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EX-31 - EXHIBIT 31.1 CEO - Median Group Inc | ex311-093010cmg.htm |
EX-32 - EXHIBIT 32.1 CEO - Median Group Inc | ex321-093010cmg.htm |
EX-31 - EXHIBIT 31.2 CFO - Median Group Inc | ex312-093010cmg.htm |
EX-32 - EXHIBIT 32.2 CFO - Median Group Inc | ex322-093010cmg.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ x ] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly three month period ended September 30, 2010 |
|
[ ] | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT |
For the transition period from [ ] to [ ] |
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Commission File Number: 000-50431
CHINA MEDIA GROUP CORPORATION
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(Exact name of small business issuer as specified in its charter)
Texas |
7310 |
32-0034926 |
----------------------- |
------------------------ |
---------------------- |
(State or other jurisdiction of incorporation or organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification No.) |
1403 Wan Chai Commercial Center, 204 Johnston Road, Wanchai, Hong Kong |
----- |
--------------------------------------------------------------------- |
---------------- |
(Address of Company's principal executive offices) |
(Zip Code) |
+011 852 3171 1208 (ext.222)
-------------------------------------------------
(Company's Telephone Number, Including Area Code)
Not Applicable
(Former Name, Former Address and Former Fiscal Year if Changed Since Last Report)
Indicate by check 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 past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. |
Yes [ x ] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). |
Yes [ x ] No [ ]
Indicate by check 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 "small reporting company" in Rule 12b-2 of the Exchange Act. (check one) |
Large Accelerated Filer [ ] Accelerated Filer [ ] Non-Accelerated Filer [ ] Smaller Reporting Company [ x ]
SEC 1296 (03-10) | Potential persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number. |
|
Yes [ ] No[ x ]
The number of common equity shares outstanding as of October 30, 2010 was 554,132,450 shares of Common Stock, no par value. |
FORWARD-LOOKING STATEMENTS |
This quarterly report contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may", "will", "should", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential" or "continue" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled "Risk Factors", that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. |
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results. |
Our financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles. In this quarterly report, unless otherwise specified, all dollar amounts are expressed in United States Dollars. |
As used in this quarterly report, the terms "we", "us", "our", "CHMD", and "the Company" mean China Media Group Corporation and its subsidiaries unless otherwise indicated. |
PART I |
Item 1. |
Condensed Consolidated Financial Statements |
China Media Group Corporation
Condensed Consolidated Financial Statements
September 30, 2010
(Unaudited)
(Expressed In United States Dollars)
Condensed Consolidated Balance Sheets as of September 30, 2010 and December 31, 2009 |
|
|
|
|
CHINA MEDIA GROUP CORPORATION |
CONSOLIDATED BALANCE SHEETS |
AS OF SEPTEMBER 30, 2010 AND DECEMBER 31, 2009 |
|
|
||||
(Unaudited) |
(Audited) |
||||
US$ |
US$ |
||||
Notes |
----------------- |
--------------------- |
|||
ASSETS | |||||
Current Assets: | |||||
Cash and cash equivalents | 19,572 |
32,860 |
|||
Account receivables | 9,665 |
- |
|||
Inventory | 10,986 |
- |
|||
Prepayments, deposit and other receivables | 7 |
311,372 |
253,851 |
||
--------------------- |
--------------------- |
||||
Total current assets | 351,595 |
286,711 |
|||
Non-current assets | |||||
Property and equipments, net | 8 |
18,184 |
27,606 |
||
Advance payment for distribution rights | 9 |
138,000 |
138,000 |
||
Goodwill | 10 |
5,036,771 |
4,791,676 |
||
--------------------- |
--------------------- |
||||
5,192,955 |
4,957,282 |
||||
--------------------- |
--------------------- |
||||
5,544,550 |
5,243,993 |
||||
============= |
============= |
||||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||
Current liabilities: | |||||
Other payables and accruals | 11 |
856,582 |
688,318 |
||
Short term debt | 12 |
114,591 |
99,645 |
||
Due to officer and directors | 13 |
1,087,471 |
1,083,686 |
||
Due to a shareholder | 14 |
379,680 |
259,747 |
||
Convertible loan | 15 |
100,000 |
- |
||
Option liabilities | 5 |
172,451 |
- |
||
--------------------- |
--------------------- |
||||
Total current liabilities | 2,710,775 |
2,131,396 |
|||
--------------------- |
--------------------- |
||||
Long-term debts | 16 |
2,000,000 |
2,000,000 |
||
Minority interest | 128,982 |
147,975 |
|||
Stockholders' equity: | |||||
Common stock, no par value, 85,000,000,000 shares authorized, 544,132,450 (2009: 534,132,450) shares issued and outstanding | 6 |
7,653,902 |
7,428,902 |
||
Additional paid-in-capital | 1,799,358 |
1,760,874 |
|||
Comprehensive income | 52,288 |
44,148 |
|||
Accumulated deficits | (8,800,755) |
(8,269,302) |
|||
--------------------- |
--------------------- |
||||
Total stockholders' equity | 704,793 |
964,622 |
|||
--------------------- |
--------------------- |
||||
5,544,550 |
5,243,993 |
||||
============ |
============ |
The accompanying notes are an integral part of these consolidated financial statements
F-3
CHINA MEDIA GROUP CORPORATION |
CONSOLIDATED STATEMENTS OF OPERATIONS |
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009 |
(UNAUDITED) |
Three months periods |
Nine months periods |
||||||||||||||||
Ended September 30 |
Ended September 30 |
||||||||||||||||
------------------------------------------------ |
--------------------------------------------- |
||||||||||||||||
2010 |
2009 |
2010 |
2009 |
||||||||||||||
----------------- |
----------------- |
----------------- |
--------------- |
||||||||||||||
US$ |
US$ |
US$ |
US$ |
||||||||||||||
Net revenue | 17,639 |
37,309 |
44,213 |
79,065 |
|||||||||||||
Cost of revenue | (8,875) |
(16,457) |
(22,231) |
(53,254) |
|||||||||||||
----------------- |
----------------- |
---------------- |
--------------- |
||||||||||||||
Gross profit | 8,764 |
20,852 |
21,982 |
25,811 |
|||||||||||||
Operating expenses: | |||||||||||||||||
Selling, general and administrative expenses | 111,955 |
116,186 |
441,592 |
343,022 |
|||||||||||||
----------------- |
----------------- |
--------------- |
--------------- |
||||||||||||||
Loss from operations before other expense | (103,191) |
(95,334) |
(419,610) |
(317,211) |
|||||||||||||
Other income / (expenses) | |||||||||||||||||
Interest income | - |
- |
- |
- |
|||||||||||||
Interest expenses | (45,298) |
(42,491) |
(130,836) |
(128,449) |
|||||||||||||
----------------- |
----------------- |
----------------- |
-------------- |
||||||||||||||
Net loss before minority interests | (148,489) |
(137,825) |
(550,446) |
(445,660) |
|||||||||||||
Minority interest | 7,380 |
3,758 |
18,993 |
12,009 |
|||||||||||||
----------------- |
----------------- |
----------------- |
-------------- |
||||||||||||||
Net loss | (141,109) |
(134,067) |
(531,453) |
(433,651) |
|||||||||||||
----------------- |
----------------- |
----------------- |
-------------- |
||||||||||||||
Other comprehensive income | |||||||||||||||||
Foreign currency translation gain | (871) |
274 |
8,140 |
39 |
|||||||||||||
----------------- |
----------------- |
----------------- |
-------------- |
||||||||||||||
Comprehensive loss | (141,980) |
(133,793) |
(523,313) |
(433,612) |
|||||||||||||
========== |
========== |
========= |
========= |
||||||||||||||
Basic and diluted loss per common share | (0.00) |
(0.00) |
(0.00) |
(0.00) |
|||||||||||||
========== |
========== |
========= |
========= |
||||||||||||||
Basic and diluted weighted average number of common shares * | 544,132,450 |
534,132,450 |
537,941,974 |
534,132,450 |
|||||||||||||
========== |
========== |
========= |
=============== | ||||||||||||||
* |
Weighted average number of shares used to compute basic and diluted loss per share for the three months ended September 30, 2010 and 2009 are the same since the effect of dilutive securities are anti-dilutive. |
The accompanying notes are an integral part of these consolidated financial statements.
F-4
CHINA MEDIA GROUP CORPORATION |
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010 |
(UNAUDITED) |
|
|
|
||||||||
Stock |
Paid-in |
Comprehensive |
Prepaid |
Accumulated |
Stockholders' |
|||||
Shares |
Amount |
Capital |
Income |
Expenses |
Deficit |
Equity |
||||
US$ |
US$ |
US$ |
US$ |
US$ |
US$ |
|||||
---------------- |
---------- |
-------------- |
--------------- |
------------- |
-------------- |
--------------- |
||||
Balance at January 1, 2008 | 521,500,871 |
7,428,902 |
1,449,491 |
20,766 |
(293,401) |
(3,582,289) |
5,023,469 |
|||
Amortization of issuance of shares for services expenses | - |
- |
- |
- |
293,401 |
- |
293,401 |
|||
Amortization of options granted | - |
- |
100,692 |
- |
- |
- |
100,692 |
|||
Issuance of shares for extension of repayment of debenture | 2,631,579 |
- |
50,000 |
- |
- |
- |
50,000 |
|||
Issuance of shares for termination of ELOC Agreement | 10,000,000 |
- |
60,000 |
- |
- |
- |
60,000 |
|||
Comprehensive income | - |
- |
- |
22,499 |
- |
- |
22,499 |
|||
Net loss | - |
- |
- |
- |
- |
(2,152,909) |
(2,152,909) |
|||
---------------- |
----------- |
-------------- |
--------------- |
------------- |
-------------- |
--------------- |
||||
Balance at December 31, 2008 and January 1, 2009 | 534,132,450 |
7,428,902 |
1,660,183 |
43,265 |
- |
(5,735,198) |
3,397,152 |
|||
Amortization of options granted | - |
- |
100,691 |
- |
- |
- |
100,691 |
|||
Comprehensive income | - |
- |
- |
883 |
- |
- |
883 |
|||
Net loss | - |
- |
- |
- |
- |
(2,534,104) |
(2,534,104) |
|||
---------------- |
----------- |
-------------- |
--------------- |
------------- |
-------------- |
--------------- |
||||
December 31, 2009 | 534,132,450 |
7,428,902 |
1, 760,874 |
44,148 |
- |
(8,269,302) |
964,622 |
|||
Amortization of options granted | - |
- |
38,484 |
- |
- |
- |
38,484 |
|||
Comprehensive income | - |
- |
- |
8,140 |
- |
- |
81,40 |
|||
Issuance of shares for acquisition of subsidiary | 10,000,000 |
225,000 |
- |
- |
- |
- |
225,000 |
|||
Net loss | - |
- |
- |
- |
- |
(531,453) |
(531,453) |
|||
---------------- |
----------- |
-------------- |
--------------- |
------------- |
-------------- |
--------------- |
||||
Balance at September 30, 2010 | 544,132,450 |
7,653,902 |
1,799,358 |
52,288 |
- |
(8,800,755) |
704,793 |
|||
========= |
======= |
======== |
========= |
======== |
======== |
========= |
The accompanying notes are an integral part of these consolidated financial statements.
F-5
CHINA MEDIA GROUP CORPORATION |
CONSOLIDATED STATEMENTS OF CASH FLOWS |
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009 |
(UNAUDITED) |
|
|
||||
US$ |
US$ |
||||
-------------------- |
-------------------- |
||||
Cash flows from operating activities: | |||||
Net loss | (531,453) |
(433,651) |
|||
Adjustment to reconcile net loss to net cash used in operating activities: | |||||
Depreciation | 9,422 |
9,382 |
|||
Minority interest | (18,993) |
(12,009) |
|||
Option expenses for employee compensation | 38,484 |
75,519 |
|||
Goodwill on acquisition of subsidiary | (245,095) |
- |
|||
(Increase) / decrease in assets and liabilities: | |||||
Prepaid expenses, deposit and other receivables | (57,521) |
(179,867) |
|||
Loan receivable | - |
72 |
|||
Account receivable | (9,665) |
(29,516) |
|||
Inventory | (10,986) |
- |
|||
Accounts payable and accrued expenses | 168,264 |
159,365 |
|||
Short term debt | 14,946 |
99,645 |
|||
Convertible loan | 100,000 |
- |
|||
Loan term debt | - |
(99,645) |
|||
Option liabilities | 172,451 |
- |
|||
Due to related parties | 3,785 |
(17,537) |
|||
Due to a shareholder | 119,933 |
380,000 |
|||
-------------------- |
-------------------- |
||||
Net cash used in operating activities | (246,428) |
(48,242) |
|||
-------------------- |
-------------------- |
||||
Cash flows from investing activities: | |||||
Purchase of property and equipment | - |
- |
|||
-------------------- |
-------------------- |
||||
Net cash used in investing activities | - |
- |
|||
-------------------- |
-------------------- |
||||
Cash flows from financing activities : | |||||
Issue of shares for acquisition of subsidiary | 225,000 |
- |
|||
-------------------- |
-------------------- |
||||
Net cash provided by financing activities | 225,000 |
- |
|||
-------------------- |
-------------------- |
||||
Net decrease in cash and cash equivalents | (21,428) |
(48,242) |
|||
Effect of exchange rate changes on cash and cash equivalents | 8,140 |
39 |
|||
Cash and cash equivalents, beginning | 32,860 |
67,764 |
|||
-------------------- |
-------------------- |
||||
19,572 |
19,561 |
||||
============ |
============ |
||||
Supplemental disclosure of cash flow information: | |||||
Interests paid | 130,836 |
128,449 |
|||
============ |
============ |
||||
Income tax paid | - |
- |
|||
============ |
============ |
||||
The accompanying notes are an integral part of these consolidated financial statements.
F-6
CHINA MEDIA GROUP CORPORATION |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 1 | ORGANIZATION |
China Media Group Corporation (the "Company") is a Texas corporation, incorporated on October 1, 2002. |
In January 2006, the Company established a wholly owned subsidiary Ren Ren Media Group Limited, a company incorporated in Hong Kong, as its operating company in Hong Kong. In March 2007, the Company acquired all the outstanding shares of Good World Investments Limited, a British Virgin Islands corporation that holds 50% of Beijing Ren Ren Health Culture Promotion Limited, a company incorporated in China in the advertising and media business in China. |
In May 2009, the Group established a 50/50 joint venture company, ATC Marketing Limited, which is to be in the business of marketing and distributing of convergent multimedia communication and internet devices. In September 2009, the Group acquired a 51% interest in Premium Multimedia Sdn. Bhd., which is to be in the business of outdoor media business. |
In June 2010, the Group acquired a 50% interests in AX Organic Limited, which is in the business of marketing, sales and distribution of organic fertilizers and produce. |
In October, 2010 the Group acquired 69% interests in China Integrated Media Corporation Limited ("CIMC"), a public company in Australia, by the issuance of 10,000,000 shares in the Company. CIMC is in the business of television media and digital signage boards. |
The Group will be engaged in the media and advertising business, focusing mainly in China, and the marketing and distribution of convergent devices and the sale and marketing of organic fertilizers and produce. During the period, the Group recorded sales in the provision of advertising services. |
NOTE 2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES & REALIZATION OF ASSETS |
Basis of Presentation |
These financial statements and related notes are presented in accordance with accounting principals generally accepted in the United States, and are expressed in U.S. dollars. The Company 's fiscal year end is December 31. |
Principles of Consolidation |
The consolidated financial statements for the year ended December 31, 2009 include the financial statements of the Company, its wholly owned subsidiaries Ren Ren Media Group Limited, Good World Investments Limited, 51% subsidiary Premium Multimedia Sdn. Bhd., and two 50% subsidiaries, namely Beijing Ren Ren Health Culture Promotion Limited and ATC Marketing Limited. ATC Marketing Limited was established on the date of May 21, 2009 and Premium Multimedia Sdn. Bhd. was acquired on September 26, 2009. The Company consolidated both of these 50% ownership companies because of the sole largest shareholding status and/or controlling of the Board of Directors. During the period the Group acquired a 50% subsidiary, AX Organic Limited on June 18, 2010 and consolidates this subsidiary into the Group accounts from that date onwards as the Group has control of the Board of Directors. |
The results of subsidiaries acquired or sold during the year are consolidated from their effective dates of acquisition or through their effective dates of disposition, respectively. |
All significant inter-company transactions and balances have been eliminated on consolidation. |
F-7
CHINA MEDIA GROUP CORPORATION |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES & REALIZATION OF ASSETS (Continued) |
Use of estimates |
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. |
Net Income (Loss) per Share |
Basic earnings per share were computed by dividing net loss by the weighted average number of shares of common stock outstanding during the year. Diluted loss per common share for the year ended December 31, 2009 and 2008 are not presented as it would be anti-dilutive. |
Fair Value Measurements and Disclosures |
ASC 820 "Fair Value Measurements and Disclosures" codified SFAS No. 107, "Disclosures about Fair Value of Financial Instruments". ASC 820 applies to all entities, transactions, and instruments that require or permit fair value measurements, with specific exceptions and qualifications. The Company is required to disclose estimated fair values of financial instruments. Unless otherwise indicated, the fair values of all reported assets and liabilities, which represent financial instruments, none of which are held for trading purposes, approximate are carrying values of such amounts. |
Cash and Cash Equivalents |
The Company considers all liquid investments with a maturity of three months or less from the date of purchase that are readily convertible into cash to be cash equivalents. |
Inventories |
Inventories are stated at the lower of cost or market, cost being determined on the first-in, first-out method. Inventories are written down if the estimated net realizable value is less than the recorded value. |
Property & equipment |
Property & equipment is stated at costs. Depreciation are computed using the straight-line method over the estimated economic useful lives of the related assets as follows: |
|
Leasehold improvements | 5 years |
Furniture, fixture and equipment | 5 years |
Intangible Assets |
The Company evaluates intangible assets for impairment, at least on an annual basis and whenever events or changes in circumstances indicate that the carrying value may not be recoverable from its estimated future cash flows. Recoverability of intangible assets, other long-lived assets and, goodwill is measured by comparing their net book value to the related projected undiscounted cash flows from these assets, considering a number of factors including past operating results, budgets, economic projections, market trends and product development cycles. If the net book value of the asset exceeds the related undiscounted cash flows, the asset is considered impaired, and a second test is performed to measure the amount of impairment loss. |
F-8
CHINA MEDIA GROUP CORPORATION |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES & REALIZATION OF ASSETS (Continued) |
Income taxes |
The Company accounts for income taxes under ASC 740 "Income Taxes" which codified SFAS 109, "Accounting for Income Taxes." Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations. |
Stock-based compensation |
ASC 718 "Compensation - Stock Compensation" codified SFAS No. 123 prescribes accounting and reporting standards for all stock-based payments award to employees, including employee stock options, restricted stock, employee stock purchase plans and stock appreciation rights. , may be classified as either equity or liabilities. The Company should determine if a present obligation to settle the share-based payment transaction in cash or other assets exists. A present obligation to settle in cash or other assets exists if: (a) the option to settle by issuing equity instruments lacks commercial substance or (b) the present obligation is implied because of an entity's past practices or stated policies. If a present obligation exists, the transaction should be recognized as a liability; otherwise, the transaction should be recognized as equity. |
The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of ASC 505-50 "Equity -Based Payments to Non-Employees" which codified SFAS 123 and the Emerging Issues Task Force consensus in Issue No. 96-18 ("EITF 96-18"), "Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring or in Conjunction with Selling, Goods or Services". Measurement of share-based payment transactions with non-employees shall be based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction should be determined at the earlier of performance commitment date or performance completion date. |
Employees' benefits and pension obligations |
Mandatory contributions of five percent of gross salary payments, subject to certain minimum and maximum levels, are made to defined contribution Mandatory Provident Fund schemes ("MPF schemes") pursuant to the laws of Hong Kong. These contributions are charged to expense in the same period as the related salary cost. Total contributions made by the Company to the MPF schemes were $542 and $2,159 for the year December 31, 2009 and 2008, respectively. |
Issuance of shares for service |
The Company accounts for the issuance of equity instruments to acquire goods and services based on the fair value of the goods and services or the fair value of the equity instrument at the time of issuance, whichever is more reliably measurable. |
Revenue Recognition |
The Company recognizes its revenue in accordance with the Securities and Exchange Commissions ("SEC") Staff Accounting Bulletin No. 104, "Revenue Recognition in Financial Statements" ("SAB 104"). Revenue is recognized upon shipment, provided that evidence of an arrangement exists, title and risk of loss have passed to the customer, fees are fixed or determinable and collection of the related receivable is reasonably assured. Revenue is recorded net of estimated product returns, which is based upon the Company's return policy, sales agreements, management estimates of potential future product returns related to current period revenue, current economic trends, changes in customer composition and historical experience. |
F-9
CHINA MEDIA GROUP CORPORATION |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES & REALIZATION OF ASSETS (Continued) |
Foreign Currency Translation |
The accounts of the Company's Hong Kong and China subsidiaries are maintained, in the Hong Kong dollars (HK) and Chinese Renminbi, respectively. Such financial statements are translated into U.S. Dollars (USD) in accordance with ASC 830 "Foreign Currency Translation" which codified Statement of Financial Accounts Standards ("SFAS") No. 52, "Foreign Currency Translation," with the respective currency as the functional currency. According to the Statement, all assets and liabilities were translated at the exchange rate on the balance sheet date, stockholder's equity are translated at the historical rates and statement of operations items are translated at the weighted average exchange rate for the year. The resulting translation adjustments are reported under other comprehensive income in accordance with SFAS No. 130, "Reporting Comprehensive Income. As of September 30, 2010, the comprehensive income was $52,288, and $43,304 in 2009. |
Recent Pronouncements |
Recently Implemented Standards |
ASC 105, Generally Accepted Accounting Principles ("ASC 105") (formerly Statement of Financial Accounting Standards No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles a replacement of FASB Statement No. 162) reorganized by topic existing accounting and reporting guidance issued by the Financial Accounting Standards Board ("FASB") into a single source of authoritative generally accepted accounting principles ("GAAP") to be applied by nongovernmental entities. All guidance contained in the Accounting Standards Codification ("ASC") carries an equal level of authority. Rules and interpretive releases of the Securities and Exchange Commission ("SEC") under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. Accordingly, all other accounting literature will be deemed "non-authoritative". ASC 105 is effective on a prospective basis for financial statements issued for interim and annual periods ending after September 15, 2009. The Company has implemented the guidance included in ASC 105 as of July 1, 2009. The implementation of this guidance changed the Company's references to GAAP authoritative guidance but did not impact the Company's financial position or results of operations. |
ASC 855, Subsequent Events ("ASC 855") (formerly Statement of Financial Accounting Standards No. 165, Subsequent Events) includes guidance that was issued by the FASB in May 2009, and is consistent with current auditing standards in defining a subsequent event. Additionally, the guidance provides for disclosure regarding the existence and timing of a company's evaluation of its subsequent events. ASC 855 defines two types of subsequent events, "recognized" and "non-recognized". Recognized subsequent events provide additional evidence about conditions that existed at the date of the balance sheet and are required to be reflected in the financial statements. Non-recognized subsequent events provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date and, therefore; are not required to be reflected in the financial statements. However, certain non-recognized subsequent events may require disclosure to prevent the financial statements from being misleading. This guidance was effective prospectively for interim or annual financial periods ending after June 15, 2009. The Company implemented the guidance included in ASC 855 as of April 1, 2009. The effect of implementing this guidance was not material to the Company's financial position or results of operations. |
ASC 944, Financial Services - Insurance ("ASC 944") contains guidance that was previously issued by the FASB in May 2008 as Statement of Financial Accounting Standards No. 163, Accounting for Financial Guarantee Insurance Contracts - an interpretation of FASB Statement No. 60 that provides for changes to both the recognition and measurement of premium revenues and claim liabilities for financial guarantee insurance contracts that do not qualify as a derivative instrument in accordance with ASC 815, Derivatives and Hedging (formerly included under Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities). This financial guarantee insurance contract guidance also expands the disclosure requirements related to these contracts to include such items as a company's method of tracking insured financial obligations with credit deterioration, financial information about the insured financial obligations, and management's policies for placing and monitoring the insured financial obligations. ASC 944, as it relates to financial guarantee insurance contracts, was effective for fiscal years beginning after December 15, 2008, except for certain disclosures related to the insured financial obligations, which were effective for the third quarter of 2008. The Company does not have financial guarantee insurance products, and, accordingly, the implementation of this portion of ASC 944 did not have an effect on the Company's results of operations or financial position. |
F-10
CHINA MEDIA GROUP CORPORATION |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES & REALIZATION OF ASSETS (Continued) |
Recent Pronouncements (Continued) |
Recently Implemented Standards (Continued) |
ASC 805, Business Combinations ("ASC 805") (formerly included under Statement of Financial Accounting Standards No. 141 (revised 2007), Business Combinations) contains guidance that was issued by the FASB in December 2007. It requires the acquiring entity in a business combination to recognize all assets acquired and liabilities assumed in a transaction at the acquisition-date fair value, with certain exceptions. Additionally, the guidance requires changes to the accounting treatment of acquisition related items, including, among other items, transaction costs, contingent consideration, restructuring costs, indemnification assets and tax benefits. ASC 805 also provides for a substantial number of new disclosure requirements. ASC 805 also contains guidance that was formerly issued as FSP FAS 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies which was intended to provide additional guidance clarifying application issues regarding initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. ASC 805 was effective for business combinations initiated on or after the first annual reporting period beginning after December 15, 2008. The Company implemented this guidance effective January 1, 2009. Implementing this guidance did not have an effect on the Company's financial position or results of operations; however it will likely have an impact on the Company's accounting for future business combinations, but the effect is dependent upon acquisitions, if any, that are made in the future. |
ASC 810, Consolidation ("ASC 810") includes new guidance issued by the FASB in December 2007 governing the accounting for and reporting of noncontrolling interests (previously referred to as minority interests). This guidance established reporting requirements which include, among other things, that noncontrolling interests be reflected as a separate component of equity, not as a liability. It also requires that the interests of the parent and the noncontrolling interest be clearly identifiable. Additionally, increases and decreases in a parent's ownership interest that leave control intact shall be reflected as equity transactions, rather than step acquisitions or dilution gains or losses. This guidance also requires changes to the presentation of information in the financial statements and provides for additional disclosure requirements. ASC 810 was effective for fiscal years beginning on or after December 15, 2008. The Company implemented this guidance as of January 1, 2009. The effect of implementing this guidance was not material to the Company's financial position or results of operations. |
ASC 825, Financial Instruments ("ASC 825") includes guidance which was issued in February 2007 by the FASB and was previously included under Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities Including an amendment of FASB Statement No. 115. The related sections within ASC 825 permit a company to choose, at specified election dates, to measure at fair value certain eligible financial assets and liabilities that are not currently required to be measured at fair value. The specified election dates include, but are not limited to, the date when an entity first recognizes the item, when an entity enters into a firm commitment or when changes in the financial instrument causes it to no longer qualify for fair value accounting under a different accounting standard. An entity may elect the fair value option for eligible items that exist at the effective date. At that date, the difference between the carrying amounts and the fair values of eligible items for which the fair value option is elected should be recognized as a cumulative effect adjustment to the opening balance of retained earnings. The fair value option may be elected for each entire financial instrument, but need not be applied to all similar instruments. Once the fair value option has been elected, it is irrevocable. Unrealized gains and losses on items for which the fair value option has been elected will be reported in earnings. This guidance was effective as of the beginning of fiscal years that began after November 15, 2007. The Company does not have eligible financial assets and liabilities, and, accordingly, the implementation of ASC 825 did not have an effect on the Company's results of operations or financial position. |
F-11
CHINA MEDIA GROUP CORPORATION |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES & REALIZATION OF ASSETS (Continued) |
Recent Pronouncements (Continued) |
Recently Implemented Standards (Continued) |
ASC 820, Fair Value Measurements and Disclosures ("ASC 820") (formerly included under Statement of Financial Accounting Standards No. 157, Fair Value Measurements) includes guidance that was issued by the FASB in September 2006 that created a common definition of fair value to be used throughout generally accepted accounting principles. ASC 820 applies whenever other standards require or permit assets or liabilities to be measured at fair value, with certain exceptions. This guidance established a hierarchy for determining fair value which emphasizes the use of observable market data whenever available. It also required expanded disclosures which include the extent to which assets and liabilities are measured at fair value, the methods and assumptions used to measure fair value and the effect of fair value measures on earnings. ASC 820 also provides additional guidance for estimating fair value when the volume and level of activity for the asset or liability have significantly decreased. The emphasis of ASC 820 is that fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants, under current market conditions. ASC 820 also further clarifies the guidance to be considered when determining whether or not a transaction is orderly and clarifies the valuation of securities in markets that are not active. This guidance includes information related to a company's use of judgment, in addition to market information, in certain circumstances to value assets which have inactive markets. |
Fair value guidance in ASC 820 was initially effective for fiscal years beginning after November 15, 2007 and for interim periods within those fiscal years for financial assets and liabilities. The effective date of ASC 820 for all non-recurring fair value measurements of nonfinancial assets and nonfinancial liabilities was fiscal years beginning after November 15, 2008. Guidance related to fair value measurements in an inactive market was effective in October 2008 and guidance related to orderly transactions under current market conditions was effective for interim and annual reporting periods ending after June 15, 2009. |
The Company applied the provisions of ASC 820 to its financial assets and liabilities upon adoption at January 1, 2008 and adopted the remaining provisions relating to certain nonfinancial assets and liabilities on January 1, 2009. The difference between the carrying amounts and fair values of those financial instruments held upon initial adoption, on January 1, 2008, was recognized as a cumulative effect adjustment to the opening balance of retained earnings and was not material to the Company's financial position or results of operations. The Company implemented the guidance related to orderly transactions under current market conditions as of April 1, 2009, which also was not material to the Company's financial position or results of operations. |
Recently Issued Standards |
In August 2009, the FASB issued ASC Update ("ASU") No. 2009-05, Fair Value Measurements and Disclosures (Topic 820): Measuring Liabilities at Fair Value ("ASC Update No. 2009-05"). This update amends ASC 820, Fair Value Measurements and Disclosures and provides further guidance on measuring the fair value of a liability. The guidance establishes the types of valuation techniques to be used to value a liability when a quoted market price in an active market for the identical liability is not available, such as the use of an identical or similar liability when traded as an asset. The guidance also further clarifies that a quoted price in an active market for the identical liability at the measurement date and the quoted price for the identical liability when traded as an asset in an active market when no adjustments to the quoted price of the asset are required are both Level 1 fair value measurements. If adjustments are required to be applied to the quoted price, it results in a level 2 or 3 fair value measurement. The guidance provided in the update is effective for the first reporting period (including interim periods) beginning after issuance. The Company does not expect that the implementation of ASC Update No. 2009-05 will have a material effect on its financial position or results of operations. |
F-12
CHINA MEDIA GROUP CORPORATION |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES & REALIZATION OF ASSETS (Continued) |
Recent Pronouncements (Continued) |
Recently Issued Standards (continued) |
In September 2009, the FASB issued ASC Update ("ASU") No. 2009-12, Fair Value Measurements and Disclosures (Topic 820): Investments in Certain Entities that Calculate Net Asset Value per Share (or Its Equivalent) ("ASU No. 2009-12"). This update sets forth guidance on using the net asset value per share provided by an investee to estimate the fair value of an alternative investment. Specifically, the update permits a reporting entity to measure the fair value of this type of investment on the basis of the net asset value per share of the investment (or its equivalent) if all or substantially all of the underlying investments used in the calculation of the net asset value is consistent with ASC 820. The update also requires additional disclosures by each major category of investment, including, but not limited to, fair value of underlying investments in the major category, significant investment strategies, redemption restrictions, and unfunded commitments related to investments in the major category. The amendments in this update are effective for interim and annual periods ending after December 15, 2009 with early application permitted. The Company does not expect that the implementation of ASC Update No. 2009-12 will have a material effect on its financial position or results of operations. |
In October 2009, the FASB issued FASB issued ASU No. 2009-13, Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements (a consensus of the FASB Emerging Issues Task Force). ("ASC Update No. 2009-13"). This updates set forth the guidance on the existing multiple-element arrangement currently in FASB Topic 605-25 (Revenue Recognition - Multiple-Element Arrangements). This new guidance eliminates the requirement that all undelivered elements have objective evidence of fair value before a company can recognize the portion of the overall arrangement fee that is attributable to the items that have already been delivered. Further, companies will be required to allocate revenue in arrangements involving multiple deliverables based on the estimated selling price of each deliverable, even though such deliverables are not sold separately by either company itself or other vendors. This new guidance also significantly expands the disclosures required for multiple-element revenue arrangements. The revised guidance will be effective for the first annual period beginning on or after June 15, 2010. The Company does not expect that the implementation of ASU No. 2009-13 will have a material effect on its financial statements. |
In June 2009, FASB issued Statement of Financial Accounting Standards No. 167, Amendments to FASB Interpretation No. 46(R) ("Statement No. 167"). Statement No. 167 amends FASB Interpretation No. 46R, Consolidation of Variable Interest Entities an interpretation of ARB No. 51 ("FIN 46R") to require an analysis to determine whether a company has a controlling financial interest in a variable interest entity. This analysis identifies the primary beneficiary of a variable interest entity as the enterprise that has a) the power to direct the activities of a variable interest entity that most significantly impact the entity's economic performance and b) the obligation to absorb losses of the entity that could potentially be significant to the variable interest entity or the right to receive benefits from the entity that could potentially be significant to the variable interest entity. The statement requires an ongoing assessment of whether a company is the primary beneficiary of a variable interest entity when the holders of the entity, as a group, lose power, through voting or similar rights, to direct the actions that most significantly affect the entity's economic performance. This statement also enhances disclosures about a company's involvement in variable interest entities. Statement No. 167 is effective as of the beginning of the first annual reporting period that begins after November 15, 2009. Although Statement No. 167 has not been incorporated into the Codification, in accordance with ASC 105, the standard shall remain authoritative until it is integrated. The Company does not expect the adoption of Statement No. 167 to have a material impact on its financial position or results of operations. |
In June 2009, the FASB issued Statement of Financial Accounting Standards No. 166, Accounting for Transfers of Financial Assets an amendment of FASB Statement No. 140 ("Statement No. 166"). Statement No. 166 revises FASB Statement of Financial Accounting Standards No. 140, Accounting for Transfers and Extinguishment of Liabilities a replacement of FASB Statement 125 ("Statement No. 140") and requires additional disclosures about transfers of financial assets, including securitization transactions, and any continuing exposure to the risks related to transferred financial assets. It also eliminates the concept of a "qualifying special-purpose entity", changes the requirements for derecognizing financial assets, and enhances disclosure requirements. Statement No. 166 is effective prospectively, for annual periods beginning after November 15, 2009, and interim and annual periods thereafter. Although Statement No. 166 has not been incorporated into the Codification, in accordance with ASC 105, the standard shall remain authoritative until it is integrated. The Company does not expect the adoption of Statement No. 166 will have a material impact on its financial position or results of operations. |
In March 2010, the FASB issued new accounting guidance on embedded credit derivatives. This new accounting guidance clarifies the scope exception for embedded credit derivatives and defines which embedded credit derivatives should be evaluated for bifurcation and separate accounting. The Company does not expect that the implementation of this new accounting guidance will have a material effect on its financial position or results of operations. |
F-13
CHINA MEDIA GROUP CORPORATION |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES & REALIZATION OF ASSETS (Continued) |
Recent Pronouncements (Continued) |
Accounting Standards Issued But Not Yet Effective |
In January 2010, the Financial Accounting Standards Board ("FASB") issued an accounting standard update, Fair Value Measurements and Disclosures (Topic 820), Improving Disclosures about Fair Value Measurements. The Update would affect all entities that are required to make disclosures about recurring and nonrecurring fair value measurements. The Board concluded that users will benefit from improved disclosures in this Update and that the benefits of the increased transparency in financial reporting will outweigh the costs of complying with the new requirements. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 30, 2010, and for interim periods within those fiscal years. We are currently evaluating the impact this update will have on our financial statements. |
In January 2010, the Financial Accounting Standards Board ("FASB") issued an accounting standard update to address implementation issues related to the changes in ownership provisions in the Consolidation - Overall Subtopic (Subtopic 810-10) of the FASB Accounting Standards Codification?, originally issued as FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements. Subtopic 810-10 establishes the accounting and reporting guidance for noncontrolling interests and changes in ownership interests of a subsidiary. An entity is required to deconsolidate a subsidiary when the entity ceases to have a controlling financial interest in the subsidiary. Upon deconsolidation of a subsidiary, an entity recognizes a gain or loss on the transaction and measures any retained investment in the subsidiary at fair value. The gain or loss includes any gain or loss associated with the difference between the fair value of the retained investment in the subsidiary and its carrying amount at the date the subsidiary is deconsolidated. In contrast, an entity is required to account for a decrease in its ownership interest of a subsidiary that does not result in a change of control of the subsidiary as an equity transaction. |
In December 2009, the Financial Accounting Standards Board ("FASB") issued an accounting standard update for improvements to financial reporting by enterprises involved with Variable Interest Entities. The subsections clarify the application of the General Subsections to certain legal entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the legal entity to finance its activities without additional subordinated financial support [FIN 46(R), paragraph 1, sequence 55.1] or, as a group, the holders of the equity investment at risk lack any one of the following three characteristics: [FIN 46(R), paragraph 1, sequence 55.2]. |
a. The power, through voting rights or similar rights, to direct the activities of a legal entity that most significantly impact the entity's economic performance [FIN 46(R), paragraph 1, sequence 55.2.1]. |
b. The obligation to absorb the expected losses of the legal entity [FIN 46(R), paragraph 1, sequence 55.2.2]. |
c. The right to receive the expected residual returns of the legal entity. [FIN 46(R), paragraph 1, sequence 55.2.3]. |
The amendments in this update to the Accounting Standards Codification are the result of FASB Statement No. 167, Amendments to FASB Interpretation No. 46(R). The adoption of this update to improving the financial reporting by enterprises involved with Variable Interest Entities, as codified in ASC 810, did not have any impact on the Company's financial statements. |
In December 2009, the Financial Accounting Standards Board ("FASB") issued an accounting standard update, Transfers and Servicing (Topic 860) Accounting for Transfers of Financial Assets. The amendments in this update to the Accounting Standards Codification are the result of FASB Statement No. 166, Accounting for Transfers of Financial Assets. The adoption of this update did not have any impact on the Company's financial statements. |
Reclassifications |
Certain comparative amounts have been reclassified to conform to the current period's presentation. |
F-14
CHINA MEDIA GROUP CORPORATION |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 3 | UNCERTAINTY OF ABILITY TO CONTINUE AS A GOING CONCERN |
The Company's financial statements are prepared using the generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. As of September 30, 2010, the Company has incurred an accumulated deficits totaling $8,800,755 and its current liabilities exceed its current assets by $2,359,180. In view of the matters described above, recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheets is dependent upon continued operations of the Company, which in turn is dependent upon the Company's ability to raise additional capital, obtain financing and to succeed in its future operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. |
Management has taken the following steps to revise its operating and financial requirements, which it believes are sufficient to provide the Company with the ability to continue as a going concern. The Company is actively pursuing additional funding and potential merger or acquisition candidates and strategic partners, which would enhance stockholders' investment. Management believes that the above actions will allow the Company to continue operations through the next fiscal year. |
NOTE 4 | STOCKHOLDERS' EQUITY |
Common Stock |
In January 2008, the Company issued 2,631,579 shares of common stock pursuant to a Second Amendment Agreement to extend the repayment of the $50,000 Convertible Debenture to March 28, 2008. |
On August 3, 2008 the Company issued 10,000,000 shares of Common Stock pursuant to a Letter Agreement to terminate the ELOC Agreement. |
During the period, on June 18, 2010 the Company issued 10,000,000 shares of Common Stock pursuant to a Stock Purchase Agreement to acquire 50% controlling interests in AX Organic Limited. |
On October 8, 2010 the Group completed the transaction to acquire 69% interests in China Integrated Media Corporation Limited ("CIMC"), a public company in Australia, by the issuance of 10,000,000 shares in the Company as part of the purchase consideration. CIMC is in the business of television media and digital signage boards. |
NOTE 5 | STOCK OPTIONS AND WARRANTS |
Stock Options |
The Company adopted ASC 718 "Compensation - Stock Compensation" codified SFAS No. 123 (Revised 2004), Share Based Payment ("SFAS No. 123R"), under the modified-prospective transition method on April 1, 2006. SFAS No. 123R requires companies to measure and recognize the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value. |
2002 Stock Option
Plan Effective on October 11, 2002, the Company adopted the 2002 Stock Option Plan (the "2002 Plan") allowing for the awarding of options to acquire shares of common stock. This plan provides for the grant of incentive stock options to key employees and directors. Options issued under this plan will expire over a maximum term of ten years from the date of grant. |
On May 18, 2007, the board of directors approved to issue 12,300,000 stock options to employees to purchase shares of our Common Stock under the 2002 Stock Option Plan, at exercise price of $0.038 for a vesting period of 3 years. The 12,300,000 stock options expired on May 17, 2010. |
On April 16, 2010, the board of directors approved to issue 19,000,000 stock options to employees to purchase shares of our Common Stock under the 2002 Stock Option Plan, at exercise price of $0.010 for an option period of 5 years, and for these options 50% of the entitlement is vested immediately to option holders and the remaining 50% shall be vested in one year from the date of issue of the option. |
As of September 30, 2010, the Company has 19,000,000 stock options outstanding and the option liabilities is $172,451. |
F-15
CHINA MEDIA GROUP CORPORATION |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 5 | STOCK OPTIONS AND WARRANTS (Continued) |
Following is a summary of the activities of the 2002 Stock Option Plan for the period ended September 30, 2010: |
|
|
Outstanding, December 31, 2009 | 12,300,000 |
Granted during the period | 19,000,000 |
Forfeited/lapsed during the period | (12,300,000) |
Exercised during the period | - |
--------------------------- |
|
Outstanding, September 30, 2010 | 19,000,000 |
================ |
Following is a summary of the status of options outstanding at September 30, 2010: |
||||||||
|
Exercisable Options |
|||||||
------------------------------------ |
---------------------------------------------------------------------- |
|||||||
Grant |
Exercise |
Number |
Average Remaining |
Average Exercise Price |
Number |
Intrinsic Price |
||
4/16/2010 |
$0.010 |
19,000,000 |
4.54 |
$0.010 |
19,000,000 |
$0.00 |
|
The assumptions used in calculating the fair value of options granted using the Black-Scholes option pricing model are as follows: |
i) The 17,500,000 stock options granted on December 23, 2006 were expired on December 22, 2009: |
|||||
Grant date: |
|
||||
Risk-free interest rate |
4.63% |
||||
Expected life of the options | 3.00 years |
||||
Expected volatility | 95% |
||||
Expected dividend yield | 0 |
yii) The 12,300,000 stock options granted on May 18, 2007 were expired on May 17, 2010: |
|||||
Grant date: |
|
||||
Risk-free interest rate |
4.63% |
||||
Expected life of the options | 3.00 years |
||||
Expected volatility | 139% |
||||
Expected dividend yield | 0 |
ii) The outstanding 19,000,000 stock options granted on April 16, 2010 and will expire on April 16, 2015: |
|||||
Grant date: |
|
||||
Risk-free interest rate |
3.25% |
||||
Expected life of the options | 5.00 years |
||||
Expected volatility | 250% |
||||
Expected dividend yield | 0 |
F-16
CHINA MEDIA GROUP CORPORATION |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 5 | STOCK OPTIONS AND WARRANTS (Continued) |
2007 Stock Incentive Plan |
On February 19, 2007, the Company adopted the 2007 Stock Incentive Plan (the "2007 Plan") allowing for the awarding of options to acquire shares of common stock. This plan provides for the grant of incentive stock options to key employees, directors and consultants. Options issued under this plan will expire over a maximum term of ten years from the date of grant. The Company had not issued any stock options under this scheme. |
On March 8, 2007, we registered 38,400,000 shares underlying stock options under the 2007 Stock Incentive Plan with the SEC pursuant to a registration statement on Form S-8. |
During the year 2007, the Company had issued a total of 5,811,300 shares to its staff and consultants for their service provided. |
No shares were issued under the registration statement on Form S-8 during the year 2009 and 2008. As at June 30, 2010 there were 32,588,700 shares available underlying stock options under the 2007 Stock Incentive Plan. |
As of June 30, 2010, there were no outstanding stock options to purchase shares of our Common Stock under the 2007 Stock Incentive Plan. |
Warrants |
In December 2006, the Company entered into an Equity Line of Credit Agreement ("ELOC") to sell commons stock of the Company up to $2,500,000. As part of this agreement, the Company issued, inter alia, stock warrants for a total of 31,250,000 shares of Common Stock in the Company. In October 2007, 500,000 warrant shares were exercised. The remaining 30,750,000 stock warrants expired in May 2009. |
As part of the ELOC agreement above, the Company also issued 527,776 stock warrants as part of commission in relation to the draw down of the Debenture Purchase Agreement. All these stock warrants expired in May 2009. |
As at December 31, 2009 and as at September 30, 2010, there is no warrant share outstanding. |
F-17
CHINA MEDIA GROUP CORPORATION |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 6 | STOCK PURCHASE AGREEMENTS |
a) | In January 2008 the Company issued 2,631,579 shares pursuant to a Second Amendment Agreement to extend the repayment of the $50,000 Convertible Debenture to March 28, 2008. |
b) | On August 3, 2008 the Company issued 10,000,000 shares of Common Stock pursuant to a Letter Agreement to terminate the ELOC Agreement. |
c) | On June 18, 2010 the Company issued 10,000,000 shares of Common Stock pursuant to a Stock Purchase Agreement to acquire 50% controlling interests in AX Organic Limited. |
d) | On October 8, 2010 the Company issued 10,000,000 shares of Common Stock as part of the purchase consideration pursuant to a Sale and Purchase Agreement to acquire 69% controlling interests in China Integrated Media Corporation Limited. |
NOTE 7 | PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES |
Prepayments, deposits and other receivables are summarized as follows: |
September 30, 2010 |
December 31, 2009 |
|||
US$ |
US$ |
|||
Rental deposits | 6,363 |
6,369 |
||
Utilities and other deposits | 19,834 |
19,850 |
||
Advance to suppliers | a |
248,701 |
215,918 |
|
Other receivable | 36,474 |
11,714 |
||
------------------- |
------------------- |
|||
311,372 |
253,851 |
|||
=========== |
=========== |
Advance to suppliers is
the deposit for the purchases of M.A.G.I.C. phone paid to AdvanceTech Communications Sdn.
Bhd. and deposit for the purchase of fertilizer paid to Divine Juta Sdn. Bhd. |
NOTE 8 | PROPERTY AND EQUIPMENT, NET |
Property and equipment is summarized as follows: |
September 30, 2010 |
December 31, 2009 |
|||
US$ |
US$ |
|||
Cost | ||||
Furniture, fixtures and equipment | 7,216 |
6,945 |
||
Computers | 8,058 |
8,058 |
||
Automobile | 47,951 |
47,951 |
||
------------------- |
------------------- |
|||
63,225 |
62,954 |
|||
Additional cost : Furniture, fixtures and equipment |
- |
271 |
||
Accumulated depreciation | (45,041) |
(35,619) |
||
------------------- |
------------------- |
|||
Balance at end of period | 18,184 |
27,606 |
||
=========== |
=========== |
F-18
CHINA MEDIA GROUP CORPORATION |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 9 | ADVANCE PAYMENT FOR DISTRIBUTION RIGHTS |
On January 25, 2006, the Company entered into an agreement with Fleming Assets Limited ("Fleming") to acquire the distribution rights for the M.A.G.I.C. Convergent Communications Device for the territories of China and Hong Kong. Under the agreement the Company will issue the following shares to Fleming: |
* |
Within one month of signing the agreement, one million shares of the Company; |
* |
Within one month of receiving the prototype devices, one million shares of the Company; |
* |
Within one month of receiving the product from commercial production, two million shares of the Company; and |
* |
A royalty payment of 100,000 shares of the Company for every 5,000 devices sold for the next 3 years. |
The Company issued 1,000,000 shares of common stock in 2006 upon signing the agreement. |
NOTE 10 | GOODWILL |
|
|
|||
US$ |
US$ |
|||
Balance at beginning of period /year | 4,791,676 |
6,791,676 |
||
Impairment charge during period / year | - |
2,000,000 |
||
Goodwill on acquisition of subsidiary during period / year | 245,095 |
- |
||
------------------- |
------------------- |
|||
Balance at end of period / year | 5,036,771 |
4,791,676 |
||
=========== |
=========== |
NOTE 11 | OTHER PAYABLES AND ACCRUALS |
Other payables and accruals are summarized as follows: |
September 30, 2010 |
December 31, 2009 |
|||
US$ |
US$ |
|||
Accrued salaries and wages | 31,164 |
33,049 |
||
Accrued interest | 6,614 |
10,795 |
||
Accrued accounting, legal and consulting fee | 182,066 |
153,654 |
||
Accrued office and related expenses | 27,454 |
78,901 |
||
Other accrued expenses | 12,975 |
15,926 |
||
Other payables | a |
576,684 |
376,211 |
|
Deposit from customers | 19,625 |
19,782 |
||
------------------- |
------------------- |
|||
Balance at end of period / year | 856,582 |
688,318 |
||
=========== |
=========== |
a) | Other payables are Company expenses such as postage, sundries, etc., and advanced on behalf of the Company from various parties. |
F-19
CHINA MEDIA GROUP CORPORATION |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 12 | SHORT - TERM DEBT |
As of September 30, 2010, the Company has an outstanding unsecured debt payable, which was reclassifies from long term debts (Note 16), of $114,591 (December 31, 2009: $99,645), with annual interest rate of 10%. This debt is due on May 31, 2011. The Company recorded accrued interest of $3,820 for the nine months ended September 30, 2010 (year ended December 31, 2009: $9,964). |
NOTE 13 | DUE TO OFFICERS AND DIRECTORS |
The amounts due to directors and officers are interests free, unsecured and repayable on demand. The balance of due to directors and officers is $1,087,471 as of September 30, 2010 (December 31, 2009: $1,083,686). |
NOTE 14 | DUE TO A SHAREHOLDER |
The amount due to a shareholder is interests free, unsecured and repayable on demand. The balance of due to a shareholder is $379,680 as of September 30, 2010 (December 31, 2009: $259,747). |
NOTE 15 | CONVERTIBLE LOANS |
The Company has two convertible loans outstanding. The first convertible loan of US$50,000 is unsecured, bears interest at 10% per annum, repayable on June 3, 2011. The second convertible loan of US$50,000 is unsecured, bears interest at 10% per annum, repayable on July 5, 2011.The holder of these loans can convert the loan into Common Stock of the Company at a conversion price of US$0.02 per share and can be converted anytime prior to maturity of the loan. |
NOTE 16 | LONG-TERM DEBTS |
September 30, 2010 |
December 31, 2009 |
|||
US$ |
US$ |
|||
Shareholder Loan | 2,000,000 |
2,000,000 |
||
Other Loan | - |
- |
||
------------------- |
------------------- |
|||
2,000,000 |
2,000,000 |
|||
=========== |
=========== |
The long term shareholder loan of $2,000,000 is unsecured, bears interest at 8% per annum, repayable on November 25, 2010. On November 25, 2009 the repayment of the loan was extended for a further two years to November 25, 2012. |
The other loan is unsecured, accrue interest at 10% per annum and payable on May 31, 2011. At the balance sheet date, this loan was reclassified to short term loan (note 12). |
NOTE 17 | RELATED COMPANY TRANSACTIONS |
The Company agreed to pay directors and officers a monthly salary for services performed. During the nine months ended June 30, 2010 and 2009, the Company paid the directors and its officers and their services companies a total remuneration of $9,000 and $12,000, respectively. |
On November 25 2005, a subsidiary of the Company signed a loan agreement with one of its major shareholder, Central High Limited for a loan of $2,000,000. This long term shareholder loan is unsecured and repayable on November 25, 2010, and bears interest of 8% per annum. On November 25, 2009 the repayment of the loan was extended for a further two years to November 25, 2012. The accrued interest for 2009 was $160,000 (2008: $160,000) and $120,000 for the nine months period ended September 30, 2010. |
F-20
CHINA MEDIA GROUP CORPORATION |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 18 | SEGMENT REPORTING |
Business Segments For management purposes, the Group currently organized into three operating units - advertising, telecommunication devices, and other services. Turnover represents the net amounts received and receivable for goods sold or services provided by the Group during the period. These units are the basis on which the Group reports its primary segment information. Segment information about these businesses is presented below. |
Advertising | Telecommunication Device | Product Services | Consolidated | |||||
For the nine months ended September 30 |
For the nine months ended September 30, | For the nine months ended September 30, | For the nine months ended September 30, |
|||||
2010 |
2009 |
2010 |
2009 |
2010 |
2009 |
2010 |
2009 |
|
US$ |
US$ |
US$ |
US$ |
US$ |
US$ |
US$ |
US$ |
|
Turnover | 36,872 |
49,498 |
- |
29,567 |
7,341 |
- |
44,213 |
79,065 |
======== |
======== |
======== |
======== |
======== |
======== |
========= |
========= |
|
Segment results | (22,705) |
(14,931) |
(4,650) |
201 |
1,498 |
- |
(25,856) |
(14,730) |
======== |
======== |
======== |
======== |
======== |
======== |
|||
Unallocated corporate income | - |
- |
||||||
Unallocated corporate expenses | (374,761) |
(290,784) |
||||||
-------------- |
-------------- |
|||||||
Loss from operations | (400,617) |
(305,202) |
||||||
Finance costs | (130,836) |
(128,449) |
||||||
-------------- |
-------------- |
|||||||
Loss for the period | (531,453) |
(433,651) |
||||||
========= |
========= |
|||||||
As at September 30 |
||||||||
2010 |
2009 |
|||||||
ASSETS | ||||||||
Segment assets | 4,816,817 |
6,853,664 |
356,451 |
346,338 |
278,053 |
- |
5,451,321 |
7,200,002 |
Unallocated corporate assets | 93,229 |
218,786 |
||||||
-------------- |
-------------- |
|||||||
Consolidated total assets | 5,544,550 |
7,418,788 |
||||||
========= |
========= |
|||||||
LIABILITIES | ||||||||
Segment liabilities | 143,584 |
156,221 |
(9,492) |
- |
(5,110) |
- |
128,982 |
156,221 |
Unallocated corporate liabilities | 4,710,775 |
4,223,508 |
||||||
-------------- |
-------------- |
|||||||
Consolidated total liabilities | 4,839,757, |
4,379,729 |
||||||
========= |
========= |
|||||||
Depreciation of fixed assets | 8,391 |
8,562 |
1,029 |
990 |
- |
- |
9,420 |
9,552 |
======== |
======== |
======== |
======== |
======== |
======== |
========= |
========= |
F-21
CHINA MEDIA GROUP CORPORATION |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 19 | COMMITMENTS AND CONTINGENCIES |
(a) | The Company leases office premises for its operations in United States and Hong Kong under operating leases. Rental expenses under operating lease for the nine month ended September 30, 2010 and for the year ended December 31, 2009 was $18,581 and $24,060, respectively. Future minimum rental payments under non-cancelable operating leases for the nine month ended September 30, 2010 and for the year ended December 31, 2009 are $18,652 and $50,509, respectively. |
(b) | On or about May 7, 2008, the Company received a correspondence from a law firm regarding complaints on some transmission of unsolicited facsimile allegedly from the Company in 2006, and advised of potential litigation. The Company has never sent or authorized any unsolicited facsimile transmission, and the Company has taken every possible effort to distance from these unauthorized transmissions. The Company firmly believes that the complaint is frivolous and without basis, and is consulting with its solicitor. The Company would vigorously defend any such legal action if pursued. |
(c) | Under the Distribution Rights Agreement for M.A.G.I.C. Convergent Device, the Company is committed to issue shares under certain conditions as set out in Note 9. |
(d) | On June 18, 2010 the Group acquired a controlling interests in AX Organic Limited by the initial share consideration of 10 million common stock in the Company and a performance shares consideration based on the profits derived by AX Organix over a period of two years. |
NOTE 20 | SUBSEQUENT EVENTS |
(a) | As disclosed in the Form 8-K filed with the SEC on October 12, 2010 the Group completed the acquisition of 69% interests in China Integrated Media Corporation Limited ("CIMC"), a public company in Australia, for a total consideration of US$250,000, of which US$50,000 was paid by the issuance of a 6% per annum interest bearing promissory note and the remaining balance of US$200,000 was settled by the issuance of 10,000,000 shares in the Company. Our director, Mr. Con Unerkov had an indirect interest of 33.8% in CIMC. CIMC is in the business of television media and digital signage boards. |
F-22
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations. |
Forward Looking Statements |
THE ASSUMPTIONS USED FOR PURPOSES OF THE FORWARD-LOOKING STATEMENTS SPECIFIED IN THE FOLLOWING INFORMATION REPRESENT ESTIMATES OF FUTURE EVENTS AND ARE SUBJECT TO UNCERTAINTY AS TO POSSIBLE CHANGES IN ECONOMIC, LEGISLATIVE, INDUSTRY, AND OTHER CIRCUMSTANCES. AS A RESULT, THE IDENTIFICATION AND INTERPRETATION OF DATA AND OTHER INFORMATION AND THEIR USE IN DEVELOPING AND SELECTING ASSUMPTIONS FROM AND AMONG REASONABLE ALTERNATIVES REQUIRE THE EXERCISE OF JUDGMENT. TO THE EXTENT THAT THE ASSUMED EVENTS DO NOT OCCUR, THE OUTCOME MAY VARY SUBSTANTIALLY FROM ANTICIPATED OR PROJECTED RESULTS, AND, ACCORDINGLY, NO OPINION IS EXPRESSED ON THE ACHIEVABILITY OF THOSE FORWARD-LOOKING STATEMENTS. WE CANNOT GUARANTY THAT ANY OF THE ASSUMPTIONS RELATING TO THE FORWARD-LOOKING STATEMENTS SPECIFIED IN THE FOLLOWING INFORMATION ARE ACCURATE, AND WE ASSUME NO OBLIGATION TO UPDATE ANY SUCH FORWARD-LOOKING STATEMENTS. |
Critical Accounting Policy and Estimates |
|
Overview |
|
|
|
|
|
In March 2007, we acquired the entire issued share capital of Good World Investments Limited ("Good World") which owns 50% of Beijing Ren Ren Health Culture Promotion Limited ("Beijing Ren Ren"). Good World is an investment holding company and Beijing Ren Ren is in the business of advertising in promoting health education and health awareness in China under the program Great Wall of China Project as further described below. |
We plan to offer advertising services in China. These advertising services would be across all media thus we will offer our customers selective advertising on specific media for nationwide campaign. China's advertising industry is still young and fragmented. We aim to differ from other advertisers so that we can provide nationwide campaigns across all media spectrum. To this end, we will work to secure strategic ad placements in key cities in China so that our customers will have the ability to launch nationwide campaigns. |
|
|
|
|
In late 2009, the Group was appointed as an exclusive advertising agent for interactive digital media kiosk in Hong Kong. These kiosks offered 2 dimensions and 3 dimensions touch screen capability, and offer video ads. In October 2010, we have decided to terminate the exclusive agent for this interative digital media kiosk. |
|
|
|
|
Products Services Units |
|
|
Plan of operations OUR PLAN OF OPERATION FOR THE NEXT TWELVE MONTHS. We hope to generate additional revenues in the next twelve months by engaging business operations through internal growth and through strategic acquisitions and cooperative advertising agreements, as described more fully under "Overview" above. |
|
|
|
|
|
|
|
Results of operation. |
|
For the three months period ended September 30, 2010, the Group has realized revenue of $17,639 and a cost of revenue of $8,875, achieving a gross profit of $8,764. For the three month period ended September 30, 2009, the Group has realized revenue of $37,309 and a cost of revenue of $16,457 achieving a gross loss of $20,852. We hope to generate additional revenues when we begin to receive contracts from clients or through acquisitions. Depending upon the availability of operating capital, we intend to expand our operations in the next 12 months. |
|
For the three month period ended September 30, 2010, our gross profit was $8,764 and our total operating expenses were $111,955, all of which were selling, general and administrative expenses. We also had $45,298 in interest expenses, and loss attributable to minority interests of $7,380, so that the net loss to our shareholders for the three months period ended September 30, 2010 was $141,109. This is in comparison to the same period ended September 30, 2009, where our gross loss was $20,852 and our total operating expenses were $116,186, all of which were selling, general and administrative expenses. We also had $$42,491 in interest expenses and loss attributable to minority interests of $3,758, so that the net loss to our shareholders for the three months period ended September 30, 2009 was $134,067. |
|
|
At present the Company does not have sufficient cash resources to provide for all general corporate operations in the foreseeable future. The Company will be required to raise additional capital in order to continue to operate in fiscal 2010. |
Going Concern |
|
|
|
Item 3. | Quantitative and Qualitative Disclosure About Market Risk. |
Quantitative and Qualitative Disclosures about Market Risk: |
|
Item 4. |
Controls and Procedures. |
Evaluation of Disclosure Controls and Procedures: |
|
Changes in Internal Controls over Financial Reporting: |
|
PART II - OTHER INFORMATION |
Item 1. |
Legal Proceedings |
None. |
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
|
|
Item 3. |
Defaults Upon Senior Securities |
None. |
Item 4. |
Submissions of Matters to a Vote of Security Holders |
None. |
Item 5. |
Other Information |
None. |
Item 6. | Exhibits |
|
|
2.1 |
Shareholders' Agreement between Good World Investments Limited, Advance Tech Communications Sdn. Bhd. and ATC Marketing Limited(11) |
2.2 |
Shareholders' Agreement between Good World Investments Limited, Allan Gallyot and Premium Multimedia Sdn. Bhd.(12) |
2.3 |
Operational Agreement between AX Organic Limited and Huangpi High Yield Cultivation Experiment Base (14) |
2.4 |
Sale and Purchase Agreement between Good World Investments Limited, Tidewell Limited and the Company(15) |
3.1 |
Articles of Incorporation (1) |
3.1.1 |
Certificate of Amendment to Articles of Incorporation (2) |
3.1.2 |
Certificate of Amendment to Articles of Incorporation, as amended.(8) |
3.2 |
Bylaws (1) |
4.1 |
Executive Services Agreement between China Media Group Corporation and Con Unerkov (3) |
4.2 |
Executive Services Agreement between China Media Group Corporation and Alex Ho (3) |
4.3 |
Warrants to Purchase Common Stock (4)(5) |
10.1 |
ELOC Arrangement with Tailor-Made Capital Ltd. (4) |
10.2 |
Debenture Purchase Agreement with Tailor-Made Capital Ltd.(4). |
10.3 |
2002 Stock Option Plan (6) |
10.4 |
2007 Stock Incentive Plan (7) |
10.5 |
Second Amendment Agreement (9) |
10.6 |
Termination Letter Agreement (10) |
21.1 |
Subsidiaries of small business issuer (13) |
31.1* |
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
31.2* |
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
32.1* |
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
32.2* |
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
Incorporated by reference to our Registration Statement on Form SB-2 as filed with the SEC on April 15, 2003. |
2. |
Incorporated by reference to our Current Report on Form 8-K as filed with the SEC on February 3, 2005. |
3. |
Incorporated by reference to our Annual Report on Form 10-KSB/A as filed with the SEC on August 11, 2006. |
4. |
Incorporated by reference to our Current Report on Form 8-K/A as filed with the SEC on March 8, 2007. |
5. |
Incorporated by reference to our Current Report on Form 8-K as filed with the SEC on February 16, 2006. |
6. |
Incorporated by reference to our Registration Statement on Form SB-2 as filed with the SEC on April 15, 2003. |
7. |
Incorporated by reference to our Registration Statement on Form S8 as filed with the SEC on March 8, 2007. |
8. |
Incorporated by reference to our Registration Statement on Form SB-2 as filed with the SEC on March 16, 2007. |
9. |
Incorporated by reference to our Current Report on Form 8-K as filed with the SEC on January 8, 2008. |
10. |
Incorporated by reference to our Current Report on Form 8-K as filed with the SEC on August 7, 2008. |
11. |
Incorporated by reference to our Current Report on Form 8-K as filed with the SEC on May 26, 2009. |
12. |
Incorporated by reference to our Current Report on Form 8-K as filed with the SEC on September 30, 2009. |
13. |
Incorporated by reference to our Annual Report on Form 10-K as filed with the SEC on April 14, 2010. |
14. |
Incorporated by reference to our Current Report on Form 8-K as filed with the SEC on June 23, 2010. |
15. |
Incoporated by reference to our Current Report on Form 8-K as filed with the SEC on September 22, 2010. |
* Filed herewith. |
SIGNATURES |
|
China Media Group Corporation |
|
a Texas corporation | |
/s/ Cheng Pheng LOI | |
--------------------------------------- | |
Cheng Pheng LOI | |
Principal executive officer | |
President, director |
|
By: | /s/ Cheng Pheng LOI | November 19, 2010 |
-------------------------------------------- | ||
Cheng Pheng LOI | ||
Its: | Principal executive officer | |
President, CEO, director |