UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




FORM
10-K


x
            (Mark One)

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




For
the fiscal year ended December 31, 2008




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




For
the transition period from ____ to ____




Commission
file number 000-30264




NETWORK
CN INC.


(Exact
      name of registrant as specified in its charter)Delaware
                  90-0370486(State
      or Other Jurisdiction of
                  (I.R.S.
      EmployerIncorporation
      or Organization)
                  Identification
      Number)





21/F.,
      Chinachem Century Tower, 178 Gloucester Road, Wanchai, Hong
      Kong(Address of
      principal executive offices)(852)
      2833-2186(Registrant’s
      telephone number, including area code)


Securities
registered pursuant to Section 12(b) of the Exchange Act:  NONE




Securities
registered pursuant to Section 12(g) of the Exchange Act:


Common Stock, $0.001
      Par Value(Title of Each
      Class)


Indicate
by check mark if the registrant is a well-known seasoned issuer as defined in
Rule 405 of the Securities Act. Yes o    No þ


Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes o     No þ


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










Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§ 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant’s knowledge, in definitive
proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. o


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. (Check
one):


Large
      accelerated filer o
            
            Accelerated
      filer þNon-accelerated
      filer o
      (Do not check if a smaller reporting company)
            
            Smaller
      reporting company o


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


As of June 30, 2008, the aggregate
market value of the voting and non-voting common equity held by non-affiliates
computed by reference to the price at which the common equity was last sold, or
the average bid and asked price of such common equity, was approximately $109
million.




As of March 25, 2009, 71,641,608 shares
of the registrant’s common stock, par value $0.001 per share, were
outstanding.




Documents Incorporated by
Reference: None




2




TABLE OF CONTENTS


PART
      IItem 1.
                          Business
                          5Item 1A.
                          Risk Factors
                          21Item 1B.
                          Unresolved Staff Comments
                          47Item 2.
                          Properties
                          47Item 3.
                          Legal Proceedings
                          48Item 4.
                          Submission of Matters to a Vote of Security
      Holders
                          48PART
      IIItem 5.
                          Market for the registrant’s Common Equity, Related
      Stockholder Matters and Issuer Purchases of Equity
      Securities
                          48Item 6.
                          Selected Financial Data
                          51Item 7.
                          Management’s Discussion and Analysis of Financial Condition
      and Results of Operations
                          53Item 7A.
                          Quantitative and Qualitative Disclosures About Market
      Risk
                          76Item 8.
                          Financial Statements and Supplementary
    Data
                          77Item 9.
                          Changes in and Disagreements With Accountants on Accounting
      and Financial Disclosure
                          78Item 9A.
                          Controls and Procedures
                          78Item 9B.
                          Other Information
                          80PART
      IIIItem 10.
                          Directors, Executive Officers and Corporate
      Governance
                          80Item 11.
                          Executive Compensation
                          87Item 12.
                          Security Ownership of Certain Beneficial Owners and
      Management and Related Stockholder Matters
                          98Item 13.
                          Certain Relationships and Related Transactions, and Director
      Independence
                          101Item 14.
                          Principal Accounting Fees and Services
                          102PART
      IVItem 15.
                          Exhibits, Financial Statement Schedules
                          104SIGNATURES
                          108FINANCIAL STATEMENTS
                          F-1




3
 Table of Contents




SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS




Statements
contained in this annual report include “forward-looking statements” within the
meaning of such term in Section 27A of the Securities Act and Section 21E of the
Exchange Act. Forward-looking statements involve known and unknown risks,
uncertainties and other factors which could cause actual financial or operating
results, performances or achievements expressed or implied by such
forward-looking statements not to occur or be realized. Forward-looking
statements made in this Report generally are based on our best estimates of
future results, performances or achievements, predicated upon current conditions
and the most recent results of the companies involved and their respective
industries. Forward-looking statements may be identified by the use of
forward-looking terminology such as “may”, “will”, “could”, “should”, “project”,
“expect”, “believe”, “estimate”, “anticipate”, “intend”, “continue”,
“potential”, “opportunity” or similar terms, variations of those terms or the
negative of those terms or other variations of those terms or comparable words
or expressions. Potential risks and uncertainties include, among other things,
such factors as:




·
            our
      potential inability to raise additional
capital;


·
            changes
      in domestic and foreign laws, regulations and
  taxes;


·
            uncertainties
      related to China's legal system and economic, political and social events
      in China;


·
            Securities
      and Exchange Commission regulations which affect trading in the securities
      of “penny stocks;” and


·
            changes
      in economic conditions, including a general economic downturn or a
      downturn in the securities markets.




Additional
disclosures regarding factors that could cause our results and performance to
differ from results or performance anticipated by this annual report are
discussed in Item 1A. “Risk Factors”. Readers are urged to carefully review and
consider the various disclosures made by us in this annual report and our other
filings with the Security and Exchange Commission (the “SEC”). These reports
attempt to advise interested parties of the risks and factors that may affect
our business, financial condition and results of operations and prospects. The
forward-looking statements made in this annual report speak only as of the date
hereof and we disclaim any obligation to provide updates, revisions or
amendments to any forward-looking statements to reflect changes in our
expectations or future events.





USE
OF TERMS




Except as otherwise indicated by the
context, references in this report to:




·
            “BVI”
      are references to the British Virgin
Islands;




·
            “China”
      and “PRC” are to the People’s Republic of
China;


·
              the
      “Company”, “NCN”, “we”, “us”, or “our”, are references to Network CN Inc.,
      a Delaware corporation and its direct and indirect subsidiaries: NCN Group
      Limited, or NCN Group, a BVI limited company; NCN Huamin Management
      Consultancy (Beijing) Company Limited, or NCN Huamin,a PRC limited company; Cityhorizon Limited, or Cityhorizon Hong
      Kong, a Hong Kong limited company, and its wholly owned subsidiaries,
      Cityhorizon Limited, or Cityhorizon BVI, a BVI limited company;and
      Huizhong Lianhe Media Technology Co., Ltd., orLianhe,
      a PRC limited company; and the Company’s variable interest
      entities: Shanghai Quo Advertising Company Limited, or Quo
      Advertising, a PRC limited company and its 51% owned subsidiary, Xuancaiyi
      (Beijing) Advertising Company Limited, or Xuancaiyi, a PRC limited
      company; and Beijing Huizhong Bona Media Advertising Co., Ltd., orBona, a
      PRC limited company; and Huizhi Botong Media Advertising Beijing Co.,
      Ltd., or Botong, a PRC limited
company.


4
 Table of Contents




·
            “NCN
      Landmark” are references to NCN Landmark International Hotel Group
      Limited, aBritish Virgin
      Islandslimited company,
      and its wholly-owned subsidiary, Beijing NCN Landmark Hotel Management
      Limited, a PRC limited company;




·
            “NCN
      Management Services” are references to NCN Management Services Limited,
      aBritish
      Virgin Islandslimited
      company;




·
            “RMB”
      are to the Renminbi, the legal currency of
  China;




·
            the
      “Securities Act” are to the Securities Act of 1933, as amended; and the
      “Exchange Act” are to the Securities Exchange Act of 1934, as
      amended;




·
            “Tianma”,
      are references to Guangdong Tianma International Travel Service Co., Ltd,
      a PRC limited company; and




·
            “U.S.
      dollar”, “$” and “US$” are to the legal currency of the United
      States.




PART
I




ITEM 1.
BUSINESS




Overview




Our
mission is to become a nationwide leader in providing out-of-home advertising in
China, primarily serving the needs of branded corporate customers. We seek
to acquire rights to install and operate roadside advertising panels and
mega-size advertising panels in the major cities in China. In most cases, we are
responsible for installing advertising panels, although in some cases,
advertising panels might have already been installed, and we will be responsible
for operating and maintaining the panels. Once the advertising panels are put
into operation, we sell advertising airtime to our customers
directly. Since late 2006, we have been operating a growing advertising
network of roadside LED digital video panels, mega-size LED digital video
billboards and light boxes in major Chinese cities. LED (known as “Light
Emitting Diode”) technology has evolved to become a new and popular form of
advertising in China, capable of delivering crisp, super-bright images both
indoors and outdoors.





Our total
advertising revenues were $4,622,270, $1,442,552 and $nil for the years ended
December 31, 2008, 2007 and 2006 respectively. Our net loss was $59,484,833,
$14,646,619, $4,468,706 for the years ended December 31, 2008, 2007 and 2006
respectively. Results of operations during the year ended December 31, 2008 were
negatively affected by a variety of factors including various administrative
delays and restrictions of the Beijing Olympic Committee limiting advertisements
during the Olympic period in Olympic-related panels to official Olympic sponsors
only; non-Olympic sponsors with whom the Company had negotiated were forced to
withdraw; and slowing demand due to the worldwide financial crisis and
deteriorating economic conditions in China, leading many customers to cut their
advertising budgets.




5
 Table of Contents




Due to
the unexpected unfavorable market conditions described above, our revenues and
cash inflows were less than we expected. To address this issue, in the latter
half of 2008, the Company has undergone drastic cost-cutting exercises including
reduction of the Company’s workforce, rentals, as well as selling and marketing
expenses and other general and administrative expenses. The commercial viability
of each of the Company’s concession rights was re-assessed. Some commercially
non-viable concession right contracts were terminated accordingly and management
has successfully negotiated with certain authority parties of concession rights
to reduce advertising operating right fees. We will continue to strictly control
our operating costs in 2009. More resources will be allocated to those
commercially viable projects and we will continue to explore prominent
advertising-related projects.




History




We were
incorporated under the laws of the State of Delaware on September 10, 1993 under
the name EC Capital Limited. Our predecessor companies were involved in a
variety of business and were operated by various management teams under
different operating names. Between 2004 and 2006 we operated under the name Teda
Travel Group Inc., which was primarily engaged in the provision of management
services to hotels and resorts in China.On August 1, 2006, we
changed our name to “Network CN Inc.” in order to better reflect our new vision
to build a nationwide information and entertainment network in
China.





From
early 2006 until 2008, we had two business divisions: our Media Business
Division and a Non-Media Business Division. We initially focused on the
Non-Media Business Division, which was mainly comprised of a travel network
through which we provided agency tour services and hotel management services. In
2006, we acquired 55% of the equity interest in Tianma, a PRC company engaged in
the provision of tour services to customers both inside and outside of the PRC.
In 2006 and 2007, we earned substantially all of our revenues from these tour
services. We also provided day-to-day management services to hotels and resorts
in the PRC. During the latter half of 2006, we adjusted our primary focus away
from the tourism and hotel management businesses to the building of a media
network with the goal of becoming a nationwide leader in out-of-home, digital
display advertising, roadside LED digital video panels and mega-size video
billboards. In November 2006 we secured a media-related contract for installing
and managing out-of-home LED advertising video panels. In 2007, we secured
further rights to operate mega-size LED and roadside LED panels in prominent
cities in the PRC through either entering business agreements with authorities
parties or business combination, and began generating revenues from our Media
Business.




Acquisition
of Tianma




On June
16, 2006, to take advantage of China’s booming travel market, we acquired,
through NCN Management Services, 55% of the equity interests of Tianma, a
travel agency headquartered in Guangdong Province in the PRC, for an
aggregate purchase price of $936,283, $833,333 of which was in cash and $102,950
of which was in 362,500 shares of our common stock. The results of operations of
Tianma have been included in the Company's consolidated statement of operations
since the completion of the acquisition on June 16, 2006.




6
 Table of Contents




Tianma is
an authorized inbound and outbound travel operator and provides travel agency
services to customers for both inbound and outbound travel. It organizes
independent inbound and outbound tour and travel packages for a variety of
destinations within China and internationally. Tour packages may include air and
land transportation, hotels, restaurants and tickets to tourist destinations and
other excursions. Tianma books all elements of such packages with third-party
service providers, such as airlines, car rental companies and hotels, or through
other tour package providers and then resells such packages to its clients.
As the Company does not foresee any major contribution from Tianma in the near
future, the Company disposed of Tianma in September 2008. For details, please
refer to the below Sub-section – Recent Development.




Acquisition
of Quo Advertising




On
January 31, 2007, we acquired 100% of the equity interests of Quo Advertising,
an advertising agency headquartered in Shanghai, China, pursuant to a purchase
and sale agreement and a trust agreement, dated January 24, 2007, between the
Company and Lina Zhang and Qinxiu Zhang, PRC individuals. The Company
acquired Quo Advertising for a purchase price of $907,600, $64,000 of which was
in cash and the balance of which was in 300,000 shares of our common stock,
valued at $843,600. The results of operations of Quo Advertising have been
included in the Company's consolidated statement of operations since the
completion of the acquisition on January 31, 2007.




Quo
Advertising was founded in 1996 in Shanghai, China and provided advertising
design, production, public relations and event management services for domestic
and international clients before our acquisition. The acquisition strengthens
our media network in the PRC. Our media business was mainly run through Quo
Advertising in 2007 and 2008.




Acquisition
of Xuancaiyi




Effective
September 1, 2007, we acquired, through Quo Advertising, a 51% majority of the
equity interests of Xuancaiyi, an advertising agency located in Beijing, China,
for a consideration of up to RMB 12,245,000 (approximately $1,667,000) in cash,
payable over time based on Xuancaiyi’s achievement of certain net profit
targets. An initial payment of RMB2,500,000 (approximately $330,000) was made in
September 2007 and the balance of the payment was due as follows: (1) up to RMB
2,454,300 (approximately $337,000) based on Xuancaiyi’s net profit for the four
months ended December 31, 2007; (2) up to RMB 1,834,500 (approximately $252,000)
based on Xuancaiyi’s net profit for the first quarter of fiscal year 2008; (3)
up to RMB 1,827,400 (approximately $251,000) based on Xuancaiyi’s net profit for
the second quarter of fiscal year 2008; (4) up to RMB1,819,100 (approximately
$250,000) based on Xuancaiyi’s net profit for the third quarter of fiscal year
2008; and (5) up to RMB1,809,700 (approximately $248,000) based on Xuancaiyi’s
net profit for the fourth quarter of fiscal year 2008. As Xuancaiyi failed
to achieve the net profit targets in each of the above periods, no further cash
payment is expected to be made with respect to the above earn-out consideration.
The results of operations of Xuancaiyi have been included in the Company's
consolidated statement of operations since the acquisition date on September 1,
2007.




7
 Table of Contents




Xuancaiyi
was founded in 2007 and obtained the right to manage and operate a mega-size
high resolution LED advertising billboard in a prominent location in China’s
capital city, Beijing. The billboard, covering more than 758 square meters, is
located on the East Third Ring Road near the exit of the Airport Highway. As of
December 31, 2008, a business agreement entered into between Xuancaiyi and its
media partner has expired andso Xuancaiyi
has maintained minimal operations.




Acquisition
of Cityhorizon BVI




On
January 1, 2008, we entered into a share purchase agreement with our wholly
owned subsidiary Cityhorizon Hong Kong, to acquire 100% of the equity interest
in Cityhorizon BVI and its wholly owned subsidiaries, Lianhe and Bona, from
Cityhorizon BVI’s sole shareholder, Liu Man Ling, for an aggregate purchase
price of $8,738,000, $5,000,000 of which was in cash and the balance of which
was in 1,500,000 shares of restricted common stock of par value of $0.001 each,
valued at $3,738,000. The results of operations of Cityhorizon BVI, Lianhe and
Bona have been included in the Company's consolidated statement of operations
since the completion of the acquisition on January 1, 2008.





Cityhorizon
BVI is an investment holding company and its subsidiaries Lianhe and Bona were
both founded in 2006. Lianhe is principally engaged in the provision of
technology and management consulting services and Bona is principally engaged in
the provision of advertising services. The purpose of the acquisition was to
further strengthen our Media Network in China. There has been no change in
Lianhe’s and Bona’s businesses since the date of acquisition.




Consolidation
of Variable Interest Entity - Botong




On
January 1, 2008, the Company caused its subsidiary, Lianhe, to enter into a
series of commercial agreements with Botong and its registered shareholders,
pursuant to which Lianhe is obligated to provide exclusive technology and
management consulting services to Botong in exchange for service fees amounting
to substantially all of the net income of Botong. Each of the registered PRC
shareholders of Botong also entered into equity pledge agreements and option
agreements with Lianhe which cannot be amended or terminated except by written
consent of all parties. Pursuant to these equity pledge agreements and option
agreements, each shareholder pledged its equity interest in Botong for the
performance of Botong’s payment obligations under the exclusive technology and
management consulting services agreements. In addition, the shareholders of
Botong assigned to Lianhe all their voting rights as shareholders of Botong
and Lianhe has the option to acquire the equity interests of Botong at a
mutually agreed purchase price that will first be used to repay any loans
payable to Lianhe or any affiliate of Lianhe by the registered Botong
shareholders.




8
 Table of Contents




In
addition, as of January 1, 2008, Lianhe committed to extend loan totaling
$137,179 to the registered shareholders of Botong for the purpose of financing
such shareholders’ investment in Botong. Through the above contractual
arrangements, Lianhe becomes the primary beneficiary of Botong which is a
variable interest entity as defined under FIN 46 (Revised). The results of
operations of Botong have been included in the Company's consolidated statement
of operations since January 1, 2008.





Botong
was founded in 2007 and obtained the right to manage and operate for a 6-year
period, a mega-size high resolution LED advertising billboard located at Haoyou
Emporium Wangujing in Beijing. There has been no change of its business
since the date of acquisition.





Other
Contractual Arrangements with the PRC Operating Companies




PRC
regulations limit foreign ownership of companies that provide advertising
services. Our advertising business was initially run through our trust
arrangements with Quo Advertising which directly operated our advertising
network projects.




In
January 2008, after our acquisition of Cityhorizon BVI and its PRC
subsidiaries Lianhe and Bona, we restructured our advertising business in order
to strengthen our compliance with existing PRC regulation. Through Lianhe, we
entered into an exclusive management consulting services agreement and an
exclusive technology consulting services agreement with each of Quo Advertising
and Bona. In addition, we entered into an equity pledge agreement and an option
agreement with each of the registered PRC shareholders of Quo Advertising and
Bona, pursuant to which these shareholders pledged 100% of their shares to
Lianhe and granted Lianhe the option to acquire their shares at a mutually
agreed purchase price which shall first be used to repay any loans payable to
Lianhe or any affiliate of Lianhe by the registered PRC shareholders. These
commercial arrangements enable us to exert effective control on these entities
and their subsidiaries, and transfer their economic benefits to the Company for
financial results consolidation pursuant to FIN 46(R).




9
 Table of Contents




Corporate
Structure




The
following chart reflects our organization structure as of the date of this
annual report:









Recent
Developments




Disposal
of Non-Media Business Division




In 2008,
the Board of Directors of the Company resolved that it was in the best interests
of the Company to focus on developing its media business and to explore ways of
divesting its travel business. The Company entered into stock purchase
agreements disclosed below, to dispose of its entire Non-Media Business
Division.




On
September 1, 2008, the Company completed the sale of all its interests in NCN
Management Services to Zhanpeng Wang, or Wang, an individual for a consideration
of HK$1,350,000, or approximately $173,000, in cash. Wang acquired NCN
Management Services along with its subsidiaries, which include 100% interest in
NCN Hotels Investment Limited, 100% interest in NCN Pacific Hotels Limited and a
55% interest (through trust) in Tianma. The Company reported a gain on the sale,
net of income taxes and minority interests of $61,570.




10
 Table of Contents




On
September 30, 2008, the Company completed the sale of its 99.9% interest in NCN
Landmark to Ngar Yee Tsang, or Tsang, an individual, for a cash consideration of
$20,000. Tsang acquired NCN Landmark along with its subsidiary, 100% interest in
Beijing NCN Landmark Hotel Management Limited, a PRC corporation. The Company
reported a gain on the sale, net of income taxes and minority interests of
$4,515.




The
Company treated the sales of NCN Management Services along with its subsidiaries
and variable interest entity and NCN Landmark along with its subsidiary as a
discontinuation of operations.




3% Convertible
Promissory Notes andWarrants




On
November 19, 2007, the Company and Quo Advertising, entered into a 3% note and
warrant purchase agreement with affiliated investment funds of Och-Ziff Capital
Management Group, or the Och-Ziff Investors, pursuant to which the we agreed to
issue 3% Senior Secured Convertible Notes due June 30, 2011 in the aggregate
principal amount of up to $50,000,000 and warrants to acquire an aggregate
amount of 34,285,715 shares of our common stock. The notes and warrants were
issued in three tranches: (1) on November 19, 2007, notes in the aggregate
principal amount of $6,000,000, warrants exercisable for 2,400,000 shares at
$2.50 per share and warrants exercisable for 1,714,285 shares at $3.50 per share
were issued; (2) on November 28, 2007, notes in the aggregate principal amount
of $9,000,000, warrants exercisable for 3,600,000 shares at $2.50 per share and
warrants exercisable for 2,571,430 shares at $3.50 per share were issued;
and  (3) on January 31, 2008, notes in the aggregate principal amount of
$35,000,000, warrants exercisable for 14,000,000 shares at $2.50 per share and
warrants exercisable for 10,000,000 shares at $3.50 per share were issued. The
notes bore interest at 3% per annum payable semi-annually in arrears and were
convertible into shares of common stock at an initial conversion price of $1.65
per share, subject to customary anti-dilution adjustments. In addition, the
conversion price was subject to downward adjustment on an annual basis if we
failed to meet certain annual earnings per share (“EPS”) targets described in
the purchase agreement. The EPS targets for fiscal 2008, 2009 and 2010 are
$0.081, $0.453, and $0.699 respectively. The warrants were to expire on June 30,
2011 and granted the holders the right to acquire shares of common stock at
$2.50 and $3.50 per share, subject to customary anti-dilution adjustments. The
exercise price of the warrants was also subject to a downward adjustment
whenever the conversion price of the notes was adjusted downward. In connection
with our issuance of the 3% Senior Secured Convertible Notes, we also entered
into a registration rights agreement with the Och-Ziff Investors, pursuant to
which, as amended, we agreed to file at their request, a registration statement
registering for resale any shares issued to the Och-Ziff Investors upon
conversion of the notes or exercise of the warrants.




11
 Table of Contents


On
January 31, 2008, we issued $35,000,000 in additional notes and amended and
restated the terms of the $15,000,000 in notes issued in the second tranche.
Concurrent with the issuance of the third tranche, we loaned substantially all
the proceeds from the notes to our BVI subsidiary, the NCN Group, which was
evidenced by an intercompany note issued by NCN Group in favor of the Company,
or the NCN Group Note. At the same time we also entered into a security
agreement, pursuant to which we granted to the collateral agent for the
benefit of the convertible note holders, a first-priority security interest in
certain of our assets, including the NCN Group Note and 66% of the shares of the
NCN Group. In addition, the NCN Group and certain of our indirect subsidiaries
each granted us a security interest in certain of their assets to, among other
things, secure the NCN Group Note and certain related obligations.


As of
December 31, 2008, the Company failed to meet EPS target for fiscal 2008. The
Och-Ziff Investors agreed the conversion price of the 3% Convertible Promissory
Notes remained unchanged at $1.65 and have not proposed any adjustment to
the conversion price as of December 31, 2008. None of the conversion options and
warrants associated with the above convertible promissory notes has been
exercised.





Our
Services




We
install and operate roadside advertising panels in major cities throughout
China. The following table summarizes by location the number of roadside
advertising panels that the Company has the right to install and operate and the
installation status:




Location
                
                No.
      of
                  Advertising
                  Panels
      (1)
                
                
                Panels
      Installed
                  As
      of March 1,
                  2009
      (3)
                
                
                Panels
      Owned
                  As
      of March 1,
                  2009
                
                Expiration
      (2)Changning
      District, Shanghai
                
                
                120
                
                
                
                41
                
                
                
                41
                
                2009Qingdao
                
                
                950
                
                
                
                -
                
                
                
                -
                
                2024Lujiazui
      Financial District, Shanghai
                
                
                85
                
                
                
                85
                
                
                
                85
                
                2009Nanjing
      Road Pedestrian Street, Shanghai
                
                
                52
                
                
                
                52
                
                
                
                52
                
                2010Wuhan
                
                
                120
                
                
                
                4
                
                
                
                4
                
                2015Changsha
                
                
                120
                
                
                
                -
                
                
                
                -
                
                2010Total
      as of March 1, 2009
                
                
                1,447
                
                
                
                182
                
                
                
                182


12
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The
following table summarizes by location the number of mega-size advertising
panels that the Company has the right to install and operate and the
installation status:


Location
                                                  
                                                  No.
      of
                                                    Advertising
                                                    Panels
      (1)
                                                  
                                                  
                                                  Panels
      Installed
                                                    As
      of March 1,
                                                    2009
      (3)
                                                  
                                                  
                                                  Panels
      Owned
                                                    As
      of March 1,
                                                    2009
                                                  
                                                  Expiration
      (2)Wuhan
                                                  
                                                  
                                                  2
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  2015Wuhan
                                                  
                                                  
                                                  1
                                                  
                                                  
                                                  
                                                  1
                                                  
                                                  
                                                  
                                                  1
                                                  
                                                  2013Beijing
                                                  
                                                  
                                                  1
                                                  
                                                  
                                                  
                                                  1
                                                  
                                                  
                                                  
                                                  1
                                                  
                                                  2013Qingdao
                                                  
                                                  
                                                  3
                                                  
                                                  
                                                  
                                                  3
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  2024Total
      as of March 1, 2009
                                                  
                                                  
                                                  7
                                                  
                                                  
                                                  
                                                  5
                                                  
                                                  
                                                  
                                                  2





1)
            The
      size of the Company’s typical roadside advertising panels ranges from 1.5
      square meters to 4 square meters, while the mega-size
      advertising panels are typically from 60 square meters to over 700
      square meters.


2)
            Although
      the Company has a contractual right to operate the panels for certain
      period of time, governmental authorities in the PRC could limit the period
      during which we can operate the panels if the government interprets the
      current rules and regulations differently or if it were to implement new
      rules and regulations.


3)
            No.
      of panels installed also includes those panels that have originally been
      installed by the authority parties.


4)
            The
      parties which have granted the Company an exclusive right to operate the
      advertising panels do not guarantee that all relevant governmental
      approvals have been obtained.




Our
Suppliers




In some
of our media projects, we are responsible for installing advertising panels and
billboards. We design the shape of our advertising panels and billboards
according to the terms approved by the relevant PRC governmental documents. We
identify suppliers of component parts used in our advertising panels and
contract assembly of our advertising panels to third-party contract assemblers
who will assemble our advertising panels according to our specification. We
select component suppliers based on price and quality.





During
2008, only 2 suppliers accounted for 20% or more of our panel installation
costs.  Xian Qingsong Technology Co., Ltd and Shenzhen LAMP Technology Co.,
Ltd, accounted for 31% and 26%, respectively, of
our panel installation costs.




Our
Customers





The media
and advertising industry is one of the fastest growing markets in China. Among
this growing market, out-of-home advertising is one of the fastest growing
segments. Out-of-home advertising is attractive because of relatively modest
content production costs, less regulatory exposure, low maintenance costs and
centralized operations made efficient by computers and other technology
solutions. Industry analysts look for out-of-home advertising spending in China
to grow at a 20% compounded annual growth rate through 2010. We are upbeat on
the long-term prospect for the China sector although a temporary pause may occur
in 2009 as the economy is hit by the global economic downturn.




Our
customers include large international and domestic brand name customers. The
following tables set forth those customers accounted for 10% or more of our
advertising sales in each fiscal year:




13
 Table of Contents




Name
      of Customer
                              
                              Advertising
      Sales %For the year ended December 31,
      2008OMD
                              
                              
                              38
                              %Beijing
      Dentsu Advertising Co., Ltd.
                              
                              
                              16
                              %For the year ended December 31,
      2007MGI
      Luxury Asia Pacific Ltd
                              
                              
                              26
                              %Shanghai
      Gaorui Advertising Company Limited
                              
                              
                              16
                              %Binli
      (Shanghai) Commercial Company Limited
                              
                              
                              14
                              %SMH
      International Trading (Shanghai) Co., Ltd
                              
                              
                              14
                              %





Our
customers usually place their advertising orders on a project basis instead of a
recurring basis. Our management does not believe that our advertising business
depends upon a few customers, or that the loss of any one customer would have a
material adverse effect on our business.




Sales
and Marketing




We sell
our services through our direct sales force as well as through advertising
agencies. We employ sales professionals in the PRC, and provide them in-house
training to ensure we operate closely with and provide a high level of support
to our customers. Selling through advertising agencies enable us to
leverage our direct sales resources and reach additional customers
segment.




Competition




We
compete with other advertising companies in China, including companies that
operate out-of-home advertising media networks, such as Focus Media, JCDecaux
and Clear Media. The Company competes with these companies for advertising
clients on the basis of the size of our advertising network, advertising
coverage, panel locations, pricing, and range of advertising services that we
offer. The Company also competes with these companies for rights to locate LED
panels and/or billboards in desirable locations in Chinese cities. In addition,
commercial buildings, hotels, restaurants and other commercial locations may
decide to install and operate their own billboards or LED panels. The Company
also competes for overall advertising spending with other more traditional media
such as newspapers, TV, magazines and radio, and more advanced media like
Internet advertising.




The
Company may also face competition from new entrants into the out-of-home
advertising sector. Our sector is characterized by relatively low entrance costs
and it is uncommon for advertising clients to enter into exclusive arrangements.
In addition, as of December 10, 2005, wholly foreign-owned advertising
companies are allowed to operate in China, which may expose us to increasing
competition from international advertising media companies attracted by the
opportunities in China.




14
 Table of Contents




Increased
competition could reduce our operating margins, profitability and result in a
loss of market share. Some of our existing and potential competitors may have
competitive advantages, such as more advertising locations and broader coverage
and exclusive arrangements in desirable locations. These competitors could
provide advertising clients with a wider range of media and advertising
services, which could cause us to lose advertising clients or to reduce prices
in order to compete, which could decrease our revenues, gross margins and
profits. We cannot guarantee that we will be able to compete against these
existing and new competitors.




In
addition, we believe our business will be adversely affected by the recent
global financial turmoil. In order to enhance our competitive power, we will
strictly control our operating costs, actively explore ways to terminate
commercially non-viable concession right contracts and continue to search for
other prominent advertising projects in order to expand our advertising network.
We believe that expanding our advertising network will enable us to offer more
competitive pricing to our advertising clients, thereby increasing our
profitability.




Intellectual
Property




We do not
have any registered trademarks, copyrights or licenses. However, we have
obtained the following patent rights from the PRC State Intellectual Property
Office:




·
            The
      technology of a display module and settings method for colored LED panels,
      which expires on November 22, 2017;
and


·
              The
      technology of the display system with blind spot checking function, which
      expires on November 27, 2017.




We have
also applied for the following patent rights from the PRC State Intellectual
Property Office:




·
            The
      invention of methodology and monitoring system for staff in their
      out-of-home LED panel maintenance;




·
            The
      invention of methodology in light intensity tuning for out-of-home LED
      panels;




·
            The
      invention of blind spot checking methodology for multi-LED panels;
      and




·
            The
      invention of centralized remote management methodology for out-of-home LED
      panels.






Our
Research and Development




No
material costs have been incurred on research and development activities for the
fiscal years 2008, 2007 and 2006. We do not expect to incur significant
research and development costs in the coming future.




Employees




As of
December 31, 2008, the Company and its subsidiaries had approximately 60
employees at our offices located at our Hong Kong and PRC offices, all of which
are full-time employees.




15
 Table of Contents




Our
employees are not represented by a labor organization or covered by a collective
bargaining agreement. We believe that we maintain a satisfactory working
relationship with our employees and we have not experienced any significant
labor disputes or work stoppage or any difficulty in recruiting staff for our
operations.





We are
required under PRC law to make contributions to the employee benefit plans at
specified percentages of the after-tax profit. In addition, we are required by
the PRC law to cover employees in China with various type of social insurance.
We believe that we are in material compliance with the relevant PRC
laws.




Government
Regulation




The
Company’s near-term focus is on further developing its Media Network to
capitalize on China’s fast growing out-of-home advertising market. A key
objective for the Media Network is to provide medium to mega-size LED billboards
in prominent cities in China.




Limitations
on Foreign Ownership in the Advertising Industry




The
principal regulations governing foreign ownership in the advertising industry in
China include:




·
            The Catalogue for
      Guiding Foreign Investment in Industry (2007);·
            Advertising
      Law (1994);·
            Regulations on
      Control of Advertisement (1987);·
            Implementation Rules
      for Regulations on Control of Advertisement (2004); and·
            The Administrative
      Regulations on Foreign-invested Advertising Enterprises
  (2004).




Since
December 2005, the PRC government has allowed foreign investors to directly own
100% of an advertising business if the foreign investor has at least three years
of direct operations in the advertising business outside of China or to set up
an advertising joint venture if the foreign investor has at least two years of
direct operations in the advertising industry outside of China.




As we do
not have the necessary advertising business outside of China, we are not
entitled to own directly 100% of an advertising business in China. Our
advertising business was provided through our contractual arrangements with our
PRC operating subsidiary Quo Advertising in the year 2007. Quo Advertising was
owned by two PRC citizens, who are designated by us and hold 100% of the equity
interests in Quo Advertising in trust for the benefit of us, and operates our
advertising network projects. In January 2008, we restructured our advertising
business after acquiring the media subsidiaries namely Lianhe and Bona. We,
through our newly acquired subsidiary, Lianhe, entered into an exclusive
management consulting services agreement and an exclusive technology consulting
services agreement with each of Quo Advertising, Bona and Botong. In addition,
Lianhe entered into an equity pledge agreement and an option agreement with each
of the registered PRC shareholders of Quo Advertising, Bona and Botong
designated by us and pursuant to which these shareholders had pledged 100% of
their shares to Lianhe and granted Lianhe the option to acquire their shares at
a mutually agreed purchase price which shall first be used to repay any loans
payable to Lianhe or any affiliate of Lianhe by the registered PRC shareholders.
These commercial arrangements enable us to exert effective control on these
entities, and transfer their economic benefits to us for financial results
consolidation.




16
 Table of Contents




Although
these contractual arrangements, in the opinion of our PRC legal counsel, are in
compliance with all existing PRC laws, rules and regulations and are enforceable
in accordance with their terms and conditions, there are substantial
uncertainties regarding the interpretation and implementation of current PRC
laws and regulation. Accordingly, we cannot assure you that PRC regulatory
authorities will not determine that our contractual arrangements among Lianhe,
Quo Advertising, Bona and Botong and their registered PRC shareholders, and the
business operations of our PRC operating companies as described herein violate
PRC laws or regulations. We have been and will continue to be dependent on such
commercial agreements arrangement to operate our media business in the near
future. If we or any of our PRC operating companies were found to be in
violation of any existing or future PRC laws or regulations, the relevant
regulatory authorities would have broad discretion in dealing with such
violation. Any actions taken may cause significant disruption to our business
operations or render us unable to conduct a substantial portion of our business
operations and may adversely affect our business, financial condition and
results of operation. See Item
1A.“Risk Factor" for details.




Advertising
Services




Business
Licenses for Advertising Companies




The
principal regulations governing advertising businesses in China
include:






·
            The
      Advertising Law (1994)·
            Regulations
      on Control of Advertisement (1987); and·
            The
      Implementing Rules for the Advertising Administrative Regulations
      (2004).




These
regulations stipulate that companies that engage in advertising activities must
obtain from the SAIC or its local branches a business license which specifically
includes operating an advertising business within its business scope. Companies
conducting advertising activities without such a license may be subject to
penalties, including fines, confiscation of advertising income and orders to
cease advertising operations. The business license of an advertising company is
valid for the duration of its existence, unless the license is suspended or
revoked due to a violation of any relevant law or regulation.




We do not
expect to encounter any difficulties in maintaining our business licenses. Our
PRC advertising operating companies hold business license from the local
branches of the SAIC as required by the existing PRC regulations.




17
 Table of Contents




Advertising
Content




PRC
advertising laws and regulations set forth certain content requirements for
advertisements in China, which include prohibitions on, among other things,
misleading content, superlative wording, socially destabilizing content or
content involving obscenities, superstition, violence, discrimination or
infringement of the public interest. Advertisements for anesthetic,
psychotropic, toxic or radioactive drugs are prohibited. It is prohibited to
disseminate tobacco advertisements via broadcast or print media. It is also
prohibited to display tobacco advertisements in any waiting lounge, theater,
cinema, conference hall, stadium or other public area. There are also specific
restrictions and requirements regarding advertisements that relate to matters
such as patented products or processes, pharmaceuticals, medical instruments,
veterinary pharmaceuticals, agrochemicals, foodstuff, alcohol and cosmetics. In
addition, all advertisements relating to pharmaceuticals, medical instruments,
agrochemicals and veterinary pharmaceuticals advertised through radio, film,
television, newspaper, magazine and other forms of media, together with any
other advertisements which are subject to censorship by administrative
authorities according to relevant laws and administrative regulations, must be
submitted to the relevant administrative authorities for content approval prior
to dissemination.




Advertisers,
advertising operators and advertising distributors are required by PRC
advertising laws and regulations to ensure that the content of the
advertisements they prepare or distribute are true and in full compliance with
applicable laws. In providing advertising services, advertising operators and
advertising distributors must review the prescribed supporting documents
provided by advertisers for advertisements and verify that the content of the
advertisements comply with applicable PRC laws and regulations. In addition,
prior to distributing advertisements for certain commodities, which are subject
to government censorship and approval, advertising distributors and advertisers
are obligated to ensure that such censorship has been performed and approval has
been obtained. Violation of these regulations may result in penalties, including
fines, confiscation of advertising income, orders to cease dissemination of the
advertisements and orders to publish an advertisement correcting the misleading
information. In circumstances involving serious violations, the SAIC or its
local branches may revoke violators’ licenses or permits for advertising
business operations. Furthermore, advertisers, advertising operators or
advertising distributors may be subject to civil liability if they infringe on
the legal rights and interests of third parties in the course of their
advertising business. We will employ qualified advertising inspectors who are
trained to review advertising content for compliance with relevant laws and
regulations.




Out-of-home
Advertising




The
Advertising Law stipulates that the exhibition and display of out-of-home
advertisements must not:






·
            utilize traffic
      safety facilities and traffic signs;·
            impede the use of
      public facilities, traffic safety facilities and traffic
  signs;·
            obstruct commercial
      and public activities or create an eyesore in urban areas;·
            be placed in
      restrictive areas near government offices, cultural landmarks or
      historical or scenic sites; and·
            be placed in areas
      prohibited by the local governments from having out-of-home
      advertisements.




18
 Table of Contents




In
additional to the Advertising Law, the SAIC promulgated the Out-of-home
Advertising Registration Administrative Regulations on December 8, 1995, as
amended on December 3, 1998, and May 22, 2006, which governs the out-of-home
advertising industry in China.




Out-of-home
advertisements in China must be registered with the local SAIC before
dissemination. The advertising distributors are required to submit a
registration application form and other supporting documents for registration.
After review and examination, if an application complies with the requirements,
the local SAIC will issue an Out-of-home Advertising Registration Certificate
for such advertisement. Many municipal cities of China have respectively
promulgated their own local regulations on the administration of out-of-home
advertisements. Those municipal regulations set forth specific requirements on
the out-of-home advertisements, such as the allowed places of dissemination and
size requirements of the out-of-home advertisement facilities.




In
addition to the regulations on out-of-home advertisements, the placement and
installation of LED billboards are also subject to municipal local zoning
requirements and relevant governmental approvals of the city where the LED
billboards located. In Shanghai, the placement and installation of LED
billboards are required to obtain application for an out-of-home advertising
registration certificate for each LED billboard subject to a term of use
approved by local government agency for each LED billboard. If the existing LED
billboards placed by our LED location provider or us are required to be removed,
the attractiveness of this portion of our advertising network will be
diminished.




Foreign
Currency Exchange




The
principal regulation governing foreign currency exchange in China is the Rules
on Foreign Exchange Control (1996), as amended. Under the Rules, Renminbi is
freely convertible for trade and service-related foreign exchange transactions,
but not for direct investment, loan or investment outside China unless the prior
approval of the State Administration for Foreign Exchange of the PRC or other
relevant authorities is obtained.




Pursuant
to the Rules on Foreign Exchange Control, foreign investment enterprises in
China may purchase foreign currency without the approval of the State
Administration for Foreign Exchange of the PRC for trade and service-related
foreign exchange transactions by providing commercial documents evidencing these
transactions. They may also retain foreign exchange (subject to a cap approved
by the State Administration for Foreign Exchange of the PRC) to satisfy foreign
exchange liabilities or to pay dividends. However, the relevant PRC government
authorities may limit or eliminate the ability of foreign investment enterprises
to purchase and retain foreign currencies in the future. In addition, foreign
exchange transactions for direct investment, loan and investment outside China
are still subject to limitations and require approvals from the State
Administration for Foreign Exchange of the PRC.




19
 Table of Contents




Dividend
Distributions




The
principal regulations governing distribution of dividends of wholly
foreign-owned companies include:





·The
      Foreign Investment Enterprise Law (1986), as amended;
      and·Administrative
      Rules under the Foreign Investment Enterprise Law
      (2001).




Under
these regulations, foreign investment enterprises in China may pay dividends
only out of their accumulated profits, if any, determined in accordance with PRC
accounting standards and regulations. In addition, wholly foreign-owned
enterprises in China are required to set aside at least 10% of their after-tax
profits each year, if any, to fund certain reserve funds, unless such reserve
funds as accumulated have reached 50% of their respective registered capital.
These reserves are not distributable as cash dividends.




Enterprise Income Tax
Law




The
Enterprise Income Tax Law, or EIT Law, was promulgated by the PRC’s National
People’s Congress on March 16, 2007 to introduce a new uniform taxation regime
in the PRC. Both resident and non-resident enterprises deriving income from the
PRC will be subject to this EIT Law from January 1, 2008. It replaces the
previous two different tax rates applied to foreign-invested enterprises and
domestic enterprises by only one single income tax rate applied for all
enterprises in the PRC. Under this EIT Law, except for some hi-tech enterprises
which are subject to EIT rates of 15% and other very limited situation that
allows EIT rates at 20%, the general applicable EIT rate in the PRC is 25%. We
may not enjoy tax incentives for our further established companies in the PRC
and therefore our tax advantages over domestic enterprises may be
diminished.




Environmental
Matters




The
Company's operations are subject to various environmental regulations. We
believe that we are in substantial compliance with applicable laws, rules and
regulations relating to the protection of the environment and that our
compliance will have no material effect on our capital expenditures, earnings or
competitive position.




Available
Information




We file
with the SEC our annual reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and amendments to reports to be filed pursuant to
Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended. The
public may read and copy any materials we file with the SEC at the SEC’s Public
Reference Room at 450 Fifth Street, NW, Washington, DC 20549. The public
may obtain information on the Public Reference Room by calling the SEC at
1-800-SEC-0330. The SEC maintains a website atwww.sec.gov that contains
reports, proxy and information statements, and other information regarding
issuers that file electronically with the SEC




Our
Internet website address iswww.ncnmedia.com.
This website links to our electronic SEC filings. All the above documents are
available free of charge on our website as soon as reasonably practicable after
filing such material electronically or otherwise furnishing it to the
SEC.




20
 Table of Contents




ITEM 1A. RISK FACTORS





Risks
relating to our business include the factors set forth below.  If an
adverse outcome of any of the following risks actually occurs, our business,
financial condition or operating results could be materially and adversely
affected. In evaluating our business, shareholders should consider carefully the
following factors in addition to the other information presented
herein.




RISKS
RELATED TO OUR BUSINESS





We
face risks related to general domestic and global economic conditions and to the
current credit crisis.





The
current uncertainty arising out of domestic and global economic conditions,
including the recent disruption in credit markets, poses a risk to the economies
in which we operate that has impacted demand for our services. .If the current
situation deteriorates significantly, we could see reduced demand for our
products and services from a slow-down in the general economy, or supplier or
customer disruptions resulting from tighter credit markets. Such reductions and
disruptions could have a material adverse effect on our business
operations.





We
may not be able to recruit and retain key personnel, particularly sales and
marketing personnel, which could have material and adverse effects on our
business, financial condition and results of operations.





Our
future success depends in part on the contributions of our management team and
key technical and sales personnel and our ability to attract and retain
qualified new personnel. In particular, our success depends on the continuing
employment of our founder and CEO, Mr. Godfrey Hui, as well as our sales,
marketing and other key personnel. Because of significant competition in our
industry for qualified managerial, technical and sales personnel, we cannot
assure you that we will be able to retain our key senior managerial, technical
and sales personnel or that we will be able to attract, integrate and retain
other such personnel that we may require in the future. If we are unable to
retain our existing personnel, or attract, train, integrate or motivate
additional qualified personnel, our growth may be restricted. The loss of any of
these key employees could slow our programming, distribution and sales efforts
or have an adverse effect on how our business is perceived by advertisers, venue
providers and investors, and our management may have to divert their attention
from our business to recruiting replacements for such key
personnel.





21
 Table of Contents




There
may be unknown risks inherent in our acquisitions of Quo Advertising, Xuancaiyi,
Lianhe and Bona.




Although
we conducted due diligence with respect to the acquisition of Quo Advertising,
Xuancaiyi, Lianhe and Bona, there is no assurance that all risks associated with
these companies have been revealed. To protect us from associated liabilities,
we have received guarantees of indemnification from the original owners. However
we have no assurance that such guarantees will be honored and legal action to
enforce such guarantees could be very costly and time consuming. The possibility
of unknown risks in those acquisitions could affect our business, financial
condition and results of operations.




All
of our directors and officers are outside the United States. It may be difficult
for investors to enforce judgments obtained against officers or directors of the
Company.




All of
our directors and officers are nationals and/or residents of countries other
than the United States, and all their assets are located outside the United
States. As a result, it may be difficult for investors to effect service of
process on our directors or officers, or enforce within the United States or
Canada any judgments obtained against us or our officers or directors, including
judgments predicated upon the civil liability provisions of the securities laws
of the United States or any state thereof. Consequently, you may be prevented
from pursuing remedies under U.S. federal securities laws against them. In
addition, investors may not be able to commence an action in a Canadian court
predicated upon the civil liability provisions of the securities laws of the
United States. The foregoing risks also apply to those experts identified in
this Annual Report that are not residents of the United States.




Our
substantial indebtedness and related interest payments could adversely affect
our operations.




We have
issued convertible promissory notes to certain investors and our related
interest payments on such notes could impose financial burdens on us. If further
new debt is added to our consolidated debt level, the related risks that we now
face could intensify. Covenants in the convertible notes and related agreements,
and debt we may incur in the future, may materially restrict our operations,
including our ability to incur debt, pay dividends, make certain investments and
payments, and encumber or dispose of assets. In addition, financial covenants
contained in agreements relating to our existing and future debt could lead to a
default in the event our results of operations do not meet our plans and we are
unable to amend such financial covenants prior to default. An event of default
under any debt instrument, if not cured or waived, could have a material adverse
effect on us, our financial condition and our capital structure.


22
 Table of Contents


In
order to grow at the pace expected by management, we will require additional
capital to support our long-term business plan. If we are unable to obtain
additional capital in future years, we may be unable to proceed with our
long-term business plan and we may be forced to curtail or cease our operation
or further business expansion.




We will
require additional working capital to support our long-term business plan, which
includes identifying suitable targets for horizontal or vertical mergers or
acquisitions, so as to enhance the overall productivity and benefit from
economies of scale. Our working capital requirements and the cash flow provided
by future operating activities, if any, will vary greatly from quarter to
quarter, depending on the volume of business during the period and payment terms
with our customers. U.S. and global credit and equity markets have recently
undergone significant disruption, making it difficult for many businesses to
obtain financing on acceptable terms. In addition, equity markets are continuing
to experience wide fluctuations in value. If these conditions continue or
worsen, we may not be able to obtain adequate levels of additional financing,
whether through equity financing, debt financing or other sources. To raise
funds, we may need to issue new equities or bonds which could result in
additional dilution to our shareholders and in. Additional financings could
result in significant dilution to our earnings per share or the issuance of
securities with rights superior to our current outstanding securities or contain
covenants that would restrict our operations and strategy. In addition, we may
grant registration rights to investors purchasing our equity or debt securities
in the future. If we are unable to raise additional financing, we may be unable
to implement our long-term business plan, develop or enhance our products and
services, take advantage of future opportunities or respond to competitive
pressures on a timely basis, if at all. In addition, a lack of additional
financing could force us to substantially curtail or cease
operations.





Our
acquisitions of Quo Advertising, Xuancaiyi, Lianhe, Bona and any future
acquisitions may expose us to potential risks and have an effect on our ability
to manage our business.




It is our
strategy to expand our business through acquisitions like that of Quo
Advertising, Xuancaiyi, Lianhe and Bona. We would keep on searching for
appropriate opportunities to acquire more businesses or to form joint ventures,
etc. that are complementary to our core business. For each acquisition, our
management encounters whatever difficulties during the integration of new
operations, services and personnel with our existing operations. We may also
expose ourselves to other potential risks like unforeseen or hidden liabilities
of the acquired companies, the allocation of resources from our existing
business to the new operations, uncertainties in generating expected revenue,
employee relationships and governing by new regulations after integration. The
occurrence of any of these unfavorable events in our recent acquisitions or
possible future acquisitions could have an effect on our business, financial
condition and results of operations.




We may be exposed
to potential risks relating to our internal controls over financial reporting
and our ability to have the operating
effectiveness of our internal controls attested to by our independent
auditors.




As
directed by Section 404 of the Sarbanes-Oxley Act of 2002, or SOX 404, the SEC
adopted rules requiring public companies to include a report of management on
the company’s internal controls over financial reporting in their annual
reports, including Form 10-K. We are subject to this requirement commencing with
our fiscal year ending December 31, 2007 and a report of our management is
included under Item 9A of this Annual Report on Form 10-K. In addition, SOX 404
requires the independent registered public accounting firm auditing a company’s
financial statements to attest to and report on the operating effectiveness of
such company’s internal controls. While we believe that the Company has adequate
internal control procedures in place, we can provide no assurance that we will
be viewed by our independent auditors as complying with all of the requirements
imposed thereby or that we will receive a positive attestation from them. In the
event we identify significant deficiencies or material weaknesses in our
internal controls that we cannot remediate in a timely manner or we are unable
to receive a positive attestation from our independent auditors with respect to
our internal controls, investors and others may lose confidence in the
reliability of our financial statements which could negatively impact our stock
market price.





23
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We
have incurred losses and substantial doubt exists about our ability to continue
as a going concern.





We have a
history of operating losses. We have incurred a net loss of $59,484,833 for
fiscal year ended December 31, 2008. As of December 31, 2008, our shareholders’
deficit was $23,356,217. These raise substantial doubt about our ability to
continue as a going concern. We have been dependent on sales of our equity
securities and debt financing to meet our cash requirements. If adequate capital
is not available to us, we may need to sell assets or seek to undertake a
restructuring of our obligations with our creditors. We cannot give assurances
that we would be able to accomplish either of these measures on commercially
reasonable terms, if at all. In any such case, we may not be able to continue as
a going concern.





If
our subcontractors fail to perform their contractual obligations, our ability to
provide services and products to our customers, as well as our ability to obtain
future business, may be harmed.





Many of
our contracts involve subcontracts with other companies upon which we rely to
perform a portion of the services that we must provide to our customers. There
is a risk that we may have disputes with our subcontractors, including disputes
regarding the quality and timeliness of work performed by those subcontractors.
A failure by one or more of our subcontractors to satisfactorily perform the
agreed-upon services may materially and adversely impact our ability to perform
our obligations to our customers, could expose us to liability and could have a
material adverse effect on our ability to compete for future contracts and
orders.




We
have limited business insurance coverage for our PRC subsidiaries. In the event
that adequate insurance is not available or our insurance is not deemed to cover
a claim, we could face liability.





We carry
insurance of various types, including general liability and professional
liability insurance in amounts management considers adequate and customary for
the jurisdiction in which we operate. Insurance companies in China offer limited
business insurance products because the insurance industry in China is still at
an early stage of development, and some of our insurance policies may limit or
prohibit insurance coverage for punitive or certain other types of damages, or
liability arising from gross negligence. If we incur increased losses related to
employee acts or omissions, or system failure, or if we are unable to obtain
adequate insurance coverage at reasonable rates, or if we are unable to receive
reimbursements from insurance carriers, our financial condition and results of
operations could be materially and adversely affected.





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RISKS
RELATED TO OPERATING OUR BUSINESS IN CHINA




All of
our assets and revenues are derived from our operations located in China.
Accordingly, our business, financial condition, results of operations and
prospects are subject, to a significant extent, to economic, political and legal
developments in China.




The
PRC’s economic, political and social conditions, as well as governmental
policies, could impede the overall economic growth of China and adversely affect
our liquidity and our ability to access to capital and to operate our
business.




We
conduct substantially all of our operations and generate most of our revenue in
China. Accordingly, our business, financial condition, results of operations and
prospects are affected significantly by economic, political and legal
developments in China. The PRC economy differs from the economies of most
developed countries in many respects, including:




·
            the
      higher level of government
involvement;




·
            the
      early stage of development of the market-oriented sector of the
      economy;




·
            the
      rapid growth rate;




·
            the
      higher level of control over foreign exchange;
  and




·
            the
      allocation of resources.




As the
PRC economy has been transitioning from a planned economy to a more
market-oriented economy, the PRC government has implemented various measures to
encourage economic growth and guide the allocation of resources. While these
measures may benefit the overall PRC economy, they may also have a negative
effect on us. While the PRC economy has experienced significant growth over the
past several years, the rate of growth has been irregular, both geographically
and among various sectors of the economy, and has recently slowed across all
sectors.





A number
of factors have contributed to this slow-down, including appreciation of
Renminbi, which adversely affected China’s exports, and tightening macroeconomic
measures and monetary policies adopted by the Chinese government aimed at
preventing overheating of the Chinese economy and controlling China’s high level
of inflation. The slow-down has been exacerbated by the recent global crisis in
the financial services and credit markets, which has caused significant
volatility and dislocation of the global capital markets as well as increased
rates of default and bankruptcy. It is uncertain how long the global crises in
the financial services and credit markets will continue and how much adverse
impact it will have on the global economy in general or the Chinese economy in
particular. These macroeconomic developments could negatively affect our
business, operating results, or financial condition in a number of ways. For
instance, current or potential customers may delay or decrease spending with us
or may not pay us or may delay paying us for previously purchased
services.





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Recently,
the Chinese economy has experienced periods of rapid expansion. During this
period, there have been high rates of inflation. As a result, the PRC government
adopted various corrective and cool-down measures designed to restrict the
availability of credit or regulate growth and contain inflation. While inflation
has moderated since 1995, high inflation would cause the PRC government to
impose controls on credit and/or prices, which could inhibit economic activity
in China, and thereby affecting the Company’s business operations and prospects
in the PRC.




If
the PRC government finds that the agreements that establish the structure for
operating our China business do not comply with PRC governmental restrictions on
foreign investment in the advertising industry, we could be subject to severe
penalties.




Our media
operations are conducted by Lianhe, Botong, Bona and Quo Advertising through
commercial agreements arrangement. PRC regulations require any foreign entities
that invest in the advertising services industry to have at least two years of
direct operations in the advertising industry outside of China. Beginning
December 10, 2005, foreign investors have been allowed to own directly 100%
of PRC companies operating an advertising business if the foreign entity has at
least three years of direct operations in the advertising business outside of
China or less than 100% if the foreign investor has at least two years of direct
operations in the advertising industry. We do not directly operate an
advertising business outside of China and cannot qualify under PRC regulations
any earlier than two or three years after we commence any such operations
outside of China or until we acquire a company that has directly operated an
advertising business outside of China for the required period. Accordingly, our
PRC operating subsidiaries are currently unable to apply for the required
licenses for providing advertising services in China. Before 2008, all of our
advertising business is run through Quo Advertising, which is owned by two PRC
citizens designated by us. Quo Advertising holds the requisite licenses to
provide advertising services in China. We have entered into contractual
agreements with the shareholders of Quo Advertising, which provide us with the
substantial ability to control Quo Advertising and its
subsidiaries.




In
January 2008, we restructured our advertising business after further acquiring
the media companies namely Lianhe and Bona. We, through our newly acquired
company, Lianhe, entered into an exclusive management consulting services
agreement and an exclusive technology consulting services agreement with each of
Quo Advertising, Bona and Botong. In addition, we entered into an equity pledge
agreement and an option agreement with each of the registered PRC shareholders
of Quo Advertising, Bona and Botong designated by us and pursuant to which these
shareholders had pledged 100% of their shares to Lianhe and granted Lianhe the
option to acquire their shares at a mutually agreed purchase price which shall
first be used to repay any loans payable to Lianhe or any affiliate of Lianhe by
the registered PRC shareholders These commercial arrangements enable us to exert
effective control on these entities, and transfer their economic benefits to us
for financial results consolidation.




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If we,
our existing or future PRC operating subsidiaries and affiliates are found to be
in violation of any PRC laws or regulations or fail to obtain or maintain any of
the required permits or approvals, the relevant PRC regulatory authorities,
including the State Administration for Industry and Commerce (SAIC), would have
broad discretion in dealing with such violations, including:




·
            revoking
      the business and operating licenses of our PRC subsidiaries and
      affiliates;




·
            discontinuing
      or restricting our PRC subsidiaries’ and affiliates’
      operations;




·
            imposing
      conditions or requirements with which we or our PRC subsidiaries and
      affiliates may not be able to
comply;




·
            requiring
      us or our PRC subsidiaries and affiliates to restructure the relevant
      ownership structure or operation;
or




·
            restricting
      or prohibiting our use of the proceeds of this offering to finance our
      business and operations in China.




The
imposition of any of these penalties would result in a material and adverse
effect on our ability to conduct our business.




We
may be unable to complete a business combination transaction efficiently or on
favorable terms due to complicated merger and acquisition regulations which
became effective on September 8, 2006.





On August
8, 2006, six PRC regulatory agencies, including the CSRC, promulgated the
Regulation on Mergers and Acquisitions of Domestic Companies by Foreign
Investors, which became effective on September 8, 2006. This new regulation,
among other things, governs the approval process by which a PRC company may
participate in an acquisition of assets or equity interests. Depending on the
structure of the transaction, the new regulation will require the PRC parties to
make a series of applications and supplemental applications to the government
agencies. In some instances, the application process may require the
presentation of economic data concerning a transaction, including appraisals of
the target business and evaluations of the acquirer, which are designed to allow
the government to assess the transaction. Government approvals will have
expiration dates by which a transaction must be completed and reported to the
government agencies. Compliance with the new regulations is likely to be
more time consuming and expensive than in the past and the government can now
exert more control over the combination of two businesses. Accordingly, due to
the new regulation, our ability to engage in business combination transactions
has become significantly more complicated, time consuming and expensive, and we
may not be able to negotiate a transaction that is acceptable to our
stockholders or sufficiently protect their interests in a
transaction.





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The new
regulation allows PRC government agencies to assess the economic terms of a
business combination transaction. Parties to a business combination transaction
may have to submit to the Ministry of Commerce and other relevant government
agencies an appraisal report, an evaluation report and the acquisition
agreement, all of which form part of the application for approval, depending on
the structure of the transaction. The regulations also prohibit a transaction at
an acquisition price obviously lower than the appraised value of the PRC
business or assets and in certain transaction structures, require that
consideration must be paid within defined periods, generally not in excess of a
year. The regulation also limits our ability to negotiate various terms of the
acquisition, including aspects of the initial consideration, contingent
consideration, holdback provisions, indemnification provisions and provisions
relating to the assumption and allocation of assets and liabilities. Transaction
structures involving trusts, nominees and similar entities are prohibited.
Therefore, such regulation may impede our ability to negotiate and complete a
business combination transaction on financial terms that satisfy our investors
and protect our stockholders’ economic interests.




In
addition to the above risks, in many instances, we will seek to structure
transactions in a manner that avoids the need to make applications or a series
of applications with Chinese regulatory authorities under these new M&A
regulations. If we fail to effectively structure an acquisition in a manner that
avoids the need for such applications or if the Chinese government interprets
the requirements of the new M&A regulations in a manner different from our
understanding of such regulations, then acquisitions that we have effected
may be unwound or subject to rescission. Also, if the Chinese government
determines that our structure of any of our acquisitions does not comply with
these new regulations, then we may also be subject to fines and
penalties.





We
rely on contractual arrangements and commercial agreement arrangement with our
PRC operating companies and their shareholders for our China operations, which
may not be as effective in providing operational control as direct
ownership.




Our
advertising business was initially run through our contractual arrangements with
our PRC operating companies, Quo Advertising. Quo Advertising was owned by two
PRC citizens designated by us and directly operated our advertising network
projects. In January 2008, we restructured our advertising business after
further acquiring the media companies namely Lianhe and Bona. We, through our
newly acquired company, Lianhe, entered into a series of commercial agreements
with each of Quo Advertising, Bona and Botong and their respective registered
shareholders. It enables us to exert effective control on these entities, and
transfer their economic benefits to us for financial results
consolidation.





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These
contractual arrangements and commercial agreement arrangements may not be as
effective in providing us with control over media subsidiaries as direct
ownership. Under the current contractual arrangements, as a legal matter, if our
PRC operating companies, Quo Advertising, Bona and Botong and their registered
PRC shareholders fails to perform its or his/her respective obligations under
these contractual arrangements, we may have to incur substantial costs to
enforce such arrangements, and take legal action to compel him/her to fulfill
his/her contractual obligations. In the event we are unable to enforce these
contractual arrangements, we may not be able to exert effective control over our
PRC operating companies, and our ability to conduct our business may be
negatively affected.





The
discontinuation of preferential tax treatments or other incentives for foreign
invested enterprises under the new Enterprise Income Tax Law could materially
impact our business development efforts in China and adversely affect our
business, financial condition and results of operations.





The
Enterprise Income Tax Law of the People's Republic of China, or New EIT Law, was
promulgated by the PRC’s National People’s Congress on March 16, 2007 to create
a “level playing field” by establishing, effective as of January 1, 2008, a
unified corporate income tax rate, cost deduction and tax incentive policies for
both domestic and foreign-invested enterprises deriving income from the PRC.
Under the prior regulatory scheme, foreign enterprises and foreign invested
enterprises, or FIEs, were generally only required to pay income tax at an
effective rate of approximately 15% to 20%, while domestic Chinese companies
usually have to pay income tax at an effective rate of about 25% or even higher.
The New EIT Law and its implementing rules apply one single income tax rate of
25% to all both domestic and foreign-invested enterprises, except for some
hi-tech enterprises which are subject to EIT rates of 15%. We may not enjoy tax
incentives for our further established companies in the PRC and therefore our
tax advantages over domestic enterprises may be diminished and our business
development in China may be adversely affected.





Under
the New EIT Law, we may be classified as a “resident enterprise” of China. Such
classification will likely result in unfavorable tax consequences to us and our
non-PRC stockholders.




Under the
New EIT Law, an enterprise established outside of China with “de facto
management bodies” within China is considered a “resident enterprise”, meaning
that it can be treated in a manner similar to a Chinese enterprise for
enterprise income tax purposes. The implementing rules of the New EIT Law define
de facto management as “substantial and overall management and control over the
production and operations, personnel, accounting, and properties” of the
enterprise. Because the New EIT Law and its implementing rules are new, no
official interpretation or application of this new “resident enterprise”
classification is available. Therefore, it is unclear how tax authorities will
determine tax residency based on the facts of each case.




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If the
PRC tax authorities determine that the Company is a “resident enterprise” for
PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences
could follow. First, we may be subject to the enterprise income tax at a rate of
25% on our worldwide taxable income as well as PRC enterprise income tax
reporting obligations. In our case, this would mean that income such as
non-China source income would be subject to PRC enterprise income tax at a rate
of 25%. Second, although under the New EIT Law and its implementing rules
dividends paid to us from our PRC subsidiaries would qualify as “tax-exempt
income”, we cannot guarantee that such dividends will not be subject to a 10%
withholding tax, as the PRC foreign exchange control authorities, which enforce
the withholding tax, have not yet issued guidance with respect to the processing
of outbound remittances to entities that are treated as resident enterprises for
PRC enterprise income tax purposes. Finally, it is possible that future guidance
issued with respect to the new “resident enterprise” classification could result
in a situation in which a 10% withholding tax is imposed on dividends we pay to
our non-PRC stockholders and with respect to gains derived by our non-PRC
stockholders from transferring our shares. We are actively monitoring the
possibility of “resident enterprise” treatment for the 2008 tax year and are
evaluating appropriate organizational changes to avoid this treatment, to the
extent possible. If we were treated as a “resident enterprise” by PRC tax
authorities, we would be subject to taxation in both the U.S. and China, and our
PRC tax may not be creditable against our U.S. tax.





In
addition, our operations and transactions are subject to review by the PRC tax
authorities pursuant to relevant PRC laws and regulations which change
frequently, and their interpretation and enforcement involve uncertainties. For
instance, in the case of some of our acquisitions of offshore entities that
conducted their PRC operations through their affiliates in China, we cannot
assure our investors that the PRC tax authorities will not require us to pay
additional taxes in relation to such acquisitions, in particular where the PRC
tax authorities take the view that the previous taxable income of the PRC
affiliates of the acquired offshore entities needs to be adjusted and additional
taxes be paid. In the event that the sellers failed to pay any taxes required
under PRC laws in connection with these transactions, the PRC tax authorities
might require us to pay the tax together with late-payment interest and
penalties.





The
PRC government exerts substantial influence over the manner in which we conduct
our business activities.




The PRC
economy differs from the economies of most developed countries in many respects,
including the extent of government involvement, level of development, growth
rate, and control of foreign exchange and allocation of resources. The PRC
economy has been transitioning from a planned economy to a more market-oriented
economy. Although the PRC government has implemented measures since the late
1970’s emphasizing the utilization of market forces for economic reform, the
reduction of state ownership of productive assets and the establishment of
improved corporate governance in business enterprises, a substantial portion of
productive assets in China are still owned by the PRC government. In addition,
the PRC government continues to play a significant role in regulating industry
development by imposing industrial policies. The PRC government also exercises
significant control over China’s economic growth through allocating resources,
controlling payment of foreign currency-denominated obligations, establishing
monetary policy and providing preferential treatment to particular industries or
companies. These actions, as well as future actions and policies of the PRC
government, could materially affect our liquidity and our ability to access to
capital and to operate our business.





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The PRC
government has exercised and continues to exercise substantial control over
virtually every sector of the Chinese economy through regulation and state
ownership. Our ability to operate in China may be harmed by changes in its laws
and regulations, including those relating to taxation, import and export
tariffs, environmental regulations, land use rights, property and other matters.
We believe that our operations in China are in material compliance with all
applicable legal and regulatory requirements. However, the central or local
governments of the jurisdictions in which we operate may impose new, stricter
regulations or interpretations of existing regulations that would require
additional expenditures and efforts on our part to ensure our compliance with
such regulations or interpretations.




Accordingly,
government actions in the future, including any decision not to continue to
support recent economic reforms and to return to a more centrally planned
economy or regional or local variations in the implementation of economic
policies, could have a significant effect on economic conditions in China or
particular regions thereof and could require us to divest ourselves of any
interest we then hold in Chinese properties or joint
ventures.




Restrictions
on currency exchange, including regulation of loans and direct investment by
offshore holding companies to PRC, entities may limit our ability to receive and
use our sales revenue effectively.




Most of
the Company’s sales revenue and expenses are denominated in Renminbi which may
need to be exchanged into other currencies, primarily U.S. dollars, and remitted
outside of the PRC. Effective from July 1, 1996, foreign currency “current
account” transactions by foreign investment enterprises, including Sino-foreign
joint ventures, are no longer subject to the approval of State Administration of
Foreign Exchange, or SAFE, but need only a ministerial review, according to the
Administration of the Settlement, Sale and Payment of Foreign Exchange
Provisions promulgated in 1996, or the FX Regulations. “Current account” items
include international commercial transactions, which occur on a regular basis,
such as those relating to trade and provision of services. Distributions to
joint venture parties also are considered a “current account transaction”. Other
non-current account items, known as “capital account” items, remain subject to
SAFE approval. The Company can obtain foreign currency in exchange for Renminbi
from swap centers authorized by the PRC government. In addition, our PRC
operating subsidiaries may purchase foreign currencies for settlement of current
account transactions, including payments of dividends to us, without SAFE
approval, by complying with certain procedural requirements. The Company does
not anticipate problems in obtaining foreign currency to satisfy its
requirements, but there is no assurance that future foreign currency shortages
or changes in currency exchange laws and regulations by the PRC government will
not restrict the Company from exchanging Renminbi in a timely manner. Since a
significant amount of our future revenue will be denominated in Renminbi, any
existing and future restrictions on currency exchange may limit our ability to
utilize revenue generated in Renminbi to fund our business activities outside
China that are denominated in foreign currencies.





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As an
offshore holding company of our PRC operating subsidiaries and affiliates, we
may make loans or contribute additional capital to them or they may seek to
borrow from other foreign lenders. Such loans must be registered with SAFE, and
if we finance the subsidiaries by means of additional capital contributions,
these capital contributions must be approved by certain government authorities,
including the PRC Ministry of Commerce, or their respective local counterparts.
We cannot guarantee that we can obtain these government registrations or
approvals on a timely basis, if at all, with respect to future loans or capital
contributions by us to our operating subsidiaries. If we fail to receive such
registrations or approvals, these would adversely affect the liquidity of our
PRC operating subsidiaries and our ability to expand the business.





Fluctuations
in exchange rates could adversely affect our business and the value of our
securities.




The value
of our common stock will be indirectly affected by the foreign exchange rate
between U.S. dollars and the Renminbi and between those currencies and other
currencies in which our sales may be denominated. Because substantially all of
our earnings and cash assets are denominated in Renminbi and the net
proceeds from this offering will be denominated in U.S. dollars, fluctuations in
the exchange rate between the U.S. dollar and the Renminbi will affect the
relative purchasing power of these proceeds, our balance sheet and our earnings
per share in U.S. dollars following this offering. In addition, appreciation or
depreciation in the value of the Renminbi relative to the U.S. dollar would
affect our financial results reported in U.S. dollar terms without giving effect
to any underlying change in our business or results of operations. Fluctuations
in the exchange rate will also affect the relative value of any dividend we
issue after this offering that will be exchanged into U.S. dollars and earnings
from, and the value of, any U.S. dollar-denominated investments we make in the
future.





Since
July 2005, the Renminbi has no longer been pegged to the U.S. dollar. Although
the People’s Bank of China regularly intervenes in the foreign exchange market
to prevent significant short-term fluctuations in the exchange rate, the
Renminbi may appreciate or depreciate significantly in value against the U.S.
dollar in the medium to long term. Moreover, it is possible that in the future
the PRC authorities may lift restrictions on fluctuations in the Renminbi
exchange rate and lessen intervention in the foreign exchange
market.





Very
limited hedging transactions are available in China to reduce our exposure to
exchange rate fluctuations. To date, we have not entered into any hedging
transactions in an effort to reduce our exposure to foreign currency exchange
risk. While we may enter into hedging transactions in the future, the
availability and effectiveness of these transactions may be limited, and we may
not be able to successfully hedge our exposure at all. In addition, our foreign
currency exchange losses may be magnified by PRC exchange control regulations
that restrict our ability to convert Renminbi into foreign
currencies.





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If
any of our PRC companies becomes the subject of a bankruptcy or liquidation
proceeding, we may lose the ability to use and enjoy those assets, which could
materially affect our business and our ability to generate revenue and the
market price of our common stock, and since our assets are located in the PRC,
stockholders may not receive distributions that they would otherwise be entitled
to.




To comply
with PRC laws and regulations relating to foreign ownership restrictions in the
advertising businesses, we currently conduct our operations in China through
contractual arrangements with shareholders of Quo Advertising, Bona and
Botong. As part of these arrangements, these persons hold some of the
assets that are important to the operation of our business. If any of these
entities files for bankruptcy and all or part of their assets become subject to
liens or rights of third-party creditors, we may be unable to continue some or
all of our business activities, which could affect our business, financial
condition and results of operations.





The
Company’s assets are located in PRC and as such, may be outside of the
jurisdiction of U.S. courts to administer if the Company was the subject of an
insolvency or bankruptcy proceeding. As a result, if the Company were declared
bankrupt or insolvent, the Company’s stockholders may not be able to receive the
distributions on liquidation that they are otherwise entitled to under U.S.
bankruptcy law.




PRC
laws and regulations impose certain restriction on foreign investment in China’s
advertising service industry, and substantial uncertainties exist with respect
to our contractual arrangements with our PRC operating companies.





Since
2005, the PRC government has allowed foreign investors to directly own 100% of
an advertising business if the foreign investor has at least three years of
direct operations in the advertising business outside of China or to own less
than 100% if the foreign investor has at least two years of direct operations in
the advertising industry outside of China. As we do not currently directly
operate an advertising business outside of China, we are not entitled to own
directly 100% of an advertising business in China.




Our
advertising business was initially run through our contractual arrangements with
our PRC operating companies, Quo Advertising. Quo Advertising was owned by two
PRC citizens designated by us and directly operated our advertising network
projects. In January 2008, we restructured our advertising business after
further acquiring the media subsidiaries namely Lianhe and Bona. We, through our
newly acquired company, Lianhe, entered into an exclusive management consulting
services agreement and an exclusive technology consulting services agreement
with each of Quo Advertising, Bona and Botong. In addition, Lianhe also entered
into an equity pledge agreement and an option purchase agreement with each of
the registered PRC shareholders of Quo Advertising, Bona and Botong designated
by us pursuant to which these shareholders had pledged 100% of their shares to
Lianhe and granted Lianhe the option to acquire their shares at a mutually
agreed purchase price which shall first be used to repay any loans payable to
Lianhe or any affiliate of Lianhe by the registered PRC shareholders. These
commercial arrangements enable us to exert effective control on these entities,
and transfer their economic benefits to us for financial results
consolidation.





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Although
these contractual arrangements, in the opinion of our PRC legal counsel, are in
compliance with all existing PRC laws, rules and regulations and are enforceable
in accordance with their terms and conditions, there are substantial
uncertainties regarding the interpretation and implementation of current PRC
laws and regulation. Accordingly, we cannot assure you that PRC regulatory
authorities will not determine that our contractual arrangements among Lianhe,
Quo Advertising, Bona and Botong and their registered PRC shareholders, and the
business operations of our PRC operating companies as described herein violate
PRC laws or regulations. If we or any of our PRC operating companies were found
to be in violation of any existing or future PRC laws or regulations, the
relevant regulatory authorities would have broad discretion in dealing with such
violation. Any actions taken may cause significant disruption to our business
operations or render us unable to conduct a substantial portion of our business
operations and may adversely affect our business, financial condition and
results of operation





The
PRC government regulates the advertising industry. If we fail to obtain or
maintain all pertinent permits and approvals or if the PRC government imposes
more restrictions on this industry, our business may be affected.




The PRC
government regulates the advertising industry. We are required to obtain
applicable permits or approvals from different regulatory authorities to conduct
our business, including separate licenses for advertising activities. If we fail
to obtain or maintain any of the required permits or approvals, we may be
subject to various penalties, such as fines or suspension of operations in these
regulated businesses, which could severely disrupt our business operations. As a
result, our financial condition and results of operations may be negatively
affected.





While
there are no formal PRC laws or regulations that define or regulate out-of-home
advertising, we believe that the relevant PRC government authorities are
currently considering adopting new regulations governing out-of-home
advertising. We cannot predict the timing of establishing such regulations and
their impacts on our Company. Changes in laws and regulations or the enactment
of new laws and regulations governing placement or content of out-of-home
advertising, may affect our business prospects and results of operations. We
cannot predict the ultimate cost for complying with these new requirements. For
instance, the PRC government has promulgated regulations allowing foreign
companies to hold a 100% equity interest in PRC advertising companies starting
from December 10, 2005. We are not certain how the PRC government will
implement this regulation or how it would affect our ability to compete in the
advertising industry in the PRC.


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Uncertainties
with respect to the PRC legal system could limit the legal protections available
to you and us.




We
conduct substantially all of our business through our operating subsidiaries in
China. Our operating subsidiaries are generally subject to laws and regulations
applicable to foreign investments in China and, in particular, laws applicable
to foreign-invested enterprises. The PRC legal system is based on written
statutes, and prior court decisions may be cited for reference, but have limited
precedential value. In 1979, the PRC government began to promulgate a
comprehensive system of laws and regulations governing economic matters in
general. The overall effect of legislation over the past 28 years has
significantly enhanced the protections afforded to various forms of foreign
investment in China. However, since the PRC legal system continues to rapidly
evolve, the interpretations of many laws, regulations and rules are not always
uniform and enforcement of these laws, regulations and rules involve
uncertainties, which may limit legal protections available to you and us. For
instance, we may have to resort to administrative and court proceedings to
enforce the legal protection that we are entitled to by law or contract. Any
litigation in China may be protracted and result in substantial costs and
diversion of resources and management attention .Since PRC administrative and
court authorities have significant discretion in interpreting statutory and
contractual terms, it may be difficult to evaluate the outcome of administrative
court proceedings and the level of law enforcement that we would receive in more
developed legal systems. Such uncertainties, including the inability to enforce
our contracts, especially our contractual arrangements among Lianhe, Quo
Advertising, Bona and Botong are governed by the PRC law, could adversely affect
our business and operation. We cannot predict the effect of future developments
in the PRC legal system, particularly with regard to the industries in which we
operate, imposed on our business.





In
addition, all of our executive officers and all but one of our directors are
residents of China and not of the United States, and substantially all the
assets of these persons are located outside the United States. As a result, it
could be difficult for investors to effect service of process in the United
States or to enforce a judgment obtained in the United States against our
Chinese officers, directors and subsidiaries.





Failure
to comply with PRC regulations relating to the establishment of offshore special
purpose companies by PRC residents may subject our PRC resident stockholders to
personal liability, limit our ability to acquire PRC companies or to inject
capital into our PRC subsidiaries, limit our PRC subsidiaries’ ability to
distribute profits to us or otherwise materially adversely affect
us.





The PRC
National Development and Reform Commission, or the NDRC, and SAFE recently
promulgated regulations that require PRC residents and PRC corporate entities to
register with and obtain approvals from relevant PRC government authorities in
connection with their direct or indirect offshore investment activities. These
regulations apply to our shareholders who are PRC residents and may apply to any
offshore acquisitions that we make in the future.




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In
October 2005, SAFE issued a public notice, the Notice on Relevant Issues in the
Foreign Exchange Control over Financing and Return Investment Through Special
Purpose Companies by Residents Inside China, or the SAFE Notice, which requires
PRC residents to register with the competent local SAFE branch before using
onshore assets or equity interests held by them to establish offshore
special purpose companies, or SPVs, for the purpose of overseas equity
financing. Under the SAFE Notice, such PRC residents must also file amendments
to their registration in connection with any increase or decrease of capital,
transfer of shares, mergers and acquisitions, equity investment or creation of
any security interest in any assets located in China to guarantee offshore
obligations. Moreover, if the SPVs were established and owned the onshore assets
or equity interests before the implementation date of the SAFE Notice, a
retroactive SAFE registration is required to have been completed before March
31, 2006. If any PRC resident stockholder of any SPV fails to make the required
SAFE registration and amended registration, the PRC subsidiaries of that
SPV may be prohibited from distributing their profits and the proceeds from any
reduction in capital, share transfer or liquidation to the SPV. Failure to
comply with the SAFE registration and amendment requirements described above
could also result in liability under PRC laws for evasion of applicable foreign
exchange restrictions.


Because
of uncertainty over how the SAFE Notice will be interpreted and implemented, and
how or whether SAFE will apply it to us, we cannot predict how it will affect
our business operations or future strategies. For example, our present and
prospective PRC subsidiaries’ ability to conduct foreign exchange activities,
such as the remittance of dividends and foreign currency-denominated borrowings,
may be subject to compliance with the SAFE Notice by our PRC resident beneficial
holders. In addition, such PRC residents may not always be able to complete the
necessary registration procedures required by the SAFE Notice. We also have
little control over either our present or prospective direct or indirect
stockholders or the outcome of such registration procedures. A failure by our
PRC resident beneficial holders or future PRC resident stockholders to comply
with the SAFE Notice, if SAFE requires it, could subject these PRC resident
beneficial holders to fines or legal sanctions, restrict our overseas or
cross-border investment activities, limit our subsidiaries’ ability to make
distributions or pay dividends or affect our ownership structure, which could
adversely affect our business and prospects.




Our
subsidiaries and affiliated Chinese entities in China are subject to
restrictions on paying dividends or making other payments to us, which may
restrict our ability to satisfy our liquidity requirements.




We rely
on dividends from our subsidiaries in China and consulting and other fees paid
to us by our affiliated Chinese entities. Current PRC regulations permit our
subsidiaries to pay dividends to us only out of their accumulated profits, if
any, determined in accordance with Chinese accounting standards and regulations.
In addition, our subsidiaries in China are required to set aside at least 10% of
their respective accumulated profits each year, if any, to fund certain reserve
funds. These reserves are not distributable as cash dividends. Further, if our
subsidiaries and affiliated Chinese entities in China incur debt on their own
behalf, the instruments governing the debt may restrict their ability to pay
dividends or make other payments to us, which may restrict our ability to
satisfy our liquidity requirements.


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The
implementation of the PRC Labor Contract Law may significantly increase our
operating expenses and adversely affect our business and results of
operations.




On June
29, 2007, the PRC National People’s Congress enacted the Labor Contract Law,
which became effective on January 1, 2008. The Labor Contract Law formalizes
worker’s rights concerning overtime hours, pensions, layoffs, employment
contracts and the role of trade unions and provides for specific standards and
procedure for the termination of an employment contract. In addition, the Labor
Contract Law requires the payment of a statutory severance pay upon the
termination of an employment contract in most cases, including in cases of the
expiration of a fixed-term employment contract. As there has been little
guidance as to how the Labor Contract Law will be interpreted and enforced by
the relevant PRC authorities, there remains substantial uncertainty as to its
potential impact on our business and results of operations. The implementation
of the Labor Contract Law may significantly increase our operating expenses, in
particular our personnel expenses, as the continued success of our business
depends significantly on our ability to attract and retain qualified personnel.
In the event that we decide to terminate some of our employees or otherwise
change our employment or labor practices, the Labor Contract Law may also limit
our ability to effect these changes in manner that we believe to be
cost-effective or desirable, which could adversely affect our business and
results of operations.





Any
future outbreak of severe acute respiratory syndrome or avian flu in China, or
similar adverse public health developments, may severely disrupt our business
and operations.





From
December 2002 to June 2003, China and certain other countries experienced an
outbreak of a new and highly contagious form of atypical pneumonia now known as
severe acute respiratory syndrome, or SARS. On July 5, 2003, the World Health
Organization declared that the SARS outbreak had been contained. However,
following this declaration, a number of isolated new cases of SARS have been
reported, mostly recently in central China in April 2004. During May and June of
2003, many businesses in China were closed by the PRC government to prevent
transmission of SARS. In addition, during 2005 and 2006 China reported cases of
humans becoming infected with a strain of avian influenza or bird flu known as
H5N1, which is often fatal to humans. This disease, which is spread through
poultry populations, is capable in some circumstances of being transmitted to
humans and is often fatal. A new outbreak of SARS or an outbreak of avian flu
may reduce the level of economic activity in affected areas and deter people
from congregating in public places, which may lead to a reduction in our
advertising revenue as our clients may cancel existing contracts or defer future
advertising expenditures. In addition, health or other government authorities
may require temporary closure of our offices, or the offices, where we provide
our advertising services. All these will severely disrupt our business
operations and have a material adverse effect on our financial condition and
results of operations.





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RISKS
RELATED TO OUR INDUSTRY




The
media and advertising industry is sensitive to changes in economic conditions
and advertising trends.




The media
and advertising industry is particularly sensitive to changes in general
economic conditions and advertising trends. A deterioration of economic
conditions would usually lead to a decrease in demand for advertising,
Advertisers may reduce the money they spend on purchasing advertising airtime
for a number of reasons, including but not limited to the
followings:




·
            a
      general decline in economic
conditions




·
            a
      decline in economic conditions in the particular cities where we conduct
      business




·
            a
      decision to shift advertising expenditures to other available advertising
      media




·
            a
      decline in advertising expenditure in
general




A
decrease in demand for advertising airtime in general and for our advertising
services in particular would impair our ability to generate advertising revenues
and our business, results of operations and financial condition could be
materially and adversely affected.





The
media and advertising industry is highly competitive and our inability to
compete with companies that are larger and better capitalized than we are may
adversely affect our business and results of operations.




We have
to compete with other advertising companies in the out-of-home advertising
market. We compete for advertising clients primarily in terms of network size
and coverage, locations of our LED panels and billboards, pricing, and range of
services that we can offer. We also face competition from advertisers in other
forms of media such as out-of-home television advertising network in commercial
buildings, hotels, restaurants, supermarkets and convenience chain stores. We
expect that the competition will be more severe in the near future. The
relatively low fixed costs and the practice of non-exclusive arrangement with
advertising clients would provide a very low barrier for new entrants in this
market segment. Moreover, international advertising media companies have been
allowed to operate in China since 2005, exposing us to even greater
competition.




It
becomes more difficult to increase the number of desirable locations in major
cities because most of the locations have already been occupied by our
competitors and limitation by municipal zoning and planning policies. In other
cities, although we could increase the locations, they would only generate less
economic return to the Company. Anyway, we anticipate the economic return would
increase with the pace of economic development of these cities. If we are unable
to increase the placement of our out-of-home advertising market, we may be
unable to expand our client base to sell advertising time slots on our network
or increase the rates we charge for time slots. As a consequence of this, our
operating margins and profitability may be reduced, and may result in a loss of
market share. Since we are a new entrant to this market segment, we have less
competitive advantages than the existing competitors in terms of experience,
expertise, and marketing force. The Company is tackling these problems by
further acquisition of well-established advertising company like Quo
Advertising, Lianhe and Bona. We cannot assure that we will be able to compete
against new or existing competitors to generate satisfactory
profit.




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Furthermore,
due to the less desirable locations currently the Company has, we can only
charge the advertisers at a lower rates. If the Company is unable to
continuously secure more desirable locations for deployment of our advertising
poster frames, we may be unable or need to lower our rates to attract
advertisers to purchase time slots from us to generate satisfactory
profit.





If
we cannot enter into further agreements for roadside LED video panels and
mega-size digital video billboards in other major cities in China, we may be
unable to grow our revenue base and generate higher levels of
revenue.




The
Company continues geographic expansion in the media network market by entering
into business cooperation agreements with local advertising companies to operate
and manage our roadside LED video panels and mega-size digital video billboards
in China. We have concluded several major agreements and are currently searching
for more opportunities. However, many of the most desirable locations in the
major cities have been occupied by our competitors. If we are unable to or need
to pay extra considerations in order to enter into any new agreements, it may
highly increase our costs of sales and may be unable to convince our advertisers
to purchase more advertising time and generate our satisfactory
profits.




If
we are unable to attract advertisers to advertise on our networks, we will be
unable to grow our revenue base to generate revenues.




We charge
our advertisers based on the time that is used on our roadside LED video panels
and mega-size digital video billboards. The desire of advertisers to advertise
on our out-of-home media networks depends on the size and coverage of the
networks, the desirability of the locations of the LED panels and billboards,
our brand name and charging rate. If we fail to increase the number of
locations, displays and billboards in our networks to provide the advertising
services to suit the needs of our advertisers, we may be unable to attract them
to purchase our advertising time to generate revenues.




If
the public does not accept our out-of-home advertising media, we will be unable
to generate revenue.




The
out-of-home advertising network that we are developing is a rather new concept
in China. It is too early to conclude whether the public accept this advertising
means or not. If the public is receptive toward our new media network, our
advertisers will continue to purchase the advertising air-time from us. However,
in case the public finds any element such as the audio or video features in our
media network to be disruptive or intrusive, advertisers may withdraw their
requests for purchasing time slots from us and to advertise on other networks.
Such uncertainty could adversely affect our revenue.





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We
may be subject to government regulations in installing our out-of-home roadside
LED video panels and mega-size digital video billboards advertising
network.




The
placement and installation of LED panels and billboards are subject to municipal
zoning requirements and governmental approvals. We are required to obtain
approvals for construction permits from the relevant supervisory departments of
the PRC government for each installation of roadside LED video panel and
mega-size digital video billboard. We cannot assure you that we can obtain all
the relevant government approvals for all of our installations in China. If such
approvals are delayed or are not granted, we will be unable to install LED
panels or billboards on schedule, if at all, and we may incur additional
installation costs or loss of advertising revenue.




If
we are unable to adapt to changing advertising trends and the technology needs
of advertisers and consumers, we will not be able to compete effectively and we
will be unable to increase or maintain our revenues, which may affect our
business prospects and revenues.




The
market for out-of-home advertising requires us to research new advertising
trends and the technology needs of advertisers and consumers, which may require
us to develop new features and enhancements for our advertising network. The
majority of our displays use medium-size roadside LED video panels and mega-size
LED digital video billboards. We are currently researching ways that we may be
able to utilize other technology such as cable or broadband networking, advanced
audio technologies and high-definition panel technology. Development and
acquisition costs may have to be incurred in order to keep pace with new
technology needs but we may not have the financial resources necessary to fund
and implement future technological innovations or to replace obsolete
technology. Furthermore, we may fail to respond to these changing technology
needs. For instance, if the use of wireless or broadband networking capabilities
on our advertising network becomes a commercially viable alternative and meets
all applicable PRC legal and regulatory requirements, and we fail to implement
such changes on our out-of-home network and in-store network or fail to do so in
a timely manner, our competitors or future entrants into the market who do take
advantage of such initiatives could gain a competitive advantage over us. If we
cannot succeed in developing and introducing new features on a timely and
cost-effective basis, advertiser demand for our advertising networks may
decrease and we may not be able to compete effectively or attract advertising
clients, which would have an effect on our business prospects and
revenues.





We
may be subject to, and may expend significant resources in defending against,
government actions and civil suits based on the content and services we provide
through our digital out-of-home advertising networks.





PRC
advertising laws and regulations require advertisers, advertising operators and
advertising distributors, including businesses such as ours, to ensure that the
content of the advertisements they prepare or distribute is fair and accurate
and is in full compliance with applicable law. Violation of these laws or
regulations may result in penalties, including fines, confiscation of
advertising fees, orders to cease dissemination of the advertisements and orders
to publish an advertisement correcting the misleading information. In
circumstances involving serious violations, the PRC government may revoke a
violator’s license for advertising business operations.




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As an
out-of-home advertising service provider, we are obligated under PRC laws,
rules and regulations to monitor the advertising content aired on our network or
stationary advertising platform for compliance with applicable laws. Although
the advertisements shown on our network generally have previously been broadcast
over public television networks and have been subjected to internal review and
verification by these broadcasters, we are required to separately and
independently review and verify these advertisements for content compliance
before displaying these advertisements. In addition, for advertising content
related to special types of products and services, such as alcohol, cosmetics,
pharmaceuticals and medical procedures, we are required to confirm that the
advertisers have obtained requisite government approvals including the
advertisers’ operating qualifications, proof of quality inspection of the
advertised products, government pre-approval of the contents of the
advertisement and filing with the local authorities. We employ, qualified
advertising inspectors who are trained to review advertising content for
compliance with applicable PRC laws, rules and regulations. We endeavor to
comply with such requirements, including by requesting relevant documents from
the advertisers. Further, out-of-home advertisements must be registered with the
local branch of the State Administration for Industry and Commerce, or SAIC,
before dissemination, and advertising distributors are required to submit a
registration application form and the content of the advertisement to the local
SAIC and receive an advertising registration certificate from the local SAIC.
Our reputation will be tarnished and our results of operations may be adversely
affected if advertisements shown on our digital out-of-home advertising network
are provided to us by our advertising clients in violation of relevant PRC
content laws and regulations, or if the supporting documentation and government
approvals provided to us by our advertising clients in connection with such
advertising content are not complete, or if the advertisements are not content
compliant.




Moreover,
civil claims may be filed against us for fraud, defamation, subversion,
negligence, copyright or trademark infringement or other violations due to the
nature and content of the information displayed on our advertising network. If
consumers find the content displayed on our advertising network to be offensive
the authority parties may seek to hold us responsible for any consumer claims or
may terminate their relationships with us.





In
addition, if the security of our content management system is breached and
unauthorized images, text or audio sounds are displayed on our advertising
network, viewers or the PRC government may find these images, text or audio
sounds to be offensive, which may subject us to civil liability or government
censure despite our efforts to ensure the security of our content management
system. Any such event may also damage our reputation. If our advertising
viewers do not believe our content is reliable or accurate, our business model
may become less appealing to viewers in China and our advertising clients may be
less willing to place advertisements on our advertising network.





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We
may be subject to intellectual property infringement claims, which may force us
to incur substantial legal expenses and could potentially result in judgments
against us, which may materially disrupt our business.





We cannot
be certain that our advertising content, entertainment content or other aspects
of our media business do not or will not infringe upon patents, copyrights or
other intellectual property rights held by third parties. Although we are not
aware of any such claims, we may become subject to legal proceedings and claims
from time to time relating to the intellectual property of others in the
ordinary course of our business. If we are found to have violated the
intellectual property rights of others, we may be enjoined from using such
intellectual property, and we may incur licensing fees or be forced to develop
alternatives. In addition, we may incur substantial expenses in defending
against these third party infringement claims, regardless of their merit.
Successful infringement or licensing claims against us may result in substantial
monetary liabilities, which may materially and adversely disrupt our
business.





We
may be, or may be joined as, a defendant in litigation brought against our
clients or our local operating partners by third parties, governmental or
regulatory authorities, consumers or competitors, which could result in
judgments against us and materially disrupt our business.





From time
to time, we may be, or may be joined as, a defendant in litigation brought
against our clients or our local operating partners by third parties,
governmental or regulatory authorities, consumers or competitors. These actions
could involve claims alleging, among other things, that:





•
            advertising
      claims made with respect to our client’s products or services are false,
      deceptive or misleading;





•
            our
      clients’ products are defective or injurious and may be harmful to others;
      marketing, communications or advertising materials created for our clients
      infringe on the proprietary rights of third parties;
  or





•
            our
      relationships with our local operating partners violate or interfere with
      the contractual relationships or rights of third
  parties;





The
damages, costs, expenses and attorneys’ fees arising from any of these claims
could have an adverse effect on our business, results of operations, financial
condition and prospects. In any case, our reputation may be negatively affected
by these allegations.





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We
may be exposed to liabilities under the Foreign Corrupt Practices Act, and any
determination that we violated the Foreign Corrupt Practices Act could have a
material adverse effect on our business.





We are
subject to the Foreign Corrupt Practice Act, or the FCPA, and other laws that
prohibit improper payments or offers of payments to foreign governments and
their officials and political parties by U.S. persons and issuers as defined by
the statute, for the purpose of obtaining or retaining business. We have
operations, agreements with third parties and we make sales in China. Our
activities in China create the risk of unauthorized payments or offers of
payments by the employees, consultants, sales agents or distributors of our
Company, even though they may not always be subject to our control. It is our
policy to implement safeguards to discourage these practices by our employees.
However, our existing safeguards and any future improvements may prove to be
less than effective, and the employees, consultants, sales agents or
distributors of our Company may engage in conduct for which we might be held
responsible. Violations of the FCPA may result in severe criminal or civil
sanctions, and we may be subject to other liabilities, which could negatively
affect our business, operating results and financial condition. In addition, the
U.S. government may seek to hold our Company liable for successor liability FCPA
violations committed by companies in which we invest or that we
acquire.




RISKS
RELATED TO OUR COMMON STOCK





Although
publicly traded, the trading market in our common stock has been substantially
less liquid than the average trading market for a stock quoted on the
Over-the-Counter Bulletin Board and this low trading volume may adversely affect
the price of our common stock.





Our
common stock started trading on the Over-the-Counter Bulletin Board, or OTCBB,
under the symbol “NWCN.OB”.  The trading market in our common stock has
been substantially less liquid than the average trading market for companies
quoted on the New York Stock Exchange. Reported average daily trading volume in
our common stock for the year ended December 31, 2008, was
approximately 10,564 shares. Limited trading volume will subject our shares
of common stock to greater price volatility and may make it difficult for you to
sell your shares of common stock at a price that is attractive to
you.





The
market price of our common stock is volatile, leading to the possibility of its
value being depressed at a time when you want to sell your
holdings.





The
market price of our common stock is volatile, and this volatility may continue.
For instance, between January 1, 2008 and December 31, 2008, the closing bid
price of our common stock, as reported on the markets on which our securities
have traded, ranged between $2.51 and $0.15. Numerous factors, many of which are
beyond our control, may cause the market price of our common stock to fluctuate
significantly. These factors include:




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•
            our
      earnings releases, actual or anticipated changes in our earnings,
      fluctuations in our operating results or our failure to meet the
      expectations of financial market analysts and
  investors;




•
            changes
      in financial estimates by us or by any securities analysts who might cover
      our stock;




•
            speculation
      about our business in the press or the investment
    community;




•
            significant
      developments relating to our relationships with our customers or
      suppliers;




•
            stock
      market price and volume fluctuations of other publicly traded companies
      and, in particular, those that are in the advertising
      industry;




•
            customer
      demand for our products;




•
            investor
      perceptions of our industry in general and our company in
      particular;




•
            the
      operating and stock performance of comparable
  companies;




•
            general
      economic conditions and trends;




•
            major
      catastrophic events;




•
            announcements
      by us or our competitors of new products, significant acquisitions,
      strategic partnerships or
divestitures;




•
            changes
      in accounting standards, policies, guidance, interpretation or principles;
      and




•
            loss
      of external funding sources.




Securities
class action litigation is often instituted against companies following periods
of volatility in their stock price. This type of litigation could result in
substantial costs to us and divert our management’s attention and resources.
Moreover, securities markets may from time to time experience significant price
and volume fluctuations for reasons unrelated to operating performance of
particular companies. For example, in October 2008, the securities markets in
the United States, China and other jurisdictions experienced the largest decline
in share prices since the “Black Monday” crash on October 19, 1987. These market
fluctuations may adversely affect the price of our common stock and other
interests in our company at a time when you want to sell your interest in
us.


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A
decline in the price of our shares of common stock could affect our ability to
raise further working capital and adversely impact our operations.




A
prolonged decline in the price of our shares of common stock could result in a
reduction in the liquidity of our shares of common stock and a reduction in our
ability to raise capital. Any reduction in our ability to raise equity capital
in the future would force us to reallocate funds from other planned uses and
would have a significant negative effect on our business plans and operations,
including our ability to develop our business and continue our current
operations. If the stock price declines, there can be no assurance that we can
raise additional capital or generate funds from operations sufficient to meet
our obligations.





If
we issue additional shares, this may result in dilution to our existing
stockholders.




Our
Certificate of Incorporation authorizes the issuance of 800,000,000 shares of
common stock and 5,000,000 shares of preferred stock. Our board of directors has
the authority to issue additional shares up to the authorized capital stated in
the Certificate of Incorporation. Our board of directors may choose to issue
shares to acquire one or more businesses or to provide additional financing in
the future. The issuance of shares may result in a reduction of the book value
or market price of the outstanding shares of our common stock. If we issue
additional shares, there may be a reduction in the proportionate ownership and
voting power of all other stockholders. Further, any issuance may result in a
change of control of the Company.




Our
authorized preferred stock constitutes what is commonly referred to as “blank
check” preferred stock. This type of preferred stock allows the board of
directors to designate the preferred stock into a series, and determine
separately for each series any one or more relative rights and preferences. The
board of directors may issue shares of any series without further stockholder
approval. Preferred stock authorized in series allows our board of directors to
hinder or discourage an attempt to gain control by a merger, tender offer at a
control premium price, or proxy contest. Consequently, the preferred stock could
entrench our management. In addition, the market price of our common stock could
be affected by the existence of the preferred stock.




We
may be subject to penny stock regulations and restrictions which may limit a
stockholder’s ability to buy and sell our stock on the secondary
market.




The SEC
has adopted regulations which generally define so-called “penny stocks” to be an
equity security that has a market price less than $5.00 per share or an exercise
price of less than $5.00 per share, subject to certain exemptions. As of March
16, 2009, the closing bid and asked price for our common stock was $0.03 per
share, which designates it as a “penny stock”. As a “penny stock”, our common
stock may become subject to Rule 15g-9 under the Exchange Act, or the “Penny
Stock Rule”. This rule imposes additional sales practice requirements on
broker-dealers that sell such securities to persons other than established
customers and “accredited investors” (generally, individuals with a net worth in
excess of $1,000,000 or annual incomes exceeding $200,000, or $300,000 together
with their spouses). For transactions covered by Rule 15g-9, a broker-dealer
must make a special suitability determination for the purchaser and have
received the purchaser’s written consent to the transaction prior to sale. As a
result, this rule may affect the ability of broker-dealers to sell our
securities and may affect the ability of purchasers to sell any of our
securities in the secondary market.





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For any
transaction involving a penny stock, unless exempt, the rules require delivery,
prior to any transaction in a penny stock, of a disclosure schedule prepared by
the SEC relating to the penny stock market. Disclosure is also required to be
made about sales commissions payable to both the broker-dealer and the
registered representative and current quotations for the securities. Finally,
monthly statements are required to be sent disclosing recent price information
for the penny stock held in the account and information on the limited market in
penny stock.





There can
be no assurance that our common stock will qualify for exemption from the Penny
Stock Rule. In any event, even if our common stock were exempt from the Penny
Stock Rule, we would remain subject to Section 15(b)(6) of the Exchange Act,
which gives the SEC the authority to restrict any person from participating in a
distribution of penny stock, if the SEC finds that such a restriction would be
in the public interest. The penny stock rules could discourage investors from
purchasing our common stock and thereby limit its marketability.





FINRA
sales practice requirements may also limit a stockholder’s ability to buy and
sell our stock.




In
addition to the “penny stock” rules described above, the Financial Industry
Regulatory Authority, or FINRA, promulgates rules that require a broker-dealer,
when providing investment recommendations, must have reasonable grounds for
believing that the investment is suitable for that customer. Prior to
recommending low priced securities to their non-institutional customers,
broker-dealers must make reasonable efforts to obtain information about the
customer’s financial status, tax status and investment objectives. Under
interpretations of these rules, FINRA believes that there is a high probability
that low priced securities will not be suitable for at least some customers. The
FINRA requirements make it more difficult for broker-dealers to recommend their
customers buying our common stock, which may limit ability of our investors to
buy and sell our stock and hence have an effect on the market for our
shares.




Stockholders
should have no expectation of any dividends.




The
holders of our common stock are entitled to receive dividends, when, as and if
declared by the board of directors out of funds of the Company legally available
for the payment of dividends. To date, we have not declared nor paid any cash
dividends. The board of directors does not intend to declare any dividends in
the near future, but instead intends to retain all earnings, if any, to finance
the development and expansion of our business and operations. Accordingly,
investors must be prepared to rely on sales of their common stock after price
appreciation to earn an investment return, which may never occur. Investors
seeking cash dividends should not purchase our common stock. Any determination
to pay dividends in the future will be made at the discretion of our board of
directors and will depend on our results of operations, financial condition,
contractual restrictions, restrictions imposed by applicable law and other
factors our board deems relevant.





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Certain terms of
the Company’s convertible promissory notes and Common Stock warrants could
result in other security holders suffering potentially significant
dilution.





Our
convertible promissory notes and warrants, as well as the purchase agreement,
contain various provisions that protect the interests of the holders of these
securities in a manner that may be adverse to our Common Stock holders. Our 3%
Convertible Promissory Notes bear interest at 3% per annum payable semi-annually
in arrears and mature on June 30, 2011 and are convertible into shares of common
stock at an initial conversion price of $1.65 per share, subject to customary
anti-dilution adjustments. In addition, the conversion price will be
adjusted downward on an annual basis if the Company should fail to meet certain
annual earnings per share (“EPS”) targets described in the notes. In the event
of a default, or if the Company’s actual EPS for any fiscal year is less than
80% of the respective EPS target, certain Investors may require the Company to
redeem the 3% Convertible Promissory Notes at 100% of the principal amount plus
any accrued, unpaid interest and an amount representing a 20% internal rate of
return on the then outstanding principal amount. The Warrants grant the holders
the right to acquire shares of common stock at $2.50 and $3.50 per share,
subject to customary anti-dilution adjustments. The exercise price of the
Warrants will also be adjusted downward whenever the conversion price of the 3%
Convertible Promissory Notes is adjusted downward in accordance with the
provisions of the notes.




ITEM 1B. UNRESOLVED STAFF
COMMENTS




None.






ITEM 2.
PROPERTIES




We occupy
3,500 square feet of executive office space at 21/F.,
Chinachem Century Tower, 178 Gloucester Road, Wanchai, Hong Kong, for
$8,974 per month, pursuant to a 3-year lease agreement commencing November 15,
2006 between the Company’s wholly owned subsidiary NCN Group Management Limited
and Chinachem Agencies Limited.




We also
maintain office space in Beijing and Shanghai for certain of our
subsidiaries. Our Beijing office occupies 510 square meters of space at Room 11,
Full Link Plaza No. 18, Chaoyangmenwai Ave, Beijing, China, for $8,324 per
month, pursuant to a 2-year lease agreement commencing January 11,
2009 between the Company’s wholly owned subsidiary, Lianhe and Beijing Full Link
Plaza Mansion Co., Ltd; and our Shanghai office occupies 363 square meters of
space at Room 1318, Hitech Plaza, No.488 Wuning Road, Jingan
District, Shanghai, China, for $5,302 per month, pursuant to a 2-year
lease agreement commencing October 24, 2008 between the Company’s variable
interest entity, Quo Advertising and Shanghai City Real Estate Co.,
Ltd.





We
believe that all our properties have been adequately maintained, are generally
in good condition, and are suitable and adequate for our business.




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ITEM 3. LEGAL PROCEEDINGS




On March
20, 2008, the Company’s wholly-owned subsidiary, NCN Huamin, entered into a
rental agreement with Beijing Chengtian Zhihong TV & Film Production Co.,
Ltd., or Chengtian, pursuant to which, certain office premises located in
Beijing was leased from Chengtian to NCN Huamin for a term of three years,
commencing April 1, 2008. On December 30, 2008, NCN Huamin issued a notice to
Chengtian to terminate the rental agreement effective on December 31, 2008 as
Chengtian had breached several provisions as stated in the rental agreement and
refused to take any remedial actions. On January 14, 2009, NCN Huamin received a
notice from Beijing Arbitration Commission that Chengtian as plaintiff had
initiated a lawsuit against NCN Huamin seeking an aggregate of approximately
$505,000 for unpaid rental-related expense plus accrued interest as well as
compensation for unilateral termination of the rental contract. On February 25,
2009, NCN Huamin counter-claimed for breach of rental contract against Chengtian
and asserted to claim an aggregate of approximately $155,000 from Chengtian for
overpayment of rental expenses and compensation for Chengtian’s breach of
contract. At present, the outcome of this lawsuit cannot be reasonably
predicted. We do not believe that the outcome of this pending litigation will
have a material impact on our financial statements, or our results of
operations.




Other
than as described above, we are not aware of any material, active or pending
legal proceedings against the Company or its subsidiaries or variable interest
entities, nor are we involved as a plaintiff in any material proceeding or
pending litigation. There are no proceedings adverse to the Company in which any
of our directors, officers or affiliates of the Company, any owner of record or
beneficiary of more than 5% of any class of voting securities of the Company, or
security holder is a party or has a material interest.








ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS




No
matters were submitted to a vote of security holders during the fourth quarter
of 2008.









PART
II






ITEM
      5.
              MARKET
      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY
SECURITIES





Market
for Our Common Stock




Since
August 1, 2006, our common stock has been listed on the Over-the-Counter
Bulletin Board, or OTCBB, maintained by the Financial Industry Regulatory
Authority, under the symbol “NWCN.OB”. Prior to that date, our common stock had
been quoted on the OTCBB under the symbol “TTVL.OB”. On March 16, 2009, the last
reported sales price of our common stock on the OTCBB was $0.03 per share. The
CUSIP number is 64125G100.





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The
following table sets forth, for the periods indicated, the high and low closing
prices of our common stock. These prices reflect inter-dealer prices, without
retail mark-up, mark-down or commission, and may not represent actual
transactions.




Closing Prices(1)High
                      
                      
                      LowFISCAL
      YEAR ENDED DECEMBER 31, 2008:Fourth Quarter
                      
                      $
                      0.90
                      
                      
                      $
                      0.15Third Quarter
                      
                      $
                      2.00
                      
                      
                      $
                      0.90Second Quarter
                      
                      $
                      2.08
                      
                      
                      $
                      1.50First Quarter
                      
                      $
                      2.51
                      
                      
                      $
                      1.85FISCAL
      YEAR ENDED DECEMBER 31, 2007:Fourth Quarter
                      
                      $
                      2.95
                      
                      
                      $
                      1.80Third Quarter
                      
                      $
                      2.80
                      
                      
                      $
                      2.03Second Quarter
                      
                      $
                      3.12
                      
                      
                      $
                      2.50First Quarter
                      
                      $
                      4.35
                      
                      
                      $
                      2.50(1)   The
      above tables set forth the range of high and low closing prices per share
      of our common stock as reported by www.bloomberg.com for the periods
      indicated.





Approximate
Number of Holders of Our Common Stock




As of
March 25, 2009, the Company had approximately 140 stockholders of record and
71,641,608 shares of common stock were issued and outstanding. Because some
of our common stock is held by brokers and other institutions on behalf of
stockholders, we are unable to estimate the total number of stockholders
represented by these record holders.




Holladay
Stock Transfer is the registrar and transfer agent for our common stock. Their
address is 2939 North 67th Place, Suite C, Scottsdale, Arizona 85251, USA
and their telephone number and facsimile are (480) 481-3940 and (480) 481-3941,
respectively.





Dividend
Policy




The
Company has not declared any dividends since incorporation and does not
anticipate doing so in the foreseeable future. We currently intend to retain
most, if not all, of our available funds and any future earnings to operate and
expand our business.





As we are
a holding company, we rely on dividends paid to us by our subsidiaries in the
PRC through our Hong Kong subsidiary, Cityhorizon Hong Kong. In accordance with
its articles of association, each of our subsidiaries in the PRC is required to
allocate to its enterprise development reserve at least 10% of its respective
after-tax profits determined in accordance with the PRC accounting standards and
regulations. Each of our subsidiaries in the PRC may stop allocations to its
general reserve if such reserve has reached 50% of its registered capital.
Allocations to the reserve can only be used for making up losses and other
specified purposes and may not be paid to us in forms of loans, advances, or
cash dividends. Dividends paid by our PRC subsidiaries to Cityhorizon Hong Kong,
our Hong Kong subsidiary, will not be subject to Hong Kong capital gains or
other income tax under current Hong Kong laws and regulations because they will
not be deemed to be assessable income derived from or arising in Hong
Kong.





49
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Our board
of directors has discretion on whether to pay dividends unless the distribution
would render us unable to repay our debts as they become due. Even if our board
of directors decides to pay dividends, the form, frequency and amount will
depend upon our future operations and earnings, capital requirements and
surplus, general financial condition, contractual restrictions and other factors
that the board of directors may deem relevant. For instance, the terms of the
outstanding promissory notes issued to affiliated funds of Och-Ziff on January
31, 2008 contain restrictions on the payment of dividends. The dividend
restrictions provide that we will not make any dividend distributions or redeem
or repurchase more than a de minimis number of shares of our common stock
without the prior written consent of the holders of these promissory notes,
other than the repurchase of shares of common stock from departing officers and
directors.





Performance
Graph




The
following performance graph* compares, for the five-year period ended December
31, 2008, the cumulative total stockholder return for the Company’s common stock
quoted on the
OTCBB,the
Standard & Poor’s 500 Stock Index, or the S&P 500 Index, and the
NASDAQ Stock Market (U.S. Companies) Index, or the NASDAQ Stock Market
Index.The graph assumes that $100 was invested on December 31, 2003 in the
common stock of the Company, the OTCBB, the NASDAQ Stock
Market and the S&P 500 Index,assumes reinvestment of
any dividends. Measurement points are the last trading day of each of the
Company’s years ended December 31, 2004, 2005, 2006, 2007 and 2008. The stock
price performance on the following graph is not necessarily indicative of future
stock price performance.




50
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* This
performance graph shall not be deemed “filed” for purposes of Section 18 of the
Exchange Act or otherwise, subject to the liabilities under that Section and
shall not be deemed to be incorporated by reference into any filing of the
Company under the Securities Act of 1933, as amended or the Exchange
Act.





Securities
Authorized for Issuance Under Equity Compensation Plans




See Item
12. “Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters — Securities Authorized for Issuance Under Equity
Compensation Plans”.




Recent
Sales of Unregistered Securities




During
the fiscal year ended December 31, 2008 we did not offer or sell any
unregistered securities that were not previously disclosed in a quarterly report
on Form 10-Q or in a current report on Form 8-K.





Purchases
of Our Equity Securities




No
repurchases of our common stock were made during the fourth quarter of our
fiscal year ended December 31, 2008.






ITEM
6.                  SELECTED
FINANCIAL DATA




The
following selected consolidated financial data should be read in conjunction
with Item 7“Management’s Discussion and Analysis of
Financial Condition and Results of Operations”and the Consolidated
Financial Statements and Notes to Financial Statements.




51
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Consolidated
Statements of Operations Data




Year
      ended December 312008
                
                
                2007
      (1)
                
                
                2006
                
                
                2005
                
                
                2004Revenues
                
                
                4,622,270
                
                
                
                1,442,552
                
                
                
                -
                
                
                
                -
                
                
                
                -Cost
      of revenues
                
                
                17,374,713
                
                
                
                2,795,188
                
                
                
                -
                
                
                
                -
                
                
                
                -Operating
      expenses
                
                
                40,099,318
                
                
                
                12,088,954
                
                
                
                4,892,856
                
                
                
                421,439
                
                
                
                -Other
      income
                
                
                91,348
                
                
                
                23,414
                
                
                
                35,569
                
                
                
                -
                
                
                
                -Interest
      expense
                
                
                7,082,378
                
                
                
                329,194
                
                
                
                358
                
                
                
                -
                
                
                
                -Discontinued
      operations
                
                
                42,640
                
                
                
                (953,905
                )
                
                
                395,923
                
                
                
                (1,670,016
                )
                
                
                (4,516,397
                )Net
      loss
                
                
                (59,484,833
                )
                
                
                (14,646,619
                )
                
                
                (4,468,706
                )
                
                
                (2,051,455
                )
                
                
                (4,516,397
                )Net
      loss per common share – basic and diluted
                
                
                (0.83
                )
                
                
                (0.21
                )
                
                
                (0.09
                )
                
                
                (0.09
                )
                
                
                (0.22
                )




Consolidated
Balance Sheets Data




Year
      ended December 312008
                
                
                2007
      (1)
                
                
                2006
                
                
                2005
                
                
                2004Cash
                
                
                7,717,131
                
                
                
                2,233,528
                
                
                
                2,898,523
                
                
                
                85,919
                
                
                
                66,742Prepayments
      for advertising operating rights, net
                
                
                418,112
                
                
                
                13,636,178
                
                
                
                -
                
                
                
                -
                
                
                
                -Total
      assets
                
                
                13,072,666
                
                
                
                27,107,343
                
                
                
                10,527,134
                
                
                
                3,289,603
                
                
                
                3,922,590Convertible
      promissory notes
                
                
                30,848,024
                
                
                
                12,626,292
                
                
                
                -
                
                
                
                -
                
                
                
                -Total
      liabilities
                
                
                36,428,883
                
                
                
                16,120,533
                
                
                
                1,011,780
                
                
                
                1,301,123
                
                
                
                3,865,336Stockholders’ (deficit)
      equity
                
                
                (23,356,217
                )
                
                
                10,638,936
                
                
                
                9,425,252
                
                
                
                1,988,796
                
                
                
                57,254




(1)  
Restated to correct the accounting errors arising from our misapplication of
accounting policies to the discount associated with the beneficial conversion
feature attributed to the issuance of the 3% convertible promissory notes in
2007 and 2008. Please refer to Note 3 to the consolidated financial statements
for details.




52
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ITEM
      7.
                MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS


The
following management’s discussion and analysis should be read in conjunction
with our consolidated financial statements and the notes thereto and the other
financial information appearing elsewhere in this Report. In addition to
historical information, the following discussion contains certain
forward-looking information. See “Forward Looking Statements” above for certain
information concerning those forward looking statements. Our financial
statements are prepared in U.S. dollars and in accordance with U.S. GAAP.
References in this Report to a particular “fiscal” year are to our fiscal year
ended on December 31, 2008.




Overview




Our
mission is to become a nationwide leader in providing out-of-home advertising in
China, primarily serving the needs of branded corporate customers. We seek
to acquire rights to install and operate roadside advertising panels and
mega-size advertising panels in the major cities in China. In most cases, we
will be responsible for installing advertising panels, although in some cases,
advertising panels might have already been installed and we will be responsible
for operating and maintaining the panels. Once the advertising panels are put
into operation, we sell advertising airtime to our customers
directly. Since late 2006, we have been operating a growing advertising
network of roadside LED digital video panels, mega-size LED digital video
billboards and light boxes in major Chinese cities. LED (known as “Light
Emitting Diode”) technology has evolved to become a new and popular form of
advertising in China, capable of delivering crisp, super-bright images both
indoors and outdoors.




Our total
advertising revenues were $4,622,270, $1,442,552 and $nil for the years ended
December 31, 2008, 2007 and 2006, respectively. Our net loss was $59,484,833,
$14,646,619, $4,468,706 for the years ended December 31, 2008, 2007 and 2006,
respectively. The following are the major factors that adversely affect our
results of operations during the year ended December 31, 2008:




·
            The
      rising costs to acquire advertising rights due to competition among
      bidders for those rights;




·
            Delays
      in obtaining government approvals for panel installation due to the
      government’s focus on fighting snow storms in different provinces in the
      early months of the year;




·
            Slower
      than expected consumer acceptance of the digital form of advertising
      media;




·
            Strong
      competition from other media
companies;




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·
            The
      provision of free advertising time to air earthquake information,
      government recovery efforts and donation-related information for the 8.0
      magnitude earthquake in the
  Sichuan Province;




·
            Various
      administrative delays and restrictions of the Beijing Olympic Committee
      limiting advertisements during the Olympic period in Olympic-related
      panels to official Olympic sponsors only and non-Olympic sponsors with
      which the Company had negotiated were forced to pull out;
    and




·
            Slowing
      demand due to the worldwide financial crisis and deteriorating economic
      conditions in China, leading many customers to cut their advertising
      budget. The impact of the reduction in the pace of advertising spending is
      expected to be more significant on our new digital form of media than
      traditional advertising platforms.




Due to
the unexpected unfavorable market conditions described above, our revenues and
cash inflows were less than we expected. To address this issue, in the latter
half of 2008, the Company has undergone drastic cost-cutting exercises including
reduction of the Company’s workforce, rentals, as well as selling and marketing
expenses and other general and administrative expenses. The commercial viability
of each of the Company’s concession rights was re-assessed. Some commercially
non-viable concession right contracts were terminated accordingly and management
has successfully negotiated with certain authority parties of concession rights
to reduce advertising operating right fees. We will continue to strictly control
our operating costs in 2009. More resources will be allocated to those
commercially viable projects and we will continue to explore prominent
advertising related projects.




Recent
Developments




Disposal
of Non-Media Business Division




In 2008,
the Board of Directors of the Company resolved that it was in the best interests
of the Company to focus on developing its media business and to explore ways of
divesting its travel business. The Company entered into stock purchase
agreements to dispose of its entire non-media business division.




On
September 1, 2008, the Company completed the sale of all its interests in NCN
Management Services to Zhanpeng Wang, or Wang, an individual for a consideration
of HK$1,350,000, or approximately $173,000, in cash.Wang acquired NCN Management
Services along with its subsidiaries, which include 100% interest in NCN Hotels
Investment Limited, 100% interest in NCN Pacific Hotels Limited and a 55%
interest (through trust) in Tianma. The Company reported a gain on the sale, net
of income taxes and minority interests of $61,570.




On
September 30, 2008, the Company completed the sale of its 99.9% interest in NCN
Landmark to Ngar Yee Tsang, or Tsang, an individual, for a cash consideration of
$20,000. Tsang acquired NCN Landmark along with its subsidiary, 100% interest in
Beijing NCN Landmark Hotel Management Limited, a PRC corporation. The Company
reported a gain on the sale, net of income taxes and minority interests of
$4,515.




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The
Company treated the sales of NCN Management Services along with its subsidiaries
and variable interest entity and NCN Landmark along with its subsidiary as a
discontinuation of operations. Accordingly, revenues, costs and expenses of the
discontinued operations have been excluded from the respective captions in the
condensed consolidated statements of operations. The net operating results of
the discontinued operations have been reported, net of applicable income taxes
and minority interest, as “Income (Loss) from Discontinued Operations, Net of
Income Taxes and Minority Interests”.




3% Convertible
Promissory Notes andWarrants




On
November 19, 2007, the Company and Quo Advertising, entered into a 3% note and
warrant purchase agreement with affiliated investment funds of Och-Ziff Capital
Management Group, or the Och-Ziff Investors, pursuant to which the we agreed to
issue 3% Senior Secured Convertible Notes due June 30, 2011 in the aggregate
principal amount of up to $50,000,000 and warrants to acquire an aggregate
amount of 34,285,715 shares of our common stock. The notes and warrants were
issued in three tranches: (1) on November 19, 2007, notes in the aggregate
principal amount of $6,000,000, warrants exercisable for 2,400,000 shares at
$2.50 per share and warrants exercisable for 1,714,285 shares at $3.50 per share
were issued; (2) on November 28, 2007, notes in the aggregate principal amount
of $9,000,000, warrants exercisable for 3,600,000 shares at $2.50 per share and
warrants exercisable for 2,571,430 shares at $3.50 per share were issued;
and  (3) on January 31, 2008, notes in the aggregate principal amount of
$35,000,000, warrants exercisable for 14,000,000 shares at $2.50 per share and
warrants exercisable for 10,000,000 shares at $3.50 per share were issued. The
notes bore interest at 3% per annum payable semi-annually in arrears and were
convertible into shares of common stock at an initial conversion price of $1.65
per share, subject to customary anti-dilution adjustments. In addition, the
conversion price was subject to downward adjustment on an annual basis if we
failed to meet certain annual EPS targets described in the purchase agreement.
The EPS targets for fiscal 2008, 2009 and 2010 are $0.081, $0.453, and $0.699
respectively. The warrants were to expire on June 30, 2011 and granted the
holders the right to acquire shares of common stock at $2.50 and $3.50 per
share, subject to customary anti-dilution adjustments. The exercise price of the
warrants was also subject to a downward adjustment whenever the conversion price
of the notes was adjusted downward. In connection with our issuance of the 3%
Senior Secured Convertible Notes, we also entered into a registration rights
agreement with the Och-Ziff Investors, pursuant to which, as amended, we agreed
to file at their request, a registration statement registering for resale any
shares issued to the Och-Ziff Investors upon conversion of the notes or exercise
of the warrants.





On
January 31, 2008, we issued $35,000,000 in additional notes and amended and
restated the terms of the $15,000,000 in notes issued in the second tranche.
Concurrent with the issuance of the third tranche, we loaned substantially all
the proceeds from the notes to our BVI subsidiary, the NCN Group, which was
evidenced by an intercompany note issued by NCN Group in favor of the
Company, or the NCN Group Note. At the same time we also entered into a
security agreement, pursuant to which we granted to the collateral agent for the
benefit of the convertible note holders, a first-priority security interest in
certain of our assets, including the NCN Group Note and 66% of the shares
of the NCN Group. In addition, the NCN Group and certain of our indirect
subsidiaries each granted us a security interest in certain of their assets to,
among other things, secure the NCN Group Note and certain related
obligations.




55
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As of
December 31, 2008, the Company failed to meet EPS target for fiscal 2008. The
Och-Ziff Investors agreed the conversion price of the 3% Convertible Promissory
Notes remained unchanged at $1.65 and have not proposed any adjustment
to the conversion price as of December 31, 2008. None of the conversion
options and warrants associated with the above convertible promissory notes has
been exercised.




Restatements
of Consolidated Financial Statements




On
October 10, 2008, we filed a Current Report on Form 8-K to announce
that our Board of Directors, based upon the consideration of issues addressed in
the SEC review and the recommendation of the Audit Committee, determined that we
should restate our previously issued condensed consolidated financial statements
for quarterly periods ended March 31, 2008 and June 30, 2008 and consolidated
financial statements for the year ended December 31, 2007.




The
restatement adjustments corrected the accounting errors arising from our
misapplication of accounting policies to the discount associated with the
beneficial conversion feature attributed to the issuance of the 3% convertible
promissory notes in 2007 and 2008. The Company initially amortized the discount
according to EITF Issue No. 98-5, “Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratio”, which stated that discount resulting from allocation
of proceeds to the beneficial conversion feature should be recognized as
interest expense over the minimum period from the date of issuance to the date
of earliest conversion. As the notes are convertible at the date of issuance,
the Company fully amortized such discount through interest expense at the date
of issuance accordingly. However, according to Issue 6 of EITF Issue No.
00-27,“Application of Issue
No. 98-5 to Certain Convertible Instruments”, EITF Issues No. 98-5 should
be modified to require the discount related to the beneficial conversion feature
to be accreted from the date of issuance to the stated redemption date
regardless of when the earliest conversion date occurs using the effective
interest method. The restatement adjustments were to reflect the retrospective
application of the Issue 6 of EITF Issue No. 00-27.




The
aggregate net effect of the restatement was to (1) increase stockholders’ equity
by approximately $14.3 million, $15.1 million and $4.7 million as of June 30,
2008, March 31, 2008 and December 31, 2007 respectively; (2) increase both
non-cash interest expense and net loss for the three months ended June 30, 2008
by approximately $0.8 million and decrease both non-cash interest expense and
net loss for the three months ended March 31, 2008 and for the year ended
December 31, 2008 by approximately $10.4 million and $4.7 million respectively.
Accordingly, the net loss per common share (basic and diluted) for the three
months ended June 30, 2008 and March 31, 2008 increased from $0.11 to $0.12 and
decreased from $0.26 to $0.12 respectively while for the year ended December 31,
2008 decreased from $0.28 to $0.21.




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Results
of Operations




Results
of operations for the year ended December 31, 2008 as compared to the year ended
December 31, 2007 (restated).




Net Revenues. Our revenues
primarily consists of (1) LED panels and billboards advertising income, we
recognize revenue in the period when advertisements are either aired or
published and (2) advertising design, productions, public relations and event
management services income. Werecognize revenues when
the services are performed.In 2008 our revenues were derived from the
sale of advertising services. Revenues from advertising services for the year
ended December 31, 2008 were $4,622,270, as compared to $1,442,552 for the year
ended December 31, 2007, an increase of 220%. The significant increase was
attributable to the Company beginning to generate LED panels and billboards
advertising revenue in late 2007.




Cost of Revenues. Cost of
revenues primarily consists of fees to obtain rights to operate advertising
panels, advertising agency service fees, media display equipment depreciation
expenses and other miscellaneous expenses. Cost of advertising services for the
year ended December 31, 2008 was $17,374,713, an increase of 522% compared to
$2,795,188 for year ended December 31, 2007. The significant increase was
attributable to an increase in both amortization of advertising rights which
were acquired in late 2007 and early 2008 and depreciation of media display
equipment which were placed into operation in early 2008.




Gross Loss.Our gross loss
for the year ended December 31, 2008 was $12,752,443 as compared to gross loss
of $1,352,636 for the same period in 2007. The increase in gross loss was
primarily driven by a significant increase in our cost of revenues as most of
our media projects were placed into operation in late 2007 and early 2008. As
our advertising revenue in 2008 was adversely affected by unexpected unfavorable
market condition, increase in revenue was not in line with increase in cost of
revenues. Accordingly, a significant increase in gross loss was
recorded.




Selling and Marketing
Expenses. Selling and marketing expenses primarily consists of advertising and other
marketing related expenses, compensation and related expenses for personnel
engaged in sales and sales support functions.Selling and marketing
expenses for the year ended December 31, 2008 increased by 493% to
$2,996,142 compared to $504,758 for the year ended December 31, 2007, primarily
due to an increase in advertising services provided by the
Company.





General and Administrative
Expenses. General and administrative expenses primarily consists of
compensation related
expenses (including salaries paid to executive and employees, stock-based
compensation expense for stock granted to directors, executive officers and
employees for services rendered calculated in accordance with SFAS 123R,
employee bonuses and other staff welfare and benefits), rental expenses,
amortization expenses of intangible rights, depreciation expenses, fees for
professional services, travel expenses and miscellaneous office expenses.General and administrative expenses for the year ended December 31,
2008 increased by 2% to $11,254,933 compared to $11,067,777 for the year
ended December 31, 2007. The increase was driven by the increase in
amortization charges of intangible assets as a result of the addition of
identifiable intangible assets arising from the consolidation of Botong and
Lianhe in January 2008 and the increase in staff costs, office rental expense
and other miscellaneous administrative expense as a result of the Company’s
continuous expansion in fiscal 2008, while offset by the decrease in the
stock-based compensation expense. The decrease in the stock-based compensation
was mainly due to less stock having been granted for services rendered during
the year ended December 31, 2008.




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Allowance forDoubtfulDebts. Allowance for doubtful
debts for the year ended December 31, 2008 increased by 100% to $7,739,043
compared to $nil for the year ended December 31, 2007. The increase was mainly
due to the occurrence of a one-time allowance for doubtful debt of
$7,140,983 for prepaid expenses and other current assets for the year ended
December 31, 2008. Such prepaid expenses and other current assets mainly
represented the balance of payment from our customers being withheld by the
authority party of certain media project and our initial deposits placed for
soliciting other potential media projects which were abandoned by our management
in late fiscal 2008.




Non-cash Impairment
Charges.Non-cash impairment charges increased by 3,407% to $18,109,200 for the
year ended December 31, 2008 as compared to $516,419 for the year ended December
31, 2007. As the Company recorded a continuous net loss in fiscal 2008, it
performed an impairment review on its prepayments for advertising operating
rights, media display equipment and intangible assets during the latter half of
fiscal 2008. Accordingly, a non-cash impairment loss of $$7,979,808, $2,977,915
and $7,151,477 was recorded for prepayments for advertising operating rights,
media display equipment and intangible assets respectively. For the year ended
December 31, 2007, a non-cash impairment loss of $516,419 was recorded for
intangible assets only. Such intangible assets were related to non-LED business
on which we recorded a continuous operating loss in 2007.




Interest Expenses.Interest expense for
the year ended December 31, 2008 increased by 2,051% to $7,082,378 compared to
$329,194 for the year ended December 31, 2007. The significant increase was
primarily due to the issuance of convertible promissory notes in late 2007 and
early 2008. Of the $7,082,378 recorded in the year ended December 31, 2008,
$5,589,920 was attributed to amortization of deferred charges and debt discount
associated with these convertible promissory notes and $1,492,458 was
attributed to their respective interest expense.




Income Taxes.The Company derives all of
its income in the PRC and is subject to income tax in the PRC. Income tax
incurred for the year ended December 31, 2008 was $nil as compared to $7,668 for
the year ended December 31, 2007. No income tax was recorded in 2008 as the
Company and all of its subsidiaries operated at a loss in fiscal
2008.




Netloss from Continuing Operations.The Company incurred a net loss from continuing operations of $59,527,473
for the year ended December 31, 2008, an increase of 335% compared to a net loss
of $13,692,714 for the year ended December 31, 2007. The increase in net loss
was driven by several factors: (1) increase in cost of advertising
services related to our media business as mention above, (2) increase in
non-cash impairment charges recorded for prepayments for advertising operating
rights, media display equipments and intangible assets, (3) increase in
amortization of deferred charges and debt discount associated with the issuance
of convertible promissory notes in late 2007 and early 2008, (4) increase in
amortization charges of intangible assets as a result of the addition of
identifiable intangible assets arising from the consolidation of Botong and
Lianhe in January 2008 (5) occurrence of a one-time allowance for doubtful debt
of $7,140,983 for prepaid expenses and other current assets as mentioned above
and (6) increase in professional fees, payroll and other administrative expenses
as a result of our rapid expansion.




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Results
of operations for the year ended December 31, 2007 (restated) as compared to the
year ended December 31, 2006.




Net Revenues. Revenues from
advertising services for the year ended December 31, 2007 were $1,442,552, as
compared to $nil revenues derived from sale of advertising services during 2006,
an increase $1,442,552, or 100%. Advertising services revenue increased by 100%
for the year ended December 31, 2007, primarily as a result of the acquisition
of Quo Advertising and Xuancaiyi in January 2007 and September 2007,
respectively.





Cost of Revenues. Cost of
advertising services increased by 100% to $2,795,188 for the year ended December
31, 2007 due to the acquisition of Quo Advertising and Xuancaiyi in
2007.




Gross Loss.Our gross loss
for the year ended December 31, 2007 was $1,352,636 as compared to gross loss of
$nil for the year ended December 31, 2006. The increase in gross loss was due to
our media operation started in 2007 and was at early stage at that
time.




Selling and Marketing
Expenses. Selling and marketing expenses increased by 100% to $504,758
for the year ended December 31, 2007 due to the acquisition of Quo Advertising
and Xuancaiyi in 2007.




General and Administrative Expenses.General and administrative expenses for the year ended December 31,
2007 increased by 137% to $11,067,777 compared to $4,662,714 for the year
ended December 31, 2006. The increase was driven by (1) an increase in
stock-based compensation expense for services rendered by legal counsel and
consultants in accordance to SFAS 123R; (2) an increase in amortization expense
of $212,816 as a result of the acquisition of intangible rights in 2007; (3)
increase in payroll which was primarily due to an increase in the number of
employees and more stocks were granted to directors, executives and employees
for their services rendered; and (4) increase in professional fees, office
rental expense and other miscellaneous administrative expenses as a result of
the Company’s expansion.




Allowance for Doubtful
Debts.Allowance
for doubtful debts for the year ended December 31, 2007 decreased by 100% to
$nil compared to $15,542 for the year ended December 31, 2006. No significant
variance was noted.




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Non-cash Impairment Charges.
Non-cash impairment charges increased by 141% to $516,419 for the year ended
December 31, 2007, as compared to $214,600 for the year ended December 31, 2006.
As we recorded a continuous operating loss on non-LED business in fiscal 2007,
we provided an impairment loss on the relevant intangible assets. In
2006, non-cash impairment charges was mainly provide for the
intangible right of our former 99.9% owned subsidiary, NCN Landmark, which was
principally engaged in hotel business




Interest Expense. Interest
expense for the year ended December 31, 2007 increased by 91,854% to
$329,194 compared to $358 for the year ended December 31, 2006. The
increase was primarily due to the issuance of convertible promissory notes in
late 2007. Of the $329,194 recorded in the year ended December 31, 2007,
$206,391 was attributed to amortization of deferred charges and debt discount
associated with such convertible promissory notes and $122,803 was attributed to
their respective interest expense. The amount of interest expense for the year
ended December 31, 2006 represented interest expense associated with capital
lease obligations which were fully repaid in fiscal 2007.




Income Taxes.Income tax for the year
ended December 31, 2007 was $7,668 as compared to $6,984 for the year ended
December 31, 2006. Minimum income tax was recorded as the Company and its
subsidiaries operated at a loss in both fiscal 2007 and fiscal
2006.




Net Loss From Continuing
Operations. The Company incurred a net loss from continuing operations of
$13,692,714 for the year ended December 31, 2007, an increase of 181% compared
to a net loss of $4,864,629 for the year ended December 31, 2006. Generally, the
significant increase in the loss from continuing operations was driven by
several major factors: (1) increase in the amortization of deferred charges and
a debt discount associated with the issuance of convertible promissory notes,
(2) increase in stock-based compensation for services rendered by consultants,
legal counsels, directors, executives and employees, (3) increase in non-cash
impairment charges of intangible rights, (4) a loss of $1,352,636 related to our
media business in 2007 and (5) increase in professionals fees, payroll and other
selling, general and administrative expenses recorded by the Company as a result
of our expansion.




Results of
Discontinued Operations




In
Fiscal 2008




The
Company disposed of its entire travel network business during the year ended
December 31, 2008, pursuant to stock purchase agreements with various purchasers
as follows:




·
            On
      September 1, 2008, the Company completed the sale of all its interests in
      NCN Management Services to Zhanpeng Wang, or Wang, an individual for a
      consideration of HK$1,350,000, or approximately $173,000, in cash.Wang acquired NCN
      Management Services along with its subsidiaries, which include 100%
      interest in NCN Hotels Investment Limited, 100% interest in NCN Pacific
      Hotels Limited and a 55% interest (through trust) in Tianma. The Company
      reported a gain on the sale, net of income taxes and minority interests of
      $61,570.




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·
              On
      September 30, 2008, the Company completed the sale of its 99.9% interest
      in NCN Landmark to Ngar Yee Tsang, or Tsang, an individual, for a cash
      consideration of $20,000. Tsang acquired NCN Landmark along with its
      subsidiary, 100% interest in Beijing NCN Landmark Hotel Management
      Limited, a PRC corporation. The Company reported a gain on the sale, net
      of income taxes and minority interests of
  $4,515.


The
Company treated the sales of NCN Management Services along with its subsidiaries
and variable interest entity and NCN Landmark along with its subsidiary as a
discontinuation of operations. Accordingly, revenues, costs and expenses of the
discontinued operations have been excluded from the respective captions in the
condensed consolidated statements of operations. The net operating results of
the discontinued operations have been reported, net of applicable income taxes
and minority interest, as “Income (Loss) from Discontinued Operations, Net of
Income Taxes and Minority Interests”.




In
Fiscal 2007




No
material disposal transaction happened.





In
Fiscal 2006





1.       Sale
of Yide




On April
29, 2006, the Company completed the sale of all of its equity interest in a PRC
real estate joint venture, namely Tianjin Teda Yide Industrial Company Limited
(“Yide”, formerly Tianjin Yide Real Estate Company Limited) pursuant to a
Purchase and Sale of Stock Agreement (the “Agreement”) entered with Far Coast
Asia Limited (“Far Coast”) for a cash consideration of $3,000,000.
Far Coast and its affiliated entities have no prior relationship to the
Company and its affiliated entities.




In
accordance with FASB Interpretation No. 35,“Criteria for Applying the Equity
Method of Accounting for Investments in Common Stock—an interpretation of APB Opinion No.18” (“FIN 35”),
the use of the equity method of accounting for the investment is required if the
investor has the ability to exercise significant influence over the operating
and financial policies of the investee. However, management of the Company has
determined that the failure by the Company to obtain financial information
subsequent to September 30, 2005 has resulted in the loss of significant
influence over the operating and financial policies of Yide. As such, the use of
the equity method was therefore no longer appropriate and the Company
accounted for its investment from October 1, 2005 to April 29, 2006, the date of
completion of the sale, under the cost method.




On April
29, 2006, the Company completed the sale of all of its equity interest in Yide
and recorded a gain from disposal of an affiliate of $579,870 in 2006
accordingly.




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2. Disposal
of Teda BJ




With
equity holding of 100%, Teda (Beijing) Hotels Management Limited (“Teda BJ”) has
been accounted for as a wholly owned subsidiary. In later half of 2006, because
of a change in business direction, the Company determined to dispose of Teda BJ
and began winding down its operations. No further transaction associated with
Teda BJ was recorded during the years ended December 31, 2007 and 2008 and the
process of winding down Teda BJ was not completed as of December 31,
2008.





The
Company has treated the disposal of Teda BJ as discontinued operations since
2006. Accordingly, the Company recorded current liabilities from discontinued
operations of $3,655 included in the consolidated balance sheets. Revenues,
costs and expenses of the Teda BJ have been excluded from the respective
captions in the consolidated statements of operations. The net operating results
of the discontinued operations have been reported, net of applicable income
taxes and minority interests, as “Income (Loss) from Discontinued Operations,
Net of Income Taxes and Minority Interests”. For the years ended December 31,
2008, 2007 and 2006, the respective net operating loss was $nil, $nil and
$53,574 respectively.




Summary
Operating Results of the Discontinued Operations




Summary
operating results for the discontinued operations for the years ended 2008, 2007
and 2006 were as follows:




2008
                    
                    
                    2007
                    
                    
                    2006Revenues
                    
                    $
                    24,528,096
                    
                    
                    $
                    26,140,355
                    
                    
                    $
                    4,442,602Cost
      of revenues
                    
                    
                    (24,172,537
                    )
                    
                    
                    (25,830,401
                    )
                    
                    
                    (4,231,952
                    )Gross
      profit
                    
                    
                    355,559
                    
                    
                    
                    309,954
                    
                    
                    
                    210,650Other
      operating expenses
                    
                    
                    (477,481
                    )
                    
                    
                    (460,362
                    )
                    
                    
                    (390,782
                    )Non-cash
      impairment charges
                    
                    
                    -
                    
                    
                    
                    (815,902
                    )
                    
                    
                    -Other
      income
                    
                    
                    98,838
                    
                    
                    
                    9,210
                    
                    
                    
                    23,257Interest
      income
                    
                    
                    2,040
                    
                    
                    
                    3,471
                    
                    
                    
                    2,903Interest
      expense
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (1,058
                    )Minority
      interest
                    
                    
                    (2,401
                    )
                    
                    
                    (276
                    )
                    
                    
                    (28,917
                    )Loss
      from discontinued operations, net of income taxes and minority
      interests
                    
                    $
                    (23,445
                    )
                    
                    $
                    (953,905
                    )
                    
                    $
                    (183,947
                    )Gain
      from disposal of discontinued operations
                    
                    
                    66,085
                    
                    
                    
                    -
                    
                    
                    
                    -Gain
      from disposal of an affiliate
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    579,870Net
      income (loss) from discontinued operations
                    
                    $
                    42,640
                    
                    
                    $
                    (953,905
                    )
                    
                    $
                    395,923




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Liquidity
and Capital Resources




Cash
Flows




As of
December 31, 2008, current assets were $8,982,777, current liabilities were
$5,580,859 and we had net working capital of $3,401,918. Cash as of December 31,
2008 was $7,717,131 compared to $2,233,528 as of December 31, 2007,
an increase of $5,483,603. The increase was attributable to the issuance of
convertible promissory notes in late 2007 and early 2008. As of December 31,
2007, current assets were $20,064,547, current liabilities were $8,235,037 and
we had net working capital of $11,829,510. Cash as of December 31, 2007 was
$2,233,528 compared to $2,898,523 as of December 31, 2006, a decrease of
$664,995.




The following table sets forth a summary of our cash flows for the periods indicated:


December
      31,2008
                                        
                                        
                                        2007
                                        
                                        
                                        2006Net
      cash used in operating activities
                                        
                                        $
                                        (17,944,568
                                        )
                                        
                                        $
                                        (21,320,216
                                        )
                                        
                                        $
                                        (2,318,366
                                        )Net
      cash used in investing activities
                                        
                                        
                                        (6,689,257
                                        )
                                        
                                        
                                        (523,319
                                        )
                                        
                                        
                                        (3,898,847
                                        )Net
      cash provided by financing activities
                                        
                                        
                                        28,900,000
                                        
                                        
                                        
                                        21,119,380
                                        
                                        
                                        
                                        9,026,337Net
      increase (decrease) in cash and cash equivalents
                                        
                                        $
                                        5,483,603
                                        
                                        
                                        $
                                        (664,995
                                        )
                                        
                                        $
                                        (2,812,604
                                        )Cash
      and cash equivalents at the beginning of year
                                        
                                        
                                        2,233,528
                                        
                                        
                                        
                                        2,898,523
                                        
                                        
                                        $
                                        85,919Cash
      and cash equivalents at the end of year
                                        
                                        $
                                        7,717,131
                                        
                                        
                                        $
                                        2,233,528
                                        
                                        
                                        $
                                        $2,898,523





Operating
Activities




Net cash
utilized by operating activities for the year ended December 31, 2008 was
$17,944,568, as compared with $21,320,216 for the year ended December 31, 2007,
a decrease of $3,375,648. The decrease in net cash used in operating activities
was mainly attributable to a decrease in the payments for acquiring
advertising operating right in fiscal 2008.




Net cash
used by operating activities for the year ended December 31, 2007 was
$21,320,216 compared to $2,318,366 for the year ended December 31, 2006, an
increase of $19,001,850. The increase in net cash used by operating activities
was attributable to an increase in both the net loss recorded by the Company and
an increase in fees paid to acquire rights to install and operate LED panels and
billboards.




As
previously discussed, the Company disposed of its entire travel network during
the third quarter of 2008 in order to focus on its media business. The Company
believed that the impact of the absence of cash flows related to the
discontinued operation of our travel network was immaterial to the Company’s
future liquidity and capital resources.





Investing
Activities




Net cash
used in investing activities for the year ended December 31, 2008 was
$6,689,257, compared with net cash used in investing activities of $523,319 for
the year ended December 31, 2007, an increase of $6,165,938 . For the year ended
December 31, 2008, the investing activities consisted primarily of the purchase
of equipment related to our media business and costs associated with the
acquisition of Cityhorizon BVI. Net cash used in investing activities in the
year ended December 31, 2008 was also increased by the sale of the entire travel
network in September, 2008, resulting a cash outflow of $472,827 which
represents the proceeds of disposals, net of cash disposed of.




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 Table of Contents




Net cash
used in investing activities for the year ended December 31, 2007 was $523,319
compared to net cash used in investing activities of $3,898,847 for the year
ended December 31, 2006, a decrease of $3,375,528. The net cash used in
investing activities in 2006 was mainly driven by the one-time acquisition of an
intangible right in the amount of $6,000,000 associated with the Changning
Project, offset by a one-time gain of $3,000,000 received from the sale of the
Company’s interest in Yide. Cash used in investing activities in fiscal 2007
mainly comprised the purchase of equipment and the acquisition of
subsidiaries.





Financing
Activities




Net cash
provided by financing activities was $28,900,000 for the year ended December 31,
2008, compared with net cash provided by financing activities
of $21,119,380 for the year ended December 31, 2007, an increase of
$7,780,620. The increase was primarily attributable to the issuance of
$35,000,000 in 3% Convertible Promissory Notes, offset by $5,000,000 paid
to redeem outstanding 12% convertible promissory note due May 2008. For the year
ended December 31, 2007, the financing activities were attributable to a private
placement that raised proceeds of $1,500,000 and the issuance of Convertible
Promissory Notes in fiscal 2007, which included $5,000,000 in 12% convertible
promissory notes and $15,000,000 in 3% convertible promissory
notes.




Net cash
provided by financing activities was $21,119,380 in fiscal 2007 compared to
$9,026,337 in fiscal 2006, an increase of $12,093,043. The increase was
primarily attributable to the issuance of convertible promissory notes in fiscal
2007 as discussed in the above. Net cash provided by financing activities for
the year ended December 31, 2006 mainly represented proceeds of $9,658,045
raised from private placement.




Redemption
of Wei An Note




On
November 12, 2007, the Company entered into a 12% Note and Warrant Purchase
Agreement with Wei An Developments Limited, or Wei An, with respect to the
purchase by Wei An a convertible promissory note in the principal account of
$5,000,000 at interest rate of 12% per annum. The note was convertible into the
Company’s common stock at the conversion price of $2.40 per share. Pursuant to
the agreement, the Company was subject to a commitment fee of 2% of the
principal amount of the note. The term of the note was six months and the
Company had the option to extend the note by an additional six-month period at
an interest rate of 14% per annum, subject to an additional commitment fee of 2%
of the principal amount of the note. However, the Company had the right to
prepay all or any portion of the amounts due under the note at any time without
penalty or premium. In addition, the Company issued warrants to purchase up to
250,000 shares of the Company’s common stock at the exercise price of $2.30 per
share, which were exercisable for a period of two years.




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 Table of Contents




On
February 13, 2008, the Company fully redeemed 12% Convertible Promissory Note
due May 2008 at a redemption price equal to 100% of the principal amount of
$5,000,000 plus accrued and unpaid interest. No penalty or premium was charged
for such early redemption. The Company recognized the unamortized portion of the
associated deferred charges and debt discount as expenses included in
amortization of deferred charges and debt discount on the consolidated
statements of operation during the period of extinguishment. As of December 31,
2008, none of the warrants associated with the above convertible promissory
notes was exercised.




3% Convertible Promissory Notes and
Warrants




On
November 19, 2007, the Company and Quo Advertising, entered into a 3% note and
warrant purchase agreement with affiliated investment funds of Och-Ziff Capital
Management Group, or the Och-Ziff Investors, pursuant to which the we agreed to
issue 3% Senior Secured Convertible Notes due June 30, 2011 in the aggregate
principal amount of up to $50,000,000 and warrants to acquire an aggregate
amount of 34,285,715 shares of our common stock. The notes and warrants were
issued in three tranches: (1) on November 19, 2007, notes in the aggregate
principal amount of $6,000,000, warrants exercisable for 2,400,000 shares at
$2.50 per share and warrants exercisable for 1,714,285 shares at $3.50 per share
were issued; (2) on November 28, 2007, notes in the aggregate principal amount
of $9,000,000, warrants exercisable for 3,600,000 shares at $2.50 per share and
warrants exercisable for 2,571,430 shares at $3.50 per share were issued;
and  (3) on January 31, 2008, notes in the aggregate principal amount of
$35,000,000, warrants exercisable for 14,000,000 shares at $2.50 per share and
warrants exercisable for 10,000,000 shares at $3.50 per share were issued. The
notes bore interest at 3% per annum payable semi-annually in arrears and were
convertible into shares of common stock at an initial conversion price of $1.65
per share, subject to customary anti-dilution adjustments. In addition, the
conversion price was subject to downward adjustment on an annual basis if we
failed to meet certain annual earnings per share (“EPS”) targets described in
the purchase agreement. The EPS targets for fiscal 2008, 2009 and 2010 are
$0.081, $0.453, and $0.699 respectively. The warrants were to expire on June 30,
2011 and granted the holders the right to acquire shares of common stock at
$2.50 and $3.50 per share, subject to customary anti-dilution adjustments. The
exercise price of the warrants was also subject to a downward adjustment
whenever the conversion price of the notes was adjusted downward. In connection
with our issuance of the 3% Senior Secured Convertible Notes, we also entered
into a registration rights agreement with the Och-Ziff Investors, pursuant to
which, as amended, we agreed to file at their request, a registration statement
registering for resale any shares issued to the Och-Ziff Investors upon
conversion of the notes or exercise of the warrants.





On
January 31, 2008, we issued $35,000,000 in additional notes and amended and
restated the terms of the $15,000,000 in notes issued in the second tranche.
Concurrent with the issuance of the third tranche, we loaned substantially all
the proceeds from the notes to our BVI subsidiary, the NCN Group, which was
evidenced by an intercompany note issued by NCN Group in favor of the Company,
or the NCN Group Note. At the same time we also entered into a security
agreement, pursuant to which we granted to the collateral agent for the benefit
of the convertible note holders, a first-priority security interest in certain
of our assets, including the NCN Group Note and 66% of the shares of the NCN
Group. In addition, the NCN Group and certain of our indirect subsidiaries
each granted us a security interest in certain of their assets to, among other
things, secure the NCN Group Note and certain related obligations.




65
 Table of Contents





As of
December 31, 2008, the Company failed to meet EPS target for fiscal 2008. The
Och-Ziff Investors agreed the conversion price of the 3% Convertible Promissory
Notes remained unchanged at $1.65 and have not proposed any adjustment to
the conversion price as of December 31, 2008. None of the conversion options and
warrants associated with the above convertible promissory notes has been
exercised.





The
Company will have to raise additional funds in order to further expand its media
network, though it should be able to satisfy its requirements during the next 12
months if it scales down its operations. Because we presently have only limited
revenue from operations, we intend to continue to rely primarily on financing
through the sale of our equity and debt securities to satisfy future capital
requirements such that we will be able to finance ongoing operations. There can
be no assurance that we will be able to enter into such agreements. Current
global financial conditions and unfavorable conditions in our existing notes
described below make securing a financing difficult to achieve. Failure to raise
additional funds would have a material adverse effect on our financial
condition. Furthermore, the issuance of equity or debt securities which are or
may become convertible into equity securities in connection with such financing
could result in substantial additional dilution to the
stockholders.




To
address our cash constraints, the Board of Directors has directed management to
undergo drastic cost-cutting exercises including reduction of the Company’s
workforce, rentals, as well as selling and marketing expenses and other general
and administrative expenses. Commencing in October, salary increases to the four
executive directors during 2008 would be accrued but payments will be withheld.
In addition, contractual share grants for 2008 to the top executives will be
withheld until further notice. The commercial viability of each of the Company’s
concession rights was actively re-assessed by management. Some commercially
non-viable concession right contracts were terminated accordingly and management
has successfully negotiated with certain authority parties of concession rights
to reduce right fees. In the coming 2009, we will continue to strictly control
our operating costs. More resources will be allocated to those commercially
viable projects and we will continue to explore prominent advertising related
projects.







Advertising
Operating Rights Fee




Advertising
operating rights fee is the major cost of our advertising revenue. To maintain
the advertising operating rights, the Company has to pay the advertising
operating rights fee according to payment terms set forth in the contracts
entered into with various contracting parties. These contracting parties
generally require the Company to prepay advertising operating rights fee for a
period of time. The details of our advertising operating rights fee were as
follows:




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 Table of Contents




For the year ended December
    31,
                                              
                                              2008
                                              
                                              
                                              2007Payment
      for prepayments for advertising operating rights
                                              
                                              $
                                              7,405,975
                                              
                                              
                                              $
                                              14,627,129Settlement
      for accrued advertising operating rights
                                              
                                              
                                              49,385
                                              
                                              
                                              
                                              -Total
      payment
                                              
                                              $
                                              7,455,360
                                              
                                              
                                              $
                                              14,627,129Amortization
      of prepayments for advertising operating rights
                                              
                                              $
                                              15,167,456
                                              
                                              
                                              $
                                              990,951Accrued
      advertising operating rights fee recognized
                                              
                                              
                                              733,000
                                              
                                              
                                              
                                              49,385Total
      advertising operating rights fee recognized
                                              
                                              $
                                              15,900,456
                                              
                                              
                                              $
                                              1,040,336As of December 31,Prepayments
      for advertising operating rights, net
                                              
                                              $
                                              418,112
                                              
                                              
                                              $
                                              13,636,178Accrued
      advertising operating rights fee
                                              
                                              $
                                              733,000
                                              
                                              
                                              $
                                              49,385




For
future advertising operating rights commitment under non-cancellable advertising
operating right contracts, please refer to the table under the following Section
– Contractual Obligations and Commitment.





We
financed the above payment through the issuance of convertible promissory notes
in the principal amount of $50 million. As the Company currently generates
limited revenue from our media operation, in addition to the proceeds from the
issuance of convertible promissory notes, we intend to continue to raise funds
through sales of our equity and debt securities to satisfy future payment
requirements. There can be no assurance that we will be able to enter into such
agreements.





In the
event that advertising operating rights fee cannot be paid according to the
payment terms set forth in the contracts entered into with authority parties, we
may not be able to continue to operate our advertising panels and our ability to
generate revenue will be adversely affected. As such, failure to raise
additional funds would have significant negative impact on our financial
condition.





Capital
Expenditures




We
continue to seek opportunities to enter new markets, increase market share or
broaden service offerings through acquisitions. During the year ended December
31, 2008, we acquired assets of $3,518,408 which were financed through proceeds
from the issuance of convertible promissory notes.





During
the years ended December 31, 2007 and 2006, we acquired assets of $207,371 and
$90,888 respectively, financed through working capital.




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Contractual
Obligations and Commercial Commitments




The
following table presents certain payments due under contractual obligations with
minimum firm commitments as of December 31, 2008:





Payments
      due by periodTotal
                
                
                Due
      in
                  2009
                
                
                Due
      in
                  2010
      - 2011
                
                
                Due
      in
                  2012-2013
                
                
                ThereafterLong
      Term Debt Obligations (a)
                
                $
                50,000,000
                
                
                $
                -
                
                
                $
                50,000,000
                
                
                $
                -
                
                
                $
                -Operating
      Lease Obligations (b)
                
                
                513,936
                
                
                
                309,931
                
                
                
                204,005
                
                
                
                -
                
                
                
                -Annual
      Advertising Operating Rights Fee obligations (c)
                
                
                9,141,371
                
                
                
                3,874,952
                
                
                
                2,718,753
                
                
                
                1,352,932
                
                
                
                1,194,734Purchase
      Obligations (d)
                
                $
                18,000
                
                
                $
                18,000
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -





a)           Long Term Debt Obligations:We issued an aggregate of $50,000,000 in 3% Convertible Promissory Notes
in late 2007 and early 2008 to our investors. Such 3% Convertible Promissory
Notes mature on June 30, 2011. For details, please refer to the notes to
financial statements.




b)           Operating Lease Obligations:We have entered into various non-cancelable operating lease agreements
for our offices and staff quarter. Such operating leases do not contain
significant restrictive provisions.




c)           Annual Advertising Operating Rights
FeeObligations:Since November 2006, the Company, through its subsidiaries, NCN Media
Services Limited, Quo Advertising, Xuancaiyi, Bona and Botong, has acquired
rights from third parties to operate roadside advertising panels and mega-size
advertising panels whose lease terms expiring between 2009 and
2024.




d)           Purchase Obligations:We are
obligated to make payments under non-cancellable contractual arrangements with
our vendors, principally for constructing our advertising panels.




Off-Balance Sheet
Arrangements




We do not
have any off-balance sheet arrangements that have or are reasonably likely to
have a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources that are material to our
investors.




Critical
Accounting Policies




The
preparation of our financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and liabilities. On an
ongoing basis, we evaluate our estimates, including but not limited to those
related to income taxes and impairment of long-lived assets. We base our
estimates on historical experience and on various other assumptions and factors
that are believed to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Based on our
ongoing review, we plan to adjust to our judgments and estimates where facts and
circumstances dictate. Actual results could differ from our
estimates.




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We
believe the following critical accounting policies are important to the
portrayal of our financial condition and results and require our management's
most difficult, subjective or complex judgments, often because of the need to
make estimates about the effect of matters that are inherently
uncertain.




Principles of
Consolidation–The
consolidated financial statements include the financial statements of Network CN
Inc., its subsidiaries and variable interest entities. Variable interest
entities are those entities in which the Company, through contractual
arrangements, bears the risks of, and enjoys the rewards normally associated
with ownership of the entities, and therefore the Company is the primary
beneficiary of these entities. In accordance withInterpretation No. 46R,
Consolidation of Variable Interest Entities ("FIN 46R"), the primary
beneficiary is required to consolidate the variable interest entities for
financial reporting purposes. All significant intercompany transactions and
balances have been eliminated upon consolidation.




Prepayments for
Advertising Operating Rights, Net–Prepayments
for advertising operating rights are measured at cost less accumulated
amortization and impairment losses. Cost includes prepaid expenses directly
attributable to the acquisition of advertising operating rights. Such prepaid
expenses are in general charged to the consolidated statements of
operations on a straight-line basis over the operating period. All the costs
expected to be amortized after 12 months of the balance sheet date are
classified as non-current assets.




An
impairment loss is recognized when the carrying amount of the prepayments for
advertising operating rights exceeds the sum of the undiscounted cash flows
expected to be generated from the advertising operating right’s use and eventual
disposition. An impairment loss is measured as the amount by which the carrying
amount exceeds the fair value of the asset calculated using a discounted cash
flow analysis.




Equipment, Net–Equipment
is stated at cost less accumulated depreciation and impairment losses.
Depreciation is provided using the straight-line method over the estimated
useful life as follows:




Media
      display equipment
                    5 -
      7 yearsOffice
      equipment
                    3 -
      5 yearsFurniture
      and fixtures
                    3 -
      5 yearsLeasehold
      improvements
                    Over
      the unexpired lease
terms




Construction
in progress is carried at cost less impairment losses, if any. It relates to
construction of media display equipment. No provision for depreciation is made
on construction in progress until such time the relevant assets are completed
and put into use.




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When
equipment is retired or otherwise disposed of, the related cost and accumulated
depreciation are removed from the respective accounts, and any gain or loss is
reflected in the statement of operations. Repairs and maintenance costs on
equipment are expensed as incurred.




Intangible
Assets, Net–Intangible
assets are stated at cost less accumulated amortization and impairment loss.
Intangible assets that have indefinite useful lives are not amortized. Other
intangible assets with finite useful lives are amortized on a straight-line
basis over their estimated useful lives of 16 months to 20 years. The
amortization methods and estimated useful lives of intangible assets are
reviewed regularly.




Impairment of
Long-Lived Assets–Long-lived
assets, including intangible assets with definite lives, are reviewed for
impairment whenever events or changes in circumstance indicate that the carrying
amount of the assets may not be recoverable. An intangible asset that is not
subject to amortization is reviewed for impairment annually or more frequently
whenever events or changes in circumstances indicate that the carrying
amount of the asset may not be recoverable. An impairment loss is recognized
when the carrying amount of a long-lived asset and intangible asset exceeds the
sum of the undiscounted cash flows expected to be generated from the asset’s use
and eventual disposition. An impairment loss is measured as the amount by which
the carrying amount exceeds the fair value of the asset calculated using a
discounted cash flow analysis.




Convertible
Promissory Notes and Warrants–During
2007 and 2008, the Company issued 12% convertible promissory note and warrants
and 3% convertible promissory notes and warrants. As of balance sheet dates, the
warrants and embedded conversion feature were classified as equity under
Emerging Issues Task Force (“EITF”) Issue No. 00-19 “Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock ” and met the
other criteria in paragraph 11(a) of Statement of Financial Accounting Standards
(“SFAS”) No.133 “Accounting
for Derivative Instruments and Hedging
Activities ”. Such classification will be reassessed at each balance
sheet date. The Company allocated the proceeds of the convertible promissory
notes between convertible promissory notes and the financial instruments related
to warrants associated with convertible promissory notes based on their relative
fair values at the commitment date. The fair value of the financial instruments
related to warrants associated with convertible promissory notes was determined
utilizing the Black-Scholes option pricing model and the respective allocated
proceeds to the warrants is recorded in additional paid-in capital. The embedded
beneficial conversion feature associated with convertible promissory notes was
recognized and measured by allocating a portion of the proceeds equal to the
intrinsic value of that feature to additional paid-in capital in accordance with
EITF Issue No. 98-5“Accounting for
Convertible Securities with Beneficial Conversion Features or Contingently
Adjustable Conversion Ratio” and EITF Issue No. 00-27“Application of Issue No. 98-5 to
Certain Convertible Instruments”.




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The
portion of debt discount resulting from the allocation of proceeds to the
financial instruments related to warrants associated with convertible promissory
notes is being amortized to interest expense over the life of the convertible
promissory notes, using the effective yield method. For the portion of debt
discount resulting from the allocation of proceeds to the beneficial conversion
feature, it is amortized to interest expense over the term of the notes from the
respective dates of issuance, using the effective yield method.




Early Redemption
of Convertible Promissory Notes–Should
early redemption of convertible promissory notes occur, the unamortized portion
of the associated deferred charges and debt discount would be fully written off
and any early redemption premium will be recognized as expense upon its
occurrence. All related charges, if material, would be aggregated and included
in a separate line “charges on early redemption of convertible promissory
notes”. Such an expense would be included in ordinary activities on the
consolidated statement of operations as required by SFAS No.145“Rescission of FASB Statements No. 4,
44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections”.




Pursuant
to the provisions of agreements in connection with the 3% convertible promissory
notes, in the event of a default, or if the Company’s actual EPS in any fiscal
year is less than 80% of the respective EPS target, certain investors may
require the Company to redeem the 3% Convertible Promissory Notes at 100% of the
principal amount, plus any accrued and unpaid interest, plus an amount
representing a 20% internal rate of return on the then outstanding principal
amount The Company accounts for such potential liability of 20% internal rate of
return on the then outstanding principal amount in accordance with SFAS No. 5
“Accounting for
Contingencies ”.




Revenue
Recognition–For
advertising services, the Company recognizes revenue in the period when
advertisements are either aired or published. Revenues from advertising barter
transactions are recognized in the period during which the advertisements are
either aired or published. Expenses from barter transactions are recognized in
the period as incurred. Barter transactions are accounted in accordance with
EITF Issue No. 99-17, “Accounting for Advertising Barter Transactions” , which are recorded at
the fair value of the advertising provided based on the Company’s own historical
practice of receiving cash for similar advertising from buyers unrelated to the
counterparty in the barter transactions. The amounts included in advertising
services revenue and general and administrative for barter transactions
were approximately $41,000 and $nil for the years ended December 31, 2008,
2007 and 2006 respectively.




For hotel
management services, the Company recognizes revenue in the period when the
services are rendered and collection is reasonably assured.




For tour
services, the Company recognizes services-based revenue when the services have
been performed. The Company’s subsidiary, Tianma, offers independent leisure
travelers bundled packaged-tour products which include both air-ticketing and
hotel reservations. Tianma’s packaged-tour products cover a variety of domestic
and international destinations.




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Tianma
organizes inbound and outbound tour and travel packages which can incorporate,
among other things, air and land transportation, hotels, restaurants and tickets
to tourist destinations and other excursions. Tianma books all elements of such
packages with third-party service providers such as airlines, car rental
companies and hotels, or through other tour package providers and then resells
such packages to its clients. A typical sale of tour services is as
follows:




·
              Tianma,
      in consultation with sub-agents, organizes a tour or travel package,
      including making reservations for blocks of tickets, rooms, etc. with
      third-party service providers. Tianma may be required to make deposits,
      pay all  or part of the ultimate fees charged by such service
      providers or make legally binding commitments to pay such fees. For
      air-tickets, Tianma normally books a block of air tickets with airlines in
      advance and pays the full amount of the tickets to reserve seats before
      any tours are formed. The air tickets are usually valid for a certain
      period of time. If the pre-packaged tours do not materialize and are
      eventually not formed, Tianma will resell the air tickets to other travel
      agents or customers. For hotels, meals and transportation, Tianma usually
      pays an upfront deposit of 50-60% of the total cost. The remaining balance
      is then settled after completion of the
tours.




·
              Tianma,
      through its sub-agents, advertises tour and travel packages at prices set
      by Tianma and sub-agents.




·
            Customers
      approach Tianma or its appointed sub-agents to book an advertised packaged
      tour.




·
            The
      customers pay a deposit to Tianma directly or through its appointed
      sub-agents.




·
            When
      the minimum required number of customers (which number is different for
      each tour based on the elements and costs of the tour) for a particular
      tour is reached, Tianma will contact the customers for tour confirmation
      and request full payment. All payments received by the appointed
      sub-agents are paid to Tianma prior to the commencement of the
      tours.




·
              Tianma
      will then make or finalize corresponding bookings with outside service
      providers such as airlines, bus operators, hotels, restaurants, etc. and
      pay any unpaid fees or deposits to such
  providers.




Tianma is
the principal in such transactions and the primary obligor to the third-party
providers regardless of whether it has received full payment from its customers.
In addition, Tianma is also liable to the customers for any claims relating to
the tours such as accidents or tour services. Tianma has adequate insurance
coverage for accidental loss arising during the tours. The Company utilizes a
network of sub-agents who operate strictly in Tianma’s name and can only
advertise and promote the business of Tianma with the prior approval of
Tianma.




Stock-based
Compensation–In
December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
123R“Share-Based Payment”, a revision to SFAS No.
123“Accounting for Stock-Based
Compensation”, and superseding APB Opinion
No. 25“Accounting for Stock Issued to
Employees”  and its related implementation guidance. Effective
January 1, 2006, the Company adopted SFAS No. 123R, using a modified prospective
application transition method, which establishes accounting for stock-based
awards in exchange for employee services. Under this application, the Company is
required to record stock-based compensation expense for all awards granted after
the date of adoption and unvested awards that were outstanding as of the date of
adoption. SFAS No. 123R requires that stock-based compensation cost is measured
at grant date, based on the fair value of the award, and recognized in expense
over the requisite services period.




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Common
stock, stock options and warrants issued to other than employees or directors in
exchange for services are recorded on the basis of their fair value, as required
by SFAS No. 123R, which is measured as of the date required by EITF
Issue 96-18“Accounting for Equity Instruments
ThatAre Issued to
Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services ”. In accordance with EITF 96-18, the non-employee stock
options or warrants are measured at their fair value by using the Black-Scholes
option pricing model as of the earlier of the date at which a commitment for
performance to earn the equity instruments is reached (“performance commitment
date”) or the date at which performance is complete (“performance completion
date”). The stock-based compensation expenses are recognized on a straight-line
basis over the shorter of the period over which services are to be received or
the vesting period. Accounting for non-employee stock options or warrants which
involve only performance conditions when no performance commitment date or
performance completion date has occurred as of reporting date requires
measurement at the equity instruments then-current fair value. Any subsequent
changes in the market value of the underlying common stock are reflected in
the expense recorded in the subsequent period in which that change
occurs.




Income Taxes–The
Company accounts for income taxes under SFAS No. 109“Accounting for Income
Taxes”. Under
SFAS No. 109, deferred tax assets and liabilities are provided for the future
tax effects attributable to temporary differences between the financial
statement carrying amounts of assets and liabilities and their respective tax
bases, and for the expected future tax benefits from items including tax loss
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 reversed. Under SFAS No. 109, 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.




Foreign Currency
Translation–The
assets and liabilities of the Company’s subsidiaries and variable interest
entities denominated in currencies other than U.S. dollars are translated into
U.S. dollars using the applicable exchange rates at the balance sheet date. For
statement of operations’ items, amounts denominated in currencies other than
U.S. dollars were translated into U.S. dollars using the average
exchange rate during the period. Equity accounts were translated at their
historical exchange rates. Net gains and losses resulting from translation of
foreign currency financial statements are included in the statements of
stockholders’ equity as accumulated other comprehensive income (loss). Foreign
currency transaction gains and losses are reflected in the consolidated
statements of operations.




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Recent
Accounting Pronouncements




In
September 2006, FASB issued SFAS No. 157, “Fair Value Measurements”.
Effective January 1, 2008, the Company adopted the measurement and
disclosure other than those requirements related to nonfinancial assets and
liabilities in accordance with guidance from FASB Staff Position 157-2, “Effective Date of FASB Statement
No.157”,
which delayed the effective date of SFAS No. 157 for all nonfinancial
assets and nonfinancial liabilities, except for items that are recognized or
disclosed at fair value in the financial statements on a recurring basis (at
least annually), until the beginning of fiscal year 2009. The Company believes
the adoption of SFAS No. 157 for nonfinancial assets and liabilities will
not have a significant effect on its consolidated financial position or results
of operations.




In
December 2007, the Financial Accounting Standards Board (FASB) issued SFAS No.
141 (Revised), “Business
Combinations” (“SFAS No. 141 (R)”), replacing SFAS No. 141, “Business Combinations” (“SFAS
No. 141”), and SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements–an amendment ofARB No.51”. SFAS No. 141(R) retains
the fundamental requirements of SFAS No. 141, broadens its scope by applying the
acquisition method to all transactions and other events in which one entity
obtains control over one or more other businesses, and requires, among other
things, that assets acquired and liabilities assumed be measured at fair value
as of the acquisition date, that liabilities related to contingent consideration
be recognized at the acquisition date and re-measured at fair value in each
subsequent reporting period, that acquisition-related costs be expensed as
incurred, and that income be recognized if the fair value of the net assets
acquired exceeds the fair value of the consideration transferred. SFAS No. 160
improves the relevance, comparability, and transparency of the financial
information that a reporting entity provides in its consolidated financial
statements by establishing accounting and reporting standards that require; the
ownership interests in subsidiaries held by parties other than the parent and
the amount of consolidated net income attributable to the parent and to the
noncontrolling interest be clearly identified and presented on the face of the
consolidated statement of income, changes in a parent’s ownership interest while
the parent retains its controlling financial interest in its subsidiary be
accounted for consistently, when a subsidiary is deconsolidated, any retained
noncontrolling equity investment in the former subsidiary be initially measured
at fair value, entities provide sufficient disclosures that clearly
identify and distinguish between the interests of the parent and the interests
of the noncontrolling owners. SFAS No. 160 affects those entities that have an
outstanding noncontrolling interest in one or more subsidiaries or that
deconsolidate a subsidiary. SFAS No. 141(R) and SFAS No. 160 are effective for
fiscal years, and interim periods within those fiscal years, beginning on or
after December 15, 2008. The Company is currently assessing the impact of
adopting SFAS No. 141 (R) and SFAS No. 160 on its financial statements and
related disclosures.




In March
2008, the FASB issued SFAS No. 161 “Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement
No.133”
(SFAS 161). This statement is intended to improve transparency in financial
reporting by requiring enhanced disclosures of an entity’s derivative
instruments and hedging activities and their effects on the entity’s financial
position, financial performance, and cash flows. SFAS 161 applies to all
derivative instruments within the scope of SFAS No.133 “Accounting for Derivative
Instruments and Hedging Activities” (SFAS No. 133) as well as related
hedged items, bifurcated derivatives, and nonderivative instruments that are
designated and qualify as hedging instruments. Entities with instruments subject
to SFAS No.161 must provide more robust qualitative disclosures and expanded
quantitative disclosures. SFAS No. 161 is effective prospectively for financial
statements issued for fiscal years and interim periods beginning after
November 15, 2008, with early application permitted. The Company
is currently assessing the impact of adopting SFAS No. 161 on its
financial statements and related disclosures.
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In
May 2008, the FASB issued SFAS No. 162 “The Hierarchy of Generally Accepted
Accounting Principles”. SFAS No. 162 identifies the sources of accounting
principles and the framework for selecting the accounting principles to be used.
Any effect of applying the provisions of this statement will be reported as a
change in accounting principle in accordance with SFAS No. 154 “Accounting Changes and Error
Corrections. ” SFAS No. 162 is effective for fiscal years, and interim
periods within those fiscal years, beginning on or after December 15, 2008. The
Company is currently evaluating the impact the adoption of this statement could
have on its financial condition, results of operations and cash
flows.
  In May
2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee
Insurance Contracts, an
interpretation of FASB Statement No.60”. The scope of this
Statement is limited to financial guarantee insurance (and reinsurance)
contracts, as described in this Statement, issued by enterprises included within
the scope of Statement 60. Accordingly, this Statement does not apply to
financial guarantee contracts issued by enterprises excluded from the scope of
Statement 60 or to some insurance contracts that seem similar to financial
guarantee insurance contracts issued by insurance enterprises (such as mortgage
guaranty insurance or credit insurance on trade receivables). This Statement
also does not apply to financial guarantee insurance contracts that are
derivative instruments included within the scope of FASB Statement No. 133,
“Accounting for Derivative Instruments and
Hedging Activities”. This Statement will not have any impact on the
Company’s consolidated financial statements.
  In May
2008, the FASB issued Staff Position No. APB 14-1 “Accounting for Convertible Debt
Instruments that May be
Settled in Cash Upon Conversion”. APB 14-1 requires that the liability
and equity components of convertible debt instruments that may be settled in
cash upon conversion (including partial cash settlement) be separately accounted
for in a manner that reflects an issuer’s nonconvertible debt borrowing rate.
The resulting debt discount is amortized over the period the convertible debt is
expected to be outstanding as additional non-cash interest expense. APB 14-1 is
effective for financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal years.
Retrospective application to all periods presented is required except for
instruments that were not outstanding during any of the periods that will be
presented in the annual financial statements for the period of adoption but were
outstanding during an earlier period. The Company is currently evaluating the
impact of the adoption of this position could have on its financial condition,
results of operations and cash flows.




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In June
2008, the FASB issued Emerging Issues Task Force Issue No. 07-5 “Determining whether an Instrument
(or Embedded Feature) is indexed to an Entity’s Own Stock ” (“EITF No.
07-5”). This Issue is effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods within those fiscal
years. Early application is not permitted. Paragraph 11(a) of SFAS No. 133
“Accounting for Derivatives
and Hedging Activities ” (“SFAS 133”) specifies that a contract that
would otherwise meet the definition of a derivative but is both (a) indexed
to the Company’s own stock and (b) classified in stockholders’ equity in
the statement of financial position would not be considered a derivative
financial instrument. EITF No.07-5 provides a new two-step model to be applied
in determining whether a financial instrument or an embedded feature is indexed
to an issuer’s own stock and thus able to qualify for the SFAS No. 133 paragraph
11(a) scope exception. The Company is currently evaluating the impact of
adoption of EITF No. 07-5 on its financial statements and related
disclosures.
  In June
2008, FASB issued EITF Issue No. 08-4, “Transition Guidance for Conforming
Changes to Issue No. 98-5 (“EITF No. 08-4”). The objective of EITF
No.08-4 is to provide transition guidance for conforming changes made to EITF
No. 98-5, “Accounting for
Convertible Securities with Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios”, that result from EITF No. 00-27 “Application of Issue No. 98-5 to
Certain Convertible Instruments”, and SFAS No. 150, “Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. ” This
Issue is effective for financial statements issued for fiscal years ending after
December 15, 2008. Early application is permitted. The Company is currently
evaluating the impact of adoption of EITF No. 08-4 on the accounting for the
convertible notes and related warrants transactions.
  In
December 2008, the FASB issued Staff Position No. FAS 132(R)-1”,Employers’ Disclosures about
PostretirementBenefitPlan Assets” (“FSP FAS 132(R)-1”). FSP FAS 132(R)-1 requires more
detailed disclosures about employers’ plan assets in a defined benefit pension
or other postretirement plan, including employers’ investment strategies, major
categories of plan assets, concentrations of risk within plan assets, and inputs
and valuation techniques used to measure the fair value of plan assets. FSP FAS
132(R)-1 also requires, for fair value measurements using significant
unobservable inputs (Level 3), disclosure of the effect of the measurements on
changes in plan assets for the period. The disclosures about plan assets
required by FSP FAS 132(R)-1 must be provided for fiscal years ending after
December 15, 2009. As this pronouncement is only disclosure-related, it will not
have an impact on the financial position and results of operations.
   ITEM 7A.                  QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  The
follow discussion about our market risk disclosures involves forward-looking
statements. Actual results could differ from those projected in the
forward-looking statements. We are exposed to market risk related to changes in
interest rates and foreign currency exchange rates. We do not use
derivative financial instruments for speculative or trading
purposes.
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 Interest
Rate Sensitivity
  The
Company has no significant interest-bearing assets and our convertible
promissory notes are fixed rate securities. Our exposure to market risk for
changes in interest rates relates primarily to the interest income generated by
our cash deposits in banks. We have not been exposed, nor do we anticipate being
exposed, to material risks due to changes in interest rates. However, our future
interest income may be different from our expectations due to changes in
interest rates.
  Foreign
Currency Exchange Risk
  We face
exposure to adverse movements in foreign currency exchange rates. Because our
financial results are denominated in U.S. dollars, our foreign currency exchange
exposure is related to the fact that our operating business are currently
conducted in China and substantially all of our revenues and expenses are
denominated in RMB and our funding are denominated in U.S. dollars. Fluctuations
in exchange rates between U.S. dollars and RMB will affect our balance
sheet and financial results. If RMB appreciates against U.S. dollars, any new
RMB-denominated investments or expenditures will be more costly to us. If the
RMB depreciates against the U.S. dollars, the value of our RMB revenues and
assets as expressed in our U.S. dollar financial statements will decline. To
date, we have not entered into any hedging transactions in an effort to reduce
our exposure to foreign currency exchange risk.
   ITEM
8.                  FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
  Consolidated
Financial Statements
  The
financial statements required by this item begin on page F-1
hereof.
  Quarterly
Financial Results
 
 The
following table reflects our unaudited quarterly consolidated statement of
operations data for the quarters presented. We believe that the historical
quarterly information has been prepared substantially on the same basis as the
audited consolidated financial statements, and all necessary adjustments,
consisting only of normal recurring adjustments, have been included in the
amounts below to state fairly the unaudited quarterly results of operations
data.
 
 77
 Table of Contents
 For
      the Three Months endedDecember
      31,
                2008
              
              
              September
      30,
                2008
              
              
              June
      30,
                2008
              
              
              March
      31,
                2008
              
              
              December
      31,
                2007
              
              
              September
      30,
                2007
              
              
              June
      30,
                2007
              
              
              March
      31,
                2007Revenues,
      net
              
              $
              463,741
              
              
              $
              2,520,474
              
              
              $
              1,053,888
              
              
              $
              584,167
              
              
              $
              476,557
              
              
              $
              466,071
              
              
              $
              106,025
              
              
              $
              393,899Gross
      (loss) profit
              
              
              (2,652,901
              )
              
              
              (3,130,993
              )
              
              
              (3,591,376
              )
              
              
              (3,377,173
              )
              
              
              (1,611,933
              )
              
              
              115,746
              
              
              
              (3,666
              )
              
              
              147,217Net
      loss from continuing operations
              
              
              (26,750,832
              )
              
              
              (15,546,407
              )
              
              
              (8,705,889
              )
              
              
              (8,524,345
              )
              
              
              (5,233,664
              )
              
              
              (3,207,019
              )
              
              
              (2,117,837
              )
              
              
              (3,134,194
              )Net
      income (loss) fromdiscontinued
      operations
              
              
              -
              
              
              
              72,041
              
              
              
              (182,232
              )
              
              
              152,831
              
              
              
              (832,036
              )
              
              
              3,025
              
              
              
              (44,693
              )
              
              
              (80,201
              )Net
      loss
              
              $
              (26,750,832
              )
              
              $
              (15,474,366
              )
              
              $
              (8,888,121
              )
              
              $
              (8,371,514
              )
              
              $
              (6,065,700
              )
              
              $
              (3,203,994
              )
              
              $
              (2,162,530
              )
              
              $
              (3,214,395
              )Net
      income (loss) per commonshare
      – basic and dilutedLoss
      per common share from continuing operations
              
              $
              (0.37
              )
              
              $
              (0.22
              )
              
              $
              (0.12
              )
              
              $
              (0.12
              )
              
              $
              (0.06
              )
              
              $
              (0.47
              )
              
              $
              (0.03
              )
              
              $
              (0.05
              )Income
      (loss) per commonshare
      from discontinuedoperations
              
              
              0.00
              
              
              
              0.00
              
              
              
              (0.00
              )
              
              
              0.00
              
              
              
              (0.01
              )
              
              
              (0.00
              )
              
              
              (0.00
              )
              
              
              (0.00
              )Net
      loss per common share –basic
      and diluted
              
              $
              (0.37
              )
              
              $
              (0.22
              )
              
              $
              (0.12
              )
              
              $
              (0.12
              )
              
              $
              (0.07
              )
              
              $
              (0.47
              )
              
              $
              (0.03
              )
              
              $
              (0.05
              )
 
  ITEM
9. CHANGES
IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
  Not
applicable.
 
  ITEM
9A.               CONTROLS
AND PROCEDURES
  Evaluation
of Disclosure Controls and Procedures
  The
Company maintains disclosure controls and procedures that are designed to ensure
that information required to be disclosed in reports that we file or submit
under the Exchange Act, is recorded, processed, summarized, and reported during
the year and that such information is accumulated and communicated to our
management, including our Chief Executive Officer, Godfrey Hui, and our Chief
Financial Officer, Daley Mok, as appropriate to allow timely decisions regarding
required disclosure. Our internal control over financial reporting is designed
to provide reasonable assurance to our management and Board of Directors
regarding the reliability of financial reporting and published financial
statements.
 
 Our
management, including our Chief Executive Officer and Chief Financial Officer,
evaluated the effectiveness of our disclosure controls and procedures, as of
December 31, 2008, in accordance with Rules 13a-15(f) and 15d-15(f) of the
Exchange Act. Based on and as a result of this evaluation, our Chief Executive
Officer and our Chief Financial Officer have determined that as of the end of
the period covered by this Report, our disclosure controls and procedures were
effective.
  78
 Table of Contents
 Management’s
Report on Internal Control Over Financial Reporting
  The
Company’s management is responsible for establishing and maintaining an adequate
system of internal control over financial reporting. Internal control over
financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (i) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial
statements.
  Because
of its inherent limitations, a system of internal control over financial
reporting can provide only reasonable assurance and may not prevent or detect
misstatements. Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial statement
preparation and presentation. Further, because of changes in conditions,
effectiveness of internal control over financial reporting may vary over
time.
  A
significant deficiency is a control deficiency, or combination of control
deficiencies, that adversely affects the company’s ability to initiate,
authorize, record, process, or report external financial data reliably in
accordance with generally accepted accounting principles such that there is more
than a remote likelihood that a misstatement of the company’s annual or interim
financial statements that is more than inconsequential will not be prevented or
detected. An internal control material weakness is a significant deficiency, or
combination of significant deficiencies, that results in more than a remote
likelihood that a material misstatement of the annual or interim financial
statements will not be prevented or detected.
  Our
management, with the participation and under the supervision of our Chief
Executive Officer, Godfrey Hui, and our Chief Financial Officer, Daley Mok,
conducted an evaluation of the effectiveness of our internal control over
financial reporting based on the framework and criteria established inInternal Control- Integrated
Framework, issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Based on this evaluation, Messrs. Hui and Mok
determined that our internal control over financial reporting was effective as
of December 31, 2008.
  Our
independent registered public accounting firm has issued an attestation report
regarding its assessment of our internal control over financial reporting as of
December 31, 2008, which is included herein.
  79
 Table of Contents
 Changes In Internal Control 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 has
been no change in our internal control over financial reporting that occurred
during our most recent fiscal quarter that has materially affected, or is
reasonably likely to affect, our internal control over financial
reporting.
 
 
 ITEM
9B.               OTHER
INFORMATION
  Not
applicable
 
  PART
III
 ITEM
10.                DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
  
 Directors
and Executive Officers
  The
following table sets forth the names, ages and positions held with respect to
each Director and Executive Officer of the Company as of the date of this Annual
Report.
  Name
              Age
              Position
              Director
      SinceGodfrey
      Hui
              49
              Chief
      Executive Officer and
                Chairperson
      of the Board
              2002Daley
      Mok
              48
              Chief
      Financial Officer, Corporate
                Secretary
      and Director
              2006Daniel
      So
              52
              Director
              2005Stanley Chu
              31
              Director
              2006Gerd
      Jakob
              51
              Director
              2007Edward
      Lu
              36
              Director
              2007Peter
      Mak
              47
              Director
              2007Ronglie
      Xu
              77
              Director
              2007
  Each
Director serves until our 2009 annual stockholders' meeting and until their
respective successors are duly elected and qualified or earlier
resignation or removal.
  80
 Table of Contents
 Godfrey Hui has been a
Director and the Chief Executive Officer of the Company since April 2002.
Mr. Hui had over twenty years’ experience in the hotel industry prior to
founding our Company. He has worked for several international and regional hotel
groups, including Hopewell Holdings Limited, a Hong Kong based real estate
developer, where Mr. Hui worked in various capacities including Director of
Operations, Finance and Development of the Hotel Division, Executive Assistant
to the Chairman, Chairman of the Executive Committee, and Group Financial
Controller and was responsible for management and financial issues, and Mega
Hotels Management Limited (now a subsidiary of Hopewell), where he served as
Director of Finance, Development and Operations. Mr. Hui holds a Bachelor
of Science in Business Management from the Chinese University of Hong Kong
and a Master’s Degree in Finance and Investment from the University of
Hull. Mr. Hui also serves as an independent non-executive director of Vinda
International Holdings Limited.
  Daley Mok has served as the
Company’s Chief Financial Officer since March 23, 2006, and as a Director of the
Company since September 25, 2006. Prior to that Dr. Mok served from January 2006
through his appointment in March 2006 as the Chief Financial Officer of NCN
Group Management Limited, a wholly-owned subsidiary of the Company. Prior to
joining the Company, Dr. Mok served as Director of DM Services, Inc., a business
consulting firm. Dr. Mok begin his career as an auditor with Peat Markwick Co.
and has over twenty years of experience working for multinational companies,
including the Swire Group, the CLP Group, Digital Equipment Corporation, CDH
Properties, the Grosvenor Shaw Group and the Grass Valley Group, in Hong Kong
and Australia. Dr. Mok is a qualified accountant with memberships in the Hong
Kong Institute of Certified Public Accountants and CPA Australia. He holds a
Master’s Degree in International Business Law from the City University of
Hong Kong and a Doctoral Degree in Business Administration from the University
of Newcastle, Australia.
  Daniel So has served as a
Director of the Company since December 28, 2005. Mr. So also served from June
27, 2006 to January 7, 2009 as the Company’s Managing Director. Prior to joining
our Company, Mr. So was the Chairman of the Librett Group, an investment
consultancy group on real estate and other investment projects in the PRC.
Mr. So began his career in China in the early 1980s during the early days
of economic reform has over twenty-five years’ experience in diverse industries,
including the manufacturing of semiconductors, electronics and computers,
computer applications and software and system development, telecommunication and
data communications, health and medicine, and retail and property development.
He has served in various capacities including as Chief Executive Officer of
Wangfujing Plaza and Chang A Wangfujing Building in Beijing,
and as Vice Chairman and founder of the Chess Technology Group. Mr. So
received a Bachelor of Science in Zoology from
Washington State University.
  Stanley Chu has served as a
Director of the Company since May 3, 2006. Mr. Chu also served from June 27,
2006 to January 7, 2009 as a General Manager of the Company. Prior to joining
our Company, Mr. Chu served from 2004 to May 2006 as a Vice President in
Business Development in the Librett Group in Beijing. Mr. Chu has seven
years’ experience working in the commercial banking industry in the US and has
served as Vice President Business Development of the Librett Group in Beijing,
where he was responsible for identifying profitable projects, bringing in
investors/funds to potential projects, maximizing investors’ return by
implementing dynamic business strategies and acquiring companies or projects
with outstanding growth potential. During his tenure with the Librett Group,
Mr. Chu was involved in many projects throughout China in the areas of real
estate, retail operations and franchising, food and beverage franchising,
marketing, and financial and investment banking services. Mr. Chu received
a Bachelor of Science degree in International Business from the University of
San Francisco.
  81
 Table of Contents
 Gerd Jakob has served as a
Director of the Company since September 1, 2007. Dr. Jakob has also served since
2003, as the chairman of the RG Group, a Frankfurt based company specializing in
asset management and securities trading. He has also served, since 2004, as the
Chairman of CONET Technologies AG, a company involved in the acquisition,
holding, management and advisory of information technology companies, and since
2001 as the Chairman of TNG Energy AG, a holding company for various Russian oil
and gas production companies. Dr. Jakob is a founding member and serves as
Director of SWGI Growth Fund (Cyprus) Ltd, an investment fund listed on Bermuda
Stock Exchange, which invests in the oil and gas sector in Russia.
Dr. Jakob received a Ph.D. degree in Philosophy from
Canterbury University and a Master of Science degree in Shipping Trade and
Finance from the London City Business School.
  Edward Lu has served as a
Director of the Company since September 1, 2007. Mr. Lu is also the founder and
has served as the President of Edward C Lu, CPA, AAC since June 2006. Prior to
that Mr. Lu served from June 2005 to May 2006 as Senior Manager of Sue Yen Leo,
CPA, and from September 2002 to June 2005, as a Senior Tax Manager of Chang,
Chang & Company, CPA. Mr. Lu has over 11 years’ experience in public
accounting. He has been involved in numerous auditing, taxation and consulting
engagements for real estate development and hotel/hospitality management
projects in the U.S., and his expertise extends to all areas of taxation and
accounting affecting individuals, trusts, partnerships, corporations and
off-shore companies. Mr. Lu currently serves as the  is now the
president of. He received a Bachelor’s Degree in Accounting in 1995 from the
California State University of Los Angeles and is a Certified Public
Accountant.
  Peter Mak has served as a
Director of the Company since September 1, 2007. Mr. Mak is also the co-founder
and has served since 2001, as the managing director of Venfund Investment, a
boutique investment bank. Prior to founding Venfund Investment, Mr. Mak was
a partner of Arthur Andersen Worldwide and served as the Managing Partner of
Arthur Andersen Southern China. Mr. Mak also serves as an independent
non-executive director and audit committee chairman of the following public
companies in the U.S., Hong Kong, China and Singapore: Trina Solar Limited,
China GrenTech Corp. Ltd., Dragon Pharmaceutical Inc., Gemdale Industries Inc.,
Huabao International Holdings Ltd. and Bright World Precision Machinery Ltd.
Mr. Mak graduated from the Hong Kong Polytechnic University and
is a fellow member of the Association of Chartered Certified Accountants, UK,
and the Hong Kong Institute of Certified Public Accountants.
  Ronglie Xu has served as a
Director of the Company since September 1, 2007. Dr. Xu has served since 2004,
as the Deputy Chairman of the Scientific and Technical Committee in the PRC’s
Ministry of Construction, and also serves as the President of the China Civil
Engineering Society, and as the President of the China Construction Machinery
Institute, as well as a part-time professor at Tsinghua and
Tongji Universities. For the past 50 years, Dr. Xu has held executive
positions in Chinese state-owned construction and engineering companies.
Dr. Xu also is a foreign member of the Royal Swedish Academy of
Engineering Sciences IVA and is a chartered builder of the United Kingdom.
Dr. Xu is also widely published. He was awarded first prize for science and
technology advancements in 1987 by the Chinese Ministry of Construction and in
1988 he was awarded national honors for outstanding contributions in science and
technology advancements in China. There are also no arrangements or
understandings among any of the directors, executive officers or any other
persons pursuant to which any officer or director was elected to serve as a
director or officer.
 
 82
 Table of Contents
 Family
Relationships
  There are
no family relationships between any directors or officers of the
Company.
  Involvement
in Certain Legal Proceedings
  To the
best of our knowledge, none of our directors or executive officers has been
convicted in a criminal proceeding, excluding traffic violations or similar
misdemeanors, or has been a party to any judicial or administrative proceeding
during the past five years that resulted in a judgment, decree or final order
enjoining the person from future violations of, or prohibiting activities
subject to, federal or state securities laws, or a finding of any violation of
federal or state securities laws, except for matters that were dismissed without
sanction or settlement. Except as set forth in our discussion below in
“Transactions with Related Persons, Promoters and Certain Control Persons;
Corporate Governance”, none of our directors, director nominees or executive
officers has been involved in any transactions with us or any of our directors,
executive officers, affiliates or associates which are required to be disclosed
pursuant to the rules and regulations of the SEC.
 
 Compliance
with Section 16(a) of the Exchange Act
  Section
16(a) of the Securities Exchange Act of 1934, as amended, requires our executive
officers, directors and beneficial owner of more than 10% of a registered class
of our equity securities to file with the Securities and Exchange Commission
statements of ownership and changes in ownership. The same persons are required
to furnish us with copies of all Section 16(a) forms they file. We believe that,
during fiscal 2008, all of our executive officers, directors and beneficial
owner of more than 10% of a registered class of our equity securities complied
with the applicable filing requirements, with the following
exceptions:
  (1) a
late Form 4 report was filed for Joachim Burger on March 17, 2009, to report the
stock award of 15,000 shares of common stock vested on June 30, 2008 , effective
September 1, 2007; stock award of 15,000 shares of common stock vested on June
30, 2009, effective July 1, 2008; and disposal of stock award of 15,000 shares,
effective on September 30, 2008, as he resigned as a member of the Board and no
longer has the right to receive the 15,000 shares of the
Issuer's common stock that was granted in July 2008;
  83
 Table of Contents
 (2) a
late Form 4 report was filed for Gerd Jakob on March 17, 2009, to report the
stock award of 10,000 shares of common stock vested on June 30, 2008 , effective
September 1, 2007 and stock award of 10,000 shares of common stock vested on
June 30, 2009, effective July 1, 2008;
  (3) a
late Form 4 report was filed for Edward Lu on March 17, 2009, to report the
stock award of 10,000 shares of common stock vested on June 30, 2008 , effective
September 1, 2007 and stock award of 10,000 shares of common stock vested on
June 30, 2009, effective July 1, 2008;
  (4) a
late Form 4 report was filed for Peter Mak on March 17, 2009, to report the
stock award of 15,000 shares of common stock vested on June 30, 2008 , effective
September 1, 2007 and stock award of 15,000 shares of common stock vested on
June 30, 2009, effective July 1, 2008; and
  (5) a
late Form 4 report was filed for Ronglie Xu on March 17, 2009, to report the
stock award of 15,000 shares of common stock vested on June 30, 2008 , effective
September 1, 2007 and stock award of 15,000 shares of common stock vested on
June 30, 2009, effective July 1, 2008.
  In making
these statements, we have relied upon examination of the copies of all Section
16(a) forms provided to us and the written representations of our executive
officers, directors and beneficial owner of more than 10% of a registered class
of our equity securities.
 
 Code
of Business Conduct and Ethics
  A Code of
Business Conduct and Ethics is a written standard designed to deter wrongdoing
and to promote (a) honest and ethical conduct, (b) full, fair, accurate, timely
and understandable disclosure in regulatory filings and public statements, (c)
compliance with applicable laws, rules and regulations, (d) prompt
reportingof
violations of the code to an appropriate person and (e) accountability for
adherence to the Code. We are not currently subject to any law, rule or
regulation requiring that we adopt a Code of Business Conduct and Ethics.
However, we have adopted a code of business conduct and ethics that applies to
our principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions. Such
code of business conduct and ethics is available on our corporate website
at www.ncnmedia.com.
  Corporate
Governance
  Our board
of directors is comprised of Peter Mak, Gerd Jakob, Edward Lu and Ronglie Xu who
each serves on our board of directors as an “independent director” as defined by
Rule 4200(a)(15) of the Marketplace Rules of The Nasdaq Stock Market, Inc., or
the “Nasdaq Marketplace Rules”. The board of directors has determined that each
of Messrs. Mak, Jakob and Lu possesses the accounting or related financial
management experience that qualifies him as financially sophisticated within the
meaning of Rule 4350(d)(2)(A) of the Nasdaq Marketplace Rules and that he is an
“audit committee financial expert” as defined by the rules and regulations of
the SEC.
 
 84
 Table of Contents
 Our board
of directors currently has three standing committees which perform various
duties on behalf of and report to the board of directors: (i) audit committee,
(ii) remuneration committee and (iii) nominating committee. From time to time,
the board of directors may establish other committees. Each of the three
standing committees is comprised entirely of independent directors as
follows:
 
 Name
      of Director
              Audit
              Nominating
              RemunerationPeter
      Mak
              CGerd
      Jakob
              M
              
              MEdward
      Lu
              M
              MRonglie
      Xu
              
              C
              C
 
 C =
Chairperson
 M =
Member
 The Board
of Directors has adopted a written charter for each of these committees, copies
of which can be found on our website atwww.ncnmedia.com.
  Audit
Committee
  Our board
of directors established an Audit Committee in September 2007. Our Audit
Committee consists of three members: Peter Mak, Gerd Jakob and Edward Lu, each
of whom is “independent” as that term is defined under the Nasdaq Marketplace
Rules, as currently in effect. In addition, the Board of Directors has
determined that each of Messrs. Jakob, Lu and Mak is an “audit committee
financial expert” as defined by SEC rules. Mr. Mak and Mr. Lu are qualified
accountants with many years of finance and audit experience, while Mr. Jakob is
the chairperson of a company specializing in asset management and securities
trading, where one of his responsibilities is to oversee the company’s finance
function. Mr. Mak serves as the chairperson of the Audit Committee.
  The Audit
Committee oversees our accounting, financial reporting and audit processes;
appoints, determines the compensation of, and oversees, the independent
auditors; pre-approves audit and non-audit services provided by the independent
auditors; reviews the results and scope of audit and other services
provided by the independent auditors; reviews the accounting principles and
practices and procedures used in preparing our financial statements; and reviews
our internal controls.
  The Audit
Committee works closely with management and our independent auditors. The Audit
Committee also meets with our independent auditors without members of management
present, on a quarterly basis, following completion of our auditors’ quarterly
reviews and annual audit, to review the results of their work. The Audit
Committee also meets with our independent auditors to approve the annual scope
and fees for the audit services to be performed.
  85
 Table of Contents
 Remuneration
Committee
  Our board
of directors established a Remuneration Committee in September 2007. Our
Remuneration Committee consists of two members: Gerd Jakob and Ronglie Xu,
each of whom is “independent” as that term is defined under the Nasdaq
Marketplace Rules, as currently in effect. Mr. Xu serves as the chairperson of
the Remuneration Committee.
 
 The
Remuneration Committee (i) oversees and makes general recommendations to
the Board of Directors regarding our compensation and benefits policies;
(ii) oversees, evaluates and approves cash and stock compensation plans,
policies and programs for our executive officers; and (iii) oversees and
sets compensation for the Board of Directors. Our Chief Executive Officer may
not be present at any meeting of our compensation committee during which his
compensation is deliberated.
  Nominating
Committee
  Our board
of directors established a Nominating Committee in September 2007. Our
Nominating Committee consists of two members: Edward Lu and Ronglie Xu, each of
whom is “independent” as that term is defined under the Nasdaq Marketplace
Rules, as currently in effect. Mr. Xu serves as the chairperson of the
Nominating Committee. The Nominating Committee (i) considers and
periodically reports on matters relating to the identification, selection and
qualification of the Board of Directors and candidates nominated to the Board of
Directors and its committees; (ii) develops and recommends governance
principles applicable to the Company; and (iii) oversees the evaluation of
the Board of Directors and management from a corporate governance
perspective.
  Although
our bylaws do not contain provisions which specifically address the process by
which a stockholder may nominate an individual to stand for election to the
Board of Directors at our annual meeting of stockholders, the Nominating
Committee will consider director candidates recommended by stockholders. In
evaluating candidates submitted by stockholders, the Nominating Committee will
consider (in addition to the criteria applicable to all director candidates
described below) the needs of the Board and the qualifications of the candidate,
and may also take into consideration the number of shares held by the
recommending stockholder and the length of time that such shares have been
held.
  The
Nominating Committee does not have any formal criteria for director nominees;
however, it believes that director nominees should have certain minimum
qualifications, including the highest personal and professional integrity and
values, an inquiring and independent mind, practical wisdom and mature judgment.
In evaluating director nominees, the Nominating Committee also considers an
individual’s skills, character, leadership experience, business experience and
acumen, familiarity with relevant industry issues, national and international
experience, and other relevant criteria that may contribute to our success. This
evaluation is performed in light of the skill set and other characteristics
that would most complement those of the current directors, including the
diversity, maturity, skills and experience of the board as a whole, with the
objective of recommending a group of persons that can best implement our
business plan, develop our business and represent shareholder
interests.
  86
 Table of Contents
  ITEM 11        EXECUTIVE
COMPENSATION
   Persons
Covered
  The
Company’s Chief Executive Officer and Chief Financial Officer during fiscal year
2008 and the Company’s three most highly compensated executive officers, or the
Named Executive Officers, during fiscal year 2008 are set forth
below.
 
 Name
              PositionGodfrey
      Hui
              Chief
      Executive Officer and Chairperson of the BoardDaley
      Mok
              Chief
      Financial Officer, Corporate Secretary and DirectorDaniel
      So*
              Director
      and Former Managing DirectorBenedict
      Fung*
              Former
      PresidentStanley Chu*
              Director
      and Former General Manager
 
 *On January 7, 2009, Daniel
So, Benedict Fung and Stanley Chu effectively resigned from their respective
positions as Managing Director, President and General Manager of the
Company, but Messrs. So and Chu continue in their roles as members on the
Company’s board of directors. Their resignation was due to personal reasons and
not because of any disagreement with the Company on any matter relating to the
Company’s operations, policies or practices.
  Compensation
Discussion and Analysis
  Overview
  Our Board
of Directors determines executive compensation. The Company’s executive
compensation program is generally designed to align the interests of executives
with the interests of shareholders and to reward executives for achieving the
Company’s objectives. The executive compensation program is also designed to
attract and retain the services of qualified executives.
  In
determining executive compensation, our Board considers the recommendations of
its Remuneration Committee which bases its recommendations on input from
the Chief Executive Officer, the officers’ current compensation, changes in cost
of living, our financial condition, our operating results and individual
performance.
  Executive
compensation generally consists of base salary, bonuses and long-term incentive
equity compensation such as stock grants or additional options to purchase
shares of the Company’s common stock as well as various health and welfare
benefits. The Board has determined that both the base salary and long-term
incentive equity compensation should be the principal component of executive
compensation. The Board has not adopted a formal bonus plan, and all bonuses are
discretionary.
  87
 Table of Contents
 Elements
of Compensation
  The
executive compensation for (i) the Company’s Chief Executive Officer and Chief
Financial Officer and (ii) the Company’s other three most highly compensated
executive officers who were serving as executive officers (collectively “Named
Executive Officers”) for fiscal 2008 primarily consisted of base salary,
long term incentive equity compensation, income tax reimbursement, and other
compensation and benefit programs generally available to other
employees.
  Base Salary. The
Board establishes base salaries for the Company’s Named Executive Officers based
on the scope of their responsibilities, taking into account competitive market
compensation paid by other companies in the Company’s peer group for similar
positions. Generally, the Board believes that executive base salaries should be
targeted near the median of the range of salaries for executives in similar
positions and with similar responsibilities at comparable companies in line with
our compensation philosophy.
  Base
salaries are reviewed annually, and may be adjusted to realign salaries with
market levels after taking into account individual responsibilities, performance
and experience.
  Bonuses. Bonuses are
intended to compensate the five Named Executive Officers for achieving the
Company’s financial performance and other objectives established by the Board
each year. The Board currently does not adopt a formal bonus plan and all
bonuses are discretionary.
  Long-Term Incentive Equity
Compensation. The Board believes that stock-based awards promote the
long-term growth and profitability of the Company by providing executive
officers with incentives to improve shareholder value and contribute to the
success of the Company and by enabling the Company to attract, retain and reward
the best available persons for executive officer positions. The Named Executive
Officers were eligible to receive certain number of shares of common stock of
the Company. The Board adopted a New Equity Compensation Plan in July 2007,
pursuant to which each Named Executive Officer was granted shares of the
Company’s common stock subject to annual vesting over five years in the
following amounts: Mr. Godfrey Hui, 2,000,000 shares; Mr. Daley Mok 1,500,000
shares; Mr. Daniel So, 2,000,000 shares; Mr. Benedict Fung 1,200,000 shares and
Mr. Stanley Chu 1,000,000 shares. The Company cannot currently determine the
number or type of additional awards that may be granted to eligible participants
under the long-term incentive equity compensation plan in the future. Such
determination will be made from time to time by the Remuneration Committee (or
Board).
  Income Tax
Reimbursement. Each Named Executive Officer was fully reimbursed by the
Company for his Hong Kong personal income taxes resulting from his employment
under the employment agreement dated July 23, 2007, except Mr. Godfrey Hui whose
Hong Kong personal income taxes during the whole fiscal 2007 would be fully
reimbursed by the Company.
  88
 Table of Contents
 Change-In-Control and
Termination Arrangements. The employment agreements with each of the
Named Executive Officers may be terminated with three-month advanced notice or
for cause or disability. In the event employment is terminated other than for
cause, disability, or in the event of their resignation for good reason, each
Named Executive officer is entitled to severance payments consisting of his then
base salary for 48 months provided there has been no change in control of either
NCN Group or the Company, or for 60 months if there has been a change in control
of either NCN Group or the Company in the preceding one year; In addition, each
Named Executive officer shall be entitled to accelerated vesting of all stock
grants, as of the date of such termination other than for cause, remain
unexercised and unvested, to the extent permissible by law. In the event
employment is terminated for disability, each Named Executive officer shall be
potentially eligible for disability benefits under any Company-provided
disability plan in which he then participate, and shall be entitled to
accelerated vesting of all stock grants, as of the date of such disability,
remain unexercised and unvested, to the extent permissible by law. In addition,
there are restrictive covenants on other employment after termination for a
period of six months without the approval of NCN Group’s Board of Directors,
non-solicitation of customer, suppliers or employees of NCN Group Management
Limited, and confidentiality.
  Summary
Compensation Table
  The
following table sets forth information concerning all compensation awarded to,
earned by or paid during fiscal years 2008, 2007 and 2006, to the Named
Executive Officers:
 
 Name
      andPrincipal
                                                                                                                          Position
                                                                                                                        Year
                                                                                                                        
                                                                                                                        Salary
                                                                                                                          ($)
                                                                                                                        
                                                                                                                        
                                                                                                                        (1)
                                                                                                                          Bonus
                                                                                                                          ($)
                                                                                                                        
                                                                                                                        
                                                                                                                        (2)
                                                                                                                          Stock
                                                                                                                          Awards
                                                                                                                          ($)
                                                                                                                        
                                                                                                                        
                                                                                                                        Option
                                                                                                                          Awards
                                                                                                                          ($)
                                                                                                                        
                                                                                                                        
                                                                                                                        Non-Equity
                                                                                                                          Incentive
      Plan
                                                                                                                          Compensation
                                                                                                                          ($)
                                                                                                                        
                                                                                                                        
                                                                                                                        Change
      in
                                                                                                                          Pension
      Value
                                                                                                                          and
                                                                                                                          Nonqualified
                                                                                                                          Deferred
                                                                                                                          Compensation
                                                                                                                          Earnings
                                                                                                                          ($)
                                                                                                                        
                                                                                                                        
                                                                                                                        (3)
                                                                                                                          All
      Other
                                                                                                                          Compensation
                                                                                                                          ($)
                                                                                                                        
                                                                                                                        
                                                                                                                        Total
                                                                                                                          ($)Godfrey
      Hui,  Chief
                                                                                                                          Executive
      Officer and
                                                                                                                          Chairperson
      of the Board
                                                                                                                        2008
                                                                                                                        
                                                                                                                        
                                                                                                                        216,923
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        -
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        777,000
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        -
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        -
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        -
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        85,237
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        1,079,1602007
                                                                                                                        
                                                                                                                        
                                                                                                                        152,308
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        -
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        529,250
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        -
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        -
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        -
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        203,755
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        885,3132006
                                                                                                                        
                                                                                                                        
                                                                                                                        107,692
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        79,487
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        23,400
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        -
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        -
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        -
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        18,461
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        229,040Daley Mok,
      ChiefFinancial
                                                                                                                          Officer andCorporate
                                                                                                                          Secretary and
      Director
                                                                                                                        2008
                                                                                                                        
                                                                                                                        
                                                                                                                        151,538
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        -
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        518,000
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        -
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        -
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        -
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        49,686
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        719,2242007
                                                                                                                        
                                                                                                                        
                                                                                                                        97,179
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        -
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        262,750
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        -
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        -
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        -
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        46,910
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        406,8392006
                                                                                                                        
                                                                                                                        
                                                                                                                        76,923
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        19,231
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        7,800
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        -
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        -
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        -
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        1,538
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        105,492Daniel
      So, Director
                                                                                                                          and
      Former Managing
                                                                                                                          Director
                                                                                                                        2008
                                                                                                                        
                                                                                                                        
                                                                                                                        160,000
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        -
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        777,000
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        -
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        -
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        -
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        56,387
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        993,3872007
                                                                                                                        
                                                                                                                        
                                                                                                                        103,590
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        -
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        568,000
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        -
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        -
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        -
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        106,859
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        778,4492006
                                                                                                                        
                                                                                                                        
                                                                                                                        44,872
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        37,286
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        44,793
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        -
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        -
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        -
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        1,538
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        128,489Benedict
      Fung,
                                                                                                                          Former
      President
                                                                                                                        2008
                                                                                                                        
                                                                                                                        
                                                                                                                        118,462
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        -
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        388,500
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        -
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        -
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        -
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        30,461
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        537,4232007
                                                                                                                        
                                                                                                                        
                                                                                                                        97,179
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        -
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        211,700
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        -
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        -
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        -
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        51,833
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        360,7122006
                                                                                                                        
                                                                                                                        
                                                                                                                        61,538
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        17,949
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        9,360
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        -
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        -
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        -
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        1,538
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        90,385Stanley Chu,Director
                                                                                                                          andFormer
      General Manager
                                                                                                                        2008
                                                                                                                        
                                                                                                                        
                                                                                                                        88,462
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        -
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        336,700
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        -
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        -
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        -
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        28,884
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        454,0462007
                                                                                                                        
                                                                                                                        
                                                                                                                        70,897
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        -
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        207,200
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        -
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        -
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        -
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        34,833
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        312,9302006
                                                                                                                        
                                                                                                                        
                                                                                                                        31,410
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        19,979
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        22,397
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        -
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        -
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        -
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        1,538
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        75,324
 
 
 (1)
                No
      bonus was paid to the Named Executive Officers in fiscal 2008 and
      2007.
 (2)
                The
      aggregate number of stock awards vested to each of the Named Executive
      Officers for his service rendered in each fiscal period was
      summarized as follows:
 
 89
 Table of Contents
 Named
      Executive Officer
                    
                    
                    2006
                    
                    
                    
                    2007
                    
                    
                    
                    2008Godfrey
      Hui
                    
                    
                    150,000
                    
                    
                    
                    275,000
                    
                    
                    
                    300,000Daley
      Mok
                    
                    
                    50,000
                    
                    
                    
                    125,000
                    
                    
                    
                    200,000Daniel
      So
                    
                    
                    117,260
                    
                    
                    
                    300,000
                    
                    
                    
                    300,000Benedict
      Fung
                    
                    
                    60,000
                    
                    
                    
                    110,000
                    
                    
                    
                    150,000Stanley Chu
                    
                    
                    -
                    
                    
                    
                    80,000
                    
                    
                    
                    130,000
 
 All the
above stocks were issued to each of Named Executive Officers except the stock
award for services rendered during the fiscal year 2008 has been withheld until
further notice. The dollar amounts reflect the value determined by the Company
for accounting purposes for these awards and do not reflect whether the
recipient has actually realized a financial benefit from the award. This column
represents the dollar amount recognized for financial statement reporting
purposes for each of the above specified fiscal years for stock awards
granted to each of the Named Executive Officers in accordance with SFAS 123R.
Pursuant to SEC rules, the amounts shown exclude the impact of estimated
forfeitures related to service-based vesting conditions. No stock awards were
forfeited by any of the Named Executive Officers. For additional information,
see Note 15 of our financial statements. For information on the valuation
assumptions for stock grants made prior to 2008, see the notes in our financial
statements in the Form 10-KSB for the respective year.
  (3) All
other compensation represents (a) contribution paid by the Company into a
mandatory provident fund for the benefit of the Named Executive Officers and (b)
income tax reimbursement to be paid to the Named Executive Officers in order to
sufficiently cover their Hong Kong salary taxes resulting from their
employment commencing from July 1, 2007 and thereafter, except Godfrey Hui
whose salary taxes were fully borne by the Company during the above
specified fiscal years. As the aggregate of all other perquisites and other
personal benefits received by each Named Executive Officer was less than
$10,000, they are not included in the above.
  90
 Table of Contents
 Employment
Contracts and Termination of Employment and Change-In-Control
Arrangements
  On July
23, 2007, our subsidiary, NCN Group Management Limited, or the NCN Group,
entered into new executive employment agreements with each of the Named
Executive Officers. Pursuant to these employment agreements, effective as of
July 1, 2007, each Named Executive Officer was obligated to receive a monthly
base salary and was entitled to receive shares of the Company’s common
stock as follows:
 
 Named
      Executive Officer
                                
                                Base
      Salary (1)
                                  ($)
                                
                                
                                
                                Common
      Stock GrantGodfrey
      Hui
                                
                                
                                15,384
                                
                                
                                
                                2,000,000(2)Daley
      Mok
                                
                                
                                8,974
                                
                                
                                
                                1,500,000(3)Daniel
      So
                                
                                
                                10,256
                                
                                
                                
                                2,000,000(4)Benedict
      Fung
                                
                                
                                8,974
                                
                                
                                
                                1,200,000(5)Stanley Chu
                                
                                
                                6,410
                                
                                
                                
                                1,000,000(6)
 
 (1)The
Named Executive Officers’ base salary is paid in Hong Kong dollars. The amounts
set forth in this table are in U.S. dollars based on an exchange rate of HK$:US$
= 7.8:1. The base salary has been adjusted during fiscal year 2008 which was
summarized as follows:
  Named
      Executive Officer
                        
                        Adjusted
      Base Salary
                          on
      January 1, 2008 ($)
                        
                        
                        Adjusted
      Base Salary
                          on
      July 1, 2008 ($)Godfrey
      Hui
                        
                        16,923
                        
                        
                        19,231Daley
      Mok
                        
                        9,872
                        
                        
                        15,385Daniel
      So
                        
                        11,282
                        
                        
                        15,385Benedict
      Fung
                        
                        9,872
                        
                        
                        9,872Stanley Chu
                        
                        7,051
                        
                        
                        7,692
  Commencing
in October 2008, salary increases in July 1, 2008 to the Named Executive Officer
directors would be accrued but payments will be withheld until further
notice.
  (2)
Pursuant to Mr. Hui’s employment contract, he is entitled to a stock grant of
2,000,000 shares of the Company’s common stock subject to annual vesting over
five years if he remains employed by the Company through the vesting date. The
details of the vesting date and number of shares to be vested are as follows:
December 31, 2007: 200,000 shares; December 31, 2008: 300,000 shares; December
31, 2009: 400,000 shares; December 31, 2010: 500,000 shares and December 31,
2011: 600,000 shares. The Board of Directors resolved on September 29, 2008 that
those 300,000 shares to which Mr. Hui was entitled as of December 31, 2008 were
withheld until further notice. The grant shall be subject to all terms of the
Company’s 2007 stock option/stock issuance plan or any future stock option/stock
issuance plan under which it is issued.
  91
 Table of Contents
 (3)
Pursuant to Mr. Mok’s employment contract, he is entitled to a stock grant of
1,500,000 shares of the Company’s common stock subject to annual vesting over
five years if he remains employed by the Company through the vesting date. The
details of the vesting date and number of shares to be vested are as follows:
December 31, 2007: 100,000 shares; December 31, 2008: 200,000 shares; December
31, 2009: 300,000 shares; December 31, 2010: 400,000 shares and December 31,
2011: 500,000 shares. The Board of Directors resolved on September 29, 2008 that
those 200,000 shares to which Mr. Mok was entitled as of December 31, 2008 were
withheld until further notice. The grant shall be subject to all terms of the
Company’s 2007 stock option/stock issuance plan or any future stock option/stock
issuance plan under which it is issued.
  (4)
Pursuant to Mr. So’s employment contract, he is entitled to a stock grant of
2,000,000 shares of the Company’s common stock subject to annual vesting over
five years if he remains employed by the Company through the vesting date. The
details of the vesting date and number of shares to be vested are as follows:
December 31, 2007: 200,000 shares; December 31, 2008: 300,000 shares; December
31, 2009: 400,000 shares; December 31, 2010: 500,000 shares and December 31,
2011: 600,000 shares. The Board of Directors resolved on September 29, 2008 that
those 300,000 shares to which Mr. So was entitled as of December 31, 2008 were
withheld until further notice. The grant shall be subject to all terms of the
Company’s 2007 stock option/stock issuance plan or any future stock option/stock
issuance plan under which it is issued.
  (5)
Pursuant to Mr. Fung’s employment contract, he is entitled to a stock grant
1,200,000 shares of the Company’s common stock subject to annual vesting over
five years if he remains employed by the Company through the vesting date. The
details of the vesting date and number of shares to be vested are as follows:
December 31, 2007: 80,000 shares; December 31, 2008: 150,000 shares; December
31, 2009: 230,000 shares; December 31, 2010: 320,000 shares and December 31,
2011: 420,000 shares. The Board of Directors resolved on September 29, 2008 that
those 150,000 shares to which Mr. Fung was entitled as of December 31, 2008 were
withheld until furthernotice. The grant shall be
subject to all terms of the Company’s 2007 stock option/stock issuance plan or
any future stock option/stock issuance plan under which it is
issued.
  (6)
Pursuant to Mr. Chu’s employment contract, he is entitled to a stock grant
1,000,000 shares of the Company’s common stock subject to annual vesting over
five years if he remains employed by the Company through the vesting date. The
details of the vesting date and number of shares to be vested are as follows:
December 31, 2007: 80,000 shares; December 31, 2008: 130,000 shares; December
31, 2009: 190,000 shares; December 31, 2010: 260,000 shares and December 31,
2011: 340,000 shares. The Board of Directors resolved on September 29, 2008 that
those 130,000 shares to which Mr. Chu was entitled as of December 31, 2008 were
withheld until further notice. The grant shall be subject to all terms of the
Company’s 2007 stock option/stock issuance plan or any future stock option/stock
issuance plan under which it is issued.
 
 In
addition to base salaries and stock grants disclosed above, the employment
agreements include the following material provisions:
 ·
              Each
      employment agreement shall continue until termination by either party with
      three-month advance notice or for cause or
  disability.
  92
 Table of Contents
 ·
              Discretionary
      bonus is determined by the board of directors of the NCN Group based on
      the realization of financial and performance goals of the Company and the
      NCN Group.
  ·
              Restrictive
      covenants regarding confidentiality, other employment after termination
      for a period of six months without the approval of the NCN Group’s Board
      of Directors, and solicitation of customers, suppliers or employees of the
      NCN Group.
  ·
              Income
      tax reimbursement which will be sufficient to cover their Hong Kong
      personal income taxes resulting from their employment under the respective
      employment agreements.
  Retirement
Benefits
  Currently,
we do not provide any employees, including our named executive officers any
company sponsored retirement benefits other than a state pension scheme in which
all of our employees in China participate.
  Grants
of Plan-Based Awards
  The
following table sets forth information regarding grants of awards to the Named
Executive Officers during the year ended December 31, 2008:
 
 Name
              Grant
      Date
              
              All
      Other Stock
                Awards:
                Number
      of
                Shares
      of Stock
                or
      Units
                (#)
              
              
              All
      Other Option
                Awards:
      Number
                of
      Securities
                Underlying
                Options
      (#) (1)
              
              
              Exercise
      or
                Base
      Price of
                Option
                Awards
                ($/share)
              
              
              Grant
      Date
                Fair
      Value
                of
      Stock
                and
      Options
                Awards
              
              
              Closing
                Price
      on
                Grant
                Date
                ($/share)Godfrey
      Hui
              -
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Daley
      Mok
              -
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Daniel
      So
              -
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Benedict
      Fung
              -
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Stanley Chu
              -
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              --
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
 As
described elsewhere herein, on July 23, 2007, each Named Executive Officer was
granted certain shares of the Company’s common stock, subject to annual vesting
over five years pursuant to their executive employment agreements. Other than
the foregoing, no other stock awards were granted to the Company’s Named
Executive Officers during fiscal year 2008.
  93
 Table of Contents
 Outstanding
Equity Awards at Fiscal Year-End
  The
following table sets forth the equity awards outstanding at December 31, 2008
for each of the named executive officers.
 
 Option Awards
              
              Stock AwardsName
              
              Number of
                Securities
                Underlying
                Unexercised
                Options (#)
                Exercisable
              
              
              Number of
                Securities
                Underlying
                Unexercised
                Options (#)
                Unexercisable
              
              
              Option Exercise
                Price ($)
              
              Option
                Expiration
                Date
              
              Number of
                Shares or
                Units of
                Stock That
                Have Not
                Vested (#)
              
              Market Value
                of Shares or
                Units of Stock
                That Have
                Not Vested
                ($)Godfrey
      Hui (1)
              
              
              -
              
              
              
              -
              
              
              
              -
              
              -
              
              1,800,000
              
              $270,000Daley
      Mok (2)
              
              
              -
              
              
              
              -
              
              
              
              -
              
              -
              
              1,400,000
              
              $210,000Daniel
      So (3)
              
              
              -
              
              
              
              -
              
              
              
              -
              
              -
              
              1,800,000
              
              $270,000Benedict
      Fung (4)
              
              
              -
              
              
              
              -
              
              
              
              -
              
              -
              
              1,120,000
              
              $168,000Stanley Chu(5)
              
              
              -
              
              
              
              -
              
              
              
              -
              
              -
              
              920,000
              
              $138,000
 
 (1)
              As
      disclosed elsewhere herein, Mr. Hui is entitled to a stock grant of
      2,000,000 shares of the Company’s common stock subject to annual vesting
      over five years if he remains employed by the Company through the vesting
      date. The first 200,000 shares vested on December 31, 2007 and issued in
      January 2008. On September 29, 2008, in response to the current global
      economic crisis, our board of directors resolved to withhold until further
      notice, the issuance of all shares scheduled to be vested in 2008,
      including the 300,000 shares to which Mr. Hui was entitled as of December
      31, 2008. An additional 400,000, 500,000 and 600,000 shares will vest on
      December 31, 2009, 2010 and 2011, respectively, if he remains employed as
      of vesting date.
  (2)
              As
      disclosed elsewhere herein, Mr. Mok is entitled to a stock grant of
      1,500,000 shares of the Company’s common stock, subject to annual vesting
      over five years if he remains employed by the Company through the vesting
      date. The first 100,000 shares vested on December 31, 2007 and issued in
      January 2008. On September 29, 2008, in response to the current global
      economic crisis, our board of directors resolved to withhold until further
      notice, the issuance of all shares scheduled to be vested in 2008,
      including the 200,000 shares to which Mr. Mok was entitled as of December
      31, 2008. An additional 300,000, 400,000 and 500,000 shares is scheduled
      to vest on December 31, 2009, 2010 and 2011, respectively, if he remains
      employed as of vesting date.
  (3)
              As
      disclosed elsewhere herein, Mr. So is entitled to a stock grant of
      2,000,000 shares of the Company’s common stock subject to annual vesting
      over five years if he remains employed by the Company through the vesting
      date. The first 200,000 shares vested on December 31, 2007 and issued in
      January 2008. On September 29, 2008, in response to the current global
      economic crisis, our board of directors resolved to withhold until further
      notice, the issuance of all shares scheduled to be vested in 2008,
      including the 300,000 shares to which Mr. So was entitled as of December
      31, 2008. An additional 400,000, 500,000 and 600,000 shares will vest on
      December 31, 2009, 2010 and 2011, respectively, if he remains employed as
      of vesting date. However, since Mr. So effectively resigned as Managing
      Director of the Company in January 2009, he is no longer entitled to those
      1,500,000 shares that will vest on December 31, 2009, 2010 and 2011.
  94
 Table of Contents
 (4)
              As
      disclosed elsewhere herein, Mr. Fung is entitled to a stock grant of
      1,200,000 shares of the Company’s common stock subject to annual vesting
      over five years if he remains employed by the Company through the vesting
      date. The first 80,000 shares vested on December 31, 2007 and issued in
      January 2008. On September 29, 2008, in response to the current global
      economic crisis, our board of directors resolved to withhold until further
      notice, the issuance of all shares scheduled to be vested in 2008,
      including the 150,000 shares to which Mr. Fung was entitled as of
      December 31, 2008. An additional 230,000, 320,000 and 420,000 shares will
      vest on December 31, 2009, 2010 and 2011, respectively, if he remains
      employed as of vesting date. However, since Mr. Fung effectively resigned
      as President of the Company in January 2009, he is no longer entitled to
      those 970,000 shares that will vest on December 31, 2009, 2010 and
      2011.
   (5)
              As
      disclosed elsewhere herein, Mr. Chu is entitled to 1,000,000 shares of our
      common stock subject to annual vesting over five years if he remains
      employed by the Company through the vesting date. The first 80,000 shares
      vested on December 31, 2007, but on September 29, 2008, in response to the
      current global economic crisis, our board of directors resolved to
      withhold until further notice, the issuance of all shares scheduled to be
      vested in 2008, including the 130,000 shares to which Mr. Chu was entitled
      as of December 31, 2008. An additional 190,000, 260,000 and 340,000
      shares of
      whichwill vest on December 31, 2009, 2010 and 2011, respectively,
      if remain employed as of vesting date. However, since Mr. Chu effectively
      resigned as General Manager of the Company in January 2009, he is no
      longer entitled to those 790,000 shares that will vest on December 31,
      2009, 2010 and 2011.
 
 Potential
Payments Upon Termination or Change-in Control
  Our
executive employment agreements with the Named Executive Officers provide that,
in the event employment is terminated other than for cause, disability, or in
the event of their resignation for good reason, each officer is entitled to
severance payments consisting of his then base salary for 48 months provided
there has been no change in control of either the NCN Group or the Company, or
for 60 months if there has been a change in control of either the NCN Group or
the Company in the preceding one year. In addition, each officer shall be
entitled to accelerated vesting of all stock grants, as of the date of such
termination other than for cause, remain unexercised and unvested, to the extent
permissible by law. The employment agreements also provide that, in the event
employment is terminated for disability, each officer shall be potentially
eligible for disability benefits under any Company-provided disability plan in
which he then participate, and shall be entitled to accelerated vesting of all
stock grants, as of the date of such disability, remain unexercised and
unvested, to the extent permissible by law.
 
 The
following table reflects amounts payable to our current Named Executive Officers
(1) assuming their employment was terminated without cause on December 31, 2008
and (2) assuming a change in control on December 31, 2008 or termination other
than for cause, disability or resignation for good reason.
 
 95
 Table of Contents
 Name
              
              Termination
                Without Cause
      ($)
              
              
              Change in
                Control ($)Godfrey
      Hui
              
              
              923,088
              
              
              
              1,153,860Daley
      Mok
              
              
              738,480
              
              
              
              923,100Daniel
      So
              
              
              738,480
              
              
              
              923,100Benedict
      Fung
              
              
              473,856
              
              
              
              592,320Stanley Chu
              
              
              369,216
              
              
              
              461,520
 
  Other
than as disclosed above, the Company does not have change-in-control
arrangements with any of its executive officers, and the Company is not
obligated to pay severance or other enhanced benefits to executive officers upon
termination of their employment.
  Director
Compensation
  The
following table provides information about the compensation earned by directors
who served during fiscal year 2008 (including Mr. Joachim Burger, who
resigned as director on September 30, 2008):
 
 Name
      of
                director
              
              Fees
      Earned or Paid(1)
                in
      Cash
                ($)
              
              
              Stock
                Awards(2)
                ($)
              
              
              Option
      Awards
                ($)
              
              
              Non-Equity
      Incentive Plan Compensation
                ($)
              
              
              Change
      in Pension Value and Nonqualified Deferred Compensation
      Earnings($)
              
              
              All
      Other Compensation
                ($)
              
              
              Total
                ($)Godfrey
      Hui
              
              
              10,000
              
              
              
              15,000
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              25,000Daniel
      So
              
              
              7,500
              
              
              
              10,000
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              17,500Daley
      Mok
              
              
              7,500
              
              
              
              10,000
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              17,500Stanley Chu
              
              
              7,500
              
              
              
              10,000
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              17,500Joachim
      Burger*
              
              
              20,000
              
              
              
              20,070
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              40,070Gerd
      Jakob*
              
              
              17,500
              
              
              
              23,380
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              40,880Edward
      Lu*
              
              
              17,500
              
              
              
              23,380
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              40,880Peter
      Mak*
              
              
              27,500
              
              
              
              35,070
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              62,570Ronglie
      Xu*
              
              
              27,500
              
              
              
              35,070
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              62,570
 *Non-employee
directors
  (1)
 In September 2007, only non-employee directors were entitled to an annual
fee of $15,000 and an additional annual fee of $10,000 was paid to the
chairperson of each board committee. Commencing as of July 2008, the Company
agreed to pay an increment of $5,000 in annual fees for each non-employee
director, and the employee directors became entitled to an annual fee of
$15,000, except for Mr. Hui, the board chairperson, who became entitled to
an annual fee of $20,000.
  96
 Table of Contents
 (2)  
In September 2007, each non-employee director was granted an award of 10,000
shares of the Company’s common stock with vesting date on June 30, 2008, for
services rendered as a director between September 1, 2007 and June 30, 2008, and
an additional 5,000 shares was granted to the chairperson of each board
committee. In July 2008, all directors listed were granted an award of 10,000
shares with vesting date on June 30, 2009, for services rendered as a director
between July 1, 2008 and June 30, 2009, and an additional 5,000 shares was
granted to the Chairperson of the board and to the chairperson of each board
committee. These amounts do not reflect whether the recipient has actually
realized a financial benefit from the awards. The amounts represent the dollar
amount recognized for financial statement reporting purposes for fiscal year
2008 for stock awards granted to each of the directors in fiscal year 2008, in
accordance with FAS 123R, and reflect the value determined by the Company for
accounting purposes for these awards. Pursuant to SEC rules, the amounts shown
exclude the impact of estimated forfeitures related to service-based vesting
conditions. No stock awards were forfeited by any of our non-employee
directors in fiscal year 2008. For additional information, see Note 15 of our
financial statements included herein.
  Compensation
Committee Interlocks and Insider Participation
  All
current members of the Compensation Committee are independent directors, and all
past members were independent directors at all times during their service on
such Committee. None of the past or present members of our Compensation
Committee are present or past employees or officers of ours or any of our
subsidiaries. No member of the Compensation Committee has had any relationship
with us requiring disclosure under Item 404 of Regulation S-K under the
Securities Exchange Act of 1934, as amended. None of our executive officers has
served on the Board or Compensation Committee (or other committee serving an
equivalent function) of any other entity, one of whose executive officers served
on our Board or Compensation Committee.
  Limitation
of Liability and Indemnification of Officers and Directors
  Our
bylaws provide for the indemnification of our present and prior directors and
officers or any person who may have served at our request as a director or
officer of another corporation in which we own shares of capital stock or of
which we are a creditor, against expenses actually and necessarily incurred by
them in connection with the defense of any actions, suits or proceedings in
which they, or any of them, are made parties, or a party, by reason of being or
having been director(s) or officer(s) of us or of such other corporation, in the
absence of negligence or misconduct in the performance of their duties. This
indemnification policy could result in substantial expenditure by us, which we
may be unable to recoup.
  Insofar
as indemnification by us for liabilities arising under the Securities Exchange
Act of 1934, as amended, may be permitted to our directors, officers and
controlling persons pursuant to provisions of the Articles of Incorporation and
Bylaws, or otherwise, we have been advised that in the opinion of the SEC, such
indemnification is against public policy and is, therefore, unenforceable. In
the event that a claim for indemnification by such director, officer or
controlling person of us in the successful defense of any action, suit or
proceeding is asserted by such director, officer or controlling person in
connection with the securities being offered, we will, unless in the opinion of
our counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
us is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
  97
 Table of Contents
 At the
present time, there is no pending litigation or proceeding involving a director,
officer, employee or other agent of ours in which indemnification would be
required or permitted. We are not aware of any threatened litigation or
proceeding which may result in a claim for such indemnification.
  ITEM 12.
                SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER
MATTERS
  Securities
Authorized for Issuance Under Equity Compensation Plans
  The
following table provides information as of December 31, 2008 with respect
to compensation plans, under which securities are authorized for issuance,
aggregated as to (i) compensation plans previously approved by
security holders, and (ii) compensation plans not previously approved
by security holders.
  Equity
Compensation Plan Information
  Plan
      Category
                                          
                                          Number
      Of Securities To
                                            Be
      Issued Upon Exercise Of
                                            Outstanding
      Options,
                                            Warrants And Rights(a)
                                          
                                          
                                          Weighted
      Average
                                            Exercise
      Price Of
                                            Outstanding
      Options,
                                            Warrants And Rights(b)
                                          
                                          
                                          Number
      Of Securities Remaining
                                            Available
      For Future Issuance
                                            Under
      Equity Compensation
                                            Plans
      (Excluding Securities
                                            Reflected In Column (A))(c)Equity
      compensation
                                            plans
      approved by
                                            security
      holders
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          7,847,740
                                          (1)Equity
      compensation
                                            plans
      not approved by
                                            security
      holders
                                          
                                          
                                          600,000
                                          (2)
                                          
                                          $
                                          2.3
                                          
                                          
                                          
                                          -Total
                                          
                                          
                                          600,000
                                          (2)
                                          
                                          $
                                          2.3
                                          
                                          
                                          
                                          7,847,740
  (1)
                      We
      reserved 3,000,000 shares for issuance under our 2004 Stock Incentive
      Plan, of which 1,000,000 shares are still available for issuance as of
      December 31, 2008. We reserved 7,500,000 shares for issuance under our
      2007 Stock Option/Stock Issuance Plan, of which 6,847,740 are available
      for issuance as of December 31, 2008. See below subsection-"Securities Authorized for
      Issuance under Equity Compensation Plans" for more information
      about the
plan.
 98
 Table of Contents
  (2)
                    (a)
                    A
      warrant to purchase 200,000 shares of common stock was granted to a
      financial advisor on March 12, 2004 with an exercise price of $2.00 per
      share. The warrant may be exercised at any time until March 12, 2009. The
      warrant remained unexercised as of December 31, 2008. We agreed to
      register the shares underlying the warrant in our next registration
      statement.(b)
                    A
      warrant to purchase 100,000 shares of restricted common stock was granted
      to a consultant on August 25, 2006 with an exercise price of $0.70 per
      share. One-fourth of the shares underlying the warrant become exercisable
      every 45 days beginning from the date of issuance. The warrant shall
      remain exercisable until August 25, 2016. The warrant remained
      unexercised as of December 31, 2008.(c)
                    In
      November 2007, the Company became obligated to issue to a placement agent
      a warrant exercisable for 300,000 shares of common stock for services
      rendered in connection with the issuance of 3% convertible promissory
      notes with an exercise price of $3.00 per share in November 2007. The
      warrant is exercisable for a period of two years. The warrant
      remained unexercised as of December 31,
2008.
 Option
Grants In the Last Fiscal Year
 
 None.
  Equity
Incentive Plan
  In April
2004, our Board of Directors and holders of a majority of our then outstanding
common stock authorized and approved the 2004 Stock Incentive Plan, or the 2004
Plan. Under the 2004 Plan, we reserved 3,000,000 shares of our common stock for
issuance upon exercise of incentive and non-qualified stock options, stock
bonuses and rights to purchase awarded from time-to-time, to our
officers, directors, employees and consultants. As of December 31, 2008,
2,000,000 shares have been issued under the plan and 1,000,000 shares remain
available for issuance. No options, warrants or other rights to acquire shares
of our common stock have been granted or are outstanding under the plan. A
registration statement on Form S-8 was filed with the SEC with respect to
2,000,000 shares of common stock issuable under the plan on April 22, 2004 (SEC
File No. 333-114644).
  In March
2007, our Board of Directors authorized and approved the 2007 Stock Option/Stock
Issuance Plan, or the 2007 Plan. The purpose of the plan is to promote the best
interests of the Company and its stockholders by providing a means of non-cash
remuneration to selected participants who contribute to the operating progress
and earning power of the Company. The plan also provides incentives to employees
and directors by offering them an opportunity to acquire a proprietary interest
in the Company. Under the 2007 Plan, we reserved 7,500,000 shares of our common
stock for issuance upon exercise of incentive and non-qualified stock options,
stock bonuses and rights to purchase awarded from time to time, to our officers,
directors, employees and consultants. A registration statement on Form S-8
was filed with the SEC on April 6, 2007 (SEC File No. 333-141943) with
respect to 7,500,000 shares of common stock issuable under the 2007 Plan as well
as options to purchase 225,000 shares of common stock issued to the Company’s
legal counsel in February 2006. Such options were not issued under the 2004 Plan
or the 2007 Plan. The Company’s stockholders approved the 2007 Plan in November
2007.
  99
 Table of Contents
 Both of
the Plans are currently administered by our Board of Directors. Under each plan,
the Board determines which of our employees, officers, directors and consultants
are granted awards, as well as the material terms of each award, including
whether options are to be incentive stock options or non-qualified stock
options.
  Subject
to the provisions of the Plans, and the Internal Revenue Code with respect to
incentive stock options, the Board determines who shall receive awards, the
number of shares of common stock that may be purchased, the time and manner of
exercise of options and exercise prices. At its discretion, the Board also
determines the form of consideration to be received upon exercise and may permit
the exercise price of options granted under the plans to be paid in whole or in
part with previously acquired shares and/or the surrender of options. The
term of options granted under the plans may not exceed ten years, or five
years for an incentive stock option granted to an optionee owning more than 10%
of our voting stock. The exercise price for incentive stock options may not be
less than 100% of the fair market value of our common stock at the time the
option is granted. However, incentive stock options granted to a 10% holder of
our voting stock may not be exercisable at less than 110% of the fair market
value of our common stock at the date of the grant. The exercise price for
non-qualified options will be determined by the board.
  Security
Ownership of Certain Beneficial Owners and Management
  The
following tables set forth information as of March 25, 2009, regarding the
beneficial ownership of our common stock (a) by each stockholder who is known by
the Company to own beneficially in excess of 5% of our outstanding common stock;
(b) by each of the Company’s officers and directors; (c) and by the Company’s
officers and directors as a group. Except as otherwise indicated, all persons
listed below have (i) sole voting power and investment power with respect to
their shares of common stock, except to the extent that authority is shared by
spouses under applicable law, and (ii) record and beneficial ownership with
respect to their shares of stock. Unless otherwise identified, the address of
the directors and officers of the Company listed above is 21st Floor.,
Chinachem Century Tower, 178 Gloucester Road, Wanchai, Hong
Kong.
 
 100
 Table of Contents
 Title of Class
              Name and Address of
                Beneficial Owner
              Office, If Any
              
              Amount & Nature of
                Beneficial
                Ownership
      (1)
              
              
              Percent of
                Class
      (2)Common Stock
              Godfrey
      Hui
              Chairperson
      and CEO
              
              
              825,000
              
              
              
              1.15
              %Common
      Stock
              Daley
      Mok
              Director
      and CFO
              
              
              150,000
              
              
              
              *Common
      Stock
              Daniel
      So
              Director
              
              
              200,000
              
              
              
              *Common
      Stock
              Stanley Chu
              Director
              
              
              80,000
              
              
              
              *Common
      Stock
              Gerd
      Jakob
              Director
              
              
              260,000
              
              
              
              *Common
      Stock
              Edward
      Lu
              Director
              
              
              10,000
              
              
              
              *Common
      Stock
              Peter
      Mak
              Director
              
              
              15,000
              
              
              
              *Common
      Stock
              Ronglie
      Xu
              Director
              
              
              15,000
              
              
              
              *All
      Officers and Directors as a group (10 persons named above)
              
              
              
              
              1,555,000
              
              
              
              2.17
              %Common
      Stock
              Bloompoint
      Investment Limited
              5%
      Security Holder
              
              
              14,900,000
              
              
              
              20.79
              %Room
      1607, ING Tower, 308 Des Voeux Road, Central, Hong
    KongTotal
      Shares Owned by Persons Named above
              
              
              
              
              16,455,000
              
              
              
              22.97
              %
 
 * Less than 1%
 (1)Beneficial
ownership is determined in accordance with the rules of the SEC and generally
includes voting or investment power with respect to securities.
  (2)A
total of 71,641,608 shares
of our common stock outstanding are considered to be outstanding pursuant to SEC
Rule 13d-3(d)(1) as of March 25, 2009. For each beneficial owner above, any
options exercisable within 60 days have been included in the
denominator.
  Changes
in Control
  There are
no arrangements known to us, including any pledge by any person of our
securities, the operation of which may at a subsequent date result in a change
in control of the Company.
  ITEM
13.           CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
  Related
Transactions
  During
our last two fiscal years, we have not entered into any material transactions or
series of transactions that would be considered material in which any director
or executive officer or beneficial owner of 5% or more of any class of our
capital stock, or any immediate family member of any of the preceding persons,
had a direct or indirect material interest:
  101
 Table of Contents
 Related
Party Transaction Policy
  Our
Company has adopted a written Related Party Transaction Policy, or the
Policy, for the purpose of describing the procedures used to identify, review,
approve and disclose, if necessary, any transaction in which (i) the
Company is a participant and (ii) a related person has or will have a
direct or indirect material interest.
 Once a
related party transaction in which the aggregate amount involved will or
may be expected to exceed $120,000 in any calendar year has been identified, the
Audit Committee must review the transaction for approval or ratification. In
determining whether to approve or ratify a related party transaction, the Audit
Committee shall consider all relevant facts and circumstances, including
the following factors:
 
 ·
                the
      benefits to the Company of the transaction;·
                the
      nature of the related party’s interest in the
  transaction;
 ·
                whether
      the transaction would impair the judgment of a director or executive
      officer to act in the best interest of the Company and its
      stockholders;
 ·
                the
      potential impact of the transaction on a director’s independence;
      and
 ·
                any
      other matters the Audit Committee deems
  appropriate.
 No
director may participate in any discussion, approval or ratification of a
transaction in which he or she is a related person.
  Promoters
and Certain Control Persons
  We did
not have any promoters at any time during the past five fiscal
years.
  Director
Independence
  Gerd
Jakob, Edward Lu, Peter Mak and Ronglie Xu each serves on our board of directors
as an “independent director” as defined by the Nasdaq Marketplace Rules. Our
board of directors currently has three standing committees which perform various
duties on behalf of and report to the board of directors: (i) audit committee,
(ii) remuneration committee and (iii) nominating committee. Each of the three
standing committees is comprised entirely of these independent
directors.
  There are
no family relationships among any of our directors or executive officers. There
are no arrangements or understandings among any of the directors, executive
officers or other persons pursuant to which any officer or director was selected
to serve as a director or officer.
  ITEM
14.           PRINCIPAL
ACCOUNTING FEES AND SERVICES
  Jimmy
C.H. Cheung & Co., Certified Public Accountants is our Principal Independent
Registered Public Accountants engaged to examine our financial statements for
the fiscal years ended December 31, 2008 and 2007. The following table shows the
fees that we paid or accrued for the audit and other services provided by Jimmy
C.H. Cheung & Co., for the fiscal years ended December 31, 2008 and
2007.
  102
 Table of Contents
 Fee
      Category
              
              2008
              
              
              2007Audit
      Fees
              
              $
              136,988
              
              
              $
              133,281Audit-Related
      Fees
              
              $
              2,538
              
              
              $
              --Tax
      Fees
              
              $
              --
              
              
              $
              --All
      Other Fees
              
              $
              --
              
              
              $
              --
  Audit
Fees
  This
category includes the audit of our annual financial statements, review of
financial statements included in our annual and quarterly reports and services
that are normally provided by the independent registered public accounting firms
in connection with engagements for those fiscal years. This category also
includes advice on audit and accounting matters that arose during, or as a
result of, the audit or the review of interim financial statements.
  Audit-Related
Fees
  This
category consists of assurance and related services by the independent
registered public accounting firms that are reasonably related to the
performance of the audit or review of our financial statements and are not
reported above under “Audit Fees”. The services for the fees disclosed under
this category include services relating to our registration statement and
consultation regarding our correspondence with the SEC.
  Tax
Fees
  This
category consists of professional services rendered for tax compliance and tax
advice.
  All
Other Fees
  This
category consists of fees for other miscellaneous items
  Policy on Pre-Approval of Audit
Services
  The Audit
Committee pre-approves all services, including both audit and non-audit
services, provided by our independent registered public accounting firm. All
audit services (including statutory audit engagements as required under local
country laws) must be accepted by the Audit Committee before the audit
commences.
 Each
year, management and the independent registered public accounting firm will
jointly submit a pre-approval request, which will list each known and/or
anticipated audit and non-audit service for the upcoming calendar year and which
will include associated budgeted fees. The Audit Committee will review the
requests and approve a list of annual pre-approved non-audit
services.
  103
 Table of Contents
 All
services provided by Jimmy C.H. Cheung & Co during the fiscal years ended
December 31, 2008 and 2007 were pre-approved by the Audit
Committee.
  PART
IV
 ITEM
15           EXHIBITS,
FINANCIAL STATEMENT SCHEDULES
  (a)
The following consolidated financial statements are filed as a part of this Form
10-K :
 
 (i)
                Reports
      of Independent Registered Public Accounting Firm
                
                F-2(ii)
                Consolidated
      Balance Sheets as of December 31, 2008 and 2007 (Restated)
                
                F-3(iii)
                Consolidated
      Statements of Operations and Comprehensive Loss for the years ended
      December 31, 2008, 2007 (Restated) and 2006
                
                F-4(iv)
                Consolidated
      Statement of Stockholders’ Equity for the years ended December 31, 2008,
      2007 (Restated) and 2006
                
                F-5(v)
                Consolidated
      Statements of Cash Flows for the years ended December 31, 2008, 2007
      (Restated) and 2006
                
                F-6(vi)
                Notes
      to Consolidated Financial Statements
                
                F-7
 
 (b) The
following Exhibits are filed as part of this Annual Report on Form
10-K:
 
 Exhibit
      No.
              Description3.1
              Amended
      And Restated Certificate Of Incorporation incorporated herein by reference
      from Exhibit A to Registrant’s Definitive Information Statement on
      Schedule 14C filed with the SEC on January 10, 2007.3.2
              Amended
      and Restated By-Laws, adopted on January 10, 2006, is incorporated herein
      by reference from Exhibit 3-(II) to Registrant’s Current Report on Form
      8-K filed with the SEC on January 18, 2006.4.1
              Form
      of Registrant’s Common Stock Certificate.4.2
              Form
      of Amended and Restated Secured Convertible Promissory Note (incorporated
      herein by reference from Registrant's Current Report on Form 8-K filed
      with the SEC on February 6, 2008).4.3
              Form
      of Warrant (incorporated herein by reference from Registrant's Current
      Report on Form 8-K filed with the SEC on February 6,
  2008).4.4
              Form
      of 3% Senior Secured Convertible Promissory Note (incorporated herein by
      reference from Registrant's Current Report on Form 8-K filed with the SEC
      on November 14, 2007).
  104
 Table of Contents
 4.5
              Form
      of Warrant (incorporated herein by reference from Registrant's Current
      Report on Form 8-K filed with the SEC on November 14,
    2007).4.6
              TEDA
      Travel Group, Inc. 2004 Stock Incentive Plan (incorporated herein by
      reference from Registrant's Registration Statement on Form S-8 filed with
      the SEC on April 22, 2004).4.7
              2007
      Stock Option/Stock Issuance Plan (incorporated herein by reference from
      Registrant's Registration Statement on Form S-8 filed with the SEC on
      April 6, 2007).10.1
              Purchase
      Agreement, dated November 19, 2007 (incorporated herein by reference from
      Registrant's Current Report on Form 8-K filed with the SEC on November 26,
      2007).10.2
              First
      Amendment to Note and Warrant Purchase Agreement, dated January 31, 2008
      (incorporated herein by reference from Registrant's Current Report on Form
      8-K filed with the SEC on February 6, 2008).10.3
              Security
      Agreement, dated January 31, 2008 (incorporated herein by reference from
      Registrant's Current Report on Form 8-K filed with the SEC on February 6,
      2008).10.4
              Registration
      Rights Agreement, dated November 19, 2007 (incorporated herein by
      reference from Registrant's Current Report on Form 8-K filed with the SEC
      on November 26, 2007).10.5
              Share
      Purchase Agreement dated January 1, 2008 (incorporated herein by reference
      from Registrant's Current Report on Form 8-K filed with the SEC on January
      7, 2008).10.6
              Agreement
      for Co-operation in Business between Shanghai Quo Advertising Company
      Limited and Wuhan Weiao Advertising Company Limited dated as of August 16,
      2007 (incorporated herein by reference from Registrant's Current Report on
      Form 8-K filed with the SEC on August 21, 2007).10.7
              Note
      and Warrant Purchase Agreement dated November 12, 2007 by and between the
      Company and Wei An Developments Limited (incorporated herein by reference
      from Registrant's Current Report on Form 8-K filed with the SEC on
      November 14, 2007).10.8
              Executive
      Employment Agreement by and between the NCN Group and Chin Tong Godfrey
      Hui dated July 23, 2007 (incorporated herein by reference from
      Registrant's Current Report on Form 8-K filed with the SEC on July 24,
      2007).10.9
              Executive
      Employment Agreement by and between the NCN Group and Kuen Kwok So dated
      July 23, 2007 (incorporated herein by reference from Registrant's Current
      Report on Form 8-K filed with the SEC on July 24,
2007).10.10
              Executive
      Employment Agreement by and between the NCN Group and Daley Yu Luk Mok
      dated July 23, 2007 (incorporated herein by reference from Registrant's
      Current Report on Form 8-K filed with the SEC on July 24,
      2007).10.11
              Executive
      Employment Agreement by and between the NCN Group and Hing Kuen Benedict
      Fung dated July 23, 2007 (incorporated herein by reference from
      Registrant's Current Report on Form 8-K filed with the SEC on July 24,
      2007).
  105
 Table of Contents
 10.12
              Executive
      Employment Agreement by and between the NCN Group and Stanley Kam Wing Chu
      dated July 23, 2007 (incorporated herein by reference from Registrant's
      Current Report on Form 8-K filed with the SEC on July 24,
      2007).10.13
              Contract
      for the Rebuilding and Leasing of Advertisement Light Boxes on Nanjing
      Road Pedestrian Street (incorporated herein by reference from
      Registrant's Current Report on Form 8-K filed with the SEC on June 26,
      2007) .10.14
              Agreement
      for Advertising Business dated April 26, 2007, by and among Shanghai Quo
      Advertising Company Limited, a subsidiary of Network CN Inc., and Shanghai
      Yukang Advertising Company Limited (incorporated herein by reference from
      Registrant's Current Report on Form 8-K filed with the SEC on May 2,
      2007).10.15
              Agreement
      for Co-operation and Agency in the Publication of Advertisements dated
      April 14, 2007, by and among Shanghai Quo Advertising Company Limited, a
      subsidiary of Network CN Inc., and Shanghai Qian Ming Advertising Company
      Limited (incorporated herein by reference from Registrant's Current Report
      on Form 8-K filed with the SEC on April 20, 2007).10.16
              Stock
      Transfer Agreement between Youwei Zheng and NCN Management Services
      Limited for acquisition of 55% equity interest in Guangdong Tianma
      International Travel Service Co., Ltd., dated June 16, 2006 (incorporated
      herein by reference from Registrant’s Current Report on Form 8-K filed
      with the SEC on March 30, 2007).10.17
              Business
      Joint Venture Agreement, between Shanghai Zhong Ying Communication
      Engineering Company Limited and Shanghai Quo Advertising Company Limited
      to manage LED outdoor project in Huangpu district of Shanghai, China
      (incorporated herein by reference from Registrant’s Current Report on Form
      8-K filed with the SEC on February 7, 2007).10.18
              Business
      Joint Venture Agreement, between Nanjing Yiyi Culture Advertising Company
      Limited and Shanghai Quo Advertising Company Limited to manage LED outdoor
      project in Nanjing (incorporated herein by reference from Registrant’s
      Current Report on Form 8-K filed with the SEC on February 15,
      2007).10.19
              Business
      Joint Venture Agreement, between Wuhan Xin An Technology Development
      Company Limited and Shanghai Quo Advertising Company Limited to manage LED
      outdoor project in Wuhan (incorporated herein by reference from
      Registrant’s Current Report on Form 8-K filed with the SEC on March 1,
      2007).10.20
              Stock
      Purchase Agreement dated as of September 1, 2008, between Zhanpeng Wang,
      an individual, and NCN Group Limited, a British Virgin Islands
      corporation10.21
              Lease
      Agreement, dated November 15, 2006, between NCN Group Management Limited
      and Chinachem Agencies Limited.*
  106
 Table of Contents
 14.1
                Code
      of Business Conduct and Ethics for Network CN Inc. as approved by the
      Board of Directors as of December 31, 2003, is incorporated herein by
      reference from Registrant’s Annual Report on Form 10-KSB filed with the
      SEC on April 13, 2005.16.1
                Letter
      from Webb, Certified Public Accountants to the SEC dated July 30,
      2008.21.1
                Subsidiaries
      of the registrant. *23.1
                Consent
      of independent auditors Jimmy C.H. Cheung & Co. *24.1
                Power
      of Attorney (included in the Signatures section of this
      report).31.1
                Certification
      of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and
      15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.*31.2
                Certification
      of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and
      15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.*32.1
                Certification
      of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as
      Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.
      *32.2
                Certification
      of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as
      Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.
      *
 
 *
Filed herewith.
  107
 Table of Contents
 SIGNATURES
  Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
   NETWORK CN INCBy:
                /s/ Godfrey
      HuiGodfrey
      HuiChief
      Executive Officer
                  (Principal
      Executive Officer)
  By:
                    /s/
      Daley MokDaley
      MokChief
      Financial Officer
                      (Principal Financial
      and Accounting Officer)Date:
      March 27, 2009
 Power of Attorney
  Each
person whose signature appears below appoints Godfrey Hui his or her
attorney-in-fact, with full power of substitution and re-substitution, to sign
any and all amendments to this report on Form 10-K of Network CN Inc., and to
file them, with all their exhibits and other related documents, with the
Securities and Exchange Commission, ratifying and confirming all that their
attorney-in-fact and agent or his or her substitute or substitutes may lawfully
do or cause to be done by virtue of this appointment.
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated:
  Name
                Title
                Date/s/
      Godfrey Hui
                Director
      and Chief Executive Officer
                March
      27, 2009Godfrey
      Hui/s/
      Daley Mok
                Director
      and Chief Financial Officer
                March
      27, 2009Daley
      Mok/s/
      Peter Mak
                Director
                March
      27, 2009Peter
      Mak/s/
      Edward Lu
                Director
                March
      27, 2009Edward
      Lu/s/
      Stanley Chu
                Director
                March
      27, 2009Stanley
      Chu
 
 108
 Table of Contents




NETWORK CN
INC.
 INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
  Contents
                            
                            PageReport of Independent Registered Public Accounting
      Firm
                            
                            F-2Consolidated Balance Sheets as of December 31, 2008 and 2007
      (Restated)
                            
                            F-3Consolidated Statements of Operations and Comprehensive Loss
      for the years ended December 31, 2008, 2007 (Restated) and
      2006
                            
                            F-4Consolidated Statements of Stockholders’ (Deficit) Equity
      for the years ended December 31, 2008, 2007 (Restated) and
      2006
                            
                            F-5Consolidated Statements of Cash Flows for the years ended
      December 31, 2008, 2007 (Restated) and 2006
                            
                            F-6Notes to Consolidated Financial Statements
                            
                            F-7
    F-1
 Table of Contents
  Jimmy C.H. Cheung & Co
                                            Certified Public Accountants
                                            (A member of Kreston International)
                                          
                                          Registered
      with the Public Company
                                            Accounting
      Oversight Board
    REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 To the
Board of Directors of:
  Network
CN Inc.
 
 
 We have
audited the accompanying consolidated balance sheets of Network CN Inc. and all
of its subsidiaries and variable interest entities as of  December 31,
2008 and 2007 (restated) and the related consolidated statements of operations
and comprehensive loss, stockholders' equity and cash flows for the years ended
December 31, 2008, 2007 (restated) and 2006. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
 
 We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits of the financial statements provide a reasonable basis for our
opinion.
 
 A
company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial
statements.
 
 Because
of the inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
 
 In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Network CN Inc. and all of
its subsidiaries and variable interest entities as of December 31, 2008 and 2007
(restated), and the results of its operations and its cash flows for the years
ended December 31, 2008, 2007 (restated) and 2006, in conformity with accounting
principles generally accepted in the United States of America. Also, in our
opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2008, based on the criteria
established in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission.
  The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has incurred net losses of
$59,484,833, $14,646,619 and $4,468,706 for the years ended December 31, 2008,
2007 (restated) and 2006, respectively. Additionally, during the years ended
December 31, 2008, 2007 (restated) and 2006, the Company has used cash flow in
operations of $17,944,568, $21,320,216 and $2,318,366, respectively. As of
December 31, 2008, the Company recorded a stockholders' deficit of $23,356,217.
These factors raise substantial doubt about its ability to continue as a going
concern. Management's plans concerning these matters are also described in Note
1. The accompanying
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
 JIMMY
C.H. CHEUNG & CO
  Certified
Public Accountants
  Hong
Kong
 Date:  March
26, 2009
   
 1607
      Dominion Centre, 43 Queen’s Road East, Wanchai, Hong Kong
                      Tel:  (852)
      25295500   Fax:  (852) 21277660
                      Email:
      jimmy.cheung@jchcheungco.hk
                      Website:  http://www.jchcheungco.hk
  F-2
 Table of Contents
  NETWORK CN
INC.
 CONSOLIDATED
BALANCE SHEETS
 AS
OF DECEMBER 31, 2008 AND 2007 (RESTATED)
 
 As
      of December 31,Note
                                        
                                        
                                        2008
                                        
                                        
                                        2007
                                          Restated(1)ASSETSCurrent
      AssetsCash
                                        
                                        
                                        
                                        
                                        $
                                        7,717,131
                                        
                                        
                                        $
                                        2,233,528Accounts receivable, net
                                        
                                        6
                                        
                                        
                                        
                                        217,402
                                        
                                        
                                        
                                        1,093,142Prepayments for advertising operating rights,
      net
                                        
                                        7
                                        
                                        
                                        
                                        418,112
                                        
                                        
                                        
                                        13,636,178Prepaid expenses and other current assets,
      net
                                        
                                        8
                                        
                                        
                                        
                                        630,132
                                        
                                        
                                        
                                        3,101,699Total Current Assets
                                        
                                        
                                        
                                        
                                        
                                        8,982,777
                                        
                                        
                                        
                                        20,064,547Equipment,
      Net
                                        
                                        9
                                        
                                        
                                        
                                        2,397,624
                                        
                                        
                                        
                                        257,403Intangible
      Assets, Net
                                        
                                        10
                                        
                                        
                                        
                                        449,307
                                        
                                        
                                        
                                        6,114,550Deferred
      Charges, Net
                                        
                                        11
                                        
                                        
                                        
                                        1,242,958
                                        
                                        
                                        
                                        670,843TOTAL
      ASSETS
                                        
                                        
                                        
                                        
                                        $
                                        13,072,666
                                        
                                        
                                        $
                                        27,107,343LIABILITIES AND STOCKHOLDERS’
      EQUITYCurrent
      LiabilitiesAccounts payable, accrued expenses and other
      payables
                                        
                                        12
                                        
                                        
                                        $
                                        5,577,204
                                        
                                        
                                        $
                                        3,490,586Current liabilities from discontinued
    operations
                                        
                                        
                                        
                                        
                                        
                                        3,655
                                        
                                        
                                        
                                        3,65512%
      convertible promissory note, net
                                        
                                        13
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        4,740,796Total Current Liabilities
                                        
                                        
                                        
                                        
                                        
                                        5,580,859
                                        
                                        
                                        
                                        8,235,0373%
      Convertible Promissory Notes Due 2011, Net
                                        
                                        13
                                        
                                        
                                        
                                        30,848,024
                                        
                                        
                                        
                                        7,885,496TOTAL
      LIABILITIES
                                        
                                        
                                        
                                        
                                        
                                        36,428,883
                                        
                                        
                                        
                                        16,120,533COMMITMENTS
      AND CONTINGENCIES
                                        
                                        14MINORITY
      INTERESTS
                                        
                                        
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        347,874STOCKHOLDERS’
      (DEFICIT) EQUITYPreferred
      stock, $0.001 par value, 5,000,000 shares authorized
                                          None
      issued and outstanding
                                        
                                        
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Common
      stock, $0.001 par value, 800,000,000 shares authorized
                                          Shares
      issued and outstanding: 71,641,608 and 69,151,608 as of December 31, 2008
      and 2007 respectively
                                        
                                        15
                                        
                                        
                                        
                                        71,642
                                        
                                        
                                        
                                        69,152Additional
      paid-in capital
                                        
                                        15
                                        
                                        
                                        
                                        59,578,612
                                        
                                        
                                        
                                        35,673,586Accumulated
      deficit
                                        
                                        
                                        
                                        
                                        
                                        (84,653,932
                                        )
                                        
                                        
                                        (25,169,099
                                        )Accumulated
      other comprehensive income
                                        
                                        
                                        
                                        
                                        
                                        1,647,461
                                        
                                        
                                        
                                        65,297TOTAL
      STOCKHOLDERS’ (DEFICIT) EQUITY
                                        
                                        
                                        
                                        
                                        
                                        (23,356,217
                                        )
                                        
                                        
                                        10,638,936TOTAL
      LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
                                        
                                        
                                        
                                        
                                        $
                                        13,072,666
                                        
                                        
                                        $
                                        27,107,343
 
 (1)See
Note 3 – Restatement and Reclassification
 
 The
accompanying notes are an integral part of the consolidated financial
statements.
  F-3
 Table of Contents
  NETWORK CN
INC.
 CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
 FOR
THE YEARS ENDED DECEMBER 31, 2008, 2007 (RESTATED) AND 2006
 
 Years
      Ended December 31,Note(s)
                                  
                                  
                                  2008
                                  
                                  
                                  2007
                                    Restated(1)
                                  
                                  
                                  2006REVENUESAdvertising services
                                  
                                  
                                  
                                  
                                  $
                                  4,622,270
                                  
                                  
                                  $
                                  1,442,552
                                  
                                  
                                  $
                                  -COST
      OF REVENUESCost of advertising services
                                  
                                  
                                  
                                  
                                  
                                  17,374,713
                                  
                                  
                                  
                                  2,795,188
                                  
                                  
                                  
                                  -GROSS
      LOSS
                                  
                                  
                                  
                                  
                                  
                                  (12,752,443
                                  )
                                  
                                  
                                  (1,352,636
                                  )
                                  
                                  
                                  -OPERATING
      EXPENSESSelling and marketing
                                  
                                  
                                  
                                  
                                  
                                  2,996,142
                                  
                                  
                                  
                                  504,758
                                  
                                  
                                  
                                  -General and administrative
                                  
                                  
                                  
                                  
                                  
                                  11,254,933
                                  
                                  
                                  
                                  11,067,777
                                  
                                  
                                  
                                  4,662,714Allowance for doubtful debts
                                  
                                  6,8
                                  
                                  
                                  
                                  7,739,043
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  15,542Non-cash impairment charges
                                  
                                  7,9,10
                                  
                                  
                                  
                                  18,109,200
                                  
                                  
                                  
                                  516,419
                                  
                                  
                                  
                                  214,600Total Operating Expenses
                                  
                                  
                                  
                                  
                                  
                                  40,099,318
                                  
                                  
                                  
                                  12,088,954
                                  
                                  
                                  
                                  4,892,856LOSS
      FROM OPERATIONS
                                  
                                  
                                  
                                  
                                  
                                  (52,851,761
                                  )
                                  
                                  
                                  (13,441,590
                                  )
                                  
                                  
                                  (4,892,856
                                  )OTHER
      INCOMEInterest income
                                  
                                  
                                  
                                  
                                  
                                  90,703
                                  
                                  
                                  
                                  23,340
                                  
                                  
                                  
                                  35,492Other income
                                  
                                  
                                  
                                  
                                  
                                  645
                                  
                                  
                                  
                                  74
                                  
                                  
                                  
                                  77Total Other Income
                                  
                                  
                                  
                                  
                                  
                                  91,348
                                  
                                  
                                  
                                  23,414
                                  
                                  
                                  
                                  35,569INTEREST
      EXPENSEAmortization of deferred charges and debt discount
                                  
                                  13
                                  
                                  
                                  
                                  5,589,920
                                  
                                  
                                  
                                  206,391
                                  
                                  
                                  
                                  -Interest expense
                                  
                                  
                                  
                                  
                                  
                                  1,492,458
                                  
                                  
                                  
                                  122,803
                                  
                                  
                                  
                                  358Total Interest Expense
                                  
                                  
                                  
                                  
                                  
                                  7,082,378
                                  
                                  
                                  
                                  329,194
                                  
                                  
                                  
                                  358NET
      LOSS BEFORE INCOME TAXES AND MINORITY INTERESTS
                                  
                                  
                                  
                                  
                                  
                                  (59,842,791
                                  )
                                  
                                  
                                  (13,747,370
                                  )
                                  
                                  
                                  (4,857,645
                                  )Income taxes
                                  
                                  20
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (7,668
                                  )
                                  
                                  
                                  (6,984
                                  )Minority interests
                                  
                                  
                                  
                                  
                                  
                                  315,318
                                  
                                  
                                  
                                  62,324
                                  
                                  
                                  
                                  -NET
      LOSS FROM CONTINUING OPERATIONS
                                  
                                  
                                  
                                  
                                  
                                  (59,527,473
                                  )
                                  
                                  
                                  (13,692,714
                                  )
                                  
                                  
                                  (4,864,629
                                  )DISCONTINUED
      OPERATIONSLoss
      from discontinued operations, net of income taxes and minority
      interests
                                  
                                  18
                                  
                                  
                                  
                                  (23,445
                                  )
                                  
                                  
                                  (953,905
                                  )
                                  
                                  
                                  (183,947
                                  )Gain
      from disposal of discontinued operations
                                  
                                  18
                                  
                                  
                                  
                                  66,085
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Gain
      from disposal of an affiliate
                                  
                                  18
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  579,870NET
      INCOME (LOSS) FROM DISCONTINUED OPERATIONS
                                  
                                  
                                  
                                  
                                  
                                  42,640
                                  
                                  
                                  
                                  (953,905
                                  )
                                  
                                  
                                  395,923NET
      LOSS
                                  
                                  
                                  
                                  
                                  $
                                  (59,484,833
                                  )
                                  
                                  $
                                  (14,646,619
                                  )
                                  
                                  $
                                  (4,468,706
                                  )OTHER
      COMPREHENSIVE INCOMEForeign currency translation gain
                                  
                                  
                                  
                                  
                                  
                                  1,582,164
                                  
                                  
                                  
                                  61,817
                                  
                                  
                                  
                                  3,480COMPREHENSIVE
      LOSS
                                  
                                  
                                  
                                  
                                  $
                                  (57,902,669
                                  )
                                  
                                  $
                                  (14,584,802
                                  )
                                  
                                  $
                                  (4,465,226
                                  )NET
      INCOME (LOSS) PER COMMON SHARE – BASIC AND DILUTEDLoss
      per common share from continuing operations
                                  
                                  17
                                  
                                  
                                  $
                                  (0.83
                                  )
                                  
                                  $
                                  (0.20
                                  )
                                  
                                  $
                                  (0.09
                                  )Income
      (loss) per common share from discontinued operations
                                  
                                  17
                                  
                                  
                                  
                                  0.00
                                  
                                  
                                  
                                  (0.01
                                  )
                                  
                                  
                                  0.01Net
      loss per common share – basic and diluted
                                  
                                  17
                                  
                                  
                                  $
                                  (0.83
                                  )
                                  
                                  $
                                  (0.21
                                  )
                                  
                                  $
                                  (0.09
                                  )WEIGHTED
      AVERAGE SHARES OUTSTANDING – BASIC AND DILUTED
                                  
                                  17
                                  
                                  
                                  
                                  71,569,242
                                  
                                  
                                  
                                  68,556,081
                                  
                                  
                                  
                                  52,489,465
 
 (1)See
Note 3 – Restatement and Reclassification
 The
accompanying notes are an integral part of the consolidated financial
statements.
  F-4
 Table of Contents
  NETWORK CN
INC.
 CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY
 FOR
THE YEARS ENDED DECEMBER 31, 2008, 2007 (RESTATED) AND 2006
 
 AccumulatedAdditional
                                                            
                                                            
                                                            Deferred
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            OtherCommon
      Stock
                                                            
                                                            
                                                            Paid-In
                                                            
                                                            
                                                            Stock-Based
                                                            
                                                            
                                                            Accumulated
                                                            
                                                            
                                                            ComprehensiveShare
                                                            
                                                            
                                                            Amount
                                                            
                                                            
                                                            Capital
                                                            
                                                            
                                                            Compensation
                                                            
                                                            
                                                            Deficit
                                                            
                                                            
                                                            Income
                                                            
                                                            
                                                            TotalBalance
      as of December 31, 2005
                                                            
                                                            
                                                            21,846,885
                                                            
                                                            
                                                            $
                                                            21,847
                                                            
                                                            
                                                            $
                                                            8,087,078
                                                            
                                                            
                                                            $
                                                            (66,355
                                                            )
                                                            
                                                            $
                                                            (6,053,774
                                                            )
                                                            
                                                            $
                                                            -
                                                            
                                                            
                                                            $
                                                            1,988,796Issuance
      of stock for private placement
                                                            
                                                            
                                                            42,086,333
                                                            
                                                            
                                                            
                                                            42,086
                                                            
                                                            
                                                            
                                                            9,615,959
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            9,658,045Issuance
      of stock for acquisition of a subsidiary
                                                            
                                                            
                                                            362,500
                                                            
                                                            
                                                            
                                                            363
                                                            
                                                            
                                                            
                                                            102,587
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            102,950Issuance
      of stock for services rendered by consultants and legal
      counsel
                                                            
                                                            
                                                            3,005,000
                                                            
                                                            
                                                            
                                                            3,005
                                                            
                                                            
                                                            
                                                            4,873,995
                                                            
                                                            
                                                            
                                                            (2,845,000
                                                            )
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            2,032,000Contribution
      from a stockholder
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            16,781
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            16,781Stock-based
      compensation for stock options/warrants issued to consultant and
      legal counsel for services
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            25,551
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            25,551Amortization
      of deferred stock-based compensation
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            66,355
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            66,355Translation
      adjustment
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            3,480
                                                            
                                                            
                                                            
                                                            3,480Net
      loss for the year
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            (4,468,706
                                                            )
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            (4,468,706
                                                            )Balance
      as of December 31, 2006
                                                            
                                                            
                                                            67,300,718
                                                            
                                                            
                                                            $
                                                            67,301
                                                            
                                                            
                                                            $
                                                            22,721,951
                                                            
                                                            
                                                            $
                                                            (2,845,000
                                                            )
                                                            
                                                            $
                                                            (10,522,480
                                                            )
                                                            
                                                            $
                                                            3,480
                                                            
                                                            
                                                            $
                                                            9,425,252Issuance
      of stock for private placement
                                                            
                                                            
                                                            500,000
                                                            
                                                            
                                                            
                                                            500
                                                            
                                                            
                                                            
                                                            1,499,500
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            1,500,000Issuance
      of stock for acquisition of a subsidiary
                                                            
                                                            
                                                            300,000
                                                            
                                                            
                                                            
                                                            300
                                                            
                                                            
                                                            
                                                            843,300
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            843,600Issuance
      of stock for services rendered by directors and officers
                                                            
                                                            
                                                            607,260
                                                            
                                                            
                                                            
                                                            607
                                                            
                                                            
                                                            
                                                            166,227
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            166,834Issuance
      of stock for services rendered by consultants
                                                            
                                                            
                                                            218,630
                                                            
                                                            
                                                            
                                                            219
                                                            
                                                            
                                                            
                                                            441,785
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            442,004Exercise
      of warrants by a consultant
                                                            
                                                            
                                                            225,000
                                                            
                                                            
                                                            
                                                            225
                                                            
                                                            
                                                            
                                                            22,275
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            22,500Stock-based
      compensation for stock granted to directors, officers and employees for
      services
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            2,378,380
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            2,378,380Stock-based
      compensation for stock option/warrants issued to consultants for
      services
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            27,921
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            27,921Stock-based
      compensation for stock warrants issued to a placement agent for
      services
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            21,305
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            21,305Amortization
      of deferred stock-based compensation
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            2,845,000
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            2,845,000Value
      of warrants associated with convertible notes
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            2,823,670
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            2,823,670Value
      of beneficial conversion feature of convertible notes to common
      stock
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            4,727,272
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            4,727,272Translation
      adjustment
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            61,817
                                                            
                                                            
                                                            
                                                            61,817Net
      loss for the year - Restated(1)
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            (14,646,619
                                                            )
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            (14,646,619
                                                            )Balance
      as of December 31, 2007- Restated(1)
                                                            
                                                            
                                                            69,151,608
                                                            
                                                            
                                                            $
                                                            69,152
                                                            
                                                            
                                                            $
                                                            35,673,586
                                                            
                                                            
                                                            $
                                                            -
                                                            
                                                            
                                                            $
                                                            (25,169,099
                                                            )
                                                            
                                                            $
                                                            65,297
                                                            
                                                            
                                                            $
                                                            10,638,936Value
      of warrants associated with convertible notes
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            5,810,000
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            5,810,000Value
      of beneficial conversion feature of convertible notes to common
      stock
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            11,030,303
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            11,030,303Issuance
      of stock for acquisition of subsidiaries
                                                            
                                                            
                                                            1,500,000
                                                            
                                                            
                                                            
                                                            1,500
                                                            
                                                            
                                                            
                                                            3,736,500
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            3,738,000Issuance
      of stock for services rendered by directors and officers
                                                            
                                                            
                                                            725,000
                                                            
                                                            
                                                            
                                                            725
                                                            
                                                            
                                                            
                                                            (725
                                                            )
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -Issuance
      of stock for services rendered by employees
                                                            
                                                            
                                                            265,000
                                                            
                                                            
                                                            
                                                            265
                                                            
                                                            
                                                            
                                                            (265
                                                            )
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -Stock-based
      compensation for stock granted to directors, officers and employees for
      services
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            3,149,029
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            3,149,029Stock-based
      compensation for  stock granted to a consultant for
      services
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            52,353
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            52,353Stock-based
      compensation for stock warrants issued to a placement agent for
      service
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            127,831
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            127,831Translation
      adjustment
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            1,582,164
                                                            
                                                            
                                                            
                                                            1,582,164Net
      loss for the year
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            (59,484,833
                                                            )
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            (59,484,833
                                                            )Balance
      as of December 31, 2008
                                                            
                                                            
                                                            71,641,608
                                                            
                                                            
                                                            $
                                                            71,642
                                                            
                                                            
                                                            $
                                                            59,578,612
                                                            
                                                            
                                                            $
                                                            -
                                                            
                                                            
                                                            $
                                                            (84,653,932
                                                            )
                                                            
                                                            $
                                                            1,647,461
                                                            
                                                            
                                                            $
                                                            (23,356,217
                                                            )
 
 (1)See
Note 3 – Restatement and Reclassification
 
 The
accompanying notes are an integral part of the consolidated financial
statements.
  F-5
 Table of Contents
  NETWORK CN
INC.
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 FOR
THE YEARS ENDED DECEMBER 31, 2008, 2007 (RESTATED) AND 2006
 
 Years
      Ended December 31,2008
                                  
                                  2007
                                    Restated(1)
                                  
                                  2006CASH FLOWS FROM OPERATING
      ACTIVITIES:Net
      loss from continuing operations
                                  
                                  $
                                  (59,527,473
                                  )
                                  
                                  $
                                  (13,692,714
                                  )
                                  
                                  $
                                  (4,864,629
                                  )Net
      income (loss) from discontinued operations
                                  
                                  
                                  42,640
                                  
                                  
                                  
                                  (953,905
                                  )
                                  
                                  
                                  395,923Net
      loss
                                  
                                  
                                  (59,484,833
                                  )
                                  
                                  
                                  (14,646,619
                                  )
                                  
                                  
                                  (4,468,706
                                  )Adjustments
      to reconcile net loss to net cash used in operating
                                    activities,
      including discontinued operations:Depreciation
      and amortization:Equipment
      and intangible assets
                                  
                                  
                                  1,956,090
                                  
                                  
                                  
                                  528,635
                                  
                                  
                                  
                                  289,148Deferred
      charges and debt discount
                                  
                                  
                                  5,589,920
                                  
                                  
                                  
                                  206,391
                                  
                                  
                                  
                                  -Stock-based
      compensation for service
                                  
                                  
                                  3,329,213
                                  
                                  
                                  
                                  5,755,693
                                  
                                  
                                  
                                  2,123,906Loss
      on disposal of equipment
                                  
                                  
                                  176,535
                                  
                                  
                                  
                                  5,350
                                  
                                  
                                  
                                  -Allowance
      for doubtful debt
                                  
                                  
                                  7,739,043
                                  
                                  
                                  
                                  10,716
                                  
                                  
                                  
                                  15,542Non-cash
      impairment chargesEquipment
      and intangible assets
                                  
                                  
                                  10,129,392
                                  
                                  
                                  
                                  1,332,321
                                  
                                  
                                  
                                  214,600Prepayments
      for advertising operating rights
                                  
                                  
                                  7,979,808
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Minority
      interests
                                  
                                  
                                  (256,111
                                  )
                                  
                                  
                                  (62,048
                                  )
                                  
                                  
                                  (8,081
                                  )Gain
      from disposal of discontinued operations
                                  
                                  
                                  (66,085
                                  )
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Gain
      from disposal of subsidiaries / an affiliate
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (10,096
                                  )
                                  
                                  
                                  (579,870
                                  )Changes
      in operating assets and liabilities, net of effects from
                                    acquisitions
      and disposition:Accounts
      receivable, net
                                  
                                  
                                  (766,282
                                  )
                                  
                                  
                                  (614,589
                                  )
                                  
                                  
                                  (134,659
                                  )Prepayments
      for advertising operating rights, net
                                  
                                  
                                  5,634,833
                                  
                                  
                                  
                                  (13,636,178
                                  )
                                  
                                  
                                  -Prepaid
      expenses and other current assets, net
                                  
                                  
                                  (2,974,785
                                  )
                                  
                                  
                                  (2,375,340
                                  )
                                  
                                  
                                  (7,306
                                  )Accounts
      payable, accrued expenses and other payables
                                  
                                  
                                  3,068,694
                                  
                                  
                                  
                                  2,185,548
                                  
                                  
                                  
                                  276,626Current
      liabilities from discontinued operations
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (39,566
                                  )Net
      cash used in operating activities
                                  
                                  
                                  (17,944,568
                                  )
                                  
                                  
                                  (21,320,216
                                  )
                                  
                                  
                                  (2,318,366
                                  )CASH FLOWS FROM INVESTING
      ACTIVITIES:Purchase
      of equipment
                                  
                                  
                                  (3,518,408
                                  )
                                  
                                  
                                  (207,371
                                  )
                                  
                                  
                                  (90,888
                                  )Proceeds
      from sales of equipment
                                  
                                  
                                  10,906
                                  
                                  
                                  
                                  2,668
                                  
                                  
                                  
                                  -Purchase
      of intangible right
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (6,000,000
                                  )Net
      cash used in acquisition of subsidiaries, net
                                  
                                  
                                  (2,708,928
                                  )
                                  
                                  
                                  (319,167
                                  )
                                  
                                  
                                  (807,959
                                  )Proceeds
      from disposal of an affiliate
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  3,000,000Proceeds
      from disposal of subsidiaries
                                  
                                  
                                  -
                                  
                                  
                                  
                                  551
                                  
                                  
                                  
                                  -Proceeds
      from disposal of discontinued operations, net of cash disposed
      of
                                  
                                  
                                  (472,827
                                  )
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Net cash used in investing
      activities
                                  
                                  
                                  (6,689,257
                                  )
                                  
                                  
                                  (523,319
                                  )
                                  
                                  
                                  (3,898,847
                                  )CASH FLOWS FROM FINANCING
      ACTIVITIES:Decrease
      in amounts due to related parties
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  (639,130
                                  )Proceeds
      from issuance of 12% convertible promissory note, net of
    costs
                                  
                                  
                                  
                                  
                                  
                                  
                                  4,900,000Proceeds
      from issuance of 3% convertible promissory note, net of
    costs
                                  
                                  
                                  33,900,000
                                  
                                  
                                  
                                  14,700,000
                                  
                                  
                                  
                                  -Repayment
      of 12% convertible promissory note
                                  
                                  
                                  (5,000,000
                                  )
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Proceeds
      from issuance of common stock for private placement, net of
      costs
                                  
                                  
                                  -
                                  
                                  
                                  
                                  1,500,000
                                  
                                  
                                  
                                  9,658,045Proceeds
      from exercise of warrants issued for service
                                  
                                  
                                  -
                                  
                                  
                                  
                                  22,500
                                  
                                  
                                  
                                  -Repayment
      of capital lease obligation
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (3,120
                                  )
                                  
                                  
                                  (9,359
                                  )Contribution
      from a stockholder
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  16,781Net cash provided by financing
      activities
                                  
                                  
                                  28,900,000
                                  
                                  
                                  
                                  21,119,380
                                  
                                  
                                  
                                  9,026,337EFFECT
      OF EXCHANGE RATE CHANGES ON CASH
                                  
                                  
                                  1,217,428
                                  
                                  
                                  
                                  59,160
                                  
                                  
                                  
                                  3,480NET
      INCREASE (DECREASE) IN CASH
                                  
                                  
                                  5,483,603
                                  
                                  
                                  
                                  (664,995
                                  )
                                  
                                  
                                  2,812,604CASH,
      BEGINNING OF PERIOD
                                  
                                  
                                  2,233,528
                                  
                                  
                                  
                                  2,898,523
                                  
                                  
                                  
                                  85,919CASH,
      END OF PERIOD
                                  
                                  $
                                  7,717,131
                                  
                                  
                                  $
                                  2,233,528
                                  
                                  
                                  $
                                  2,898,523SUPPLEMENTAL DISCLOSURE OF CASH
      FLOW INFORMATION:Cash
      paid during the period for:Income
      taxes
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  19,450Interest
      paid for 12% convertible promissory note
                                  
                                  $
                                  69,041
                                  
                                  
                                  $
                                  78,934
                                  
                                  
                                  $
                                  -Interest
      paid for capital lease arrangement
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  421
                                  
                                  
                                  $
                                  5,423Non-cash
      activities:Issuance
      of common stock for acquisition of subsidiaries (Note 5)
                                  
                                  $
                                  3,738,000
                                  
                                  
                                  $
                                  843,600
                                  
                                  
                                  $
                                  102,950
 
 (1)See
Note 3 – Restatement and Reclassification
 
 The
accompanying notes are an integral part of the consolidated financial
statements.
  F-6
 Table of Contents
  NETWORK CN INC. NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
   NOTE
1               ORGANIZATION
AND PRINCIPAL ACTIVITIES
  Network
CN Inc and all of its subsidiaries and variable interest entities (collectively
“NCN” or the “Company”) are principally engaged in the provision of out-of-home
advertising in China. Since late of 2006, the Company has been operating a
growing advertising network of roadside LED digital video panels, mega-size LED
digital video billboards and light boxes in major Chinese cities.
 
 Network
CN Inc., originally incorporated on September 10, 1993 under the name EC Capital
Limited, is a Delaware company with headquarters in the Hong Kong Special
Administrative Region, the People’s Republic of China (“the PRC” or “China”).
The Company was operated by different management teams in the past, under
different operating names, pursuing a variety of business ventures. Between 2004
and 2006, the Company operated under the name Teda Travel Group Inc., which was
primarily engaged in the provision of management services to hotels and resorts
in China.On August
1, 2006, the Company changed its name to “Network CN Inc.” in order to better
reflect its new vision to build a nationwide information and entertainment
network in China through its business in Travel Network and Media Network. In
2008, the Company disposed of its entire travel network in order to focus on
Media Network. Accordingly, such business has been classified as discontinued
operations for all periods presented. (See Note 18 – Discontinued
Operations for details).
  Details
of the Company’s principal subsidiaries and variable interest entities as of
December 31, 2008 are described in Note 4 – Subsidiaries and Variable
Interest Entities.
 
 Going
Concern
 
 The
Company has experienced recurring net losses of $59.5 million, $14.6 million and
$4.5 million for the years ended December 31, 2006, 2007 and 2008
respectively. Additionally, the Company has net cash used in operating
activities of $17.9 million, $21.3 million and $2.3million for the years ended
December 31, 2008, 2007 and 2006 respectively. As of December 31, 2008, the
Company recorded a stockholders’ deficit of $23.4 million. These factors raise
substantial doubt about its ability to continue as a going concern. The
Company’s plans regarding those concerns are addressed in the following
paragraph. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
 
 In
response to current financial conditions, the Company has undergone drastic
cost-cutting exercise including reduction of the Company’s workforce, rentals,
as well as selling and marketing expenses and other general and administrative
expenses. Certain commercially non-viable concession right contracts were
terminated and management has successfully negotiated with certain authority
parties of concession rights to reduce advertising operating right fees.
Besides, the Company has explored various means of obtaining additional
financing. Accordingly, management believes that there are sufficient financial
resources to meet the cash requirements for the next 12 months and the
consolidated financial statements have been prepared on a going concern
basis.
  NOTE
2                SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
  (A)
Basis of Presentation and Preparation
  These
consolidated financial statements of the Company have been prepared in
conformity with accounting principles generally accepted in the United
States of America.
 
 These
consolidated financial statements were prepared on a going concern basis. The
Company has determined that the going concern basis of preparation is
appropriate based on its estimates and judgments of future performance of the
Company, future events and projected cash flows. At each balance sheet date, the
Company evaluates its estimates and judgments as part of its going concern
assessment. Based on its assessment, the Company believes there are
sufficient financial and cash resources to finance the Company as a going
concern in the next twelve months. Accordingly, management has prepared the
financial statements on a going concern basis.
  F-7
 Table of Contents
  (B)
Principles of Consolidation
  The
consolidated financial statements include the financial statements of Network CN
Inc., its subsidiaries and variable interest entities. Variable interest
entities are those entities in which the Company, through contractual
arrangements, bears the risks of, and enjoys the rewards normally associated
with ownership of the entities, and therefore the Company is the primary
beneficiary of these entities. In accordance with FASB Interpretation No. 46R
Consolidation of Variable Interest Entities ("FIN 46R"), the primary
beneficiary is required to consolidate the variable interest entities for
financial reporting purposes. All significant intercompany transactions and
balances have been eliminated upon consolidation.
  (C)
Use of Estimates
  In
preparing consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America, management is
required to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
as of the date of the financial statements and the reported amounts of revenues
and expenses during the reported period. Actual results could differ from those
estimates. Differences from those estimates are reported in the period they
become known and are disclosed to the extent they are material to the
consolidated financial statements taken as a whole.
  (D)
Cash and Cash Equivalents
 
 Cash
includes cash on hand, cash accounts, and interest bearing savings accounts
placed with banks and financial institutions. For the purposes of the cash flow
statements, the Company considers all highly liquid investments with original
maturities of three months or less at the time of purchase to be cash
equivalents. As of December 31, 2008 and 2007, the Company had no cash
equivalents.
  (E)
Allowance for Doubtful Debts
 
 Allowance
for doubtful debts is made against receivable to the extent they are considered
to be doubtful. Receivable in the balance sheet are stated net of such
allowance. The Company records its allowance for doubtful debts based upon its
assessment of various factors. The Company considers historical experience, the
age of the receivable balances, the credit quality of its customers, current
economic conditions, and other factors that may affect customers’ ability to pay
to determine the level of allowance required.
  (F)
Prepayments for Advertising Operating Rights, Net
  Prepayments
for advertising operating rights are measured at cost less accumulated
amortization and impairment losses. Cost includes prepaid expenses directly
attributable to the acquisition of advertising operating rights. Such prepaid
expenses are in general charged to the consolidated statements of
operations on a straight-line basis over the operating period. All the costs
expected to be amortized after 12 months of the balance sheet date are
classified as non-current assets.
  An
impairment loss is recognized when the carrying amount of the prepayments for
advertising operating rights exceeds the sum of the undiscounted cash flows
expected to be generated from the advertising operating right’s use and eventual
disposition. An impairment loss is measured as the amount by which the carrying
amount exceeds the fair value of the asset calculated using a discounted cash
flow analysis.
  (G)
Equipment, Net
  Equipment
is stated at cost less accumulated depreciation and impairment losses.
Depreciation is provided using the straight-line method over the estimated
useful life as follows:
  Media
      display equipment
                  
                  5 -
      7 yearsOffice
      equipment
                  
                  3 -
      5 yearsFurniture
      and fixtures
                  
                  3 -
      5 yearsLeasehold
      improvements
                  
                  Over
      the unexpired lease terms
  Construction
in progress is carried at cost less impairment losses, if any. It relates to
construction of media display equipment. No provision for depreciation is made
on construction in progress until the relevant assets are completed and put into
use.
  F-8
 Table of Contents
 
 When
equipment is retired or otherwise disposed of, the related cost and accumulated
depreciation are removed from the respective accounts, and any gain or loss is
reflected in the statement of operations. Repairs and maintenance costs on
equipment are expensed as incurred.
  (H)
Intangible Assets, Net
  Intangible
assets are stated at cost less accumulated amortization and impairment loss.
Intangible assets that have indefinite useful lives are not amortized. Other
intangible assets with finite useful lives are amortized on a straight-line
basis over their estimated useful lives of 16 months to 20 years. The
amortization methods and estimated useful lives of intangible assets are
reviewed regularly.
  (I)
Impairment of Long-Lived Assets
  Long-lived
assets, including intangible assets with definite lives, are reviewed for
impairment whenever events or changes in circumstance indicate that the carrying
amount of the assets may not be recoverable. An intangible asset that is not
subject to amortization is reviewed for impairment annually or more frequently
whenever events or changes in circumstances indicate that the carrying amount of
the asset may not be recoverable. An impairment loss is recognized when the
carrying amount of a long-lived asset and intangible asset exceeds the sum of
the undiscounted cash flows expected to be generated from the asset’s use and
eventual disposition. An impairment loss is measured as the amount by which the
carrying amount exceeds the fair value of the asset calculated using a
discounted cash flow analysis.
  (J)
Deferred Charges, Net
  Deferred
charges are fees and expenses directly related to the issuance of convertible
promissory notes, including placement agents’ fee. Deferred charges are
capitalized and amortized over the life of the convertible promissory notes
using the effective yield method. Amortization of deferred charges is included
in interest expense on the consolidated statement of operations while the
unamortized balance is included in deferred charges on the consolidated balance
sheet.
  (K)
Convertible Promissory Notes and Warrants
  During
2007 and 2008, the Company issued 12% convertible promissory note and warrants
and 3% convertible promissory notes and warrants. As of December 31, 2008 and
2007, the warrants and embedded conversion feature were classified as equity
under Emerging Issues Task Force (“EITF”) Issue No. 00-19 “Accounting forDerivative Financial Instruments
Indexed to, and Potentially Settled in, a Company’s Own Stock” and met the
other criteria in paragraph 11(a) of Statement of Financial Accounting Standards
(“SFAS”) No.133 “Accounting
for Derivative Instruments and HedgingActivities”. Such
classification will be reassessed at each balance sheet date. The Company
allocated the proceeds of the convertible promissory notes between convertible
promissory notes and the financial instruments related to warrants associated
with convertible promissory notes based on their relative fair values at the
commitment date. The fair value of the financial instruments related to warrants
associated with convertible promissory notes was determined utilizing the
Black-Scholes option pricing model and the respective allocated proceeds to the
warrants is recorded in additional paid-in capital. The embedded beneficial
conversion feature associated with convertible promissory notes was recognized
and measured by allocating a portion of the proceeds equal to the intrinsic
value of that feature to additional paid-in capital in accordance with EITF
Issue No. 98-5“Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratio” and EITF Issue No. 00-27“Application of Issue No. 98-5 to
Certain Convertible Instruments”.
 
 The
portion of debt discount resulting from the allocation of proceeds to the
financial instruments related to warrants associated with convertible promissory
notes is being amortized to interest expense over the life of the convertible
promissory notes, using the effective yield method. For the portion of debt
discount resulting from the allocation of proceeds to the beneficial conversion
feature, it is amortized to interest expense over the term of the notes from the
respective dates of issuance, using the effective yield method.
  F-9
 Table of Contents
  (L)
Early Redemption of Convertible Promissory Notes
  Should
early redemption of convertible promissory notes occur, the unamortized portion
of the associated deferred charges and debt discount would be fully written off
and any early redemption premium will be recognized as expense upon its
occurrence. All related charges, if material, would be aggregated and included
in a separate line “charges on early redemption of convertible promissory
notes”. Such an expense would be included in ordinary activities on the
consolidated statement of operations as required by SFAS No.145“Rescission of FASB Statements No. 4,
44, and 64, Amendment of FASB Statement No.13, and Technical
Corrections”.
  Pursuant
to the provisions of agreements in connection with the 3% convertible promissory
notes, in the event of a default, or if the Company’s actual EPS in any fiscal
year is less than 80% of the respective EPS target, certain investors may
require the Company to redeem the 3% Convertible Promissory Notes at 100% of the
principal amount, plus any accrued and unpaid interest, plus an amount
representing a 20% internal rate of return on the then outstanding principal
amount The Company accounts for such potential liability of 20% internal rate of
return on the then outstanding principal amount in accordance with SFAS No. 5
“Accounting for
Contingencies ”.
  (M)
Revenue Recognition
  For
advertising services, the Company recognizes revenue in the period when
advertisements are either aired or published. Revenues from advertising barter
transactions are recognized in the period during which the advertisements are
either aired or published. Expenses from barter transactions are recognized in
the period as incurred. Barter transactions are accounted in accordance with
EITF Issue No. 99-17, “Accounting for Advertising Barter Transactions ”, which are recorded at
the fair value of the advertising provided based on the Company’s own historical
practice of receiving cash for similar advertising from buyers unrelated to the
counterparty in the barter transactions. The amounts included in advertising
services revenue and general and administrative for barter transactions were
approximately $41,000, $nil and $nil for the years ended December 31, 2008, 2007
and 2006 respectively.
  For hotel
management services, the Company recognizes revenue in the period when the
services are rendered and collection is reasonably assured.
  For tour
services, the Company recognizes services-based revenue when the services have
been performed. Guangdong Tianma International Travel Service Co., Ltd.
(“Tianma”) offers independent leisure travelers bundled packaged-tour products
which include both air-ticketing and hotel reservations. Tianma’s packaged-tour
products cover a variety of domestic and international
destinations.
  Tianma
organizes inbound and outbound tour and travel packages which can incorporate,
among other things, air and land transportation, hotels, restaurants and tickets
to tourist destinations and other excursions. Tianma books all elements of such
packages with third-party service providers such as airlines, car rental
companies and hotels, or through other tour package providers and then resells
such packages to its clients. A typical sale of tour services is as
follows:
 
 1.
                Tianma,
      in consultation with sub-agents, organizes a tour or travel package,
      including making reservations for blocks of tickets, rooms, etc. with
      third-party service providers. Tianma may be required to make deposits,
      pay all or part of the ultimate fees charged by such service providers or
      make legally binding commitments to pay such fees. For air-tickets, Tianma
      normally books a block of air tickets with airlines in advance and pays
      the full amount of the tickets to reserve seats before any tours are
      formed. The air tickets are usually valid for a certain period of time. If
      the pre-packaged tours do not materialize and are eventually not formed,
      Tianma will resell the air tickets to other travel agents or customers.
      For hotels, meals and transportation, Tianma usually pays an upfront
      deposit of 50-60% of the total cost. The remaining balance is then settled
      after completion of the tours.
  2.
                Tianma,
      through its sub-agents, advertises tour and travel packages at prices set
      by Tianma and sub-agents.
  3.
                Customers
      approach Tianma or its appointed sub-agents to book an advertised packaged
      tour.
  4.
                The
      customers pay a deposit to Tianma directly or through its appointed
      sub-agents.
  F-10
 Table of Contents
  5.
                When
      the minimum required number of customers (which number is different for
      each tour based on the elements and costs of the tour) for a particular
      tour is reached, Tianma will contact the customers for tour confirmation
      and request full payment. All payments received by the appointed
      sub-agents are paid to Tianma prior to the commencement of the
      tours.
  6.
                Tianma
      will then make or finalize corresponding bookings with outside service
      providers such as airlines, bus operators , hotels, restaurants, etc.
      and pay any unpaid fees or deposits to such
  providers.
 
 Tianma is
the principal in such transactions and the primary obligor to the third-party
providers regardless of whether it has received full payment from its customers.
In addition, Tianma is also liable to the customers for any claims relating to
the tours such as accidents or tour services. Tianma has adequate insurance
coverage for accidental loss arising during the tours. The Company utilizes
a network of sub-agents who operate strictly in Tianma’s name and can only
advertise and promote the business of Tianma with the prior approval of
Tianma.
  (N)
Stock-based Compensation
  In
December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
123R“Share-Based Payment”, a
revision to SFAS No. 123“Accounting for
Stock-Based Compensation” , and superseding APB Opinion No. 25“Accounting for Stock Issued to
Employees” and its related implementation guidance. Effective January 1,
2006, the Company adopted SFAS No. 123R, using a modified prospective
application transition method, which establishes accounting for stock-based
awards in exchange for employee services. Under this application, the Company is
required to record stock-based compensation expense for all awards granted after
the date of adoption and unvested awards that were outstanding as of the date of
adoption. SFAS No. 123R requires that stock-based compensation cost is measured
at grant date, based on the fair value of the award, and recognized in expense
over the requisite services period.
  Common
stock, stock options and warrants issued to other than employees or directors in
exchange for services are recorded on the basis of their fair value, as required
by SFAS No. 123R, which is measured as of the date required by EITF
Issue 96-18“Accounting for Equity Instruments
That Are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services”. In accordance with EITF 96-18, the
non-employee stock options or warrants are measured at their fair value by using
the Black-Scholes option pricing model as of the earlier of the date at which a
commitment for performance to earn the equity instruments is reached
(“performance commitment date”) or the date at which performance is complete
(“performance completion date”). The stock-based compensation expenses are
recognized on a straight-line basis over the shorter of the period over which
services are to be received or the vesting period. Accounting for non-employee
stock options or warrants which involve only performance conditions when no
performance commitment date or performance completion date has occurred as of
reporting date requires measurement at the equity instruments then-current fair
value. Any subsequent changes in the market value of the underlying common stock
are reflected in the expense recorded in the subsequent period in which that
change occurs.
 
 (O)
Income Taxes
  The
Company accounts for income taxes under SFAS No. 109“Accounting for Income Taxes”.
Under SFAS No. 109, deferred tax assets and liabilities are provided for the
future tax effects attributable to temporary differences between the financial
statement carrying amounts of assets and liabilities and their respective tax
bases, and for the expected future tax benefits from items including tax loss
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 reversed. Under SFAS No. 109, 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.
  (P)
Comprehensive Income (Loss)
  The
Company follows SFAS No. 130“Reporting
Comprehensive Income” for the reporting and display of its comprehensive
income (loss) and related components in the financial statements and thereby
reports a measure of all changes in equity of an enterprise that results from
transactions and economic events other than transactions with the shareholders.
Items of comprehensive income (loss) are reported in both the consolidated
statement of operations and comprehensive loss and the
consolidated statement of stockholders’ equity.
  F-11
 Table of Contents
  (Q)
Earnings (Loss) Per Common Share
  Basic
earnings (loss) per common share are computed in accordance with SFAS
No. 128 “Earnings Per
Share” by dividing the net income (loss) attributable to holders of
common stock by the weighted average number of shares of common stock
outstanding during the period. Diluted earnings (loss) per share is computed by
dividing net income (loss) by the weighted average number of common shares
including the dilutive effect of common share equivalents then
outstanding.
  The
diluted net loss per share is the same as the basic net loss per share for the
years ended December 31, 2008, 2007 and 2006 as all potential ordinary shares
including stock options and warrants are anti-dilutive and are therefore
excluded from the computation of diluted net loss per share.
  (R)
Operating Leases
  Leases
where substantially all the rewards and risks of ownership of assets remain with
the leasing company are accounted for as operating leases. Payments made under
operating leases are charged to the consolidated statements of operations on a
straight-line basis over the lease period.
  (S)
Foreign Currency Translation
  The
assets and liabilities of the Company’s subsidiaries and variable interest
entities denominated in currencies other than United States (“U.S.”) dollars are
translated into U.S. dollars using the applicable exchange rates at the balance
sheet date. For statement of operations’ items, amounts denominated in
currencies other than U.S. dollars were translated into U.S. dollars using the
average exchange rate during the period. Equity accounts were translated at
their historical exchange rates. Net gains and losses resulting from translation
of foreign currency financial statements are included in the statements of
stockholders’ equity as accumulated other comprehensive income (loss). Foreign
currency transaction gains and losses are reflected in the consolidated
statements of operations.
  (T)
Fair Value of Financial Instruments
  SFAS
No. 157 defines fair value as the price that would be received from selling
an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. When determining the fair value
measurements for assets and liabilities required or permitted to be recorded at
fair value, the Company considers the principal or most advantageous market in
which it would transact and it considers assumptions that market participants
would use when pricing the asset or liability.
 
 SFAS
No. 157 establishes a fair value hierarchy that requires an entity to
maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value. A financial instrument’s categorization within
the fair value hierarchy is based upon the lowest level of input that is
significant to the fair value measurement. SFAS 157 establishes three levels of
inputs that may be used to measure fair value:
 
 Level
1
 Level 1
applies to assets or liabilities for which there are quoted prices in active
markets for identical assets or liabilities.
 
 Level
2
 Level 2
applies to assets or liabilities for which there are inputs other than quoted
prices included within Level 1 that are observable for the asset or liability
such as quoted prices for similar assets or liabilities in active markets;
quoted prices for identical assets or liabilities in markets with insufficient
volume or infrequent transactions (less active markets); or model-derived
valuations in which significant inputs are observable or can be derived
principally from, or corroborated by, observable market data.
 
 Level
3
 Level 3
applies to assets or liabilities for which there are unobservable inputs to the
valuation methodology that are significant to the measurement of the fair value
of the assets or liabilities.
  F-12
 Table of Contents
 
 The
carrying value of the Company’s financial instruments, which consist of cash,
accounts receivables, prepayments for advertising operating rights, prepaid
expenses and other current assets, accounts payable, accrued expenses and other
payables, approximates fair value due to the short-term maturities.
  The
carrying value of the Company’s financial instruments related to warrants
associated with convertible promissory notes is stated at a value being
equal to the allocated proceeds of convertible promissory notes based on the
relative fair value of notes and warrants. In the measurement of the fair value
of these instruments, the Black-Scholes option pricing model is utilized, which
is consistent with the Company’s historical valuation techniques. These derived
fair value estimates are significantly affected by the assumptions used. The
allocated value of the financial instruments related to warrants associated with
convertible promissory notes is recorded as an equity, which does not
require to mark-to-market as of each subsequent reporting period.
 
 (U)
Concentration of Credit Risk
  The
Company places its cash with various financial institutions. The Company
believes that no significant credit risk exists as these cash investments are
made with high-credit-qualify financial institutions.
  All the
revenue of the Company and a significant portion of the Company’s assets are
generated and located in China. The Company’s business activities and accounts
receivables are mainly from advertising services. Deposits are usually collected
from customers in advance and the Company performs ongoing credit evaluation of
its customers. The Company believes that no significant credit risk exists as
credit loss.
  (V)
Segmental Reporting
  SFAS No.
131 “Disclosures about
Segments of an Enterprise and Related Information” establishes standards
for reporting information about operating segments on a basis consistent with
the Company’s internal organization structure as well as information about
geographical areas, business segments and major customers in financial
statements. The Company’s operating segments are organized internally primarily
by the type of services rendered. In September 2008, the Company disposed of its
entire travel business and focus on developing its media business in the PRC.
Accordingly, it is management’s view that the services rendered by the Company
are of one operating segment: Media Network.
  (W)
Recent Accounting Pronouncements
  In
September 2006, FASB issued SFAS No. 157, “Fair Value Measurements”.
Effective January 1, 2008, the Company adopted the measurement and
disclosure other than those requirements related to nonfinancial assets and
liabilities in accordance with guidance from FASB Staff Position 157-2, “Effective Date of FASB Statement
No.157”,
which delayed the effective date of SFAS No. 157 for all nonfinancial
assets and nonfinancial liabilities, except for items that are recognized or
disclosed at fair value in the financial statements on a recurring basis (at
least annually), until the beginning of fiscal year 2009. The Company believes
the adoption of SFAS No. 157 for nonfinancial assets and liabilities will
not have a significant effect on its consolidated financial position or results
of operations.
 
 In
December 2007, the Financial Accounting Standards Board (FASB) issued
SFAS No. 141 (Revised),“Business Combinations”
(“SFAS No. 141 (R)”), replacing SFAS No. 141,“BusinessCombinations” (“SFAS No. 141”),
and SFAS No. 160 “Noncontrolling Interests in
Consolidated Financial
Statements–an amendment of ARB No.51”.
SFAS No. 141(R) retains the fundamental requirements of
SFAS No. 141, broadens its scope by applying the acquisition method to
all transactions and other events in which one entity obtains control over one
or more other businesses, and requires, among other things, that assets
acquired and liabilities assumed be measured at fair value as of the
acquisition date, that liabilities related to contingent consideration
be recognized at the acquisition date and re-measured at fair
value in each subsequent reporting period, that acquisition-related costs
be expensed as incurred, and that income be recognized if the fair
value of the net assets acquired exceeds the fair value of the
consideration transferred. SFAS No. 160 improves the relevance,
comparability, and transparency of the financial information that a reporting
entity provides in its consolidated financial statements by establishing
accounting and reporting standards that require; the ownership interests in
subsidiaries held by parties other than the parent and the amount of
consolidated net income attributable to the parent and to the noncontrolling
interest be clearly identified and presented on the face of the consolidated
statement of income, changes in a parent’s ownership interest while the parent
retains its controlling financial interest in its subsidiary be accounted for
consistently, when a subsidiary is deconsolidated, any retained noncontrolling
equity investment in the former subsidiary be initially measured at fair value,
entities provide sufficient disclosures that clearly identify and distinguish
between the interests of the parent and the interests of the noncontrolling
owners. SFAS No. 160 affects those entities that have an outstanding
noncontrolling interest in one or more subsidiaries or that deconsolidate a
subsidiary. SFAS No. 141(R) and SFAS No. 160 are effective for fiscal years, and
interim periods within those fiscal years, beginning on or after December 15,
2008. The Company is currently assessing the impact of adopting
SFAS No. 141 (R) and SFAS No. 160 on its financial
statements and related disclosures.
  F-13
 Table of Contents
  In March
2008, the FASB issued SFAS No. 161 “Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement
No.133”
(SFAS No. 161). This statement is intended to improve transparency in financial
reporting by requiring enhanced disclosures of an entity’s derivative
instruments and hedging activities and their effects on the entity’s financial
position, financial performance, and cash flows. SFAS No. 161 applies to all
derivative instruments within the scope of SFAS 133 “Accounting for Derivative
Instruments and Hedging Activities” (SFAS No.133) as well as related
hedged items, bifurcated derivatives, and nonderivative instruments that are
designated and qualify as hedging instruments. Entities with instruments subject
to SFAS No. 161 must provide more robust qualitative disclosures and expanded
quantitative disclosures. SFAS No. 161 is effective prospectively for financial
statements issued for fiscal years and interim periods beginning after
November 15, 2008, with early application permitted. The Company
is currently assessing the impact of adopting SFAS No. 161 on its
financial statements and related disclosures.
 
 In
May 2008, the FASB issued SFAS No. 162 “The Hierarchy of Generally Accepted
Accounting Principles”. SFAS No. 162 identifies the sources of accounting
principles and the framework for selecting the accounting principles to be used.
Any effect of applying the provisions of this statement will be reported as a
change in accounting principle in accordance with SFAS No. 154 “Accounting Changes and Error
Corrections”. SFAS No. 162 is effective for fiscal years, and interim
periods within those fiscal years, beginning on or after December 15, 2008. The
Company is currently evaluating the impact the adoption of this statement could
have on its financial condition, results of operations and cash
flows.
  In May
2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee
Insurance Contracts, an interpretation of FASB Statement No.60”. The scope of this
Statement is limited to financial guarantee insurance (and reinsurance)
contracts, as described in this Statement, issued by enterprises included within
the scope of Statement 60. Accordingly, this Statement does not apply to
financial guarantee contracts issued by enterprises excluded from the scope of
Statement 60 or to some insurance contracts that seem similar to financial
guarantee insurance contracts issued by insurance enterprises (such as mortgage
guaranty insurance or credit insurance on trade receivables). This Statement
also does not apply to financial guarantee insurance contracts that are
derivative instruments included within the scope of FASB Statement No. 133,
“Accounting for Derivative
Instruments and Hedging Activities”. This Statement will not have any
impact on the Company’s consolidated financial statements.
  In May
2008, the FASB issued Staff Position No. APB 14-1 “Accounting for Convertible Debt
Instruments that May be Settled in Cash Upon Conversion”. APB 14-1
requires that the liability and equity components of convertible debt
instruments that may be settled in cash upon conversion (including partial cash
settlement) be separately accounted for in a manner that reflects an issuer’s
nonconvertible debt borrowing rate. The resulting debt discount is amortized
over the period the convertible debt is expected to be outstanding as additional
non-cash interest expense. APB 14-1 is effective for financial statements issued
for fiscal years beginning after December 15, 2008, and interim periods
within those fiscal years. Retrospective application to all periods presented is
required except for instruments that were not outstanding during any of the
periods that will be presented in the annual financial statements for the period
of adoption but were outstanding during an earlier period. The Company is
currently evaluating the impact of the adoption of this position could have on
its financial condition, results of operations and cash flows.
 
 In June
2008, the FASB issued Emerging Issues Task Force Issue No. 07-5 “Determining whether an Instrument
(or Embedded Feature) is indexed to an Entity’s Own Stock” (“EITF No.
07-5”). This Issue is effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods within those fiscal
years. Early application is not permitted. Paragraph 11(a) of Statement of
Financial Accounting Standard No 133 “Accounting for Derivatives and
Hedging Activities” (“SFAS No.133”) specifies that a contract that would
otherwise meet the definition of a derivative but is both (a) indexed to
the Company’s own stock and (b) classified in stockholders’ equity in the
statement of financial position would not be considered a derivative financial
instrument. EITF No.07-5 provides a new two-step model to be applied in
determining whether a financial instrument or an embedded feature is indexed to
an issuer’s own stock and thus able to qualify for the SFAS No.133 paragraph
11(a) scope exception. The Company is currently evaluating the impact of
adoption of EITF No. 07-5 on its financial statements and related
disclosures.
  F-14
 Table of Contents
  In June
2008, FASB issued EITF Issue No. 08-4, “Transition Guidance for Conforming
Changes to Issue No. 98-5 (“EITF No. 08-4”)”. The objective of
EITF No.08-4 is to provide transition guidance for conforming changes made to
EITF No. 98-5, “Accounting for
Convertible Securities with Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios”, that result from EITF No. 00-27 “Application of Issue No. 98-5 to
Certain Convertible Instruments”, and SFAS No. 150, “Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity”.
This Issue is effective for financial statements issued for fiscal years ending
after December 15, 2008. Early application is permitted. The Company is
currently evaluating the impact of adoption of EITF No. 08-4 on the accounting
for the convertible notes and related warrants transactions.
   In
December 2008, the FASB issued Staff Position No. FAS 132(R)-1“Employers’ Disclosures about
PostretirementBenefitPlan Assets”(“FSP FAS 132(R)-1”). FSP FAS 132(R)-1 requires more detailed
disclosures about employers’ plan assets in a defined benefit pension or other
postretirement plan, including employers’ investment strategies, major
categories of plan assets, concentrations of risk within plan assets, and inputs
and valuation techniques used to measure the fair value of plan assets. FSP FAS
132(R)-1 also requires, for fair value measurements using significant
unobservable inputs (Level 3), disclosure of the effect of the measurements on
changes in plan assets for the period. The disclosures about plan assets
required by FSP FAS 132(R)-1 must be provided for fiscal years ending after
December 15, 2009. As this pronouncement is only disclosure-related, it will not
have an impact on the financial position and results of operations.
 
 NOTE
3                RESTATEMENT
AND RECLASSIFICATION
  (A)
Restatement of Financial Results
  On
October 10, 2008, the Company filed a Current Report on Form 8-K to
announce that the Company’s Board of Directors, based upon the consideration of
issues addressed in the SEC review and the recommendation of the Audit
Committee, determined that the Company should restate its previously issued
consolidated financial statements for the year ended December 31, 2007 and
unaudited condensed consolidated financial statements for the interim periods
ended March 31, 2008 and June 30, 2008
  The
restatement adjustments corrected the accounting errors arising from its
misapplication of accounting policies to the discount associated with the
beneficial conversion feature attributed to the issuance of the 3% convertible
promissory notes in 2007. The Company initially amortized the discount according
to EITF Issue No. 98-5, “Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratio”, which stated that discount resulting from allocation
of proceeds to the beneficial conversion feature should be recognized as
interest expense over the minimum period from the date of issuance to the date
of earliest conversion. As the notes are convertible at the date of issuance,
the Company fully amortized such discount through interest expense at the date
of issuance accordingly. However, according to Issue 6 of EITF Issue No.
00-27,“Application of Issue
No. 98-5 to Certain Convertible Instruments”, EITF Issues No. 98-5 should
be modified to require the discount related to the beneficial conversion feature
to be accreted from the date of issuance to the stated redemption date
regardless of when the earliest conversion date occurs using the effective
interest method. The restatement adjustments were to reflect the retrospective
application of the Issue 6 of EITF Issue No. 00-27.
 
 The
restatement affected the Company’s previously reported non-cash interest
expense, net loss, long-term debt and stockholders’ equity but had no effects on
its cash flow. There was no change to each subtotal (operating, investing and
financing activities) in the Company’s condensed consolidated statements of cash
flows as a result of the restatement. Certain balances related to line items
within certain cash flows were corrected as part of the restatement. The
restatement in the consolidated financial statements as of December 31,
2007 and for the year ended December 31, 2007 is as
follows:
  F-15
 Table of Contents
 
 For the year ended December 31,
      2007
                          
                          As
      Previously
                            Reported
                          
                          
                          Restatement
                            Adjustments
                          
                          
                          As
      RestatedInterest
      ExpenseAmortization
      of deferred charges and debt discount
                          
                          $
                          4,866,351
                          
                          
                          $
                          (4,659,960
                          )
                          
                          $
                          206,391Net
      loss from continuing operations
                          
                          
                          (19,306,579
                          )
                          
                          
                          4,659,960
                          
                          
                          
                          (14,646,619
                          )Net
      loss
                          
                          
                          (19,306,579
                          )
                          
                          
                          4,659,960
                          
                          
                          
                          (14,646,619
                          )Comprehensive
      loss
                          
                          
                          (19,244,762
                          )
                          
                          
                          4,659,960
                          
                          
                          
                          (14,584,802
                          )Net
      loss per common share – basic and diluted
                          
                          $
                          (0.28
                          )
                          
                          $
                          0.07
                          
                          
                          $
                          (0.21
                          )As of December 31, 2007
                          
                          As
      Previously
                            Reported
                          
                          
                          Restatement
                            Adjustments
                          
                          
                          As
      RestatedLiabilities3%
      convertible promissory notes due 2011, net
                          
                          $
                          12,545,456
                          
                          
                          $
                          (4,659,960
                          )
                          
                          $
                          7,885,496Total
      liabilities
                          
                          
                          20,780,493
                          
                          
                          
                          (4,659,960
                          )
                          
                          
                          16,120,533Stockholders’
      EquityAccumulated
      deficit
                          
                          
                          (29,829,059
                          )
                          
                          
                          4,659,960
                          
                          
                          
                          (25,169,099
                          )Total
      stockholder’s equity
                          
                          $
                          5,978,976
                          
                          
                          $
                          4,659,960
                          
                          
                          $
                          10,638,936
  (B)
Reclassification
  To better
present the results of the Company, the “by function of expense” method for the
presentation of the statements of operations and comprehensive loss has been
adopted. Comparative amounts for prior periods have been reclassified in order
to achieve a consistent presentation.
  In
addition, the Company completed the disposal of travel network during the year
ended December 31, 2008. As a result of the disposal, the consolidated financial
statements of the Company reflect travel network operation as discontinued
operations for all presented periods. Accordingly, revenues and costs and
expenses of travel network have been excluded from the respective accounts in
the consolidated statements of operations. The net operating results of the
discontinued operations have been reported, net of applicable income taxes and
minority interests, as “Income (Loss) from Discontinued Operations, Net of
Income Taxes and Minority Interests”. For details, please refer to Note
18 – Discontinued Operations.
  The above
reclassification does not have an effect on net loss and net loss per
share.
  F-16
 Table of Contents
  NOTE
4               SUBSIDIARIES
AND VARIABLE INTEREST ENTITIES
  Details
of the Company’s principal consolidated subsidiaries and variable interest
entities as of December 31, 2008 were as follows:
  Name
                Place
      of
                  Incorporation
                Ownership
                  interest
                  attributable to
                  the Company
                Principal activitiesNCN
      Group Limited
                British
      Virgin Islands
                100%
                Investment
      holdingNCN
      Media Services Limited
                British
      Virgin Islands
                100%
                Investment
      holdingCrown
      Winner International
                  Limited
                Hong
      Kong
                100%
                Investment
      holdingCityhorizon
      Limited
                Hong
      Kong
                100%
                Investment
      holdingNCN
      Group Management
                  Limited
                Hong
      Kong
                100%
                Provision
      of administrative and
                  management
      servicesNCN
      Huamin Management
                  Consultancy
      (Beijing)
                  Company
      Limited
                The
      PRC
                100%
                Provision
      of administrative and
                  management
      servicesShanghai
      Quo Advertising
                  Company
      Limited
                The
      PRC
                100%
                Provision
      of advertising servicesXuancaiyi
      (Beijing) Advertising
                  Company
      Limited
                The
      PRC
                51%
                Provision
      of advertising servicesTeda
      (Beijing) Hotels
                  Management
      Limited
                The
      PRC
                100%
                Dormant;
      undergoing liquidation
                  ProcessNCN
      Travel Services Limited
                British
      Virgin Islands
                100%
                DormantLinkrich
      Enterprise Advertising
                  and
      Investment Limited
                Hong
      Kong
                100%
                DormantCityhorizon
      Limited
                British
      Virgin Islands
                100%
                Investment
      holdingHuizhong
      Lianhe Media
                  Technology
      Co., Ltd
                The
      PRC
                100%
                Provision
      of high-tech servicesBeijing
      Huizhong Bona Media
                  Advertising
      Co., Ltd.
                The
      PRC
                100%
                Provision
      of advertising servicesHuizhi
      Botong Media
                  Advertising
      Beijing Co., Ltd
                The
      PRC
                100%
                Provision
      of advertising servicesCrown
      Eagle Investment Limited
                Hong
      Kong
                100%
                DormantProfit
      Wave Investment Limited
                Hong
      Kong
                100%
                DormantQingdao
      Zhongan Boyang
                  Advertising
      Co., Ltd.
                The
      PRC
                60%
                Provision
      of advertising services
  Remarks
:
  1)
                The
      Company established its wholly-owned subsidiaries, namely, Crown
      Eagle Investment Limited and Profit Wave Investment Limited in January
      2008.
  2)
                Quo
      Advertising established its subsidiary Qingdao Zhongan Boyang
      Advertising Co., Ltd. in March
2008.
  3)
                The
      Company disposed of all its travel network related subsidiaries and
      variable interest entity, namely, NCN Management Services Limited, NCN
      Hotels Investment Limited, NCN Pacific Hotels Limited, Tianma, NCN
      Landmark International Hotel Group Limited and Beijing NCN Landmark Hotel
      Management Limited in September 2008. See Note 18 – Discontinued
      Operations for details.
  4)
                The
      Company winded up two dormant subsidiaries, namely, NCN Asset Management
      Services Limited and NCN Financial Services Limited in November
      2008.
  F-17
 Table of Contents
  5)
                Advertising
      business of the Company was initially run through the trust arrangements
      with Shanghai Quo Advertising Company Limited (“Quo Advertising”)
      which owned by two PRC citizens designated by the Company and directly
      operated the Company’s advertising network projects. In January 2008, the
      Company restructured its advertising business after further acquiring
      Cityhorizon BVI Group. For details, please refer to Note 5 – Business
      Combinations. The Company, through its newly acquired company, Huizhong
      Lianhe Media Technology Co., Ltd. (“Lianhe”), entered into an exclusive
      management consulting services agreement and an exclusive technology
      consulting services agreement with each of Quo Advertising, Beijing
      Huizhong Bona Media Advertising Co., Ltd. (“Bona”) and Huizhi Botong Media
      Advertising Beijing Co., Ltd (“Botong”). In addition, the Company entered
      into an equity pledge agreement and an option agreement with each of the
      registered PRC shareholders of Quo Advertising, Bona and Botong designated
      by the Company and pursuant to which these shareholders had pledged 100%
      of their shares to Lianhe and granted Lianhe the option to acquire their
      shares at a mutually agreed purchase price which shall first be used to
      repay any loans payable to Lianhe or any affiliate of Lianhe by the
      registered PRC shareholders These commercial arrangements enable the
      Company to exert effective control on Quo, Bona and Botong and their
      direct subsidiaries, namely, Xuancaiyi (Beijing) Advertising Company
      Limited and Qingdao Zhongan Boyang Advertising Co., Ltd, and transfer
      their economic benefits to the Company for financial results consolidation
      pursuant to FIN 46(R).
 
 NOTE
5               BUSINESS
COMBINATIONS
  (A)
                Transactions
      Completed in 2006
 
 On June
16, 2006, the Company consummated the acquisition of a majority interest of
Tianma, a travel agency headquartered in the Guangdong province of the People’s
Republic of China pursuant to a Purchase and Sales Agreement dated May 30, 2006.
The acquisition helped the Company to grow its travel network in China. The
Company paid $833,333 in cash and issued 362,500 shares of the Company’s common
stock of par value of $0.001 each, totaling $102,950 in exchange for 55% of the
equity interest of Tianma. The total consideration was $936,283.
  The
acquisition has been accounted for using the purchase method of accounting and
the results of operations of Tianma have been included in the Company's
consolidated statement of operations since the completion of the acquisition on
June 16, 2006.
  The
allocation of the purchase price is as follows:
  Cash
                    
                    $
                    13,956Accounts
      receivable, net
                    
                    
                    45,664Prepaid
      expenses and other current assets, net
                    
                    
                    128,072Equipment,
      net
                    
                    
                    398Intangible
      right
                    
                    
                    815,902Accounts
      payable, accrued expenses and other payables
                    
                    
                    (67,709
                    )Total
      purchase price
                    
                    $
                    936,283
  Identifiable
intangible right of $815,902 represents the operating right to conduct tour
business in China. It is measured at fair value as of the date of the
acquisition and it is not subject to amortization, instead, annual review
will be performed to access any possible impairment loss. The intangible right
of Tianma was fully provided with impairment loss in 2007. For details, please
refer to Note 10 – Intangible Assets, Nets for details.
  (B)
                Transactions
      Completed in 2007
  1.
                Acquisition
      of Quo Advertising
  On
January 31, 2007, the Company acquired 100% of the equity interests of Quo
Advertising, an advertising agency headquartered in Shanghai, China, pursuant to
a Purchase and Sales Agreement and Trust Agreements entered with Lina Zhang and
Qinxiu Zhang dated January 24, 2007. The acquisition helped the Company to grow
its advertising business in China. The Company paid $64,000 in cash and issued
300,000 shares of the Company’s common stock of par value of $0.001 each,
totaling $843,600 in exchange for 100% of the equity interest of Quo
Advertising. The total consideration was $907,600.
  F-18
 Table of Contents
  The
acquisition has been accounted for using the purchase method of accounting and
the results of operations of Quo Advertising have been included in the Company's
consolidated statement of operations since the completion of the acquisition on
January 31, 2007.
  The
allocation of the purchase price is as follows:
  Cash
                    
                    $
                    18,001Accounts
      receivable, net
                    
                    
                    83,791Prepaid
      expenses and other current assets, net
                    
                    
                    298,559Equipment,
      net
                    
                    
                    15,114Intangible
      right
                    
                    
                    536,540Accounts
      payable, accrued expenses and other payables
                    
                    
                    (44,405
                    )Total
      purchase price
                    
                    $
                    907,600
  Identifiable
intangible right of $536,540 is measured at fair value as of the date of the
acquisition and amortized over 20 years. The intangible right of Quo Advertising
was fully provided with impairment loss in 2007. For details, please refer to
Note 10 – Intangible Assets, Nets for details.
  2.
                Acquisition
      of Xuancaiyi
  Effective
September 1, 2007, the Company, through Quo Advertising, acquired 51% of the
equity interests of Xuancaiyi (Beijing) Advertising Company Limited
(“Xuancaiyi”), an advertising agency in Beijing, China, for a consideration of
up to RMB 12,245,000 (equivalent to $1,666,943) in cash. Xuancaiyi secured the
rights to operate a 758 square-meter mega-size high resolution LED advertising
billboard in a prominent location in Beijing, China. The investment in Xuancaiyi
will strengthen the Company’s Media Network in China. The acquisition has been
accounted for using the purchase method of accounting and the results of
operations of Xuancaiyi have been included in the Company's consolidated
statement of operations since the acquisition date on September 1,
2007.
  The
purchase consideration, to be paid fully in cash, is payable as
follows:
  1.
                An
      initial payment of RMB2,500,000 (approximately
  $330,000);
  2.
                Up
      to RMB 2,454,300 (approximately $337,000) based on Xuancaiyi’s net profit
      for the four months ended December 31,
2007;
  3.
                Up
      to RMB 1,834,500 (approximately $252,000) based on Xuancaiyi’s net profit
      for the first quarter of fiscal year
2008;
  4.
                Up
      to RMB 1,827,400 (approximately $251,000) based on Xuancaiyi’s net profit
      for the second quarter of fiscal year
2008;
  5.
                Up
      to RMB1,819,100 (approximately $250,000) based on Xuancaiyi’s net profit
      for the third quarter of fiscal year 2008;
and
  6.
                Up
      to RMB1,809,700 (approximately $248,000) based on Xuancaiyi’s net profit
      for the fourth quarter of fiscal year
2008.
  The
initial payment of RMB2,500,000 (equivalent to $330,000) was made in September
2007. The allocation of the initial payment is as follows:
 
 Cash
                    
                    $
                    57,971Prepaid
      expenses and other current assets
                    
                    
                    82,150Equipment,
      net
                    
                    
                    6,955Intangible
      right
                    
                    
                    586,066Accounts
      payable, accrued expenses and other payables
                    
                    
                    (85,833
                    )Minority
      Interests
                    
                    
                    (317,181
                    )Total
      purchase price
                    
                    $
                    330,128
  F-19
 Table of Contents
  Identifiable
intangible right of $586,066 is measured at fair value as of the date of the
acquisition and is amortized over 16 months based on initial contract period
with Xuancaiyi’s media partner.
  As
Xuancaiyi failed to achieve the net profit targets in each of the above periods,
no further cash payment is expected to be made with respect to the above
earn-out consideration.
  (C)
                Transactions
      Completed in 2008
  1.           Acquisition
of Cityhorizon BVI
  On
January 1, 2008, the Company and its wholly owned subsidiary Cityhorizon Limited
(“Cityhorizon Hong Kong”), a Hong Kong company, entered into a Share Purchase
Agreement with Cityhorizon BVI, Lianhe, a wholly owned subsidiary of Cityhorizon
BVI, Bona, a wholly owned subsidiary of Cityhorizon BVI, and Liu Man Ling, an
individual and sole shareholder of Cityhorizon BVI pursuant to which the
Company, through its subsidiary Cityhorizon Hong Kong, acquired 100% of the
issued and outstanding shares of Cityhorizon BVI from Liu Man Ling. Pursuant to
the Share Purchase Agreement, the Company in January 2008 paid the Liu Man Ling
$5,000,000 in cash and issued Liu Man Ling 1,500,000 shares of
restricted common stock of par value of $0.001 each, totaling $3,738,000.
The total purchase consideration was $8,738,000. The purpose of the acquisition
was to strengthen the Company’s media network in China.
  The
acquisition has been accounted for using the purchase method of accounting and
the results of operations of Cityhorizon BVI, Lianhe and Bona have been included
in the Company's consolidated statement of operations since the completion of
the acquisition on January 1, 2008.
  The
allocation of the purchase price is as follows:
  Cash
                      
                      $
                      2,427,598Prepayments
      for advertising operating rights
                      
                      
                      2,450,794Prepayments
      and other current assets
                      
                      
                      170,347Equipment,
      net
                      
                      
                      1,995,702Intangible
      assets, net
                      
                      
                      1,973,865Accounts
      payable, accrued expenses and other payables
                      
                      
                      (280,306
                      )Total
      purchase price
                      
                      $
                      8,738,000
  Intangible
assets represent the acquired application systems developed internally by Lianhe
for controlling LED activities. Based on a valuation performed by an independent
valuer, the fair value of the acquired application systems as of the date of
acquisition amounted to RMB31,000,000 (equivalent to US$4,252,564). This fair
value, after deducting negative goodwill of $2,278,699 arising from business
combination with Cityhorizon BVI, Lianhe and Bona, equaled to $1,973,865. Such
net amount was amortized over the useful lives of the application
systems. The acquired application systems were fully provided with
impairment loss in 2008. For details, please refer to Note 10 – Intangible
Assets, Nets for details.
  2.           Consolidation
of variable interest entity - Botong
  On
January 1, 2008, the Company caused its subsidiary, Lianhe, to enter into a
series of commercial agreements with Botong, a company organized under the laws
of the PRC, and their respective registered shareholders, pursuant to which
Lianhe provides exclusive technology and management consulting services to
Botong in exchange for service fees amounting to substantially all of the net
income of Botong. Each of the registered PRC shareholders of Botong also entered
into equity pledge agreements and option agreements with Lianhe which cannot be
amended or terminated except by written consent of all parties. Pursuant to
these equity pledge agreements and option agreements, each shareholder pledged
such shareholder’s interest in Botong for the performance of such Botong’s
payment obligations under its respective exclusive technology and management
consulting services agreements. In addition, Lianhe has been assigned all voting
rights by the shareholders of Botong and has the option to acquire the equity
interests of Botong at a mutually agreed purchase price which shall first be
used to repay any loans payable to Lianhe or any affiliate of Lianhe by the
registered PRC shareholders.
  In
addition, as of January 1, 2008, Lianhe committed to extend loan totaling
$137,179 to the registered shareholders of Botong for the purpose of financing
such shareholders’ investment in Botong. Through the above contractual
arrangements, Lianhe becomes the primary beneficiary of Botong which is a
variable interest entity as defined under FIN 46 (Revised). The results of
operations of Botong have been included in the Company's consolidated statement
of operations since January 1, 2008.
  F-20
 Table of Contents
  On
January 1, 2008, the net assets of Botong were as follows:
 Cash
                  
                  $
                  653Prepaid
      expenses and other current assets
                  
                  
                  102,154Equipment,
      net
                  
                  
                  599,348Intangible
      asset
                  
                  
                  551,031Accounts
      payable, accrued expenses and other payables
                  
                  
                  (1,116,007
                  )Net
      assets
                  
                  $
                  137,179
  Identifiable
intangible asset with a fair value of $551,031 as of the effective date of
Lianhe and Botong entering into the above contractual arrangements is amortized
over the remaining contract period of Botong’s advertising operating
right.
 
  (D)
                Unaudited
      Pro Forma Consolidated Financial
Information
  1.           Disclosure
for the year ended December 31, 2006
  The table
below summarizes the unaudited pro forma results of operations assuming the
acquisitions of Tianma were completed on January 1, 2006. These unaudited pro
forma results have been prepared for information purposes only and do not
purport to be indicative of what the operating results would have been had the
acquisitions actually taken place on January 1, 2006, and may not be indicative
of future operating results.
  Year
      ended
                    December
      312006(Unaudited)Revenues
                  
                  $
                  6,384,962Loss
      before income taxes and minority interests
                  
                  $
                  (4,472,161
                  )Net
      loss
                  
                  $
                  (4,460,575
                  )Net
      loss per share
                    -
      Basic and diluted
                  
                  $
                  (0.08
                  )
  In
September 2008, the Company successfully disposed of its entire travel network.
For detailed information, please refer to Note 18 – Discontinued Operations for
details.
  2.           Disclosure
for the year ended December 31, 2007
  The table
below summarizes the unaudited pro forma results of operations assuming the
acquisitions of Quo Advertising and Xuancaiyi were completed on January 1, 2007
and 2006. These unaudited pro forma results have been prepared for information
purposes only and do not purport to be indicative of what the operating results
would have been had the acquisitions actually taken place on January 1, 2007 and
2006, and may not be indicative of future operating results.
  
 Years
      ended December 312007
                          
                          
                          2006(Unaudited)
                            (Restated)
                          
                          
                          (Unaudited)Revenues
                          
                          $
                          27,619,599
                          
                          
                          $
                          6,712,060Loss
      before income taxes and minority interests
                          
                          $
                          (14,807,565
                          )
                          
                          $
                          (4,663,042
                          )Net
      loss
                          
                          $
                          (14,753,561
                          )
                          
                          $
                          (4,119,211
                          )Net
      loss per share
                            -
      Basic and diluted
                          
                          $
                          (0.22
                          )
                          
                          $
                          (0.08
                          )
  F-21
  3.           Disclosure
for the year ended December 31, 2008
  As the
acquisition of Cityhorizon BVI and consolidation of Botong was on January 1,
2008, no pro-forma consolidated financial information was required to be
prepared according to FASB Statements No.141, “Business
Combinations”.
  NOTE
6               ACCOUNTS
RECEIVABLE, NET
  Accounts
receivable, net as of December 31, 2008 and 2007 consisted of the
following:
 
 2008
                  
                  
                  2007Accounts
      receivable
                  
                  $
                  817,643
                  
                  
                  $
                  1,093,142Less:
      allowance for doubtful debts
                  
                  
                  (600,241
                  )
                  
                  
                  -Total
                  
                  $
                  217,402
                  
                  
                  $
                  1,093,142
  For the
years ended December 31, 2008, 2007 and 2006, the Company recorded
an allowance for doubtful debts for accounts receivable of $598,060,
$nil and $15,542 respectively. The allowance for doubtful debts
for accounts receivable was included as allowance for doubtful debts in the
consolidated statements of operations.
 
 NOTE
7               PREPAYMENTS
FOR ADVERTISING OPERATING RIGHTS, NET
  Prepayments
for advertising operating rights, net as of December 31, 2008 and 2007 were
as follows:
 
 2008
                      
                      
                      2007Gross
      carrying amountBeginning
                      
                      $
                      14,627,129
                      
                      
                      $
                      -Addition
                      
                      
                      7,455,360
                      
                      
                      
                      14,627,129Transfer
      from prepaid expenses and other current assets
                      
                      
                      2,283,791
                      
                      
                      
                      -Translation
      adjustments
                      
                      
                      239,870
                      
                      
                      
                      -Total
      gross carrying amount
                      
                      
                      24,606,150
                      
                      
                      
                      14,627,129Accumulated
      amortizationBeginning
                      
                      
                      (990,951
                      )
                      
                      
                      -Amortization
      for the year
                      
                      
                      (15,167,456
                      )
                      
                      
                      (990,951
                      )Translation
      adjustments
                      
                      
                      (117,328
                      )
                      
                      
                      -Total
      accumulated amortization
                      
                      
                      (16,275,735
                      )
                      
                      
                      (990,951
                      )Less:
      provision for impairment
                      
                      
                      (7,912,303
                      )
                      
                      
                      -Prepayments
      for advertising operating rights, net
                      
                      $
                      418,112
                      
                      
                      $
                      13,636,178
 
 Total
amortization expense of prepayments for advertising operating rights of the
Company for the years ended December 31, 2008, 2007 and 2006 were $15,167,456,
$990,951 and $nil respectively. The amortization expense of prepayments for
advertising operating rights was included as cost of advertising services in the
consolidated statement of operations.
  F-22
 Table of Contents
  Provision
for impairment
  As the
Company recorded a continuous net loss, the Company performed an impairment
review of its prepayments for advertising operating rights in 2008. The Company
compared the carrying amount of the prepayments for advertising operating rights
of each project to the sum of the undiscounted cash flows expected to be
generated. For those projects with carrying values exceeding undiscounted
cash flows, the Company determined their fair values using a discounted
cash flow analysis. Accordingly, the Company recorded an impairment loss of
$7,979,808 for the year ended December 31, 2008 in relation to the
prepayments for certain advertising operating rights projects. The impairment
loss was included as non-cash impairment charges in the consolidated
statements of operations.
 
 NOTE
8               PREPAID
EXPENSES AND OTHER CURRENT ASSETS, NET
  Prepaid
expenses and other current assets, net as of December 31, 2008 and
2007 were as follows:
 
 2008
                  
                  
                  2007Rental
      deposits
                  
                  $
                  93,294
                  
                  
                  $
                  127,829Deposits
      paid for soliciting potential media projects
                  
                  
                  3,109,609
                  
                  
                  
                  -Payments
      from customers withheld by a third party
                  
                  
                  1,402,751
                  
                  
                  
                  -Other
      receivables
                  
                  
                  2,937,228
                  
                  
                  
                  2,907,034Prepaid
      expenses
                  
                  
                  222,679
                  
                  
                  
                  66,836Sub-total
                  
                  
                  7,765,561
                  
                  
                  
                  3,101,699Less:
      allowance for doubtful debts
                  
                  
                  (7,135,429
                  )
                  
                  
                  -Total
                  
                  $
                  630,132
                  
                  
                  $
                  3,101,699
 
 For the
years ended December 31, 2008, 2007 and 2006, the Company recorded
an allowance for doubtful debts for prepaid expenses and other current
assets of $7,140,983, $nil and $nil respectively. The allowance for
doubtful debts for other receivables was included as allowance for doubtful
debts in the consolidated statements of operations.
 
 NOTE
9               EQUIPMENT,
NET
  Equipment,
net as of December 31, 2008 and 2007 consisted of the following:
  2008
                        
                        
                        2007Media
      display equipment
                        
                        $
                        5,389,316
                        
                        
                        $
                        -Office
      equipment
                        
                        
                        484,827
                        
                        
                        
                        315,367Furniture
      and fixtures
                        
                        
                        54,520
                        
                        
                        
                        75,177Construction
      in progress
                        
                        
                        378,106
                        
                        
                        
                        -Sub-Total
                        
                        
                        6,306,769
                        
                        
                        
                        390,544Less:
      accumulated depreciation
                        
                        
                        (928,466
                        )
                        
                        
                        (133,141
                        )Less:
      provision for impairment
                        
                        
                        (2,980,679
                        )
                        
                        
                        -Total
                        
                        $
                        2,397,624
                        
                        
                        $
                        257,403
 
 Depreciation
expenses for the years ended December 31, 2008, 2007 and 2006 amounted to
$917,428, $56,603 and $29,926 respectively.
  Provision for
impairment
  As the
Company recorded a continuous net loss, the Company performed an impairment
review of its equipment in 2008. The Company compared the carrying value of its
equipment to the sum of the undiscounted cash flows expected to be generated.
For those assets with carrying values exceeding undiscounted cash flows,
the Company determined their fair values using a discounted cash flow analysis.
Accordingly, the Company recorded an impairment loss of $2,977,915 for
certain media display equipment. The impairment loss was included
as non-cash impairment charges in the consolidated statements of
operations for the year ended December 31, 2008.
  F-23
 Table of Contents
 
 Pledge
of Equipment
  In
connection with issuance of 3% convertible promissory notes, the Company entered
into a security agreement, dated as of January 31, 2008 pursuant to which the
Company granted to the collateral agent for the benefit of the investors a
first-priority security interest in all of the Company’s right, title and
interest in its equipment.
 
 NOTE
10             INTANGIBLE
ASSETS, NET
  Intangible
assets, net as of December 31, 2008 and 2007 were as follows:
  2008
                      
                      
                      2007Amortized
      intangible rightsGross
      carrying amount
                      
                      $
                      7,137,097
                      
                      
                      $
                      7,825,267Less:
      accumulated amortization
                      
                      
                      (1,312,790
                      )
                      
                      
                      (999,106
                      )Less:
      provision for impairment loss
                      
                      
                      (5,375,000
                      )
                      
                      
                      (711,611
                      )Amortized
      intangible rights, net
                      
                      
                      449,307
                      
                      
                      
                      6,114,550Unamortized
      intangible rightsGross
      carrying amount
                      
                      
                      -
                      
                      
                      
                      815,902Less:
      provision for impairment
                      
                      
                      -
                      
                      
                      
                      (815,902
                      )Unamortized
      intangible rights, net
                      
                      
                      -
                      
                      
                      
                      -Amortized
      acquired application systemsGross
      carrying amount
                      
                      
                      1,973,865
                      
                      
                      
                      -Less:
      accumulated amortization
                      
                      
                      (197,388
                      )
                      
                      
                      -Less:
      provision for impairment loss
                      
                      
                      (1,776,477
                      )
                      
                      
                      -Amortized
      acquired application systems, net
                      
                      
                      -
                      
                      
                      
                      -Intangible
      assets, net
                      
                      $
                      449,307
                      
                      
                      $
                      6,114,550
  Total
amortization expense of intangible assets of the Company for the years ended
December 31, 2008, 2007 and 2006 amounted to $1,038,662, $472,032 and $259,216
respectively and is expected to be as follows over the next five
years:
  Fiscal
      yearsending
      December 31,2009
                        
                        $
                        101,7242010
                        
                        
                        101,7242011
                        
                        
                        101,7242012
                        
                        
                        101,724Thereafter
                        
                        
                        42,411$
                        449,307
  Provision for
impairment
  Total
non-cash impairment charges recorded for intangible assets of the Company for
the years ended December 31, 2008, 2007 and 2006 amounted to $7,151,477,
$1,332,321 and $214,600 respectively. They were included as non-cash impairment
charges in the consolidated statements of operations except impairment
loss associated with Tianma intangible right of $815,902 incurred in 2007 was
included in loss from discontinued operations, net of income taxes and minority
interests.
 
 a)           In
Fiscal 2006
  The
Company compared the undiscounted cash flows expected to be generated to the
carrying value of intangible rights arising from the acquisition of Landmark in
2004 as the Company recorded a continuous operating loss in hotel business. The
Company determined that the intangible right of Landmark should be fully
provided with impairment loss based on discounted cash flow analysis.
Accordingly, the Company recorded an impairment loss of $195,192 for intangible
assets for the year ended December 31, 2006.
  F-24
 Table of Contents
 
 b)           In
Fiscal 2007
  In 2007,
the Company compared the undiscounted cash flows expected to be generated to the
carrying value of Quo Advertising’s intangible right as a result of the non-LED
business of Quo Advertising is shrinking and recording a continuous operating
loss. The Company determined that the intangible right of Quo Advertising which
associated with non-LED advertising business should be fully provided with
impairment loss. An impairment loss of $516,419 for intangible right of Quo
Advertising was recorded for the year ended December 31, 2007.
  For the
intangible right of Tianma, which associated with operating right to conduct
tour business, the Company compared the undiscounted cash flows to the carrying
values of Tianma’s intangible right as a result of continuous operating loss
recorded by Tianma in 2007. The Company has determined the intangible right
should be fully provided with impairment loss based on discounted cash flow
model. Accordingly, the Company recorded an impairment loss of $815,902 for
intangible right of Tianma for the year ended December 31, 2007.
 
 c)           In
Fiscal 2008
 
 In 2008,
the Company performed impairment review on its intangible right acquired in 2006
for managing and operating 120 LED outdoor advertising video panels in the
Changning district of Shanghai, China as a result of limited revenue being
generated from such media project. The Company determined that the intangible
right of such media project should be fully provided with impairment loss based
on discounted cash flow analysis. Accordingly, the Company recorded an
impairment loss of $5,375,000 for such intangible right for the year ended
December 31, 2008.
 
 The
Company also performed an impairment review on its acquired application systems
from Lianhe for controlling LED activities as the Company recorded a continuous
net loss on LED business. The Company determined that the acquired application
systems should be fully provided with impairment loss based on discounted cash
flow analysis. Accordingly, the Company recorded an impairment loss of
$1,776,477 for the acquired application system for the year ended December 31,
2008.
 
 During
the three months ended June 30, 2008, the Company wrote-off all the intangible
rights to which provision for impairment were provided in 2007 and
2006.
 
 NOTE
11             DEFERRED
CHARGES, NET
 
 Deferred
charges, net as of December 31, 2008 and 2007 were as follows:
 
 2008
                      
                      
                      2007Deferred
      charges
                      
                      $
                      1,700,000
                      
                      
                      $
                      700,000Less:
      accumulated amortization
                      
                      
                      (457,042
                      )
                      
                      
                      (29,157
                      )Total
                      
                      $
                      1,242,958
                      
                      
                      $
                      670,843
 
 Amortization
of deferred charges included in interest expense for the years ended December
31, 2008, 2007 and 2006 amounted to $527,885, $29,157 and $nil
respectively.
  F-25
 Table of Contents
  NOTE
12             ACCOUNTS
PAYABLE, ACCRUED EXPENSES AND OTHER PAYABLES
 
 Accounts
payable, accrued expenses and other payables as of December 31, 2008 and 2007
consisted of the following:
 2008
                    
                    
                    2007Accounts
      payable
                    
                    $
                    801,627
                    
                    
                    $
                    1,303,941Accrued
      professional fee
                    
                    
                    461,953
                    
                    
                    
                    17,530Accrued
      staff benefit and related fees
                    
                    
                    1,028,049
                    
                    
                    
                    638,899Accrued
      interest expenses
                    
                    
                    1,467,417
                    
                    
                    
                    44,000Other
      accrued expenses
                    
                    
                    839,519
                    
                    
                    
                    570,838Other
      payables
                    
                    
                    978,639
                    
                    
                    
                    915,378Total
                    
                    $
                    5,577,204
                    
                    
                    $
                    3,490,586
 
 
 NOTE
13             CONVERTIBLE
PROMISSORY NOTES AND WARRANTS
  (A)  12%
Convertible Promissory Note and Warrants
  On
November 12, 2007, the Company entered into a 12% Note and Warrant Purchase
Agreement with Wei An Developments Limited (“Wei An”) with respect to the
purchase by Wei An a convertible promissory note in the principal account of
$5,000,000 at interest rate of 12% per annum (the “12% Convertible Promissory
Note”). The 12% Convertible Promissory Note is convertible into the
Company’s common stock at the conversion price of $2.40 per share. Pursuant
to the agreement, the Company is subject to a commitment fee of 2% of the
principal amount of the 12% Convertible Promissory Note. The term of the 12%
Convertible Promissory Note is six months and the Company has the option to
extend the 12% Convertible Promissory Note by an additional six-month period at
an interest rate of 14% per annum and be subject to an additional commitment fee
of 2% of the principal amount of the note. However, the Company has the right to
prepay all or any portion of the amounts due under the note at any time without
penalty or premium. In addition, pursuant to the Warrant Purchase Agreement, the
Company issued warrants to purchase up to 250,000 shares of the Company’s common
stock at the exercise price of $2.30 per share, which are exercisable for a
period of two years.
 
 As of
December 31, 2008, none of the warrants associated with 12% Convertible
Promissory Note was exercised.
 
 On
February 13, 2008, the Company fully redeemed 12% Convertible Promissory Note
due May 2008 at a redemption price equal to 100% of the principal amount of
$5,000,000 plus accrued and unpaid interest. No penalty or premium was charged
for such early redemption. The Company recognized the unamortized portion of the
associated deferred charges and debt discount of $48,261.07 and $149,885.21
respectively as expenses included in amortization of deferred charges and debt
discount on the consolidated statements of operation during the period of
extinguishment.
  (B)  3%
Convertible Promissory Notes and warrants
  On
November 19, 2007, the Company and Quo Advertising, entered into a 3% Note and
Warrant Purchase Agreement (the “Purchase Agreement”) with affiliated investment
funds of Och-Ziff Capital Management Group (the “Investors”), pursuant to which
the Company agreed to issue 3% Senior Secured Convertible Notes due June 30,
2011 in the aggregate principal amount of up to $50,000,000 (the “3% Convertible
Promissory Notes”) and warrants to acquire an aggregate amount of 34,285,715
shares of common stock of the Company (the “Warrants”).
  The 3%
Convertible Promissory Notes and Warrants were issued in three
tranches:
  1) On
November 19, 2007, Convertible Notes in the aggregate principal amount of
$6,000,000, Warrants exercisable for 2,400,000 shares at $2.50 per share and
Warrants exercisable for 1,714,285 shares at $3.50 per share were
issued;
  2) On
November 28, 2007, Convertible Notes in the aggregate principal amount of
$9,000,000, Warrants exercisable for 3,600,000 shares at $2.50 per share and
Warrants exercisable for 2,571,430 shares at $3.50 per share were issued;
and
  3) On
January 31, 2008, Convertible Notes in the aggregate principal amount of
$35,000,000, Warrants exercisable for 14,000,000 shares at $2.50 per share and
Warrants exercisable for 10,000,000 shares at $3.50 per share were
issued.
  F-26
 Table of Contents
  The 3%
Convertible Promissory Notes bore interest at 3% per annum payable semi-annually
in arrears and were convertible into shares of common stock at an initial
conversion price of $1.65 per share, subject to customary anti-dilution
adjustments. In addition, the conversion price was subject to adjusted
downward on an annual basis if the Company should fail to meet certain annual
earnings per share (“EPS”) targets described in the Purchase Agreement. The EPS
targets for fiscal 2008, 2009 and 2010 are $0.081, $0.453, and $0.699
respectively. In the event of a default, or if the Company’s actual EPS as
defined in the Purchase Agreement for any fiscal year is less than 80% of the
respective EPS target, certain Investors may require the Company to redeem the
3% Convertible Promissory Notes at 100% of the principal amount, plus any
accrued and unpaid interest, plus an amount representing a 20% internal rate of
return on the then outstanding principal amount. The Warrants were to expire on
June 30, 2011 and granted the holders the right to acquire shares of common
stock at $2.50 and $3.50 per share, subject to customary anti-dilution
adjustments. The exercise price of the Warrants will also be adjusted downward
whenever the conversion price of the 3% Convertible Promissory Notes is adjusted
downward. In connection with the issuance of the 3% Senior Secured Convertible
Notes, we also entered into registration rights agreement with the Investors,
pursuant to which, as amended, we agreed to file at their request, a
registration statement registering for resale any shares issued to the Investor
upon conversion of the 3% Convertible Promissory Notes or exercise of the
Warrants.
 
 On
January 31, 2008, the Company issued $35,000,000 in 3% Convertible Promissory
Notes and amended and restated $15,000,000 in 3% Convertible Promissory Notes
issued in late 2007. Concurrent with the Third Closing, the Company loaned
substantially all the proceeds from 3% Convertible Promissory Notes to its
directly wholly owned subsidiary, NCN Group Limited (“NCN Group”), and such loan
was evidenced by an intercompany note issued by NCN Group in favor of the
Company (the “NCN Group Note”). At the same time, the Company entered into a
Security Agreement, pursuant to which the Company granted to the collateral
agent for the benefit of the convertible note holders a first-priority security
interest in certain of its assets, including the NCN Group Note and 66% of the
shares of the NCN Group. In addition, the NCN Group and certain of the Company’s
indirectly wholly owned subsidiaries each granted the Company a security
interest in certain of the assets of such subsidiaries to, among other things,
secure the NCN Group Note and certain related obligations.
  As of
December 31, 2008, the Company failed to meet EPS target for fiscal 2008. The
Investors agreed the conversion price of the 3% Convertible Promissory Notes
remained unchanged at $1.65 and have not proposed any adjustment to the
conversion price as of December 31, 2008. None of the conversion options and
warrants associated with the above convertible promissory notes has been
exercised.
 
 The
following table details the accounting treatment of the convertible promissory
notes:
  12%
                    Convertible
                    Promissory
                    Note
                  
                  
                  3%
                    Convertible
                    Promissory
                    Notes
      (first
                    and
      second
                    tranches)
                  
                  
                  3%
                    Convertible
                    Promissory
                    Notes
      (third
                    Tranche)
                  
                  
                  TotalProceeds
      of convertible promissory notes
                  
                  $
                  5,000,000
                  
                  
                  $
                  15,000,000
                  
                  
                  $
                  35,000,000
                  
                  
                  $
                  55,000,000Allocation
      of proceeds:Allocated
      relative fair value of warrants
                  
                  
                  (333,670
                  )
                  
                  
                  (2,490,000
                  )
                  
                  
                  (5,810,000
                  )
                  
                  
                  (8,633,670
                  )Allocated
      intrinsic value of beneficial conversion feature
                  
                  
                  -
                  
                  
                  
                  (4,727,272
                  )
                  
                  
                  (11,030,303
                  )
                  
                  
                  (15,757,575
                  )Total
      net proceeds of the convertible promissory notes
                  
                  
                  4,666,330
                  
                  
                  
                  7,782,728
                  
                  
                  
                  18,159,697
                  
                  
                  
                  30,608,755Repayment
      of convertible promissory note
                  
                  
                  (5,000,000
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (5,000,000
                  )Amortization
      of debt discount
                  
                  
                  333,670
                  
                  
                  
                  1,605,818
                  
                  
                  
                  3,299,781
                  
                  
                  
                  5,239,269Net
      carrying value of convertible promissory notes as of
      December  31, 2008
                  
                  $
                  -
                  
                  
                  $
                  9,388,546
                  
                  
                  $
                  21,459,478
                  
                  
                  $
                  30,848,024
  F-27
  Warrants
and Beneficial Conversion Features
  The fair
values of the financial instruments associated with warrants of both 12%
convertible promissory note and 3% convertible promissory notes were determined
utilizing Black-Scholes option pricing model, which is consistent with the
Company’s historical valuation methods. The following assumptions and estimates
were used in the Black-Scholes option pricing model: (1) 12% convertible
promissory note: volatility of 182%; an average risk-free interest rate of
3.52%; dividend yield of 0%; and an expected life of 2 years, (2) 3% convertible
promissory notes: volatility of 47%; an average risk-free interest rate of
3.30%; dividend yield of 0%; and an expected life of 3.5 years.
  Both the
warrants and embedded conversion features issued in connection with 12%
convertible promissory note and 3% convertible promissory notes meet the
criteria of EITF 00-19,“Accounting for
Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own
Stock” for equity classification and also met the other criteria in
paragraph 11(a) of SFAS 133“Accounting for
Derivative Instruments and Hedging Activities”. Accordingly, the
conversion features do not require derivative accounting. The intrinsic value of
beneficial conversion feature is calculated according to EITF Issue No.
98-5“Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratio” and EITF Issue No. 00-27“Application of Issue No. 98-5 to
Certain Convertible Instruments”. For 3% convertible promissory note, as
the effective conversion price after allocating a portion of the proceeds to the
warrants was less than the Company’s market price of common stock at commitment
date, it was considered to have a beneficial conversion feature while for the
12% convertible promissory note, no beneficial conversion feature existed. The
value of beneficial conversion feature is recorded as a reduction in the
carrying value of the convertible promissory notes against additional
paid-in capital. As the 3% convertible promissory notes has stated redemption
date, the respective debt discount being equal to the value of beneficial
conversion feature of $15,757,575 is amortized over the term of the notes from
the respective date of issuance using the effective yield method.
  Amortization
of Deferred Charges and Debt Discount
  The
amortization of deferred charges and debt discount for the year ended December
31, 2008 was as follows:
  Warrants
                    
                    
                    Conversion
                      Features
                    
                    
                    Deferred
                      Charges
                    
                    
                    Total12%
      convertible promissory note
                    
                    $
                    259,204
                    
                    
                    $
                    -
                    
                    
                    $
                    80,700
                    
                    
                    $
                    339,9043%
      convertible promissory notes
                    
                    
                    1,657,004
                    
                    
                    
                    3,145,827
                    
                    
                    
                    447,185
                    
                    
                    
                    5,250,016Total
                    
                    $
                    1,916,208
                    
                    
                    $
                    3,145,827
                    
                    
                    $
                    527,885
                    
                    
                    $
                    5,589,920
  The
amortization of deferred charges and debt discount for the year ended December
31, 2007 (Restated) was as follows:
  Warrants
                  
                  
                  Conversion
                    Features
                  
                  
                  Deferred
                    Charges
                  
                  
                  Total12%
      convertible promissory note
                  
                  $
                  74,466
                  
                  
                  $
                  -
                  
                  
                  $
                  19,301
                  
                  
                  $
                  93,7673%
      convertible promissory notes
                  
                  
                  35,456
                  
                  
                  
                  67,312
                  
                  
                  
                  9,856
                  
                  
                  
                  112,624Total
                  
                  $
                  109,922
                  
                  
                  $
                  67,312
                  
                  
                  $
                  29,157
                  
                  
                  $
                  206,391
  F-28
 Table of Contents
 
 NOTE
14             COMMITMENTS
AND CONTINGENCIES
  (A)  Commitments
  1.
Rental Lease Commitment
  The
Company’s existing rental leases do not contain significant restrictive
provisions. The following is a schedule by year of future minimum lease
obligations under non-cancelable rental operating leases as of December 31,
2008:
  Fiscal
      years ending December 31,2009
                      
                      $
                      309,9312010
                      
                      
                      198,9462011
                      
                      
                      5,059Total
                      
                      $
                      513,936
 
 Rental
expense for the years ended December 31, 2008, 2007 and 2006 was $1,390,070,
$593,441 and $93,373 respectively.
 
 2.
Annual Advertising Operating Rights Fee Commitment
  Since
November 2006, the Company, through its subsidiaries NCN Media Services Limited,
Quo Advertising , Xuancaiyi, Bona and Botong has acquired advertising rights
from third parties to operate different types of advertising panels for certain
periods.
  The
following table sets forth the estimated future annual commitment of the Company
with respect to the advertising operating rights of 182 roadside advertising
panels and 9 mega-size advertising panels that the Company held as of December
31, 2008:
  Fiscal
      years ending December 31,2009
                        
                        $
                        3,874,9522010
                        
                        
                        1,644,4412011
                        
                        
                        1,074,3122012
                        
                        
                        806,029Thereafter
                        
                        
                        1,741,637Total
                        
                        $
                        9,141,371
  3.
Capital commitments
  As
of December 31, 2008, the Company had commitments for capital expenditures
in connection with construction of roadside advertising panels and mega-size
advertising panels of $18,000 due in 2009.
  (B)           Contingencies
  The
Company accounts for loss contingencies in accordance with SFAS No. 5, “Accounting for Loss
Contingencies” and other related guidelines. Set forth below is a
description of certain loss contingencies as of December 31, 2008 and
management’s opinion as to the likelihood of loss in respect of loss
contingency.
  1.
Tianma Litigation
  Tianma of
which the Company owned 55% interest through trust was involved in a legal
litigation associated with a car accident in 2005. The Company was indemnified
for any future liability by the previous owners when it acquired Tianma in June
2006. As of September 1, 2008, the Company entered into a stock purchase
agreement to dispose of its 55% interest in Tianma. For details, please refer to
Note 18 – Discontinued Operations. There were no provisions in the stock
purchase agreement requiring the Company to indemnify the buyer for any future
liability arising from transactions incurred prior to September 1, 2008.
Accordingly, the Company considers that it has no loss contingencies in
relation to Tianma as of December 31, 2008.
  F-29
 Table of Contents
  2.
Huamin Litigation
  On March
20, 2008, the Company’s wholly-owned subsidiary, NCN Huamin Management
Consultancy (Beijing) Company Limited (“NCN Huamin”), entered into a rental
agreement with Beijing Chengtian Zhihong TV & Film Production Co., Ltd.
(“Chengtian”), pursuant to which, certain office premises located in Beijing was
leased from Chengtian to NCN Huamin for a term of three years, commencing April
1, 2008. On December 30, 2008, NCN Huamin issued a notice to Chengtian to
terminate the rental agreement effective on December 31, 2008 as Chengtian had
breached several provisions as stated in the rental agreement and refused to
take any remedial actions.  On January 14, 2009, NCN Huamin received a
notice from Beijing Arbitration Commission that Chengtian as plaintiff had
initiated a lawsuit against NCN Huamin seeking an aggregate of approximately
$505,000 for unpaid rental-related expense plus accrued interest as well as
compensation for unilateral termination of the rental contract. On February 25,
2009, NCN Huamin counter-claimed for breach of rental contract against Chengtian
and asserted to claim an aggregate of approximately $155,000 from Chengtian for
overpayment of rental expenses and compensation for Chengtian’s breach of
contract.
  At
present, the outcome of this lawsuit cannot be reasonably predicted. The Company
does not believe that the outcome of this pending litigation will have a
material impact on the Company’s financial statements, or results of
operations.
 
 3.
Early Redemption of 3% Convertible Promissory Notes
  In the
event of a default, or if the Company’s actual EPS as defined in the Purchase
Agreement for any fiscal year is less than 80% of the respective EPS target,
certain investors may require the Company to redeem the 3% Convertible
Promissory Notes at 100% of the principal amount, plus any accrued and unpaid
interest, plus an amount representing a 20% internal rate of return on the then
outstanding principal amount. As of December 31, 2008, the Company failed to
meet EPS target for fiscal 2008. The Company is in the process of re-negotiating
with the investors in the hope of revising certain terms of the Purchase
Agreement.
  In the
event of early redemption of 3 % convertible promissory notes, the Company has
to redeem its outstanding principal amount of $50 million as of December 31,
2008, plus accrued and unpaid interest of $1,467,417 as of December 31, 2008 and
penalties of approximately $7 million which represented 20% internal rate of
return on the outstanding principal balance of $50 million.
  The
Company considers that the likelihood of the investors calling for early
redemption is between remote and reasonably possible. Accordingly, the Company
is only disclosing the loss contingencies and made no accrual for any penalties
arising from early redemption.
  
 NOTE
15              STOCKHOLDERS’
EQUITY
  (A)  Stock,
Options and Warrants Issued for Services
  1. In
February 2006, the Company issued an option to purchase up to 225,000 shares of
common stock to its legal counsel at an exercise price of $0.10 per share. So
long as the counsel’s relationship with the Company continues, one-twelfth of
the shares underlying the option vested and became exercisable each month from
the date of issuance. The option was exercisable for 120 days after termination
of the relationship. The fair market value of the option was estimated on the
grant date using the Black-Scholes option pricing model as required by SFAS 123R
with the following assumptions and estimates: expected dividend 0%, volatility
147%, a risk-free rate of 4.5% and an expected life of one (1) year. The value
of an option recognized for the years ended December 31, 2008, 2007 and 2006
were $nil, $1,317 and $11,010 respectively. The option was exercised in April
2007.
  F-30
 Table of Contents
  2. In
August 2006, the Company issued a warrant to purchase up to 100,000 shares of
restricted common stock to a consultant at an exercise price $0.70 per share.
One-fourth of the shares underlying the warrant became exercisable every 45 days
beginning from the date of issuance. The warrant remains exercisable until
August 25, 2016. The fair market value of the warrant was estimated on the grant
date using the Black-Scholes option pricing model as required by SFAS 123R with
the following assumptions and estimates: expected dividend 0%, volatility 192%,
a risk-free rate of 4.5% and an expected life of one (1) year. The value of the
warrant recognized for the years ended December 31, 2008, 2007 and 2006 were
$nil, $26,604 and $14,451 respectively.
  3. In
April 2007, the Company issued 45,000 S-8 shares of common stock of par value of
$0.001 each, totaling $18,000 to its legal counsel for services
rendered.
  4. In
April 2007, the Company issued 377,260 S-8 shares of common stock of par value
of $0.001 each, totaling $85,353 to its directors and officers for services
rendered.
  5. In
July 2007, NCN Group Management Limited entered into Executive Employment
Agreements (the “Agreements”) with Godfrey Hui, Chief Executive Officer, Daniel
So, Managing Director, Daley Mok, Chief Financial Officer, Benedict Fung, the
President, and Stanley Chu, General Manager. Pursuant to the Agreements, each
executive was granted shares of the Company’s common stock subject to annual
vesting over five years in the following amounts:  Mr. Hui, 2,000,000
shares; Mr. So, 2,000,000 shares; Dr. Mok 1,500,000 shares; Mr. Fung 1,200,000
shares and Mr. Chu, 1,000,000 shares. In connection with these stock grants and
in accordance with SFAS 123R, the Company recognized non-cash stock-based
compensation of $2,797,200, $1,709,400 and $nil included in general and
administrative expenses on the consolidated statement of operations for the
years ended December 31, 2008, 2007 and 2006 respectively. Out of the total
shares granted under the Agreements, on January 2, 2008, an aggregate of 660,000
S-8 shares with par value of $0.001 each were vested and issued to the concerned
executives.
 
 6. In
August 2007, the Company issued 173,630 shares of restricted common stock of par
value of $0.001 each, totaling $424,004 to a consultant for services rendered.
The value of stock grant is fully amortized and recognized in 2007.
  7. In
August 2007, the Company issued 230,000 S-8 shares of common stock of par value
of $0.001 each, totaling $69,500 to its directors and officers for services
rendered.
  8. In
September, 2007, the Company entered into a service agreement with independent
directors Peter Mak, Ronglie Xu, Joachim Burger, Gerd Jakob and Edward Lu.
Pursuant to the service agreements, each independent director was granted shares
of the Company’s common stock subject to a vesting period of ten months in the
following amounts: Peter Mak:15,000 shares; Ronglie Xu:15,000 shares; Joachim
Burger:15,000 shares, Gerd Jakob:10,000 shares and Edward Lu:10,000 shares. In
connection with these stock grants and in accordance with SFAS 123R, the Company
recognized $86,970, $57,980 and $nil of non-cash stock-based compensation
included in general and administrative expenses on the consolidated statement of
operation for the years ended December 31, 2008, 2007 and 2006 respectively. On
July 21, 2008, an aggregate of 65,000 S-8 shares of common stock of par value of
$0.001 each were vested and issued to the independent directors.
  9. In
November 2007, the Company was obligated to issue a warrant to purchase up to
300,000 shares of restricted common stock to a placement agent for provision of
agency services in connection with the issuance of 3% convertible promissory
notes at an exercise price $3.0 per share which are exercisable for a period of
two years. The fair value of the warrant was estimated on the grant date using
the Black-Scholes option pricing model as required by SFAS 123R with the
following weighted average assumptions: expected dividend 0%, volatility 182 %,
a risk-free rate of 4.05 % and an expected life of two (2) year. The value of
the warrant recognized for the years ended December 31, 2008, 2007 and 2006 were
$127,831, $21,305 and $nil respectively.
 
 10. In
December 2007, the Company committed to grant 235,000 S-8 shares of common stock
to certain employees of the Company for their services rendered during the year
ended December 31, 2007. In connection with these stock grants and in accordance
with SFAS 123R, the Company recognized non-cash stock-based compensation of
$nil, $611,000 and $nil in general and administrative expenses on the
consolidated statement of operation for the year ended December 31, 2008, 2007
and 2006. Such 235,000 S-8 shares of par value of $0.001 each were issued on
January 2, 2008. In addition, the Company committed to grant another 30,000 S-8
shares of common stock to an employee pursuant to his employment contract for
service rendered. Accordingly, the Company recognized the non-cash stock-based
compensation of $76,500, $nil and $nil for the years ended December 31, 2008,
2007 and 2006 for such 30,000 S-8 shares granted. In October 2008, such 30,000
S-8 shares of common stock of par value of $0.001 each were vested and issued to
an employee.
  F-31
 Table of Contents
  11. In
June 2008, the Board of Directors resolved to grant 110,000 shares of common
stock to the board of directors, Peter Mak, Ronglie Xu, Joachim Burger, Gerd
Jakob, Edward Lu, Godfrey Hui, Daniel So, Daley Mok and Stanley Chu, as part of
their directors’ fee for their service rendered during the period from July 1,
2008 to June 30, 2009. Each director was granted shares of the Company’s common
stock subject to a vesting period of twelve months in the following amounts:
Peter Mak:15,000 shares; Ronglie Xu:15,000 shares; Joachim Burger:15,000 shares;
Gerd Jakob:10,000 shares; Edward Lu:10,000 shares; Godfrey Hui: 15,000 shares;
Daniel So: 10,000 shares; Daley Mok: 10,000 shares and Stanley Chu:10,000
shares. In connection with these stock grants and in accordance with SFAS 123R,
the Company recognized $95,001, $nil and $nil of non-cash stock-based
compensation included in general and administrative expenses on the consolidated
statement of operations for the years ended December 31, 2008, 2007 and 2006
respectively.
  12. In
July 2008, the Company committed to grant 170,000 S-8 shares of common stock to
certain employees of the Company for their services rendered. Accordingly, the
Company recognized the non-cash stock-based compensation of $93,358, $nil and
$nil for the years ended December 31, 2008, 2007 and 2006
respectively.
  13. In
August 2008, the Company committed to grant 100,000 S-8 shares of common stock
to a consultant for services rendered. The value of stock grant recognized for
the years ended December 31, 2008, 2007 and 2006 were $52,353, $nil and
$nil respectively.
  14.
The
amortization for the deferred stock-based compensation recorded in the Company
for the years ended December 31, 2008, 2007 and 2006 was $nil, $2,845,000 and
66,355 respectively.
  (B)  Stock
Issued for Acquisition
  1. In
January 2007, in connection with the acquisition of Quo Advertising, the Company
issued 300,000 shares of restricted common stock of par value of $0.001 each,
totaling $843,600 as part of consideration.
  2. In
January 2008, in connection with the acquisition of Cityhorizon BVI, the Company
issued 1,500,000 shares of restricted common stock of par value of $0.001 each,
totaling $3,738,000 as part of consideration.
 
 (C)  
Stock Issued for Private Placement
  In April
2007, the Company issued and sold 500,000 shares of restricted common stock of
par value of $0.001 each, totaling $1,500,000 in a private placement. No
investment banking fees were incurred as a result of this
transaction.
  (D)   Conversion
Option and Stock Warrants Issued in Notes Activities
  On
November 12, 2007, pursuant to the 12% Note and Warrant Purchase Agreement of
$5,000,000, the Company issued warrants to purchase up to 250,000 shares of the
Company’s common stock at the exercise price of $2.30 per share, which are
exercisable for a period of two years to Wei An. The allocated proceeds to the
warrants of $333,670 based on the relative fair value of 12% Convertible
Promissory Notes and warrants were recorded as reduction in the carrying value
of the note against additional-paid in capital. As the effective conversion
price is higher than the Company’s market price of common stock at commitment
date, no beneficial conversion existed. Please refer to Note 13 –
Convertible Promissory Note and Warrant for details.
  On
November 19, 2007, pursuant to the 3% Note and Warrant purchase Agreement, the
Company issued warrants to purchase up to 2,400,000 shares of the Company’s
common stock at the exercise price of $2.5 per share and 1,714,285 shares of the
Company’s common stock at the exercise price of $3.5 per share associated
with the convertible notes of $6,000,000 in the first closing. On November 28,
2007, the Company also issued warrants to purchase up to 3,600,000 shares of the
Company’s common stock at the exercise price of $2.5 per share and
2,571,430 shares of the Company’s common stock at the exercise price of $3.5 per
share. The allocated proceeds to these warrants were $2,490,000 in aggregate
which were recorded as reduction in the carrying value of the notes against
additional paid-in capital. As the effective conversion price after allocating a
portion of the proceeds to the warrants was less than the Company’s market price
of common stock at commitment date, it was considered to have a beneficial
conversion feature with value of $4,727,272 recorded as a reduction in the
carrying value of the notes against additional paid-in capital. Please refer to
Note 13 – Convertible Promissory Note and Warrant for details.
  F-32
 Table of Contents
  On
January 31, 2008, the Company issued $35,000,000 in 3% Convertible Promissory
Notes and amended and restated $15,000,000 in 3% Convertible Promissory Notes
issued in late 2007. In addition, the Company issued additional warrants to
purchase 14,000,000 shares of the Company’s common stock at $2.50 per share and
warrants to purchase 10,000,000 shares of the Company’s common stock at $3.50
per share. The allocated proceeds to these warrants were $5,810,000 in aggregate
which were recorded as reduction in the carrying value of the notes against
additional paid-in capital. As the effective conversion price after allocating a
portion of the proceeds to the warrants was less than the Company’s market price
of common stock at commitment date, it was considered to have a beneficial
conversion feature with value of $11,030,303 recorded as a reduction in the
carrying value of the notes against additional paid-in capital. Please refer to
Note 13 – Convertible Promissory Note and Warrant for details.
 
 Restriction
on payment of dividends
 
 The
Company has not declared any dividends since incorporation. The terms of the 3%
convertible promissory notes issued in early of 2008 contain restrictions on the
payment of dividends. The dividend restrictions provide that the Company will
not make any dividend distributions or redeem or repurchase more than a de
minims number of shares of the Company’s common stock without the prior written
consent of the holders of these promissory notes, other than the repurchase of
shares of common stock from departing officers and directors.
 
 NOTE
16             RELATED
PARTY TRANSACTIONS
  Except as
set forth below, during the years ended December 31, 2008, 2007 and 2006,
the Company did not enter into any material transactions or series of
transactions that would be considered material in which any officer, director or
beneficial owner of 5% or more of any class of the Company’s capital stock, or
any immediate family member of any of the preceding persons, had a direct or
indirect material interest.
 
 During
the years ended December 31, 2008, 2007 and 2006, the Company received
hotel management service fees of $nil, $nil and $100,478 respectively
from two properties it manages that are owned by a
stockholder.
 
 During
the years ended December 31, 2008, 2007 and 2006, the Company paid rent of $nil,
$nil and $47,489 respectively for office premises leased from a
director and stockholder.
 
 On
December 21, 2007, the Company acquired 100% of voting shares of Linkrich
Enterprise Advertising and Investment Limited, a dormant corporation
incorporated in the Hong Kong Special Administrative Region, the PRC on March
16, 2001 from a director at a consideration of $1,282 which is the par value of
the voting shares.
 
 NOTE
17             NET
INCOME (LOSS) PER COMMON SHARE
  Net
income (loss) per share information for the years ended December 31, 2008, 2007
and 2006 was as follows:
  2008
                    
                    
                    2007
                      (Restated)
                    
                    
                    2006Numerator:Net
      loss from continuing operations
                    
                    $
                    (59,527,473
                    )
                    
                    $
                    (13,692,714
                    )
                    
                    $
                    (4,864,629
                    )Net
      income (loss) from discontinued operations
                    
                    
                    42,640
                    
                    
                    
                    (953,905
                    )
                    
                    
                    395,923Net
      loss attributable to stockholders
                    
                    $
                    (59,484,833
                    )
                    
                    $
                    (14,646,619
                    )
                    
                    $
                    (4,468,706
                    )Denominator:Weighted
      average number of shares outstanding, basic
                    
                    
                    71,569,242
                    
                    
                    
                    68,556,081
                    
                    
                    
                    52,489,465Effect
      of dilutive securities-
      Options and warrants
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Weighted
      average number of shares outstanding, diluted
                    
                    
                    71,569,242
                    
                    
                    
                    68,556,081
                    
                    
                    
                    52,489,465Net
      income (loss) per common share – basic and dilutedContinuing
      operations
                    
                    $
                    (0.83
                    )
                    
                    $
                    (0.20
                    )
                    
                    $
                    (0.09
                    )Discontinued
      operations
                    
                    
                    0.00
                    
                    
                    
                    (0.01
                    )
                    
                    
                    0.01Net
      loss per common share – basic and diluted
                    
                    $
                    (0.83
                    )
                    
                    $
                    (0.21
                    )
                    
                    $
                    (0.09
                    )
  F-33
 Table of Contents
  The
diluted net loss per common share is the same as the basic net loss per common
share for the years ended December 31, 2008, 2007 and 2006 as all potential
ordinary shares including stock options and warrants are anti-dilutive and are
therefore excluded from the computation of diluted net loss per common share.
The securities that could potentially dilute basic net income (loss) per common
share in the future that were not included in the computation of diluted net
income (loss) per common share because of anti-dilutive effect as of December
31, 2008, 2007 and 2006 were summarized as follows:
  Potential
      common equivalent shares:
                  
                  2008
                  
                  
                  2007
                  
                  
                  2006Stock
      options for services
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  205,501Stock
      warrants for services (1)
                  
                  
                  55,488
                  
                  
                  
                  122,394
                  
                  
                  
                  39,337Warrant
      associated with convertible promissory notes
                  
                  
                  -
                  
                  
                  
                  364,436
                  
                  
                  
                  -Conversion
      feature associated with convertible promissory notes to common
      stock
                  
                  
                  -
                  
                  
                  
                  11,174,242
                  
                  
                  
                  -Common
      stock to be granted to a consultant for services
                  
                  
                  100,000
                  
                  
                  
                  -
                  
                  
                  
                  -Common
      stock to be granted to directors, executives and employees for services
      (including non-vested shares)
                  
                  
                  7,305,000
                  
                  
                  
                  8,000,000
                  
                  
                  
                  937,260Total
                  
                  
                  7,460,488
                  
                  
                  
                  19,661,072
                  
                  
                  
                  1,182,098
  Remarks:
 (1)
                As
      of December 31, 2008, the number of potential common equivalent shares
      associated with warrants issued for services was 55,488 which was related
      to a warrant to purchase 100,000 common stock issued by the Company to a
      consultant in 2006 for service rendered at an exercise price of $0.70,
      which expired in August 2016.
 
 NOTE
18             DISCONTINUED
OPERATIONS
 
 (A)        In
Fiscal 2006
 
 1.        Sale
of Yide
  On April
29, 2006, the Company completed the sale of all of its equity interest in a PRC
real estate joint venture, namely Tianjin Teda Yide Industrial Company Limited
(“Yide”, formerly Tianjin Yide Real Estate Company Limited) pursuant to a
Purchase and Sale of Stock Agreement (the “Agreement”) entered with Far Coast
Asia Limited (“Far Coast”) for a cash consideration of $3,000,000.
Far Coast and its affiliated entities have no prior relationship to the
Company and its affiliated entities.
  F-34
 Table of Contents
  In
accordance with FASB Interpretation No. 35,“Criteria for Applying the Equity
Method of Accounting for Investments in Common Stock—an interpretation of APB Opinion No.18” (“FIN 35”),
the use of the equity method of accounting for the investment is required if the
investor has the ability to exercise significant influence over the operating
and financial policies of the investee. However, management of the Company has
determined that the failure by the Company to obtain financial information
subsequent to September 30, 2005 has resulted in the loss of significant
influence over the operating and financial policies of Yide. As such, the use of
the equity method was therefore no longer appropriate and the Company accounted
for its investment from October 1, 2005 to April 29, 2006, the date of
completion of the sale, under the cost method.
  On April
29, 2006, the Company completed the sale of all of its equity interest in Yide
and recorded a gain from disposal of an affiliate of $579,870 in 2006
accordingly.
 
 2.
                Disposal
      of Teda BJ
  With
equity holding of 100%, Teda (Beijing) Hotels Management Limited (“Teda BJ”) has
been accounted for as a wholly owned subsidiary. In later half of 2006, because
of a change in business direction, the Company determined to dispose of Teda BJ
and began winding down its operations. No further transaction associated with
Teda BJ was recorded during the years ended December 31, 2007 and 2008 and the
process of winding down Teda BJ was not completed as of December 31,
2008.
 
 The
Company has treated the disposal of Teda BJ as discontinued operations since
2006. Accordingly, the Company recorded current liabilities from discontinued
operations of $3,655 included in the consolidated balance sheets. Revenues,
costs and expenses of the Teda BJ have been excluded from the respective
captions in the consolidated statements of operations. The net operating results
of the discontinued operations have been reported, net of applicable income
taxes and minority interests, as “Income (Loss) from Discontinued Operations,
Net of Income Taxes and Minority Interests”. For the years ended December 31,
2008, 2007 and 2006, the respective net operating loss was $nil, $nil and
$53,574 respectively.
 
 (B)      In
Fiscal 2007
  No
material disposal transaction happened.
 
 (C)      In
Fiscal 2008
  In
September 2008, the Company disposed of its entire travel network which was
classified as one of the Company’s business segments in order to focus on its
media business. Accordingly, the Company entered into stock purchase agreements
to dispose of its entire travel network.
 
 1.       Sale
of NCN Management Services
  On
September 1, 2008, the Company completed the sale of all its interests in NCN
Management Services Limited (“NCN Management Services”) to Zhanpeng Wang
(“Wang”), an individual for a consideration of $173,077 in cash.Wang acquired NCN Management
Services along with its subsidiaries, which include 100% interest in NCN Hotels
Investment Limited, 100% interest in NCN Pacific Hotels Limited and 55% interest
(through trust) in Tianma. The Company reported a gain on the sale, net of
income taxes and minority interests of $61,570. The carrying amount of the
assets and liabilities included in the relevant disposal group as of the
disposal date of September 1, 2008 were as follows:
  Cash
                    
                    $
                    662,515Accounts
      receivable
                    
                    
                    1,041,781Prepaid
      expenses and other current assets
                    
                    
                    860,036Equipment,
      net
                    
                    
                    17,464Minority
      interest
                    
                    
                    (99,423
                    )Liabilities
      assumed
                    
                    
                    (2,370,866
                    )Net
      assets
                    
                    $
                    111,507
 
 F-35
 Table of Contents
  2.       Sale
of NCN Landmark
 
 On
September 30, 2008, the Company completed the sale of its 99.9% interests in NCN
Landmark International Hotel Group Limited (“NCN Landmark”) to Ngar Yee Tsang
(“Tsang”), an individual for a cash consideration of $20,000. Tsang acquired NCN
Landmark along with its subsidiary, Beijing NCN Landmark Hotel Management
Limited, a PRC corporation. The Company reported a gain on the sale, net of
income taxes and minority interests of $4,515. The carrying amount of the assets
and liabilities included in the relevant disposal group as of the disposal date
of September 30, 2008 were as follows:
 
 Cash
                    
                    $
                    3,389Prepaid
      expenses and other current assets
                    
                    
                    9,566Equipment,
      net
                    
                    
                    10,053Liabilities
      assumed
                    
                    
                    (7,523
                    )Net
      assets
                    
                    $
                    15,485
  The
Company treated the sale of NCN Management Services along with its subsidiaries
and variable interest entity and NCN Landmark along with its subsidiary as
discontinued operations. Accordingly, revenues, costs and expenses of the
discontinued operations have been excluded from the respective captions in the
consolidated statements of operations. The net operating results of the
discontinued operations have been reported, net of applicable income taxes and
minority interests, as “Income (Loss) from Discontinued Operations, Net of
Income Taxes and Minority Interests”.
  (D)           Summary
Operating Results of the Discontinued Operations
  Summary
operating results for the discontinued operations for the years ended 2008, 2007
and 2006 were as follows:
  2008
                          
                          
                          2007
                          
                          
                          2006Revenues
                          
                          $
                          24,528,096
                          
                          
                          $
                          26,140,355
                          
                          
                          $
                          4,442,602Cost
      of revenues
                          
                          
                          (24,172,537
                          )
                          
                          
                          (25,830,401
                          )
                          
                          
                          (4,231,952
                          )Gross
      profit
                          
                          
                          355,559
                          
                          
                          
                          309,954
                          
                          
                          
                          210,650Other
      operating expenses
                          
                          
                          (477,481
                          )
                          
                          
                          (460,362
                          )
                          
                          
                          (390,782
                          )Non-cash
      impairment charges
                          
                          
                          -
                          
                          
                          
                          (815,902
                          )
                          
                          
                          -Other
      income
                          
                          
                          98,838
                          
                          
                          
                          9,210
                          
                          
                          
                          23,257Interest
      income
                          
                          
                          2,040
                          
                          
                          
                          3,471
                          
                          
                          
                          2,903Interest
      expense
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (1,058
                          )Minority
      interest
                          
                          
                          (2,401
                          )
                          
                          
                          (276
                          )
                          
                          
                          (28,917
                          )Loss
      from discontinued operations, net of income taxes and minority
      interests
                          
                          $
                          (23,445
                          )
                          
                          $
                          (953,905
                          )
                          
                          $
                          (183,947
                          )Gain
      from disposal of discontinued operations
                          
                          
                          66,085
                          
                          
                          
                          -
                          
                          
                          
                          -Gain
      from disposal of an affiliate
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          579,870Net
      income (loss) from discontinued operations
                          
                          $
                          42,640
                          
                          
                          
                          (953,905
                          )
                          
                          
                          395,923
  NOTE
19            BUSINESS
SEGMENTS FROM CONTINUING OPERATIONS
 
 In
September 2008, the Company disposed of its entire travel business. Accordingly,
it is management’s view that the Company operate in one single business segment:
Media Network, providing out-of home advertising services.
 
 Geographic
Information
  The Group
operates in the PRC and all of the Company’s long lived assets are located in
the PRC.
  F-36
 Table of Contents
 
 Major
Customers
  An
analysis of percentage of advertising sales to major customers is as
follows:
  2008
                    
                    2007
                    
                    2006Customer
      A
                    
                    
                    38%
                    
                    -
                    
                    -Customer
      B
                    
                    
                    16%
                    
                    -
                    
                    -Customer
      C
                    
                    
                    -
                    
                    26%
                    
                    -Customer
      D
                    
                    
                    -
                    
                    16%
                    
                    -Customer
      E
                    
                    
                    -
                    
                    14%
                    
                    -Customer
      F
                    
                    
                    -
                    
                    14%
                    
                    -
 
 
 NOTE
20          
  INCOME TAXES
 
 Income is
subject to taxation in various countries in which the Company operate. The loss
before income taxes and minority interests by geographical locations for the
years ended December 31, 2008, 2007 and 2006 was summarized as
follows:
 
 2008
                        
                        
                        2007
                          (Restated)
                        
                        
                        2006United
      States
                        
                        $
                        8,280,492
                        
                        
                        $
                        4,275,859
                        
                        
                        $
                        2,395,882Foreign
                        
                        
                        51,562,299
                        
                        
                        
                        9,471,511
                        
                        
                        
                        2,461,763$
                        59,842,791
                        
                        
                        $
                        13,747,370
                        
                        
                        $
                        4,857,645
 
 Income
tax expenses by geographical locations for the years ended December 31, 2008,
2007 and 2006 were summarized as follows:
 
 2008
                    
                    
                    2007
                    
                    
                    2006CurrentUnited
      States
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -Foreign
                    
                    
                    -
                    
                    
                    
                    7,668
                    
                    
                    
                    6,984$
                    -
                    
                    
                    $
                    7,668
                    
                    
                    $
                    6,984DeferredUnited
      States
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -Foreign
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -$
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
 
 The
reconciliation of the effective income tax of the Company to the U.S. federal
statutory rate (the principal tax jurisdiction of the Company) was as
follows:
 
 2008
                      
                      
                      2007
                        (Restated)
                      
                      
                      2006Expected
      income tax benefit
                      
                      $
                      20,346,549
                      
                      
                      $
                      4,674,106
                      
                      
                      
                      1,651,599Operating
      loss carried forward
                      
                      
                      (2,815,367
                      )
                      
                      
                      (1,453,792
                      )
                      
                      
                      (814,600
                      )Tax
      effect on foreign income which is not subject U.S. federal corporate
      income tax rate of 34%
                      
                      
                      (17,531,182
                      )
                      
                      
                      (3,212,316
                      )
                      
                      
                      (830,015
                      )$
                      -
                      
                      
                      $
                      7,668
                      
                      
                      
                      6,984
 
 An
analysis of the Company’s deferred tax liabilities and deferred tax assets as of
December 31, 2008 and 2007 was as follows:
 
 2008
                      
                      
                      2007
                        (Restated)Deferred
      tax assets:Net
      operating loss carried forward
                      
                      $
                      6,622,515
                      
                      
                      $
                      3,807,148Less: valuation allowance
                      
                      
                      (6,622,515
                      )
                      
                      
                      (3,807,148
                      )Net
      deferred tax assets
                      
                      $
                      -
                      
                      
                      $
                      -
 
 The
Company provided a full valuation allowance against the deferred tax assets as
of December 31, 2008 and 2007 due to the uncertainty surrounding the
realizability of these benefits in future tax returns.
  F-37
 Table of Contents
  EXHIBIT
INDEX
  Exhibit
      No.
                                                                                                                Description3.1
                                                                                                                Amended
      And Restated Certificate Of Incorporation incorporated herein by reference
      from Exhibit A to Registrant’s Definitive Information Statement on
      Schedule 14C filed with the SEC on January 10, 2007.3.2
                                                                                                                Amended
      and Restated By-Laws, adopted on January 10, 2006, is incorporated herein
      by reference from Exhibit 3-(II) to Registrant’s Current Report on Form
      8-K filed with the SEC on January 18, 2006.4.1
                                                                                                                Form
      of Registrant’s Common Stock Certificate.4.2
                                                                                                                Form
      of Amended and Restated Secured Convertible Promissory Note (incorporated
      herein by reference from Registrant's Current Report on Form 8-Kfiled with
      the SEC on February 6, 2008).4.3
                                                                                                                Form
      of Warrant (incorporated herein by reference from Registrant's Current
      Report on Form 8-K filed with the SEC on February 6,
  2008).4.4
                                                                                                                Form
      of 3% Senior Secured Convertible Promissory Note (incorporated herein by
      reference from Registrant's Current Report on Form 8-K filed with the SEC
      on November 14, 2007).4.5
                                                                                                                Form
      of Warrant (incorporated herein by reference from Registrant's Current
      Report on Form 8-K filed with the SEC on November 14,
    2007).4.6
                                                                                                                TEDA
      Travel Group, Inc. 2004 Stock Incentive Plan (incorporated herein by
      reference from Registrant's Registration Statement on Form S-8 filed with
      the SEC on April 22, 2004).4.7
                                                                                                                2007
      Stock Option/Stock Issuance Plan (incorporated herein by reference from
      Registrant's Registration Statement on Form S-8 filed with the SEC on
      April 6, 2007).10.1
                                                                                                                Purchase
      Agreement, dated November 19, 2007 (incorporated herein by reference from
      Registrant's Current Report on Form 8-K filed with the SEC on November 26,
      2007).10.2
                                                                                                                First
      Amendment to Note and Warrant Purchase Agreement, dated January 31, 2008
      (incorporated herein by reference from Registrant's Current Report on Form
      8-K filed with the SEC on February 6, 2008).10.3
                                                                                                                Security
      Agreement, dated January 31, 2008 (incorporated herein by reference from
      Registrant's Current Report on Form 8-K filed with the SEC on February 6,
      2008).10.4
                                                                                                                Registration
      Rights Agreement, dated November 19, 2007 (incorporated herein by
      reference from Registrant's Current Report on Form 8-K filed with the SEC
      on November 26, 2007).10.5
                                                                                                                Share
      Purchase Agreement dated January 1, 2008 (incorporated herein by reference
      from Registrant's Current Report on Form 8-K filed with the SEC on January
      7, 2008).10.6
                                                                                                                Agreement
      for Co-operation in Business between Shanghai Quo Advertising Company
      Limited and Wuhan Weiao Advertising Company Limited dated as of August 16,
      2007 (incorporated herein by reference from Registrant's Current Report on
      Form 8-K filed with the SEC on August 21,
2007).
 
 Table of Contents
 10.7
                                                                                                          Note
      and Warrant Purchase Agreement dated November 12, 2007 by and between the
      Company and Wei An Developments Limited (incorporated herein by reference
      from Registrant's Current Report on Form 8-K filed with the SEC on
      November 14, 2007).10.8
                                                                                                          Executive
      Employment Agreement by and between the NCN Group and Chin Tong Godfrey
      Hui dated July 23, 2007 (incorporated herein by reference from
      Registrant's Current Report on Form 8-K filed with the SEC on July 24,
      2007).10.9
                                                                                                          Executive
      Employment Agreement by and between the NCN Group and Kuen Kwok So dated
      July 23, 2007 (incorporated herein by reference from Registrant's Current
      Report on Form 8-K filed with the SEC on July 24,
2007).10.10
                                                                                                          Executive
      Employment Agreement by and between the NCN Group and Daley Yu Luk Mok
      dated July 23, 2007 (incorporated herein by reference from Registrant's
      Current Report on Form 8-K filed with the SEC on July 24,
      2007).10.11
                                                                                                          Executive
      Employment Agreement by and between the NCN Group and Hing Kuen Benedict
      Fung dated July 23, 2007 (incorporated herein by reference from
      Registrant's Current Report on Form 8-K filed with the SEC on July 24,
      2007).10.12
                                                                                                          Executive
      Employment Agreement by and between the NCN Group and Stanley Kam Wing Chu
      dated July 23, 2007 (incorporated herein by reference from Registrant's
      Current Report on Form 8-K filed with the SEC on July 24,
      2007).10.13
                                                                                                          Contract
      for the Rebuilding and Leasing of Advertisement Light Boxes on Nanjing
      Road Pedestrian Street (incorporated herein by reference from
      Registrant's Current Report on Form 8-K filed with the SEC on June 26,
      2007).10.14
                                                                                                          Agreement
      for Advertising Business dated April 26, 2007, by and among Shanghai Quo
      Advertising Company Limited, a subsidiary of Network CN Inc., and Shanghai
      Yukang Advertising Company Limited (incorporated herein by reference from
      Registrant's Current Report on Form 8-K filed with the SEC on May 2,
      2007).10.15
                                                                                                          Agreement
      for Co-operation and Agency in the Publication of Advertisements dated
      April 14, 2007, by and among Shanghai Quo Advertising Company Limited, a
      subsidiary of Network CN Inc., and Shanghai Qian Ming Advertising Company
      Limited (incorporated herein by reference from Registrant's Current Report
      on Form 8-K filed with the SEC on April 20, 2007).10.16
                                                                                                          Stock
      Transfer Agreement between Youwei Zheng and NCN Management Services
      Limited for acquisition of 55% equity interest in Guangdong Tianma
      International Travel Service Co., Ltd., dated June 16, 2006 (incorporated
      herein by reference from Registrant’s Current Report on Form 8-K filed
      with the SEC on March 30, 2007).10.17
                                                                                                          Business
      Joint Venture Agreement, between Shanghai Zhong Ying Communication
      Engineering Company Limited and Shanghai Quo Advertising Company Limited
      to manage LED outdoor project in Huangpu district of Shanghai, China
      (incorporated herein by reference from Registrant’s Current Report on Form
      8-K filed with the SEC on February 7,
2007).
 
 Table of Contents
 10.18
                                                                                                          Business
      Joint Venture Agreement, between Nanjing Yiyi Culture Advertising Company
      Limited and Shanghai Quo Advertising Company Limited to manage LED outdoor
      project in Nanjing (incorporated herein by reference from Registrant’s
      Current Report on Form 8-K filed with the SEC on February 15,
      2007).10.19
                                                                                                          Business
      Joint Venture Agreement, between Wuhan Xin An Technology Development
      Company Limited and Shanghai Quo Advertising Company Limited to manage LED
      outdoor project in Wuhan (incorporated herein by reference from
      Registrant’s Current Report on Form 8-K filed with the SEC on March 1,
      2007).10.20
                                                                                                          Stock
      Purchase Agreement dated as of September 1, 2008, between Zhanpeng Wang,
      an individual, and NCN Group Limited, a British Virgin Islands
      corporation10.21
                                                                                                          Lease
      Agreement, dated November 15, 2006, between NCN Group Management Limited
      and Chinachem Agencies Limited.*14.1
                                                                                                          Code
      of Business Conduct and Ethics for Network CN Inc. as approved by the
      Board of Directors as of December 31, 2003, is incorporated herein by
      reference from Registrant’s Annual Report on Form 10-KSB filed with the
      SEC on April 13, 2005.16.1
                                                                                                          Letter
      from Webb, Certified Public Accountants to the SEC dated July 30,
      2008.21.1
                                                                                                          Subsidiaries
      of the registrant. *23.1
                                                                                                          Consent
      of independent auditors Jimmy C.H. Cheung & Co. *24.1
                                                                                                          Power
      of Attorney (included in the Signatures section of this
      report).31.1
                                                                                                          Certification
      of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and
      15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.
      *31.2
                                                                                                          Certification
      of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and
      15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.
      *32.1
                                                                                                          Certification
      of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as
      Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.
      *32.2
                                                                                                          Certification
      of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as
      Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.
      *