STOCKHOLDERS' DEFICIT

12 Months Ended

Dec. 31, 2011

STOCKHOLDERS' DEFICIT [Abstract]

STOCKHOLDERS' DEFICIT

NOTE 13        STOCKHOLDERS' DEFICIT

(A)   Stock, Options and Warrants Issued for Services

1. In August 2006, the Company issued a warrant to purchase up to 20,000 shares of restricted common stock to a consultant at an exercise price $3.50 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, 2011, 2010 and 2009 were $nil. As of December 31, 2011, none of the warrant was exercised.

2. In July 2007, NCN Group Management Limited entered into Executive Employment Agreements (the "Agreements") with Godfrey Hui, Deputy Chief Executive Officer (former Chief Executive Officer), Daniel So, former Managing Director, Daley Mok, former Chief Financial Officer, Benedict Fung, former President, and Stanley Chu, former 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, 400,000 shares; Mr. So, 400,000 shares; Dr. Mok, 300,000 shares; Mr. Fung, 240,000 shares and Mr. Chu, 200,000 shares. However, Mr. So, Mr. Fung and Mr. Chu resigned from their respective positions in January 2009 and Dr. Mok was removed as the Company's Chief Financial Officer in June 2009. Further, on July 15, 2009, NCN Group Management Limited entered into a new executive employment agreement with Godfrey Hui, in connection with his services to the Company as the Deputy Chief Executive Officer. Accordingly, they are no longer entitled to those shares that would have vested on December 31, 2009, 2010 and 2011 in the following amounts: Mr. So, 300,000 shares; Mr. Fung, 194,000 shares; Mr. Chu, 158,000 shares; Dr. Mok, 240,000 shares; and Mr. Hui, 300,000 shares. In connection with these stock grants and in accordance with ASC Topic 718, the Company recognized non-cash stock-based compensation of $nil included in general and administrative expenses on the consolidated statement of operations for the years ended December 31, 2011, 2010 and 2009. Out of the total shares granted under the Agreements, on January 2, 2008, an aggregate of 132,000 shares with par value of $0.001 each were vested and issued to the concerned executives. On July 28, 2009, an aggregate of 100,000 shares with par value of $0.001 each were vested and issued to certain concerned executives.

3. In November 2007, the Company issued a warrant to purchase up to 60,000 shares of restricted common stock to a placement agent for provision of agency services in connection with the issuance of the 3% Convertible Promissory Notes at an exercise price $15.00 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 ASC Topic 718 with the following weighted average assumptions: expected dividend 0%, volatility 182%, a risk-free rate of 4.05 % and an expected life of two years. The warrant is expired in November 2009. The value of the warrant recognized for the years ended December 31, 2011, 2010 and 2009 were $nil, $nil and $319,581 respectively.

4. In June 2008, the Company granted 22,000 shares of common stock to the then 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: 3,000 shares; Ronglie Xu: 3,000 shares; Joachim Burger: 3,000 shares; Gerd Jakob: 2,000 shares; Edward Lu: 2,000 shares; Godfrey Hui: 3,000 shares; Daniel So: 2,000 shares; Daley Mok: 2,000 shares and Stanley Chu: 2,000 shares. However, Mr. Joachim Burger and Mr. Gerd Jakob resigned as directors on September 30 2008 and May 5, 2009, respectively. Therefore, they are no longer entitled to those shares. In connection with these stock grants and in accordance with ASC Topic 718, the Company recognized $nil, $nil and $74,999 of non-cash stock-based compensation included in general and administrative expenses on the consolidated statement of operations for the years ended December 31, 2011, 2010 and 2009 respectively. On July 28, 2009, 17,000 shares of common stock of par value of $0.001 each were vested and issued to those directors.

5. In July 2008, the Company granted 34,000 shares of common stock to certain employees of the Company for their services rendered. One of the employees effectively resigned in January 2009 and forfeited his 14,000 shares granted. Another of the employees agreed to forfeit his original entitled shares of 8,000. Accordingly, in connection with these stock grants, the Company recognized the non-cash stock-based compensation of $nil, $nil and $25,442 for the years ended December 31, 2011, 2010 and 2009 respectively. On July 28, 2009, 12,000 shares of common stock with par value of $0.001 were vested and issued to the employees.

6. In August 2008, the Company granted 20,000 shares of common stock to a consultant for services rendered. The value of stock grant recognized for the years ended December 31, 2011, 2010 and 2009 were $nil, $nil and $125,647 respectively.

7. In July 2009, the Company granted an aggregate of 360,000 shares of common stock to the independent directors of the Company for their services to the Company covering the period from July 2, 2009 to July 1, 2010. Each independent director was granted shares of the Company's common stock subject to a vesting period of twelve months in the following amounts: Peter Mak: 120,000 shares; Ronald Lee: 120,000 shares; and Gerald Godfrey:120,000 shares. Such shares with par value of $0.001 were issued on July 28, 2009 but will not be vested until July 1, 2010 after which the relevant share certificate will be handed to the independent directors. However, Mr. Mak resigned as directors on December 31, 2009. Therefore, he is no longer entitled to those shares. In connection with these stock grants and in accordance with ASC Topic 718, the Company recognized $nil, $18,000 and $18,000 of non-cash stock-based compensation included in general and administrative expenses on the consolidated statements of operations for the years ended December 31, 2011, 2010 and 2009 respectively.

8. In July 2009, the Company granted an aggregate of 400,000 shares of common stock to Jennifer Fu, Chief Financial Officer and one employee of the Company individually for their services to the Company covering the period from July 15, 2009 to July 14, 2011. Such shares with par value of $0.001 were issued on July 28, 2009 but will not vest until July 14, 2010 after which the relevant share certificate will be handed to the employees. In connection with these stock grants and in accordance with ASC Topic 718, the Company recognized $7,500, $37,500 and $15,000 of non-cash stock-based compensation included in general and administrative expenses on the consolidated statements of operations for the years ended December 31, 2011, 2010 and 2009 respectively.

9. In July 2009, NCN Group Management Limited entered into Executive Employment Agreements with Earnest Leung, Chief Executive Officer and Godfrey Hui, Deputy Chief Executive Officer. Pursuant to the agreements, Dr. Earnest Leung and Mr. Godfrey Hui were granted 6,000,000 and 2,000,000 shares, respectively, for their services rendered during the period from July 1, 2009 to June 30, 2011. Such shares with par value of $0.001 each were issued to the concerned executives on July 28, 2009. In connection with these stock grants and in accordance with ASC Topic 718, the Company recognized $1,200,000 of deferred stock compensation amortized over requisite service period. The amortization of deferred stock compensation of $300,000, $600,000 and $300,000 were recorded as non-cash stock-based compensation and included in general and administrative expenses on the consolidated statement of operation for the years ended December 31, 2011, 2010 and 2009 respectively. 

10. In August 2010, the Company granted an aggregate of 360,000 shares of common stock to the independent directors of the Company for their services to the Company covering the period from July 2, 2010 to July 1, 2011. Each independent director was granted shares of the Company's common stock subject to a vesting period of twelve months in the following amounts: Ronald Lee: 120,000 shares; Gerald Godfrey: 120,000 shares; and Serge Choukroun: 120,000 shares. In connection with these stock grants and in accordance with ASC Topic 718 , the Company recognized $27,818, $26,181 and $nil of non-cash stock-based compensation included in general and administrative expenses on the consolidated statements of operations for the years ended December 31, 2011, 2010 and 2009 respectively. 

11. In July 2011, the Board of Director granted an aggregate of 360,000 shares of common stock to the independent directors of the Company for their services rendered during the year from July 1, 2011 to June 30, 2012. Each independent director was granted shares of the Company's common stock subject to a vesting period of twelve months in the following amounts: Ronald Lee, 120,000 shares; Gerald Godfrey, 120,000 shares; Serge Choukroun, 120,000 shares. In connection with these stock grants and in accordance with ASC Topic 718, the Company recognized $7,860, $nil and $nil of non-cash stock-based compensation included in general and administrative expenses on the consolidated statements of operations for the years ended December 31, 2011, 2010 and 2009 respectively. 

12. In October 2011, the Company entered into three consultancy agreements with three consultants. Pursuant to the agreements, these three consultants were each granted 4,000,000 shares for services to be rendered during the period from October 15, 2011 to September 30, 2012. Such shares with par value of $0.001 each were issued to the concerned consultants in October 2011. In connection with these stock grants, the Company recognized $60,000, $nil and $nil of non-cash stock-based compensation included in general and administrative expenses on the consolidated statements of operations for the years ended December 31, 2011, 2010 and 2009 respectively. 

(B) 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 50,000 shares of the Company's common stock at the exercise price of $11.50 per share, which are exercisable for a period of two years to the 12% Note holder. 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. 

On November 19, 2007, pursuant to the 3% Note and Warrant purchase Agreement, the Company issued warrants to purchase up to 480,000 shares of the Company's common stock at the exercise price of $12.50 per share and 342,857 shares of the Company's common stock at the exercise price of $17.50 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 720,000 shares of the Company's common stock at the exercise price of $12.50 per share and 514,286 shares of the Company's common stock at the exercise price of $17.50 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 11 - Convertible Promissory Note and Warrants for details.

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 2,800,000 shares of the Company's common stock at $12.50 per share and warrants to purchase 2,000,000 shares of the Company's common stock at $17.50 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 11 - Convertible Promissory Note and Warrants for details.

(C) Debt Restructuring

On April 2, 2009, the Company entered into a new financing arrangement. Note 11 - Convertible Promissory Note and Warrants for details. Keywin exchanged 3% Convertible Promissory Notes in the principal amount of $45,000,000 and all accrued and unpaid interest thereon, for 61,407,093 shares of the Company's common stock and an option to Keywin to purchase an aggregate of 24,562,837 shares of the Company's common stock, for an aggregate purchase price of $2,000,000, exercisable for a three-month period commenced on April 2, 2009. Accordingly, the Company reversed such 3% Convertible Promissory Notes of principal amount of $45,000,000 and all accrued and unpaid interest of $1,665,675 against additional paid-in capital. The Company also recognized a non-cash debt conversion charge of $10,204,627 against additional paid-in capital.

As part of new financing arrangement, the Company also issued $5,000,000 in the 1% Convertible Promissory Notes on April 2, 2009. As the conversion price 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 $1,447,745 recorded as a reduction in the carrying values of the notes against additional paid-in capital. For details, please refer to Note 11 - Convertible Promissory Note and Warrants.

On April 6, 2009, the Company issued an aggregate of 61,407,093 shares of the Company's restricted common stock with par value of $0.001 each to Keywin accordingly.

(D) Changes in Deficit

The following table summarizes the changes in deficit for the year ended December 31, 2011:

	Noncontrolling Interests		NCN Common Stockholders			Total
Total deficit as of January 1, 2011	$	-	$	(3,524,536	)	$	(3,524,536	)
Net loss		-		(2,102,548	)		(2,102,548	)
Other comprehensive income		-		13,929			13,929
Preferred stock		-		-			-
Common stock		-		12,000			12,000
Additional paid-in capital		-		83,678			83,678
Reversal of unrealized loss on available-for-sale securities		-		153,559			153,559
Deferred stock-based compensation		-		307,500			307,500
Total deficit as of December 31, 2011	$	-	$	(5,056,418	)	$	(5,056,418	)

The following table summarizes the changes in deficit for the year ended December 31, 2010:

	Noncontrolling Interests		NCN Common Stockholders			Total
Total deficit as of January 1, 2010	$	-	$	(1,491,206	)	$	(1,491,206	)
Net loss		-		(2,603,384	)		(2,603,384	)
Other comprehensive income		-		41,932			41,932
Preferred stock		-		-			-
Common stock		-		(120	)		(120	)
Additional paid-in capital		-		89,301			89,301
Change in unrealized loss on available-for-sale securities		-		(153,559	)		(153,559	)
Deferred stock-based compensation		-		592,500			592,500
Total deficit as of December 31, 2010	$	-	$	(3,524,536	)	$	(3,524,536	)

The following table summarizes the changes in deficit for the year ended December 31, 2009:

	Noncontrolling Interests			NCN Common Stockholders			Total
Total deficit as of January 1, 2009	$	-		$	(23,356,217	)	$	(23,356,217	)
Net loss		(24,173	)		(37,359,188	)		(37,383,361	)
Other comprehensive (loss) income		(828	)		27,483			26,655
Preferred stock		-			-			-
Common stock		-			70,296			70,296
Additional paid-in capital		-			60,026,420			60,026,420
Disposal of investment		25,001			-			25,001
Deferred stock-based compensation		-			(900,000	)		(900,000	)
Total deficit as of December 31, 2009	$	-		$	(1,491,206	)	$	(1,491,206	)

(E) Restriction on payment of dividends

The Company has not declared any dividends since incorporation. For instance, the terms of the outstanding promissory notes issued to affiliated funds of Och-Ziff on April 2, 2009 contain restrictions on the payment of dividends. The dividend restrictions provide that the Company or any of its subsidiaries shall not declare or pay dividends or other distributions in respect of the equity securities of such entity other than dividends or distributions of cash which amounts during any 12-month period that exceed ten percent (10%) of the consolidated net income of the Company based on the Company's most recent audited financial statements disclosed in the Company's annual report on Form 10-K (or equivalent form) filed with the U.S. Securities and Exchange Commission.