December 31, 2021.
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 consolidated financial statements.
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.
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.
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.
Defending such claims, regardless of their merit, could be time-consuming and distracting to management, result in costly litigation or settlement, cause development delays, or require us or our subsidiaries to enter into royalty or licensing agreements.
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.
The increase was mainly due to increased employee compensation. Loss from Operations As a result of the foregoing, loss from operations for the year ended December 31, 2021 was approximately $14.6 million, an increase of approximately $14.1 million, or approximately 2848.3%, from approximately $0.5 million for the year ended December 31, 2020.
The increase was mainly due to the reduction of employee benefits. Loss from Operations As a result of the foregoing, loss from operations for the year ended December 31, 2022 was approximately $0.4 million, an decrease of approximately $19.1 million, or approximately 97.8%, from approximately $19.5 million for the year ended December 31, 2021.
The increase was mainly due to increased employee compensation. Net Loss (Income) The Company’s net loss increased by approximately $29.5 million, or 1174.3%, to approximately $27.0 million net loss for the year ended December 31, 2021, from approximately $2.5 million net income for the same period in 2020.
The decrease was mainly due to the reduction of employee benefits. Net Loss The Company’s net loss increased by approximately $3.8 million, or 14.3%, to approximately $30.8 million net loss for the year ended December 31, 2022, from approximately $27.0 million net income for the same period in 2021.
For the year ended December 31, 2021 2020 Net cash used in operating activities $ (5,511,052 ) $ (2,101 ) Net cash used in investing activities (1,270,484 ) (4,530,808 ) Net cash provided by financing activities 22,795,762 3,059,195 Effect of exchange rate change on cash (2,424,613 ) (11,136 ) Net change in cash $ 13,589,613 $ (1,484,850 ) As of December 31, 2021 and 2020, the Company had cash in the amount of $14,588,330 and $998,717, respectively.
For the year ended December 31, 2022 2021 Net cash used in operating activities $ (886,211 ) $ (5,511,052 ) Net cash used in investing activities (12,493,352 ) (1,270,484 ) Net cash provided by financing activities - 22,795,762 Effect of exchange rate change on cash (819,659 ) (2,424,613 ) Net change in cash $ (14,199,222 ) $ 13,589,613 As of December 31, 2022 and 2021, the Company had cash in the amount of $389,108 and $14,588,330, respectively.
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 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. 46 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.
Any efforts to re-develop our products or solutions, obtain licenses from third parties on favorable terms or license a substitute technology might not be successful and, in any case, might substantially increase our costs and harm our business, financial condition and operating results.
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.
Net cash used in operating activities was mainly due to the decrease of approximately $0.4 million other receivables, the increase of approximately $27.6 million of prepayments, and the increase of approximately $6.6 million of customer deposits, and the increase of approximately $2.2 million of taxes payable.
Net cash provided by operating activities was mainly due to the increase of approximately $20.1 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 $0.8 million of taxes payable.
Net cash provided by financing activities for the year ended December 31, 2021 was due to approximately $0.3 million proceeds from short-term loans – bank and $22.5 million proceeds from issuance of common stock. Risks Credit Risk Credit risk is one of the most significant risks for the Company’s business.
Financing activities Net cash provided by financing activities was nil for the year ended December 31, 2022, as compared to approximately $22.8 million net cash provided by financing activities for year ended December 31, 2021. 49 Risks Credit Risk Credit risk is one of the most significant risks for the Company’s business.
Cash is required to repay debts and pay salaries, office expenses, income taxes and other operating expenses. As of December 31, 2021, our net working capital was approximately $25.2 million, over 3% of the Company’s current liabilities was from other payables – related parties due to major shareholders.
As of December 31, 2022, our net working capital was approximately $1.3 million, over 59% of the Company’s current liabilities was from other payables – related parties due to major shareholders.
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.
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. 42 Overview GD Culture Group Limited (“GDC”, formerly known as JM Global Holding Company, TMSR Holding Company Limited and Code Chain New Continent Limited) is a holding company incorporated in the State of Nevada with no material operations of its own.
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.
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.
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.
Removing these liabilities, the Company had net working capital of minus $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. 48 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.
For accounting purposes, we receive the economic benefits of Wuge through the VIE agreements, which enable us to consolidate the financial results of Wuge in our consolidated financial statements under U.S. GAAP and the structure involves unique risks to investors.
As a result, we consolidate the financial results of Highlight Media in our consolidated financial statements under U.S. GAAP. Such VIE structure involves unique risks to investors.
We do not believe the adoption of this ASU would have a material effect on our consolidated financial statements.
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.
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. 49 Revenue from equipment and systems, revenue from coating and fuel materials, and revenue from trading and others are recognized at the date of goods delivered and title passed to customers, when a formal arrangement exists, the price is fixed or determinable, the Company has no other significant obligations and collectability is reasonably assured.
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. 47 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.
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.
We believe the following critical accounting policies involve the most significant estimates and judgments used in the preparation of our consolidated financial statements. 45 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.
Gross Profit The Company’s gross profit increased by approximately $7.7 million, to approximately $8.3 million during the year ended December 31, 2021, from approximately $0.6 million for the year ended December 31, 2020. The increase was due to the increase in the sales of Wuge digital door signs.
Our total cost of revenues increase was attributable to acquisition of Shanghai Highlight. Gross Profit The Company’s gross profit increased by approximately $55,534, to approximately $55,534 during the year ended December 31, 2022, from approximately $0 for the year ended December 31, 2021. The increase was due to acquisition of Shanghai Highlight.
Net cash provided by investing activities for the year ended December 31, 2021 was due to approximately $0.3 million spending on purchase of equipment and $1.0 million by disposal of discontinued operations. 51 Financing activities Net cash provided by financing activities was approximately $22.8 million for the year ended December 31, 2021, as compared to approximately $3.1 million net cash provided by financing activities for the year ended December 31, 2020.
Net cash used in investing activities for the year ended December 31, 2022 was due to approximately $6,566 spending on purchase of equipment, the increase of approximately $215,880 acquisition of Highlight Media and the decrease of approximately $12.7 million disposal of discontinued operations.
Total cost of revenues increased by approximately $16.8 million, to approximately $16.8 million for the year ended December 31, 2021, compared to approximately $0 for the same period in 2020. Our total cost of revenues increase was attributable to the Company’s general increase in revenue for Wuge digital door signs.
The increase was mainly due to acquisition of Shanghai Highlight. 44 Cost of Revenues The Company’s cost of revenues consists of cost of Enterprise brand management service Total cost of revenues increased by approximately $97,770, to approximately $97,770 for the year ended December 31, 2022, compared to approximately $0 for the same period in 2021.
(“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”).
On September 28, 2022, the Company entered into a share purchase agreement with a buyer unaffiliated with the Company (the “Buyer”), and Wei Xu, former Chief Executive Officer, President and Chairman of the Board of the Company (the “Payee”).
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. 50 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 and cash received from JM Global Holding Company through the reverse capitalization.
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 a result, as of March 31, 2021, operations of Tongrong WFOE and Rong Hai have been designated as discontinued operations. Key Factors that Affect Operating Results Wuge’s growth strategy is substantially dependent upon our ability to market our intended products and services successfully to prospective clients in China.
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.
Removed
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 Wuge Network Games Co., Ltd. (“Wuge”).
Added
We currently conduct business through Shanghai Highlight Media Co., Ltd. (“Highlight Media”).
Removed
For more details on the VIE structure, please see “Item 1. Business – Corporate Structure - Contractual Arrangements between Wuge And Makesi WFOE”. 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.
Added
Highlight WFOE is the primary beneficiary of Highlight Media for accounting purposes, because, pursuant to the VIE agreements, Highlight Media shall pay Highlight WFOE service fees in the amount of 100% of Highlight Media’s net income, while Highlight WFOE is obligated to absorb all of losses of Highlight Media.
Removed
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.
Added
For more details on the VIE structure, please see “Item 1. Business – Corporate Structure - Contractual Arrangements between Highlight Media And Highlight WFOE” and “Item 1A. Risk Factors – Risks Related to Our Corporate Structure”.
Removed
This requires that we heavily rely upon our development and marketing partners. Failure to select the right development and marketing partners will significantly delay or prohibit our ability to develop our intended products and services, market the products and gain market acceptance. Our intended products and services may not achieve significant market acceptance.
Added
Prior to September 28, 2022, we were also engaged in research, development and application of Internet of Things (IoT) and electronic tokens Wuge digital door signs through Wuge Network Games Co., Ltd. (“Wuge”), a then VIE of the Company.
Removed
If acceptance is achieved, it may not be sustained for any significant period of time. Failure of our intended products and services to achieve or sustain market acceptance could have a material adverse effect on our business, financial conditions and the results of our operations.
Added
On September 30, 2022, the Company closed the sale of the Wuge and caused the GDC Shares to be cancelled. As a result, as of September 30, 2022, operations of Wuge have been designated as discontinued operations.
Removed
Wuge may never gain significant acceptance in the marketplace and, therefore, may never generate substantial revenue or allow us to achieve or maintain profitability. Widespread adoption of Code Chain technology and IoT services in China depends on many factors, including acceptance by users that such systems and methods or other options.
Added
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.
Removed
Our ability to achieve commercial market acceptance for Wuge or any other future products also depends on the strength of our sales, marketing and distribution organizations. 44 The threats to network and data security are increasingly diverse and sophisticated.
Added
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. The threats to network and data security are increasingly diverse and sophisticated.
Removed
We cannot assure you that we, our subsidiaries or our variable interest entity will prevail in any future intellectual property infringement or other litigation given the complex technical issues and inherent uncertainties in such litigation.
Added
Impact of the COVID-19 Pandemic The COVID-19 pandemic did not have a material impact on our business or results of operation during the fiscal years ended December 31, 2022 and 2021. However, the extent to which the COVID-19 pandemic may negatively impact the general economy and our business is highly uncertain and cannot be accurately predicted.
Removed
Withdrawal of any of our products or solutions from the market could harm our business, financial condition and operating results.
Added
Results of Operations Year Ended December 31, 2022 as Compared to the Year Ended December 31, 2021 Percentage 2022 2021 Change Change Revenues –Enterprise brand management service $ 153,304 - $ 153,304 N/A Total revenues 153,304 - 153,304 N/A Cost of Revenues –Enterprise brand management service 97,770 - 97,770 N/A Total cost of revenues 97,770 - 97,770 N/A Gross profit 55,534 - 55,534 N/A Operating expenses 478,977 19,546,151 (19,067,174 ) (97.6 )% Loss from operations (423,443 ) (19,546,151 ) 19,122,708 (97.8 )% Other income, net (63 ) 799 (862 ) (107.9 )% Provision for income taxes 1,146 - 1,146 N/A Loss from continuing operations (424,652 ) (19,545,352 ) 19,120,700 (97.8 )% Discontinued operations: Loss（Income）from discontinued operations (26,336,694 ) 3,745,098 (30,081,792 ) (803.2 )% Loss on disposal, net of taxes (4,060,609 ) (11,170,638 ) 7,110,029 (63.6 )% Net loss (30,821,955 ) (26,970,892 ) (3,851,063 ) 14.3 % Revenues The Company’s revenue consists of enterprise brand management service.
Removed
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.
Added
The increase was mainly due to impairment of prepayments and disposition of Wuge.
Removed
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.
Added
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.
Removed
As a result, our operations in China and U.S. have been materially affected. Our office in Hubei Province, China were closed since the lockdown was enforced on January 23, 2020.
Added
Such revenues are recognized at a point in time after all Payments received prior to the relevant criteria for revenue recognition are met, are recorded as customer deposits.
Removed
The economic disruption caused by COVID-19 were catastrophic for our 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. We lost employees, suppliers and customers and were not been able to recover.
Removed
As a result, we sold our businesses 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.
Removed
(“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.
Removed
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.
Removed
In addition, our offices in Jiangsu Province and Sichuan Province in China were temporarily closed from early February until early March 2020. 45 The extent to which COVID-19 negatively impacts our business is highly uncertain and cannot be accurately predicted.
Removed
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.
Removed
Results of Operations Year Ended December 31, 2021 as Compared to the Year Ended December 31, 2020 Percentage 2021 2020 Change Change Revenues –Wuge digital door signs $ 25,029,949 - $ 25,029,949 N/A Revenues –Trading and others 591,455 (591,455 ) (100.0 )% Total revenues 25,029,949 591,455 24,438,494 4131.9 % Cost of Revenues –Wuge digital door signs 16,779,949 - 16,779,949 N/A Cost of Revenues –Trading and others 21,045 (21,045 ) (100.0 )% Total cost of revenues 16,779,949 21,045 16,758,904 79633.7 % Gross profit 8,250,000 570,410 7,679,590 1346.3 Operating expenses 22,896,602 1,067,185 21,829,417 2045.5 % Loss from operations (14,646,602 ) (496,775 ) (14,149,827 ) 2848.3 % Other income, net 117,918 (3,893,359 ) 4,011,277 (103.0 )% Loss from continuing operations (15,823,825 ) (4,390,134 ) (11,433,691 ) 260.4 % Discontinued operations: Income from discontinued operations 23,571 107,020 (83,449 ) 78.0 % Loss (gain) on disposal, net of taxes (11,170,638 ) 6,793,570 (17,964,208 ) (264.4 )% Net (loss) income (26,970,892 ) 2,510,456 (29,481,348 ) (1,174.3 )% Revenues The Company’s revenue consists of Wuge digital door signs.
Removed
The increase was mainly due to the company’s increased effort in promoting the Wuge digital door signs. 46 Cost of Revenues The Company’s cost of revenues consists of cost of Wuge digital door signs.
Removed
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.
Removed
Such revenues are recognized at a point in time after all performance obligations are satisfied under the new five-step model. In addition, training service revenues are recognized when the services are rendered and the Company has no other obligations, and collectability is reasonably assured. These revenues are recognized at a point in time.
Removed
Prior to January 1, 2018, the Company allowed its customers to retain 5% to 10% of the contract price as retainage during the warranty period of 12 months to guarantee product quality. Retainage is considered as a payment term included as a part of the contract price, and was recognized as revenue upon the shipment of products.
Removed
Due to nature of the retainage, the Company’s policy is to record revenue the full value of the contract without VAT, including any retainage, since the Company has experienced insignificant warranty claims historically. Due to the infrequent and insignificant amount of warranty claims, the ability to collect retainage was reasonably assured and was recognized at the time of shipment.
Removed
On January 1, 2018, upon the adoption of ASU 2014-09 (ASC 606), revenues from product warranty are recognized over the warranty period over 12 months. Payments received before all of the relevant criteria for revenue recognition are recorded as customer deposits.
Removed
Removing these liabilities, the Company had net working capital of $25.7 million and is expected to continue to generate cash flow from operations in the twelve months period.