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EX-32 - EX 32.1 - Median Group Inc | ex321-123111cmg.htm |
EX-31 - EX 31.2 - Median Group Inc | ex312-123111cmg.htm |
EX-31 - EX 31.1 - Median Group Inc | ex311-123111cmg.htm |
EX-32 - EX 32.2 - Median Group Inc | ex322-123111cmg.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2011 |
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( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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) |
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Texas |
7310 |
32-0034926 |
(State or other |
(Primary Standard Industrial |
(I.R.S. Employer |
jurisdiction of |
Classification Code Number) |
Identification No.) |
incorporation or organization) |
1402 Wan Chai Commercial Center, 194-204 Johnston Road, Wanchai, Hong Kong. |
N/A |
(Address of Company's principal executive offices) |
(Zip Code) |
+011 852 3171 1208
(Company's Telephone Number, Including Area
Code)
Securities registered under Section 12(b) of the Act:
Title
of each class registered: |
Name
of each exchange on which registered: |
Securities registered under Section 12(g) of the Act:
Common Stock, No Par Value
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. [ ] Yes [ x ] No |
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. [ ] Yes [ x ] No |
[ x ] Yes [ ] No |
[ ] |
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[ ] Large accelerated filer |
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[ ]Yes [ x ] No |
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DEFINITIONS AND CONVENTIONS |
References to "China" refer to the Peoples' Republic of China. |
References to "Common Stock" means the common stock, no par value, of China Media Group Corporation. |
References to the "Commission" or "SEC" means the U.S. Securities and Exchange Commission. |
References to "Company", "CHMD", "we", "our" means China Media Group Corporation and include, unless the context requires or indicate otherwise, the operation of its subsidiaries (all hereinafter defined). |
References to "33 Act" or "Securities Act" means the Securities Act of 1933, as amended. |
References to "34 Act" or "Exchange Act" means the Securities Exchange Act of 1934, as amended. |
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TABLE OF CONTENTS
PART I |
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ITEM 1. |
Business |
1 |
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ITEM 1A. |
Risk Factors |
6 |
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ITEM 1B. |
Unresolved Staff Comments |
14 |
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ITEM 2. |
Properties |
14 |
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ITEM 3. |
Legal Proceedings |
14 |
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ITEM 4. |
Mine Safety Disclosures |
14 |
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ITEM 5. |
Market for Registrant's Common Equity, Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities |
15 |
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ITEM 6. |
Selected Financial Data |
20 |
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ITEM 7. |
Management's Discussion and Analysis of Financial Condition and Results of Operation |
21 |
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ITEM 7A. |
Quantitative and Qualitative Disclosures About Market Risk |
23 |
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ITEM 8. |
Financial Statements and Supplementary Data |
24 |
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ITEM 9. |
Changes in and Disagreements with Accountants on Accounting and Financial Disclosures |
24 |
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ITEM 9A |
Controls and Procedures |
24 |
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ITEM 9B. |
Other Information |
25 |
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Item 10 |
Directors, Executive Officers and Corporate Governance |
26 |
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Item 11 |
Executive Compensation |
28 |
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Item 12 |
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
30 |
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Item 13 |
Certain Relationships and Related Transactions, and Director Independence |
32 |
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Item 14 |
Principal Accounting Fees and Services |
33 |
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ITEM 15 |
Exhibits, Financial Statement Schedules |
34 |
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PART I |
ITEM 1. BUSINESS. |
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OUR BUSINESS. Our mission today is to become one of China's new age media companies through the use of new technologies and devices combined with traditional media of TV, Newspapers, Magazines, Billboards and Internet to reach today's mobile society. In order to facilitate this, the Company established 3 strategic business units being "Advertising", "Telecommunications and Mobile Computing", and "Products and Services". |
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2011 Products & Services
Overview Although we have established 4 business units, we have only started activities in two of them; those are "Advertising", "Telecommunication and Mobile" and "Product Services". A brief review and description of these three business units' strategies and operations are described below. |
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Telecommunications Unit |
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Products Services Units |
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Other Investments |
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Marketing & Sales
Overview Our plan is to work with advertising agents in Hong Kong and Guangdong initially to work on a plan to secure some outdoor media boards with the limited resources available to the Group. We will discuss with our contacts in Hong Kong and China regarding securing outdoor media boards. Once we have started some advertising boards and have secured certain minimum funding for the BRR program, we then plan to secure ad/sign placements in districts in China under our Great Wall of China Project. We plan to co-operate with international advertising firms to place out the advertising on these ad/sign placements on either an agent or outsourced basis. We will recruit a team to manage the 10 largest cities in China where we would secure, manage and administer ad/sign placements for these cities. For the other cities we will look for partners or agents to work with us to secure ad/sign placements. Once we have certain ad/sign placements network for the second-tier cities, we will approach advertising agencies to sell these ad/sign placements to their customers. For our M.A.G.I.C. Convergent devices, we will sell through distribution channels, network operators and small enterprises. We will approach distribution channels and network operators in Hong Kong and China, initially and then in other territories to sell the M.A.G.I.C. Device. We will also sell to certain enterprises that will take advantage of the special functions in M.A.G.I.C. Device and customize to their operational needs. Select firms that we will target are transportation and logistic companies, courier companies, and direct sales companies. We will also target corporate and financial executives to customize the M.A.G.I.C. Device to their requirements. To sell this high value product with innovative applications, we plan to employ business development teams focused on creating high-value strategic customers and business alliances. For our Products Services unit, we will work with our advertisers to cross promote and sell their products on our advertising platform, once we have built up. In some cases, we will look to develop our own brands. We will employ a small team to handle enquires and to provide support to our advertising customers. Industry Overview and Competition The key to our success in the advertising business is the occupation of prime advertising locations throughout China. The premium locations with heavy pedestrian traffic are not common but are the focus of all advertising agencies and media owners. However you need to have the outdoor media to be able to compete for the premium sites. Many of our competitors have established outdoor billboards to offer to their clients where it would be difficult to compete since they are already in the market place and working with advertising agents already. We will need to build up some outdoor media boards to show a presence in the market place before we can get commitments from advertising agents and customers. However, we believe there is ample room for our Company to grow in the China market. There are many competitors in the market place offering a variation of the M.A.G.I.C W3, however not one that offers full computer operability in full Windows 7 OS with phone functionality. With the emergence of newer convergent device technologies, there is an opportunity for us to offer convergent devices and applications and solutions that have more functionality than traditional mobile devices. The new devices are easier to integrate with existing data and video applications and systems, and are easier to maintain and administer. We believe that the rate of adoption of convergent device and its applications and solutions by corporate executives and innovative applications will accelerate the adaptation of our M.A.G.I.C. Convergent device is recognized as more secure, and more functional in internet-based applications. We believe mobile executives will recognize the benefit of having notebook functionality in a handheld device combined with video and data capabilities. |
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Governmental Regulation We are subject to federal, state and local laws and regulations applied to businesses in general. We believe that we comply with the requirements in China for any licenses or approvals to pursue our proposed business plan. In locations where we operate, the applicable laws and regulations are subject to amendment or interpretation by regulatory authorities. Generally, such authorities are vested with relatively broad discretion to grant, renew and revoke licensee and approvals, and to implement regulations. Licenses may be denied or revoked for various reasons, including the violation of such regulations, conviction of crimes and the like. Possible sanctions which may be imposed include the suspension of individual employees, limitations on engaging in a particular business for specific periods of time, revocation of licenses, censures, redress to customers and fines. We believe that we are in conformity with all applicable laws in all relevant jurisdictions. We may be prevented from operating if our activities are not in compliance and must take action to comply with the relevant laws and regulations. China has a long standing law on the ownership of advertising agencies but not the advertising placements locations. The onus is placed on the advertising agency to ensure proper contents in the advertisement. One of the WTO requirements is for China to relax the advertising agency ownership requirements. Our China subsidiary is only subject to regular business laws in China. We have posted our privacy policy and practices concerning the use and disclosure of any consumer information collected on our website, www.chinamediagroup.net. Any failure by us to comply with posted privacy policies, Federal Trade Commission requirements or other domestic or international privacy-related laws and regulations could result in proceedings by governmental or regulatory bodies that could potentially harm our business, results of operations and financial condition. In this regard, there are a large number of legislative proposals before the U.S. Congress and various state legislative bodies regarding privacy issues related to online commerce to which the Group may participate in the future. It is not possible to predict whether or when such legislation may be adopted, and certain proposals, if adopted, could harm our business by causing a decrease in the use of our applications and services by our small business customers and thereby a decrease in our revenues. Such decreases could be caused by, among other possible provisions, the required use of disclaimers or other requirements before consumers can utilize our Internet technology solutions. Employees As of the date of this report, we have 5 full time and 2 part time employees. From time to time, we utilize consultants or contractors for specific assignments. None of our employees are represented by a labor union and we have never experienced a work stoppage. We believe that our relationships with our employees are good. Facilities We currently lease and occupy 1,500 square feet of office space in Hong Kong for our executive and administrative office at a cost of about $3,760 per month. The lease expires in November 2013. We also share a 300 square feet office in Kuala Lumpur, Malaysia as our Southeast Asia office, which is free of rent. The other operating office is located in Beijing where we have a 300 square feet administration office. We do not have a written lease or sublease agreement for the office location in Beijing. We believe we will be able to obtain additional space, as needed, on commercially reasonable terms. |
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ITEM 1A. RISK FACTORS |
RISKS RELATED TO EXISTING AND PROPOSED OPERATIONS We have a history of losses and accumulated deficit and could incur losses in the future. We have a history of net losses. For the years ended December 31, 2011, 2010, and 2009, our net losses have been $100,304, $5.57 million, and $2.53 million, respectively. As of December 31, 2011, we had accumulated deficits of $13.97 million. If we do achieve profitability in the future, we may not be able to sustain or increase our profitability in the future. If we are unable to obtain additional funds from other financings we may have to curtail the scope of our operations significantly and alter our business model. We must achieve profitability for our business model to succeed. Prior to accomplishing this goal, we may need to raise additional funds, from equity or debt sources. Our cash requirements are substantial and our current financial position are insufficient to meet our cash needs in the future If additional financing is not available when required or is not available on acceptable terms, we may be unable to continue our operations at current or planned levels. In addition, any failure to raise additional funds in the future may result in our inability to successfully secure our advertising platform, take advantage of business opportunities or respond to competitive pressures, any of which circumstances could have a material adverse effect on our financial condition and results of operations. We have incurred losses since our inception and we may not achieve or maintain profitability. We have not been profitable in any fiscal period since our inception and may not be profitable in future periods. At December 31, 2011, we had accumulated deficits of approximately $13.97 million. We expect that our expenses relating to sales and marketing, technology development, general and administrative functions, as well as the development of our advertising platform and infrastructure, will increase in the future. We will need to build and increase our revenues to be able to achieve and then maintain profitability in the future. We may not be able in a timely manner to obtain necessary financing or to reduce our expenses in response to any decrease or shortfall in our revenues, and our failure to do so would adversely affect our operating results and our efforts to achieve or maintain profitability. We cannot predict when, or if, we will become profitable in the future. Even if we achieve profitability, we may not be able to sustain it. We have a significant working capital deficit and will need additional funding to support our operations and capital expenditures; sufficient funding may not be available to us, and the unavailability of funding could adversely affect our business. As of December 31, 2011, we had a working capital deficit of approximately $2.3 million. We have no committed sources of additional capital to finance the current operation and the expansion of our business. Due to our recurring losses, negative cash flows, working capital deficits, and accumulated deficits, the report of our independent registered public accounting firm on our consolidated financial statements for the year ended December 31, 2011 expressed substantial doubt about our ability to continue as a going concern. For capital expenditures, we will need additional funds to continue our operations, expand our staffing, develop our advertising and mobile devise businesses, pursue business opportunities (such as licensing or acquisition of complementary technologies or businesses), react to unforeseen difficulties and respond to competitive pressures. We cannot assure that any financing will be available to us at any time in the future, in amounts or on terms acceptable to us, or at all. Furthermore, the sale of additional equity or convertible debt securities may result in additional dilution to our existing stockholders. If adequate additional funds are not available, we may be required to delay, reduce the scope of or eliminate implementation of material parts of our business strategy, potentially including the development or acquisition of additional advertising and mobile device businesses and capabilities. |
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Our limited operating history and rapidly evolving business makes it difficult for us to accurately forecast revenues and expenses. We have a limited operating history on which to base an evaluation of our business and prospects. Our operating results may fluctuate as a result of a number of factors, many of which are outside of our control. For these reasons, comparing our operating results on a period-to-period basis may not be meaningful, and you should not rely on our past results as an indication of our future performance. Our prospects must be considered in light of inherent risks, expenses, and difficulties encountered by companies in their early stages of development, particularly in new and evolving markets. We commenced our advertising and mobile devices operations in April 2006 with a very limited operating history for these operations due to the lack of operating and financial resources. Our operating results to date relate principally to advertising and the mobile device business. Accordingly, our future prospects are uncertain in light of the risks and uncertainties experienced by early stage companies in evolving industries, and in particular our future operations in China. Due to our limited history and lack of resources, it is difficult for us to predict future revenues and operating expenses. We based our expense levels, in part, on our expectations of future revenues from anticipated transactions. If our advertising and mobile device business develops slower than we expect, our losses may be higher than anticipated, we may have to curtail parts of our business plan and to the market price of our stock may decline. Some of the other risks and uncertainties of our business relate to our ability to: |
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offer new and innovative products and services to attract and retain a larger consumer base; |
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- | attract customers; | |
- | increase awareness of our brand and continue to develop consumer and customer loyalty; | |
- | respond to competitive market conditions; | |
- | respond to changes in our regulatory environment; | |
- | manage risks associated with intellectual property rights; | |
- | maintain effective control of our costs and expenses; | |
- | raise sufficient capital to sustain and expand our business; | |
- | attract, retain and motivate qualified personnel; and | |
- | upgrade our technology to support increased traffic and expanded services. |
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Our principal focus is on our advertising and mobile device businesses in the People's Republic of China, which we are creating through the acquisition of various entities and assets, and organic growth. These potential acquisitions have not closed to date and may never close. Accordingly, it is difficult to evaluate our business based upon our historical financial results, including those for the year ended December 31, 2011. Even if we closed potential acquisitions, our business will not be successful if we are unable to successfully operate and integrate the businesses we acquire. We expect to continually look for new businesses to acquire to maintain and sustain our operations. If we fail to identify such business, are unable to acquire such businesses on reasonable terms, or fail to successfully integrate such businesses, our operating results and prospects could be harmed. |
We expect to face significant competition in our advertising business, particularly from other companies that seek to provide similar services. Many of these competitors have significantly greater financial resources and more personnel than we do. They may also have longer operating histories and more experience in attracting and retaining and managing customers. They may use their experience and resources to compete with us in a variety of ways, including by competing more for users, customers, distributors, media channels and by investing more heavily in research and development and making acquisitions. If we fail to compete effectively, our business, financial condition and results of operation will be adversely affected. |
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Our business depends on a strong brand, and if we are not able to maintain and enhance our brand, our business and operating results may be harmed. We believe that recognition of our brand will contribute significantly to the success of our business. We also believe that maintaining and enhancing our brand is critical to expanding our base of consumers and customers. As our market becomes increasingly competitive, maintaining and enhancing our brand will depend largely on our ability to remain as an advertising leader in China, which may be increasingly difficult and expensive. We may face intellectual property infringement claims and other related claims that could be time-consuming and costly to defend and may result in our inability to continue providing certain of our existing services. Technology and advertising companies are frequently involved in litigation based on allegations of infringement of intellectual property rights, unfair competition, invasion of privacy, defamation and other violations of third-party rights. The validity, enforceability and scope of protection of intellectual property, particularly in China, are uncertain and still evolving. In addition, many parties are actively developing and seeking protection for technologies, including seeking patent protection. There may be patents issued or pending that are held by others that cover significant aspects of our technologies, products, business methods or services. As we face increasing competition and as litigation becomes more common in China for resolving commercial disputes, we face a higher risk of being the subject of intellectual property infringement claims. Intellectual property litigation is expensive and time consuming and could divert resources and management attention from the operations of our businesses. If there is a successful claim of infringement, we may be required to pay substantial fines and damages or enter into royalty or license agreements that may not be available on commercially acceptable terms, if at all. Our failure to obtain a license of the rights on a timely basis could harm our business. Any intellectual property litigation could have a material adverse effect on our business, financial condition or results of operations. If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. We are subject to reporting obligations under the U.S. securities laws. The SEC, as required by Section 404 of the Sarbanes-Oxley Act of 2002, adopted rules requiring every public company to include in its annual report a management report on such company's internal controls over financial reporting which contains management's assessment of the effectiveness of the company's internal controls over financial reporting. In addition, an independent registered public accounting firm must attest to and report on management's assessment of the effectiveness of the company's internal controls over financial reporting. These requirements may first apply to our annual report on Form 10-K for the fiscal year ending December 31, 2011. Our management may conclude that our internal controls over financial reporting are not effective. Moreover, even if our management concludes that our internal controls over financial reporting are effective, our independent registered public accounting firm may still decline to attest to our management's assessment or may issue a report that is qualified if they are not satisfied with our controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us. Our reporting obligations as a public company will place a significant strain on our management, operational and financial resources and systems for the foreseeable future. We are a young company with limited accounting personnel and other resources with which to address our internal financial controls and procedures. If we fail to timely achieve and maintain the adequacy of our internal financial controls, we may not be able to conclude that we have effective internal controls over financial reporting at a reasonable assurance level. Moreover, effective internal controls over financial reporting are necessary for us to produce reliable financial reports and are important to help prevent fraud. As a result, our failure to achieve and maintain effective internal controls over financial reporting could result in the loss of investor confidence in the reliability of our financial statements, which in turn could harm our business and negatively impact the market price of our common stock. Furthermore, we anticipate that we will incur considerable costs and use significant management time and other resources in an effort to comply with and the rules adopted by the SEC. |
Our advertising customers will not maintain their business relationships with us if we cannot secure attractive ad/sign placements. In addition our distributors will not work with us if the convergent device does not sell well or does not have adequate sales margin for their sales channels. Failure to retain advertisers, customers, distributors or channel partners could seriously harm our business and growth prospects. |
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Because we primarily rely on distributors in distributing M.A.G.I.C. Convergent Devices, our failure to retain key distributors or attract additional distributors could materially and adversely affect our business. We will rely heavily on a nationwide distribution network of third-party distributors for sales to, and collection of payment from, our corporate and consumer customers. If our distributors do not provide quality services to our consumer customers or otherwise breach their contracts with our consumer customers, we may lose customers and our results of operations may be materially and adversely affected. We will sign distributing agreements with our distributors, although we may not sign any long-term agreements with them, but we cannot assure that we can maintain favorable relationships with them. Our distribution arrangements will be non-exclusive. Furthermore, some of our potential distributors may have contracts with our competitors or potential competitors and may not sign distribution agreements with us. If we fail to retain our key distributors or attract additional distributors on terms that are commercially reasonable, our business and results of operations could be materially and adversely affected. |
We commenced our mobile device and advertising services operations in early 2006. We anticipate continuous developing of our business in 2012 as we focus growth in our - customer base and consumer market opportunities. To manage the potential growth of our operations and personnel, we will be required to improve operational and financial systems, procedures and controls, and expand, train and manage our growing employee base. Furthermore, our management will be required to maintain and expand our relationships with customers. We cannot assure that our current and planned personnel, systems, procedures and controls will be adequate to support our future operations. |
Starting in 2008 till now, the current global economic conditions could have a negative effect on our business and results of operations. Economic activity in China, United States and throughout much of the world has undergone a sudden, sharp economic downturn following the recent housing downturn and subprime lending collapse in both the United States and Europe. Global credit and liquidity have tightened in much of the world. Some of our customers in China may face business downturn and credit issues, and could experience cash flow problems and other financial hardships, which could affect timeliness of advertising through our platform. Consumer confidence and spending are down significantly in China and USA. Changes in governmental banking, monetary and fiscal policies to restore liquidity and increase credit availability may not be effective in alleviating the global economic declines. It is difficult to determine the breadth and duration of the economic and financial market problems and the many ways in which they may affect our customers and our business in general. Nonetheless, continuation or further worsening of these difficult financial and macroeconomic conditions could have a significant effect on our business and results of operations. . |
The general disruption in the U.S. capital markets has impacted the broader financial and credit markets and reduced the availability of debt and equity capital for the market as a whole. These conditions could persist for a prolonged period of time or worsen in the future. Our ability to access the capital markets may be restricted at a time when we would like, or need, to access such markets, which could have an impact on our flexibility to react to changing economic and business conditions. The resulting lack of available credit, lack of confidence in the financial sector, increased volatility in the financial markets and reduced business activity could materially and adversely affect our business, financial condition, results of operations and our ability to obtain and manage our liquidity. In addition, the cost of debt financing may be materially adversely impacted by these market conditions. |
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Our success depends on the continuing efforts of our senior management team and other key personnel and our business may be harmed if we lose their services. Our future success depends heavily upon the continuing services of the members of our senior management. If one or more of our senior executives or other key personnel are unable or unwilling to continue in their present positions, we may not be able to replace them easily or at all, and our business may be disrupted and our financial condition and results of operations may be materially and adversely affected. Competition for senior management and key personnel is intense, the pool of qualified candidates is very limited, and we may not be able to retain the services of our senior executives or key personnel, or attract and retain high-quality senior executives or key personnel in the future. In addition, if any member of our senior management team or any of our other key personnel joins a competitor or forms a competing company, we may lose customers, distributors, know-how and key professionals and staff members. Each of our executive officers and key employees has entered into an employment agreement with us which contains confidentiality and non-competition provisions. Legal proceedings to enforce such provisions would be costly in both money and management time and such provisions may not be enforced or enforceable. We rely on highly skilled personnel and if we are unable to retain or motivate key personnel or hire qualified personnel, we may not be able to grow effectively. Our performance and future success depends on the talents and efforts of highly skilled individuals. We will need to continue to identify, hire, develop, motivate and retain highly skilled personnel for all areas of our organization. Competition in our industry for qualified employees is intense. Our continued ability to compete effectively depends on our ability to attract new employees and to retain and motivate our existing employees. As competition in our industry intensifies, it may be more difficult for us to hire, motivate and retain highly skilled personnel. If we do not succeed in doing so, we may be unable to grow effectively. We have limited business insurance coverage. The insurance industry in China is still at an early stage of development. Insurance companies in China offer limited business insurance products. We do not have any business liability or disruption insurance coverage for our operations in China. Any business disruption, litigation or natural disaster may result in our incurring substantial costs and the diversion of our resources. |
PRC laws and regulations governing our businesses and the validity of certain of our contractual arrangements are uncertain. If we are found to be in violation, we could be subject to sanctions. In addition, changes in such PRC laws and regulations may materially and adversely affect our business. There are substantial uncertainties regarding the interpretation and application of PRC laws and regulations, including, but not limited to, the laws and regulations governing our business, or the enforcement and performance of our contractual arrangements with certain of our affiliated Chinese entities. We are considered foreign persons or foreign invested enterprises under PRC law. As a result, we are subject to PRC law limitations on foreign ownership of advertising companies. These laws and regulations are relatively new and may be subject to change, and their official interpretation and enforcement may involve substantial uncertainty. The effectiveness of newly enacted laws, regulations or amendments may be delayed, resulting in detrimental reliance by foreign investors. New laws and regulations that affect existing and proposed future businesses may also be applied retroactively. The PRC government has broad discretion in dealing with violations of laws and regulations, including levying fines, revoking business and other licenses and requiring actions necessary for compliance. In particular, licenses and permits issued or granted to us by relevant governmental bodies may be revoked at a later time by higher regulatory bodies. We cannot predict the effect of the interpretation of existing or new PRC laws or regulations on our businesses. We cannot assure you that our current ownership and operating structure would not be found in violation of any current or future PRC laws or regulations. As a result, we may be subject to sanctions, including fines, and could be required to restructure our operations or cease to provide certain services. Any of these or similar actions could significantly disrupt our business operations or restrict us from conducting a substantial portion of our business operations, which could materially and adversely affect our business, financial condition and results of operations. |
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Adverse changes in economic and political policies of the PRC government could have a material adverse effect on the overall economic growth of China, which could adversely affect our business. As our advertising and convergent devices business expands, we expect an increasing portion of our business operations to be conducted in China. Accordingly, our results of operations, financial condition and prospects are subject to a significant degree to economic, political and legal developments in China. China's economy differs from the economies of most developed countries in many respects, including the amount of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. While China's economy has experienced significant growth in the past 20 years, growth has been uneven across different regions and among various economic sectors of China. The PRC government has implemented various measures to encourage economic development and guide the allocation of resources. Some of these measures benefit the overall PRC economy, but may also have a negative effect on us. For example, our financial condition and results of operations may be adversely affected by governmental control over capital investments or changes in tax regulations that are applicable to us. Since early 2004, the PRC government has implemented certain measures to control the pace of economic growth. Such measures may cause a decrease in the level of economic activity in China, which in turn could adversely affect our results of operations and financial condition. |
As our advertising and convergent devices business develops, we expect to increasingly rely on dividends payments from our subsidiaries and affiliated entities in China. However, PRC regulations currently permit payment of dividends only out of accumulated profits, as determined in accordance with PRC accounting standards and regulations. Our subsidiaries and affiliated entities in China are also required to set aside a portion of their after-tax profits according to PRC accounting standards and regulations for certain reserve funds. The PRC government also imposes controls on the conversion of RMB into foreign currencies and the remittance of currencies out of China. We may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currency. Furthermore, if our subsidiaries or affiliated entities in China incur debt on their own in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments. If either we or our subsidiaries is unable to receive all of the revenues from our operations through these contractual or dividend arrangements we may be un able to declare dividends on our common stock. Moreover, we do not intend to pay cash dividends in the future, but to use any earnings to develop and grow our business. |
Our PRC subsidiaries are subject to PRC rules and regulations on currency conversion. In the PRC, the State Administration for Foreign Exchange ("SAFE") regulates the conversion of the RMB into foreign currencies. Currently, foreign investment enterprises ("FIEs") are required to apply to SAFE for "Foreign Exchange Registration Certificate for FlEs. Our subsidiary is FIE. With such registration certifications (which need to be renewed annually), FlEs are allowed to open foreign currency accounts including the "recurrent account" and the "capital account". Currently, conversion within the scope of the "recurrent account" can be effected without requiringthe approval of SAFE. However, conversion of currency in the "capital account" (e.g. for capital items such as direct investments, loans, securities, etc.) still requires the approval of SAFE. Our operations and business may be adversely affected if conversion of currency in the "capital account" is not approved by the SAFE. |
SAFE issued a public notice (the "October Notice") effective November 1, 2005, which requires registration with SAFE by the PRC resident stockholders of any foreign holding company of a PRC entity. Without registration, the PRC entity cannot remit any of its profits out of the PRC as dividends or otherwise; however, it is uncertain how the October Notice will be interpreted or implemented regarding specific documentation requirements for a foreign holding company formed prior to the effective date of the October Notice, such as in the Company's case. While only the PRC resident stockholders who receive the ownership of the foreign holding company in exchange for ownership in the PRC operating company are subject to the October Notice, there can be no assurance that SAFE will not require the Company's other PRC resident stockholders to make disclosure. In addition, the October Notice requires that any monies remitted to PRC residents outside of the PRC be returned within 180 days; however, there is no indication of what the penalty will be for failure to comply or if stockholder non-compliance will be considered to be a violation of the October Notice by the Company or otherwise affect the Company. In the event that the proper procedures are not followed under the SAFE October Notice, we could lose the ability to remit monies outside of the PRC and would therefore be unable to pay dividends or make other distributions. Our PRC resident stockholders could be subject to fines, other sanctions and even criminal liabilities under the PRC Foreign Exchange Administrative Regulations promulgated January 29, 1996, as amended |
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Failure to comply with PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject our PRC resident stockholders to personal liability, limit our ability to acquire PRC companies or to inject capital into our PRC subsidiaries, limit our PRC subsidiaries' ability to distribute profits to us or otherwise materially adversely affect us. In October 2005, SAFE issued the Notice on Relevant Issues in the Foreign Exchange Control over Financing and Return Investment Through Special Purpose Companies by Residents Inside China, generally referred to as Circular 75, which required PRC residents to register with the competent local SAFE branch before establishing or acquiring control over an offshore special purpose company, or SPV, for the purpose of engaging in an equity financing outside of China on the strength of domestic PRC assets originally held by those residents. Amendments to registrations made under Circular 75 are required in connection with any increase or decrease of capital, transfer of shares, mergers and acquisitions, equity investment or creation of any security interest in any assets located in China to guarantee offshore obligations. In the case of an SPV which was established, and which acquired a related domestic company or assets, before the implementation date of Circular 75, a retroactive SAFE registration was required. Failure to comply with the requirements of Circular 75, may result in fines and other penalties under PRC laws for evasion of applicable foreign exchange restrictions. Any such failure could also result in the SPV's affiliates being impeded or prevented from distributing their profits and the proceeds from any reduction in capital, share transfer or liquidation to the SPV, or from engaging in other transfers of funds into or out of China. We have asked our stockholders who are PRC residents as defined in Circular 75 to register with the relevant branch of SAFE, as currently required, in connection with their equity interests in us and our acquisitions of equity interests in our PRC subsidiaries. However, we cannot provide any assurances that they can obtain the above SAFE registrations required by Circular 75. Moreover, because of uncertainty over how Circular 75 will be interpreted and implemented, and how or whether SAFE will apply it to us, we cannot predict how it will affect our business operations or future strategies. For example, our present and prospective PRC subsidiaries' ability to conduct foreign exchange activities, such as the remittance of dividends and foreign currency-denominated borrowings, may be subject to compliance with Circular 75 by our PRC resident beneficial holders. In addition, such PRC residents may not always be able to complete the necessary registration procedures required by Circular 75. We also have little control over either our present or prospective direct or indirect stockholders or the outcome of such registration procedures. A failure by our PRC resident beneficial holders or future PRC resident stockholders to comply with Circular 75, if SAFE requires it, could subject these PRC resident beneficial holders to fines or legal sanctions, restrict our overseas or cross-border investment activities, limit our subsidiaries' ability to make distributions or pay dividends or affect our ownership structure, which could adversely affect our business and prospects. |
We will conduct a substantial and increasing portion our business through subsidiaries and affiliated entities based in China. Our operations in China are governed by PRC laws and regulations. Our subsidiaries are generally subject to laws and regulations applicable to foreign investments in China and, in particular, laws applicable to wholly foreign-owned enterprises. The PRC legal system is based on written statutes. Prior court decisions may be cited for reference but have limited precedent value. Since 1979, PRC legislation and regulations have significantly enhanced the protections afforded to various forms of foreign investments in China. However, China has not developed a fully integrated legal system and recently-enacted laws and regulations may not sufficiently cover all aspects of economic activities in China. In particular, because these laws and regulations are relatively new, and because of the limited published decisions and their non-binding nature, the interpretation and enforcement of these laws and regulations involve uncertainties. In addition, the PRC legal system is based in part on governmental policies and internal rules (some of which are not published on a timely basis or at all) that may have a retroactive effect. As a result, we may not be aware of our violation of these policies and rules until after the occurrence of the violation. In addition, any litigation in China may be protracted and result in substantial costs and diversion of resources and management attention. |
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Governmental control of currency conversion may affect the value of your investment. The PRC government imposes controls on the conversion of RMB to foreign currencies and, in certain cases, the remittance of currencies out of China. As our internet and advertising business expands, we expect to derive an increasing percentage of our revenues in RMB. Under our current structure, we expect our income will be primarily derived from dividend payments from our PRC subsidiaries. Shortages in the availability of foreign currency may restrict the ability of our PRC subsidiaries and our affiliated entities to remit sufficient foreign currency to pay dividends or other payments to us, or otherwise satisfy their foreign currency denominated obligations. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and expenditures from trade-related transactions, can be made in foreign currencies without prior approval from the PRC State Administration of Foreign Exchange by complying with certain procedural requirements. However, approval from appropriate government authorities is required when RMB is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of bank loans denominated in foreign currencies. The PRC government may also at its discretion restrict access in the future to foreign currencies for current account transactions. If the foreign exchange control system prevents us from obtaining sufficient foreign currency to satisfy our demands, we may not be able to pay dividends in foreign currencies to our stockholders, including holders of our common stock. |
The value of RMB against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in political and economic conditions. On July 21, 2005, the PRC government changed its decades-old policy of pegging the value of the RMB to the U.S. dollar. Under the new policy, the RMB is permitted to fluctuate within a narrow and managed band against a basket of foreign currencies. This change in policy has resulted in an approximately 2.0% appreciation of the RMB against the U.S. dollar. While the international reaction to the RMB revaluation has generally been positive, there remains significant international pressure on the PRC government to adopt a more flexible currency policy, which could result in a further and significant appreciation of the RMB against the U.S. dollar. As our internet and advertising business continues to grow, a greater portion of our revenues and costs will be denominated in RMB, while a significant portion of our financial assets may be denominated in U.S. dollars. We expect to rely significantly on dividends and other fees paid to us by our subsidiaries and affiliated entities in China. Any significant revaluation of RMB may materially and adversely affect our cash flows, revenues, earnings and financial position, and the value of, and any dividends payable on, our common stock in U.S. dollars. For example, an appreciation of RMB against the U.S. dollar would make any new RMB denominated investments or expenditures more costly to us, to the extent that we need to convert U.S. dollars into RMB for such purposes. We may not be able to consolidate the financial results of some of our affiliated companies or such consolidation could materially adversely affect our operating results and financial condition. For PRC regulatory reasons, much of our operations are/will be conducted through affiliated companies which currently are considered for accounting purposes as variable interest entities ("VIEs"), and we are considered the primary beneficiary, enabling us to consolidate its financial results in our consolidated financial statements. In the event that in the future a company we hold as a VIE would no longer meet the definition of a VIE, or we are deemed not to be the primary beneficiary, we would not be able to consolidate line by line that entity's financial results in our consolidated financial statements for PRC purposes. Also, if in the future an affiliate company becomes a VIE and we become the primary beneficiary, we would be required to consolidate that entity's financial results in our consolidated financial statements for PRC purposes. If such entity's financial results were negative, this could have a corresponding negative impact on our operating results for PRC purposes. However, any material variations in the accounting principles, practices and methods used in preparing financial statements for PRC purposes from the principles, practices and methods generally accepted in the United States and in the SEC accounting regulations must be discussed, quantified and reconciled in financial statements for United States and SEC purposes. We face risks related to health epidemics and other outbreaks. Our business could be adversely affected by the effects of SARS, Avian Flu or another epidemic or outbreak. China reported a number of cases of SARS in April 2004. Any prolonged recurrence of SARS or other adverse public health developments in China may have a material adverse effect on our business operations. For instance, health or other governmental regulations adopted in response may require temporary closure of Internet cafes, which is one of the avenues where users could access our websites, or of our offices. Such closures would severely disrupt our business operations and adversely affect our results of operations. We have not adopted any written preventive measures or contingency plans to combat any future outbreak of SARS or any other epidemic. |
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ITEM 1B. UNRESOLVED STAFF COMMENTS |
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PART II |
ITEM 5. MARKET PRICE FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES. |
MARKET INFORMATION. |
The following table shows the reported quarterly high and low closing sales price for our shares within the last two fiscal years on the OTC Bulletin Board. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions. Investors should not rely on historical prices of our Common Stock as an indication of its future price performance. The closing price of our Common Stock on December 31, 2011 was $ 0.0145 per share. |
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------------------------ | ------------- | -------------- | |
Fourth Quarter 2011 | $0.01 | $0.004 | |
Third Quarter 2011 | $0.01 | $0.0045 | |
Second Quarter 2011 | $0.021 | $0.008 | |
First Quarter 2011 | $0.034 | $0.014 | |
Fourth Quarter 2010 | $0.017 | $0.00819 | |
Third Quarter 2010 | $0.020 | $0.00588 | |
Second Quarter 2010 | $0.034 | $0.006 | |
First Quarter 2010 | $0.0113 | $0.00263 |
The number of record holders of our common stock as of March 5, 2012, was approximately 60 based on information received from our transfer agent. This amount excludes an indeterminate number of shareholders whose shares are held in "street" or "nominee" name. |
There have been no cash dividends declared on our common stock since inception. It is the present policy of the Company to retain earnings to finance the growth and development of the business and, therefore, the Company does not anticipate paying dividends on its common stock in the foreseeable future. |
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15
STOCK OPTIONS. We have two equity compensation plans: (1) the 2002 Stock Option Plan and (2) the 2007 Stock Incentive Plan. The following table presents information relating to these plans as of December 31, 2011. |
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Plan Category |
Number of Securities to be issued upon Exercise of outstanding options, warrants and rights |
Weighted average of exercise price of outstanding options, warrants and rights |
Number of securities remaining available for future issuance under equity compensation plans (Excluding securities reflected in column a) |
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(a) |
(b) |
(c) |
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-------------------------------- |
------------------------ |
------------------------- |
------------------------ |
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Equity compensation plans approved by security holders | 19,000,000 |
$0.010 |
158,011,112 |
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-------------------------------- |
------------------------ |
------------------------- |
------------------------ |
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Equity compensation plans not approved by security holders | 5,811,300 |
- |
32,588,700 |
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-------------------------------- |
------------------------ |
------------------------- |
------------------------ |
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Total |
24,811,300 |
$0.010 |
190,599,812 |
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-------------------------------- |
------------------------ |
------------------------- |
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2002 Stock Option Plan In October 2002, our Board of Directors authorized and approved the adoption of the 2002 Stock Option Plan effective the same date (the "2002 Stock Option Plan"). The purpose of the 2002 Stock Option Plan was to enhance our long-term stockholder value by offering opportunities to our directors, officers, employees and eligible consultants to acquire and maintain stock ownership in order to give these persons the opportunity to participate in our growth and success, and to encourage them to remain in our service. The 2002 Stock Option Plan is administered by our Board of Directors or a committee ("Plan Administrator") appointed by and consisting of two or more members of our Board of Directors, which shall determine (i) the persons to be granted stock options under the 2002 Stock Option Plan; (ii) the number of shares subject to each option, the exercise price of each stock option; and (iii) whether the stock option shall be exercisable at any time during the option period of ten years or whether the stock option shall be exercisable in installments or by vesting only. The 2002 Stock Option Plan provides authorization to the Board of Directors to grant stock options to purchase a total number of shares not to exceed 211,111,112 shares as at the date of adoption by the Board of Directors. At the time a stock option is granted under the 2002 Stock Option Plan, the Plan Administrator shall fix and determine the exercise price at which shares may be acquired. In the event an optionee ceases to be employed by or to provide services to us for reasons other than cause or voluntary resignation of position, any stock option that is vested and held by such optionee generally may be exercisable within up to one year after the effective date that his position ceases, and after such one year period any unexercised stock option shall expire. In the event an optionee ceases to be employed by or to provide services to us for reasons of cause or voluntary resignation from the position, any stock option that is vested and held by such optionee shall forthwith terminate. No stock options granted under the 2002 Stock Option Plan will be transferable by the optionee other than by will or by the laws of descent and distribution following the optionee's death, and each stock option will be exercisable during the lifetime of the optionee subject to the option period of ten years or limitations described above. |
The 2002 Stock Option Plan further provides that the Plan Administrator may grant to any key individuals who are employees eligible to receive options one or more incentive stock options to purchase the number of shares allotted by the Board of Directors (the "Incentive Stock Options"). The option price per share of Common Stock deliverable upon the exercise of an Incentive Stock Option shall be at least 100% of the fair market value of the shares and in the case of an Incentive Stock Option granted to an optionee who owns more than 10% of the total combined voting power of all classes of our stock, shall not be less than 110% of the fair market value. The option term of each Incentive Stock Option shall be determined by the Plan Administrator, and shall not commence sooner than from the date of grant and shall terminate no later than ten years from the date of grant, except for an optionee who owns more than 10% of the total combined voting power of all classes of our stock and whose Incentive Stock Option shall terminate no later than five year from the date of grant. |
There were 19,000,000 stock options issued in 2010. As of December 31, 2011 there were a total of 19,000,000 outstanding stock options to purchase shares of our Common Stock under the 2002 Stock Option Plan. |
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2007 Stock Incentive Plan On February 19, 2007, our Board of Directors authorized and approved the adoption of the 2007 Stock Incentive Plan effective the same date (the "2007 Stock Incentive Plan"). The purpose of the 2007 Stock Incentive Plan is to enhance our long-term stockholder value by offering opportunities to our directors, officers, employees and eligible consultants to acquire and maintain stock ownership in order to give these persons the opportunity to participate in our growth and success, and to encourage them to remain in our service. The 2007 Stock Incentive Plan is to be administered by our Board of Directors or a committee ("Plan Administrator") appointed by and consisting of two or more members of our Board of Directors, which shall determine (i) the persons to be granted stock options under the 2007 Stock Incentive Plan; (ii) the number of shares subject to each option, the exercise price of each stock option; and (iii) whether the stock option shall be exercisable at any time during the option period of ten years or whether the stock option shall be exercisable in installments or by vesting only. The 2007 Stock Incentive Plan provides authorization to the Board of Directors to grant stock options to purchase a total number of shares, not exceed 38,400,000 shares as at the date of adoption by the Board of Directors. At the time a stock option is granted under the 2007 Stock Incentive Plan, the Board of Directors shall fix and determine the exercise price at which shares of our Common Stock may be acquired. In the event an optionee ceases to be employed by or to provide services to us for reasons other than cause, retirement, disability or death, any stock option that is vested and held by such optionee generally may be exercisable for such period of time thereafter as shall be determined by the Plan Administrator and set forth in the documents evidencing the option. The Plan Administrator shall have complete discretion either at the time an option is granted or at any time while the option remains outstanding, to i) extend the period of time which the option is to be exercisable following the optionees cessation of service, but not beyond the expiration of the option term and/or ii) permit the option to be exercised after the cessation of employment of both vested and unvested options at the time of cessation of employment. No stock options granted under the 2007 Stock Incentive Plan will be transferable by the optionee other than by will or by the laws of descent and distribution following the optionee's death, and each stock option will be exercisable during the lifetime of the optionee subject to the option period of ten years or limitations described above. The options can be assigned in whole or in part during the Optionee's lifetime to one or more members of the optionee's immediate family, provided the assignment is connected to estate planning or pursuant to a domestic relations order. |
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The exercise price of a stock option granted pursuant to the 2007 Stock Incentive Plan shall be paid in full to us by delivery of consideration equal to the product of the number of shares multiplied by the exercise price. Any stock option settlement, including payment deferrals or payments deemed made by way of settlement of pre-existing indebtedness from the Company may be subject to such conditions, restrictions and contingencies as may be determined by the Plan Administrator. The 2007 Stock Incentive Plan further provides that, subject to the provisions of the 2007 Stock Incentive Plan and prior Stockholder approval, the Board of Directors may grant to any key individuals who are our employees eligible to receive options, one or more incentive stock options to purchase the number of shares of Common Stock allotted by the Board of Directors (the "Incentive Stock Options"). The option price per share of Common Stock deliverable upon the exercise of an Incentive Stock Option shall be at lease 100% of the fair market value of the Common Shares of the Company and in the case of an Incentive Stock Option granted to an optionee who owns more than 10% of the total combined voting power of all classes of our stock, shall not be less than 110% of the fair market value of our Common Stock. The option term of each Incentive Stock Option shall be determined by the Plan Administrator, which shall not commence sooner than from the date of grant and shall terminate no later than ten years from the date of grant of the Incentive Stock Option, except for optionee who owns more than 10% of the total combined voting power of all classes of our stock whom shall terminate no later than five year from the date of grant of the Incentive Stock Option. 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. In 2007, the Company issued 5,811,300 shares under the 2007 Stock Incentive Plan. In 2008, 2009 and 2010, the Company did not issue any shares under the 2007 Stock Incentive Plan. In summary, as of December 31, 2011, (i) the Company has issued 5,811,300 shares under the 2007 Stock Incentive Plan, (ii) there are no outstanding stock options to purchase shares of our Common Stock under the 2007 Stock Incentive Plan and, (iii) there are still 32,588,700 shares issuable under the 2007 Stock Incentive Plan. |
ISSUER PURCHASES OF EQUITY SECURITIES. No repurchases of our common stock were made during the fourth quarter and during our fiscal year ended December 31, 2011. |
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PENNY STOCK REGULATIONS. Shares of our common stock are subject to rules adopted by the Securities and Exchange Commission that regulate broker-dealer practices in connection with transactions in "penny stocks". Penny stocks are generally equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the Nasdaq system, provided that current price and volume information with respect to transactions in those securities is provided by the exchange or system). |
The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, deliver a standardized risk disclosure document prepared by the Securities and Exchange Commission, which contains the following: |
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a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; |
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- | a description of the broker's or dealer's duties to the customer and of the rights and remedies available to the customer with respect to violation to such duties or other requirements of securities' laws; | |
- | a brief, clear, narrative description of a dealer market, including "bid" and "ask" prices for penny stocks and the significance of the spread between the "bid" and "ask" price; | |
- | a toll-free telephone number for inquiries on disciplinary actions; | |
- | definitions of significant terms in the disclosure document or in the conduct of trading in penny stocks; and | |
- | such other information and is in such form (including language, type, size and format), as the Securities and Exchange Commission shall require by rule or regulation |
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the bid and offer quotations for the penny stock; |
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- | the compensation of the broker-dealer and its salesperson in the transaction; | |
- | the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and | |
- | monthly account statements showing the market value of each penny stock held in the customer's account. |
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A registrant that qualifies as a smaller reporting company is not required to provide the information required by this item. |
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
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Results of Operations ----------------------------------- |
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Liquidity and Capital
Resources --------------------------------------------------- |
Net cash used in operating activities was $173,183 during the year ended December 31, 2011 as compared to net cash used of $38,234 in the prior year, as there was no funding from stock issuing activities during the current year. The Company intends to monitor the monthly cash outlays in fiscal 2012 and conserve cash until additional financing can be received through other funding. The net loss for the year was $99,304 compared to $5,597,741 in the prior year. |
Net cash provided by investing activities was $172,129 (2010: $nil) during the year ended December 31, 2011. |
Net cash used in financing activities was $nil (2010: $nil) during the year ended December 31, 2011. |
At present the Company does not have sufficient cash resources, receivables and cash flow to provide for all general corporate operations in the foreseeable future. In 2011, the Group disposed 100% of its short term investment in Jademan International Limited and raised about $421,000 to settle some of the Group's liabilities. The Company will be required to raise further funds to meet its other liabilities and operation requirements to continue to operation in 2012 by i) selling its Common Stock ii) raise from the capital markets, iii) sell additional assets. |
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The Company's financial statements are presented on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. |
The Company has experienced a significant loss from operations. For the years ended December 31, 2011 and 2010, the Company incurred net losses of $99,304 and $5,597,741, respectively. |
The Company's ability to continue as a going concern is contingent upon its ability to secure additional financing and attain profitable operations. In addition, the Company's ability to continue as a going concern must be considered in light of the problems, expenses and complications frequently encountered in developing markets and the competitive environment in which the Company operates. |
The Company is pursuing financing for its operations and seeking additional investments. In addition, the Company is seeking to expand its revenue base by adding new customers and start out its advertising business. Failure to secure such financing, to raise additional equity capital and to expand its revenue base may result in the Company depleting its available funds and not being able pay its obligations. |
The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern. |
Off-Balance
Sheet Arrangements. |
There are no off balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. |
Capital
Expenditure Commitments |
We had no material capital expenditures for the period ended December 31, 2011. However we expect to invest, subject to availability of funding, approximately $250,000 in capital expenditure over the next 12 month for the outdoor media business. |
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Critical
Accounting Policies |
We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States, and make estimates and assumptions that affect our reported amounts of assets, liabilities, revenue and expenses, and the related disclosures of contingent liabilities. We base our estimates on historical experience and other assumptions that we believe are reasonable in the circumstances. Actual results may differ from these estimates. |
The following critical accounting policies affect our more significant estimates and assumptions used in preparing our consolidated financial statements. |
Revenue Recognition |
In general, the Company records revenue when persuasive evidence of an arrangement exists, services have been rendered or product delivery has occurred; the sales price to the customer is fixed or determinable and collect ability is reasonably assured. The following policies reflect specific criteria for the various revenues streams of the Company: |
Revenue is recognized at the time the product is delivered. Provision for sales returns will be estimated based on the Company's historical return experience. Revenue is presented net of returns. |
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The Company accounts for equity instruments issued to employees for services based on the fair value of the equity instruments issued and accounts for equity instruments issued to other than employees based on the fair value of the consideration received or the fair value of the equity instruments, whichever is more reliably measurable. |
The Company accounts for stock based compensation in accordance with ASC 718 "Compensation - Stock Compensation" codified SFAS No. 123, "Accounting for Stock-Based Compensation" 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. |
Recently Issued Accounting Pronouncements ------------------------------------------------------------------ |
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
Consolidated Financial Statements |
Please see page F-1 through F-23 of this Form 10-K. |
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. |
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ITEM 9A. CONTROLS AND PROCEDURES. |
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Internal Control over Financial Reporting |
(a)Management's Annual Report on Internal Control Over Financial Reporting |
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A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the registrant's annual or interim financial statements will not be prevented or detected on a timely basis. |
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We are in the process of developing and implementing remediation plans to address our material weaknesses. |
Management has identified specific remedial actions to address the material weaknesses described above: |
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Improve segregation procedures by strengthening cross approval of various functions including cash disbursements and quarterly internal audit procedures where appropriate. |
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Changes in Controls and Procedures |
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Attestation Report of the Registered Public Accounting Firm |
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ITEM 9B. OTHER INFORMATION |
None. |
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERANCE. |
Executive Officers and Directors. Our directors and principal executive officers are as specified on the following table: |
NAME |
AGE |
POSITION |
------------------------------ | ------- | ------------------------------------------------------------------------------------------- |
Cheng Pheng LOI | 62 | President, Chief Executive Officer and Director |
Con UNERKOV | 42 | Chief Financial Officer and Director |
LAM Pui Kit | 71 | Treasurer, secretary and Director |
Mohd Khairudin bin RAMLI | 41 | Director |
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There are no family relationships among any of our officers and directors. |
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AUDIT COMMITTEE AND FINANCIAL EXPERT. The Committee has adopted regulations relating to audit committee composition and functions, including disclosure requirements relating to the presence of an "audit committee financial expert" serving on its audit committee. In connection with these requirements, our Board of Directors examined the Committee's definition of "audit committee financial expert" and concluded that we do not currently have a person that qualifies as such an expert. Presently, there are only three directors serving on our Board of which two are in the audit committee, and we are not in a position at this time to attract, retain and compensate additional directors in order to acquire a director who qualifies as an "audit committee financial expert", but we intend to retain an additional director who will qualify as such an expert, as soon as reasonably practicable. While neither of our current audit committee members meet the qualification of an "audit committee financial expert", each of our audit committee members, by virtue of his past employment experience, has considerable knowledge of financial statements, finance, and accounting, and has significant employment experience involving financial oversight responsibilities. Accordingly, we believe that our current audit committee members capably fulfill the duties and responsibilities of an audit committee in the absence of such an expert. |
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ITEM 11. EXECUTIVE COMPENSATION. |
Any compensation received by our officers, directors, and management personnel will be determined from time to time by our Board of Directors. Our officers, directors, and management personnel will be reimbursed for any out-of-pocket expenses incurred on our behalf. |
COMPENSATION FOR DIRECTORS AND EXECUTIVES. |
The following table sets forth the annual and long-term compensation for services in all capacities to the Company for its fiscal year ended December 31, 2011 paid to our directors and executive officers who earned more than $100,000 per year at the end of the last completed fiscal year. We refer to all of these officers collectively as our "named executive officers." |
SUMMARY COMPENSATION TABLE |
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Name and principal position | Year (6) |
Salary ($) |
Bonus ($) |
Stock Awards ($) |
Option Awards ($) |
Non-Equity Incentive Plan Compensation ($) |
Nonqualified Deferred Compensation Earnings ($) |
All Other Compensation ($) |
Total ($) |
---------------------- | ------- |
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Cheng Pheng Loi (1) | 2011 |
- |
- |
- |
- |
- |
- |
- |
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2010 |
9,000 |
- |
- |
- |
- |
- |
- |
9,000 |
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2009 |
18,000 |
- |
- |
- |
- |
- |
- |
18,000 |
|
Con Unerkov (2) | 2011 |
- |
- |
- |
- |
- |
- |
- |
- |
2010 |
- |
- |
- |
- |
- |
- |
- |
- |
|
2009 |
18,000(4) |
18,000 |
|||||||
Alex Ho | 2011 |
- |
- |
- |
- |
- |
- |
- |
- |
2010 |
- |
- |
- |
- |
- |
- |
- |
- |
|
2009 |
18,000 |
18,000 |
|||||||
Pui Kit Lam (3) | 2011 |
3,943 |
- |
- |
- |
- |
- |
- |
3,943 |
Mohd Khairudin bin Ramli (7) | 2011 |
- |
- |
- |
- |
- |
- |
- |
- |
(1) | Mr. Cheng Pheng Loi is the President, CEO, and Director of the Company with effect from May 2009. |
(2) | Mr. Con Unerkov is the CFO, and Director. Mr. Unerkov was the CEO from beginning of the year till May 2009. |
(3) | Mr. Pui Kit Lam was the Treasurer, Secretary, and Director since April 8, 2011. |
(4) | Mr. Alex Ho was the Treasurer, Secretary, and Director for 2010 and for the period until April 8, 2011 when he resigned. |
(5) | Portion of the executive's salary was paid to his respective service company. |
(6) | Figures represent the year ended December 31 for the indicative years. |
(7) | Appointed on March 9, 2012 |
28
The following table sets forth certain information concerning stock option awards granted to our executive officers and our directors. No options were exercised by our executive officers or directors during the year ended December 31, 2011 and 2010. |
OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2011 |
||||||||||
------------------------------------------------------------------------------------------------------------------------------------------------------ |
||||||||||
OPTION AWARDS |
STOCK AWARDS |
|||||||||
Name |
Number of securities underlying unexercised options (#) Exercisable |
Number of securities underlying unexercised options (#) Unexercisable |
Equity Incentive Plan Awards: Number of Securities underlying unexercised unearned options (#) |
Option exercise price ($) |
Option expiration date |
Number of shares or units of stock that have not vested (#) |
Market value of shares or units of stock that have not vested ($) |
Equity incentive plan awards: number of unearned shares, units or other rights that have not vested (#) |
Equity incentive plan awards: Market or payout value of unearned shares, units or other rights that have not vested (#) |
|
---------- |
------------ |
----------- |
-------- |
--------- |
--------- |
---------- |
---------- |
---------- |
||
Cheng Pheng LOI(1) | - |
- |
- |
- |
- |
- |
- |
- |
- |
|
Con Unerkov (2) | - |
7,500,000(4) |
- |
0.0365 |
12/22/2009 |
- |
- |
- |
- |
|
Alex Ho (3) | - |
7,500,000(4)- |
- |
0.0365 |
12/22/2009 |
- |
- |
- |
- |
|
Pui Kit LAM (4) | - |
- |
- |
- |
- |
- |
- |
- |
- |
|
|
|
(2) |
Mr. Con Unerkov is the CFO, and Director |
(3) |
Mr. Alex Ho was the Treasurer, Secretary, and Director for 2010 and for the period until April 8, 2011 when he resigned. |
(4) |
Mr. Pui Kit Lam is the Treasurer, Secretary, and Director since April 8, 2011. |
(5) |
The stock options were granted on December 23, 2006 under the 2002 Stock Option Plan and were expired on December 22, 2009. |
Employment Agreements Mr. Pheng Cheng LOI is working on 3 months contracts at a monthly fee of US$3,000. Messrs. Unerkov, and Ho did not receive any salary for 2011 and 2010. Mr. Lam received a salary remuneration of $3,943 in 2011. |
29
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT RELATED STOCKHOLDER MATTERAS. |
|
Name/Address(1) |
Common |
Common
Stock |
Common
Stock |
Total
Stock |
% |
--------------------------- |
------------------ |
----------------- |
-------------------- |
------------------ |
----------------- |
Con Unerkov(3) (4) |
32,619,863 |
- |
- |
32,619,863 |
5.89% |
Lam Pui Kit (3)(7), No.4, Dong Wen Chan Street, West City District, Beijing, China. | 62,500,000 |
- |
- |
62,500,000 |
11.28% |
Cheng Pheng Loi (3) |
- |
- |
- |
- |
- |
------------------ |
------------------- |
-------------------- |
------------------ |
------------------ |
|
All officers and directors as a group (3 persons) | 95,119,863 |
- |
- |
95,119,863 |
17,17% |
Maxcom Group International Ltd. (MGIL) of P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands. | 141,666,668 |
- |
- |
141,666,668 |
25.57% |
Liu Kang (6), No 42, Tujilin Wuchan, Wuhan City, Hubei Ching, China. | 141,666,668 |
- |
- |
141,666,668 |
25.57% |
Central High Limited (CHL), of P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands. | 125,000,000 |
- |
- |
125,000,000 |
22.56% |
Alex Ho (5) |
32,482,876 |
- |
- |
32,482,876 |
5.86% |
30
Notes: |
(1) | Except as otherwise indicated, based on information furnished by the owners, we believe that the beneficial owners listed above have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them, subject to community property laws where applicable and to the information contained in the footnotes to this table. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Unless otherwise indicated, the address of the beneficial owner is c/o China Media Group Corporation at 1402 Wan Chai Commercial Center, 194-204 Johnston Road, Wanchai, Hong Kong. |
(2) | For purposes of computing the percentage of outstanding Common Stocks held by each person or group of persons named above, any shares that such person or group has the right to acquire within 60 days are deemed outstanding but are not deemed to be outstanding for purposes of computing the percentage ownership of any other person or group. As of the date of the table above, there were 554,132,450 outstanding shares of our common stock and options, warrants, and convertible notes entitling the holders to purchase 15,000,000 additional shares of our Common Stock owned by officers and/or directors of the Company. |
(3) | A director of Company as of December 31, 2011. |
(4) | Includes 31,250,000 shares of common stock held by CHL. Mr. Con Unerkov holds 25% shareholding of CHL |
(5) | Includes 31,250,000 shares of common stock held by CHL. Mr. Alex Ho holds 25% shareholding of CHL. |
(6) | Includes 141,666,668 shares of common stock held by MGIL. Mr. Liu Kang is a director and holds 100% shareholding of MGIL. |
(7) | Includes 62,500,000 shares of common stock held by CHL. Mr. Lam Pui Kit is a director and holds 50% shareholding of CHL. |
Changes in Control We are unaware of any contract, or other arrangement or provisions, the operation of which may at a subsequent date result in a change of control of our Company. |
31
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. |
Other than disclosed below or under the caption entitled "Executive Compensation and Other Matters", since the beginning of the Company's last fiscal year, the Company was not a participant in any transaction in which a director, officer or stockholder of the Company, or any family member of any such person, had a direct or indirect material interest where the amount involved exceeded $120,000. |
The Company agreed to pay a monthly salary to its officers and directors for services performed. Compensation expenses of $3,943 and $9,000 have been recognized for services provided by the officers and directors and their service companies for the years ended December 31, 2011 and 2010, respectively |
Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers and directors and persons who beneficially own more than 10% of our common stock to file with the SEC initial statements of beneficial ownership and reports of changes in beneficial ownership. Such persons are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. Based solely on our review of such statements and reports furnished to us and written representations from certain reporting persons, we believe that our executive officers, directors and greater-than-10% stockholders were complied with the beneficial ownership reporting requirements of Section 16(a). |
32
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES. |
AUDIT FEES. The aggregate fees billed in each of the fiscal years ended December 31, 2011 and 2010 for professional services rendered by the principal accountant for the audit of our annual financial statements and review of the financial statements included in our Form 10-K or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements as well as registration statement filings for those fiscal years were $20,000 and $20,000 respectively. |
AUDIT-RELATED FEES. There aggregate fees billed for services reasonably related to the performance of the audit or review of the financial statements outside of those fees disclosed above under "Audit Fees" for fiscal years 2011 and 2010 were $3,000 and $3,000, respectively. |
TAX FEES. For the fiscal years ended December 31, 2011 and December 31, 2010, our principal accountants did not render any services for tax compliance, tax advice, and tax planning work. |
ALL OTHER FEES. None |
PRE-APPROVAL POLICIES AND PROCEDURES. Prior to engaging its accountants to perform a particular service, our board of directors obtains an estimate for the service to be performed. All of the services described above were approved by the board of directors in accordance with its procedures. |
33
PART IV
ITEM 15. EXIBITS, FINANCIAL STATEMENT SCHEDULES |
|
Table of Contents |
Report of Independent Registered Public Accounting Firm - Albert Wong & Co., LLP |
Consolidated Financial Statements: |
Consolidated Balance Sheets as of December 31, 2011 and 2010 |
Consolidated Statements of Operations for the years ended December 31, 2011 and 2010 |
Consolidated Statements of Stockholders' Deficits for the years ended December 31, 2011 and 2010 |
Consolidated Statements of Cash Flows for the years ended December 31, 2011 and 2010 |
Notes to Consolidated Financial Statements |
34
(c) Exhibits. |
|
Description of Exhibit |
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) |
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. |
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. |
1. |
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 Current 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. |
* Filed herewith. |
35
SIGNATURES |
|
China Media Group Corporation | |
a Texas corporation | |
/s/ Cheng Pheng Loi | |
--------------------------------------- | |
Cheng Pheng Loi | |
Chief Executive
Officer Principal executive officer |
|
China Media Group Corporation | |
a Texas corporation | |
/s/ Con Unerkov | |
--------------------------------------- | |
Con Unerkov | |
Chief Financial
Officer Principal executive officer |
|
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. |
By: | /s/ Cheng Pheng Loi | April 17, 2012 |
-------------------------------------------- | ||
Cheng Pheng Loi | ||
Its: | Principal executive officer, | |
President, Director |
By: | /s/ Con Unerkov | April17, 2012 |
-------------------------------------------- | ||
Con Unerkov | ||
Its: | Chief financial officer, | |
Director |
By: | /s/ Lam Pui Kit | April 17, 2012 |
-------------------------------------------- | ||
Lam Pui Kit | ||
Its: | Secretary, Treasurer, | |
Director |
36
China Media Group Corporation and Subsidiary |
Consolidated Financial Statements |
For the Year Ended December 31, 2011 |
Table of Contents | Page |
Report of Independent Registered Public Accounting Firm - Albert Wong & Co., LLP | F-2 |
Consolidated Financial Statements: | |
Consolidated Balance Sheets as of December 31, 2011 and 2010 | F-3 |
Consolidated Statements of Operations for the years ended December 31, 2011 and 2010 | F-4 |
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2011 and 2010 | F-5 |
Consolidated Statements of Cash Flows for the years ended December 31, 2011 and 2010 | F-6 |
Notes to Consolidated Financial Statements | F-7 to F-23 |
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors |
China Media Group Corporation |
We have audited the accompanying consolidated balance sheet of China Media Group Corporation (the "Company") and its subsidiaries as of December 31, 2011 and 2010, and the related consolidated statements of operations, stockholders' deficits and cash flows for the year ended December 31, 2011 and 2010. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. |
We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. |
We were not engaged to examine management's assertion about the effectiveness of the Company's internal control over financial reporting as of December 31, 2011 and 2010 included in the Company's Item 9A "Controls and Procedures" in the Annual Report on Form 10-K and, accordingly, we do not express an opinion thereon. |
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of China Media Group Corporation and its subsidiaries as of December 31, 2011 and 2010, and the results of its operations and its cash flows for the year ended December 31, 2011 and 2010, in conformity with accounting principles generally accepted in the United States of America. |
The Company's consolidated 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. The Company has deficits accumulated as at December 31, 2011 of $13,966,347 including net losses of $99,304 for the year ended December 31, 2011. These factors as discussed in Note 3 to the financial statements, raises substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. |
/s/ Albert Wong & Co., LLP |
CERTIFIED PUBLIC ACCOUNTANTS |
New York, New York |
April 17, 2012 |
F-2
CHINA MEDIA GROUP CORPORATION |
CONSOLIDATED BALANCE SHEETS |
AS OF DECEMBER 31, 2011 AND 2010 |
2011 |
2010 |
||||
Notes |
US$ |
US$ |
|||
ASSETS | |||||
Current Assets: | |||||
Cash and cash equivalents | 15,600 |
17,654 |
|||
Investment available for sale | - |
170,000 |
|||
Due from related parties | 7 |
372,541 |
339,715 |
||
Prepayments, deposit and other receivables | 169,152 |
128,990 |
|||
--------------- |
--------------- |
||||
Total current assets | 557,293 |
656,359 |
|||
Non-current assets | |||||
Property and equipments, net | 8 |
2,232 |
15,044 |
||
Advance payment for distribution rights | 9 |
69,000 |
138,000 |
||
Investment in shares | 9 |
81,556 |
- |
||
Goodwill | 10 |
- |
- |
||
--------------- |
--------------- |
||||
152,788 |
153,044 |
||||
--------------- |
--------------- |
||||
710,081 |
809,403 |
||||
========= |
========= |
||||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||
Current liabilities: | |||||
Other payables and accruals | 11 |
424,396 |
547,654 |
||
Short term debt | 12 |
100,000 |
214,591 |
||
Due to officer and directors | 13 |
448,145 |
1,085,855 |
||
Due to related parties | 14 |
1,656,981 |
855,388 |
||
Option liabilities | 236,504 |
202,014 |
|||
--------------- |
--------------- |
||||
Total current liabilities | 2,866,026 |
2,905,502 |
|||
--------------- |
--------------- |
||||
Long-term debts | 15 |
2,000,000 |
2,000,000 |
||
Stockholders' equity: | |||||
Common stock, no par value, 85,000,000,000 shares authorized, 554,132,450 (2010: 554,132,450) shares issued and outstanding | 4 |
7,773,902 |
7,773,902 |
||
Additional paid-in-capital | 1,799,358 |
1,799,358 |
|||
Shares to be issued | 52,510 |
- |
|||
Comprehensive income | 66,176 |
67,176 |
|||
Accumulated deficits | (13,966,347) |
(13,867,043) |
|||
Uncontrolled interest | 118,456 |
130,508 |
|||
--------------- |
--------------- |
||||
Total stockholders' equity | (4,155,945) |
(4,096,099) |
|||
--------------- |
--------------- |
||||
710,081 |
809,403 |
||||
========= |
======== |
The accompanying notes are an integral part of these consolidated financial statements
F-3
CHINA MEDIA GROUP CORPORATION |
CONSOLIDATED STATEMENTS OF OPERATIONS |
FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 |
|
|
||||
US$ |
US$ |
||||
Net revenue | 142,132 |
59,730 |
|||
Cost of revenue | (40,185) |
(25,479) |
|||
--------------- |
--------------- |
||||
Gross profits | 101,947 |
34,251 |
|||
Operating expenses: | |||||
Impairment of goodwill | - |
4,791,676 |
|||
Impairment of distribution rights | 68,800 |
- |
|||
Selling, general and administrative expenses | 213,754 |
686,053 |
|||
--------------- |
--------------- |
||||
Loss from operations before other expense | (180,607) |
(5,443,478) |
|||
Other income (expenses) | |||||
Gain on disposal of investment in unlisted shares | 251,538 |
- |
|||
Gain on disposal of fixed assets | 1,498 |
- |
|||
Interest income | - |
45 |
|||
Interest expense | (183,785) |
(176,885) |
|||
--------------- |
--------------- |
||||
Net loss before uncontrolled interest | (111,356) |
(5,620,318) |
|||
Uncontrolled interest | 12,052 |
22,577 |
|||
--------------- |
--------------- |
||||
Net loss | (99,304) |
(5,597,741) |
|||
Other comprehensive income: - Foreign currency translation gain | (1,000) |
23,028 |
|||
--------------- |
--------------- |
||||
Comprehensive loss | (100,304) |
(5,574,713) |
|||
========= |
========= |
||||
Basic and diluted loss per common share | $0.00 |
$0.01 |
|||
========= |
========= |
||||
Basic and diluted weighted average number of common shares* | 554,132,450 |
541,611,902 |
|||
========= |
========= |
||||
* | Weighted average number of shares used to compute basic and diluted loss per share for the years ended December 31, 2011 and 2010 are the same since the effect of dilutive securities are anti-dilutive. |
The accompanying notes are an integral part of these consolidated financial statements.
F-4
CHINA MEDIA GROUP CORPORATION |
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY |
FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 |
Common |
Additional |
Total |
|||||||||
Stock |
Paid-in |
Comprehensive |
Shares to |
Accumulated |
Uncontrolled |
Stockholders' |
|||||
Shares |
Amount |
Capital |
Income |
be issued |
Deficit |
Interest |
Equity |
||||
US$ |
US$ |
US$ |
US$ |
US$ |
US$ |
US$ |
|||||
---------------- |
---------- |
-------------- |
--------------- |
------------- |
-------------- |
------------- |
--------------- |
||||
January 1, 2010 | 534,132,450 |
7,428,902 |
1, 760,874 |
44,148 |
- |
(8,269,302) |
147,975 |
1,112,597 |
|||
Amortization of options granted | - |
- |
38,484 |
- |
- |
- |
- |
38,484 |
|||
Comprehensive income | - |
- |
- |
23,028 |
- |
- |
- |
23,028 |
|||
Issuance of shares for acquisition of share investments | 20,000,000 |
345,000 |
- |
- |
- |
- |
- |
345,000 |
|||
Gain on disposal of subsidiary | - |
- |
- |
- |
- |
- |
5,110 |
5,110 |
|||
Net loss | - |
- |
- |
- |
- |
(5,597,741) |
(22,577) |
(5,620,318) |
|||
-------------- |
----------- |
-------------- |
--------------- |
------------- |
-------------- |
-------------- |
--------------- |
||||
Balance at December 31, 2010 | 554,132,450 |
7,773,902 |
1,799,358 |
67,176 |
- |
(13,867,043) |
130,508 |
(4,096,099) |
|||
Comprehensive income | - |
- |
- |
(1,000) |
- |
- |
- |
(1,000) |
|||
Shares to be issued for acquisition of share investments | - |
- |
- |
- |
52,510 |
- |
- |
52,510 |
|||
Net loss | - |
- |
- |
- |
- |
(99,304) |
(12,052) |
(111,356) |
|||
-------------- |
----------- |
-------------- |
--------------- |
------------- |
-------------- |
-------------- |
--------------- |
||||
Balance at December 31, 2011 | 554,132,450 |
7,773,902 |
1,799,358 |
66,176 |
52,510 |
(13,966,347) |
118,456 |
(4,155,945) |
|||
======== |
======= |
======== |
========= |
======== |
======== |
======== |
========= |
The accompanying notes are an integral part of these consolidated financial statements.
F-5
CHINA MEDIA GROUP CORPORATION |
CONSOLIDATED STATEMENTS OF CASHFLOWS |
FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 |
|
|
|||||
Notes |
US$ |
US$ |
||||
Cash flows from operating activities: | ||||||
Net Loss | (99,304) |
(5,597,741) |
||||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||
Depreciation | 12,181 |
12,562 |
||||
Uncontrolled interest | (12,052) |
(22,577) |
||||
Gain on disposal of fixed assets | (1,498) |
- |
||||
Impairment on goodwill | - |
4.791,676 |
||||
Impairment on distribution rights | 69,000 |
- |
||||
Option expenses for employee compensation | - |
38,484 |
||||
Loss on disposal of subsidiary | - |
119,890 |
||||
Changes in assets and liabilities: | ||||||
Prepaid expenses, deposit and other receivables | (40,162) |
224,861 |
||||
Due from former subsidiary | (160) |
(95,536) |
||||
Due from related parties | (61,712) |
(244,179) |
||||
Accounts payable and accrued expenses | (123,258) |
(180,444) |
||||
Short term debt | (114,591) |
114,946 |
||||
Due to officers and directors | (637,710) |
2,169 |
||||
Due to related parties | 801,593 |
595,641 |
||||
Option liabilities | 34,490 |
202,014 |
||||
--------------- |
--------------- |
|||||
Net cash used in operating activities | (173,183) |
(38,234) |
||||
--------------- |
--------------- |
|||||
Cash flows from investing activities: | ||||||
Disposal of investment in unlisted shares | 170,000 |
- |
||||
Disposal of property and equipment | 2,129 |
- |
||||
--------------- |
--------------- |
|||||
Net cash provided by investing activities | 172,129 |
- |
||||
Cash flows from financing activities: | - |
- |
||||
--------------- |
--------------- |
|||||
Net cash used in financing activities | - |
- |
||||
--------------- |
--------------- |
|||||
Net decrease in cash and cash equivalents | (1,054) |
(38,234) |
||||
Effect of exchange rate changes on cash and cash equivalents | (1,000) |
23,028 |
||||
Cash and cash equivalents, beginning | 17,654 |
32,860 |
||||
--------------- |
--------------- |
|||||
Cash and cash equivalents, ending | 15,600 |
17,654 |
||||
========= |
========= |
|||||
Supplemental disclosure of cash flow information: | ||||||
Interest paid | 183,785 |
176,885 |
||||
========= |
========= |
|||||
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 |
|
|
|
|
|
NOTE 2 |
|
|
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. |
|
|
|
|
F-7
CHINA MEDIA GROUP CORPORATION |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 2 |
|
Use of estimates |
|
|
|
|
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 |
|
Inventories |
|
Property & equipment |
|
|
Leasehold improvements | 5 years |
Furniture, fixture and equipment | 5 years |
Intangible Assets |
|
F-8
CHINA MEDIA GROUP CORPORATION |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 2 |
|
Income taxes |
|
|
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. |
|
|
|
|
|
|
|
F-9
CHINA MEDIA GROUP CORPORATION |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 2 |
|
Foreign Currency Translation |
|
|
Recently Implemented Standards |
|
|
|
F-10
CHINA MEDIA GROUP CORPORATION |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 2 |
|
|
Recently Implemented Standards (Continued) |
|
|
|
F-11
CHINA MEDIA GROUP CORPORATION |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 2 |
|
|
|
|
|
|
|
|
|
F-12
CHINA MEDIA GROUP CORPORATION |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 2 |
|
|
|
|
|
|
|
F-13
CHINA MEDIA GROUP CORPORATION |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 2 |
|
|
Accounting Standards Issued But Not Yet Effective |
|
|
|
Reclassifications |
Certain comparative amounts have been reclassified to conform to the current year's presentation. |
F-14
CHINA MEDIA GROUP CORPORATION |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 3 |
|
|
|
NOTE 4 |
|
Common Stock |
|
|
|
NOTE 5 |
|
Stock Options |
|
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. |
|
|
|
F-15
CHINA MEDIA GROUP CORPORATION |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 5 |
|
|
Options outstanding |
|
Outstanding, December 31, 2010 | 19,000,000 |
Granted during the year | - |
Forfeited/lapsed during the year | - |
Exercised during the year | - |
--------------------------- |
|
Outstanding, December 31, 2011 | 19,000,000 |
================ |
Following is a summary of the status of options outstanding at December 31, 2011: |
||||||||
Outstanding Options |
Exercisable Options |
|||||||
------------------------------------ |
---------------------------------------------------------------------- |
|||||||
Grant |
Exercise |
Number |
Average
Remaining |
Average Exercise Price |
Number |
Intrinsic Price |
||
4/16/2010 |
$0.010 |
19,000,000 |
3.29 |
$0.010 |
19,000,000 |
$0.00 |
The assumptions used in calculating the fair value of options granted using the Black-Scholes option pricing model are as follows: |
i) The outstanding 19,000,000 stock options granted on April 16, 2010 and will expire on April 16, 2015: |
|||||
Grant date: | 4/16/2010 |
||||
Risk-free interest rate |
3.25% |
||||
Expected life of the options | 5.00 years |
||||
Expected volatility | 250% |
||||
Expected dividend yield | 0 |
F-16
CHINA MEDIA GROUP CORPORATION |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 5 |
|
2007 Stock Incentive Plan |
|
|
|
|
|
Warrants |
|
|
|
NOTE 6 |
|
a) |
|
b) |
|
c) |
|
d) |
|
F-17
CHINA MEDIA GROUP CORPORATION |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 7 | DUE FROM RELATED PARTIES |
Due from related parties are summarized as follows: |
|
|
|||
US$ |
US$ |
|||
Advance to supplier | (a) |
254,985 |
231,422 |
|
Due from investment company | (b) |
21,860 |
12,143 |
|
Due from former subsidiary company | (c) |
95,696 |
95,535 |
|
Due from director of subsidiary company | - |
613 |
||
------------------- |
------------------- |
|||
372,541 |
339,715 |
|||
=========== |
=========== |
a) |
|
b) |
|
c) |
|
NOTE 8 |
|
Property and equipment is summarized as follows: |
|
|
|||
US$ |
US$ |
|||
Cost | ||||
Furniture, fixtures and equipment | 4,824 |
7,216 |
||
Computers | 8,058 |
8,058 |
||
Automobile | 47,951 |
47,951 |
||
------------------- |
------------------- |
|||
60,833 |
63,225 |
|||
Accumulated depreciation | (58,601) |
(48,181) |
||
------------------- |
------------------- |
|||
Balance at end of year | 2,232 |
15,044 |
||
=========== |
=========== |
F-18
CHINA MEDIA GROUP CORPORATION |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 9 |
|
|
|
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. |
|
NOTE 10 |
|
|
|
|||
US$ |
US$ |
|||
Balance at beginning of year | - |
4,791,676 |
||
Impairment charge during year | - |
(4,791,676) |
||
Goodwill on acquisition of subsidiary during year | - |
- |
||
------------------- |
------------------- |
|||
Balance at end of year | - |
- |
||
=========== |
=========== |
NOTE 11 |
|
Other payables and accruals are summarized as follows: |
||||
|
|
|||
US$ |
US$ |
|||
Accrued salaries and wages | 25,715 |
25,694 |
||
Accrued interest | 17,294 |
12,629 |
||
Accrued accounting, legal and consulting fee | 245,323 |
218,823 |
||
Accrued office and related expenses | 3,685 |
96,182 |
||
Other payables | a |
112,775 |
97,804 |
|
Other payables to staff | - |
76,951 |
||
Deposit from customers | 19,604 |
19,571 |
||
------------------- |
------------------- |
|||
Balance at end of year | 424,396 |
547,654 |
||
=========== |
=========== |
a) |
|
F-19
CHINA MEDIA GROUP CORPORATION |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 12 |
|
|
NOTE 13 |
|
|
NOTE 14 |
|
|
December 31, 2011 |
December 31, 2010 |
|||
US$ |
US$ |
|||
Due to shareholders | (a) |
1,497,634 |
698,889 |
|
Due to directors of subsidiary companies | (b) |
159,347 |
156,499 |
|
------------------- |
------------------- |
|||
1,656,981 |
855,388 |
|||
=========== |
=========== |
|
(b) The amount due to directors of subsidiary companies is interest free, unsecured and repayable on demand. |
NOTE 15 |
|
|
|
|||
US$ |
US$ |
|||
Shareholder Loan | 2,000,000 |
2,000,000 |
||
=========== |
=========== |
|
F-20
NOTE 16 | RELATED COMPANY TRANSACTIONS |
|
|
NOTE 17 |
|
|
|
|
There was no significant difference between reportable income tax and statutory income tax. The gross deferred tax asset balance as of December 31, 2011 and 2010 was approximately $4,694,677 and $4,624,137, respectively. A 100% valuation allowance has been established against the deferred tax assets, as the utilization of the loss carry-forwards cannot reasonably be assured. A reconciliation between the income tax computed at the Hong Kong and PRC China statutory rate and the Group's provision for income tax is as follows: |
|
|
||||
----------------------- |
-------------------- |
||||
Hong Kong statutory rate | 16.5% |
16.5% |
|||
Valuation allowance - Hong Kong rate | (16.5%) |
(16.5%) |
|||
PRC China Enterprise Income Tax | 25% |
25% |
|||
Valuation allowance - PRC rate | (25%) |
(25%) |
|||
---------------------- |
-------------------- |
||||
Provision for income tax | - |
- |
|||
============= |
============ |
CHINA MEDIA GROUP CORPORATION |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 19 |
|
For management purposes, the Group currently organized into three operating units - advertising, telecommunication devices, and other services. Turnover represents the net amounts received and receivable for goods sold or services provided by the Group during the year. These units are the basis on which the Group reports its primary segment information. Segment information about these businesses is presented below. |
Advertising |
Telecommunication Device |
Product Services |
Consolidated |
|||||||||
For the year |
For the year |
For the year |
For the year |
|||||||||
2011 |
2010 |
2011 |
2010 |
2011 |
2010 |
2011 |
2010 |
|||||
US$ |
US$ |
US$ |
US$ |
US$ |
US$ |
US$ |
US$ |
|||||
Turnover | 142,132 |
52,389 |
- |
- |
- |
7,341 |
142,132 |
59,730 |
||||
======= |
======= |
======= |
====== |
====== |
====== |
========= |
========= |
|||||
Segment results | 91,579 |
(4,815,274) |
(187) |
(4,685) |
- |
1,498 |
91,392 |
(4,818,461) |
||||
======= |
======= |
======= |
====== |
====== |
====== |
|||||||
Unallocated corporate income | 251,538 |
45 |
||||||||||
Unallocated corporate expenses | (258,449) |
(602,440) |
||||||||||
-------------- |
-------------- |
|||||||||||
Profit / (Loss) from operations | 84,481 |
(5,420,856) |
||||||||||
Finance costs | (183,785) |
(176,885) |
||||||||||
-------------- |
-------------- |
|||||||||||
Loss for the period | (99,304) |
(5,597,741) |
||||||||||
========= |
========= |
|||||||||||
As at December 31 |
||||||||||||
2011 |
2010 |
|||||||||||
ASSETS | ||||||||||||
Segment assets | 1,682 |
12,679 |
285,468 |
356,283 |
81,556 |
170,000 |
368,706 |
538,962 |
||||
Unallocated corporate assets | 341,375 |
270,441 |
||||||||||
-------------- |
-------------- |
|||||||||||
Consolidated total assets | 710,081 |
809,403 |
||||||||||
========= |
========= |
|||||||||||
LIABILITIES | ||||||||||||
Segment liabilities | 128,171 |
140,036 |
(9,715) |
(9,528) |
- |
- |
118,456 |
130,508 |
||||
Unallocated corporate liabilities | 4,747,570 |
4,774,994 |
||||||||||
-------------- |
-------------- |
|||||||||||
Consolidated total liabilities | 4,866,026 |
4,905,502 |
||||||||||
========= |
========= |
|||||||||||
Depreciation of fixed assets | 10,998 |
11,422 |
1,183 |
1,370 |
- |
- |
12,181 |
12,792 |
||||
======= |
======= |
======= |
====== |
====== |
====== |
========= |
========= |
F-22
CHINA MEDIA GROUP CORPORATION |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 20 |
|
(a) |
Future minimum rental payments under non-cancelable operating leases as at December 31, 2011 are $84,977. |
(b) |
|
(c) |
|
NOTE 21 |
|
(a) |
|
(b) |
|
F-23
Exhibit 21.1 |
Subsidiaries of the Company |
Company | Place of Incorporation | Percentage held |
|
----------------- | --------------------------- | --------------------- |
|
1 |
Ren Ren Media Group Ltd | Hong Kong | 100% |
2 |
Good World Investments Ltd | British Virgin Islands | 100% |
3 |
Beijing Ren Ren Health Culture Promotion Ltd | PRC | 50% |
4 |
ATC Marketing Ltd | Hong Kong | 50% |