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U.S. Securities and Exchange Commission

Washington, D.C. 20549

 

FORM 10-K

 

Annual Report Under Section 13 or 15(d) of The Securities Exchange Act of 1934 for the Fiscal Year Ended December 31, 2013

 

[ ] Transition Report Under Section 13 or 15(d) of The Securities Exchange Act of 1934 for the Transition Period from _______ to _______

Commission File Number: 000-53009

 

CAM Group, Inc.

(Exact name of small business issuer as specified in its charter)

 

Nevada 57-1021913
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)  

 

Jixing Building, 151 Shengli Avenue North, Shijiazhuang,

Hebei Province, P.R. China 050041

(Address of principal executive offices)

+86-0311-8696-4264

(Issuer's telephone number)


Securities registered under Section 12(b) of the Act:

Title of each class  

Name of each exchange

on which registered

None   Not Applicable

 

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

Common Stock, $.001 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 [ ] No [x]

 

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 [ ] No [x]

 

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

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files). Yes [x] No [ ]

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this Chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy of information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K. Yes [ ] No [x]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

                   
Large accelerated filer £   Accelerated filer £     Non-accelerated filer £     Smaller reporting company S  
        (Do not check if a smaller reporting company)      

 

 

Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the exchange act). Yes [ ] No [x]

 

The Registrant’s revenues for its fiscal year ended December 31, 2013 were $6,660,120.

 

The aggregate market value of the voting stock on April 15, 2014 (consisting of Common Stock, $0.001 par value per share) held by non-affiliates was approximately $656,075 based upon the most recent sales price ($0.10) for such Common Stock on April 15, 2014, there were 25,295,000 shares of our Common Stock issued and outstanding, of which approximately 6,560,750 shares were held by non-affiliates.

 

Number of shares of the registrants’ common stock outstanding as of April 15, 2013: 25,075,000

 

DOCUMENTS INCORPORATED BY REFERENCE

None

 

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TABLE OF CONTENTS

 

PART I:

 

Item 1. Business

Item 1A. Risk Factors

Item 1B. Unresolved Staff Comments

Item 2. Properties

Item 3. Legal Proceedings

Item 4. (Removed and Reserved)

 

PART II:

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Item 6. Selected Financial Data

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Item 8. Financial Statements and Supplementary Data

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Item 9A. Controls and Procedures

Item 9A(T). Controls and Procedures

Item 9B. Other Information

 

PART III:

 

Item 10. Directors, Executive Officers and Corporate Governance

Item 11. Executive Compensation

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Item 13. Certain Relationships and Related Transactions, and Director Independence

Item 14. Principal Accounting Fees and Services

 

PART IV:

 

Item 15. Exhibits, Financial Statement Schedules

 

SIGNATURES:

 

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The Business section and other parts of this Annual Report on Form 10-K (“Form 10-K”) contain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties. Many of the forward-looking statements are located in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Forward-looking statements can also be identified by words such as “future,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “will,” “would,” “could,” “can,” “may,” and similar terms. Forward-looking statements are not guarantees of future performance and the Company’s actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in Part I, Item 1A of this Form 10-K under the heading “Risk Factors,” which are incorporated herein by reference. Each of the terms the “Company”, “we” and “our” as used herein refers collectively to refers to CAM Group, Inc., its subsidiaries and predecessors, unless indicated otherwise. The Company assumes no obligation to revise or update any forward-looking statements for any reason, except as required by law.

 

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ITEM 1. Business

Company Background

As used herein the terms "We", the "Company", "CAMG", the "Registrant," or the "Issuer" refers to CAM Group, Inc., formerly known as “RT Technologies, Inc.”, its subsidiaries and predecessors, unless indicated otherwise. The Company was originally incorporated as Savannah River Technologies, Inc. under the laws of the State of South Carolina on March 2, 1995. On July 20, 2007, the Company formed a corporation pursuant to the laws of the State of Nevada having a par value of $0.001 for both the preferred and common stock. On August 11, 2007, the stockholders of the Company approved a change of corporate domicile which resulted in the dissolution of the South Carolina Corporation and the Company became domiciled in the State of Nevada. On September 13, 2012, the Company changed its name to CAM Group Inc. (“CAMG”) to more accurately reflect its business after a stock exchange transaction set forth below.

On April 17, 2012, CAMG completed a stock exchange transaction with China Agriculture Media Group Co., Ltd (“CAM Group”). CAM Group is organized and exists under the laws of Hong Kong Special Administrative Region of the People’s Republic of China (the “PRC”), which was incorporated on March 30, 2011. CAM Group is an investment holding company, whose only asset is 100% equity interest in China Agriculture Media (Hong Kong) Group Co. Ltd. (“CAM HK”). CAM HK is an investment holding company organized and exists under the laws of Hong Kong Special Administrative Region of PRC, with its only asset being a 98% equity interest in China Agriculture Media (Hebei) Co. Ltd. ( “CAM Hebei”). CAM Hebei was established in the Hebei Province, PRC on November 28, 2011 as a Chinese domestic enterprise. Immediately upon the Closing date, CAMG issued to the CAM Group shareholders 22,500,000 new investment shares of CAMG Common Stock and 1,000,000 shares of CAMG super-voting Preferred Stock to the CAMG Shareholders in exchange for all of their shares of registered capital stock of CAM Group. Upon completion of the exchange, CAM Group and its subsidiaries became subsidiaries of CAMG and the former owners of CAM Group then owned a ‘controlling interest’ in CAMG representing 98% of the voting shares of CAMG and 90% of the issued and outstanding shares of Common Stock. Our corporate structure after closing is set forth as follows:

CAM Group, Inc. (f/k/a RT Technologies, Inc.)
100%

 

China Agriculture Media Group Co., Ltd.
100%

 

China Agriculture Media (Hong Kong) Group Co., Ltd.
China Agriculture Media (Hebei) Co., Ltd.
98%

 

CAMG, CAM HK and CAM Hebei are hereafter collectively referred to as the “Company”.

CAMG manages the operations of CAM Hebei, a company which is principally engaged in developing the Chinese agricultural and consumer market. CAMG is building and growing its core business in advertising, wholesale and retail sales and is analyzing new market opportunities that would allow management to strategically expand into additional profitable and synergistic markets.

Current Business

Through December 31, 2013, CAMG has acquired marketing rights to a comprehensive retail network composed of up to 16,000 retail stores located in Hebei province that are currently owned and operating under the state-owned system of China Supply and Marketing Cooperative Association (“China Co-Op”) and China National Agricultural Means of Production Group Corporation (“National AMP”) and have been in operation for 60 years (the “Network”). CAMG does not have ownership of stores within the Network. It draws a large percentage of the region’s farming population who take advantage of government subsidized agricultural products only sold within the Network stores. Although farmers are free to visit stores outside the Network, the restrictions on the sale of fertilizer products and subsidized pricing of the Network significantly reduce competition. As a result, our Network has a “captive” audience consisting of farmers who would otherwise be priced out of purchasing fertilizer at other locations because these government subsidies are only available within the Network. It is CAMG’s objective to capitalize on the buying power of this captive market with additional products.

CAMG’s primary source of revenues is from selling advertising time on monitors it has installed on the outside of 300 Network stores. The Network covers a rural population of over 40 million people or approximately 55% of Hebei’s 70 million residents and is managed by Hebei Agricultural Means of Production Co. Ltd. (“Hebei AMP”) Hebei AMP is a related party of the Company by common shareholders.

Advertising tools such as LCD displays, posters, and outdoor billboards will be available for potential clients who are intended to develop Chinese rural market, to advertise their products. These tools will also assist clients to build their corporate images, and assist government departments in providing general public service announcements to local residents.

By utilizing existing resources, such as the facilities, network and experience of the Company’s strategic partners, Hebei AMP and China Co-Op Hebei, CAMG can promptly establish its access to the rural retail market. The Company will act as the exclusive sales and advertising agent for up to 16,000 retail outlets located in Hebei province and strives to assist our clients to promote suitable products attractive to the rural consumer.

As of April 14, 2014, our advertising agreement with Hebei AMP had not been extended. As a result, we will not have any revenues during the first quarter of 2014. We are not certain as to whether the Hebei AMP agreement will be executed or whether we will enter into advertising agreements with other parties.

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Our Products and Services

Advertising Solutions

CAMG generates advertising service revenues from the sale of time slots in out-of-home television advertising networks and through the sales of frame space on poster frames and on traditional billboard networks.

CAMG will ultimately establish an advertising network primarily by installing LCD displays in up to 16,000 retail outlets within the Network. Clients including service providers, product manufacturers and government agencies will be able to utilize our advertising network to build corporate images, promote their products and spread the governments’ latest policies and news. Compared to traditional print ads and posters, we believe LCD’s offer the following advantages:

  Ability to immediately alter or edit content

 

  Higher return on investment by sharing space with multiple clients

 

  High resolution graphics and increased visual appeal

 

  Flexible distribution of content

 

Although LCD’s display have many advantages, other advertising channels are also valuable. For example, a tire manufacturer may want to have outdoor billboards placed near highways to catch drivers’ attention; a manufacturer may want to use leaflets to promote their products; or an insurance company may prefer to use a brochure to elaborate on various insurance plans. Therefore, CAMG will continue to develop a choice of advertising channels including:

  LCD displays (26 or 32 inches)

 

  Poster boards displayed on metal racks

 

  Posters and outdoor billboards

 

  Brochures and leaflets

 

Clients can choose the means of advertising based on the characteristics of their products or needs. The major advantages of using CAMG’s advertising service include:

  Broad coverage

 

  High market penetration

 

  Cost-effective and efficient

 

  Customizable service packages

 

Wholesale and Retail Solutions

CAMG currently has the sole right to manage and operate sales areas under CAMG’s administration within the Network. It can distribute consumer goods directly to the Network rather than going through various levels of distributors. By utilizing the existing resources, such as the facilities, network and experience of our strategic partners, CAMG can promptly establish its access to the rural retail market. The main features of our merchandising service include:

  Providing clients with instant access to the rural retail market

 

  Lowering traditional barriers to entry into the rural market

 

  Providing integrated services including merchandising, logistics, and advertising

 

  Saving clients’ time in establishing their own retail network

 

  Giving clients an opportunity to increase existing market share

 

The clients can distribute their products by themselves, send promoters to the stores, and advertise products using their own resources. However, they are free to choose our value-added services to ease operations and lower capital costs in the stores. CAMG offers logistic, storage, advertising, product and store management services for clients who are interested in minimizing their operating risk.

Business Revenue Model

CAMG will continue to focus on developing the Network.

Advertising Business

CAMG installed the first batch of 300 LCD display in the Network during 2012. CAMG plans to charge at least RMB 2.54 ($0.41) per second for a 30-second video broadcasting 60 times per day within the Network when the number of LCD display is less than 3,000. The price per second will be increased when the number of LCD display exceeds 3,000 to reflect the increasing influence from the Network. The LCD displays will operate up to 12 hours a day in some locations and allow a maximum capacity of 15.8 million seconds per year available for sale.

CAMG is also planning to execute agreements for the development of outdoor billboards and expects to operate approximately 20 locations by the end of 2013. In addition, clients can place posters in the Network of stores in Hebei Province.

Wholesale and Retail Business

CAMG plans to generate wholesale and retail commissions by selling different kinds of products in the Network. CAMG will select appropriate products among prospective product manufacturers and/or chain store companies so that the products match the needs of the rural population.

CAMG will provide value-added services in store management, logistics and warehousing. These value-added services will be calculated based on a pre-determined percentage of sales volume.

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Contractual Agreements with Hebei Agricultural Means of Production Co., Ltd. (Related Party and major shareholder through a trustee holding)

Advertising Revenues

After completing the installation of the LCD displays in 2012, CAMG has entered an advertising services contract with Hebei AMP, pursuant to which Hebei AMP agrees to purchase a total of 15,768,000 seconds per year for LCD advertising time at a rate of no less than RMB2.54 (USD0.41), starting from June 2012 to December 2013. During the year of 2013, CAMG generated all its advertising revenues from its major related party Hebei AMP in the amount of $6,641,060. As of April 14, 2014, our advertising agreement with Hebei AMP was not renewed. As a result, we had no revenues in the first quarter of 2014 and without a renewal of the agreement or agreements with other third parties, we may not have any sources of revenue.

Services revenues

Starting from December 2012, CAMG serves as an agent for Hebei AMP in fertilizer trading and generated all its revenues of $19,060 from the services provided in 2013. These services are generally billed on a time-cost plus basis. Revenue is recognized when services are rendered, products have been delivered, payments have been received, and risk of ownership has been transferred and accepted by the customers.

Target Market and Audience

Hebei Province

CAMG will continue to focus its efforts on developing its advertising, retail and wholesale sales in the Network. Hebei province is an agriculturally dominant province and an ideal location for developing the Chinese rural market. The following lists some key attributes of Hebei province:

  40 million rural population; total population of approximately 70 million; ranked 6th in China.

 

  Natural birth rate is 6.5%.

 

  Gross GDP of RMB 1.7 trillion ($270 billion); ranked 6th in China

 

  Gross production of grains in Hebei reached 29 billion kilograms, which is 5.5% of the nation; ranked 7th in China

 

  One of the 13 grain production provinces in China; Hebei uses 6.3 million hectares as farmland for grains.

 

The income per capita of rural population increased from RMB 2,253 ($353) in 2000 to RMB 5,153 ($807) in 2009, and it is expected to keep increasing under a series of supportive governmental policies.

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Source: National Bureau of Statistics of China

 

Marketing Strategy

Market Development for Advertising Business

CAMG will target mature enterprises who want to build their corporate images in the rural market, such as national telecom providers, state-owned banks and large fertilizer manufacturer.

Our own market research has indicated that local service providers such as banks and hospitals are using various channels such as newspaper and television to advertise their services in the rural markets. CAMG will provide other channels for governmental departments to educate the rural population and spread news and the latest public policies. We provide a cost efficient and effective solution compared to TV advertising and focus on out–of-home rather than in-home advertising.

Under the guidance of current rural development policy promulgated by the government, various programs such as culture broadcast programs, policy publishing and others could be implemented into our advertising channel.

Market Development for Wholesale and Retail Business

We believe CAMG offers an attractive, cost-effective alternative for established retailers and consumer products companies to access the rural market without incurring the full cost and risk of prematurely entering or over-expending into the rural provinces. However, the profit margin of cooperating with these companies may be lower because their products are mature and they have relatively more bargaining power. CAMG will provide recommendations to prospective clients based on our market research of spending behavior in the rural market.

CAMG will cooperate with other media companies such as radio stations, television stations, and magazines to promote its clients.

Market Expansion for Advertising Business

CAMG will place LCD displays in the agricultural retail stores in Hebei province. It will also use outdoor billboards and poster frames as a medium for advertisement. Once we have achieved the goal of developing the Network, CAMG will apply its business model to other northern provinces of China and hopes to gradually expand to all rural areas in China.

Cost Management

CAMG plans to control the costs of their advertising network by placing advertising channels such as LCD displays and kiosks in targeted public areas in order to take advantage of relatively low maintenance overhead.

Existing Client Base

Hebei AMP has been operating over 60 years and is one of the authorized companies by the PRC central government to sell chemical fertilizers in Hebei Province, and as a result, there is an existing pool of agricultural product manufacturers and consumers who are loyal to the Network stores. We believe this existing client base and loyalty towards the Network stores will create an opportunity for CAMG’s rapid growth in Hebei Province.

Competition

CAMG competes with other companies in advertising area such as Focus Media, JCDecaux, ClearMedia, SearchMedia, AirMedia and VisionChina and the branded, like 7-11, and independent stores in China.

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Comparison to Competitors and Competitive Advantage

Developing the Rural Market

Focus Media, AirMedia and VisionChina mainly expand their advertising networks within commercial buildings in urban cities, airports, and mass transportation systems respectively. The Company’s advertising business model is very similar to the business model of our competitors, but CAMG focuses on the national rural market which has relatively less competition compared to the urban areas. Although the income per capita of rural population is less than that of urban population, the volume of this market should compensate for the income gap between the rural and urban population.

Rural LCD Network

LCD display advertising is relatively new in rural areas of the PRC. CAMG management believes LCD technology could attract the attention of local people who may be curious about the new technology and as a result buy our advertised merchandise.

Mature Network

The Network has over 60 years of operating history, among it, Hebei AMP developed 19 large-scale logistic centers and more than 120 regional distribution centers. The total retail locations are approximately 16,000.

Barriers to entry

The barriers to entering the advertising market in Hebei Province and establishing an LCD network of this size would be unattainable without enormous amounts of capital. By leveraging the pre-existing Network, and utilizing existing logistics systems, CAMG management believes that CAMG can effectively reduce market costs and substantially lower its barriers to entry in this market. Since Hebei AMP is a state-owned company and the Chinese government has officially granted them the rights to manage the 16,000 retail locations in Hebei province covering a rural population of over 40 million people or approximately 55% of Hebei’s 70 million residents, the Company believes that other outdoor advertising companies will be at a competitive disadvantage to us.

Outsourcing

The development of our LCD network will be work intensive and likely require us to outsource additional employees for installation of the LCD screens. We installed the first batch of 300 LCD displays in the Network during 2012 and are evaluating and monitoring the cost effectiveness of continued expansion as compared to expansion into parallel and new markets. These stores are unevenly distributed amongst the rural areas of Hebei, and it is difficult to calculate the exact travel distance between each of them. The management team believes that it is not feasible to build a single engineering team to complete this task, therefore, we will outsource future installation to third parties.

Government Regulation

PRC regulations require any foreign entities that invest directly in the advertising services industry to have at least two years of direct operations in the advertising industry outside of China. Since December 10, 2005, foreign investors have been allowed to own directly 100% of PRC companies operating an advertising business if the foreign entity has at least three years of direct operations in the advertising business outside of China or less than 100% if the foreign investor has at least two years of direct operations in the advertising industry outside of China.

Current PRC regulations do not restrict domestic companies controlled by Wholly Foreign-Owned Enterprise (“WFOEs”) through contractual arrangements from operating advertising businesses. Nevertheless, PRC governmental authorities may in the future deem that such business operations by domestic companies controlled by WFOEs evade the qualifications requirements on foreign investment in the advertising industry, and thus, restrict our business operations.

Despite these restrictions, the PRC restriction on foreign investment in the advertising industry does not expressly apply to the investment activities of WFOEs, and starting from late 2007, the advertising industry has been re-classified from a “restricted” area to a “permitted” area for foreign investment. Thus, WFOEs may establish subsidiaries in China to operate advertising business directly in China. However, the PRC governmental authority may determine in the future that such indirect investments evade the qualification requirements on foreign investment in the advertising industry and thus bans such investment activities.

Relevant PRC regulatory authorities, including the State Administration for Industry and Commerce, or SAIC, which regulates advertising companies, and the Ministry of Commerce, which regulates foreign investments in China, have broad discretion in regulating business entities, including:

  · Imposing fines or other monetary penalties on PRC subsidiaries or affiliates;

 

  · Revoking the business and operating licenses of PRC subsidiaries and affiliates;

 

  · Discontinuing or restricting PRC subsidiaries’ and affiliates’ operations;

 

  · Imposing conditions or requirements that are impossible to comply with;

 

  · Requiring a restructuring of the relevant ownership structure or operations; or

 

  · Restricting or prohibiting the use of the proceeds of any offering or from other sources to finance business and operations in China.

 

Tax

The New Law, and the implementation regulations to the New Law issued by the PRC State Council, became effective as of January 1, 2008. Under the New Law, China adopted a uniform tax rate of 25% for all enterprises (including domestically-owned enterprises and foreign-invested enterprises) and revoked the previous tax exemption, reduction and preferential treatments applicable to foreign-invested enterprises. There is a transition period for enterprises, whether foreign-invested or domestic, which received preferential tax treatments granted by relevant tax authorities prior to January 1, 2008. Enterprises that were subject to an enterprise income tax rate lower than 25% prior to January 1, 2008 may continue to enjoy the lower rate and gradually transition to the new tax rate within five years after the effective date of the New Law subject to relevant transaction rules. Enterprises that were entitled to exemptions or reductions from the standard income tax rate for a fixed term prior to January 1, 2008 may continue to enjoy such treatment until the fixed term expires. Preferential tax treatments may be granted to industries and projects that are strongly supported and encouraged by the state, and enterprises that qualify as “High and New Technology Enterprise” (“HNTE”) are entitled to a 15% enterprise income tax rate.

Other relevant PRC tax regulations include the PRC Enterprise Income Tax Law, or the EIT Law, and the implementation regulations for the EIT Law issued by the PRC State Council, effective as of January 1, 2008. The EIT Law provides that enterprises established outside of China whose “de facto management bodies” are located in China are considered “resident enterprises” and are generally subject to the uniform 25% enterprise income tax rate as to their worldwide income. Under the implementation regulations for the EIT Law issued by the PRC State Council, “de facto management body” is defined as a body that has material and overall management and control over the manufacturing and business operations, personnel and human resources, finances and treasury, and acquisition and disposition of properties and other assets of an enterprise. Although substantially all of our operational management is currently based in the PRC, it is unclear whether PRC tax authorities would require (or permit) us to be treated as a PRC resident enterprise.

Under the EIT Law and implementation regulations issued by the State Council, PRC income tax at the rate of 10% is applicable to dividends payable to investors that are “non-resident enterprises,” which do not have an establishment or place of business in the PRC, or which have such establishment or place of business but the relevant income is not effectively connected with the establishment or place of business, to the extent such dividends have their sources within the PRC. Similarly, any gain realized on the transfer of shares by such investors is also subject to 10% PRC income tax if such gain is regarded as income derived from sources within the PRC.

Similarly, any gain realized on the transfer of shares by such investors is also subject to 10% PRC income tax if such gain is regarded as income derived from sources within the PRC.

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Foreign Currency Exchange

Under the PRC foreign currency exchange regulations applicable to us, the RMB is convertible for current account items, including the distribution of dividends, interest payments, trade and service-related foreign exchange transactions. Conversion of RMB for capital account items, such as direct investment, loan, security investment and repatriation of investment, however, is still subject to the approval of the PRC State Administration of Foreign Exchange, or SAFE. Foreign-invested enterprises may only buy, sell and/or remit foreign currencies at those banks authorized to conduct foreign exchange business after providing valid commercial documents and, in the case of capital account item transactions, obtaining approval from SAFE. Capital investments by foreign-invested enterprises outside of the PRC are also subject to limitations, which include approvals by the Ministry of Commerce, SAFE and the State Reform and Development Commission.

The People’s Bank of China, or PBOC, sets and publishes daily a Base Exchange rate with reference primarily to the supply and demand of Renminbi against a basket of currencies in the market during the prior day. The PBOC also takes into account other factors, such as the general conditions existing in the international foreign exchange markets. Since 1994, the conversion of Renminbi into foreign currencies, including Hong Kong dollars and U.S. dollars, has been based on rates set by the PBOC, which are set daily based on the previous day’s inter-bank foreign exchange market rates and current exchange rates in the world financial markets. From 1994 to July 20, 2005, the official exchange rate for the conversion of Renminbi to U.S. dollars was generally stable. Although PRC governmental policies were introduced in 1996 to reduce restrictions on the convertibility of Renminbi into foreign currency for current account items, conversion of Renminbi into foreign exchange for capital items, such as foreign direct investment, loans or securities, requires the approval of the State Administration for Foreign Exchange and other relevant authorities. On July 21, 2005, the PRC government introduced a managed floating exchange rate system to allow the value of the Renminbi to fluctuate within a regulated band based on market supply and demand and by reference to a basket of currencies. On the same day, the value of the Renminbi appreciated by 2.0% against the U.S. dollar. Since then, the PRC government has made, and may in the future make, further adjustments to the exchange rate system. The PBOC announces the closing price of a foreign currency traded against the Renminbi in the inter-bank foreign exchange market after the closing of the market on each working day, and makes it the central parity for the trading against the Renminbi on the following working day.

In January and April 2005, the PRC State Administration of Foreign Exchange, or SAFE, issued two rules that require PRC residents to register with and receive approvals from SAFE in connection with their offshore investment activities. SAFE has announced that the purpose of these regulations is to achieve the proper balance of foreign exchange and the standardization of the cross-border flow of funds.

On October 21, 2005, SAFE issued the Notice on Issues Relating to the Administration of Foreign Exchange in Fundraising and Reverse Investment Activities of Domestic Residents Conducted via Offshore Special Purpose Companies, or Notice 75, which became effective as of November 1, 2005. Notice 75 replaced the two rules issued by SAFE in January and April 2005 mentioned above. According to Notice 75:

  · Prior to establishing or assuming control of an offshore company for the purpose of financing that offshore company with assets or equity interests in an onshore enterprise in the PRC, each PRC resident, whether a natural or legal person, must complete the overseas investment foreign exchange registration procedures with the relevant local SAFE branch;

 

  · An amendment to the registration with the local SAFE branch is required to be filed by any PRC resident that directly or indirectly holds interests in that offshore company upon either (1) the injection of equity interests or assets of an onshore enterprise to the offshore company, or (2) the completion of any overseas fund raising by such offshore company; and

 

  · An amendment to the registration with the local SAFE branch is also required to be filed by such PRC resident when there is any material change involving a change in the capital of the offshore company, such as (1) an increase or decrease in its capital, (2) a transfer or swap of shares, (3) a merger or division, (4) a long term equity or debt investment, or (5) the creation of any security interests over the relevant assets located in China.

 

Notice 75 applies retroactively. As a result, PRC residents who have established or acquired control of offshore companies that have made onshore investments in the PRC in the past are required to complete the relevant overseas investment foreign exchange registration procedures by March 31, 2006. Under the relevant rules, failure to comply with the registration procedures set forth in Notice 75 may result in restrictions being imposed on the foreign exchange activities of the relevant onshore company, including the payment of dividends and other distributions to its offshore parent or affiliate and the capital inflow from the offshore entity, and may also subject relevant PRC residents to penalties under PRC foreign exchange administration regulations.

Dividend Distributions

Under applicable PRC regulations, foreign-invested enterprises in the PRC may pay dividends only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, a foreign-invested enterprise in the PRC are required to set aside at least 10% of their after-tax profit based on PRC accounting standards each year to its general reserves until the cumulative amount of such reserves reach 50% of its registered capital. These reserves are not distributable as cash dividends.

Approvals, Licenses and Certificates

We require a number of approvals, licenses and certificates in order to operate our business. Our principal approvals, licenses and certificates are set forth below.

China Agriculture Media (Hebei) Co., Ltd.

 

  · Business License (No. 130100400009277) issued by the Shijiazhuang Administration of Industry and Commerce, valid from November 28, 2011 to November 27, 2031.

 

China Agriculture Media (Hong Kong) Group Co., Ltd.

 

  · Business License (No. 37902611-000-05-12-0) issued by the Hong Kong Special Administrative Region of the People’s Republic of China, valid from April 05, 2013 to March 05, 2014.

 

 

China Agriculture Media Group Co., Ltd.

 

  · Business License (No. 58158906-000-03-12-3) issue by the Hong Kong Special Administrative Region of the People’s Republic of China, valid from March 30, 2013 to March 29, 2014.

 

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Employees

As of December 31, 2013, CAM Hebei has 11 full-time employees and 5 part-time employees. The company expects to hire 14 more employees in 2014.

In addition CAMG will continue to share Hebei AMP’s existing workforce in most phases of development. This will consist of all levels of personnel.

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the following factors, which could materially affect our business, financial condition or future results. The risks described below are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or results of operations.

Risks Related to Our Business and Industry

We rely on our related party for a significant portion of our business. If we are unable to maintain good relationships with our related party, our business could suffer. Through December 31, 2013, all of our revenues were derived from Hebei AMP, a related party and major shareholder through a trustee holding through common management located in the PRC. Our advertising agreement with Hebei ended on December 31, 2013 and has not been renewed. As a result, we had no revenues through the first quarter of 2014. We cannot assure that we will be able to enter into new agreements with Hebei AMP or other parties on terms favorable to us, or at all, and any future agreement may expose us to risks that our partner might fail to fulfill its obligations and delay commercialization of our products. We also could become involved in disputes with Hebei AMP, which could lead to delays in or terminations of our development and commercialization programs and time consuming and expensive litigation or arbitration. Our inability to enter into collaborative arrangements with other partners, or our failure to maintain such arrangements, would limit the number of product candidates which we could develop and ultimately, decrease our sources of any future revenues.

Our failure to maintain existing relationships with Hebei AMP, National AMP and China Co-op or obtain new relationships that allow us to place our LCD flat-panel displays, advertising poster frames and outdoor traditional and LED digital billboards in desirable locations would harm our business and prospects.

·We will derive a substantial majority of our revenues from the provision of advertising services, and advertising is particularly sensitive to changes in economic conditions and advertising trends. We may be unable to adequately deal with these changing conditions and trends that could have a negative impact on our financial statements and the value of your investment.

 

·Our operating results are difficult to predict and may fluctuate significantly from period to period in the future resulting in uncertainty and lower pricing for our shares.

 

·Failure to manage our growth and operations could strain our management, operational and other resources and we may not be able to achieve anticipated levels of growth in the new networks and media platforms we operate, either of which could materially and adversely affect our business and growth potential.

 

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

 

·We may be deemed a PRC resident enterprise under the PRC Enterprise Income Tax Law and be subject to the PRC taxation on our worldwide income which could create losses or a significant reduction in our net income and a decrease in the value of your shares.

 

The newly enacted PRC Enterprise Income Tax Law, or the New Law, and the implementation regulations to the New Law issued by the PRC State Council, became effective as of January 1, 2008. The New Law provides that enterprises established outside of China whose “de facto management bodies” are located in China are considered “resident enterprises” and are generally subject to the uniform 25% enterprise income tax rate as to their worldwide income. Under the implementation regulations for the New Law issued by the PRC State Council, “de facto management body” is defined as a body that has material and overall management and control over the manufacturing and business operations, personnel and human resources, finances and treasury, and acquisition and disposition of properties and other assets of an enterprise.

 

Further, on April 22, 2009, the State Administration of Tax (“SAT”) issued a Tax Circular, Guoshuifa [2009] No. 82 on Certain Issues regarding the Determination of Offshore Companies Controlled by PRC Companies as Resident Enterprises pursuant to “De Facto Management Bodies” Standard, or Circular 82, which took effect on January 1, 2008. According to Circular 82, any company established pursuant to laws and regulations other than PRC laws but that is controlled by companies or company groups within China shall be deemed as a resident enterprise for PRC tax purposes if all the following conditions are met: (i) the senior management in charge of the daily operation and management of the company is based within China or the premises where the senior management performs its duties are located within China; (ii) the financial matters (such as raising funds, financing or financial risk management) and human resources matters (such as appointment and dismissal of employees or their payrolls) are decided by companies or individuals within China or require approval from companies or individuals within China; (iii) primary property, books and accounts, company seals and board and shareholder meeting minutes are kept or placed within China; and (iv) 50% or more of the directors with voting rights or senior management habitually reside within China. According to this Circular 82, in determining the location of de facto management, “substance over form” principle should be followed. Although Circular 82 was issued to regulate the PRC tax resident judgment of companies established overseas and controlled by PRC companies, which is not applicable in our case, the criteria in Circular 82 should be used as a reference to the SAT’s view on this issue.

 

Most of our major board decisions, such as those relating to strategic planning, significant investments, raising funds and all matters related to capital market activities are made outside of the PRC. We are based in Hong Kong, however there is uncertainty regarding whether PRC tax authorities would deem us to be a PRC resident enterprise. If we are treated as a resident enterprise for PRC tax purposes, we will be subject to PRC tax on our worldwide income, which would have an adverse effect on our effective tax rate and net income.

 

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Risks Relating to the People’s Republic of China

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

·The PRC’s economic, political and social conditions, as well as governmental policies, could affect the financial markets in China and our liquidity and access to capital and limit our ability to effectively operate our business.

 

The PRC 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 the PRC economy has experienced significant growth over the past, growth has been uneven, both geographically and among various sectors of the economy. The PRC government has implemented various measures to encourage economic growth 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, under current PRC regulations, since December 10, 2005, foreign entities have been allowed to directly own 100% of a PRC advertising business if the foreign entity has at least three years of direct operations of an advertising business outside of China, or to directly own less than 100% of a PRC advertising business if the foreign entity has at least two years of direct operations of an advertising business outside of China. This may encourage foreign advertising companies with more experience, greater technological know-how and more extensive financial resources than we have to compete against us and limit the potential for our growth. Moreover, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations that are applicable to us.

 

The PRC economy has been transitioning from a planned economy to a more market-oriented economy. Although the PRC government has implemented measures since the late 1970s emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets and the establishment of improved corporate governance in business enterprises, a substantial portion of productive assets in China is still owned by the PRC government. In addition, the PRC government continues to play a significant role in regulating industry development by imposing industrial policies. The PRC government also exercises significant control over China’s economic growth through the allocation of resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. Since late 2003, the PRC government implemented a number of measures, such as raising bank reserves against deposit rates to place additional limitations on the ability of commercial banks to make loans and raise interest rates, in order to slow down specific segments of China’s economy which it believed to be overheating. These actions, as well as future actions and policies of the PRC government, could materially affect our liquidity and access to capital and our ability to operate our business.

 

·If tax benefits currently available to us in PRC were no longer available, our effective income tax rates for our PRC operations could increase. If our PRC tax rates increase we may be unable to operate or turn a profit and you may lose the entire value of your investment.

 

·Dividends we receive from our operating subsidiaries located in the PRC may be subject to PRC withholding tax. As a result, we may be unable to receive income from our operations and our share price could drop significantly.

 

·Restrictions on currency exchange may limit our ability to utilize our revenues effectively. If we are not able to utilize our revenues we may be unable to execute our business plan or compete with other companies in the advertising services market.

 

Substantially all of our revenues and operating expenses are denominated in Renminbi. The Renminbi is currently convertible under the “current account”, which includes dividends, trade and service-related foreign exchange transactions, but not under the “capital account”, which includes foreign direct investment and loans. We cannot assure you that the relevant PRC governmental authorities will not further limit or eliminate our ability to purchase foreign currencies in the future. Since a significant amount of our future revenues will be denominated in Renminbi, any existing and future restrictions on currency exchange may limit our ability to utilize revenues generated in Renminbi to fund our business activities outside China, if any, or expenditures denominated in foreign currencies. Foreign exchange transactions under the capital account are still subject to limitations and require approvals from, or registration with, the State Administration of Foreign Exchange and other relevant PRC governmental authorities. This could affect the ability of each of our operating subsidiaries to obtain foreign exchange through debt or equity financing, including by means of loans or capital contributions from us. It may also restrict our ability to remit amounts overseas including to our Hong Kong holding company. If we transfer amounts to overseas accounts, it may be deemed a dividend paid on profits which is subject to PRC taxation, which could affect the feasibility and efficiency of conducting actions overseas, such as issuing dividends to shareholders, conducting share repurchase programs or otherwise.

 

·Fluctuations in exchange rates could result in foreign currency exchange losses. Such losses could negatively impact our financial statements and in turn negatively affect your shares.

 

Appreciation or depreciation in the value of the Renminbi relative to the U.S. dollar would affect our financial results reported in U.S. dollar terms without giving effect to any underlying change in our business or results of operations.

·The failure to manage growth effectively could have an adverse effect on our employee efficiency, product quality, working capital levels and results of operations. Any such adverse effects could negatively impact the value of your stock.

 

·Failure to comply with the United States Foreign Corrupt Practices Act could subject us to penalties and other adverse consequences resulting in significant losses, disruption to our operations or even a complete failure of the company. As a result you could lose your entire investment.

 

As our ultimate holding company is a U.S. corporation, we are subject to the United States Foreign Corrupt Practices Act, which generally prohibits U.S. companies from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business.

 

·Investors may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing original actions in the PRC based upon U.S. laws, including federal securities laws or other foreign laws against us or our management so you may be unable to ever file a claim against us or receive an enforceable judgment.

 

All of our current business operations are conducted in the PRC. Moreover, our directors and officers are nationals and residents of the PRC or Hong Kong. All the assets of these persons are located outside the United States and in the PRC or Hong Kong. As a result, it may not be possible to effect service of process within the United States or elsewhere outside the PRC and Hong Kong upon these persons. In addition, uncertainty exists as to whether the PRC courts would recognize or enforce judgments of United States courts obtained against us or such officers and/or directors predicated upon the civil liability provisions of the securities laws of the United States or any state thereof, or be competent to hear original actions brought in the PRC against us or such persons predicated upon the securities laws of the United States or any state thereof.

 

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Risks Relating to Investment in Our Securities

·Shares eligible for future sale may adversely affect the market price of our common stock, as the future sale of a substantial amount of outstanding stock in the public marketplace could reduce the price of our common stock.

 

Holders of a significant number of our shares and/or their designees may be eligible to sell our shares of common stock by means of ordinary brokerage transactions in the open market pursuant to Rule 144, promulgated under the Securities Act of 1933, as amended, or Rule 144, subject to certain limitations. In general, pursuant to Rule 144, a non-affiliate stockholder (or stockholders whose shares are aggregated) who has satisfied a six-month holding period, and provided that there is current public information available, may sell all of its securities. Rule 144 also permits the sale of securities, without any limitations, by a non-affiliate that has satisfied a one-year holding period. Any substantial sale of common stock pursuant to any resale prospectus or Rule 144 may have an adverse effect on the market price of our common stock by creating an excessive supply.

 

·If we fail to maintain effective internal controls, we may not be able to accurately report our financial results or prevent fraud, and our business, financial condition, results of operations and reputation could be materially and adversely affected causing the value of your stock to significantly drop.

 

·We do not foresee paying cash dividends in the near future and as a result you will not receive any dividend yield from holding our securities.

 

We do not plan to declare or pay any cash dividends on our shares of common stock in the foreseeable future and currently intend to retain any future earnings for funding growth. As a result, investors should not rely on an investment in our securities if they require the investment to produce dividend income.

 

·We may issue more stock, which could dilute your stock and negatively impact the value of your investment.

 

We may conduct additional capital-raising in order to pursue new market opportunities. To the extent that additional capital is raised through the sale of equity and/or convertible debt securities, the issuance of such securities could result in dilution to shareholders and/or increased debt service commitments. Accordingly, if we issue additional stock, it could reduce the value of your stock.

 

·Our common shares are thinly traded and, you may be unable to sell at or near ask prices or at all if you need to sell your shares to raise money or otherwise desire to liquidate your shares. As a result you may be unable to exit your position and you may lose all or a portion of your investment.

 

We cannot predict the extent to which an active public market for our common stock will develop or be sustained.

Our common shares have historically been sporadically or "thinly-traded" on the over-the-counter markets, meaning that the number of persons interested in purchasing our common shares at or near bid prices at any given time may be relatively small or non-existent. This situation is attributable to a number of factors, including the fact that we are a small company which is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse and would be reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our shares until such time as we became more seasoned and viable. As a consequence, there may be periods of several days or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. We cannot give you any assurance that a broader or more active public trading market for our common stock will develop or be sustained, or that current trading levels will be sustained.

 

The market price for our common stock is particularly volatile given our status as a relatively small company with a small and thinly traded “float” and lack of significant current revenues that could lead to wide fluctuations in our share price. The price at which you purchase our common stock may not be indicative of the price that will prevail in the trading market. You may be unable to sell your common stock at or above your purchase price if at all, which may result in substantial losses to you.

 

·The market for our common shares is characterized by significant price volatility when compared to seasoned issuers, and we expect that our share price will continue to be more volatile than a seasoned issuer for the indefinite future.

 

·Penny stock markets have been prone to abuse in recent years. Such abuse represents an increased risk for you not only because only because our shares may be subject to higher risk of abuse and manipulation but also because our shares will trade at a lower valuation than securities traded on more reputable stock exchanges.

 

Shareholders should be aware that, according to SEC Release No. 34-29093, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. Such patterns include (1) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (2) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (3) boiler room practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (4) excessive and undisclosed bid-ask differential and markups by selling broker-dealers; and (5) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the resulting inevitable collapse of those prices and with consequent investor losses. Our management is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, management will strive within the confines of practical limitations to prevent the described patterns from being established with respect to our securities. The occurrence of these patterns or practices could increase the volatility of our share price and lower our valuation.

 

·The application of the "penny stock" rules could adversely affect the market price of our common stock and increase your transaction costs to sell those shares.

 

As long as the trading price of our common shares is below $5 per share, the open-market trading of our common shares will be subject to the "penny stock" rules. The "penny stock" rules impose additional sales practice requirements on broker-dealers who sell securities to persons other than established customers and accredited investors (generally those with assets in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 together with their spouse). For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchase of securities and have received the purchaser's written consent to the transaction before the purchase. Additionally, for any transaction involving a penny stock, unless exempt, the broker-dealer must deliver, before the transaction, a disclosure schedule prescribed by the Securities and Exchange Commission relating to the penny stock market. The broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements must be sent disclosing recent price information on the limited market in penny stocks. These additional burdens imposed on broker-dealers may restrict the ability or decrease the willingness of broker-dealers to sell our common shares, and may result in decreased liquidity for our common shares and increased transaction costs for sales and purchases of our common shares as compared to other securities.

 

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ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

We lease our office space in Hebei Province, PRC, under a 2-year non-cancelable operating lease agreement which expires on June 30, 2014. The monthly lease payment is approximately $800.

We believe that our existing facilities are well maintained, in good operating condition and sufficient to support growth of the business. As we continue to analyze our business we will re-evaluate our facility needs which could include relocation.

 

ITEM 3. LEGAL PROCEEDINGS

We may be subject to, from time to time, various legal proceedings relating to claims arising out of our operations in the ordinary course of our business. We are not currently a party to any legal proceedings, the adverse outcome of which, individually or in the aggregate, would have a material adverse effect on the business, financial condition, or results of operations of the Company.

ITEM 4. (REMOVED AND RESERVED

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PART II

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

Trading Market for Common Equity

Our common stock currently trades over-the-counter on the OTC Bulletin Board under the designation CAMG. However, to date there has been very limited trading for our common stock. The market price of our common stock is subject to significant fluctuations in response to variations in our quarterly operating results, general trends in the market, and other factors, over many of which we have little or no control. In addition, broad market fluctuations, as well as general economic, business and political conditions, may adversely affect the market for our common stock, regardless of our actual or projected performance. Further, these prices reflect inter-dealer prices without retail mark-up, mark-down, or commission, and may not necessarily reflect actual transactions. The following tables set forth the high and low sale prices for our common stock as reported on the Electronic Bulletin Board for the periods indicated.

  Fourth Quarter   Third Quarter   Second Quarter   First Quarter
                       
2013 price range per share $ 3.50 - .90   $ 2.00 - .75   $ 1.26 - .20   $ .20 - .14
2012 price range per share $ 1.01-3.99   $ 3.99-4.00   $ 2.00-4.00   $ 0.05-0.05
                       

 

General

We are authorized to issue 90,000,000 shares of our common stock, par value $.001 per share and 10,000,000 shares of our preferred stock, par value $.001 per share.

Common Stock

As of April 15, 2014, there were 25,295,000 shares of our common stock issued and outstanding, which were held of record by approximately 355 shareholders.

Holders of Our Common Stock

The holders of our common stock are entitled to one vote for each share held of record on all matters to be voted on by stockholders. There is no cumulative voting with respect to the election of directors, with the result that the holders of more than 50% of the shares voting for the election of directors can elect all of the directors then up for election. The holders of our common stock are entitled to receive dividends when, as and if declared by the board of directors out of funds legally available therefore. In the event of liquidation, dissolution or winding up of the Company, the holders of common stock are entitled to share ratably in all assets remaining which are available for distribution to them after payment of liabilities and after provision has been made for each class of stock, if any, having preference over the common stock. Holders of shares of our common stock, as such, have no conversion, preemptive or other subscription rights, and there are no redemption provisions applicable to the common stock.

Preferred Stock

We are authorized to issue up to 10,000,000 shares of preferred stock. Shares of our preferred stock may be issued from time to time in one or more classes or series, each of which class or series shall have such distinctive designation or title as shall be fixed by the board of directors prior to the issuance any shares thereof. The voting powers, designations, preferences, and relative, participating, optional, or other rights, if any, and the qualifications, limitations, or restrictions, if any, of the preferred stock, in one or more series, shall be as follows:

Series A Preferred Stock. The Company is authorized to issue up to ten million (10,000,000) shares of Preferred Stock, which are hereby designated as “Series A Preferred Stock” with the following rights, preferences, privileges and restrictions, qualifications and limitations. As of December 31, 2013, there were 1,000,000 shares of Series A Preferred Stock issued and outstanding.

Voting Rights. On any matter presented to the common stockholders of the Company for their action or consideration at any meeting of stockholders of the Company (or by written consent of stockholders in lieu of meeting), notice shall be presented to the holders of the Series A Preferred Stock, and each holder of outstanding shares of Series A Preferred Stock shall be entitled to cast 100 votes for each share of Series A Preferred Stock held. Except as provided by law or by the other provisions of this Certificate, holders of Series A Preferred Stock shall vote together with the holders of Common Stock as a single class.

Series A Preferred Stock Protective Provisions. In addition to any other rights provided by law, at any time any shares of Series A Preferred Stock are outstanding, as a legal party in interest, the Company, through action directly initiated by the Company’s Board of Directors or indirectly initiated by the Company’s Board of Directors through judicial action or process, including any action by common shareholders, shall not, either directly or indirectly by amendment, merger, consolidation or otherwise, take any of the following actions without first obtaining the affirmative written consent of 51% of the Series A Holders:

  a. Amend, alter or repeal any provision of the Articles of Incorporation, this Certificate for the Series A Preferred Stock or Bylaws of the Company in a manner that adversely affects the powers, preferences or rights of the Series A Preferred Stock in any respect;

 

  b. Declare or pay any dividends or make any distributions to any holder(s) of Common Stock or other equity security of the Company or purchase or otherwise acquire for value, directly or indirectly, any Common Stock or other equity security of the Company;

 

  c. Sell, transfer or otherwise dispose of any properties, assets and rights including, without limitation, its intellectual property;

 

  d. Create, or authorize the creation of, or issue or obligate itself to issue shares of, any additional class or series of capital stock unless the same ranks junior to the Series A Preferred Stock with respect to dividends, the distribution of assets on the liquidation, dissolution or winding up of the Company, the accrual of payment of dividends and rights of redemption, or increase the authorized number of shares of Series A Preferred Stock or increase the authorized number of shares of any additional class or series of capital stock unless the same ranks junior to the Series A Preferred Stock with respect to the distribution of assets on the liquidation, dissolution or winding up of the Company, or the payment of dividends and rights of redemption;

 

  e. (i) Reclassify, alter or amend any existing security of the Company that is pari passu with the Series A Preferred Stock in respect of the distribution of assets on the liquidation, dissolution or winding up of the Company, the payment of dividends or rights of redemption, if such reclassification, alteration or amendment would render such other security senior to the Series A Preferred Stock in respect of any such right, preference or privilege, or (ii) reclassify, alter or amend any existing security of the Company that is junior to the Series A Preferred Stock in respect of the distribution of assets on the liquidation, dissolution or winding up of the Company, the payment of dividends or rights of redemption, if such reclassification, alteration or amendment would render such other security senior to or pari passu with the Series A Preferred Stock in respect of any such right, preference or privilege;

 

  f. Purchase or redeem (or permit any subsidiaries to purchase or redeem) or pay or declare any dividend or make any distribution on, any shares of capital stock of the Company other than (i) redemptions of or dividends or distributions on the Series A Preferred Stock as expressly authorized herein, (ii) dividends or other distributions payable on the Common Stock solely in the form of additional shares of Common Stock or (iii) repurchases of stock from former employees, officers, directors, consultants or other persons who performed services for the Company or any subsidiaries in connection with the cessation of such employment or service at the lower of the original purchase price or the then-current fair market value thereof;

 

  g. Create, or authorize the creation of, or issue, or authorize the issuance of any debt security, or permit any subsidiaries to take any such action with respect to any debt security, if the aggregate indebtedness of the Company and its subsidiaries for borrowed money following such action would exceed $500,000 other than equipment leases or bank warehouse lines of credit, unless such debt security has received the prior approval of the Board of Directors; provided, however, that the Company may incur up to an aggregate of $3,000,000 for a non-equity linked, non-convertible unsecured debt financing;

 

  h. Create, or hold capital stock in, any subsidiaries that is not wholly owned (either directly or through one or more other subsidiaries) by the Company, or sell, transfer or otherwise dispose of any capital stock of any direct or indirect subsidiaries of the Company, or permit any direct or indirect subsidiaries to sell, lease, transfer, exclusively license or otherwise dispose (in a single transaction or series of related transactions) of all or substantially all of the assets of such subsidiaries; and

 

  i. Initiate any action with a regulatory, governmental, administrative, judicial entity or individual in an attempt to abrogate or diminish in any way the rights, preferences and privileges of these Series A Preferred Stock.

 

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Transfer Agent. So long as any shares of Series A Preferred Stock remain outstanding, the Company shall not change transfer agents without the express written consent of 100% of the Series A Holders.

Redemption. The Series A Preferred Stock shall not be redeemable by the Company.

Re-issuance. No share or shares of Series A Preferred Stock acquired by the Company by reason of conversion, redemption or otherwise shall be reissued as Series A Preferred Stock, and all such shares thereafter shall be returned to the Company’s treasury under the status of undesignated and un-issued shares of Preferred Stock of the Company.

Dividends

Since we have been a public company, we have not paid cash dividends on our common stock. Holders of our common stock are entitled to receive dividends, if any, declared and paid from time to time by the Board of Directors out of funds legally available. We intend to retain any earnings for the operation and expansion of our business and do not anticipate paying cash dividends in the foreseeable future. Any future determination as to the payment of cash dividends will depend upon future earnings, results of operations, capital requirements, our financial condition and other factors that our Board of Directors may consider.

Stock Warrants Grants

During the third quarter of 2012, the Company issued 2,218,900 one-year warrants at a price of $1.20 per warrant to 166 accredited investors for total proceeds of $2,662,680, of which $2,455,200 was collected through a third party escrow account. The Company is not the beneficiary of the escrow account. Since the Company has not received the warrants proceeds, the Company recorded a subscription receivable in the amount of $2,662,680 to the accompanying consolidated balance sheets.

During April 2013, our board of directors advised our attorney to amend the investors’ warrants to be refunded in the event that the warrants are not exercised on or before expiration. Accordingly, the transaction was independently negotiated between the Company and the investors. The Company evaluated the transaction based on the fact that the Company had long-term contracts for revenue generation, and positive shareholder equity at the time of entering the subscription agreements. There were no warrants exercised on or before the expiration. The proceeds of $2,455,200 were refunded to the investors by the escrow agent during the third quarter of 2013.

Registration Rights

A non-affiliated shareholder has "Piggyback Registration Rights" on a total of 800,000 shares of common stock. He was granted the right to "piggyback" the shares of their common stock on each registration statement filed by the Company and/or its successors or assigns so long as the registration form to be used is suitable for the registration of the shares. The Company will provide at least fifteen (15) days written notice of the intended filing date of any registration statement and the shareholder shall have ten (10) days after receipt of such notice to notify the Company of its intent to include their shares in the registration statement. The Company shall keep any registration statement onto which any shareholder has "piggybacked" its shares current and effective for a period of up to two (2) years from the date on which the shareholder is first entitled to sell the total number of its shares registered there under. Such securities will cease to have Piggyback Registration rights when (a) they have been effectively registered under the 1933 Act and disposed of in accordance with the registration statement covering them, (b) they have been sold, or may be sold without volume restrictions pursuant to Rule 144(b)(1) promulgated by the SEC under the 1933 Act, or (c) they have been otherwise transferred and new certificates for them not bearing a restrictive legend have been issued by the Company and the Company shall not have “stop transfer” instructions against them.

Securities authorized for issuance under equity compensation plans

As of the date of this Annual Report, we do not have any securities authorized for issuance under any equity compensation plans and we do not have any equity compensation plans.

Penny Stock Regulations

Our shares of common stock are subject to the "penny stock" rules of the Securities Exchange Act of 1934 and various rules under this Act. In general terms, "penny stock" is defined as any equity security that has a market price less than $5.00 per share, subject to certain exceptions. The rules provide that any equity security is considered to be a penny stock unless that security is registered and traded on a national securities exchange meeting specified criteria set by the SEC, issued by a registered investment company, and excluded from the definition on the basis of price (at least $5.00 per share), or based on the issuer's net tangible assets or revenues. In the last case, the issuer's net tangible assets must exceed $3,000,000 if in continuous operation for at least three years or $5,000,000 if in operation for less than three years or the issuer's average revenues for each of the past three years must exceed $6,000,000.

Trading in shares of penny stock is subject to additional sales practice requirements for broker-dealers who sell penny stocks to persons other than established customers and accredited investors. Accredited investors, in general, include individuals with assets in excess of $1,000,000 or annual income exceeding $200,000 (or $300,000 together with their spouse), and certain institutional investors. For transactions covered by these rules, broker-dealers must make a special suitability determination for the purchase of the security and must have received the purchaser's written consent to the transaction prior to the purchase. Additionally, for any transaction involving a penny stock, the rules require the delivery, prior to the first transaction, of a risk disclosure document relating to the penny stock. A broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative, and current quotations for the security. Finally, monthly statements must be sent disclosing recent price information for the penny stocks. These rules may restrict the ability of broker-dealers to trade or maintain a market in our common stock, to the extent it is penny stock, and may affect the ability of shareholders to sell their shares.

Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities

On May 20, 2013, the Company issued 220,000 shares of its common stock, which were approved by the Board of Directors on January 16, 2013, at its fair value for one-year professional and accounting services related to the preparation and filing of the Company’s quarterly and annual reports, EDGAR services, and the preparation of corporate tax returns. The value of the shares in amount of $50,000 was determined using the value of the services to be rendered since the Company currently has a limited trading market. The services agreement was consummated during the year of 2013.

Purchases of Equity Securities by Issuer and Affiliated Purchasers

As of the date of this Annual Report, we do not have any securities authorized for issuance under any equity compensation plans and we do not have any equity compensation plans.

Transfer Agent

Our transfer agent is Guardian Registrar & Transfer, Inc., located at 7951 SW 6th Street, Suite 216, Plantation, FL 33324. Their website is www.guardianstocktransfer.net

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ITEM 6. SELECTED FINANCIAL DATA

As a smaller reporting company as defined by Rule 229.10(f)(1), the Company is not required to provide the information required by this Item.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATION

This Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and other parts of the Form 10-K contain forward looking statements, within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), that are subject to certain events, risks and uncertainties that may be outside our control. The words “believe”, “expect”, “anticipate”, “optimistic”, “intend”, “will”, and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. We undertake no obligation to update or revise any forward-looking statements. These forward-looking statements include statements of management's plans and objectives for our future operations and statements of future economic performance, information regarding our expansion and possible results from expansion, our expected growth, our capital budget and future capital requirements, the availability of funds and our ability to meet future capital needs, the realization of our deferred tax assets, and the assumptions described in this report underlying such forward-looking statements. Actual results and developments could differ materially from those expressed in or implied by such statements due to a number of factors, including, without limitation, those described in the context of such forward-looking statements, our expansion strategy, our ability to achieve operating efficiencies, our dependence on distributors, capacity, suppliers, industry pricing and industry trends, evolving industry standards, domestic and international regulatory matters, general economic and business conditions, the strength and financial resources of our competitors, our ability to find and retain skilled personnel, the political and economic climate in which we conduct operations and the risk factors described from time to time in our other documents and reports filed with the Securities and Exchange Commission (the "Commission"). Additional factors that could cause actual results to differ materially from the forward-looking statements include, but are not limited to: 1) our ability to successfully develop and deliver our products on a timely basis and in the prescribed condition; 2) our ability to compete effectively with other companies in the same industry; 3) our ability to raise sufficient capital in order to effectuate our business plan; and 4) our ability to retain our key executives.

Critical Accounting Policies

We prepare financial statements in conformity with U.S. GAAP, which requires us to make estimates and assumptions that affect the amounts reported in our combined and consolidated financial statements and related notes. We periodically evaluate these estimates and assumptions based on the most recently available information, our own historical experience and various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates. Some of our accounting policies require higher degrees of judgment than others in their application. We believe the following accounting policies involve the most significant judgments and estimates used in the preparation of our financial statements.

Revenue Recognition

In accordance with ASC 605-10-S99-1 for revenue recognition, the Company recognizes revenue when persuasive evidence of an arrangement exists, transfer of title has occurred or services have been rendered, the selling price is fixed or determinable and collectability is reasonably assured. Currently, our revenues are all generated from a related party.

(a) Advertising revenues

 

The Company set up its own media network by installing LCD displays in retail stores managed by a related party and provides air time for the clients’ advertisement through the network. Revenue is recognized when the air time is used by the clients.

(b) Services revenues

 

Service revenue is primarily derived from acting as an agent in fertilizer trading. The Company serves primarily as a trading agent for this related party during the transactions. These services are generally billed on a time-cost plus basis. Revenue is recognized when services are rendered, products have been delivered, payments have been received, and risk of ownership has been transferred and accepted by the customers.

Cost of Revenues

Cost of revenues consists primarily of the cost related to LCD display, direct labor, depreciation and overhead, which are directly attributable to revenue generation and the provision of services. The depreciation expenses in connection with equipment for advertising and broadcasting are included in cost of revenues.

Related parties

Parties, which can be a corporation or individual, are considered to be related if the Company has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Companies are also considered to be related if they are subject to common control or common significant influence.

Results of Operations

Revenues - Related Party

We had revenue of $6,660,120 and $3,978,756 for years ended December 31, 2013 and 2012, respectively, of which $6,641,060 and $3,963,860 in 2013 and 2012, respectively, from the sales of air time for the clients’ advertisement through the LCD display network. We currently gained all our advertising revenues from Hebei AMP; our related party and major shareholder through a trustee holding; pursuant to the Agreement, dated June 1, 2012. We charge at least RMB 2.54 ($0.41) per second for a 30-second video broadcasting 60 times per day within the Network when the number of LCD display is less than 3,000. The price per second will be increased when the number of LCD display exceeds 3,000 to reflect the increasing influence from the Network. The LCD displays will operate up to 12 hours a day in some locations and allow a maximum capacity of 15.8 million seconds per year available for sale. However, the sole advertising revenue contract with Hebei AMP will expire on December 31, 2013. This contract has not been renewed. As a result, we have had no revenues through April 14, 2014.There is no assurance that such contract will be renewed in the subsequent year or that we will enter into contracts with other third parties. Our revenues will drop significantly without the renewal of the contract.

Starting from December of 2012, we served as a trading agent for Hebei AMP during the fertilizer trading. These services are generally billed on a time-cost plus basis. Revenue is recognized when services are rendered, products have been delivered, payments have been received, and risk of ownership has been transferred and accepted by the customers. The revenue from this section was $19,060 and $14,896 for the years ended December 31, 2013 and 2012, respectively. We expect our revenues from fertilizer trading to increase during 2014 as our moves toward implementing our business plan, including direct contracts with fertilizer manufacturers and whole sellers, instead of agent services.

Cost of Revenues

Cost of revenues recorded at $130,971 and $142,652 for the years ended December 31, 2013 and 2012, respectively. Cost of revenues consists primarily of the cost related to LCD display, direct labor, depreciation and overhead, which are directly attributable to revenue generation and the provision of services. The depreciation expenses in connection with equipment for advertising and broadcasting were included in cost of revenues, which were $34,953 and $9,607 for the years ended December 31, 2013 and 2012, respectively.

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Net Income

We had net income of $4,976,390 and $2,485,738 for the years ended December 31, 2013 and 2012, respectively. The net income during the years of 2013 and 2012 was due to sufficient gross profit to cover our operating expenses. We currently gained all our advertising revenues from Hebei AMP; our related party and major shareholder through a trustee holding; pursuant to the Agreement, dated June 1, 2012. We charged Hebei AMP $0.41 per second for the air time they used for their advertisement. However, the sole advertising revenue contract with Hebei AMP will expire on December 31, 2013. There is no assurance that such contract will be renewed in the subsequent year. Therefore, there can be no assurance that we will achieve or maintain profitability, or that any revenue growth will take place in the future.

General and Administrative Expenses

We had general and administrative expenses of $565,606 and $497,435 for the years ended December 31, 2013 and 2012, respectively. The expenses in 2013 were mainly composed of the expense of advertising recruitment, travelling expenses and expenses related to expansion of its network. It also included stock based compensation of $50,000 resulting from the issuance of 220,000 shares of its common stock at its fair value for one-year professional and accounting services related to the preparation and filing of the Company’s quarterly and annual reports, EDGAR services, and the preparation of corporate tax returns. The value of the shares in amount of $50,000 was the fair value of the services to be rendered since the Company currently has a limited trading market.

Liquidity and Capital Resources

The following table sets forth a summary of our net cash flow information for the periods indicated:

(All amounts in U.S. dollars)

 

   For the Year
   Ended December 31,
    2013*    2012*
    (Consolidated)    (Consolidated) 
Net cash provided by/(used in) operating activities  $4,003,316   $608,681    
Net cash (used in) investing activities  $

(10,960) 

   $(164,564)  
Net cash provided by financing activities  $275,505   $788,538  
           
Net increase (decrease) in cash and equivalents  $4,351,613   $1,244,532  
Cash and cash equivalents, beginning of period  $1,248,673   $4,141  
Cash and cash equivalents, end of period  $5,600,286   $1,248,673  
           

 

* The above financial data have been derived from our audited consolidated financial statements for the twelve months ended December 31, 2013 and 2012.

 

Cash flows provided by operating activities were $4,003,316 and $608,681 for the years ended December 31, 2013 and 2012, respectively. Positive cash flows from operations in 2013 were due primarily to the net income of $4,976,390, the increase in taxes payable in amount of $919,502, plus the non-cash stock compensation expense of $50,000, offset by the increase in accounts receivable and advance to suppliers in amount of $1,654,147 and $1,705,807, respectively, pursuant to fertilizer contracts.

Positive cash flows from operations in 2012 were due primarily to the net income of $2,485,738, the increase in taxes payable in amount of $699,563, plus the non-cash stock compensation expense of $80,393, offset by the increase in advance to suppliers in amount of $2,701,831 pursuant to fertilizer contracts.

Cash flows used in investing activities were $10,960 and $164,564 during the years ended December 31, 2013 and 2012, respectively. Cash flows used in investment during 2013 were due to the purchase of office equipment. Comparatively, the cash flows used in investment during 2012 were due to purchase of LCD display for advertising business.

Cash flows provided by financing activities were $275,505 and $788,538 during the year ended December 31, 2013 and 2012, respectively. Cash flows from financing activities during 2013 were due primarily to the release of restricted cash of $300,000, which was in connection with the sales of common stock during the third quarter of 2012, offset by the repayment of $24,495 to the shareholder loan. Comparatively, positive cash flows from financing activities in 2012 was due primarily to proceeds of $24,779 from related parties loan, and $700,595 from the shareholder loan, both of which bears zero interest and due on demand, and capital contribution from non controlling interest in amount of $63,164. In addition, the Company had proceeds of $300,000 from sales of stock at a price of $4.00 to our chairman. Since the total proceeds of $300,000 were held in escrow, there were no effects on cash flow from financing activities.

Our contract with Hebei AMP was not renewed at 2013 year end and we currently have no sources of revenue which will adversely impact on our liquidity and capital resources.

Capital Expenditures

We had cash of $5,600,286 on hand as of December 31, 2013. Currently, we have enough cash to fund our operations for the next 12 months. This is based on our self-generated income and cash inflow from operations. However, our expansion objectives are significantly affected by our ability to obtain extra funds. We estimate we would require about $10 million to meet our expansion objectives. We intend to raise the funds in the US capital markets through road shows or investor presentation meetings. In October 2012 we hosted two seminars at San Francisco and New York City respectively to let attendees meet with our management team and our marketing and growth strategies. With regards to fund raising, we intend to hold road shows in different U.S. cities and reach various institutional investors to present our business development plan in year 2014.

Overall, we have funded our cash needs from inception through December 31, 2013 with a series of debt and equity transactions, primarily with related parties. If we are unable to receive additional cash from our related parties, we may need to rely on financing from outside sources through debt or equity transactions. Our related parties are under no legal obligation to provide us with capital infusions. Failure to obtain such financing could have a material adverse effect on our operations and financial condition.

If we are unable to raise additional capital, our growth potential will be adversely affected and we will have to significantly modify our plans. For example, if we are unable to raise sufficient capital to develop our business plan, we may need to:

·

 

Curtail number of stores in the Network

  

·

 

Limit our future marketing efforts to areas that we believe would be the most profitable.

 

Demand for the products and services will be dependent on, among other things, market acceptance of our services, advertising market in Hebei Province, PRC, and general economic conditions, which are cyclical in nature. Inasmuch as a major portion of our activities is the receipt of revenues from selling advertising time to Hebei AMP, our related party and major shareholder through a trustee holding, our business operations may be adversely affected if the relationship with Hebei AMP is broken.

Our success will be dependent upon implementing our plan of operations and the risks associated with our business plans. We provide air time for the clients’ advertisement through our own media network. We plan to strengthen our position in these markets. We also plan to expand our operations through aggressively marketing our concept. 

Off-balance sheet arrangements

We have not entered into, nor do we expect to enter into, any off-balance sheet arrangements. We also have not entered into any financial guarantees or other commitments to guarantee the payment obligations of third parties. In addition, we have not entered into any derivative contracts that are indexed to our equity interests and classified as shareholders’ equity. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or that engages in leasing, hedging or research and development services with us.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We do not use derivative financial instruments in our investment portfolio and have no foreign exchange contracts. Our financial instruments consist of cash and cash equivalents, trade accounts receivable, accounts payable and long-term obligations. We consider investments in highly liquid instruments purchased with a remaining maturity of 90 days or less at the date of purchase to be cash equivalents. However, in order to manage the foreign exchange risks, we may engage in hedging activities to manage our financial exposure related to currency exchange fluctuation. In these hedging activities, we might use fixed-price, forward, futures, financial swaps and option contracts traded in the over-the-counter markets or on exchanges, as well as long-term structured transactions when feasible.

Foreign Exchange Rates

All of our sales are denominated in Renminbi (“RMB”). As a result, changes in the relative values of U.S. Dollars and RMB affect our reported levels of revenues and profitability as the results are translated into U.S. Dollars for reporting purposes. Fluctuations in exchange rates between the U.S. dollar and RMB affect our gross and net profit margins and could result in foreign exchange and operating losses.

Our results of operations and cash flow are translated at average exchange rates during the period, and assets and liabilities are translated at the unified exchange rate as quoted by the People’s Bank of China at the end of the period. Translation adjustments resulting from this process are included in accumulated other comprehensive income in our statement of shareholders’ equity. We recorded net foreign currency gains of $127,110 in fiscal 2013. We have not used any forward contracts, currency options or borrowings to hedge our exposure to foreign currency exchange risk. We cannot predict the impact of future exchange rate fluctuations on our results of operations and may incur net foreign currency losses in the future.

Our financial statements are expressed in U.S. dollars but the functional currency of our operating subsidiary is RMB. The value of your investment in our stock will be affected by the foreign exchange rate between U.S. dollars and RMB. To the extent we hold assets denominated in U.S. dollars, including the net proceeds to us from this offering, any appreciation of the RMB against the U.S. dollar could result in a change to our statement of operations and a reduction in the value of our U.S. dollar denominated assets. On the other hand, a decline in the value of RMB against the U.S. dollar could reduce the U.S. dollar equivalent amounts of our financial results, the value of your investment in our company and the dividends we may pay in the future, if any, all of which may have a material adverse effect on the price of our stock.

The exchange rates used to translate amounts in RMB into U.S. Dollars for the purposes of preparing the consolidated financial statements or otherwise stated in this MD&A were as follows:

    2013    2012 
Balance sheet items, except for the registered and paid-up capital as of December 31, 2013 and 2012   USD 1:RMB 6.1104    USD 1:RMB 6.2313 
Amounts included in the statement of operations, statement of changes in stockholders’ equity and statement of cash flows for the years ended December 31, 2013 and 2012   USD 1:RMB 6.1905    USD 1:RMB 6.3105 

 

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Russell E. Anderson, CPA

Russ Bradshaw, CPA

William R. Denney, CPA

Sandra Chen, CPA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

To the Board of Directors

CAM Group, Inc.

151 Shengli Avenue North, Jixing Building, Shijiazhuang

Hebei Province, P.R China

 

We have audited the accompanying consolidated balance sheets of CAM Group, Inc. and Subsidiaries (the “Company”) as of December 31, 2012, and the related consolidated statements of operations and comprehensive income, changes in stockholders’ equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2012, and the results of its operations and its cash flows for the year in conformity with accounting principles generally accepted in the United States of America.

 

/s/ Anderson Bradshaw PLLC

Anderson Bradshaw PLLC

Salt Lake City, Utah

April 15, 2013

5296S.CommerceDr

Suite300

SaltLakeCity,Utah84107

USA

(T)801.281.4700

(F)801.281.4701

 

SuiteA,5/F

MaxShareCenter

373KingsRoad

NorthPoint

HongKong

(T)852.21.555.333

(F)852.21.165.222

 

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Report of Independent Registered Public Accounting Firm

 

To the Board of Directors and Stockholders of CAM Group, Inc.

 

We have audited the accompanying consolidated balance sheet of CAM Group, Inc. and subsidiaries (the “Company”), as of December 31, 2013 and the related consolidated statements of operations and comprehensive income, changes’ in stockholders’ equity and cash flows, for the year ended December 31, 2013. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

 

We conducted our audit 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. The Company is not required to have, nor were we engaged to perform, an audit of the Company’s internal control over financial reporting. Our audit included consideration of internal control over finance reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

 

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2013 and the results of its operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

 

 

Dominic K.F. Chan & Co

Certified Public Accountants

Hong Kong, March 28, 2014

 

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ITEM 8. FINANCIAL STATEMENTS

CAM Group, Inc. and Subsidiaries 

Consolidated Balance Sheets 

As of December 31, 2013 and 2012
           
    December 31, 2013    December 31, 2012 
Current Assets          
           
Cash and cash equivalent  $5,600,286   $1,248,673 
Cash and cash equivalent - restricted   —      300,000 
Accounts receivable   1,675,831    —   
Advance to suppliers   3,225,615    2,803,593 
Prepayment and deposits   2,703    1,095 
Other receivable   2,335    4,012 
Total Current Assets   10,506,770    4,357,373 
           
Plant and Equipment, Net   135,722    156,926 
           
Total Assets  $10,642,492   $4,514,299 
           
Liabilities          
Accounts payables and accrued expenses  $81,279   $42,521 
Due to shareholders   698,718    709,497 
Due to related parties   58,838    57,696 
Other payables   —      —   
Income Tax Payable   1,654,025    708,453 
Total Liabilities   2,492,860    1,518,167 
           
Equity          
Preferred stock, $.001 par value, 10,000,000 shares authorized, 1,000,000 shares   1,000    1,000 
issued and outstanding as of December 31, 2013 and 2012, respectively          
Common stock, $.001 par value, 90,000,000 shares authorized, 25,295,000 and 25,075,000   25,295    25,075 
shares issued and outstanding as of December 31, 2013 and 2012, respectively          
Additional paid-in capital   556,790    3,169,690 
Subscription receivable   —      (2,662,680)
Accumulated other comprehensive income   153,321    28,753 
Retained earnings (deficits)   7,361,766    2,385,376 
Total equity   8,098,172    2,947,214 
           
Non-controlling interest   51,460    48,918 
           
Total Liabilities and Equity  $10,642,492   $4,514,299 

The accompanying notes are an integral part of these consolidated financial statement

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CAM Group, Inc. and Subsidiaries
Consolidated Statements of Operations and Consolidated Comprehensive Income
For The Years Ended December 31, 2013 and 2012
    
   For the years ended
   December 31, 2013  December 31, 2012
       
Revenue - related party  $6,641,060   $3,963,860 
Revenue - other, related party   19,060    14,896 
Total Revenues   6,660,120    3,978,756 
Cost of revenue   130,971    142,652 
Gross profit   6,529,149    3,836,104 
           
Operating expenses:          
Selling, General & administrative expenses   565,606    497,435 
Advertising expenses   69,236    107,516 
Total operating expenses   634,842    604,951 
           
Operating income   5,894,307    3,231,153 
           
Other income (expenses)          
Interest income   9,692      
Loss from currency exchange   (8,107)   (45,852)
Total other income (expenses)   1,585    (45,852)
           
Income before income tax   5,895,892    3,185,301 
           
Income tax expense   919,502    699,563 
           
Net income   4,976,390    2,485,738 
Less: Net income attributable to noncontrolling interests   —      —   
Net income attributable to CAM Group common shareholders   4,976,390    2,485,738 
           
Net income per share:          
Basic  $0.20   $0.10 
Diluted  $0.04   $0.02 
           
Weighted average number of shares          
Basic   25,210,616    24,304,726 
Diluted   125,210,616    124,304,726 
           
Comprehensive income:          
Net income  $4,976,390   $2,485,738 
Foreign currency translation adjustment   127,110    30,235 
Comprehensive income:   5,103,500    2,515,973 
Comprehensive income attributable to noncontrolling interests   2,542    605 
Comprehensive income attributable to CAM Group  $5,100,958   $2,515,368 
           
** less than $.01          
The accompanying notes are an integral part of these consolidated financial statements

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CAM Group, Inc. and Subsidiaries
Consolidated Statement of Cash Flows
For The Years Ended December 31, 2013 and 2012
    
   For the years ended
   December 31, 2013  December 31, 2012
Cash flows from operating activities:          
Net income (loss)  $4,976,390   $2,485,738 
Adjustments to reconcile net income to net cash          
provided by (used in) operating activities:          
Depreciation   34,953    9,607 
Stock based compensation   50,000    80,393 
Changes in operating assets and liabilities:          
Accounts receivable   (1,654,147)   —   
Advance to suppliers   (1,705,807)   (2,701,831)
Advance to related parties - business trade   1,343,995    —   
Prepayments and other receivable   168    (3,962)
Accounts payable and accrued expenses   38,262    42,025 
Other payables   —      (2,852)
Taxes Payable   919,502    699,563 
Net cash provided by operating activities   4,003,316    608,681 
           
Cash flows from investing activities:          
Purchase of property and equipment   (10,423)   (164,564)
Construction in progress   (537)   —   
Net cash used in investing activities   (10,960)   (164,564)
           
Cash flows from financing activities:          
Capital contribution   —      63,164 
Proceeds from shareholders loan payable   —      700,595 
Proceeds from related party loan payable   —      24,779 
Repayments to shareholders loan payable   (24,495)   —   
Changes in restricted cash   300,000    (300,000)
Proceeds from stock issuance       300,000 
Net cash provided by financing activities   275,505    788,538 
           
Effect of changes in exchange rate   83,752    11,877 
           
Net increase/(decrease) in cash and cash equivalents   4,351,613    1,244,532 
           
Cash and cash equivalents at the beginning of the year   1,248,673    4,141 
           
Cash and cash equivalents at the end of the year  $5,600,286   $1,248,673 
           
SUPPLEMENTAL CASH FLOW INFORMATION:          
Cash paid for interest  $—     $—   
Cash paid for income taxes  $—     $—   

 

The accompanying notes are an integral part of these consolidated financial statements  

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CAM Group, Inc. and Subsidiaries 
Consolidated Statements of Changes in Stockholders’ Deficits 
For The Years Ended December 31, 2013 and 2012 
                                
  Preferred shares      Common Stock                      
  Shares   Amount  Shares  Amount  Additional Paid-In Capital  Subscription Receivable   Other Comprehensive Income   Accumulated Deficits   Total 
Balance at December 31, 2011 1,000,000  $1,000  22,500,000 $22,500  129,192 $—    $(1,482)  $(100,362)  $50,848 
                                
Reorganization due to recapitalization        3,392,147  3,392  (3,392)      —     —     —   
Shares cancelled in reverse re-capitalization        (2,500,000)  (2,500)  2,500              —   
Shares issued for consulting service        1,607,853  1,608  78,785              80,393 
Shares issued for cash purchase        75,000  75  299,925              300,000 
Warrants issued for cash purchase              2,662,680  (2,662,680)           —   
Non controlling interest contribution                             —   
Net income        —                  2,485,738   2,485,738 
Foreign currency translation adjustments        —              30,235       30,235 
                                
Balance at December 31, 2012 1,000,000  $1,000  25,075,000 $25,075  3,169,690 $(2,662,680)  $28,753  $2,385,376  $2,947,214 
                                
Shares issued for consulting service        220,000  220  49,780              50,000 
Cancellation of warrants              (2,662,680)  2,662,680           —   
Net income        —                  4,976,390   4,976,390 
Foreign currency translation adjustments        —              124,568       124,568 
                                
Balance at December 31, 2013 1,000,000  $1,000 $25,295,000 $25,295  556,790 $—    $153,321  $7,361,766  $8,098,172 
                                
The accompanying notes are an integral part of these consolidated financial statements

(22)

1. ORGANIZATION AND BUSINESS BACKGROUND 

 

CAM Group Inc. (the “Company” or “CAMG”) was originally incorporated as Savannah River Technologies, Inc. under the laws of the State of South Carolina on March 2, 1995. On July 20, 2007, the Company formed a corporation pursuant to the laws of the State of Nevada having a par value of $0.001 for both the preferred and common stock. On August 11, 2007, the stockholders of the Company approved a change of corporate domicile which resulted in the dissolution of the South Carolina Corporation and the Company became domiciled in the State of Nevada. On September 13, 2012, the Company changed its name to CAM Group Inc. to more accurately reflect its business after a stock exchange transaction with CAM Group set forth below. 

 

On April 17, 2012, CAMG completed a stock exchange transaction with China Agriculture Media Group Co., Ltd (“CAM Group”). CAM Group is organized and exists under the laws of Hong Kong Special Administrative Region of the People’s Republic of China (the “PRC”), which was incorporated on March 30, 2011. CAM Group is an investment holding company, whose only asset is 100% equity interest in China Agriculture Media (Hong Kong) Group Co. Ltd. (“CAM HK”). CAM HK is an investment holding company organized and exists under the laws of Hong Kong Special Administrative Region of PRC, with its only asset being a 98% equity interest in China Agriculture Media (Hebei) Co. Ltd. (“CAM Hebei”). CAM Hebei was established in the Hebei Province, PRC on November 28, 2011 as a Chinese domestic enterprise.

 

The stock exchange transaction involved two simultaneous transactions:

 

CAMG issued to CAM Group Shareholders an amount equal to 22,500,000 new investment shares of Common Stock of CAMG and 1,000,000 shares of CAMG super-voting Preferred Stock in exchange for one hundred percent (100%) of the issued and outstanding share capital of CAM Group from CAM Group Shareholders.

   

CAMG issued 1,607,853 shares of Common Stock to CAMG prior management and an advisor for services previously rendered. Simultaneously, Angela Ross, the former Chief Executive Officer of CAMG, returned 2,500,000 shares of Common stock to the CAMG treasury for immediate cancelation.

 

Upon completion of the exchange, CAM Group and its subsidiaries became subsidiaries of CAMG and the former owners of CAM Group then owned a ‘controlling interest’ in CAMG representing 98% of the voting shares of CAMG and 90% of the issued and outstanding shares of Common Stock.

 

The stock exchange transaction has been accounted for as a reverse acquisition and recapitalization of CAMG whereby CAM Group is deemed to be the accounting acquirer (legal acquiree) and CAMG to be the accounting acquiree (legal acquirer).  The accompanying consolidated financial statements are in substance those of CAM Group and its subsidiaries, with the assets, liabilities, revenues and expenses, of CAMG being included effective from the date of stock exchange transaction. Accordingly, the financial position, results of operations, and cash flows of the accounting acquirer are included for all periods presented as if the recapitalization had occurred at the beginning of the earliest period presented and the operations of the accounting acquiree are included from the date of stock exchange transaction.

 

CAMG, CAM Group, CAM HK and CAM Hebei are hereafter collectively referred to as the “Company”.

 

(23)

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

These accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”).

 

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries CAM Group, CAM HK and CAM Hebei All inter-company balances and transactions have been eliminated in consolidation

 

Use of Estimates

 

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and revenue and expenses in the financial statements and accompanying notes. Actual results could differ from such estimates.

 

Cash and Cash Equivalents

 

Cash and cash equivalents are carried at cost and represent cash on hand, demand deposits placed with banks or other financial institutions and all highly liquid investments with an original maturity of three months or less as of the purchase date of such investments.

 

Accounts Receivable

 

Accounts receivable are recorded at the invoiced amount and do not bear interest. The Company extends unsecured credit to its customers in the ordinary course of business but mitigates the associated risks by performing credit checks and actively pursuing past due accounts. An allowance for doubtful accounts is established and determined based on managements’ assessment of known requirements, aging of receivables, payment history, the customer’s current credit worthiness and the economic environment. As of December 31, 2013, the Company had balance in accounts receivable of $1,675,831.

 

Fixed Assets

 

Fixed assets are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Depreciation is calculated on the straight-line basis over the following expected useful lives from the date on which they become fully operational and after taking into account their estimated residual values: 

 

  Depreciable life   Residual value
          Machinery and Equipment 5 years     0 %
          Furniture and fixture 7 years     0 %
          Computer and software 3 years     0 %

 

Expenditures for maintenance and repairs are expensed as incurred.

 

Revenue Recognition

 

In accordance with ASC 605-10-S99-1 for revenue recognition, the Company recognizes revenue when persuasive evidence of an arrangement exists, transfer of title has occurred or services have been rendered, the selling price is fixed or determinable and collectability is reasonably assured. Currently, our revenues are all generated from a related party.

 

(a) Advertising revenues

 

The Company set up its own media network by installing LCD displays in retail stores managed by a related party and provides air time for the clients’ advertisement through the network. Revenue is recognized when the air time is used by the clients.

 

After completing the installation of the LCD displays in 2012, the Company has entered an advertising services contract with this related party, pursuant to which the related party agrees to purchase a total of 15,768,000 seconds per year for LCD advertising time at a rate of no less than RMB2.54 (USD0.41), starting from June 2012. During the year of 2013, the Company generated all its advertising revenues from the related party in amount of $6,641,060.

(b) Services revenues

 

Service revenue is primarily derived from acting as an agent in fertilizer trading. The Company serves primarily as a trading agent for this related party during the transactions. These services are generally billed on a time-cost plus basis. Revenue is recognized when services are rendered, products have been delivered, payments have been received, and risk of ownership has been transferred and accepted by the customers.

Cost of Revenues

 

Cost of revenues consists primarily of the cost related to LCD display, direct labor, depreciation and overhead, which are directly attributable to revenue generation and the provision of services. The depreciation expenses in connection with equipments for advertising and broadcasting are included in cost of revenues.

 

Advertising Expenses

Advertising costs are expensed as incurred. The Company had $69,236 and $107,516 advertising costs for the years ended December 31, 2013 and 2012, respectively.

 

Shipping and Handling Costs

 

All shipping and handling costs are included in cost of sales. The Company had no freight out expense during the period presented.

 

Income Taxes

 

Income taxes are determined in accordance with Accounting Standards Codification Topic 740, “Income Taxes” (“ASC 740”). Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Any effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

 

ASC 740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts. Income tax periods 2011, 2012 and 2013 are open for tax examination by taxing authority.

 

The Company conducts major businesses in the PRC and Hong Kong and is subject to tax liabilities in these two jurisdictions. As a result of its business activities, the Company files tax returns that are subject to examination by the foreign tax authorities. As of December 31, 2013, the Company had no outstanding tax due with its tax authority in the PRC, and provisions for profit taxes due with its tax authority in Hong Kong were accrued.

 

Comprehensive Income (Loss)

 

FASB ASC 220, “Reporting Comprehensive Income”, establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income as defined includes all changes in equity during the year from non-owner sources. Accumulated other comprehensive income, as presented in the accompanying consolidated balance sheets consists of changes in unrealized gains and losses on foreign currency translation. This comprehensive income is not included in the computation of income tax expense or benefit.

 

Non-Controlling Interests

 

Non-Controlling interest represents the 2% equity interest of CAM Hebei held by Hebei Agricultural Means of Production Co. Ltd (“Hebei AMP”), through its wholly-owned subsidiary, as of December 31, 2013.

 

The Parties shall share the profits, losses and risks of the Company in proportion to and, in the event of losses, to the extent of their respective contributions and contractual commitments to the registered capital of the Company.

 

The rights of Non-Controlling Interest Shareholder: (a) Intellectual property contributed by non-controlling interest shareholder, if any, remains the sole and exclusive property of non-controlling interest shareholder; (b) The Board of Directors shall be composed of five Directors, of whom two shall be appointed by non-controlling interest shareholder.

 

(24)

 

Foreign Currency Translation

 

Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the statement of comprehensive income.

 

The reporting currency of the Company is the United States Dollars ("US$"). The Company's subsidiaries in the PRC maintain its books and records in its local currency, Renminbi Yuan ("RMB"), which is functional currency as being the primary currency of the economic environment in which the entity operates.

 

In general, for consolidation purposes, assets and liabilities of its subsidiaries whose functional currency is not US$ are translated into US$, in accordance with ASC Topic 830-30, “Translation of Financial Statement”, using the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the period. The gains and losses resulting from translation of financial statements of foreign subsidiaries are recorded as a separate component of accumulated other comprehensive income.

 

Translation of amounts from RMB into US$1 has been made at the following exchange rates for the respective periods:

 

  2013   2012  
Balance sheet items, except for the registered and paid-up capital as of December 31, 2013 and 2012

 

USD 1:RMB 6.1104

 

 

USD 1:RMB 6.2313

 

 

Amounts included in the statement of operations, statement of changes in stockholders’ equity and statement of cash flows for the years ended December 31, 2013 and 2012

 

USD 1:RMB 6.1905

 

 

USD 1:RMB 6.3105

 

 

Basic and Diluted Earnings per Share

 

The Company calculates earnings per share in accordance with FASB ASC 260 “Earnings per Share”.  Basic earnings per share are calculated by dividing the Company’s net income or loss applicable to common shareholders by the weighted average number of common shares during the period. If applicable, diluted earnings per share are computed by dividing the net income for the period by the weighted average number of common and common equivalent shares outstanding, using the treasury stock method for warrants and options and the if-converted method for convertible instruments when the conversion is not dependent on a substantive non-market based contingency during the period. Accordingly, this presentation has been adopted for the periods presented.

 

Related parties

 

Parties, which can be a corporation or individual, are considered to be related if the Company has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Companies are also considered to be related if they are subject to common control or common significant influence. A material related party transaction has been identified in Note 6 in the financial statements.

 

Subsequent Events

 

The Company evaluated for subsequent events through the issuance date of the Company’s financial statements.

 

Recently Issued Accounting Standards

 

The Company has reviewed all recently issued, but not yet effective, accounting pronouncements up to ASU 2014-05, and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its consolidated financial condition or the consolidated results of its operations.

 

3. CASH AND CASH EQUIVALENTS

 

As of December 31, 2013, the cash balance was $5,600,286, of which $5,264,569 was held in major financial institutions located in Hong Kong, and $325,829 was held in major financial institutions located in the PRC and $9,888 as petty cash.

 

These bank balances are not insured. The remittance of these funds out of China is subject to exchange control restrictions imposed by the Chinese government. Management believes that the major financial institutions in the PRC and Hong Kong have acceptable credit ratings.

 

(25)

 

4. ADVANCED TO suppliers

 

As of December 31, 2013 and 2012, the Company had advanced to suppliers in the amount of $3,225,615 and $2,803,593, respectively, representing the deposits made to suppliers pursuant to fertilizer contracts in order to secure lower price of fertilizer. The amount and percentage of each major supplier are set forth below.

 

 

Suppliers

      Advanced to Suppliers        
Supplier A     $ 1,497,447       46.4 %
Supplier B       1,728,168       53.6 %
  Total   $ 3,225,615       100.0 %

 

 

5. PROPERTY, PLANT AND EQUIPMENT

 

Property, plant and equipment are comprised of the following amounts at the respective dates:

 

    As of
    December 31, 2013   December 31, 2012
Cost:        
Computer equipment and software   $ 13,083     $ 5,334  
Advertising equipment     167,429       161,321  
Construction in progress     544       -  
Total     181,056       166,655  
Accumulated depreciation     (45,334 )     (9,729 )
Net   $ 135,722     $ 156,926  
                 

 

During the years ended December 31, 2013 and 2012, the Company had depreciation expenses of $34,953 and $9,607, respectively, included in cost of revenues.

 

6. RELATED PARTY BALANCES AND TRANSACTIONS WITH MAJOR SHAREHOLDERS

 

Due to related parties as of December 31, 2013 and 2012 consisted of following:

 

    As of
    December 31, 2013   December 31, 2012
                 
Hebei AMP (a)   $ 58,838     $ 57,696  
                 
PMI (b)     579,253       592,350  
Shareholder (c)     119,465       117,147  
Total    $ 757,556      $ 767,193  

 

 

(a) Hebei Agricultural Means of Production Co. Ltd.

 

Hebei Agricultural Means of Production Co. Ltd. (“Hebei AMP”) indirectly owns 2% capital interest of CAM Hebei, through its wholly-owned subsidiary, Shijiazhuang Qijin Cultural Presentation Inc. Hebei AMP has common management of the Company as follows:

 

Mr. Chen Lijun, Chairman of the Company during the period from April 17, 2012 through December 11, 2013, is the Chairman and President of Hebei AMP;

Mr. Peng Guo Jiang, General Manager, Director of the Company during the period from April 17, 2012 through December 11, 2013, is the Vice President of Hebei AMP.

 

 

Mr. Peng Guo Jiang holds approximate 36% of CAMG common stock and 38% of CAM preferred stock as a trustee holding the shares for Hebei AMP.

 

As of December 31, 2013 and 2012, the balance due to Hebei AMP was $58,838 and $57,696, respectively.

 

(b) Precursor Management Inc.

 

On March 30, 2011, the Company entered into an agreement with Precursor Management Inc. (“PMI”) which is controlled by the Company’s former President and is also a shareholder of the Company. Since March 2011, PMI has assisted the Company with listing on the over the counter stock market and SEC compliance work, and paid for the Company’s expenses related to daily operations. The agreement expired in March 2013. The Company repaid the loans payable to PMI in amount of $24,495 in 2013. As of December 31, 2013, the outstanding balance due to PMI was $579,253.

 

(c) Due to shareholder

 

In addition, the Company had outstanding balances of $119,465 due to the Company’s former President as of December 31, 2013. The funds borrowed from the Company’s former President were to fund the Company’s operations. The balance due to shareholder was not evidenced by a promissory note, but rather is an oral agreement between the shareholder and the Company and due on demand. On July 29, 2013, the President resigned as President, director and Secretary of the Company due to his personal reason, without any specific disagreement with the Company on any matter.

 

Advertising Revenues – Related Party

After completing the installation of the LCD displays in 2012, the Company has entered an advertising services contract with Hebei AMP, pursuant to which Hebei AMP agreed to purchase a total of 15,768,000 seconds per year for LCD advertising time at a rate of no less than RMB2.54 (USD0.41), starting from June 2012. The contract was renewed on May 30, 2013 for seven months from June 1, 2013 to December 31, 2013. During the years ended December 31, 2013 and 2012, the Company generated all its advertising revenues from Hebei AMP in amount of $6,641,060 and $3,963,860, respectively.

Fertilizer Agreements - Related Party

Starting on October 30, 2012 the Company, through its subsidiary CAM Hebei entered into a series of oral and written agreements (collectively the “Agreements”) with Hebei AMP for the purchase and sale of fertilizer in Hebei Province China, pursuant to which, fertilizer products shall be sold by Hebei AMP to CAM Hebei for a purchase price of approximately $2,000,000. Hebei AMP will deliver the fertilizer to CAM Hebei as needed. The Company serves primarily as a trading agent for Hebei AMP during the transactions and therefore recognizes revenue for these transactions on a net rather than a gross basis. During the years ended December 31, 2013 and 2012, the Company generated revenues of $19,060 and $14,896, respectively, from trading agent business.

(26)

7. STOCK BASED COMPENSATION

On May 20, 2013, the Company issued 220,000 shares of its common stock, which were approved by the Board of Directors on January 16, 2013, at its fair value for one-year professional and accounting services related to the preparation and filing of the Company’s quarterly and annual reports, EDGAR services, and the preparation of corporate tax returns. The value of the shares in amount of $50,000 was determined using the value of the services to be rendered since the Company currently has a limited trading market. The services agreement was consummated during the year of 2013. Accordingly, the stock based compensation of $50,000 was included in the consolidated statements of operations for the year ended December 31, 2013.

  

8. INCOME TAXES 

 

The Company uses the asset and liability method, where deferred tax assets and liabilities are determined based on the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial and income tax reporting purposes. There are no material timing differences and therefore no deferred tax asset or liability at December 31, 2013.

 

As of December 31, 2013, the U.S. operation had net operating losses of $298,672 available for federal tax purposes, which are available to offset future taxable income.  The net operating loss carry forwards begin to expire in 2033.  The Company has provided for a full valuation allowance for any future tax benefits from the net operating loss carryforwards as the management believes it is more likely than not that these assets will not be realized in the future.

 

The effective income tax expenses for the years ended December 31, 2013 and 2012 are as follows:

 

 

For the year ended

December 31, 2013

 

For the year ended

December 31, 2012

         
Current taxes $ 919,502   $ 699,563  
Deferred taxes   0     0  
  $ 919,502   $ 699,563  

 

9. EARNINGS PER SHARE

 

Basic net income per share is computed using the weighted average number of the common shares outstanding during the periods.  Diluted net income per share is computed using the weighted average number of all dilutive common stock equivalents during the periods. As of December 31, 2013, the Company had 1,000,000 shares of convertible preferred stock outstanding whose effect was dilutive and included in diluted net income per share during the periods.

 

The following table sets forth the computation of basic and dilutive net income per share for the years ended December 31, 2013 and 2012, respectively:

 

    For the years ended
    12/31/2013   12/31/2012
  Net Income     $ 4,976,390     $ 2,485,738  
  Net Income per Share                  
     Basic       0.20       0.10  
     Diluted       0.04       0.02  
  Weighted Average Number of Shares Outstanding                  
     Basic       25,210,616       24,304,726  
     Diluted       125,210,616       124,304,726  

 

 

10. Warrants

 

The following tables summarize all warrant outstanding as of December 31, 2013, and the related changes during this period.

 

    Number of Warrants   Weighted
Average Exercise Price
Stock Warrants        
Balance at January 1, 2013     2,218,900     $ 2.80  
Granted     0       0  
Exercised     0        
Expired     (2,218,900 )   2.80  
Balance at December 31, 2013     0       0  
Warrants Exercisable at December 31, 2013     0     $ 0  

 

During the third quarter of 2012, the Company issued 2,218,900 one-year warrants at a price of $1.20 per warrant to 166 accredited investors for total proceeds of $2,662,680, of which $2,455,200 was collected through a thirty party escrow account. The Company is not the beneficiary of the escrow account. Since the Company has not received the warrant proceeds, the Company recorded a subscription receivable in amount of $2,662,680 to the accompanying consolidated balance sheets. On April 15, 2013, the Board of Directors approved an amendment to its Warrant Agreements, dated June 28, 2012, pursuant to which the proceeds from the Warrant Offering at the price of $1.20 per warrant will be refunded in the event that the warrants are not exercised on or before June 28, 2013. There were no warrants exercised on or before the expiration. The proceeds of $2,455,200 were refunded to the investors by the escrow agent during the third quarter of 2013.

 

11. CONCENTRATION AND RISK

 

For the years ended December 31, 2013 and 2012, 100% of the Company’s assets were located in the PRC and 100% of the Company’s revenues were derived from Hebei AMP, a related party through common management (see Note 6(a)) located in the PRC.

 

12. COMMITMENT AND CONTINGENCIES

 

The Company leases its office space under a 2-year non-cancelable operating lease agreement which expires on June 30, 2014.  The monthly lease payment is approximately $800.

 

Accordingly, the future lease payments required as of December 31 are as follows:

 

Year ended December 31 Lease payment
 2014  $4,800 
 Total  $4,800 

 

For the years ended December 31, 2013 and 2012, rental expense was approximately $9,600 and $4,800, respectively. 

13. SEGMENTS

 

The Company determined that it did not operate in any material, separately reportable operating segments as of December 31, 2013.  

14. SUBSEQUENT EVENTS

 

In accordance with ASC Topic 855-10, the Company has analyzed its operations subsequent to December 31, 2013 to the date these financial statements were issued, and has determined that it does not have any material subsequent events to disclose in these financial statements.

 

(27)

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

On January 23, 2014, CAM Group, Inc. dismissed Anderson Bradshaw PLLC as its independent registered public accounting firm and engaged Dominic K.F. Chan & Co. as our independent registered public accounting firm. Anderson Bradshaw PLLC had served as our independent auditor since April 12, 2012 and audited our consolidated financial statements for the year ended December 31, 2012. The dismissal of Anderson Bradshaw PLLC was approved by our Board of Directors. Anderson Bradshaw PLLC did not resign or decline to stand for re-election.

 

The report of Anderson Bradshaw PLLC dated April 15, 2013 on consolidated balance sheet as of December 31, 2012, and the related consolidated statements of operations and comprehensive income, changes in stockholders’ equity and cash flows for the year then ended did not contain an adverse opinion or a disclaimer of opinion, nor was such report qualified or modified as to uncertainty, audit scope, or accounting principles.

 

During our two most recent fiscal years and the subsequent interim period preceding our decision to dismiss Anderson Bradshaw PLLC we had no disagreements with the firm on any matter of accounting principles or practices, financial statement disclosure, or auditing scope of procedure which disagreement if not resolved to the satisfaction of Anderson Bradshaw PLLC would have caused it to make reference to the subject matter of the disagreement in connection with its report.

 

During our two most recent fiscal years and the subsequent interim period prior to retaining Dominic K.F. Chan & Co. (1) neither we nor anyone on our behalf consulted Dominic K.F. Chan & Co. regarding (a) either the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our financial statements or (b) any matter that was the subject of a disagreement or a reportable event as set forth in Item 304(a)(1)(iv) and (v), respectively, of Regulation S-K, and (2) Dominic K.F. Chan & Co. did not provide us with a written report or oral advice that they concluded was an important factor considered by us in reaching a decision as to accounting, auditing or financial reporting issue.

 

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of December 31, 2013, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Principal Financial and Accounting Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act”). Accordingly, based upon that evaluation, the Chief Executive Officer and Principal Financial and Accounting Officer have concluded that our disclosure controls and procedures were not effective to ensure that information required to be disclosed in our periodic reports filed under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified by the Securities and Exchange Commission’s rules and regulations. Based on the management's assessment and review of our financial statements and results for the year ended December 31, 2013, we have not established effective internal controls.

Management’s Report on Internal Control over Financial Reporting

Management, under the supervision of our Chief Executive Officer and Principal Financial and Accounting Officer, is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting (as defined in Rules 13a-15(f) and 15d(f) under the Exchange Act) is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States, or GAAP. Internal control over financial reporting includes those policies and procedures that (a) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets, (b) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, (c) provide reasonable assurance that receipts and expenditures are being made only in accordance with appropriate authorization of management and the board of directors, and (d) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the financial statements. A “material weakness” is a deficiency, or a 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 by our internal controls. A “significant deficiency” is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the registrant’s financial reporting. A “deficiency” in internal control over financial reporting exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis.

During our review of our financial statements and results for the year ended December 31, 2013, our management, under the supervision and with the participation of our Chief Executive Officer and Principal Financial and Accounting Officer, assessed the effectiveness of our internal control over financial reporting. Based on the evaluation of our internal control over financial reporting, we determined that we had significant deficiencies which could adversely affect our ability to initiate, authorize, record, process or report financial data in accordance with US GAAP. While the areas we identified are sources of potential risk, we do not believe that these potential risks have affected our financial statements or that there are any errors in our previously reported financial statements that would require restatement. The significant deficiencies we found related to a lack of sufficient qualified accounting and financing personnel with an appropriate level of US GAAP knowledge and experience appropriate to its financial reporting requirements. Based on our evaluation and because of the significant deficiencies we identified, our management concluded that our internal control over financial reporting was not effective as of December 31, 2013.

This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to Dodd-Frank Wall Street Reform and Consumer Protection Act that permit us, as a smaller reporting company, to provide only management’s report in this Annual Report.

Remediation Plan

We are devoting significant resources to remediating, improving and documenting our disclosure controls and procedures and internal controls and procedures, and implementing additional financial and management controls, reporting systems and procedures. These measures may not ensure the adequacy of our internal controls over our financial processes and reporting in the future.

Changes in Internal Controls

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during our last quarter of fiscal 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

(28)

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

Our Directors and Executive Officers

A list of officers and directors of CAM Group, Inc. appears below. The directors of the Company are elected annually by the shareholders. The officers serve at the request of the Board of Directors. The Board of Directors may authorize and establish reasonable compensation of the Directors for services to the Company as Directors, including, but not limited to attendance at any annual or special meeting of the Board. There are no employment contracts to compensate the officers and directors.

The following table sets forth certain information concerning our directors and executive officers:

Name   Age   Position
Kit Ka   61   Chief Executive Officer, Principal Financial and Accounting Officer
Yichuan Wang   52   Director
Enrique Marchese   46   Independent Director
Yanhui Zhang   60   Independent Director
Yongli Xia   50   Independent Director

 

The following is a summary of the biographical information of our current directors and executive officers:

Kit Ka – President, Chief Executive Officer and Principal Financial and Accounting Officer

Ms. Ka has served as our Chief Executive Officer since September 24, 2012, served as our president since July 29, 2013 and served as our Principal Financial and Accounting Officer since November 15, 2013. Ms. Kit Ka also serves as an Independent Non-Executive Director of Cosmopolitan International Holdings Ltd. and is a founder and director of Sharp Wind Development Limited, Southcom Internet Technology Limited and Southcom Limited, which are principally engaged in the telecommunication service industry. Apart from her experience in telecommunication service industry, Ms. Ka has also developed various businesses in China involving property development and coal mining. Ms. Ka received her bachelor’s degree in English Language and Literature at the Guangzhou University of Foreign Languages. Ms. Ka was selected as our president because of her business background and experience from property development and coal mining business.

Yichuan Wang – Director

Mr. Wang has served as a director since April of 2012. Mr. Wang was a member of the PRC military from 1978 to 1993 where he developed significant leadership skills and logistics experience. In 1996 he successfully founded a conference tourism and inspection company called Tianpeng Holiday B&T Development Co., Ltd., in Beijing, PRC. Mr. Wang has more than 15 years’ experience travelling to various countries for governmental purposes and meeting with government officials. He has a developed business acumen and a proven track record of entrepreneurship and success. Mr. Wang joined Board of Directors since 2011. Upon the establishment of the company he was widely recommended by all parties including the Hebei government. His involvement has enabled to maintain good relationship with the local government. Mr. Wang was chosen as a director because of his governmental and business experience.

Enrique Marchese – Independent Director

Mr. Enrique Marchese has served as a director during the period from August 13, 2012 through March 31, 2014. Mr. Marchese resigned from his directorship due to the expiration of the employment agreement. Mr. Marchese has been running his own corporate and investment advisory firm since 2009. He is an experienced investment banker having completed a broad range of public and private financing and M&A advisory assignments across the globe. His industry experience covers chemicals, transportation, manufacturing, retailing, consumer products and consumer internet. Mr. Marchese began his investment banking career at Donaldson, Lufkin & Jenrette in 1996 and subsequently held positions at Merrill Lynch and Deutsche Bank. Enrique also gained experience in global logistics and supply chain management while serving in the U.S. Navy. Mr. Marchese was chosen as a director because of his investment banking and industry experience.

Mr. Marchese graduated with an M.B.A. from the Booth School at the University of Chicago and holds a B.S. from the United States Naval Academy.

Yanhui Zhang – Independent Director

Mr. Zhang has served as a director since December 30, 2012. Mr. Zhang, a member of Communist Party of China, serves as a Secretary for the party and is a member of the CPPCC (Chinese People's Political Consultative Conference). Mr. Zhang currently sits on the Hebei Provincial Committee and is the council Director of the Hebei Supply and Marketing Cooperative Association. As a graduate student Mr. Zhang attended the Central Party School of the Communist Party of China where he earned a master’s degree in law. Mr. Zhang began his career in 1971 as an Office Director for the Hebei Supply and Marketing Cooperative Association. He has worked as a Secretary for the general office of the Provincial Party Committee, he was a Vice Director at the research office of the Provincial Party Committee Organization Department and was a Clerk for the Ningjin County Party Committee. In 2003, Mr. Zhang was the President of the Hebei Cotton Association, in 2006 he served as President of the Federation of Farmers’ Cooperative Economic Organization and in 2009 he was Chairman of the Board for New Cooperation Group Holdings Limited. Mr. Zhang was chosen as a director because of his legal and business experience.

Yongli Xia – Independent Director

Mr. Xia has served as a director since December 30, 2012. Mr. Xia, a member of the Communist Party of China, also serves as a Deputy Director of the Hebei Supply and Marketing Cooperative Association. As a graduate student Mr. Xia attended the Central Party School of the Communist Party of China where he earned a master’s degree in law. Mr. Xia specializes in enterprise economics management. He began his career in 1982 as a Vice Section Chief of the Supply and Marketing Cooperative Non-staple Food and Salt Company (the “NSF-Cooperative”). He was later promoted to Section Chief for the salt and tea department, and the salt industry department within the NSF-Cooperative. Mr. Xia has worked as General Manager of the Hebei Salt Sales Corp., he has been a Secretary of the Communist Party, a Director of Provincial Salt Management Office, and Vice Chairman and Chairman of the Board of the Hebei New Cooperation Group Holdings Limited. While serving as a Director of the Provincial Salt Management Office, he was recognized as an “Advanced Party Member” and “Advanced Worker” in 1997, 1999 and 2002. He was also awarded the title of “Udarnik” by the Provincial Youth League Committee in 1998 in recognition of his high productivity and enthusiasm. Mr. Xia was chosen as a director because of his business experience.

Except as otherwise reported above, none of our directors hold directorships in other reporting companies.

There are no family relationships among our directors or executive officers.

To our knowledge we are not quoted on an inter-dealer quotation system which has any requirements that a majority of the board of directors be independent.

To our knowledge, during the last ten years, none of our directors and executive officers (including those of our subsidiaries) has:

  Had a bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time.

 

  Been convicted in a criminal proceeding or been subject to a pending criminal proceeding, excluding traffic violations and other minor offenses.

 

  Been subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities.

 

  Been found by a court of competent jurisdiction (in a civil action), the SEC, or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.

 

  Been the subject to, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization, any registered entity, or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

 

Directors and Officers of the PRC Subsidiaries

The following table sets forth certain information as concerning executive officers of each of the PRC Subsidiaries:

Name   Age   Position
Lijun Chen   56   President of China Agriculture Media (Hebei) Co. Ltd.
Guojiang Peng   47   Vice President of China Agriculture Media (Hebei) Co. Ltd.

 

(29)

Audit Committee

We do not have an audit committee.

Audit Committee Financial Expert

We do not have an “audit committee financial expert” as defined by Item 401(h) in Regulation S-K as promulgated by the Securities and Exchange Commission.

Compensation Committee

We do not have a compensation committee.

Nominating Committee

We do not have a nominating committee.

Board Leadership Structure and Role in Risk Oversight

Our board of directors has overall responsibility for risk oversight. The board’s role in the risk oversight of the Company includes, among other things:

    • Appointing, retaining and overseeing the work of the independent auditors, including resolving disagreements between the management and the independent auditors relating to financial reporting;

 

    • Approving all auditing and non-auditing services permitted to be performed by the independent auditors;

 

    • Reviewing annually the independence and quality control procedures of the independent auditors; Reviewing and approving all proposed related party transactions;
     
    • Discussing the annual audited financial statements with the management;
     
    • Meeting separately with the independent auditors to discuss critical accounting policies, management letters, recommendations on internal controls, the auditor’s engagement letter and independence letter and other material written communications between the independent auditors and the management.

 

Director Qualifications

Directors are responsible for overseeing the Company’s business consistent with their fiduciary duty to stockholders. This significant responsibility requires highly skilled individuals with various qualities, attributes and professional experience. The board believes that there are general requirements for service on the Company’s board of directors that are applicable to all directors and that there are other skills and experience that should be represented on the board as a whole but not necessarily by each director. The board considers the qualifications of director and director candidates individually and in the broader context of the board’s overall composition and the Company’s current and future needs.

Qualifications for All Directors

In its assessment of each potential candidate, including those recommended by stockholders, the board considers the nominee’s judgment, integrity, experience, independence, understanding of the Company’s business or other related industries and such other factors the board determines are pertinent in light of the current needs of the board. The board also takes into account the ability of a director to devote the time and effort necessary to fulfill his or her responsibilities to the Company.

The board requires that each director be a recognized person of high integrity with a proven record of success in his or her field. Each director must demonstrate innovative thinking, familiarity with and respect for corporate governance requirements and practices, an appreciation of multiple cultures and a commitment to sustainability and to dealing responsibly with social issues. In addition to the qualifications required of all directors, the board conducts interviews of potential director candidates to assess intangible qualities including the individual’s ability to ask difficult questions and, simultaneously, to work collegially. The board does not have a specific diversity policy, but considers diversity of race, ethnicity, gender, age, cultural background and professional experiences in evaluating candidates for board membership. Diversity is important because a variety of points of view contribute to a more effective decision-making process.

Code of Ethics

We have adopted a code of ethic (the "Code of Ethics") that applies to our principal chief executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. The Code of Ethics is designed with the intent to deter wrongdoing, and to promote the following:

·Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships
·Full, fair, accurate, timely and understandable disclosure in reports and documents that a small business issuer files with, or submits to, the Commission and in other public communications made by the small business issuer
·Compliance with applicable governmental laws, rules and regulations
·The prompt internal reporting of violations of the code to an appropriate person or persons identified in the code
·Accountability for adherence to the code

 

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires the Company’s executive officers and directors and persons who beneficially own more than 10% of the Company’s common stock file reports of ownership and changes in ownership with the SEC. The Company believes that during fiscal 2013, all reports were timely filed by its executive officers and directors.

Limitations on Liability

Under Nevada law, a Company may indemnify its officers, directors, employees and agents under certain circumstances, including indemnification of such persons against liability under the Securities Act of 1933, as amended. Those circumstances include that an officer, director, employee or agent may be indemnified if the person acted in good faith and in a manner that he or she reasonably believed to be in, or not opposed to, the best interests of the Company and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful.

Indemnification against Public Policy

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling an issuer pursuant to the foregoing provisions, the opinion of the Securities and Exchange Commission is that such indemnification is against public policy as expressed in the Securities Act of 1933 and is therefore unenforceable. In the event that a claim for indemnification against such liabilities (other than director, officer or controlling person in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by us is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

The effect of indemnification may be to limit the rights of the Company and its stockholders (through stockholders’ derivative suits on behalf of the Company) to recover monetary damages and expenses against a director for breach of fiduciary duty.

(30)

ITEM 11. EXECUTIVE COMPENSATION

The following tables set forth certain summary information concerning the compensation paid or accrued for each of the Company's last three completed fiscal years to the Company's or its principal subsidiaries' chief executive officer and each of its other executive officers that received compensation in excess of $100,000 during such period:

Compensation Discussion and Analysis

Name and

Principal

Position

  Fiscal
Year
  Salary
($)
    Bonus
($)
    Stock
Awards
($)
    Option
Awards
($)
    Non-equity
Incentive Plan
Compensation
($)
    Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)
    All Other
Compensation
($)
    Total
($)
 
                                                     

Lijun Chen,

Chairman

 

2013

2012

   

0

0

     

0

0

     

0

0

     

0

0

     

0

0

     

0

0

   

0

0

       

0

0

 

Weiheng Cai,

President and Director

 

2013

2012

   

0

0

     

0

0

     

0

0

     

0

0

     

0

0

     

0

0

   

0

0

       

0

0

 

Kit Ka

CEO

 

2013

2012

   

0

0

     

0

0

     

0

0

     

0

0

     

0

0

     

0

0

   

0

0

       

0

0

 

Weixuan Luo

Former CFO

 

2013

2012

 

$

$

33,727

4,500

     

0

0

     

0

0

     

0

0

     

0

0

     

0

0

    0      

$

$

33,727

4,500

 

Guojiang Peng

Vice President

and Director

 

2013

2012

   

0

0

     

0

0

     

0

0

     

0

0

     

0

0

     

0

0

   

0

0

       

0

0

 

Yichuan Wang

Director

 

2013

2012

   

0

0

     

0

0

     

0

0

     

0

0

     

0

0

     

0

0

   

0

0

       

0

0

 

Enrique Marchese

Independent Director

 

2013

2012

 

$

$

24,405

10,715

     

0

0

     

0

0

     

0

0

     

0

0

     

0

0

   

0

0

     

$

$

24,405

10,715

 

Yanhui Zhang

Independent Director

 

2013

2012

   

0

0

     

0

0

     

0

0

     

0

0

     

0

0

     

0

0

   

0

0

       

0

0

 

Yongli Xia

Independent Director

 

2013

2012

   

0

0

     

0

0

     

0

0

     

0

0

     

0

0

     

0

0

   

0

0

       

0

0

 

 

Compensation Discussion and Analysis

We strive to provide our named executive officers (as defined in Item 402 of Regulation S-K) with a competitive base salary that is in line with their roles and responsibilities when compared to peer companies of comparable size in similar locations.

It is not uncommon for PRC private companies in China to have base salaries as the sole form of compensation. The base salary level is established and reviewed based on the level of responsibilities, the experience and tenure of the individual and the current and potential contributions of the individual. The base salary is compared to the list of similar positions within comparable peer companies and consideration is given to the executive’s relative experience in his or her position. Base salaries are reviewed periodically and at the time of promotion or other changes in responsibilities.

We plan to implement a more comprehensive compensation program, which takes into account other elements of compensation, including, without limitation, short and long term compensation, cash and non-cash, and other equity-based compensation such as stock options. We expect that this compensation program will be comparable to the programs of our peer companies and aimed to retain and attract talented individuals.

We will also consider forming a compensation committee to oversee the compensation of our named executive officers. The majority of the members of the compensation committee would be independent directors.

Employment Agreements

Ms. Kit Ka, Chief Executive Officer of the Company, has entered into a two year employment agreement which has been attached hereto as Exhibit 10.13. Ms. Ka shall receive an annual salary of $1 for her services as CEO of the Company.

Compensation of Directors

Mr. Marchese will receive an annual salary for his service as Independent Director in the amount of $24,405 paid in equal installments throughout the year of 2013, consistent with the normal payroll practices of the Company. Mr. Marchese has not been awarded any equity or stock options by the Company.

Mr. Yanhui Zhang will receive an annual salary for his service as an Independent Director in the amount of $28,915 paid in equal installments throughout the year, consistent with the normal payroll practices of the Company. Mr. Yanhui Zhang has not been awarded any equity or stock options by the Company.

Mr. Yongli Xia will receive an annual salary for his service as an Independent Director in the amount of $28,915 paid in equal installments throughout the year, consistent with the normal payroll practices of the Company. Mr. Yongli Xia has not been awarded any equity or stock options by the Company.

Option Grants Table

There were no individual grants or stock compensation options granted to purchase our common stock made to the executive officer named in the Executive Compensation Table as compensation through December 31, 2013.

Aggregated Option Exercises and Fiscal Year-End Option Value Table

There were no stock options exercised during the fiscal year ended December 31, 2013 by the executive officer named in the Executive Compensation Table.

Long-Term Incentive Plan (“LTIP”) Awards Table

There were no awards made to a named executive officer in the last completed fiscal year under any LTIP

(31)

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCK HOLDER MATTERS.

The classes of equity securities of CAMG issued and outstanding are Common Stock, $0.001 par value and Series A Preferred Stock, $0.001 par value.

The table on the following page sets forth, as of April 15, 2014, certain information with respect to the Common Stock and Series A Preferred Stock owned by (i) each Director, nominee and executive officer of CAMG; (ii) each person who owns beneficially more than 5% of the Common Stock; and (iii) all Directors, nominees and executive officers as a group. The percentage of shares beneficially owned is based on their having been 1,000,000 shares of Preferred Stock, and 25,295,000 shares of Common Stock as of April 15, 2014.

Name and Address of Beneficial Owner(1)

Amount and Nature

of Beneficial Ownership

Percentage of
Common Stock(2)(3)

Guojiang Peng (4)

Vice President and Director

House Unit 3, Rm 502, Bldg #2, Cunnan St #2, Qiaodong District, Shijiazhuang City, Hebei Province P. R. China

380,000 Preferred Shares

8,550,000 Common Shares

37.15%

Siuping Ka (5)

Unit 2004-2005, Kwan Chart Tower,

6 Tonnochy Road, Wanchai, Hong Kong

210,000 Preferred Shares

4,725,000 Common Shares

20.53%

Precursor Management, Inc.

Weiheng Cai

P.O. Box 957

Offshore Incorporations Centre, Road Town

Tortola, British Virgin Islands

142,500 Preferred Shares

2,181,250 Common Shares

13.11%

Yichuan Wang

Director

Chief Executive Officer and Director

Rm 601, Bldg #4, 20 Capital Stadium South

Rd, Haidian District, Beijing, P. R. China

100,000 Preferred Shares

2,250,000 Common Shares

9.78%
     

Kit Ka

President, Chief Executive Officer, Principal Financial and Accounting Officer

- -

Enrique Marchese

Independent Director

- -

Yanhui Zhang

Independent Director

- -

Yongli Xia

Independent Director

- -
Directors and Officers as a Group (5 persons)

100,000 Preferred Shares

2,250,000 Common Shares

9.78%

 

(1) Unless stated otherwise, the business address for each person named is c/o CAM Group Inc.

(2) Calculated pursuant to Rule 13d-3(d) (1) of the Securities Exchange Act of 1934. Under Rule 13d-3(d), shares not outstanding which are subject to options, warrants, rights or conversion privileges exercisable within 60 days are deemed outstanding for the purpose of calculating the number and percentage owned by a person, but not deemed outstanding for the purpose of calculating the percentage owned by each other person listed. We believe that each individual or entity named has sole investment and voting power with respect to the shares of preferred stock and common stock indicated as beneficially owned by them (subject to community property laws where applicable) and except where otherwise noted.

(3) Based on approximately 125,295,000 fully diluted shares outstanding on April 15, 2014 computed from the Company’s recent filings.

(4) Guojiang Peng is a trustee holding the shares for Hebei AMP.

(5) Siuping Ka is brother of Kit Ka, Chief Executive Officer of the Company.

 

Changes in Control

None.

(32)

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

Except for the ownership of our securities, and except as set forth below, none of the directors, executive officers, holders of more than five percent of the Company’s outstanding common stock, or any member of the immediate family of any such person have, to the knowledge of the Company, had a material interest, direct or indirect, in any transaction or proposed transaction which may materially affect the Company.

Advertising Revenues

After completing the installation of the LCD displays in 2012, CAMG has entered an advertising services contract with Hebei AMP, pursuant to which Hebei AMP agrees to purchase a total of 15,768,000 seconds per year for LCD advertising time at a rate of no less than RMB2.54 (USD0.41), starting from June 2012. During the year of 2013, CAMG generated all its advertising revenues from Hebei AMP in amount of $6,641,060.

Hebei AMP indirectly owns 2% capital interest of CAM Hebei, through its wholly-owned subsidiary, Shijiazhuang Qijin Cultural Presentation Inc. Hebei AMP has common management of the Company as follows:

Mr. Peng Guo Jiang holds approximate 37% of CAMG common stock and 38% of CAM preferred stocks as a trustee holding the shares for Heibi AMP.

Fertilizer Agreements

Starting on October 30, 2012 the Company, through its subsidiary CAM Hebei entered into a series of oral and written agreements (collectively the “Agreements”) with Hebei AMP for the purchase and sale of fertilizer in Hebei Province China, pursuant to which, fertilizer products shall be sold by Hebei AMP to CAM Hebei for a purchase price of approximately $2,000,000. Hebei AMP will deliver the fertilizer to CAM Hebei as needed. The Company serves primarily as a trading agent for Hebei AMP during the transactions and therefore recognizes revenue for these transactions on a net rather than a gross basis. During the years ended December 31, 2013 and 2012, the Company generated revenues of $19,060 and $14,896, respectively, from trading agent business.

 

Independence of Management

Except as set forth above, there were no material transactions, or series of similar transactions, since the beginning of the Company's last fiscal year, or any currently proposed transactions, or series of similar transactions, to which the Company was or is to be a party, in which the amount involved exceeds $60,000 and in which any director or executive officer, or any security holder who is known to the Company to own of record or beneficially more than 5% of any class of the Company's common stock, or any member of the immediate family of any of the foregoing persons, has an interest.

Transactions with Promoters

There have been no transactions between the Company and promoters during the last fiscal year.

Except as disclosed above, no executive officer, director or any member of these individuals’ immediate families, any corporation or organization with whom any of these individuals is an affiliate or any trust or estate in which any of these individuals serve as a trustee or in a similar capacity or has a substantial beneficial interest in is or has been indebted to the Company at any time since the beginning of the Company’s last fiscal year.

Warrants sold to Board Member for Cash

During the third quarter of 2012, the Company issued 97,000 one-year warrants at a price of $1.20 per warrant to Mr. Lijun Chen, Chairman of the Board for total proceeds of $116,400, which was collected through a third party escrow account. The Company is not the beneficiary of the escrow account. During April 2013, our board of directors has advised our attorney to amend the investors’ warrants to be refunded in the event that the warrants are not exercised on or before expiration. Accordingly, the transaction was independently negotiated between the Company and the investors. There were no warrants exercised on or before the expiration. The proceeds of $2,455,200 were refunded to the investors by the escrow agent during the third quarter of 2013.

 

Procedures for Approval of Related Party Transactions

Our board of directors is charged with reviewing and approving all potential related party transactions. All such related party transactions must then be reported under applicable SEC rules. We have not adopted other procedures for review, or standards for approval, of such transactions, but instead review them on a case-by-case basis.

(33)

 

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

Fees Billed For Audit and Non-Audit Services

The following table represents the aggregate fees billed for professional audit services rendered during the year of 2013 and 2012 to the independent auditor, Anderson Bradshaw PLLC (“AB”). Audit fees and other fees of auditors are listed as follows:

    2013     2012
Audit fees   $73,977       $ 18,500
Audit-related fees   0         0
Tax fees   0         0
All other fees   0         0
Total   $73,977       $ 18,500

 

Audit fees. Consists of fees for professional services for the audit of our annual financial statements, and for the review of the interim financial statements included in quarterly reports and for services normally provided in connection with statutory and regulatory filings or engagements.

Audit-related fees. Consists of fees for the assurance and related services reasonably related to the performance of the audit or the review of our financial statements and are not reported under “Audit fee”. These services include consultations concerning transactions and consultations concerning financial accounting and reporting standards.

Tax fees. Consists of fees billed for professional services for tax compliance, tax advice and tax planning. These services include assistance regarding federal, state and international tax compliance, assistance with tax reporting requirements and audit compliance.

All other fees. Consists of fees for professional services other than the services reported above, including permissible business process advisory and consulting services, and the translation of filings.

Pre-Approval Policy for Audit and Non-Audit Services

We do not have a standing audit committee, and the full Board performs all functions of an audit committee, including the pre-approval of all audit and non-audit services before we engage an accountant. All of the services rendered to us by Dominic K.F. Chan & Co were pre-approved by our Board of Directors.

 

We are presently working with our legal counsel to establish formal pre-approval policies and procedures for future engagements of our accountants. The new policies and procedures will be detailed as to the particular service, will require that the Board or an audit committee thereof be informed of each service, and will prohibit the delegation of pre-approval responsibilities to management. It is currently anticipated that our new policy will provide (i) for an annual pre-approval, by the Board or audit committee, of all audit, audit-related and non-audit services proposed to be rendered by the independent auditor for the fiscal year, as specifically described in the auditor's engagement letter, and (ii) that additional engagements of the auditor, which were not approved in the annual pre-approval process, and engagements that are anticipated to exceed previously approved thresholds, will be presented on a case-by-case basis, by the President or Controller, for pre-approval by the Board or audit committee, before management engages the auditors for any such purposes. The new policy and procedures may authorize the Board or audit committee to delegate, to one or more of its members, the authority to pre-approve certain permitted services, provided that the estimated fee for any such service does not exceed a specified dollar amount (to be determined). All pre-approvals shall be contingent on a finding, by the Board, audit committee, or delegate, as the case may be, that the provision of the proposed services is compatible with the maintenance of the auditor's independence in the conduct of its auditing functions. In no event shall any non-audit related service be approved that would result in the independent auditor no longer being considered independent under the applicable rules and regulations of the Securities and Exchange Commission.

(a) On December 31, 2013, our Chief Executive Officer and Principal Financial and Accounting Officer made an evaluation of our disclosure controls and procedures. In our opinion, the disclosure controls and procedures are adequate because the systems of controls and procedures are designed to assure, among other items, that 1) recorded transactions are valid; 2) valid transactions are recorded; and 3) transactions are recorded in the proper period in a timely manner to produce financial statements which present fairly the financial condition, results of operations and cash flows for the respective periods being presented. Moreover, the evaluation did not reveal any significant deficiencies or material weaknesses in our disclosure controls and procedures.

(b) There have been no significant changes in our internal controls or in other factors that could significantly affect these controls since the last evaluation.

(34)

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a) Documents filed as part of this report

(1) All financial statements

Report of Anderson Bradshaw PLLC Registered Public Accounting Firm

Report of Dominic K.F. Chan & Co

Balance Sheets as of December 31, 2013 and 2012

Statements of Operations for the years ended December 31, 2013 and 2012

Statements of Stockholders’ Equity - for the years ended December 31, 2013 and 2012

Statements of Cash Flows - for the years ended December 31, 2013 and 2012

Notes to Financial Statements

All financial statements are included in Part II, Item 8.

 

(2) Financial Statement Schedules

All financial statement schedules have been omitted, since the required information is not applicable or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements and notes thereto included in this Form 10-K.

(3) Exhibits required by Item 601 of Regulation S-K

The information required by this Section (a)(3) of Item 15 is set forth on the exhibit index that follows the Signatures page of this Form 10-K.

(b) Reports on Form 8-K

1. On January 15, 2013, we filed a current report on Form 8-K to announce the Fertilizer Agreements entered between the Company and Hebei Agriculture Means of Production Co. Ltd. (“Hebei AMP”), a related party, for the purchase and sale of fertilizer in Hebei Province China.

 

2. On January 31, 2013, we filed a current report on Form 8-K to announce the appointment of independent directors.

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SIGNATURES

 

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned majority of the Board of Directors, thereunto duly authorized.

    CAM Group Inc.
   
Date: April 15, 2014   /s/ Kit Ka
    Kit Ka
    President and Chief Executive Officer
       

 

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EXHIBIT INDEX

 

  3.1 Articles of Incorporation of CAM Group, Inc. (f/k/a RT Technologies, Inc.) (1)
  3.2 Bylaws of CAM Group, Inc. (f/k/a RT Technologies, Inc.) (1)
  3.3 Certificate of Designation (1)
  10.1 Plan of Exchange between China Agriculture Media Group Co., Ltd. and CAM Group, Inc. (f/k/a RT Technologies, Inc.) (1)
  10.2 Form of Chinese Entrustment Agreement for Nominee Interest in CAMG (1)
  10.3 Joint Venture Agreement (1)
  10.4 Executed Entrustment Agreements (2)
  10.5 The board resolution and shareholder consent of increase of registered capital of CAM Hebei (2)
  10.6 Written agreement for work force sharing (2)
  10.7 Commitment letter (2)
  10.10 Translated copy of Executed Entrustment Agreements (3)
  10.11 Translated copy of Written agreement for work force sharing (3)
  10.12 Offer letter with Mr. Enrique Marchese, Director (4)
  10.13 Employment Agreement with Chief Executive Officer (5)
  10.14 Employment Agreement with Chief Financial Officer (6)
  10.15 Offer letter with Mr. Yanhui Zhang, Independent Director (7)
  10.16 Offer letter with Mr. Yongli Xia, Independent Director (7)
  14.1 Code of Ethics
  23.1 Consent of Anderson Bradshaw LLP
  31.1 Rule 13a-14(a)/15d-14(a) Certifications of Chief Executive Officer
  31.2 Rule 13a-14(a)/15d-14(a) Certifications of Principal Financial and Accounting Officer
  32.1 Section 1350 Certifications of Chief Executive Officer and Principal Financial and Accounting Officer
  101 The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 formatted in Extensible Business Reporting Language (XBRL).
     

 

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(1) Filed with the Form 8K filed on April 24, 2012

(2) Filed with the Form 8K/A filed on September 25, 2012

(3) Filed with the Form 8K/A filed on December 3, 2012

(4) Filed with the Form 8K filed on August 14, 2012

(5) Filed with the Form 8K filed on November 9, 2012

(6) Filed with the Form 8K filed on November 16, 2012

(7) Filed with the Form 8K filed on January 31, 2013