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EX-32.1 - EXHIBIT 32.1 - NowNews Digital Media Technology Co. Ltd.v424430_ex32-1.htm
EX-31.1 - EXHIBIT 31.1 - NowNews Digital Media Technology Co. Ltd.v424430_ex31-1.htm
EX-32.2 - EXHIBIT 32.2 - NowNews Digital Media Technology Co. Ltd.v424430_ex32-2.htm
EX-31.2 - EXHIBIT 31.2 - NowNews Digital Media Technology Co. Ltd.v424430_ex31-2.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

x  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2015

 

¨  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

 

For the transition period from ______________ to _____________

 

Commission file number:  333-171637

 

NOWNEWS DIGITAL MEDIA TECHNOLOGY CO. LTD.

(Exact name of Company as specified in its charter)

 

Nevada   36-4794119
(State or other jurisdiction of incorporation or   (I.R.S. Employer Identification No.)
organization)    

 

4F, No. 32, Ln. 407, Sec. 2. Tiding Road, Neihu District, Taipei City, Taiwan   114
(Address of principal executive offices)   (Zip Code)

 

  +886 287978775 ext 500  
  (Registrant’s telephone number, including area code)  

 

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x  No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 Large accelerated filer ¨ Accelerated filer ¨
       
Non-accelerated filer ¨ Smaller reporting company x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ¨   No x

 

 

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS

 

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.     Yes ¨    No ¨

 

APPLICABLE ONLY TO CORPORATE ISSUERS

 

Indicate the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date:

 

As of November 13, 2015, there were 22,412,000 shares of $0.001 par value common stock issued and outstanding.

 

 

 

  

FORM 10-Q

NOWNEWS DIGITAL MEDIA TECHNOLOGY CO. LTD.

INDEX

 

    Page
     
PART I. Financial Information F-2
     
  Item 1.  Financial Statements (Unaudited). F-2
     
  Item 2.  Management’s Discussion and Analysis of Financial Condition and results of Operation. 3
     
  Item 3.  Quantitative and Qualitative Disclosures About Market Risk. 13
     
  Item 4.  Controls and Procedures. 13
     
PART II. Other Information 14
     
  Item 1.  Legal Proceedings. 14
     
  Item 1A. Risk Factors. 14
     
  Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds. 14
     
  Item 3.  Defaults Upon Senior Securities. 14
     
  Item 4.  Mine Safety Disclosures. 14
     
  Item 5.  Other Information. 14
     
  Item 6.  Exhibits. 15
     
  Signatures 16

  

2 

 

 

NOWNEWS DIGITAL MEDIA TECHNOLOGY CO., LTD. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

    Page
     
Consolidated Balance Sheets as of September 30, 2015 and December 31, 2014   F-2
     
Consolidated Statements of Income and Comprehensive Income for the three and nine months ended September 30, 2015 and 2014   F-3
     
Consolidated Statements of Cash Flows for the nine months ended September 30, 2015 and 2014   F-4
     
Notes to Consolidated Financial Statements   F-5 - 20

 

3 

 

   

PART I –FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

NOWNEWS DIGITAL MEDIA TECHNOLOGY CO., LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

    September 30,     December 31,  
Assets   2015     2014  
    (UNAUDITED)     (AUDITED)  
Current Assets                
Cash and cash equivalents   $ 455,804     $ 70,076  
Accounts receivable, net     301,487       538,511  
Due from related parties     -       171,901  
Security deposits, current     -       33,089  
Other current assets     16,128       9,250  
Current assets of discontinued operations     14,711       69,216  
Total Current Assets     788,130       892,043  
                 
Furniture, fixture, and equipment, net     191,478       55,194  
Security deposits, non-current     14,008       -  
Intangible assets, net     18,222       29,040  
                 
Total Assets   $ 1,011,838     $ 976,277  
                 
Liabilities and Equity                
                 
Current Liabilities                
Long-term obligation under capital lease, current   $ 98,416     $ -  
Long-term debt, current     -       488,048  
Accounts payable     94,617       96,354  
Advance from customers     5,467       1,418  
Accrued expenses     419,947       560,705  
Due to related parties     489,263       1,072,495  
Other current liabilities     3,331       12,903  
Current liabilities of discontinued operations     96,269       79,098  
Total Current Liabilities     1,207,310       2,311,021  
                 
Long-term obligation under capital lease     30,776       -  
Long-term debt     -       321,295  
Total Liabilities     1,238,086       2,632,316  
                 
Commitments and contingencies (Note 12)                
                 
Equity                
Capital stock - $.001 par value                
 Common Stock, $.001 par value, 50,000,000 shares authorized,                
 22,412,000 and 22,412,000 shares issued and outstanding as of                
 September 30, 2015 and December 31, 2014, respectively     22,412       22,412  
Additional paid-in capital     3,915,928       2,793,855  
Accumulated deficit     (4,265,466 )     (3,922,379 )

Accumulated other comprehensive income (loss)

    27,564       (56,180 )
Total Stockholders' deficit     (299,562 )     (1,162,292 )
Noncontrolling Interests     73,314       (493,747 )
Total Deficit     (226,248 )     (1,656,039 )
                 
Total Liabilities and Equity   $ 1,011,838     $ 976,277  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-2

 

 

NOWNEWS DIGITAL MEDIA TECHNOLOGY CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(UNAUDITED)

 

   For The Three Months Ended   For The Nine Months Ended 
   September 30,   September 30, 
   2015   2014   2015   2014 
                 
Net revenue  $620,742   $687,169   $1,658,953   $1,980,678 
Cost of revenue   (350,634)   (418,548)   (1,038,663)   (1,418,035)
Gross profit   270,108    268,621    620,290    562,643 
                     
Selling expenses   (150,114)   (153,165)   (347,487)   (492,718)
General and administrative expenses   (220,205)   (254,462)   (715,878)   (975,544)
Total operating expense   (370,319)   (407,627)   (1,063,365)   (1,468,262)
                     
Operating loss   (100,211)   (139,006)   (443,075)   (905,619)
                     
Other income (expense)                    
Interest income   -    876    203    1,304 
Interest expense   (753)   (7,368)   (3,117)   (19,549)
Other income (expense), net   2,594    1,037    3,149    (413)
Total other income (expense)   1,841    (5,455)   235    (18,658)
                     
Loss from continuing operations before income taxes   (98,370)   (144,461)   (442,840)   (924,277)
Income taxes   -    -    -    - 
Loss from continuing operations   (98,370)   (144,461)   (442,840)   (924,277)
Income (loss) from discontinued operations, net of income taxes   485    (17)   (54,104)   (8,654)
                     
Net loss   (97,885)   (144,478)   (496,944)   (932,931)
                     
Net loss attributable to noncontrolling interests:                    
Net loss from continuing operations   12,508    24,162    119,392    262,449 
Net (income) loss from discontinued operations   (308)   11    34,465    5,513 
Total net loss attributable to noncontrolling interest   12,200    24,173    153,857    267,962 
                     
Net loss attributable to NowNews Digital Media Technology Co. Ltd.  $(85,685)  $(120,305)  $(343,087)  $(664,969)
                     
Foreign currency translation gain   19,564    29,337    5,117    23,532 
Comprehensive loss   (66,121)   (90,968)   (337,970)   (641,437)
Other comprehensive loss (income) attributable to noncontrolling interests   73,361    (10,371)   78,626    (7,976)
Comprehensive income (loss) attributable to NowNews Digital Media Technology Co. Ltd.  $7,240   $(101,339)  $(259,344)  $(649,413)
                     
Amount attributable to common stockholders:                    
Net loss from continuing operations, net of income taxes  $(85,862)  $(120,299)  $(323,448)  $(661,828)
Net income (loss) from discontinued operations, net of income taxes   177    (6)   (19,639)   (3,141)
Net loss attributable to common stockholders  $(85,685)  $(120,305)  $(343,087)  $(664,969)
                     
Net loss attributable to common stockholders - basic and diluted                    
Loss from continuing operations  $(0.01)  $(0.05)  $(0.01)  $(0.27)
Loss from discontinued operations   -    -    -    - 
Net loss attributable to common stockholders  $(0.01)  $(0.05)  $(0.01)  $(0.27)
                     
Weighted average shares outstanding, basic and diluted   22,412,000    2,412,000    22,412,000    2,412,000 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

F-3

 

 

NOWNEWS DIGITAL MEDIA TECHNOLOGY CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

    For the Nine Months Ended  
    September 30,  
    2015     2014  
CASH FLOWS FROM OPERATING ACTIVITIES                
Net loss   $ (496,944 )   $ (932,931 )
Loss from discontinued operations     54,104       8,654  
Depreciation     57,091       42,657  
Amortization     10,067       14,783  
Loss from disposal of equipment     3,067       3,219  
Loss from lawsuit settlement     -       19,914  
Bad debt expense     27,390       -  
Adjustments to reconcile net loss to net cash provided by operating activities:                
Decrease (increase) in accounts receivable     197,473       (17,025 )
Decrease in related-parties trade receivable     172,674       97,685  
Decrease (increase) in security deposits     18,552       (1,434 )
Increase in other current assets     (7,164 )     (11,155 )
Increase (decrease) in accounts payable     2,405       (358,195 )
Increase (decrease) in advance from customers     4,307       (67,594 )
Decrease in accrued expenses     (114,327 )     (183,249 )
(Decrease) increase in other current liabilities     (9,470 )     34,668  
Net cash used in continuing activities     (80,775 )     (1,350,003 )
Net cash used in discontinued operations     -       (33,642 )
Net cash used in operating activities     (80,775 )     (1,383,645 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES                
Additions to fixed assets     (22,229 )     -  
Net cash used in continuing activities     (22,229 )     -  
Net cash used in investing activities     (22,229 )     -  
                 
CASH FLOWS FROM FINANCING ACTIVITIES                
Repayments of current portion of long-term loan     -       (36,401 )
Net (repayment of) proceeds from loans from related parties     (77,512 )     1,150,678  
Payments of capital lease obligations     (47,785 )     -  
Capital contributions from noncontrolling interest     635,754       -  
Net cash provided by continuing activities     510,457       1,114,277  
Net cash provided by discontinued operations     -       31,365  
Net cash provided by financing activities     510,457       1,145,642  
                 
EFFECT OF EXCHANGE RATE CHANGE ON CASH AND CASH EQUIVALENTS     (21,725 )     (4,092 )
                 
NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS     385,728       (242,095 )
NET DECREASE IN CASH & CASH EQUIVALENTS FROM DISCONTINUED OPERATIONS     -       (2,277 )
NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS FROM CONTINUING OPERATIONS     385,728       (239,818 )
                 
CASH & CASH EQUIVALENTS, BEGINNING BALANCE     70,076       324,735  
CASH & CASH EQUIVALENTS, ENDING BALANCE   $ 455,804     $ 84,917  
                 
SUPPLEMENTAL DISCLOSURES:                
Income tax paid   $ -     $ -  
Interest paid   $ 3,117     $ 20,607  
NONCASH INVESTING AND FINANCING ACTIVITIES:                
Equipment acquired through capital lease   $ 135,440     $ -  
Debt conversion to additional paid-in capital   $ 1,301,167     $ -  

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

F-4

 

 

NOWNEWS DIGITAL MEDIA TECHNOLOGY CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 1: NATURE OF OPERATIONS

 

NowNews Digital Media Technology Co., Ltd. (Formerly Forever Zen Ltd.) (“NowNews” or “the Company”) was incorporated in Nevada on March 30, 2010. On November 11, 2013, Pioneer Media Investments Co., Ltd. purchased 1,500,000 shares of the Company’s common stock for $135,000 in cash from two of the Company’s shareholders.  Those 1,500,000 shares of common stock represented 62% of the Company’s issued and outstanding common stock immediately following the sale.  As a result of the transaction, a change in control of the Company occurred and in connection therewith. Mr. Alan Chen was elected as the Company’s president and sole director. Pioneer Media Investments Co., Ltd. is beneficially owned and controlled by Alan Chen.

 

Worldwide Media Investments Corp. (“Worldwide”) was incorporated in Anguilla on June 4, 2013 under the Anguilla International Business Companies Act, 2000. Worldwide is a holding company and has not carried out substantive business operations of its own. Mr. Alan Chen is the sole director and controlling beneficiary shareholder of Worldwide.

 

NOWnews Network Co., Ltd, (“NOWnews Network”) was incorporated in Taipei City, Taiwan on June 8, 2006. NOWnews Network is a media company with operations in Taiwan. NOWnews Network operates a news website and generates revenue from fees paid by advertisers in connection with the display of graphical and non-graphical advertisements. In addition, NOWnews Network provides editing services of news articles, pictures, and videos, and sells the broadcasting rights of its news articles, pictures, and videos. Mr. Alan Chen is a director and former Chairman of NOWnews Network.

 

In August 2013, NOWnews Network established NOWnews International Marketing Co., Ltd (“NOWnews International”) as a 55% owned subsidiary. Mr. Shu-sen Chang, the former Chairman and current director of NOWnews Network, and one other shareholder, own 10% and 35% of NOWnews International, respectively. The primary business of NOWnews International is to sell advertisement spaces in its own newspapers.

 

On December 27, 2013, the Board of Directors of NOWnews Network approved the termination of operations of NOWnews International. The results of NOWnews International have been presented as discontinued operations in the consolidated statements of income and comprehensive income. NOWnews Network has reclassified the assets and liabilities of the discontinued entity in the accompanied consolidated financial statements.

 

During September through December 2013, Sky Media Investments, Co., Ltd. (“Sky Media”), a company incorporated in Anguilla and a wholly-owned subsidiary of the Company, acquired 7,999,945 common shares (or 66.3%) of NOWnews Network from Mr. Alan Chen for $1,522,388 (or NT$45 million). Mr. Alan Chen owned 10,169,945 shares (or 84.3%) of common stock of NOWnews Network prior to the above transaction (the “Restructuring Transaction”).

 

On November 14, 2014, the Company entered into and closed a share exchange agreement (the “Share Exchange Agreement”), with Worldwide, the shareholders of Worldwide, and NOWnews Network. Pursuant to the Share Exchange Agreement, the Company issued an aggregate of 20,000,000 shares of common stock to the shareholders of Worldwide in exchange for all the issued and outstanding capital stock of Worldwide. Immediately following the closing of the Share Exchange, the Company had a total of 22,412,000 issued and outstanding shares of common stock, of which 6,262,400 shares were beneficially held by Alan Chen. As a result of the Share Exchange, Worldwide and Sky Media become the Company’s wholly owned subsidiaries and NOWnews Network is now Company’s majority owned subsidiary in which Company indirectly holds 66% of the equity interest. Upon consummation of the Share Exchange, Company’s assumed the business of NOWnews Network and ceased to be a shell company.

 

F-5

 

 

On August 5, 2015, NOWnews Network, Sky Media, Mr. Alan Chen and Ms. Tu entered a Stock Purchase Agreement (the “Stock Purchase Agreement") with Gamania Digital Entertainment Co. Ltd. (“Gamania Digital”) and Ta Ya Venture Capital Co. Ltd. (“Ta Ya”). Pursuant to the Stock Purchase Agreement, NOWnews Network issued 1,650,000 and 350,000 shares to non-controlling shareholders on August 14, 2015 and September 8, 2015, respectively (see Note 10). As a result of the Stock Purchase, NOWnews Network remained the Company’s majority owned subsidiary in which Company indirectly holds 57% of the equity interest.

 

The Company’s fiscal year ends on December 31st.

 

NOTE 2: GOING CONCERN

 

The Company’s unaudited consolidated financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred significant losses and has not demonstrated the ability to generate sufficient cash flows from operations to satisfy its liabilities and sustain operations. The Company had accumulated deficits of $4,265,466 and $3,922,379, and stockholders’ deficits of $299,562 and $1,162,292 as of September 30, 2015 and December 31, 2014, respectively. The net losses attributable to common stockholders of $343,087 and $664,969 for the nine months ended September 30, 2015 and 2014, respectively. In addition, current liabilities exceed current assets by $419,180 and $1,418,978 as of September 30, 2015 and December 31, 2014, respectively, representing significant working capital deficits. These matters raise substantial doubt about the Company’s ability to continue as a going concern.  The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable.  If the Company is unable to obtain adequate capital, it could be forced to cease operations. The accompanying consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

Management’s Plan to Continue as a Going Concern

 

In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management’s plans to obtain such resources for the Company include (1) obtaining capital from the sale of its equity securities, (2) sales of the Company’s services, (3) short-term and long-term borrowings from banks, and (4) short-term borrowings from stockholders or other related party(ies) when needed. However, management cannot provide any assurance that the Company will be successful in accomplishing any of its plans.

 

The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually to secure other sources of financing and attain profitable operations.

 

NOTE 3: BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of presentation:

 

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. Since the Company, Worldwide, and NOWnews Network were entities under common control prior to the restructuring transaction, the Company and Worldwide have recast prior period financial statements to reflect the conveyance of NOWnews Network to Sky Media as if the restructuring transaction had occurred as of January 1, 2014. All significant intercompany transactions and account balances have been eliminated.

 

The functional currency of NOWnews Network and NOWnews International is the New Taiwan dollars, however the accompanying unaudited consolidated financial statements have been translated and presented in United States Dollars ($). In the accompanying unaudited consolidated financial statements and notes, “$”, “US$” and “U.S. dollars” mean United States dollars, and “NT$” and “NT dollars” mean New Taiwan dollars. 

 

F-6

 

 

Use of estimates and assumptions:

 

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the amount of revenues and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made. However, actual results could differ materially from those results. The most significant estimates reflected in the consolidated financial statements include depreciation, useful lives of property and equipment, deferred income taxes, useful life of intangible assets and contingencies. Estimates and assumptions are periodically reviewed and the effects of revisions are reflected in the consolidated financial statements in the period they are determined to be necessary.

 

Cash and cash equivalents:

 

The Company considers all cash on hand and in banks, certificates of deposit and other highly-liquid investments with original maturities of three months or less, when purchased, to be cash and cash equivalents. As of September 30, 2015 and December 31, 2014, the Company has uninsured deposits in banks of $243,555 and $0.

 

Accounts receivable:

 

The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. As of September 30, 2015 and December 31, 2014, the Company assessed the allowance for doubtful accounts of $53,263 and $34,232, respectively.

 

Property and equipment:

 

Property and equipment are recorded at cost less accumulated depreciation. Gains or losses on disposals are reflected as gain or loss in the year of disposal. The cost of improvements that extends the life of property, and equipment are capitalized. These capitalized costs may include structural improvements, equipment, and fixtures. All ordinary repair and maintenance costs are expensed as incurred.

 

Depreciation for financial reporting purposes is provided using the straight-line method over the estimated useful lives of the assets or lease term as follows:

 

Electronic Equipment 3 years
Computer Equipment 3 to 5 years
Office Equipment and Furniture 5 years
Leasehold Improvement Lesser of term of the lease or the estimated useful lives of the assets

 

Long-lived assets:

 

The Company applies the provisions of FASB ASC Topic 360 (ASC 360), “Property, Plant, and Equipment” which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The Company periodically evaluates the carrying value of long-lived assets to be held and used in accordance with ASC 360, at least on an annual basis. ASC 360 requires the impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair market values are reduced for the cost of disposal.

 

F-7

 

 

Intangible assets:

 

Intangible assets consist of software, trademark, and copyrights (see Note 6). At least annually, the Company evaluates intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. Estimating future cash flows related to an intangible asset involves significant estimates and assumptions. If the Company’s assumptions are not correct, there could be an impairment loss or, in the case of a change in the estimated useful life of the asset, a change in amortization expense. There was no impairment of intangible assets as of and for the nine months ended September 30, 2015 and the year ended December 31, 2014, respectively.

 

Leases:

 

Lease agreements are evaluated to determine if they are capital leases meeting any of the following criteria at inception: (a) Transfer of ownership; (b) Bargain purchase option; (c) The lease term is equal to 75 percent or more of the estimated economic life of the leased property; (d) The present value at the beginning of the lease term of the minimum lease payments, excluding that portion of the payments representing executory costs such as insurance, maintenance, and taxes to be paid by the lessor, including any profit thereon, equals or exceeds 90 percent of the excess of the fair value of the leased property to the lessor at lease inception over any related investment tax credit retained by the lessor and expected to be realized by the lessor.

 

If at its inception a lease meets any of the four lease criteria above, the lease is classified by the lessee as a capital lease; and if none of the four criteria are met, the lease is classified by the lessee as an operating lease.

 

Revenue recognition:

 

Product and service revenue is recognized when the following fundamental criteria are met: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or the service has been performed, (iii) the Company’s price to the customer is fixed or determinable and (iv) collection of the resulting accounts receivable is reasonably assured.  Payments received before satisfaction of all of the relevant criteria for revenue recognition are recorded as unearned revenue. The Company recognizes revenue for product sales upon transfer of title to the customer.  The Company recognizes revenue for services upon performance of the service.  Customer purchase orders and/or contracts will generally be used to determine the existence of an arrangement.  Shipping documents and the completion of any customer acceptance requirements, when applicable, will be used to verify product delivery or that services have been rendered.  The Company will assess whether a price is fixed or determinable based upon the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment. The Company will record reductions to revenue for estimated product returns and pricing adjustments in the same period that the related revenue is recorded.  These estimates will be based on industry-based historical data, historical sales returns, if any, analysis of credit memo data, and other factors known at the time.

 

Post-retirement and post-employment benefits:

 

NOWnews Network adopted the government mandated defined contribution plan pursuant to the Labor Pension Act (the “Act”) in Taiwan. Such labor regulations require that the rate of contribution made by an employer to the Labor Pension Fund per month shall not be less than 6% of the worker's monthly salaries. Pursuant to the Act, NOWnews Network makes monthly contribution equal to 6% of employees’ salaries to the employees’ pension fund. NOWnews Network has no legal obligation for the benefits beyond the contributions made. The total amounts for such employee benefits, which were expensed as incurred, were $41,543 and $65,132 for the nine months ended September 30, 2015 and 2014, respectively. The total amounts for such employee benefits, which were expensed as incurred, were $13,664 and $19,989 for the three months ended September 30, 2015 and 2014, respectively. Other than the above, the Company does not provide any other post-retirement or post-employment benefits.

 

F-8

 

 

Foreign currency translation:

 

The Company uses the United States dollar ("U.S. dollars") for financial reporting purposes. The Company maintains the books and records in its functional currency, being the primary currency of the economic environment in which its operations are conducted. For reporting purpose, the Company translates the assets and liabilities to U.S. dollars using the applicable exchange rates prevailing at the balance sheet dates, and the statements of income are translated at average exchange rates during the reporting periods. Gain or loss on foreign currency transactions are reflected on the income statement. Gain or loss on financial statement translation from foreign currency are recorded as a separate component in the equity section of the balance sheet and is included as part of accumulated other comprehensive income. The functional currency of the Company and its subsidiaries in Taiwan is New Taiwan Dollars.

 

Statement of cash flows:

 

In accordance with FASB ASC Topic 230, “Statement of Cash Flows,” cash flows from the Company’s operations are calculated based upon the local currencies, and translated to the reporting currency using an average foreign exchange rate for the reporting period. As a result, amounts related to changes in assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheets.

 

Income taxes:

 

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recognized if it is more likely than not that some portion, or all, of a deferred tax asset will not be realized. The deferred income tax assets were $0 as of both September 30, 2015 and December 31, 2014.

 

The Company applied the provisions of ASC 740-10-50, “Accounting For Uncertainty In Income Taxes”, which provides clarification related to the process associated with accounting for uncertain tax positions recognized in our financial statements. Audit periods remain open for review until the statute of limitations has passed. The completion of review or the expiration of the statute of limitations for a given audit period could result in an adjustment to the Company’s liability for income taxes. Any such adjustment could be material to the Company’s results of operations for any given quarterly or annual period based, in part, upon the results of operations for the given period. At September 30, 2015, management considered that the Company had no uncertain tax positions, and will continue to evaluate for uncertain positions in the future.

 

The Company is subject to the tax authority in Taiwan for years since incorporated.

 

Earnings per share (EPS):

 

Earnings per share is calculated in accordance with ASC 260. Basic earnings per share is based upon the weighted average number of common shares outstanding. Diluted earnings per share is based on the assumption that all dilutive convertible shares and stock instruments were converted or exercised. Options and warrants are assumed to be exercised at the beginning of the period if the average stock price for the period is greater than the exercise price of the warrants and options. For the nine months ended September 30, 2015 and 2014, no options or warrants were issued or outstanding.

 

F-9

 

 

Discontinued operations

 

Results of the Company’s discontinued entity have been presented in discontinued operations in the financial statements. See Note 1 and Note 13 for additional information.

 

Reclassifications:

 

Certain classifications have been made to the prior year financial statements to conform to the current year presentation. The reclassification had no impact on previously reported net loss or accumulated deficit.

 

Recent accounting pronouncements:

 

In February 18, 2015, FASB issued ASU 2015-02—Consolidation (Topic 810). The amendments in this Update affect reporting entities that are required to evaluate whether they should consolidate certain legal entities. All legal entities are subject to reevaluation under the revised consolidation model. Specifically, the amendments: (1) Modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (VIEs) or voting interest entities; (2) Eliminate the presumption that a general partner should consolidate a limited partnership; (3) Affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships; (4) Provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. The amendments in this Update are effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial position and results of operations.

 

In August 2014, FASB issued ASU 2014-15 – Presentation of Financial Statements – Going Concern (Subtopic 205-40). The amendments in this Update states the disclosure of uncertainties about an entity’s ability to continue as a going concern. An entity’s management should evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or available to be issued). When management identifies conditions or events that raise substantial doubt, management should consider whether its plans will alleviate the substantial doubt. When substantial doubt is raised but is alleviated by management’s plans, the entity should disclose following information: (a) Principal conditions or events that raised substantial doubt (before consideration of management’s plans); (b) Management’s evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations; (c) Management’s plans that alleviated the substantial doubt.

 

When substantial doubt is raised but is not alleviated by management’s plans,, an entity should include a statement in the footnotes indicating that there is substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or available to be issued), and disclose the following information: (a) Principal conditions or events that raise substantial doubt; (b) Management’s evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations; (c) Management’s plans that are intended to mitigate the conditions or events that raise the substantial doubt.

 

The amendments in this Update are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The Company is still in progress of evaluating future impact of adopting this standard.

 

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve the core principle, an entity should apply the following steps:

 

F-10

 

 

Step 1: Identify the contract(s) with a customer.

Step 2: Identify the performance obligations in the contract.

Step 3: Determine the transaction price.

Step 4: Allocate the transaction price to the performance obligations in the contract.

Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.

 

An entity should disclose sufficient information to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. For a public entity, the amendments in this Update are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. For all other entities (nonpublic entities), the amendments in this Update are effective for annual reporting periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. A nonpublic entity may elect to apply this guidance earlier. The Company has begun evaluating future impact of adopting this standard on the Company’s consolidated financial position and operating results.

 

In April 2014, the FASB issued ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360). The amendments in this Update change the requirements for reporting discontinued operations in Subtopic 205-20. A discontinued operation may include a component of an entity or a group of components of an entity, or a business or nonprofit activity. A disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. The amendments in this Update require an entity to present, for each comparative period, the assets and liabilities of a disposal group that includes a discontinued operation separately in the asset and liability sections, respectively, of the statement of financial position. The amendments in this Update require a public business entity and a not-for-profit entity that has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market to provide disclosures about a disposal of an individually significant component of an entity that does not qualify for discontinued operations presentation in the financial statements. The amendments in this Update require all other entities to provide disclosures about a disposal of an individually significant component of an entity that does not qualify for discontinued operations presentation in the financial statements. The amendments in this Update expand the disclosures about an entity’s significant continuing involvement with a discontinued operation. Those disclosures are required until the results of operations of the discontinued operation in which an entity retains significant continuing involvement are no longer presented separately as discontinued operations in the statement where net income is reported (or statement of activities for a not-for-profit entity). The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial position and results of operations.

 

NOTE 4: ACCOUNTS RECEIVABLE 

 

Accounts receivable consist of the following:

 

    September 30,
2015
    December 31,
2014
 
Accounts receivable   $ 354,750     $ 572,743  
Less: Allowance for doubtful accounts     (53,263 )     (34,232 )
Accounts receivable, net   $ 301,487     $ 538,511  

 

NOTE 5: PROPERTY AND EQUIPMENT, NET

 

Property and equipment consist of the following:

 

   September 30,   December 31, 
   2015   2014 
Capital Lease  $174,773   $- 
Computer equipment   45,252    71,230 
Leasehold improvement   20,082    107,622 
Electronic equipment   14,391    141,345 
Office equipment and furniture   4,761    353,692 
    259,259    673,889 
Less: Accumulated depreciation   (67,781)   (618,695)
   $191,478   $55,194 

 

F-11

 

 

As of September 30, 2015, assets under capital lease of $174,773 represented server equipment (see Note 12). Depreciation expense for the three months ended September 30, 2015 and 2014 was $16,864 and $12,092, respectively. Depreciation expense for the nine months ended September 30, 2015 and 2014 was $57,091 and $42,657, respectively.

 

NOTE 6: INTANGIBLE ASSETS, NET

 

Intangible assets consist of the following:

 

   September 30,   December 31, 
   2015   2014 
Copyrights  $857,637   $895,092 
Software   24,616    25,691 
Trademark   6,367    6,646 
Patent   153    159 
    888,773    927,588 
Accumulated amortization   (870,551)   (898,548)
Intangible assets, net  $18,222   $29,040 

 

Intangible assets amounted to $18,222 and $29,040 as of September 30, 2015 and December 31, 2014, respectively, mainly consisted of copyrights and software acquired, and trademark. 

 

Copyrights

 

Copyrights mainly include the copyrights of multiple films and pictures acquired from June 2007 to October 2009, and during the year ended December 31, 2013, with the total purchase amount of NT$28,284,903 (approximately $857,637). Copyrights are amortized based on their determined useful life, and tested annually for impairment. The amortization period ranges from 2 to 10 years. Amortization expense related to copyrights was $1,248 and $1,342 for the three months ended September 30, 2015 and 2014, respectively. Amortization expense related to copyrights was $3,812 and $8,425 for the nine months ended September 30, 2015 and 2014, respectively.

 

For the three months ended September 30, 2015 and 2014, total amortization expense amounted to $3,274 and $3,397, respectively. For the nine months ended September 30, 2015 and 2014, total amortization expense amounted to $10,067 and $14,783, respectively.

 

Estimated amortization for the next five years and thereafter is as follows:

 

As of September 30,  Amount 
2016  $10,978 
2017   5,506 
2018   1,693 
2019   45 
   $18,222 

 

F-12

 

 

NOTE 7: BANK LOANS

 

Long-term debt

 

Long-term debt consists of the following:

 

   September 30,   December 31, 
   2015   2014 
Loan from Taiwan Shin Kong Commercial Bank Co., Ltd., interest rate at 2.75% per annum, the term started April 9, 2013 with the maturity date October 9, 2014, secured by a property owned by a Director of the Company (former Chairman) and his wife (currently the Director of Supervisory Committee of the Company), as well as their personal guarantees (see Note 14).  $-   $440,452 
           
Loan from Taiwan Shin Kong Commercial Bank Co., Ltd., interest rate at 2.5% per annum, the term started February 8, 2012 with the maturity date February 8, 2019, secured by a property owned by a Director of the Company (former Chairman) and his wife (currently the Director of Supervisory Committee of the Company), as well as their personal guarantees (see Note 14).   -    368,891 
    -    809,343 
Current portion   -    (488,048)
Total  $-   $321,295 

 

Both loans as of December 31, 2014 had been repaid in full amount by Ms. Chiu-li Tu, the Director of Supervisory Committee of NOWnews Network, in February, 2015. See Note 10.

 

Interest expense for the nine months ended September 30, 2015 and 2014 amounted to $1,495 and $18,356, respectively.

 

NOTE 8: ACCRUED EXPENSES

 

Accrued expenses consist of the following:

 

   September 30,   December 31, 
   2015   2014 
Accrued payroll  $115,064   $112,315 
Accrued professional fees   95,913    108,705 
Accrued employee benefits and pension expenses   75,709    110,305 
Accrued bonus   58,514    78,041 
Accrued taxes   44,336    21,337 
Accrued legal settlement   3,032    17,089 
Accrued office rent and management fees   -    48,899 
Other   27,379    64,014 
Total  $419,947   $560,705 

 

NOTE 9: INCOME TAX

 

United States

 

The Company is incorporated in the United States of America and is subject to United States federal taxation. No provisions for income taxes have been made as the Company has no taxable income for the period. The applicable income tax rate for the Company was 35% for the nine months ended September 30, 2015 and 2014. No tax benefit has been realized since a 100 % valuation allowance has offset deferred tax asset resulting from the net operating losses.

 

F-13

 

 

Anguilla

 

Worldwide Media Investments Corp. and Sky Media are incorporated in Anguilla, which does not tax income.

 

Taiwan

 

NOWnews Network and NOWnews International are incorporated in Taiwan. The Taiwan Income Tax Law imposes a unified enterprise income tax rate of 17% on all enterprises with taxable income greater than approximately $3,815 (NT$120,000). No income tax liabilities existed as of September 30, 2015 and December 31, 2014 due to the Company’s continuing operating losses.

 

Provision for income tax consists of the following:

 

   For the Three Months Ended   For the Nine Months Ended 
   September 30,   September 30, 
   2015   2014   2015   2014 
Current                    
USA  $-   $-   $-   $- 
Taiwan   -    -    -    - 
                     
Deferred                    
USA                    
Deferred tax assets for NOL carryforwards   (15,700)   (25,229)   (36,374)   (54,284)
Valuation allowance   15,700    25,229    36,374    54,284 
Net changes in deferred income tax under non-current portion   -    -    -    - 
                     
Taiwan                    
Noncurrent portion                    
NOL carryforwards   (4,537)   (9,491)   (45,471)   (129,088)
Valuation allowance   4,537    9,491    45,471    129,088 
Net changes in deferred income tax under non-current portion   -    -    -    - 
                     
Total provision for income tax  $-   $-   $-   $- 

 

The following is a reconciliation of the statutory tax rate to the effective tax rate:

 

   For the Nine Months Ended September 30, 
   2015   2014 
         
U.S. statutory income tax rate   35.0%   35.0%
Foreign statutory income tax rate difference   (18.0%)   (18.0%)
Changes in valuation allowance   (17.0%)   (17.0%)
Effective income tax rate   0.0%   0.0%

 

Significant components of the Company’s deferred taxes as of September 30, 2015 and December 31, 2014 were as follows:

 

   September 30,   December 31, 
   2015   2014 
Deferred tax assets:          
Net operating loss carryforwards  $2,052,107   $2,123,347 
Less: Valuation allowance   (2,052,107)   (2,123,347)
Deferred tax assets, net  $-   $- 

 

F-14

 

 

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the net operating losses and temporary differences become deductible. Management considered projected future taxable income and tax planning strategies in making this assessment. As of September 30, 2015 and December 31, 2014, the Company accrued 100% valuation allowance against its deferred tax assets based on the assessment of the probability of future realization.

 

NOTE 10: STOCKHOLDERS’ EQUITY

 

As of September 30, 2015, the Company was authorized to issue a total of 50,000,000 shares of common stock, par value $0.001 per share.

 

On June 4, 2013, Worldwide issued 17,000,000 common shares to Mr. Alan Chen as founder’s shares for no consideration exchanged. As a result, a discount on capital of $17,000,000 was recorded. On the same date, Mr. Chen conveyed 1,000,000 shares, 8,548,000 shares, 3,816,000 shares, and 3,636,000 shares to Legend Media Investments Co., Ltd., Pioneer Media Investments Co., Ltd., Intelligent Media Investments Co., Ltd., and Core Winner Investment Limited, respectively (collectively, the “Recipients”). All of the recipients are entities under Mr. Chen’s common control. During the year 2014, Mr. Chen transferred 2,847,725, 410,000, and 11,687,600 shares to Ms. Chiu-li Tu, the Company’s employees, and other non-related parties, respectively. Mr. Chen and Ms. Tu are husband and wife (see Note 14). Prior to November 14, 2014, Mr. Chen holds 2,054,675 shares of Worldwide.

 

On September 16, 2013, Worldwide entered into a written Definitive Agreement with GIA Investments Corp. (“GIA”), an unrelated party (the “Definitive Agreement”). Pursuant to the provisions of the Definitive Agreement, Worldwide would acquire NOWnews Network pursuant to a stock purchase agreement, and Worldwide will fund the operations of NOWnews Network for a period of approximately 8 months. Additionally, Worldwide desires to be acquired by an unidentified company (defined in the Definitive Agreement as “Company A”), pursuant to a stock exchange agreement, and Company A will be a participant in the OTCQB. As specified in the Definitive Agreement, GIA intends to acquire 15% of the issued and outstanding shares of Company A’s common stock for $3,000,000, and Worldwide intends that its existing shareholders will acquire 84% of the issued and outstanding shares of Company A’s common stock.

 

Pursuant to the Definitive Agreement, during September through December 2013, GIA funded an aggregate of $1,522,388 to Worldwide, which was recorded as “Subscriptions received in advance” on Worldwide’s consolidated balance sheet as of December 31, 2013. On May 23, 2014, Worldwide issued 3,000,000 common shares to GIA for the proceeds received.

 

During September through December 2013, Sky Media, the wholly-owned subsidiary of Worldwide, acquired 7,999,945 common shares (or 66.3%) of NOWnews Network from Mr. Alan Chen for $1,522,388 (or NT$45 million). Mr. Alan Chen owned 10,169,945 shares (or 84.3%) of common stock of NOWnews Network prior to the above transaction. Since Worldwide and NOWnews Network were both entities under Mr. Chen’s common control prior to the transaction, it was deemed a restructuring transaction (the “Restructuring Transaction”) and the $1,522,388 disbursed from Sky Media to Mr. Chen was recorded as a return of capital.

 

Pursuant to the Share Exchange Agreement entered on November 14, 2014 (see Note 1), the Company issued an aggregate of 20,000,000 shares of common stock to the shareholders of Worldwide in exchange for all the issued and outstanding capital stock of Worldwide. Immediately following the closing of the Share Exchange, the Company had a total of 22,412,000 issued and outstanding shares of common stock.

 

F-15

 

 

In February, 2015, Ms. Chiu-li Tu paid off the bank loans obtained by NOWnews Network, amounted to approximately $809,343 as of December 31, 2014, on behalf of NOWnews Network (see Note 7). Immediately after the repayment, Ms. Tu and NOWnews Network entered an agreement that such repayment will be a shareholder contribution to NOWnews Network. This transaction was treated as a related party transaction because Ms. Tu still serves as a Director of NOWnews Network. The Company has recorded additional paid-in capital of approximately $817,104 as of September 30, 2015 for this shareholder contribution.

 

On July 31, 2015, NOWnews Network entered an agreement with Alan Chen and Ms. Chiu-li Tu, pursuant to which, Alan Chen and Ms. Tu agreed to forgive to their debt due from NOWnews Network in the amount of approximately $116,255 (or NT$3.7 million) and $367,808 (or NT$11.6 million), respectively, as shareholder contribution to NOWnews Network. This transaction was treated as a related party transaction, and such shareholder contribution has been recorded as additional paid-in capital.

 

On August 5, 2015, NOWnews Network, Sky Media, Mr. Alan Chen and Ms. Tu entered a Stock Purchase Agreement (the “Stock Purchase Agreement”) with Gamania Digital Entertainment Co. Ltd. (“Gamania Digital”) and Ta Ya Venture Capital Co. Ltd. (“Ta Ya”), in which there are two phases of stock transfers. In Phase I, NOWnews Network is committed to sell to Gamania Digital and Ta Ya 1,250,000 and 400,000 shares of outstanding shares of NOWnews Network, respectively, through new issuance. In addition, Mr. Chen and Ms. Tu are committed to sell to Gamania Digital and Ta Ya 1,250,000 and 400,000 shares of NOWnews Network owned by them, respectively. The share transfer of Phase I shall be completed sixty (60) days upon signing the agreement. In Phase II, Gamania Digital and Ta Ya are expected, but not obligated, to purchase the same amount of shares from NOWnews Network, and Mr. Chen and Ms. Tu, as Phase I. As of September 30, 2015, NOWnews Network has fulfilled its obligation of Phase I through issuance of 1,250,000 and 400,000 shares to Gamania Digital and Ta Ya for approximately $388,802 (or NT$12.5 million) and $124,417 (or NT$4.0 million), respectively, on August 14, 2015. On September 8, 2015, NOWnews Network issued additional 350,000 shares to Gamania Digital for approximately $107,230 (or NT$3.5 million). As a result of the Stock Purchase, NOWnews Network remained the Company’s majority owned subsidiary in which Company indirectly holds 57% of the equity interest.

 

NOTE 11: NON-CONTROLLING INTEREST

 

In August 2013, NOWnews Network established NOWnews International as a 55% owned subsidiary. Mr. Shu-sen Chang, the former Chairman and current director of NOWnews Network, and one other shareholder, owns 10% and 35% of NOWnews International, respectively.

 

During September through December 2013, Sky Media acquired 66% of NOWnews Network from Mr. Alan Chen. Mr. Chen owned 84.3% of common stock of NOWnews Network prior to the Restructuring Transaction.

 

On August 14 and September 8, 2015, NOWnews Network issued additional 1,650,000 and 350,000 shares of common stock to non-controlling shareholders, respectively, pursuant to the Stock Purchase Agreement (see Note 10). As a result, Sky Media owned 57% of NOWnews Network.

 

Non-controlling interest consisted of the following:

 

   September 30,   December 31, 
   2015   2014 
Beginning balance  $(493,747)  $(306,870)
Capital contributed by non-controlling interest   799,544    - 
Net loss attributed to non-controlling interest   (153,857)   (210,510)
Other comprehensive (loss) income attributable to non-controlling interest   (78,626)   23,633 
Ending balance  $73,314   $(493,747)

 

F-16

 

 

NOTE 12: COMMITMENTS AND CONTINGENCIES

 

(1) Lease commitments

 

Capital Lease

 

From April, 2015, NOWnews Network entered into various capital lease agreements with Nextlink Technology Co., Ltd. (“Nextlink”), pursuant to which NOWNews Network agreed to lease multiple servers from Nextlink for the period ranges from sixteen months to two years. At the end of each contract and upon fulfillment of the lease obligations, the title of these servers and ownership shall be transferred to NOWnews Network. Because NOWnews Network takes ownership of the equipment at the completion of the lease contract, NOWnews Network determined that the arrangement represents a capital lease for the equipment. The Company recorded $174,773 as a capital lease for the equipment and began depreciating the equipment on a straight line basis over five years. Depreciation expense of those equipment under capital lease for the nine-month period ended September 30, 2015 was $16,831.

 

Operating Lease

 

Operating lease commitments consist of leases for office space and copy machines under various operating lease agreements which expire in June, 2018. Operating lease agreements generally contain renewal options that may be exercised at the Company’s discretion after the completion of the terms.

 

The Company's obligations under capital and operating leases are as follows:

 

As of September 30,  Capital Leases
Amount
   Operating Leases
Amount
 
2016  $100,234   $87,240 
2017   30,971    44,532 
2018   -    1,244 
Total minimum payments  $131,205   $133,016 

 

The Company incurred rent expenses of $23,421 and $61,505 for the three months ended September 30, 2015 and 2014, respectively. The Company incurred rent expenses of $100,473 and $180,700 for the nine months ended September 30, 2015 and 2014, respectively.

 

(2) Litigation

 

Defamation and General Matters

 

From time to time, the Company is subject to legal proceedings and claims in the ordinary course of business, including claims of alleged infringement of copyrights and other intellectual property rights and other claims alleging defamation, invasion of privacy, or similar claims arising in connection with the news articles, pictures, and other contents published on the Company’s website.

 

Lai Matter

 

On July 11, 2014, Ms. Xiu-qing Lai filed a claim against NOWnews Network and five other companies (the “Five Companies”) who are unrelated to the Company, in the Taiwan Tainan District Court (the “Tainan District Court”) in connection to a news article edited by NOWnews Network and published on July 19, 2012 on the website of NOWnews Network and five other websites owned by the Five Companies, respectively. Ms. Lai claims that the news article contained a false statement that harms the reputation of Ms. Lai. Ms. Lai seeks approximately $16,677 (NT$550,000) in compensatory damages from NOWnews Network, $53,062 in aggregate from (NT$1,750,000) the Five Companies, and newspaper apologies from NOWnews Network and the Five Companies. Based on the agreements entered by NOWnews Network and the Five Companies, if any news content provided by NOWnews Network violates any regulations or infringes on any copyrights, NOWnews Network shall be responsible for any losses that may occur.

 

On January 6, 2015, the plaintiff agreed to settle this legal matter with NOWnews Network outside of court. NOWnews Network agreed to pay the plaintiff $12,129 (NT$400,000) in compensatory damages, and the plaintiff agreed to revoke the claim against NOWnews Network and the Five Companies. NOWnews Network has accrued $12,129 (NT$400,000) of contingent loss in connection to this lawsuit settlement during the year ended December 31, 2014.

 

F-17

 

 

(3) Shares to be issued

 

On August 5, 2015, NOWnews Network, Sky Media, Mr. Alan Chen and Ms. Tu entered a Stock Purchase Agreement with Gamania Digital, and Ta Ya, in which NOWnews Network is committed to sell to Gamania Digital, and Ta Ya of its outstanding shares through two Phases (see Note 10). As of the date of this report, the sale of Phase I has been completed.

 

NOTE 13: DISCONTINUED OPERATIONS

 

On December 27, 2013, NOWnews Network’s Board of Directors approved the termination of operations of NOWnews Network’s 55% owned subsidiary, NOWnews International (see Note 1). The results of the subsidiary have been presented as a discontinued operation in the statements of income and comprehensive income. Operating results for the discontinued business are presented in the following tables:

 

   For The Nine Months Ended 
   September 30, 2015 
Net revenue  $- 
Cost of goods sold   - 
Selling, general, and administrative expenses   (54,104)
Loss before income taxes   (54,104)
Income taxes   - 
Net loss  $(54,104)

 

Net assets of discontinued operations as of September 30, 2015 were as follows:

 

Net assets:    
   As of September 30, 2015 
Cash & cash equivalents  $3,951 
Accounts receivable, net   228 
Other current assets   10,532 
Current assets  $14,711 
Accounts payable   159 
Accrued expenses   378 
Due to related parties   95,732 
Current liabilities  $96,269 

 

F-18

 

 

NOTE 14: RELATED PARTY TRANSACTIONS

 

The related parties of the company with whom transactions are reported in these financial statements are as follows:

 

Name of entity or Individual   Relationship with the Company and its subsidiaries
Chunghwa Wideband Best Network Co., Ltd.   Mr. Alan Chen is the Chairman and legal representative of this entity
Chunghwa United International Development Co., Ltd.   Mr. Alan Chen is the Chairman and legal representative of this entity.
Mega Media Investments Co., Ltd. (Taiwan Branch)   Entity controlled by Mr. Alan Chen
Jin Hao Kang Marketing Co., Ltd   Ms. Chiu-li Tu is the Chairman, Director, and legal representative of this entity.
Youchu International Digital Technology Co., Ltd.   Mr. Alan Chen is the Chairman and legal representative of this entity.
Chunghwa United Co., Ltd.   Ms. Chiu-li Tu is the Chairman, Director, and legal representative of this entity.
Wowtoday Co., Ltd.   Entity owned by a family member of the shareholder who holds 35% of NOWnews International (see Note 1)
Hwalian International Business Co., Ltd.   Mr. Alan Chen is the Chairman and legal representative of this entity.
Mr. Alan Chen   Director and controlling beneficiary shareholder of the Company. Current Director and the former Chairman of NOWnews Network.
Ms. Chiu-li Tu   Wife of Mr. Alan Chen. Current Director of Supervisory Committee of NOWnews Network
Mr. Shang-hong Lin   Chairman of NOWnews Network

    

Transactions

 

   For the Nine Months Ended September 30, 
   2015   2014 
Sales to Mega Media Investments Co., Ltd. (Taiwan Branch)  $12,715   $- 
Sales to Chunghwa Wideband Best Network Co., Ltd.   -    15,177 
Sales to Chunghwa United International Development Co., Ltd.   -    2,923 
Total  $12,715   $18,100 

 

The primary services provided by NOWnews Network to those related parties were advertisement space on NOWnews Network’s website and broadcasting right of the films and news articles owned by NOWnews Network.

 

Due from related parties

 

    September 30,     December 31,  
    2015     2014   
Trade receivable from Jin Hao Kang Marketing Co., Ltd   -     77,532  
Trade receivable from Chunghwa Wideband Best Network Co., Ltd.     -       42,855  
Trade receivable from Mega Media Investments Co., Ltd. (Taiwan Branch)     -       38,509  
Trade receivable from Youchu International Digital Technology Co., Ltd.     -       6,329  
Trade receivable from Chunghwa United International Development Co., Ltd.     -       2,926  
Trade receivable from Chunghwa United Co., Ltd.     -       2,089  
Trade receivable from Wowtoday Co., Ltd.     -       1,661  
Total   $ -     $ 171,901

  

F-19

 

 

Due to related parties

 

   September 30,   December 31, 
   2015   2014 
Due to Mr. Alan Chen  $452,848   $649,377 
Due to Mega Media Investments Co., Ltd. (Taiwan Branch)   35,817    - 
Due to Jin Hao Kang Marketing Co., Ltd   364    32,595 
Due to Chunghwa United International Development Co., Ltd.   206    - 
Due to Shang-hong Lin   28    - 
Due to Ms. Chiu-li Tu   -    212,185 
Due to Hwalian International Business Co., Ltd.   -    178,339 
   $489,263   $1,072,495 

 

Due to related parties were unsecured, had no written agreement, due on demand with no maturity date, and bearing no interest.

 

Guarantees

 

As of December 31, 2014, Mr. Chen and Ms. Tu provided personal guarantees on long-term loans obtained by NOWnews Network. In addition, the property collateralized for the long-term loans was owned by Mr. Chen and Ms. Tu (see Note 7).

 

NOTE 15: SUBSEQUENT EVENT

 

Management has evaluated subsequent events through November 16, 2015, the date which the financial statements were available to be issued. All subsequent events requiring recognition as of September 30, 2015 have been incorporated into these consolidated financial statements and there are no subsequent events that require disclosure in accordance with FASB ASC Topic 855, “Subsequent Events.”

 

F-20

 

  

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

  

This Management Discussion and Analysis (“MD&A”) contains “forward-looking statements”, which represent our projections, estimates, expectations or beliefs concerning among other things, financial items that relate to management’s future plans or objectives or to our future economic and financial performance. In some cases, you can identify these statements by terminology such as “may”, “should”, “plans”, “believe”, “will”, “anticipate”, “estimate”, “expect” “project”, or “intend”, including their opposites or similar phrases or expressions. You should be aware that these statements are projections or estimates as to future events and are subject to a number of factors that may tend to influence the accuracy of the statements. These forward-looking statements should not be regarded as a representation by the Company or any other person that the events or plans of the Company will be achieved. You should not unduly rely on these forward-looking statements, which speak only as of the date of this MD&A. Except as may be required under applicable securities laws, we undertake no obligation to publicly revise any forward-looking statement to reflect circumstances or events after the date of this MD&A or to reflect the occurrence of unanticipated events. You should, however, review the factors and risks we describe under “Risk Factors” in our reports filed with the Securities and Exchange Commission.  Actual results may differ materially from any forward looking statement.

 

Overview

 

We were incorporated as Forever Zen Ltd. on March 20, 2010 under the laws of the State of Nevada. On December 13, 2013, we changed our name to NowNews Digital Media Technology Co Ltd. and planned to enter into the business of internet media and news content. Prior to the Share Exchange as defined below, we were a development stage company and had not yet realized any revenues from our planned operations.

 

On November 14, 2014, we entered into and closed a share exchange agreement (the “Share Exchange Agreement”), with Worldwide Media Investments Corp., an Anguilla corporation (“Worldwide”), the shareholders of Worldwide, and NOWnews Network Co., Ltd., a Taiwan corporation (“NOWnews Network”). Pursuant to the Share Exchange Agreement, the Company issued an aggregate of 20,000,000 shares of common stock to the shareholders of Worldwide in exchange for all the issued and outstanding capital stock of Worldwide (the “Share Exchange”). Worldwide, through its wholly owned subsidiary, Sky Media Investments Co., Ltd. (“Sky Media”), owned 66% of all the issued and outstanding capital stock of NOWnews Network immediately following the Share Exchange.

 

As a result of the consummation of the Share Exchange on November 14, 2014, NOWnews Network became, indirectly through Worldwide and Sky Media, a majority-owned subsidiary of the Company and the business of NOWnews Network became the business of the Company. We are now, through NOWnews Network, engaged in creating, collecting and distributing news and information through our website http://www.nownews.com/ and our applications on mobile phones or tablets.

 

We generate revenue primarily from online advertising and marketing services and news content licensing. In addition, we historically had revenues from online product sales in the E-commerce business and editing services for customers. Since our editing service was not profitable, we ceased this service in December 2013. In addition, we also suspended our E-commerce business in April 2014 due to the continuous loss from this business.

 

On August 14 and September 8, 2015, NOWnews Network issued 1,650,000 and 350,000 shares of common stock to new shareholders, respectively. As a result, our ownership in NOWnews Network dropped from 66% to 57%.

 

3 

 

 

 Results of Operations for the Three Months Ended September 30, 2015 as Compared to the Three Months Ended September 30, 2014:

 

   For The Three Months Ended     
   September 30,   Change in 
   2015   2014   $   % 
                 
Net revenue  $620,742   $687,169   $(66,427)   (10)
Cost of revenue   (350,634)   (418,548)   67,914    (16)
Gross profit   270,108    268,621    1,487    1 
                     
Selling expenses   (150,114)   (153,165)   3,051    (2)
General and administrative expenses   (220,205)   (254,462)   34,257    (13)
Total operating expense   (370,319)   (407,627)   37,308    (9)
                     
Operating loss   (100,211)   (139,006)   38,795    (28)
                     
Other income (expense)                    
Interest income   -    876    (876)   (100)
Interest expense   (753)   (7,368)   6,615    (90)
Other income (expense), net   2,594    1,037    1,557    150 
Total other income (expense)   1,841    (5,455)   7,296    (134)
                     
Loss from continuing operations before income taxes   (98,370)   (144,461)   46,091    (32)
Income taxes   -    -    -    - 
Loss from continuing operations   (98,370)   (144,461)   46,091    (32)
Income (loss) from discontinued operations, net of income taxes   485    (17)   502    2,953 
                     
Net loss   (97,885)   (144,478)   46,593    (32)
                     
Net loss attributable to noncontrolling interests:                    
Net loss from continuing operations   12,508    24,162    (11,654)   (48)
Net (income) loss from discontinued operations   (308)   11    (319)   (2,900)
Total net loss attributable to noncontrolling interest   12,200    24,173    (11,973)   (50)
                     
Net loss attributable to NowNews Digital Media Technology Co., Ltd.  $(85,685)  $(120,305)  $34,620    (29)

 

 

Net Revenue

 

Our net revenue for the three months ended September 30, 2015 was $0.62 million, a decrease of $0.07 million or 10% from $0.69 million for the three months ended September 30, 2014. The decrease was primarily due to the decrease in advertisement revenue and licensing revenue.

 

Advertising

 

Our advertising avenue was $0.57 million for the three months ended September 30, 2015, a decrease of $0.04 million, or 7%, from $0.61 million for the three months ended September 30, 2014. Our web server had experienced instability due to change of service vendor for our web maintenance in the second quarter of year 2015. Such instability has caused decrease in advertisement posted on our website since then, resulting in the decrease of advertisement revenue in the three months ended September 30, 2015.

 

Licensing and Services

 

Our revenue from content licensing and services was $0.05 million for the three months ended September 30, 2015, a decrease of $0.02 million, or 29%, from $0.07 million for the three months ended September 30, 2014. The decrease was primarily due to the termination of our low-profit news editing services to Yahoo Taiwan. Such services were supplementary to our licensing arrangements with them.

 

4 

 

 

Cost of Revenue

 

Cost of revenue mainly consists of advertisement costs, content licensing costs, copyright costs, website maintenance costs, and labor costs.

 

Cost of revenue was $0.35 million for the three months ended September 30, 2015, compared to $0.42 million for the three months ended September 30, 2014, a decrease of $0.07 million, or 16%. The decrease was mainly due to the decrease of $0.03 million in advertisement cost, and $0.02 million in labor costs.

 

Gross Profit

 

Gross profit remains flat for the three months ended September 30, 2015 as compared to the same period in 2014. Gross profit margin was 43.51% for the three months ended September 30, 2015 as compared to 39.09% for the same period in 2014. The higher gross profit margin was due to the decrease in cost of revenue.

 

Selling Expenses

 

Total selling expenses consist primarily of payroll, labor and health insurance, and advertisement expenses. The amount decreased by $0.003 million, or 2%, from $0.153 million for the three months ended September 30, 2014, to $0.15 million for the three months ended September 30, 2015. The decrease in selling expenses was primarily due to the decrease in labor costs resulting from decrease in the number of salespersons.

 

General and Administrative Expenses

 

General and administrative expenses primarily consist of payroll, welfare, labor and health insurance, post-retirement benefits, office rent and management fees, depreciation & amortization expenses, professional services, litigation settlement payments and expenses for other general corporate activities. General and administrative expenses decreased by approximately $0.03 million, or 13%, from $0.25 million for the three months ended September 30, 2014 to $0.22 million for the three months ended September 30, 2015. The decrease in general and administration expenses was principally due to the decrease in payroll resulting from reduction in the number of employees.

 

Interest Expense

 

Interest expense for the three months ended September 30, 2015 was $753 compared to $7,368 for the three months ended September 30, 2014, a decrease of $6,615, or 90%. The decrease in interest expense was primarily due to reduced bank loans incurred for the three months ended September 30, 2015 as compared with the three months ended September 30, 2014.  The bank loans were paid off in full amount in February, 2015. Interest expense recognized in the three months ended September 30, 2015resulted from capital lease.

 

Net Loss

 

As a result of the above factors, we have net loss of approximately $0.10 million for the three months ended September 30, 2015 as compared to net loss of approximately $0.14 million for the three months ended September 30, 2014, representing a decrease of loss of approximately $0.04 million, or approximately 32%.

 

5 

 

 

Results of Operations for the Nine Months Ended September 30, 2015 and 2014

 

   For The Nine Months Ended     
   September 30,   Change in 
   2015   2014   $   % 
                 
Net revenue  $1,658,953   $1,980,678   $(321,725)   (16)
Cost of revenue   (1,038,663)   (1,418,035)   379,372    (27)
Gross profit   620,290    562,643    57,647    10 
                     
Selling expenses   (347,487)   (492,718)   145,231    (29)
General and administrative expenses   (715,878)   (975,544)   259,666    (27)
Total operating expense   (1,063,365)   (1,468,262)   404,897    (28)
                     
Operating loss   (443,075)   (905,619)   462,544    (51)
                     
Other income (expense)                    
Interest income   203    1,304    (1,101)   (84)
Interest expense   (3,117)   (19,549)   16,432    (84)
Other income (expense), net   3,149    (413)   3,562    (862)
Total other income (expense)   235    (18,658)   18,893    (101)
                     
Loss from continuing operations before income taxes   (442,840)   (924,277)   481,437    (52)
Income taxes   -    -    -    0 
Loss from continuing operations   (442,840)   (924,277)   481,437    (52)
Loss from discontinued operations, net of income taxes   (54,104)   (8,654)   (45,450)   525 
                     
Net loss   (496,944)   (932,931)   435,987    (47)
                     
Net loss attributable to noncontrolling interests:                    
Net loss from continuing operations   119,392    262,449    (143,057)   (55)
Net loss from discontinued operations   34,465    5,513    28,952    525 
Total net loss attributable to noncontrolling interest   153,857    267,962    (114,105)   (43)
                     

Net loss attributable to NowNews Digital Media Technology Co., Ltd.

  $(343,087)  $(664,969)  $321,882    (48)

 

 

Net Revenue

 

Our net revenue for the nine months ended September 30, 2015 was $1.66 million, a decrease of $0.32 million or 16% from $1.98 million for the nine months ended September 30, 2014. The decrease was primarily due to the decrease in licensing and services revenue and E-commerce revenue, partially offset by the increase in advertisement revenue.

 

Advertising

 

Our advertising avenue was $1.52 million for the nine months ended September 30, 2015, an increase of $0.04 million, or 3%, from $1.48 million for the nine months ended September 30, 2014. The slight increase represented our continuing focus on the internet advertising and marketing business.

 

Licensing and Services

 

Our revenue from content licensing was $0.14 million for the nine months ended September 30, 2015, a decrease of $0.10 million, or 42%, from $0.24 million for the nine months ended September 30, 2014. The decrease was primarily due to the termination of our low-profit news editing services to Yahoo Taiwan. Such services were supplementary to our licensing arrangements with them.

 

E-Commerce

 

E-commerce revenue was $1,319 for the nine months ended September 30, in 2014, representing a $0.25 million decrease, or 99%, in the nine months ended September 30, 2015, attributable to suspension of our E-Commerce business in April 2014 due to continuous losses. We are currently in the process of evaluating and adjusting this line of business.

 

6 

 

 

Cost of Revenue

 

Cost of revenue mainly consists of advertisement costs, content licensing costs, E-commerce costs, copyright costs, website maintenance costs, and labor costs.

 

Cost of revenue was $1.04 million for the nine months ended September 30, 2015, a decrease of $0.38 million, or 27%, as compared to $1.42 million for the nine months ended September 30, 2014. The decrease was mainly due to the decrease of $0.24 million in cost of goods sold in E-commerce, $0.08 million in website maintenance cost, and $0.06 million in labor costs.

 

Gross Profit

 

Gross profit increased approximately $0.06 million, or 10%, for the nine months ended September 30, 2015, as compared to the same period in 2014, due to the substantial decrease in cost of revenue. Gross profit margin was 37.39% for the nine months ended September 30, 2015 as compared to 28.41% for the same period in 2014.

 

Selling Expenses

 

Total selling expenses consist primarily of payroll, labor and health insurance, and advertisement expenses. The amount decreased by $0.14 million, or 29%, from $0.49 million for the nine months ended September 30, 2014, to $0.35 million for the nine months ended September 30, 2015. The decrease in selling expenses was primarily due to the decrease in labor costs resulting from the decrease in the number of salespersons.

  

General and Administrative Expenses

 

General and administrative expenses primarily consist of payroll, welfare, labor and health insurance, post-retirement benefits, office rent and management fees, depreciation & amortization expenses, professional services, litigation settlement payments, and expenses for other general corporate activities. General and administrative expenses decreased by approximately $0.26 million, or 27%, from $0.98 million for the nine months ended September 30, 2014 to $0.72 million for the nine months ended September 30, 2015. The decrease in general and administration expenses was principally due to the decrease in payroll resulting from reduction in the number of employees.

 

Interest Expense

 

Interest expense for the nine months ended September 30, 2015 was $3,117 compared to $19,549 for the nine months ended September 30, 2014, a decrease of $16,432, or 84%.  The decrease in interest expense was primarily due to reduced bank loans incurred for the nine months ended September 30, 2015 as compared with the nine months ended September 30, 2014 as we repaid our bank loans in full in February, 2015.

 

Net Loss

 

As a result of the above factors, we have net loss of approximately $0.50 million for the nine months ended September 30, 2015 as compared to net loss of approximately $0.93 million for the nine months ended September 30, 2014, representing a decrease of loss of approximately $0.43 million, or approximately 47%.

 

7 

 

 

Liquidity and Capital Resources

 

As of September 30, 2015, we had working capital deficit of $419,180 as compared to working capital deficit of $1,418,978 as of December 31, 2014. We had cash and cash equivalents of $455,804 as of September 30, 2015, an increase of $385,728, or 550% from $70,076 as of December 31, 2014.   Our principal sources and uses of funds were as follows:

 

  

For the

Nine Months Ended

September 30,

 
   2015   2014 
Net cash used in operating activities  $(80,775)  $(1,350,003)
Net cash used in investing activities   (22,229)   - 
Net cash provided by financing activities   510,457    1,114,277 
Net cash used in discontinued operations   -    (2,277)
Effect of exchange rate change on cash and cash equivalents   (21,725)   (4,092)
Net increase (decrease) in cash and cash equivalents  $385,728   $(242,095)

 

Net cash used in operating activities of continuing operations was approximately $0.08 million for the nine months ended September 30, 2015, compared to net cash used in operating activities of approximately $1.35 million for the nine months ended September 30, 2014.  The decrease of $1.27 million of cash used in operating activities was primarily due to the decrease in net loss of $0.44 million and increase of cash provided from changes in accounts receivable, related-party trade receivable, and accounts payable of approximately $0.65 million.

 

Net cash used in investing activities of continuing operations was $0.02 million for the nine months ended September 30, 2015, compared to $0 for the same period last year. We used $22,229 in the addition of leasehold improvement during the nine month period ended September 30, 2015.

 

Net cash provided by financing activities of continuing operations amounted to approximately $0.51 million for the nine months ended September 30, 2015, compared to approximately $1.11 million cash provided for the nine months ended September 30, 2014, representing a decrease of approximately $0.60 million.  The decrease in net cash provided from financing activities was mainly due to the decrease of $1.23 million of the proceeds received from related party loans, offset by the increase of $0.64 million of capital contribution provided by noncontrolling shareholders during the nine months ended September 30, 2015, compared to the same period in 2014.

 

We believe that our current levels of cash, cash flows from operations, and bank/related party borrowings, will be sufficient to meet our anticipated cash needs for at least the next 12 months. However, we may need additional cash resources in the future if we experience changed business conditions or other developments. We may also need additional cash resources in the future if we find and wish to pursue opportunities for investment, acquisition, strategic cooperation or other similar actions. If we ever determine that our cash requirements exceed our amounts of cash and cash equivalents on hand, we may seek to issue debt or equity securities or obtain a credit facility. Any future issuance of equity securities could cause dilution for our shareholders. Any incurrence of indebtedness could increase our debt service obligations and cause us to be subject to restrictive operating and financial covenants. It is possible that, when we need additional cash resources, financing will only be available to us in amounts or on terms that would not be acceptable to us, if at all.

 

Critical Accounting Policies

 

Basis of presentation:

 

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. Since the Company, Worldwide, and NOWnews Network were entities under common control prior to the restructuring transaction, the Company and Worldwide have recast prior period financial statements to reflect the conveyance of NOWnews Network to Sky Media as if the restructuring transaction had occurred as of January 1, 2014. All significant intercompany transactions and account balances have been eliminated.

 

The functional currency of NOWnews Network and NOWnews International is the New Taiwan dollars, however the accompanying unaudited consolidated financial statements have been translated and presented in United States Dollars ($). In the accompanying unaudited consolidated financial statements and notes, “$”, “US$” and “U.S. dollars” mean United States dollars, and “NT$” and “NT dollars” mean New Taiwan dollars. 

 

8 

 

 

Use of estimates and assumptions:

 

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the amount of revenues and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made. However, actual results could differ materially from those results. The most significant estimates reflected in the consolidated financial statements include depreciation, useful lives of property and equipment, deferred income taxes, useful life of intangible assets and contingencies. Estimates and assumptions are periodically reviewed and the effects of revisions are reflected in the consolidated financial statements in the period they are determined to be necessary. 

 

Cash and cash equivalents:

 

The Company considers all cash on hand and in banks, certificates of deposit and other highly-liquid investments with original maturities of three months or less, when purchased, to be cash and cash equivalents. As of September 30, 2015 and December 31, 2014, the Company has uninsured deposits in banks of $243,555 and $0.

 

Accounts receivable:

 

The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. As of September 30, 2015 and December 31, 2014, the Company assessed the allowance for doubtful accounts of $53,263 and $34,232, respectively.

 

Property and equipment:

 

Property and equipment are recorded at cost less accumulated depreciation. Gains or losses on disposals are reflected as gain or loss in the year of disposal. The cost of improvements that extends the life of property, and equipment are capitalized. These capitalized costs may include structural improvements, equipment, and fixtures. All ordinary repair and maintenance costs are expensed as incurred.

 

Depreciation for financial reporting purposes is provided using the straight-line method over the estimated useful lives of the assets or lease term as follows:

 

Electronic Equipment 3 years
Computer Equipment 3 to 5 years
Office Equipment and Furniture 5 years
Leasehold Improvement Lesser of term of the lease or the estimated useful lives of the assets

 

Long-lived assets:

 

The Company applies the provisions of FASB ASC Topic 360 (ASC 360), “Property, Plant, and Equipment” which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The Company periodically evaluates the carrying value of long-lived assets to be held and used in accordance with ASC 360, at least on an annual basis. ASC 360 requires the impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair market values are reduced for the cost of disposal.

 

Intangible assets:

 

Intangible assets consist of software, trademark, and copyrights (see Note 6). At least annually, the Company evaluates intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. Estimating future cash flows related to an intangible asset involves significant estimates and assumptions. If the Company’s assumptions are not correct, there could be an impairment loss or, in the case of a change in the estimated useful life of the asset, a change in amortization expense. There was no impairment of intangible assets as of and for the nine months ended September 30, 2015 and the year ended December 31, 2014, respectively.

 

9 

 

 

Leases:

 

Lease agreements are evaluated to determine if they are capital leases meeting any of the following criteria at inception: (a) Transfer of ownership; (b) Bargain purchase option; (c) The lease term is equal to 75 percent or more of the estimated economic life of the leased property; (d) The present value at the beginning of the lease term of the minimum lease payments, excluding that portion of the payments representing executory costs such as insurance, maintenance, and taxes to be paid by the lessor, including any profit thereon, equals or exceeds 90 percent of the excess of the fair value of the leased property to the lessor at lease inception over any related investment tax credit retained by the lessor and expected to be realized by the lessor.

 

If at its inception a lease meets any of the four lease criteria above, the lease is classified by the lessee as a capital lease; and if none of the four criteria are met, the lease is classified by the lessee as an operating lease.

 

Revenue recognition:

 

Product and service revenue is recognized when the following fundamental criteria are met: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or the service has been performed, (iii) the Company’s price to the customer is fixed or determinable and (iv) collection of the resulting accounts receivable is reasonably assured.  Payments received before satisfaction of all of the relevant criteria for revenue recognition are recorded as unearned revenue. The Company recognizes revenue for product sales upon transfer of title to the customer.  The Company recognizes revenue for services upon performance of the service.  Customer purchase orders and/or contracts will generally be used to determine the existence of an arrangement.  Shipping documents and the completion of any customer acceptance requirements, when applicable, will be used to verify product delivery or that services have been rendered.  The Company will assess whether a price is fixed or determinable based upon the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment. The Company will record reductions to revenue for estimated product returns and pricing adjustments in the same period that the related revenue is recorded.  These estimates will be based on industry-based historical data, historical sales returns, if any, analysis of credit memo data, and other factors known at the time.

 

Post-retirement and post-employment benefits:

 

NOWnews Network adopted the government mandated defined contribution plan pursuant to the Labor Pension Act (the “Act”) in Taiwan. Such labor regulations require that the rate of contribution made by an employer to the Labor Pension Fund per month shall not be less than 6% of the worker's monthly salaries. Pursuant to the Act, NOWnews Network makes monthly contribution equal to 6% of employees’ salaries to the employees’ pension fund. NOWnews Network has no legal obligation for the benefits beyond the contributions made. The total amounts for such employee benefits, which were expensed as incurred, were $41,543 and $65,132 for the nine months ended September 30, 2015 and 2014, respectively. The total amounts for such employee benefits, which were expensed as incurred, were $13,664 and $19,989 for the three months ended September 30, 2015 and 2014, respectively. Other than the above, the Company does not provide any other post-retirement or post-employment benefits.

  

Foreign currency translation:

 

The Company uses the United States dollar ("U.S. dollars") for financial reporting purposes. The Company maintains the books and records in its functional currency, being the primary currency of the economic environment in which its operations are conducted. For reporting purpose, the Company translates the assets and liabilities to U.S. dollars using the applicable exchange rates prevailing at the balance sheet dates, and the statements of income are translated at average exchange rates during the reporting periods. Gain or loss on foreign currency transactions are reflected on the income statement. Gain or loss on financial statement translation from foreign currency are recorded as a separate component in the equity section of the balance sheet and is included as part of accumulated other comprehensive income. The functional currency of the Company and its subsidiaries in Taiwan is New Taiwan Dollars.

 

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Statement of cash flows:

 

In accordance with FASB ASC Topic 230, “Statement of Cash Flows,” cash flows from the Company’s operations are calculated based upon the local currencies, and translated to the reporting currency using an average foreign exchange rate for the reporting period. As a result, amounts related to changes in assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheets.

 

Income taxes:

 

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recognized if it is more likely than not that some portion, or all, of a deferred tax asset will not be realized. The deferred income tax assets were $0 as of both September 30, 2015 and December 31, 2014.

 

The Company applied the provisions of ASC 740-10-50, “Accounting For Uncertainty In Income Taxes”, which provides clarification related to the process associated with accounting for uncertain tax positions recognized in our financial statements. Audit periods remain open for review until the statute of limitations has passed. The completion of review or the expiration of the statute of limitations for a given audit period could result in an adjustment to the Company’s liability for income taxes. Any such adjustment could be material to the Company’s results of operations for any given quarterly or annual period based, in part, upon the results of operations for the given period. At September 30, 2015, management considered that the Company had no uncertain tax positions, and will continue to evaluate for uncertain positions in the future.

 

The Company is subject to the tax authority in Taiwan for years since incorporated.

 

Earnings per share (EPS):

 

Earnings per share is calculated in accordance with ASC 260. Basic earnings per share is based upon the weighted average number of common shares outstanding. Diluted earnings per share is based on the assumption that all dilutive convertible shares and stock instruments were converted or exercised. Options and warrants are assumed to be exercised at the beginning of the period if the average stock price for the period is greater than the exercise price of the warrants and options. For the nine months ended September 30, 2015 and 2014, no options or warrants were issued or outstanding.

 

Discontinued operations

 

Results of the Company’s discontinued entity have been presented in discontinued operations in the financial statements. See Note 1 and Note 13 for additional information.

 

Reclassifications:

 

Certain classifications have been made to the prior year financial statements to conform to the current year presentation. The reclassification had no impact on previously reported net loss or accumulated deficit.

 

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Recent accounting pronouncements:

 

In February 18, 2015, FASB issued ASU 2015-02—Consolidation (Topic 810). The amendments in this Update affect reporting entities that are required to evaluate whether they should consolidate certain legal entities. All legal entities are subject to reevaluation under the revised consolidation model. Specifically, the amendments: (1) Modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (VIEs) or voting interest entities; (2) Eliminate the presumption that a general partner should consolidate a limited partnership; (3) Affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships; (4) Provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. The amendments in this Update are effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial position and results of operations.

 

In August 2014, FASB issued ASU 2014-15 – Presentation of Financial Statements – Going Concern (Subtopic 205-40). The amendments in this Update states the disclosure of uncertainties about an entity’s ability to continue as a going concern. An entity’s management should evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or available to be issued). When management identifies conditions or events that raise substantial doubt, management should consider whether its plans will alleviate the substantial doubt. When substantial doubt is raised but is alleviated by management’s plans, the entity should disclose following information: (a) Principal conditions or events that raised substantial doubt (before consideration of management’s plans); (b) Management’s evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations; (c) Management’s plans that alleviated the substantial doubt.

 

When substantial doubt is raised but is not alleviated by management’s plans,, an entity should include a statement in the footnotes indicating that there is substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or available to be issued), and disclose the following information: (a) Principal conditions or events that raise substantial doubt; (b) Management’s evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations; (c) Management’s plans that are intended to mitigate the conditions or events that raise the substantial doubt.

 

The amendments in this Update are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The Company is still in progress of evaluating future impact of adopting this standard.

 

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve the core principle, an entity should apply the following steps:

 

Step 1: Identify the contract(s) with a customer.

Step 2: Identify the performance obligations in the contract.

Step 3: Determine the transaction price.

Step 4: Allocate the transaction price to the performance obligations in the contract.

Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.

 

An entity should disclose sufficient information to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. For a public entity, the amendments in this Update are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. For all other entities (nonpublic entities), the amendments in this Update are effective for annual reporting periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. A nonpublic entity may elect to apply this guidance earlier. The Company has begun evaluating future impact of adopting this standard on the Company’s consolidated financial position and operating results.

 

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In April 2014, the FASB issued ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360). The amendments in this Update change the requirements for reporting discontinued operations in Subtopic 205-20. A discontinued operation may include a component of an entity or a group of components of an entity, or a business or nonprofit activity. A disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. The amendments in this Update require an entity to present, for each comparative period, the assets and liabilities of a disposal group that includes a discontinued operation separately in the asset and liability sections, respectively, of the statement of financial position. The amendments in this Update require a public business entity and a not-for-profit entity that has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market to provide disclosures about a disposal of an individually significant component of an entity that does not qualify for discontinued operations presentation in the financial statements. The amendments in this Update require all other entities to provide disclosures about a disposal of an individually significant component of an entity that does not qualify for discontinued operations presentation in the financial statements. The amendments in this Update expand the disclosures about an entity’s significant continuing involvement with a discontinued operation. Those disclosures are required until the results of operations of the discontinued operation in which an entity retains significant continuing involvement are no longer presented separately as discontinued operations in the statement where net income is reported (or statement of activities for a not-for-profit entity). The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial position and results of operations.

 

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

 

Not applicable. 

 

Item 4.  Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

The Company maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in the reports filed under the Securities Exchange Act, is recorded, processed, summarized and reported within the time periods specified by the SEC's rules and forms. Disclosure controls are also designed with the objective of ensuring that this information is accumulated and communicated to the Company's management, including the Company's chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

 

Pursuant to Rule 13a-15(b) under the Exchange Act, the Company carried out an evaluation with the participation of the Company’s management, including Yih-Jong Shy, the Company’s chief executive officer, and Tsung-Chien Chiang, the Company’s chief financial officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the quarter ended September 30, 2015. Based upon that evaluation, the Company’s chief executive officer and chief financial officer concluded that the Company’s disclosure controls and procedures were effective.  

 

Changes in Internal Controls over Financial Reporting

 

We regularly review our system of internal control over financial reporting and make changes to our processes and systems to improve controls and increase efficiency, while ensuring that we maintain an effective internal control environment. Changes may include such activities as implementing new, more efficient systems, consolidating activities, and migrating processes.

 

There have been no changes in our internal control over financial reporting during the quarter ended September 30, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 

 

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PART II - OTHER INFORMATION

 

Item 1.  Legal Proceedings.

 

From time to time, the Company is subject to legal proceedings and claims in the ordinary course of business, including claims of alleged infringement of copyrights and other intellectual property rights and other claims alleging defamation, invasion of privacy, or similar claims arising in connection with the news articles, pictures, and other contents published on the Company’s website.

 

Lai Matter

 

On July 11, 2014, Ms. Xiu-qing Lai filed a claim against NOWnews Network and five other companies (the “Five Companies”) who are unrelated to the Company, in the Taiwan Tainan District Court (the “Tainan District Court”) in connection to a news article edited by NOWnews Network and published on July 19, 2012 on the website of NOWnews Network and five other websites owned by the Five Companies, respectively. Ms. Lai claims that the news article contained a false statement that harms the reputation of Ms. Lai. Ms. Lai seeks approximately $16,677 (NT$550,000) in compensatory damages from NOWnews Network, $53,062 in aggregate from (NT$1,750,000) the Five Companies, and newspaper apologies from NOWnews Network and the Five Companies. Based on the agreements entered by NOWnews Network and the Five Companies, if any news content provided by NOWnews Network violates any regulations or infringes on any copyrights, NOWnews Network shall be responsible for any losses that may occur.

 

On January 6, 2015, the plaintiff agreed to settle this legal matter with NOWnews Network outside of court. NOWnews Network agreed to pay the plaintiff $12,129 (NT$400,000) in compensatory damages, and the plaintiff agreed to revoke the claim against NOWnews Network and the Five Companies. NOWnews Network has accrued $12,129 (NT$400,000) of contingent loss in connection to this lawsuit settlement during the year ended December 31, 2014.

 

Item 1A. Risk Factors

 

Not applicable.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

None.

 

Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

Item 5. Other Information.

 

Not applicable.

 

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Item 6. Exhibits.

 

Copies of the following documents are included as exhibits to this report pursuant to Item 601 of Regulation S-K.

 

Exhibit

No.

  Description  
       
31.1   Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*  
31.2   Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*  
32.1   Certification of the Principal Executive Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**  
32.2   Certification of the Principal Financial Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**  
101.INS   XBRL Instance Document*  
101.SCH   XBRL Taxonomy Extension Schema Document*  
101.CAL   XBRL Taxonomy Calculation Linkbase Document*  
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document*  
101.LAB   XBRL Taxonomy Label Linkbase Document*  
101.PRE   XBRL Taxonomy Presentation Linkbase Document*  

 

*Filed herewith.

**Furnished herewith.

  

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  NOWNEWS DIGITAL MEDIA TECHNOLOGY CO. LTD.
     
Date: November 17, 2015 By: /s/ Yih-Jong Shy
    Yih-Jong Shy
    Chief Executive Officer
    (Principal Executive Officer)
     
Date: November 17, 2015 By: /s/ Tsung-Chien Chiang
    Tsung-Chien Chiang
    Chief Financial Officer
    (Principal Accounting and Financial Officer)

 

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