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Variable Interest Entity | 3 Months Ended
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Mar. 31, 2023
Variable Interest Entity [Abstract] |
Variable Interest Entity | Note 4 – Variable interest entity On November 30, 2018, Tongrong WFOE entered into Contractual Arrangements with Rong Hai and its shareholders upon executing of the “Purchase Agreement”. The significant terms of these Contractual Arrangements are summarized in “Note 1 - Nature of business and organization” above. As a result, the Company classifies Rong Hai as VIE. On January 3, 2020, Tongrong WFOE entered into Contractual Arrangements with Wuge and its shareholders upon executing of the “Purchase Agreement”. The significant terms of these Contractual Arrangements are summarized in “Note 1 - Nature of business and organization” above. As a result, the Company classifies Wuge as VIE. On January 11, 2021, Makesi WFOE entered into a series of assignment agreements (the “Assignment Agreements”) with Tongrong WFOE, Wuge and Wuge Shareholders, pursuant to which Tongrong WFOE assign all its rights and obligations under the VIE Agreements to Makesi WFOE (the “Assignment”). The VIE Agreements and the Assignment Agreements grant Makesi WFOE with the power, rights and obligations equivalent in all material respects to those it would possess as the sole equity holder of Wuge, including absolute rights to control the management, operations, assets, property and revenue of Wuge. The Assignment does not have any impact on Company’s consolidated financial statements. On March 30, 2021, the Company entered into a share purchase agreement with a buyer unaffiliated with the Company (the “Buyer”), and Qihai Wang, former director of the Company (the “Payee”). Pursuant to the agreement, the Company agreed to sell and the Buyer agreed to purchase all the issued and outstanding ordinary shares (the “Tongrong Shares”) of Tongrong WFOE. The Payee agreed to be responsible for the payment of the purchase price on behalf of Buyer. The purchase price for the Tongrong Shares shall be $2,464,411, payable in the form of cancelling 426,369 shares of common stock of the Company owned by the Payee (the “CCNC Shares”). The CCNC Shares are valued at $5.78 per share, based on the average closing price of the Company’s common stock during the 30 trading days immediately prior to the date of the agreement from February 12, 2021 to March 26, 2021. On March 31, 2021, the Company closed the sale of the Tongrong Shares and caused the CCNC Shares to be cancelled. Tongrong WFOE contractually controls Jaingsu Rong Hai Electric Power Fuel Co., Ltd. (“Rong Hai”), a variable interest entity of the Company. The disposition of Tongrong WFOE included disposition of Rong Hai. On September 16, 2022, Makesi WFOE entered into Contractual Arrangements with Highlight Media and its shareholders upon executing of the “Purchase Agreement”. The significant terms of these Contractual Arrangements are summarized in “Note 1 - Nature of business and organization” above. As a result, the Company classifies Rong Hai as VIE. In January, 2021, Tongrong Technology (Jiangsu) Co., Ltd., a then indirect subsidiary of the Company (“Tongrong WFOE”), Sichuan Wuge Network Games Co., Ltd. (“Wuge”), and shareholders of Wuge (the “Wuge Shareholders”) entered into a share purchase agreement, pursuant to which the Company issued a total of 4,000,000 shares of common stock of the Company (the “Shares”) to the Wuge Shareholders in exchange for Tongrong WFOE, Wuge and the Wuge Shareholders entering into certain Technical Consultation and Services Agreement., Equity Pledge Agreement, Equity Option Agreement, Voting Rights Proxy and Financial Support Agreement, which was assigned by Tongrong WFOE to Makesi IoT Technology (Shanghai) Co., Ltd., an indirect subsidiary of the Company (“Makesi WFOE”) in January 2021 (such agreements, as assigned, the “VIE Agreements”) . The VIE Agreements established a “Variable Interest Entity” (VIE) structure, and pursuant to which the Company treated Wuge as a consolidated affiliated entity and consolidated the financial results and balance sheet of Wuge in the Company’s consolidated financial statements under U.S. GAAP. On September 28, 2022, Makesi WFOE entered into a termination agreement (the “Termination Agreement”) with Wuge and the Wuge Shareholders to terminate the VIE Agreements and to cancel the Shares, based on the average closing price of $0.237 per share of the Company during the 30 trading days immediately prior to the date of the Termination Agreement. As a result of such termination, the Company no longer treats Wuge as a consolidated affiliated entity or consolidates the financial results and balance sheet of Wuge in the Company’s consolidated financial statements under U.S. GAAP. On February 27, 2023, Highlight WFOE entered into a series of assignment agreements (the “Assignment Agreements”) with Makesi WFOE, Highlight Media and Highlight Shareholders, pursuant to which Makesi WFOE assign all its rights and obligations under the VIE Agreements to Highlight WFOE (the “Assignment”). The VIE Agreements and the Assignment Agreements grant Highlight WFOE with the power, rights and obligations equivalent in all material respects to those it would possess as the sole equity holder of Highlight Media, including absolute rights to control the management, operations, assets, property and revenue of Highlight Media. The Assignment does not have any impact on Company’s consolidated financial statements. A VIE is an entity that has either a total equity investment that is insufficient to permit the entity to finance its activities without additional subordinated financial support, or whose equity investors lack the characteristics of a controlling financial interest, such as through voting rights, right to receive the expected residual returns of the entity or obligation to absorb the expected losses of the entity. The variable interest holder, if any, that has a controlling financial interest in a VIE is deemed to be the primary beneficiary and must consolidate the VIE. Makesi WFOE is deemed to have a controlling financial interest and be the primary beneficiary of Highlight Media because it has both of the following characteristics:
| (1) | The power to direct activities at Highlight Media that most significantly impact such entity’s economic performance, and
| (2) | The obligation to absorb losses of, and the right to receive benefits from Highlight Media that could potentially be significant to such entity.
Accordingly, the accounts of Highlight Media are consolidated in the accompanying financial statements pursuant to ASC 810-10, Consolidation. In addition, Its financial positions and results of operations are included in the Company’s consolidated financial statements beginning on March 31, 2023. The carrying amount of the VIE’s assets and liabilities are as follows:
|  | March 31, |  |  | December 31, |
|  | 2023 |  |  | 2022 |
Cash and cash equivalents |  |  | 9,973 |  |  |  | 215,880 |
Accounts receivable, net |  |  | 133,619 |  |  |  | 194,520 |
Other receivables, net |  |  | 94,292 |  |  |  | 78,293 |
Prepayments |  |  | 14,881 |  |  |  | - |
Total current assets |  | $ | 252,765 |  |  | $ | 488,693 |
Property, plants and equipment |  |  | 504 |  |  |  | 502 |
Other noncurrent assets |  |  | - |  |  |  | - |
Goodwill |  |  | 2,199,926 |  |  |  | 2,190,485 |
Total assets |  |  | 2,453,195 |  |  |  | 2,679,680 |
Current liabilities |  |  | 118,418 |  |  |  | 333,784 |
Non-current liabilities |  |  | - |  |  |  | - |
Total liabilities |  |  | 118,418 |  |  |  | 333,784 |
Net assets |  | $ | 2,334,777 |  |  | $ | 2,345,896 |
|  | March 31, |  |  | December 31, |
|  | 2023 |  |  | 2022 |
Accounts payable |  | $ | 72,922 |  |  | $ | 116,105 |
Other payables and accrued liabilities |  |  | 17,406 |  |  |  | 13,469 |
Other payables – related party |  |  | 24,404 |  |  |  | - |
Tax payables |  |  | 3,686 |  |  |  | 195,732 |
Customer Advances |  |  | - |  |  |  | 8,478 |
Total current liabilities |  |  | 118,418 |  |  |  | 333,784 |
Lease liabilities - noncurrent |  |  | - |  |  |  | - |
Total liabilities |  | $ | 118,418 |  |  | $ | 333,784 |
The summarized operating results of the VIE’s are as follows:
|  | For the three months ended March 31, |
|  | 2023 |
Operating revenues |  | $ | 75,374 |
Gross profit |  |  | 19,226 |
Income from operations |  |  | (21,998 | )
Net income |  | $ | (21,309 | )

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- Definition The entire disclosure for a variable interest entity (VIE), including but not limited to, judgments and assumptions in determining whether to consolidate and in identifying the primary beneficiary, gain (loss) recognized on the initial consolidation of the VIE, terms of arrangements, amounts and classification of the VIE's assets and liabilities, and the entity's maximum exposure to loss. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 810 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//810/tableOfContent + Details
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