10-K 1 r10k-123110cmg.htm CHINA MEDIA GROUP CORPORATION

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

For the fiscal year ended December 31, 2010

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(    ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from [ ] to [ ]

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Commission File Number: 000-50431

CHINA MEDIA GROUP CORPORATION

CHINA MEDIA GROUP CORPORATION
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(Exact name of small business issuer as specified in its charter)

Texas

7310

32-0034926

(State or other

(Primary Standard Industrial

(I.R.S. Employer

jurisdiction of

Classification Code Number)

Identification No.)

incorporation or organization)

1403 Wan Chai Commercial Center, 194-204 Johnston Road, Wanchai, Hong Kong.

N/A

(Address of Company's principal executive offices)

(Zip Code)

+011 852 3171 1208 (ext. 222)
(Company's Telephone Number, Including Area Code)

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

Title of each class registered:
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None

Name of each exchange on which registered:
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None

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

Common Stock, No Par Value
(Title of Class)


Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
[   ] Yes [ x ] No


Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
[   ] Yes [ x ] No


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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.
[ x ] Yes [   ] No


Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
[   ]


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 the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

[   ] Large accelerated filer

[   ] Accelerated filer

[   ] Non-accelerated filer (Do not check if a smaller reporting company)

[ x ] Smaller reporting company


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


The aggregate market value of the registrant's voting stock held by non-affiliates (284,863,023 shares) of the registrant based upon the per share closing price of $0.0145 on December 31, 2010 was approximately $4,130,514.


Solely for the purpose of this calculation, shares held by directors and officers of the registrant have been excluded. Such exclusion should not be deemed a determination or an admission by registrant that such individuals are, in fact, affiliates of the registrant.


As of March 31, 2011, there were 554,132,450 no par value common stock of the Company issued and outstanding.



DOCUMENTS INCORPORATED BY REFERENCE


Exhibits incorporated by reference are referred under Part IV.


DEFINITIONS AND CONVENTIONS

References to "China" refer to the Peoples' Republic of China.
References to "Common Stock" means the common stock, no par value, of China Media Group Corporation.
References to the "Commission" or "SEC" means the U.S. Securities and Exchange Commission.
References to "Company", "CHMD", "we", "our" means China Media Group Corporation and include, unless the context requires or indicate otherwise, the operation of its subsidiaries (all hereinafter defined).
References to "33 Act" or "Securities Act" means the Securities Act of 1933, as amended.
References to "34 Act" or "Exchange Act" means the Securities Exchange Act of 1934, as amended.



FORWARD-LOOKING STATEMENTS


This Form 10-K report contains forward-looking statements of management of the Company that are, by their nature, subject to risks and uncertainties. Forward-looking statements are statements that estimate the happening of future events are not based on historical fact. Forward-looking statements may be identified by the use of forward-looking terminology, such as "may", "shall", "could", "expect", "estimate", "anticipate", "predict", " probable", "possible", "should", "continue", or similar terms, variations of those terms or the negative of those terms. The forward-looking statements appear in a number of places in this Form 10-K report have been formed by our management on the basis of assumptions made by management and considered by management to be reasonable. However, whether actual results and developments will meet the Company's expectations and predictions depends on a number of known and unknown risks and uncertainties and other factors, any or all of which could cause actual results, performance or achievements to differ materially from Company's expectations, whether expressed or implied by such forward looking statements. Our future operating results are impossible to predict and no representation, guaranty, or warranty is to be inferred from those forward-looking statements.


The assumptions used for purposes of the forward-looking statements contained in this Form 10-K report represents estimates of future events and are subject to uncertainty as to possible changes in economic, legislative, industry, and other circumstances. As a result, the identification and interpretation of data and other information and their use in developing and selecting assumptions from and among reasonable alternatives require the exercise of judgment. To the extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results, and, accordingly, no opinion is expressed on the achievability of those forward-looking statements. No assurance can be given that any of the assumptions relating to the forward-looking statements in this Form 10-K report are accurate, and we assume no obligation to update any such forward-looking statements. If we do update or correct one or more forward-looking statements, investors and others should not conclude that we will make additional updates or corrections with respect to other forward-looking statements.


TABLE OF CONTENTS

PART I

ITEM 1.

Business

1

ITEM 1A.

Risk Factors

6

ITEM 1B.

Unresolved Staff Comments

14

ITEM 2.

Properties

14

ITEM 3.

Legal Proceedings

14

ITEM 4.

Submission of Matters to a Vote of Security Holders

14

PART II

ITEM 5.

Market for Registrant's Common Equity, Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities

15

ITEM 6.

Selected Financial Data

20

ITEM 7.

Management's Discussion and Analysis of Financial Condition and Results of Operation

21

ITEM 7A.

Quantitative and Qualitative Disclosures About Market Risk

23

ITEM 8.

Financial Statements and Supplementary Data

24

ITEM 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

24

ITEM 9A

Controls and Procedures

24

ITEM 9B.

Other Information

25

PART III

Item 10

Directors, Executive Officers and Corporate Governance

26

Item 11

Executive Compensation

28

Item 12

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

30

Item 13

Certain Relationships and Related Transactions, and Director Independence

32

Item 14

Principal Accounting Fees and Services

33

PART IV

ITEM 15

Exhibits, Financial Statement Schedules

34

SIGNATURES

36


PART I


ITEM 1. BUSINESS.


Company

Our mission is to become one of China's leading new age media companies through the use of new technologies and devices combined with traditional media of TV, Newspapers, Magazines, Billboards and Internet to reach today's mobile society. In order to facilitate our mission, the Company initially established 4 strategic business units: "Television", "Advertising" "Print" and "Telecommunications and Mobile Computing". However due to the lack of financial and other resources available to the Company, in the near future, the Company will now focus on developing businesses that require less capital and initial funding requirement in the Product Services business unit, and only focus on "Advertising" and "Telecommunication and Mobile Computing" business units when opportunities arise where capital requirement is manageable by the Group.

History and Overview

The Company was incorporated in Texas on October 1, 2002 and was originally formed to be a frozen drink machine rental service and then intended to become a diverse company through mergers and acquisitions. In September 2005 the Company changed its board of directors which had since changed the Company name to China Media Group Corporation to reflect the Company's intent to focus all its efforts in advertising and media in the emerging China market. Under new management, the Company commenced to position the Company to capitalize on the growth of the Chinese advertising market where, we believe, global companies are rushing into China to try to grab and hold the attention of its 1.3 billion citizens.


On March 13, 2007, the Company acquired 100% of the issued and outstanding shares of Good World Investments Limited, which owns 50% of the registered capital of Beijing Ren Ren Health Culture Promotion Limited ("BRR"). BRR is working with the Chinese Government on a benevolent project named "Great Wall of China Project" to advertise and promote health education and health awareness in China. We believe BRR provides a strategic advertising platform for us to launch our advertising operations in China as it can advertise in hospitals and districts in China.


In 2008, our advertising business unit commenced its operations through the providing advertising services and we expect to commence our outdoor advertising placements through Beijing Ren Ren Health Culture Promotion Limited ("Beijing Ren Ren") in the future, subject to available resources.

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2010 Products & Services Overview

Although we have established 4 business units, we have only started activities in two of them; those are "Advertising", "Telecommunication and Mobile" and "Product Services". A brief review and description of these three business units' strategies and operations are described below.

Advertising Unit
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Our principal focus is on our China based advertising under Beijing Ren Ren Health Culture Promotion Limited. Beijing Ren Ren has a nationwide program of promoting health education and health awareness under the United Nations Millennium Development Goals Program which has been named the Great Walls of China Project in China. Under the program, Beijing Ren Ren obtained the rights to advertise in hospitals and the rights to three outdoor signs in every district in China.


Our goal is to develop a network of nationwide ad/sign locations in China on our own or through our cooperative partners so that we can offer our customers nationwide advertising coverage. We aim to establish ad placements in major cities and work with the local governmental bodies to secure high profile ad placement sites.

Furthermore, we aim to utilize the advertisement place inside and outside the hospitals to capture the advertising positions in the health sector. Our strategy is to invite domestic and international healthcare companies to place advertisement in these hospitals. Our goal is to co-ordinate with hospitals nationwide so that we can deliver our health awareness and health education messages across all China.


During the year, we were unsuccessful in raising funds for the Beijing Ren Ren program. The outdoor media had become more mature and competitive in China since this program was initiated. Therefore there are more choices available for advertising in the market and the advertising agencies and customers are seeking for more developed media owners before committing to advertising. Therefore without an outdoor media presence to show to potential customers, we were unable to convince them to commit advertising to us prior to having the sign boards built. Therefore we require the funding to build up the signs prior to being able to attract advertisers to commit advertising to us.

Due to the above circumstances, the Group has decided to de-focus from the Beijing Ren Ren. We will continue to work with and follow up with potential advertisers and funders that we have already contacted on the Beijing Ren Ren program, but we will not actively pursue new advertisers or funders until we have obtain financial resources necessary to built the boards. The Group therefore does not expect to receive any revenue from the Beijing Ren Ren platform for the upcoming year.


In late 2009, the Group was appointed as an exclusive advertising agent for interactive digital media kiosk in Hong Kong. However this agency was mutually terminated in May 2010.


In late 2009, the Group entered into agreement to commence working on billboard business in Malaysia. We expected that this business venture in Malaysia would be complimentary to our outdoor media advertising business in China. However due to limited funding constraints, we could not provide any financial support to this business and this venture was disposed in October 2010 to allow the Group to limit its financial commitments and to focus on its business in China and Hong Kong.


In 2010, the Group provided advertising services in Hong Kong and earned revenue of $52,389.

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Telecommunications and Mobile Computing Unit
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Advertising through mobile devices is becoming more prominent to reach the mobile society of today. The goal of the Telecommunications and Mobile Computing Unit is to provide the Company with entry into the new sector of advertising through telecommunication media and devices. Our strategy on gaining access through telecommunication media is through cooperation with existing networks or to establish select networks. However our longer term strategy is to establish a partnership with network operators to provide extensive network access for our advertising media. We have secured the distribution rights for M.A.G.I.C. Convergent Device for the territory of China and Hong Kong. In 2009, we have also entered into a joint venture with Advance Tech Communications Sdn. Bhd. ("ATC") to market and distribute the devices developed by ATC worldwide other than the countries already under distribution by the Group. M.A.G.I.C. platform, named "W3", is the next generation convergent device that has the full capabilities of a notebook computer running on full Windows 7 operating system, but shrink down to the size of a PDA phone.

We expect the M.A.G.I.C. W3 will be an unique convergent device to enter the information and advertising sector of the mobile phone market. ATC has unveiled the M.A.G.I.C. W3 in February 2011 and we expect to receive the prototype unit in July 2011. If our compliance, functionality, load and usability tests are satisfactory, then we expect that commercial sales will commence in the second half of this year. We will need to raise at least USD1,000,000 and deploy resources to roll out this device in countries through our joint venture company with ATC prior to commercialization. If we are not able raise the capital or to dedicate resources required, then we will need to consider how to monetarize the value of joint venture. .

In February 2011, as announced by our Form 8K, the Group acquired 5% equity interests in ATC.


Products Services Unit
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Our Products Services Unit intends to build brands loyalty and to take advantage of our contacts, distribution network and trading partners. We will leverage on our advertising platform to promote our own brands for select products. This will uniquely position our Product Services for brand awareness and develop a long term business unit that will serve both consumers and industries.

We plan to distribute products that would leverage on our current business activities and programs. In 2010, we entered into a joint venture to be engaged in organic fertilizers and farming hoping to leverage on our products that fall under the guidelines of the Millennium Development Goals program. The joint venture had a contract to provide growing techniques and organic fertilizers to a farm in Huangpi for a fee. We had received the initial payment of RMB50,000 (US$7,311) but we were unwilling to continue the project without first receiving further payment. In December 2010, we decided to terminate this business and sold our stake in the joint venture company for $100,000. We will continue to evaluate the agriculture business in Asia as we believe that there is great business potential in China and Asia. Currently we are in discussion to enter into an agriculture project in Southeast Asia and hope to finalize the contract in Q2.


Other Investments
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During the year the Group acquired Jademan International Limited ("Jademan") for $170,000 as a short term investment. Jademan's principal asset was its holding in China Integrated Media Corporation Limited, an Australian public company that was engaged in the TV and digital sign board business in China, Malaysia and Australia. In April 2011, the Group disposed 51% of Jademan for $176,500 to raise some funds to pay its outstanding professional fees and other liabilities.

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Marketing & Sales Overview

Our plan is to work with advertising agents in Hong Kong and Guangdong initially to work on a plan to secure some outdoor media boards with the limited resources available to the Group. We will discuss with our contacts in Hong Kong and China regarding securing outdoor media boards. Once we have started some advertising boards and have secured certain minimum funding for the BRR program, we then plan to secure ad/sign placements in districts in China under our Great Wall of China Project. We plan to co-operate with international advertising firms to place out the advertising on these ad/sign placements on either an agent or outsourced basis. We will recruit a team to manage the 10 largest cities in China where we would secure, manage and administer ad/sign placements for these cities. For the other cities we will look for partners or agents to work with us to secure ad/sign placements. Once we have certain ad/sign placements network for the second-tier cities, we will approach advertising agencies to sell these ad/sign placements to their customers.

For our M.A.G.I.C. Convergent devices, we will sell through distribution channels, network operators and small enterprises. We will approach distribution channels and network operators in Hong Kong and China, initially and then in other territories to sell the M.A.G.I.C. Device. We will also sell to certain enterprises that will take advantage of the special functions in M.A.G.I.C. Device and customize to their operational needs. Select firms that we will target are transportation and logistic companies, courier companies, and direct sales companies. We will also target corporate and financial executives to customize the M.A.G.I.C. Device to their requirements. To sell this high value product with innovative applications, we plan to employ business development teams focused on creating high-value strategic customers and business alliances.

For our Products Services unit, we will work with our advertisers to cross promote and sell their products on our advertising platform, once we have built up. In some cases, we will look to develop our own brands. We will employ a small team to handle enquires and to provide support to our advertising customers.


Industry Overview and Competition

The key to our success in the advertising business is the occupation of prime advertising locations throughout China. The premium locations with heavy pedestrian traffic are not common but are the focus of all advertising agencies and media owners. However you need to have the outdoor media to be able to compete for the premium sites. Many of our competitors have established outdoor billboards to offer to their clients where it would be difficult to compete since they are already in the market place and working with advertising agents already. We will need to build up some outdoor media boards to show a presence in the market place before we can get commitments from advertising agents and customers. However, we believe there is ample room for our Company to grow in the China market.

There are many competitors in the market place offering a variation of the M.A.G.I.C W3, however not one that offers full computer operability in full Windows 7 OS with phone functionality. With the emergence of newer convergent device technologies, there is an opportunity for us to offer convergent devices and applications and solutions that have more functionality than traditional mobile devices. The new devices are easier to integrate with existing data and video applications and systems, and are easier to maintain and administer. We believe that the rate of adoption of convergent device and its applications and solutions by corporate executives and innovative applications will accelerate the adaptation of our M.A.G.I.C. Convergent device is recognized as more secure, and more functional in internet-based applications. We believe mobile executives will recognize the benefit of having notebook functionality in a handheld device combined with video and data capabilities.

4


Governmental Regulation

We are subject to federal, state and local laws and regulations applied to businesses in general. We believe that we comply with the requirements in China for any licenses or approvals to pursue our proposed business plan. In locations where we operate, the applicable laws and regulations are subject to amendment or interpretation by regulatory authorities. Generally, such authorities are vested with relatively broad discretion to grant, renew and revoke licensee and approvals, and to implement regulations. Licenses may be denied or revoked for various reasons, including the violation of such regulations, conviction of crimes and the like. Possible sanctions which may be imposed include the suspension of individual employees, limitations on engaging in a particular business for specific periods of time, revocation of licenses, censures, redress to customers and fines. We believe that we are in conformity with all applicable laws in all relevant jurisdictions. We may be prevented from operating if our activities are not in compliance and must take action to comply with the relevant laws and regulations.

China has a long standing law on the ownership of advertising agencies but not the advertising placements locations. The onus is placed on the advertising agency to ensure proper contents in the advertisement. One of the WTO requirements is for China to relax the advertising agency ownership requirements. Our China subsidiary is only subject to regular business laws in China.

We have posted our privacy policy and practices concerning the use and disclosure of any consumer information collected on our website, www.chinamediagroup.net. Any failure by us to comply with posted privacy policies, Federal Trade Commission requirements or other domestic or international privacy-related laws and regulations could result in proceedings by governmental or regulatory bodies that could potentially harm our business, results of operations and financial condition. In this regard, there are a large number of legislative proposals before the U.S. Congress and various state legislative bodies regarding privacy issues related to online commerce to which the Group may participate in the future. It is not possible to predict whether or when such legislation may be adopted, and certain proposals, if adopted, could harm our business by causing a decrease in the use of our applications and services by our small business customers and thereby a decrease in our revenues. Such decreases could be caused by, among other possible provisions, the required use of disclaimers or other requirements before consumers can utilize our Internet technology solutions.

Employees

As of the date of this report, we have 5 full time and 2 part time employees. From time to time, we utilize consultants or contractors for specific assignments. None of our employees are represented by a labor union and we have never experienced a work stoppage. We believe that our relationships with our employees are good.

Facilities

We currently lease and occupy 1,000 square feet of office space in Hong Kong for our executive and administrative office at a cost of about $2,000 per month. The lease expires in December 2011. We also share a 300 square feet office in Kuala Lumpur, Malaysia as our Southeast Asia office, which is free of rent. The other operating office is located in Beijing where we have a 300 square feet administration office. We do not have a written lease or sublease agreement for the office location in Beijing. We believe we will be able to obtain additional space, as needed, on commercially reasonable terms.

5


ITEM 1A. RISK FACTORS


Our business is subject to various risks and uncertainties, including those set forth below. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties not presently known to us or that we currently deem to be immaterial may also materially and adversely affect our business operations. If any of the risks set out or referred to below actually occur, our business, financial condition or results of our operations could be materially adversely affected.

RISKS RELATED TO EXISTING AND PROPOSED OPERATIONS

We have a history of losses and accumulated deficit and could incur losses in the future.

We have a history of net losses. For the years ended December 31, 2010, 2009, and 2008, our net losses have been $5.57 million, $2.53 million and $2.15 million, respectively. As of December 31, 2010, we had accumulated deficits of $13.87 million. If we do achieve profitability in the future, we may not be able to sustain or increase our profitability in the future.

If we are unable to obtain additional funds from other financings we may have to curtail the scope of our operations significantly and alter our business model.

We must achieve profitability for our business model to succeed. Prior to accomplishing this goal, we may need to raise additional funds, from equity or debt sources. Our cash requirements are substantial and our current financial position are insufficient to meet our cash needs in the future If additional financing is not available when required or is not available on acceptable terms, we may be unable to continue our operations at current or planned levels. In addition, any failure to raise additional funds in the future may result in our inability to successfully secure our advertising platform, take advantage of business opportunities or respond to competitive pressures, any of which circumstances could have a material adverse effect on our financial condition and results of operations.

We have incurred losses since our inception and we may not achieve or maintain profitability.

We have not been profitable in any fiscal period since our inception and may not be profitable in future periods. At December 31, 2010, we had accumulated deficits of approximately $13.87 million. We expect that our expenses relating to sales and marketing, technology development, general and administrative functions, as well as the development of our advertising platform and infrastructure, will increase in the future. We will need to build and increase our revenues to be able to achieve and then maintain profitability in the future. We may not be able in a timely manner to obtain necessary financing or to reduce our expenses in response to any decrease or shortfall in our revenues, and our failure to do so would adversely affect our operating results and our efforts to achieve or maintain profitability. We cannot predict when, or if, we will become profitable in the future. Even if we achieve profitability, we may not be able to sustain it.

We have a significant working capital deficit and will need additional funding to support our operations and capital expenditures; sufficient funding may not be available to us, and the unavailability of funding could adversely affect our business.

As of December 31, 2010, we had a working capital deficit of approximately $2.24 million. We have no committed sources of additional capital to finance the current operation and the expansion of our business. Due to our recurring losses, negative cash flows, working capital deficits, and accumulated deficits, the report of our independent registered public accounting firm on our consolidated financial statements for the year ended December 31, 2010 expressed substantial doubt about our ability to continue as a going concern. For capital expenditures, we will need additional funds to continue our operations, expand our staffing, develop our advertising and mobile devise businesses, pursue business opportunities (such as licensing or acquisition of complementary technologies or businesses), react to unforeseen difficulties and respond to competitive pressures. We cannot assure that any financing will be available to us at any time in the future, in amounts or on terms acceptable to us, or at all. Furthermore, the sale of additional equity or convertible debt securities may result in additional dilution to our existing stockholders. If adequate additional funds are not available, we may be required to delay, reduce the scope of or eliminate implementation of material parts of our business strategy, potentially including the development or acquisition of additional advertising and mobile device businesses and capabilities.

6


Our limited operating history and rapidly evolving business makes it difficult for us to accurately forecast revenues and expenses.

We have a limited operating history on which to base an evaluation of our business and prospects. Our operating results may fluctuate as a result of a number of factors, many of which are outside of our control. For these reasons, comparing our operating results on a period-to-period basis may not be meaningful, and you should not rely on our past results as an indication of our future performance. Our prospects must be considered in light of inherent risks, expenses, and difficulties encountered by companies in their early stages of development, particularly in new and evolving markets.

We commenced our advertising and mobile devices operations in April 2006 with a very limited operating history for these operations due to the lack of operating and financial resources. Our operating results to date relate principally to advertising and the mobile device business. Accordingly, our future prospects are uncertain in light of the risks and uncertainties experienced by early stage companies in evolving industries, and in particular our future operations in China. Due to our limited history and lack of resources, it is difficult for us to predict future revenues and operating expenses. We based our expense levels, in part, on our expectations of future revenues from anticipated transactions. If our advertising and mobile device business develops slower than we expect, our losses may be higher than anticipated, we may have to curtail parts of our business plan and to the market price of our stock may decline.

Some of the other risks and uncertainties of our business relate to our ability to:


-

offer new and innovative products and services to attract and retain a larger consumer base;
- attract customers;
- increase awareness of our brand and continue to develop consumer and customer loyalty;
- respond to competitive market conditions;
- respond to changes in our regulatory environment;
- manage risks associated with intellectual property rights;
- maintain effective control of our costs and expenses;
- raise sufficient capital to sustain and expand our business;
- attract, retain and motivate qualified personnel; and
- upgrade our technology to support increased traffic and expanded services.


If we are unsuccessful in addressing any of these risks and uncertainties, our business may be materially and adversely affected.


The development of our business is dependent upon the completion and integration of acquisitions and other transactions that have only recently or not yet closed.

Our principal focus is on our advertising and mobile device businesses in the People's Republic of China, which we are creating through the acquisition of various entities and assets, and organic growth. These potential acquisitions have not closed to date and may never close. Accordingly, it is difficult to evaluate our business based upon our historical financial results, including those for the year ended December 31, 2010. Even if we closed potential acquisitions, our business will not be successful if we are unable to successfully operate and integrate the businesses we acquire. We expect to continually look for new businesses to acquire to maintain and sustain our operations. If we fail to identify such business, are unable to acquire such businesses on reasonable terms, or fail to successfully integrate such businesses, our operating results and prospects could be harmed.


We face significant competition and may suffer from a loss of users and customers as a result.

We expect to face significant competition in our advertising business, particularly from other companies that seek to provide similar services. Many of these competitors have significantly greater financial resources and more personnel than we do. They may also have longer operating histories and more experience in attracting and retaining and managing customers. They may use their experience and resources to compete with us in a variety of ways, including by competing more for users, customers, distributors, media channels and by investing more heavily in research and development and making acquisitions. If we fail to compete effectively, our business, financial condition and results of operation will be adversely affected.

7


Our business depends on a strong brand, and if we are not able to maintain and enhance our brand, our business and operating results may be harmed.

We believe that recognition of our brand will contribute significantly to the success of our business. We also believe that maintaining and enhancing our brand is critical to expanding our base of consumers and customers. As our market becomes increasingly competitive, maintaining and enhancing our brand will depend largely on our ability to remain as an advertising leader in China, which may be increasingly difficult and expensive.

We may face intellectual property infringement claims and other related claims that could be time-consuming and costly to defend and may result in our inability to continue providing certain of our existing services.

Technology and advertising companies are frequently involved in litigation based on allegations of infringement of intellectual property rights, unfair competition, invasion of privacy, defamation and other violations of third-party rights. The validity, enforceability and scope of protection of intellectual property, particularly in China, are uncertain and still evolving. In addition, many parties are actively developing and seeking protection for technologies, including seeking patent protection. There may be patents issued or pending that are held by others that cover significant aspects of our technologies, products, business methods or services. As we face increasing competition and as litigation becomes more common in China for resolving commercial disputes, we face a higher risk of being the subject of intellectual property infringement claims.

Intellectual property litigation is expensive and time consuming and could divert resources and management attention from the operations of our businesses. If there is a successful claim of infringement, we may be required to pay substantial fines and damages or enter into royalty or license agreements that may not be available on commercially acceptable terms, if at all. Our failure to obtain a license of the rights on a timely basis could harm our business. Any intellectual property litigation could have a material adverse effect on our business, financial condition or results of operations.

If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud.

We are subject to reporting obligations under the U.S. securities laws. The SEC, as required by Section 404 of the Sarbanes-Oxley Act of 2002, adopted rules requiring every public company to include in its annual report a management report on such company's internal controls over financial reporting which contains management's assessment of the effectiveness of the company's internal controls over financial reporting. In addition, an independent registered public accounting firm must attest to and report on management's assessment of the effectiveness of the company's internal controls over financial reporting. These requirements may first apply to our annual report on Form 10-K for the fiscal year ending December 31, 2010. Our management may conclude that our internal controls over financial reporting are not effective. Moreover, even if our management concludes that our internal controls over financial reporting are effective, our independent registered public accounting firm may still decline to attest to our management's assessment or may issue a report that is qualified if they are not satisfied with our controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us. Our reporting obligations as a public company will place a significant strain on our management, operational and financial resources and systems for the foreseeable future. We are a young company with limited accounting personnel and other resources with which to address our internal financial controls and procedures. If we fail to timely achieve and maintain the adequacy of our internal financial controls, we may not be able to conclude that we have effective internal controls over financial reporting at a reasonable assurance level. Moreover, effective internal controls over financial reporting are necessary for us to produce reliable financial reports and are important to help prevent fraud. As a result, our failure to achieve and maintain effective internal controls over financial reporting could result in the loss of investor confidence in the reliability of our financial statements, which in turn could harm our business and negatively impact the market price of our common stock. Furthermore, we anticipate that we will incur considerable costs and use significant management time and other resources in an effort to comply with and the rules adopted by the SEC.


If we fail to attract customers for our advertising and convergent device business our growth prospects could be seriously harmed.

Our advertising customers will not maintain their business relationships with us if we cannot secure attractive ad/sign placements. In addition our distributors will not work with us if the convergent device does not sell well or does not have adequate sales margin for their sales channels. Failure to retain advertisers, customers, distributors or channel partners could seriously harm our business and growth prospects.

8


Because we primarily rely on distributors in distributing M.A.G.I.C. Convergent Devices, our failure to retain key distributors or attract additional distributors could materially and adversely affect our business.

We will rely heavily on a nationwide distribution network of third-party distributors for sales to, and collection of payment from, our corporate and consumer customers. If our distributors do not provide quality services to our consumer customers or otherwise breach their contracts with our consumer customers, we may lose customers and our results of operations may be materially and adversely affected. We will sign distributing agreements with our distributors, although we may not sign any long-term agreements with them, but we cannot assure that we can maintain favorable relationships with them. Our distribution arrangements will be non-exclusive. Furthermore, some of our potential distributors may have contracts with our competitors or potential competitors and may not sign distribution agreements with us. If we fail to retain our key distributors or attract additional distributors on terms that are commercially reasonable, our business and results of operations could be materially and adversely affected.


We may not be able to manage our expanding operations effectively.

We commenced our mobile device and advertising services operations in early 2006. We anticipate continuous developing of our business in 2011 as we focus growth in our - customer base and consumer market opportunities. To manage the potential growth of our operations and personnel, we will be required to improve operational and financial systems, procedures and controls, and expand, train and manage our growing employee base. Furthermore, our management will be required to maintain and expand our relationships with customers. We cannot assure that our current and planned personnel, systems, procedures and controls will be adequate to support our future operations.


The recent global economic and financial market crisis has had and may continue to have a negative effect on our business and results of operations.

Starting in 2008 till now, the current global economic conditions could have a negative effect on our business and results of operations. Economic activity in China, United States and throughout much of the world has undergone a sudden, sharp economic downturn following the recent housing downturn and subprime lending collapse in both the United States and Europe. Global credit and liquidity have tightened in much of the world. Some of our customers in China may face business downturn and credit issues, and could experience cash flow problems and other financial hardships, which could affect timeliness of advertising through our platform. Consumer confidence and spending are down significantly in China and USA.

Changes in governmental banking, monetary and fiscal policies to restore liquidity and increase credit availability may not be effective in alleviating the global economic declines. It is difficult to determine the breadth and duration of the economic and financial market problems and the many ways in which they may affect our customers and our business in general. Nonetheless, continuation or further worsening of these difficult financial and macroeconomic conditions could have a significant effect on our business and results of operations. .


Capital markets are currently experiencing a period of dislocation and instability, which has had and could continue to have a negative impact on the availability and cost of capital.

The general disruption in the U.S. capital markets has impacted the broader financial and credit markets and reduced the availability of debt and equity capital for the market as a whole. These conditions could persist for a prolonged period of time or worsen in the future. Our ability to access the capital markets may be restricted at a time when we would like, or need, to access such markets, which could have an impact on our flexibility to react to changing economic and business conditions. The resulting lack of available credit, lack of confidence in the financial sector, increased volatility in the financial markets and reduced business activity could materially and adversely affect our business, financial condition, results of operations and our ability to obtain and manage our liquidity. In addition, the cost of debt financing may be materially adversely impacted by these market conditions.

9


Our success depends on the continuing efforts of our senior management team and other key personnel and our business may be harmed if we lose their services.

Our future success depends heavily upon the continuing services of the members of our senior management. If one or more of our senior executives or other key personnel are unable or unwilling to continue in their present positions, we may not be able to replace them easily or at all, and our business may be disrupted and our financial condition and results of operations may be materially and adversely affected. Competition for senior management and key personnel is intense, the pool of qualified candidates is very limited, and we may not be able to retain the services of our senior executives or key personnel, or attract and retain high-quality senior executives or key personnel in the future.

In addition, if any member of our senior management team or any of our other key personnel joins a competitor or forms a competing company, we may lose customers, distributors, know-how and key professionals and staff members. Each of our executive officers and key employees has entered into an employment agreement with us which contains confidentiality and non-competition provisions. Legal proceedings to enforce such provisions would be costly in both money and management time and such provisions may not be enforced or enforceable.

We rely on highly skilled personnel and if we are unable to retain or motivate key personnel or hire qualified personnel, we may not be able to grow effectively.

Our performance and future success depends on the talents and efforts of highly skilled individuals. We will need to continue to identify, hire, develop, motivate and retain highly skilled personnel for all areas of our organization. Competition in our industry for qualified employees is intense. Our continued ability to compete effectively depends on our ability to attract new employees and to retain and motivate our existing employees.

As competition in our industry intensifies, it may be more difficult for us to hire, motivate and retain highly skilled personnel. If we do not succeed in doing so, we may be unable to grow effectively.

We have limited business insurance coverage.

The insurance industry in China is still at an early stage of development. Insurance companies in China offer limited business insurance products. We do not have any business liability or disruption insurance coverage for our operations in China. Any business disruption, litigation or natural disaster may result in our incurring substantial costs and the diversion of our resources.




RISKS RELATED TO DOING BUSINESS IN CHINA

PRC laws and regulations governing our businesses and the validity of certain of our contractual arrangements are uncertain. If we are found to be in violation, we could be subject to sanctions. In addition, changes in such PRC laws and regulations may materially and adversely affect our business.

There are substantial uncertainties regarding the interpretation and application of PRC laws and regulations, including, but not limited to, the laws and regulations governing our business, or the enforcement and performance of our contractual arrangements with certain of our affiliated Chinese entities. We are considered foreign persons or foreign invested enterprises under PRC law. As a result, we are subject to PRC law limitations on foreign ownership of advertising companies. These laws and regulations are relatively new and may be subject to change, and their official interpretation and enforcement may involve substantial uncertainty. The effectiveness of newly enacted laws, regulations or amendments may be delayed, resulting in detrimental reliance by foreign investors. New laws and regulations that affect existing and proposed future businesses may also be applied retroactively.

The PRC government has broad discretion in dealing with violations of laws and regulations, including levying fines, revoking business and other licenses and requiring actions necessary for compliance. In particular, licenses and permits issued or granted to us by relevant governmental bodies may be revoked at a later time by higher regulatory bodies. We cannot predict the effect of the interpretation of existing or new PRC laws or regulations on our businesses. We cannot assure you that our current ownership and operating structure would not be found in violation of any current or future PRC laws or regulations. As a result, we may be subject to sanctions, including fines, and could be required to restructure our operations or cease to provide certain services. Any of these or similar actions could significantly disrupt our business operations or restrict us from conducting a substantial portion of our business operations, which could materially and adversely affect our business, financial condition and results of operations.

10


Adverse changes in economic and political policies of the PRC government could have a material adverse effect on the overall economic growth of China, which could adversely affect our business.

As our advertising and convergent devices business expands, we expect an increasing portion of our business operations to be conducted in China. Accordingly, our results of operations, financial condition and prospects are subject to a significant degree to economic, political and legal developments in China. China's economy differs from the economies of most developed countries in many respects, including the amount of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. While China's economy has experienced significant growth in the past 20 years, growth has been uneven across different regions and among various economic sectors of China. The PRC government has implemented various measures to encourage economic development and guide the allocation of resources. Some of these measures benefit the overall PRC economy, but may also have a negative effect on us. For example, our financial condition and results of operations may be adversely affected by governmental control over capital investments or changes in tax regulations that are applicable to us. Since early 2004, the PRC government has implemented certain measures to control the pace of economic growth. Such measures may cause a decrease in the level of economic activity in China, which in turn could adversely affect our results of operations and financial condition.


Our subsidiaries and affiliates are subject to restrictions on paying dividends and making other payments to us and we do not intend to pay cash dividends in the future.

As our advertising and convergent devices business develops, we expect to increasingly rely on dividends payments from our subsidiaries and affiliated entities in China. However, PRC regulations currently permit payment of dividends only out of accumulated profits, as determined in accordance with PRC accounting standards and regulations. Our subsidiaries and affiliated entities in China are also required to set aside a portion of their after-tax profits according to PRC accounting standards and regulations for certain reserve funds. The PRC government also imposes controls on the conversion of RMB into foreign currencies and the remittance of currencies out of China. We may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currency. Furthermore, if our subsidiaries or affiliated entities in China incur debt on their own in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments. If either we or our subsidiaries is unable to receive all of the revenues from our operations through these contractual or dividend arrangements we may be un able to declare dividends on our common stock. Moreover, we do not intend to pay cash dividends in the future, but to use any earnings to develop and grow our business.


We may be subject to foreign exchange controls in the PRC.

Our PRC subsidiaries are subject to PRC rules and regulations on currency conversion. In the PRC, the State Administration for Foreign Exchange ("SAFE") regulates the conversion of the RMB into foreign currencies. Currently, foreign investment enterprises ("FIEs") are required to apply to SAFE for "Foreign Exchange Registration Certificate for FlEs. Our subsidiary is FIE.. With such registration certifications (which need to be renewed annually), FlEs are allowed to open foreign currency accounts including the "recurrent account" and the "capital account". Currently, conversion within the scope of the "recurrent account" can be effected without requiring the approval of SAFE. However, conversion of currency in the "capital account" (e.g. for capital items such as direct investments, loans, securities, etc.) still requires the approval of SAFE. Our operations and business may be adversely affected if conversion of currency in the "capital account" is not approved by the SAFE.


Recent PRC State Administration of Foreign Exchange ("SAFE") Regulations regarding offshore financing activities by PRC residents have undergone a number of changes that may increase the administrative burden the Company faces. The failure by the Company's stockholders who are PRC residents to make any required applications and filings pursuant to such regulations may prevent the Company from being able to distribute profits and could expose the Company and its PRC resident stockholders to liability under PRC law.

SAFE issued a public notice (the "October Notice") effective November 1, 2005, which requires registration with SAFE by the PRC resident stockholders of any foreign holding company of a PRC entity.  Without registration, the PRC entity cannot remit any of its profits out of the PRC as dividends or otherwise; however, it is uncertain how the October Notice will be interpreted or implemented regarding specific documentation requirements for a foreign holding company formed prior to the effective date of the October Notice, such as in the Company's case. While only the PRC resident stockholders who receive the ownership of the foreign holding company in exchange for ownership in the PRC operating company are subject to the October Notice, there can be no assurance that SAFE will not require the Company's other PRC resident stockholders to make disclosure. In addition, the October Notice requires that any monies remitted to PRC residents outside of the PRC be returned within 180 days; however, there is no indication of what the penalty will be for failure to comply or if stockholder non-compliance will be considered to be a violation of the October Notice by the Company or otherwise affect the Company.

In the event that the proper procedures are not followed under the SAFE October Notice, we could lose the ability to remit monies outside of the PRC and would therefore be unable to pay dividends or make other distributions. Our PRC resident stockholders could be subject to fines, other sanctions and even criminal liabilities under the PRC Foreign Exchange Administrative Regulations promulgated January 29, 1996, as amended

11


Failure to comply with PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject our PRC resident stockholders to personal liability, limit our ability to acquire PRC companies or to inject capital into our PRC subsidiaries, limit our PRC subsidiaries' ability to distribute profits to us or otherwise materially adversely affect us.

In October 2005, SAFE issued the Notice on Relevant Issues in the Foreign Exchange Control over Financing and Return Investment Through Special Purpose Companies by Residents Inside China, generally referred to as Circular 75, which required PRC residents to register with the competent local SAFE branch before establishing or acquiring control over an offshore special purpose company, or SPV, for the purpose of engaging in an equity financing outside of China on the strength of domestic PRC assets originally held by those residents. Amendments to registrations made under Circular 75 are required in connection with any increase or decrease of capital, transfer of shares, mergers and acquisitions, equity investment or creation of any security interest in any assets located in China to guarantee offshore obligations. In the case of an SPV which was established, and which acquired a related domestic company or assets, before the implementation date of Circular 75, a retroactive SAFE registration was required. Failure to comply with the requirements of Circular 75, may result in fines and other penalties under PRC laws for evasion of applicable foreign exchange restrictions. Any such failure could also result in the SPV's affiliates being impeded or prevented from distributing their profits and the proceeds from any reduction in capital, share transfer or liquidation to the SPV, or from engaging in other transfers of funds into or out of China.

We have asked our stockholders who are PRC residents as defined in Circular 75 to register with the relevant branch of SAFE, as currently required, in connection with their equity interests in us and our acquisitions of equity interests in our PRC subsidiaries. However, we cannot provide any assurances that they can obtain the above SAFE registrations required by Circular 75. Moreover, because of uncertainty over how Circular 75 will be interpreted and implemented, and how or whether SAFE will apply it to us, we cannot predict how it will affect our business operations or future strategies. For example, our present and prospective PRC subsidiaries' ability to conduct foreign exchange activities, such as the remittance of dividends and foreign currency-denominated borrowings, may be subject to compliance with Circular 75 by our PRC resident beneficial holders.

In addition, such PRC residents may not always be able to complete the necessary registration procedures required by Circular 75. We also have little control over either our present or prospective direct or indirect stockholders or the outcome of such registration procedures. A failure by our PRC resident beneficial holders or future PRC resident stockholders to comply with Circular 75, if SAFE requires it, could subject these PRC resident beneficial holders to fines or legal sanctions, restrict our overseas or cross-border investment activities, limit our subsidiaries' ability to make distributions or pay dividends or affect our ownership structure, which could adversely affect our business and prospects.


Uncertainties with respect to the PRC legal system could adversely affect us.

We will conduct a substantial and increasing portion our business through subsidiaries and affiliated entities based in China. Our operations in China are governed by PRC laws and regulations. Our subsidiaries are generally subject to laws and regulations applicable to foreign investments in China and, in particular, laws applicable to wholly foreign-owned enterprises. The PRC legal system is based on written statutes. Prior court decisions may be cited for reference but have limited precedent value.

Since 1979, PRC legislation and regulations have significantly enhanced the protections afforded to various forms of foreign investments in China. However, China has not developed a fully integrated legal system and recently-enacted laws and regulations may not sufficiently cover all aspects of economic activities in China. In particular, because these laws and regulations are relatively new, and because of the limited published decisions and their non-binding nature, the interpretation and enforcement of these laws and regulations involve uncertainties. In addition, the PRC legal system is based in part on governmental policies and internal rules (some of which are not published on a timely basis or at all) that may have a retroactive effect. As a result, we may not be aware of our violation of these policies and rules until after the occurrence of the violation. In addition, any litigation in China may be protracted and result in substantial costs and diversion of resources and management attention.

12


Governmental control of currency conversion may affect the value of your investment.

The PRC government imposes controls on the conversion of RMB to foreign currencies and, in certain cases, the remittance of currencies out of China. As our internet and advertising business expands, we expect to derive an increasing percentage of our revenues in RMB. Under our current structure, we expect our income will be primarily derived from dividend payments from our PRC subsidiaries. Shortages in the availability of foreign currency may restrict the ability of our PRC subsidiaries and our affiliated entities to remit sufficient foreign currency to pay dividends or other payments to us, or otherwise satisfy their foreign currency denominated obligations. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and expenditures from trade-related transactions, can be made in foreign currencies without prior approval from the PRC State Administration of Foreign Exchange by complying with certain procedural requirements. However, approval from appropriate government authorities is required when RMB is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of bank loans denominated in foreign currencies. The PRC government may also at its discretion restrict access in the future to foreign currencies for current account transactions. If the foreign exchange control system prevents us from obtaining sufficient foreign currency to satisfy our demands, we may not be able to pay dividends in foreign currencies to our stockholders, including holders of our common stock.


Fluctuation in the value of RMB may have a material adverse effect on your investment.

The value of RMB against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in political and economic conditions. On July 21, 2005, the PRC government changed its decades-old policy of pegging the value of the RMB to the U.S. dollar. Under the new policy, the RMB is permitted to fluctuate within a narrow and managed band against a basket of foreign currencies. This change in policy has resulted in an approximately 2.0% appreciation of the RMB against the U.S. dollar. While the international reaction to the RMB revaluation has generally been positive, there remains significant international pressure on the PRC government to adopt a more flexible currency policy, which could result in a further and significant appreciation of the RMB against the U.S. dollar. As our internet and advertising business continues to grow, a greater portion of our revenues and costs will be denominated in RMB, while a significant portion of our financial assets may be denominated in U.S. dollars. We expect to rely significantly on dividends and other fees paid to us by our subsidiaries and affiliated entities in China. Any significant revaluation of RMB may materially and adversely affect our cash flows, revenues, earnings and financial position, and the value of, and any dividends payable on, our common stock in U.S. dollars. For example, an appreciation of RMB against the U.S. dollar would make any new RMB denominated investments or expenditures more costly to us, to the extent that we need to convert U.S. dollars into RMB for such purposes.

We may not be able to consolidate the financial results of some of our affiliated companies or such consolidation could materially adversely affect our operating results and financial condition.

For PRC regulatory reasons, much of our operations are/will be conducted through affiliated companies which currently are considered for accounting purposes as variable interest entities ("VIEs"), and we are considered the primary beneficiary, enabling us to consolidate its financial results in our consolidated financial statements. In the event that in the future a company we hold as a VIE would no longer meet the definition of a VIE, or we are deemed not to be the primary beneficiary, we would not be able to consolidate line by line that entity's financial results in our consolidated financial statements for PRC purposes. Also, if in the future an affiliate company becomes a VIE and we become the primary beneficiary, we would be required to consolidate that entity's financial results in our consolidated financial statements for PRC purposes. If such entity's financial results were negative, this could have a corresponding negative impact on our operating results for PRC purposes. However, any material variations in the accounting principles, practices and methods used in preparing financial statements for PRC purposes from the principles, practices and methods generally accepted in the United States and in the SEC accounting regulations must be discussed, quantified and reconciled in financial statements for United States and SEC purposes.

We face risks related to health epidemics and other outbreaks.

Our business could be adversely affected by the effects of SARS, Avian Flu or another epidemic or outbreak. China reported a number of cases of SARS in April 2004. Any prolonged recurrence of SARS or other adverse public health developments in China may have a material adverse effect on our business operations. For instance, health or other governmental regulations adopted in response may require temporary closure of Internet cafes, which is one of the avenues where users could access our websites, or of our offices. Such closures would severely disrupt our business operations and adversely affect our results of operations. We have not adopted any written preventive measures or contingency plans to combat any future outbreak of SARS or any other epidemic.

13


ITEM 1B. UNRESOLVED STAFF COMMENTS


None.



ITEM 2. PROPERTIES.


PROPERTY HELD BY US. Neither the Company nor its subsidiaries own any properties or facilities.


OUR FACILITIES. As at December 31 2010, our executive and administrative office is located at 1403 Wan Chai Commercial Center, 194-204 Johnston Road, Wanchai, Hong Kong. The Company uses about 1,000 square feet of this office at a cost of about US$2,000 per month. The lease expires in 18 December 2011.


The other operating office is located at Beijing at No. 43, Na Yuan Bei Road, Feng Tai District, Beijing, China where we have a 150 sq. ft. administration office to handle enquiry. The lease is for one year expiring at December 31, 2010 and at a monthly rent of about US$430.



ITEM 3. LEGAL PROCEEDINGS.


There are no legal actions pending against us nor are any legal actions contemplated by us at this time.



ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.


None.

14


PART II


ITEM 5. MARKET PRICE FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES.


MARKET INFORMATION.


Our shares are quoted and traded from time to time on the OTC Bulletin Board under the symbol "CHMD". Although trading in our Common Stock has occurred on a relatively consistent basis, the volume of shares traded has been limited; the quotations are limited and sporadic at times.

The following table shows the reported quarterly high and low closing sales price for our shares within the last two fiscal years on the OTC Bulletin Board. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions. Investors should not rely on historical prices of our Common Stock as an indication of its future price performance. The closing price of our Common Stock on December 31, 2010 was $ 0.0145 per share.


Quarter


High


Low

------------------------ ------------- --------------
Fourth Quarter 2010 $0.017 $0.00819
Third Quarter 2010 $0.020 $0.00588
Second Quarter 2010 $0.034 $0.006
First Quarter 2010 $0.0113 $0.00263
Fourth Quarter 2009 $0.0085 $0.005
Third Quarter 2009 $0.003 $0.00131
Second Quarter 2009 $0.0045 $0.002
First Quarter 2009 $0.006 $0.003



HOLDERS.

The number of record holders of our common stock as of March 5, 2011, was approximately 60 based on information received from our transfer agent. This amount excludes an indeterminate number of shareholders whose shares are held in "street" or "nominee" name.


DIVIDENDS.

There have been no cash dividends declared on our common stock since inception. It is the present policy of the Company to retain earnings to finance the growth and development of the business and, therefore, the Company does not anticipate paying dividends on its common stock in the foreseeable future.


The holders of our common stock are entitled to one vote for each share of record on all matters to be voted on by shareholders. There is no cumulative voting with respect to the election of our directors or any other matter. Therefore, the holders of more than 50% of the shares voted for the election of those directors can elect all of the directors. The holders of our common stock are entitled to receive dividends when, as and if declared by our Board of Directors from funds legally available therefore. Cash dividends are at the sole discretion of our Board of Directors. In the event of our liquidation, dissolution or winding up, the holders of common stock are entitled to share ratably in all assets remaining available for distribution to them after payment of our liabilities and after provision has been made for each class of stock, if any, having any preference in relation to our common stock. Holders of shares of our common stock have no conversion, preemptive or other subscription rights, and there are no redemption provisions applicable to our common stock.

15


STOCK OPTIONS.

We have two equity compensation plans: (1) the 2002 Stock Option Plan and (2) the 2007 Stock Incentive Plan. The following table presents information relating to these plans as of December 31, 2010.


EQUITY COMPENSATION PLAN INFORMATION.

Plan Category

Number of Securities to be issued upon Exercise of outstanding options, warrants and rights

Weighted average of exercise price of outstanding options, warrants and rights


Number of securities remaining available for future issuance under equity compensation plans (Excluding securities reflected in column a)

(a)

(b)

(c)

--------------------------------

------------------------

-------------------------

------------------------

Equity compensation plans approved by security holders

19,000,000

$0.010

158,011,112

--------------------------------

------------------------

-------------------------

------------------------

Equity compensation plans not approved by security holders

5,811,300

-

32,588,700

--------------------------------

------------------------

-------------------------

------------------------

Total

24,811,300

$0.010

190,599,812

--------------------------------

------------------------

-------------------------

------------------------

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2002 Stock Option Plan

In October 2002, our Board of Directors authorized and approved the adoption of the 2002 Stock Option Plan effective the same date (the "2002 Stock Option Plan").

The purpose of the 2002 Stock Option Plan was to enhance our long-term stockholder value by offering opportunities to our directors, officers, employees and eligible consultants to acquire and maintain stock ownership in order to give these persons the opportunity to participate in our growth and success, and to encourage them to remain in our service.

The 2002 Stock Option Plan is administered by our Board of Directors or a committee ("Plan Administrator") appointed by and consisting of two or more members of our Board of Directors, which shall determine (i) the persons to be granted stock options under the 2002 Stock Option Plan; (ii) the number of shares subject to each option, the exercise price of each stock option; and (iii) whether the stock option shall be exercisable at any time during the option period of ten years or whether the stock option shall be exercisable in installments or by vesting only. The 2002 Stock Option Plan provides authorization to the Board of Directors to grant stock options to purchase a total number of shares not to exceed 211,111,112 shares as at the date of adoption by the Board of Directors. At the time a stock option is granted under the 2002 Stock Option Plan, the Plan Administrator shall fix and determine the exercise price at which shares may be acquired.

In the event an optionee ceases to be employed by or to provide services to us for reasons other than cause or voluntary resignation of position, any stock option that is vested and held by such optionee generally may be exercisable within up to one year after the effective date that his position ceases, and after such one year period any unexercised stock option shall expire. In the event an optionee ceases to be employed by or to provide services to us for reasons of cause or voluntary resignation from the position, any stock option that is vested and held by such optionee shall forthwith terminate.

No stock options granted under the 2002 Stock Option Plan will be transferable by the optionee other than by will or by the laws of descent and distribution following the optionee's death, and each stock option will be exercisable during the lifetime of the optionee subject to the option period of ten years or limitations described above.

The exercise price of a stock option granted pursuant to the 2002 Stock Option Plan shall be paid in full to us by delivery of consideration equal to the product of the number of shares covered multiplied by the exercise price.

The 2002 Stock Option Plan further provides that the Plan Administrator may grant to any key individuals who are employees eligible to receive options one or more incentive stock options to purchase the number of shares allotted by the Board of Directors (the "Incentive Stock Options"). The option price per share of Common Stock deliverable upon the exercise of an Incentive Stock Option shall be at least 100% of the fair market value of the shares and in the case of an Incentive Stock Option granted to an optionee who owns more than 10% of the total combined voting power of all classes of our stock, shall not be less than 110% of the fair market value. The option term of each Incentive Stock Option shall be determined by the Plan Administrator, and shall not commence sooner than from the date of grant and shall terminate no later than ten years from the date of grant, except for an optionee who owns more than 10% of the total combined voting power of all classes of our stock and whose Incentive Stock Option shall terminate no later than five year from the date of grant.

On December 23, 2006 and May 18, 2007, the Board of Directors authorized and approved the grant of stock options to acquire an aggregate of 21,800,000 shares and 12,300,000 shares respectively under the 2002 Stock Option Plan to key employees, directors and officers. In 2007, 4,300,000 stock options were cancelled due to resignation of option holders. In May 2010, 12,300,000 stock options expired.

There were 19,000,000 stock options issued in 2010. As of December 31, 2010 there were a total of 19,000,000 outstanding stock options to purchase shares of our Common Stock under the 2002 Stock Option Plan.

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2007 Stock Incentive Plan

On February 19, 2007, our Board of Directors authorized and approved the adoption of the 2007 Stock Incentive Plan effective the same date (the "2007 Stock Incentive Plan").

The purpose of the 2007 Stock Incentive Plan is to enhance our long-term stockholder value by offering opportunities to our directors, officers, employees and eligible consultants to acquire and maintain stock ownership in order to give these persons the opportunity to participate in our growth and success, and to encourage them to remain in our service.

The 2007 Stock Incentive Plan is to be administered by our Board of Directors or a committee ("Plan Administrator") appointed by and consisting of two or more members of our Board of Directors, which shall determine (i) the persons to be granted stock options under the 2007 Stock Incentive Plan; (ii) the number of shares subject to each option, the exercise price of each stock option; and (iii) whether the stock option shall be exercisable at any time during the option period of ten years or whether the stock option shall be exercisable in installments or by vesting only. The 2007 Stock Incentive Plan provides authorization to the Board of Directors to grant stock options to purchase a total number of shares, not exceed 38,400,000 shares as at the date of adoption by the Board of Directors. At the time a stock option is granted under the 2007 Stock Incentive Plan, the Board of Directors shall fix and determine the exercise price at which shares of our Common Stock may be acquired.

In the event an optionee ceases to be employed by or to provide services to us for reasons other than cause, retirement, disability or death, any stock option that is vested and held by such optionee generally may be exercisable for such period of time thereafter as shall be determined by the Plan Administrator and set forth in the documents evidencing the option. The Plan Administrator shall have complete discretion either at the time an option is granted or at any time while the option remains outstanding, to i) extend the period of time which the option is to be exercisable following the optionees cessation of service, but not beyond the expiration of the option term and/or ii) permit the option to be exercised after the cessation of employment of both vested and unvested options at the time of cessation of employment.

No stock options granted under the 2007 Stock Incentive Plan will be transferable by the optionee other than by will or by the laws of descent and distribution following the optionee's death, and each stock option will be exercisable during the lifetime of the optionee subject to the option period of ten years or limitations described above. The options can be assigned in whole or in part during the Optionee's lifetime to one or more members of the optionee's immediate family, provided the assignment is connected to estate planning or pursuant to a domestic relations order.

18


The exercise price of a stock option granted pursuant to the 2007 Stock Incentive Plan shall be paid in full to us by delivery of consideration equal to the product of the number of shares multiplied by the exercise price. Any stock option settlement, including payment deferrals or payments deemed made by way of settlement of pre-existing indebtedness from the Company may be subject to such conditions, restrictions and contingencies as may be determined by the Plan Administrator.

The 2007 Stock Incentive Plan further provides that, subject to the provisions of the 2007 Stock Incentive Plan and prior Stockholder approval, the Board of Directors may grant to any key individuals who are our employees eligible to receive options, one or more incentive stock options to purchase the number of shares of Common Stock allotted by the Board of Directors (the "Incentive Stock Options"). The option price per share of Common Stock deliverable upon the exercise of an Incentive Stock Option shall be at lease 100% of the fair market value of the Common Shares of the Company and in the case of an Incentive Stock Option granted to an optionee who owns more than 10% of the total combined voting power of all classes of our stock, shall not be less than 110% of the fair market value of our Common Stock. The option term of each Incentive Stock Option shall be determined by the Plan Administrator, which shall not commence sooner than from the date of grant and shall terminate no later than ten years from the date of grant of the Incentive Stock Option, except for optionee who owns more than 10% of the total combined voting power of all classes of our stock whom shall terminate no later than five year from the date of grant of the Incentive Stock Option.

On March 8, 2007, we registered 38,400,000 shares underlying stock options under the 2007 Stock Incentive Plan with the SEC pursuant to a registration statement on Form S-8.

In 2007, the Company issued 5,811,300 shares under the 2007 Stock Incentive Plan.

In 2008, 2009 and 2010, the Company did not issue any shares under the 2007 Stock Incentive Plan.

In summary, as of December 31, 2010, (i) the Company has issued 5,811,300 shares under the 2007 Stock Incentive Plan, (ii) there are no outstanding stock options to purchase shares of our Common Stock under the 2007 Stock Incentive Plan and, (iii) there are still 32,588,700 shares issuable under the 2007 Stock Incentive Plan.



ISSUER PURCHASES OF EQUITY SECURITIES.

No repurchases of our common stock were made during the fourth quarter and during our fiscal year ended December 31, 2010.

19


PENNY STOCK REGULATIONS.

Shares of our common stock are subject to rules adopted by the Securities and Exchange Commission that regulate broker-dealer practices in connection with transactions in "penny stocks". Penny stocks are generally equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the Nasdaq system, provided that current price and volume information with respect to transactions in those securities is provided by the exchange or system).


The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, deliver a standardized risk disclosure document prepared by the Securities and Exchange Commission, which contains the following:


-

a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading;
- a description of the broker's or dealer's duties to the customer and of the rights and remedies available to the customer with respect to violation to such duties or other requirements of securities' laws;
- a brief, clear, narrative description of a dealer market, including "bid" and "ask" prices for penny stocks and the significance of the spread between the "bid" and "ask" price;
- a toll-free telephone number for inquiries on disciplinary actions;
- definitions of significant terms in the disclosure document or in the conduct of trading in penny stocks; and
- such other information and is in such form (including language, type, size and format), as the Securities and Exchange Commission shall require by rule or regulation


Prior to effecting any transaction in penny stock, the broker-dealer also must provide the customer the following:


-

the bid and offer quotations for the penny stock;
- the compensation of the broker-dealer and its salesperson in the transaction;
- the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and
- monthly account statements showing the market value of each penny stock held in the customer's account.


In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written acknowledgment of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks, and a signed and dated copy of a written suitably statement. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for a stock that becomes subject to the penny stock rules. Holders of shares of our common stock may have difficulty selling those shares because our common stock will probably be subject to the penny stock rules.



ITEM 6. SELECTED FINANCIAL DATA


A registrant that qualifies as a smaller reporting company is not required to provide the information required by this item.

20


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.


The following discussion of our financial condition and our subsidiaries and our results of operations should be read together with the consolidated financial statements and related notes that are included later in this Annual Report on Form 10- K. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under Risk Factors or in other parts of this Annual Report on Form 10-K.


Year ended December 31, 2010 compared with year ended December 31, 2009
-----------------------------------------------------------------------------------------------


GENERAL


The Company has its operating office at 1403 Wan Chai Commercial Center, 194-204 Johnston Road, Wanchai, Hong Kong since January 2008. The Group's main revenue is from the sale of mobile devices, advertising and product services in Hong Kong. For the 2010 year, 2010, the Group did not sell any mobile devices. During the 2010 year, the Company incurred a loss of $5,597,741 compared to a loss of $2,534,104 in the prior year.


Results of Operations
-------------------------

For the year ended December 31, 2010, net sales was $59,730 as compared to the prior year of $139,889, representing a decrease of about 57%. This sales decline was due mainly to the decline in the sale of advertising services and the sale of mobile devices.

For the year ended December 31, 2010, the cost of goods sold was $25,479 as compared to the prior year of $54,600, making our gross profit of $34,251 (2009: $85,289) for the year.

For the year ended December 31, 2010 operating expenses were $686,053 as compared $468,820, an increase of $217,233 or about 46% from the prior year which was mainly attributable to i) the loss on disposal of subsidiary $119,890 (2009: $nil), and ii) option expenses of $240,368 (2009: $100,692) in respect of stock options issued to employees and stock based payments. In 2010, the other major component in the operating expenses were consulting services of $78,981 (2009: 74,288), and salaries of $133,210 (2009: $199,459). Overall the remaining operating expenses of $113,604 were similar in other respects once the above factors are taken into account.

In 2010, the Company incurred an impairment of goodwill loss of $4,791,676 (2009: $2,000,000) relating to the Beijing Ren Ren goodwill as the Group de-focus from the BRR advertising business.

The operating loss increased to $5,443,478 for the year ended December 31, 2010 from the prior year loss of $2,383,531.

During the year the interest expenses increased to $176,885 as compared to $170,914 in the prior year.

For the three months ended December 31, 2010, our revenue was $15,517, and a cost of revenue of $3,248, achieving a gross profit of $12,269. For the three month period ended December 31, 2009, our revenue was $60,824, and a cost of revenue of $1,346, achieving a gross profit of $59,478. For the three months ended December 31, 2010, our selling and general expenses were $244,416 and our net interest expenses were $46,049 and impairment of goodwill was $4,791,676; thereby resulting an operating loss of $5,069,872. For the three months period ended December 31, 2009, our selling and general expenses were $125,712 and our net interest expenses were $42,465 and our impairment of goodwill was $2,000,000, so that our net loss for the three months period ended December 31, 2009 was $2,108,699. The increase in selling, general and administration expenses from the prior period was mainly due to loss on sale of subsidiary $119,890 (2009: $nil).

21


Liquidity and Capital Resources
---------------------------------------


Net cash used in operating activities was $38,234 during the year ended December 31, 2010 as compared to net cash used of $35,516 in the prior year, as there was no funding from stock issuing activities during the current year. The Company intends to monitor the monthly cash outlays in fiscal 2011 and conserve cash until additional financing can be received through other funding. The net loss for the year was $5,597,741 compared to $2,534,104 in the prior year.


Net cash used in investing activities was $nil (2009: $271) during the year ended December 31, 2010.


Net cash used in financing activities was $nil (2009: $nil) during the year ended December 31, 2010.


At present the Company does not have sufficient cash resources, receivables and cash flow to provide for all general corporate operations in the foreseeable future. The Group disposed 51% of its short term investment in Jademan International Limited and raised about $176,000 to settle some of the Group's liabilities. The Company will be required to raise further funds to meet its other liabilities and operation requirements to continue to operation in 2011 by i) selling its Common Stock ii) raise from the capital markets, iii) sell additional assets.


Going Concern
------------------


The Company's financial statements are presented on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.


The Company has experienced a significant loss from operations. For the years ended December 31, 2010 and 2009, the Company incurred net losses of $5,597,741 and $2,534,104, respectively.


The Company's ability to continue as a going concern is contingent upon its ability to secure additional financing and attain profitable operations. In addition, the Company's ability to continue as a going concern must be considered in light of the problems, expenses and complications frequently encountered in developing markets and the competitive environment in which the Company operates.


The Company is pursuing financing for its operations and seeking additional investments. In addition, the Company is seeking to expand its revenue base by adding new customers and start out its advertising business. Failure to secure such financing, to raise additional equity capital and to expand its revenue base may result in the Company depleting its available funds and not being able pay its obligations.


The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.


Off-Balance Sheet Arrangements.
----------------------------------------


There are no off balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.


Capital Expenditure Commitments
-----------------------------------------


We had no material capital expenditures for the period ended December 31, 2010. However we expect to invest approximately $250,000 in capital expenditure over the next 12 month for the outdoor media business.

22


Critical Accounting Policies
-----------------------------------


We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States, and make estimates and assumptions that affect our reported amounts of assets, liabilities, revenue and expenses, and the related disclosures of contingent liabilities. We base our estimates on historical experience and other assumptions that we believe are reasonable in the circumstances. Actual results may differ from these estimates.


The following critical accounting policies affect our more significant estimates and assumptions used in preparing our consolidated financial statements.


Revenue Recognition


In general, the Company records revenue when persuasive evidence of an arrangement exists, services have been rendered or product delivery has occurred; the sales price to the customer is fixed or determinable and collect ability is reasonably assured. The following policies reflect specific criteria for the various revenues streams of the Company:


Revenue is recognized at the time the product is delivered. Provision for sales returns will be estimated based on the Company's historical return experience. Revenue is presented net of returns.


Stock-Based Compensation


The Company accounts for equity instruments issued to employees for services based on the fair value of the equity instruments issued and accounts for equity instruments issued to other than employees based on the fair value of the consideration received or the fair value of the equity instruments, whichever is more reliably measurable.


The Company accounts for stock based compensation in accordance with ASC 718 "Compensation - Stock Compensation" codified SFAS No. 123, "Accounting for Stock-Based Compensation" prescribes accounting and reporting standards for all stock-based payments award to employees, including employee stock options, restricted stock, employee stock purchase plans and stock appreciation rights. , may be classified as either equity or liabilities. The Company should determine if a present obligation to settle the share-based payment transaction in cash or other assets exists. A present obligation to settle in cash or other assets exists if: (a) the option to settle by issuing equity instruments lacks commercial substance or (b) the present obligation is implied because of an entity's past practices or stated policies. If a present obligation exists, the transaction should be recognized as a liability; otherwise, the transaction should be recognized as equity


The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of ASC 505-50 "Equity - Based Payments to Non-Employees" which codified SFAS 123 and the Emerging Issues Task Force consensus in Issue No. 96-18 ("EITF 96-18"), "Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring or in Conjunction with Selling, Goods or Services". Measurement of share-based payment transactions with non-employees shall be based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction should be determined at the earlier of performance commitment date or performance completion date.


Recently Issued Accounting Pronouncements
------------------------------------------------------


Recently issued accounting pronouncements and their effect on us are discussed in the notes to the financial statements in our December 31, 2010 audited financial statements.



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


A smaller reporting company is not required to provide the information required by this Item.

23


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Consolidated Financial Statements

Please see page F-1 through F-23 of this Form 10-K.


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


On December 29, 2010, our independent accountants, Albert Wong & Co. CPA resigned and the Company engaged Albert Wong & Co. LLP, as its new independent accountants, commencing with the audit for the fiscal year ended December 31, 2010. Albert Wong & Co. LLP is an independent U.S. CPA firm which associated with the Company's former independent accountants, Albert Wong & Co. CPA. The decision to change independent accountants was approved by the Board of Directors of the Company.


Albert Wong & Co. CPA, our former independent accountants, reported on the Company's financial statements for the past two years ended December 31, 2008 and 2009. Their opinions did not contain an adverse opinion or a disclaimer of opinion, and were not qualified as to uncertainty, audit scope, or accounting principles but were modified as to a going concern.


During the reports for the two most recent fiscal years and the subsequent interim period through the date Albert Wong & Co. CPA resigned, there were no disagreements with Albert Wong & Co. CPA on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure as covered by Item 304 (a)(1)(iv) of Regulation S-K, which disagreements, if not resolved to the satisfaction of Albert Wong & Co. CPA would have caused them to make reference thereto in their report on the financial statements for such years.



ITEM 9A. CONTROLS AND PROCEDURES.


Disclosure Controls and Procedures


Under the supervision and with the participation of our management, including our Chief Executive Officer, Mr. Cheng Pheng Loi, and our Chief Financial Officer, Mr. Con Unerkov, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act as of a date (the "Evaluation Date") within ninety (90) days prior to the filing of our December 31, 2010 Form 10-K.


Based upon that evaluation, our Management has concluded that, as of December 31, 2010, our disclosure controls and procedures were not effective in timely alerting management to the material information relating to us (or our consolidated subsidiaries) required to be included in our periodic filings with the SEC.


Internal Control over Financial Reporting

(a) Management's Annual Report on Internal Control Over Financial Reporting


Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is 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.

24


A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the registrant's annual or interim financial statements will not be prevented or detected on a timely basis.

Our management, with the participation of its CEO and President, assessed the effectiveness of our internal control over financial reporting as of December 31, 2010. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of The Treadway Commission (COSO) in Internal Control-Integrated Framework.  Based on that assessment under such criteria, management concluded that our internal controls over financial reporting were not effective as of December 31, 2010 due to control deficiencies that constituted material weaknesses. A material weakness is a control deficiency, or combination of control deficiencies, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

In the course of making our assessment of the effectiveness of internal controls over financial reporting, we identified one material weakness in our internal control over financial reporting. This material weakness consisted of inadequate staffing within the accounting operations of our Company. The small number of employees who are responsible for accounting functions (more specifically, one) prevents us from segregating duties within our internal control system. The inadequate segregation of duties is a weakness because it could lead to the untimely identification and resolution of accounting and disclosure matters or could lead to a failure to perform timely and effective reviews.

We are in the process of developing and implementing remediation plans to address our material weaknesses.
Management has identified specific remedial actions to address the material weaknesses described above:

*


Improve the effectiveness of the accounting group by continuing to augment our existing resources with additional consultants or employees to improve segregation procedures and to assist in the analysis and recording of complex accounting transactions and preparation of tax disclosures. We plan to mitigate the segregation of duties issues by hiring additional personnel in the accounting department once we have achieved positive cash flow from operations, and/or have raised significant additional working capital.

* Improve segregation procedures by strengthening cross approval of various functions including cash disbursements and quarterly internal audit procedures where appropriate.

Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Changes in Controls and Procedures

There were no significant changes made in our internal controls over financial reporting during the year ended December 31, 2010 that have materially affected or are reasonably likely to materially affect these controls. Thus, no corrective actions with regard to significant deficiencies or material weaknesses were necessary.

Attestation Report of the Registered Public Accounting Firm

This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. We were not required to have, nor have we, engaged our independent registered public accounting firm to perform an audit of internal control over financial reporting pursuant to the rules of the Commission that permit us to provide only management's report in this annual report.


ITEM 9B. OTHER INFORMATION
None.

25


PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERANCE.
Executive Officers and Directors. Our directors and principal executive officers are as specified on the following table:
NAME AGE POSITION
------------------------------ ------- -------------------------------------------------------------------------------------------
Cheng Pheng LOI 61 President, Chief Executive Officer and Director
Con UNERKOV 42 Chief Financial Officer and Director
LAM Pui Kit 70 Treasurer, secretary and Director
------------------------------ ------- ------------------------------------------------------------------------------------------


CHENG PHENG LOI
. Mr. Loi was appointed as Director and Chief Executive Officer of the Company on May 22, 2009. Prior to his appointment, Mr. Loi was the founder and has been the Chief Executive Officer of Advance Tech Communications Sdn. Bhd. (ATC") for the past five years. ATC, a company incorporated in Malaysia, is a premier Research & Development company in convergent mobile communication devices. Prior to setting up ATC, Mr. Loi has worked in the cellular telephone business, VoIP business and commodity business in Asia. Mr. Loi was graduated with a Business Administration Degree from the University of Malaya. Mr. Loi is not an officer or director of any reporting company


CON UNERKOV
. Mr. Con Unerkov has been our CFO and one of our directors since September 14, 2005. Mr. Unerkov's responsibility in the Company is to develop its media and advertising businesses. Mr. Unerkov has held senior management and consulting roles in a wide range of industries from Telecommunications, Banking and Finance, Transport and Government, and most recently was the Chairman and CEO of various telecommunication companies in Asia. Mr. Unerkov is a graduate of the University of South Australia. He is not an officer or director of any reporting company.


LAM PUI KIT
. Mr. Lam was appointed to be our Treasurer, Secretary and one of our directors on April 8, 2011. Mr. Lam is a seasoned businessman with over 40 years of experience in China. Mr. Lam is the Director of Beijing Ren Ren Health Culture Promotion Co., Ltd. and the consul general for China Medical Foundation. For the past 5 years, Mr. Lam has been doing trading business in China. Mr. Lam is not an officer or director of any reporting company.


ALEX HO
. Mr. Alex Ho has been our Treasurer, Secretary and one of our directors since September 15, 2005 until April 8, 2011. Mr. Ho is also currently the Vice-Chairman of Pacific Assets Public Company Limited, a public company listed on the Stock Exchange of Thailand engaged in the business of hotel property investment and property management. Mr. Ho was a graduate from Operating Management of British Columbia Institute of Technology, Canada in 1978. Mr. Ho is not an officer or director of any reporting company.


There are no orders, judgments, or decrees of any governmental agency or administrator, or of any court of competent jurisdiction, revoking or suspending for cause any license, permit or other authority to engage in the securities business or in the sale of a particular security or temporarily or permanently restraining any of our officers or directors from engaging in or continuing any conduct, practice or employment in connection with the purchase or sale of securities, or convicting such person of any felony or misdemeanor involving a security, or any aspect of the securities business or of theft or of any felony. Nor are any of the officers or directors of any corporation or entity affiliated with us so enjoined.


There are no family relationships among any of our officers and directors.

26


AUDIT COMMITTEE AND FINANCIAL EXPERT. The Committee has adopted regulations relating to audit committee composition and functions, including disclosure requirements relating to the presence of an "audit committee financial expert" serving on its audit committee. In connection with these requirements, our Board of Directors examined the Committee's definition of "audit committee financial expert" and concluded that we do not currently have a person that qualifies as such an expert. Presently, there are only three directors serving on our Board of which two are in the audit committee, and we are not in a position at this time to attract, retain and compensate additional directors in order to acquire a director who qualifies as an "audit committee financial expert", but we intend to retain an additional director who will qualify as such an expert, as soon as reasonably practicable. While neither of our current audit committee members meet the qualification of an "audit committee financial expert", each of our audit committee members, by virtue of his past employment experience, has considerable knowledge of financial statements, finance, and accounting, and has significant employment experience involving financial oversight responsibilities. Accordingly, we believe that our current audit committee members capably fulfill the duties and responsibilities of an audit committee in the absence of such an expert.



SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE. Section 16(a) of the Securities Act of 1934 requires our directors, executive officers, and any persons who own more than 10% of a registered class of our equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission. SEC regulation requires executive officers, directors and greater than 10% stockholders to furnish us with copies of all Section 16(a) forms they file. Based solely on our review of the copies of such forms received by us, or written representations from certain reporting persons, we believe that during the fiscal year ended December 31, 2009 our executive officers, directors, and greater than 10% stockholders complied with all applicable filing requirements.


CODE OF ETHICS. We have adopted a corporate code of ethics that applies to the Company's principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions. The full text of our Code of Conduct is published on our website at www.chinamediagroup.net. The Company shall disclose any substantive amendments to the Code of Ethics or any waivers from a provision of the code on its website at www.chinamediagroup.net or in a report on Form 8-K.

27


ITEM 11. EXECUTIVE COMPENSATION.

Any compensation received by our officers, directors, and management personnel will be determined from time to time by our Board of Directors. Our officers, directors, and management personnel will be reimbursed for any out-of-pocket expenses incurred on our behalf.

COMPENSATION FOR DIRECTORS AND EXECUTIVES.

The following table sets forth the annual and long-term compensation for services in all capacities to the Company for its fiscal year ended December 31, 2010 paid to our directors and executive officers who earned more than $100,000 per year at the end of the last completed fiscal year. We refer to all of these officers collectively as our "named executive officers."

SUMMARY COMPENSATION TABLE

Name and principal position

Year (5)

Salary ($)

Bonus ($)

Stock Awards
($)

Option Awards
($)

Non-Equity Incentive Plan Compensation
($)

Nonqualified Deferred Compensation Earnings
($)

All Other Compensation ($)

Total ($)

----------------------

-------

----------------

------------

---------

----------

---------------

------------------

---------------

--------------

Cheng Pheng Loi (1)

2010

9,000

-

-

-

-

-

-

9,000

2009

18,000

-

-

-

-

-

-

18,000

Con Unerkov (2)

2010

-

-

-

-

-

-

-

-

2009

18,000(4)

18,000

2008

102,000(4)

-

-

-

-

-

-

102,000

Alex Ho (3)

2010

-

-

-

-

-

-

-

-

2009

18,000

18,000

2008

60,000

-

-

-

-

-

-

60,000

(1) Mr. Cheng Pheng Loi is the President, CEO, and Director of the Company with effect from May 2009.
(2) Mr. Con Unerkov is the CFO, and Director. Mr. Unerkov was the CEO from beginning of the year till May 2009.
(3) Mr. Alex Ho was the Treasurer, Secretary, and Director for 2010 and for the period until April 8, 2011 when he resigned.
(4) Portion of the executive's salary was paid to his respective service company.
(5) Figures represent the year ended December 31 for the indicative years.

28


The following table sets forth certain information concerning stock option awards granted to our executive officers and our directors. No options were exercised by our executive officers or directors during the year ended December 31, 2010 and 2009.


OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2010

------------------------------------------------------------------------------------------------------------------------------------------------------

OPTION AWARDS

STOCK AWARDS

Name

Number of securities underlying unexercised options (#) Exercisable

Number of securities underlying unexercised options (#)
Unexercisable

Equity Incentive Plan Awards: Number of Securities underlying unexercised unearned options (#)

Option exercise price ($)

Option expiration date

Number of shares or units of stock that have not vested (#)

Market value of shares or units of stock that have not vested ($)

Equity incentive plan awards: number of unearned shares, units or other rights that have not vested (#)

Equity incentive plan awards: Market or payout value of unearned shares, units or other rights that have not vested (#)

----------

------------

-----------

--------

---------

---------

----------

----------

----------

Cheng Pheng LOI(1)

-

-

-

-

-

-

-

-

-

Con Unerkov (2)

-

7,500,000(4)

-

0.0365

12/22/2009

-

-

-

-

Alex Ho (3)

-

7,500,000(4)-

-

0.0365

12/22/2009

-

-

-

-

(1)

Mr. Cheng Pheng Loi is the CEO, and Director.

(2)

Mr. Con Unerkov is the CFO, and Director

(3)

Mr. Alex Ho is the Treasurer, Secretary, and Director for 2010 and for the period until April 8, 2011 when he resigned.

(4)

The stock options were granted on December 23, 2006 under the 2002 Stock Option Plan and were expired on December 22, 2009.



Director Compensation

Directors are not compensated for services as directors. Non-employee directors are reimbursed for reasonable travel and related expenses incurred in attending meetings of the board of directors and committee meetings.


DIRECTOR COMPENSATION

Name

Fees Earned or Paid in Cash
($)

Stock Awards
($)

Option Awards
($)

Non-Equity Incentive Plan Compensation
($)


Change in Pension Value and Nonqualified Deferred Compensation Earnings
($)

All Other Compensation
($)

Total
($)

----------

--------

---------

------------

-----------

-----------

------------

Zhang Guosheng(1)

-

-

-

-

-

-

-

Luo Qiang(2)

-

-

-

-

-

-

-

(1)

Mr. Zhang Guosheng was the Independent Non-Executive Director of the Company till May 2009 when he resigned as director of the Company.

(2)

Mr. Luo Qiang was the Independent Non-Executive Director of the Company till April 2009 when he resigned as director of the Company.



Employment Agreements

Mr. Pheng Cheng LOI is working on 3 months contracts at a monthly fee of US$3,000. Effective from July 1, 2008, Messrs. Con Unerkov and Alex Ho received a salary of US$24,000 per annum to September 2009. Thereafter Messrs. Unerkov and Ho did not receive any salary.

29


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT RELATED STOCKHOLDER MATTERAS.

The following table sets forth information regarding shares of our common stock beneficially owned as of December 31, 2010 by: (i) each of our officers and directors; (ii) all officers and directors as a group; and (iii) each person known by us to beneficially own five percent or more of the outstanding shares of our common stock.

Name/Address(1)

Common
Stock

Common Stock
Options
Exercisable
Within
60 Days


Common Stock
Purchase
Warrants/
Convertible Note
Exercisable
Within 60 Days

Total Stock
and Stock
Based
Holdings (1)

%
Ownership (2)

---------------------------

------------------

-----------------

--------------------

------------------

-----------------

Con Unerkov(3) (4)

32,619,863

-

-

32,619,863

5.89%

Alex Ho(3) (5)

32,482,876

-

-

32,482,876

5.86%

Cheng Pheng Loi (3)

-

-

-

-

-

------------------

-------------------

--------------------

------------------

------------------

All officers and directors as a group (3 persons)

65,102,739

-

-

65,102,739

11.75%

Maxcom Group International Ltd. (MGIL) of P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands.

141,666,668

-

-

141,666,668

25.57%

Liu Kang (6), No 42, Tujilin Wuchan, Wuhan City, Hubei Ching, China.

141,666,668

-

-

141,666,668

25.57%

Central High Limited (CHL), of P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands.

125,000,000

-

-

125,000,000

22.56%

Lam Pui Kit (7), No.4, Dong Wen Chan Street, West City District, Beijing, China.

62,500,000

-

-

62,500,000

11.28%

30


Notes:
(1)

Except as otherwise indicated, based on information furnished by the owners, we believe that the beneficial owners listed above have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them, subject to community property laws where applicable and to the information contained in the footnotes to this table. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Unless otherwise indicated, the address of the beneficial owner is c/o China Media Group Corporation at 1403 Wan Chai Commercial Center, 194-204 Johnston Road, Wanchai, Hong Kong.

(2)

For purposes of computing the percentage of outstanding Common Stocks held by each person or group of persons named above, any shares that such person or group has the right to acquire within 60 days are deemed outstanding but are not deemed to be outstanding for purposes of computing the percentage ownership of any other person or group. As of the date of the table above, there were 554,132,450 outstanding shares of our common stock and options, warrants, and convertible notes entitling the holders to purchase 15,000,000 additional shares of our Common Stock owned by officers and/or directors of the Company.

(3)

A director of Company as of December 31, 2010.

(4)

Includes 31,250,000 shares of common stock held by CHL. Mr. Con Unerkov holds 25% shareholding of CHL

(5)

Includes 31,250,000 shares of common stock held by CHL. Mr. Alex Ho holds 25% shareholding of CHL.

(6)

Includes 141,666,668 shares of common stock held by MGIL. Mr. Liu Kang is a director and holds 100% shareholding of MGIL.

(7)

Includes 62,500,000 shares of common stock held by CHL. Mr. Lam Pui Kit is a director and holds 50% shareholding of CHL.



Changes in Control

We are unaware of any contract, or other arrangement or provisions, the operation of which may at a subsequent date result in a change of control of our Company.

31


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.


Other than disclosed below or under the caption entitled "Executive Compensation and Other Matters", since the beginning of the Company's last fiscal year, the Company was not a participant in any transaction in which a director, officer or stockholder of the Company, or any family member of any such person, had a direct or indirect material interest where the amount involved exceeded $120,000.


The directors of the Company, Con Unerkov, LOI Cheng Pheng and Alex Ho (a former director whom resigned on April 8, 2011) advanced a total of $1,085,855 and $1,083,686, respectively, to the Company for the years ended December 31, 2010 and 2009, respectively. Such advances were non-interest bearing, unsecured and payable on demand.

The Company agreed to pay a monthly salary to its officers and directors for services performed. Compensation expenses of $9,000 and $54,000 have been recognized for services provided by the officers and directors and their service companies for the years ended December 31, 2010 and 2009, respectively.



Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers and directors and persons who beneficially own more than 10% of our common stock to file with the SEC initial statements of beneficial ownership and reports of changes in beneficial ownership. Such persons are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file.

Based solely on our review of such statements and reports furnished to us and written representations from certain reporting persons, we believe that our executive officers, directors and greater-than-10% stockholders were complied with the beneficial ownership reporting requirements of Section 16(a).

32


ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

AUDIT FEES. The aggregate fees billed in each of the fiscal years ended December 31, 2010 and 2009 for professional services rendered by the principal accountant for the audit of our annual financial statements and review of the financial statements included in our Form 10-K or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements as well as registration statement filings for those fiscal years were $20,000 and $20,000 respectively.

AUDIT-RELATED FEES. There aggregate fees billed for services reasonably related to the performance of the audit or review of the financial statements outside of those fees disclosed above under "Audit Fees" for fiscal years 2010 and 2009 were $3,000 and $9.000, respectively.

TAX FEES. For the fiscal years ended December 31, 2010 and December 31, 2009, our principal accountants did not render any services for tax compliance, tax advice, and tax planning work.

ALL OTHER FEES. None

PRE-APPROVAL POLICIES AND PROCEDURES. Prior to engaging its accountants to perform a particular service, our board of directors obtains an estimate for the service to be performed. All of the services described above were approved by the board of directors in accordance with its procedures.

33


PART IV

ITEM 15. EXIBITS, FINANCIAL STATEMENT SCHEDULES



(a) Index to Financial Statements and Financial Statement Schedules



Table of Contents
Report of Independent Registered Public Accounting Firm - Albert Wong & Co.
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 2010 and 2009
Consolidated Statements of Operations for the years ended December 31, 2010 and 2009
Consolidated Statements of Stockholders' Deficits for the years ended December 31, 2010 and 2009
Consolidated Statements of Cash Flows for the years ended December 31, 2010 and 2009
Notes to Consolidated Financial Statements

34


(c) Exhibits.

Exhibit Number

Description of Exhibit

2.1

Shareholders' Agreement between Good World Investments Limited, Advance Tech Communications Sdn. Bhd. and ATC Marketing Limited(11)

2.2

Shareholders' Agreement between Good World Investments Limited, Allan Gallyot and Premium Multimedia Sdn. Bhd.(12)

3.1

Articles of Incorporation (1)

3.1.1

Certificate of Amendment to Articles of Incorporation (2)

3.1.2

Certificate of Amendment to Articles of Incorporation, as amended.(8)

3.2

Bylaws (1)

4.1

Executive Services Agreement between China Media Group Corporation and Con Unerkov (3)

4.2

Executive Services Agreement between China Media Group Corporation and Alex Ho (3)

4.3

Warrants to Purchase Common Stock (4)(5)

10.1

ELOC Arrangement with Tailor-Made Capital Ltd. (4)

10.2

Debenture Purchase Agreement with Tailor-Made Capital Ltd.(4).

10.3

2002 Stock Option Plan (6)

10.4

2007 Stock Incentive Plan (7)

10.5

Second Amendment Agreement (9)

10.6

Termination Letter Agreement (10)

21.1*

Subsidiaries of small business issuer.

31.1*

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*

Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*

Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

1.

Incorporated by reference to our Registration Statement on Form SB-2 as filed with the SEC on April 15, 2003.

2.

Incorporated by reference to our Current Report on Form 8-K as filed with the SEC on February 3, 2005.

3.

Incorporated by reference to our Current Report on Form 10-KSB/A as filed with the SEC on August 11, 2006.

4.

Incorporated by reference to our Current Report on Form 8-K/A as filed with the SEC on March 8, 2007.

5.

Incorporated by reference to our Current Report on Form 8-K as filed with the SEC on February 16, 2006.

6.

Incorporated by reference to our Registration Statement on Form SB-2 as filed with the SEC on April 15, 2003.

7.

Incorporated by reference to our Registration Statement on Form S8 as filed with the SEC on March 8, 2007.

8.

Incorporated by reference to our Registration Statement on Form SB-2 as filed with the SEC on March 16, 2007.

9.

Incorporated by reference to our Current Report on Form 8-K as filed with the SEC on January 8, 2008.

10.

Incorporated by reference to our Current Report on Form 8-K as filed with the SEC on August 7, 2008.

11.

Incorporated by reference to our Current Report on Form 8-K as filed with the SEC on May 26, 2009.

12.

Incorporated by reference to our Current Report on Form 8-K as filed with the SEC on September 30, 2009.
* Filed herewith.

35


SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 34, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


China Media Group Corporation
a Texas corporation
/s/ Cheng Pheng Loi
---------------------------------------
Cheng Pheng Loi
Chief Executive Officer
China Media Group Corporation
a Texas corporation
/s/ Con Unerkov
---------------------------------------
Con Unerkov
Chief Financial Officer

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


By:

/s/ Cheng Pheng Loi

April 21, 2011
--------------------------------------------
Cheng Pheng Loi
Its: Principal executive officer,
President, Director

By:

/s/ Con Unerkov

April 21, 2011
--------------------------------------------
Con Unerkov
Its: Chief financial officer,
Director

By:

/s/ Lam Pui Kit

April 21, 2011
--------------------------------------------
Lam Pui Kit
Its: Secretary, Treasurer,
Director

36


China Media Group Corporation and Subsidiary

Consolidated Financial Statements

For the Year Ended December 31, 2010

Table of Contents Page
Report of Independent Registered Public Accounting Firm - Albert Wong & Co. F-2 to F-2-1
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 2010 and 2009 F-3
Consolidated Statements of Operations for the years ended December 31, 2010 and 2009 F-4
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2010 and 2009 F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2010 and 2009 F-6
Notes to Consolidated Financial Statements F-7 to F-23

F-1


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Stockholders and Board of Directors


China Media Group Corporation

We have audited the accompanying consolidated balance sheet of China Media Group Corporation (the "Company") and its subsidiaries as of December 31, 2010, and the related consolidated statements of operations, stockholders' deficits and cash flows for the year ended December 31, 2010. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

We were not engaged to examine management's assertion about the effectiveness of the Company's internal control over financial reporting as of December 31, 2010 included in the Company's Item 9A "Controls and Procedures" in the Annual Report on Form 10-K and, accordingly, we do not express an opinion thereon.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of China Media Group Corporation and its subsidiaries as of December 31, 2010 and the results of its operations and its cash flows for December 31, 2010, in conformity with accounting principles generally accepted in the United States of America.

The Company's consolidated financial statements are prepared using the generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has deficits accumulated as at December 31, 2010 of $13,867,043 including net losses of $5,597,741 for the year ended December 31, 2010. These factors as discussed in Note 3 to the financial statements, raises substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Albert Wong & Co., LLP

CERTIFIED PUBLIC ACCOUNTANTS

New York, New York

April 21, 2011

F-2


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Stockholders and Board of Directors

China Media Group Corporation

We have audited the accompanying consolidated balance sheet of China Media Group Corporation (the "Company") and its subsidiaries as of December 31, 2009, and the related consolidated statements of operations, stockholders' deficits and cash flows for the year ended December 31, 2009. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

We were not engaged to examine management's assertion about the effectiveness of the Company's internal control over financial reporting as of December 31, 2009 included in the Company's Item 9A "Controls and Procedures" in the Annual Report on Form 10-K and, accordingly, we do not express an opinion thereon.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of China Media Group Corporation and its subsidiaries as of December 31, 2009 and the results of its operations and its cash flows for December 31, 2009, in conformity with accounting principles generally accepted in the United States of America.

The Company's consolidated financial statements are prepared using the generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has deficits accumulated as at December 31, 2009 of $8,269,302 including net losses of $2,534,104 for the year ended December 31, 2009. These factors as discussed in Note 3 to the financial statements, raises substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Albert Wong & Co.
CERTIFIED PUBLIC ACCOUNTANTS
Hong Kong
April 14, 2010

F-2-1


CHINA MEDIA GROUP CORPORATION

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2010 AND 2009


2010


2009

Notes

US$

US$

ASSETS
Current Assets:
Cash and cash equivalents

17,654

32,860

Investment available for sale

170,000

-

Due from related parties

7

339,715

215,918

Prepayments, deposit and other receivables

128,990

37,933

---------------

---------------

Total current assets

656,359

286,711

Non-current assets
Property and equipments, net

8

15,044

27,606

Advance payment for distribution rights

9

138,000

138,000

Goodwill

10

-

4,791,676

---------------

---------------

153,044

4,957,282

---------------

---------------

809,403

5,243,993

=========

=========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Other payables and accruals

11

547,654

457,211

Short term debt

12

214,591

99,645

Due to officer and directors

13

1,085,855

1,083,686

Due to related parties

14

855,388

490,854

Option liabilities

202,014

-

---------------

---------------

Total current liabilities

2,905,502

2,131,396

---------------

---------------

Long-term debts

15

2,000,000

2,000,000


Stockholders' equity:

    Common stock, no par value, 85,000,000,000 shares authorized, 554,132,450
    (2009: 534,132,450) shares issued and outstanding

4

7,773,902

7,428,902

Additional paid-in-capital

1,799,358

1,760,874

Uncontrolled interest

130,508

147,975

Comprehensive income

67,176

44,148

Accumulated deficits

(13,867,043)

(8,269,302)

---------------

---------------

Total stockholders' equity

(4,096,099)

1,112,597

---------------

---------------

809,403

5,243,993

=========

=========

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

F-3


CHINA MEDIA GROUP CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009


2010


2009

US$

US$

Net revenue

59,730

139,889

Cost of revenue

(25,479)

(54,600)

---------------

---------------

Gross profits

34,251

85,289

Operating expenses:
Impairment of goodwill

4,791,676

2,000,000

Selling, general and administrative expenses

686,053

468,820

---------------

---------------

Loss from operations before other expense

(5,443,478)

(2,383,531)

Other income (expenses)
Interest income

45

86

Interest expense

(176,885)

(170,914)

---------------

---------------

Net loss before minority interest

(5,620,318)

(2,554,359)

Minority interest

22,577

20,255

---------------

---------------

Net loss

(5,597,741)

(2,534,104)

Other comprehensive income: - Foreign currency translation gain

23,028

883

---------------

---------------

Comprehensive loss

(5,574,713)

(2,533,221)

=========

=========

Basic and diluted loss per common share

$0.01

$0.00

=========

=========

Basic and diluted weighted average number of common shares*

541,611,902

534,132,450

=========

=========

* Weighted average number of shares used to compute basic and diluted loss per share for the years ended December 31, 2010 and 2009 are the same since the effect of dilutive securities are anti-dilutive.

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

F-4


CHINA MEDIA GROUP CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009


Common


Additional


Total

Stock

Paid-in

Comprehensive

Uncontrolled

Accumulated

Stockholders'

Shares

Amount

Capital

Income

Interest

Deficit

Equity

US$

US$

US$

US$

US$

US$

----------------

----------

--------------

---------------

-------------

--------------

---------------

January 1, 2009

534,132,450

7,428,902

1,660,183

43,265

168,230

(5,735,198)

3,565,382

Amortization of options granted

-

-

100,691

-

-

-

100,691

Comprehensive income

-

-

-

883

-

-

883

Net loss

-

-

-

-

(20,255)

(2,534,104)

(2,554,359)

----------------

-----------

--------------

---------------

-------------

--------------

---------------

December 31, 2009

534,132,450

7,428,902

1, 760,874

44,148

147,975

(8,269,302)

1,112,597

Amortization of options granted

-

-

38,484

-

-

-

38,484

Comprehensive income

-

-

-

23,028

-

-

23,028

Issuance of shares for acquisition of share investments

20,000,000

345,000

-

-

-

-

345,000

Gain on disposal of subsidiary

-

-

-

-

5,110

-

5,110

Net loss

-

-

-

-

(22,577)

(5,597,741)

(5,620,318)

----------------

-----------

--------------

---------------

-------------

--------------

---------------

Balance at December 31, 2010

554,132,450

7,773,902

1,799,358

67,176

130,508

(13,867,043)

(4,096,099)

=========

=======

========

=========

========

========

=========

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

F-5


CHINA MEDIA GROUP CORPORATION

CONSOLIDATED STATEMENTS OF CASHFLOWS

FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009


2010


2009

Notes

US$

US$

Cash flows from operating activities:
Net Loss

(5,597,741)

(2,534,104)

Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation

12,562

12,516

Minority interest

(22,577)

(20,255)

Impairment on goodwill

4.791,676

2,000,000

Option expenses for employee compensation

38,484

100,691

Loss on disposal of subsidiary

119,890

-

Changes in assets and liabilities:
Prepaid expenses, deposit and other receivables

224,861

53,294

Account receivable

5,807

Loan receivable

132,737

Due from former subsidiary

(95,536)

-

Due from related parties

(244,179)

(215,918)

Accounts payable and accrued expenses

(180,444)

221,485

Short term debt

114,946

99,645

Due to officers and directors

2,169

(34,988)

Due to related parties

595,641

243,219

Option liabilities

202,014

-

Long term debt

-

(99,645)

---------------

---------------

Net cash(used in) / general from operating activities

(38,234)

(35,516)

---------------

---------------

Cash flows from investing activities:
Purchase of property and equipment

-

(271)

---------------

---------------

Net cash used in investing activities

(271)

Cash flows from financing activities:

-

-

---------------

---------------

Net cash used in financing activities

-

-

---------------

---------------

Net decrease in cash and cash equivalents

(38,234)

(35,787)

Effect of exchange rate changes on cash and cash equivalents

23,028

883

Cash and cash equivalents, beginning

32,860

67,764

---------------

---------------

Cash and cash equivalents, ending

17,654

32,860

=========

=========

Supplemental disclosure of cash flow information:
Interest paid

176,885

170,914

=========

=========

Income tax paid

-

-

=========

=========

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

F-6


CHINA MEDIA GROUP CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1

ORGANIZATION

China Media Group Corporation (the "Company") is a Texas corporation, incorporated on October 1, 2002.

In January 2006, the Company established a wholly owned subsidiary Ren Ren Media Group Limited, a company incorporated in Hong Kong, as its operating company in Hong Kong. In March 2007, the Company acquired all the outstanding shares of Good World Investments Limited, a British Virgin Islands corporation that holds 50% of Beijing Ren Ren Health Culture Promotion Limited, a company incorporated in China in the advertising and media business in China.

In May 2009, the Group established a 50/50 joint venture company, ATC Marketing Limited, which is to be in the business of marketing and distributing of convergent multimedia communication and internet devices. In September 2009, the Group acquired a 51% interest in Premium Multimedia Sdn. Bhd., which is to be in the business of outdoor media business.

The Group will be engaged in the media and advertising business, focusing mainly in China, and the marketing and distribution of convergent devices and the sale and marketing of organic fertilizers and produce. During the year, the Group recorded sales in the provision of advertising services and product services.

NOTE 2

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES & REALIZATION OF ASSETS

Basis of Presentation

These financial statements and related notes are presented in accordance with accounting principals generally accepted in the United States, and are expressed in U.S. dollars. The Company 's fiscal year end is December 31.

Principles of Consolidation

The consolidated financial statements for the year ended December 31, 2010 include the financial statements of the Company, its wholly owned subsidiaries Ren Ren Media Group Limited, Good World Investments Limited, 51% subsidiary Premium Multimedia Sdn. Bhd. until the disposal in October 2010, and two 50% subsidiaries, namely Beijing Ren Ren Health Culture Promotion Limited and ATC Marketing Limited. ATC Marketing Limited was established on the date of May 21, 2009 and Premium Multimedia Sdn. Bhd. was acquired on September 26, 2009. The Company consolidated both of these 50% ownership companies because of the sole largest shareholding status and/or controlling of the Board of Directors. During the year, the Group acquired a 50% subsidiary, AX Organic Limited on June 18, 2010 and consolidates this subsidiary into the Group accounts from that date onwards as the Group has control of the Board of Directors until its disposal in December 2010.

The results of subsidiaries acquired or sold during the year are consolidated from their effective dates of acquisition or through their effective dates of disposition, respectively.

All significant inter-company transactions and balances have been eliminated on consolidation.

F-7


CHINA MEDIA GROUP CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES & REALIZATION OF ASSETS (Continued)

Use of estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Net Income (Loss) per Share


Basic earnings per share were computed by dividing net loss by the weighted average number of shares of common stock outstanding during the year. Diluted loss per common share for the year ended December 31, 2010 and 2009 are not presented as it would be anti-dilutive.


Fair Value Measurements and Disclosures


ASC 820 "Fair Value Measurements and Disclosures" codified SFAS No. 107, "Disclosures about Fair Value of Financial Instruments". ASC 820 applies to all entities, transactions, and instruments that require or permit fair value measurements, with specific exceptions and qualifications. The Company is required to disclose estimated fair values of financial instruments. Unless otherwise indicated, the fair values of all reported assets and liabilities, which represent financial instruments, none of which are held for trading purposes, approximate are carrying values of such amounts.

Cash and Cash Equivalents

The Company considers all liquid investments with a maturity of three months or less from the date of purchase that are readily convertible into cash to be cash equivalents.

Inventories

Inventories are stated at the lower of cost or market, cost being determined on the first-in, first-out method. Inventories are written down if the estimated net realizable value is less than the recorded value.

Property & equipment

Property & equipment is stated at costs. Depreciation are computed using the straight-line method over the estimated economic useful lives of the related assets as follows:

Leasehold improvements 5 years
Furniture, fixture and equipment 5 years
Intangible Assets

The Company evaluates intangible assets for impairment, at least on an annual basis and whenever events or changes in circumstances indicate that the carrying value may not be recoverable from its estimated future cash flows. Recoverability of intangible assets, other long-lived assets and, goodwill is measured by comparing their net book value to the related projected undiscounted cash flows from these assets, considering a number of factors including past operating results, budgets, economic projections, market trends and product development cycles. If the net book value of the asset exceeds the related undiscounted cash flows, the asset is considered impaired, and a second test is performed to measure the amount of impairment loss.

F-8


CHINA MEDIA GROUP CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES & REALIZATION OF ASSETS (Continued)

Income taxes

The Company accounts for income taxes under ASC 740 "Income Taxes" which codified SFAS 109, "Accounting for Income Taxes." Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations.


Stock-based compensation


ASC 718 "Compensation - Stock Compensation" codified SFAS No. 123 prescribes accounting and reporting standards for all stock-based payments award to employees, including employee stock options, restricted stock, employee stock purchase plans and stock appreciation rights. , may be classified as either equity or liabilities. The Company should determine if a present obligation to settle the share-based payment transaction in cash or other assets exists. A present obligation to settle in cash or other assets exists if: (a) the option to settle by issuing equity instruments lacks commercial substance or (b) the present obligation is implied because of an entity's past practices or stated policies. If a present obligation exists, the transaction should be recognized as a liability; otherwise, the transaction should be recognized as equity.


The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of ASC 505-50 "Equity - Based Payments to Non-Employees" which codified SFAS 123 and the Emerging Issues Task Force consensus in Issue No. 96-18 ("EITF 96-18"), "Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring or in Conjunction with Selling, Goods or Services". Measurement of share-based payment transactions with non-employees shall be based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction should be determined at the earlier of performance commitment date or performance completion date.


Employees' benefits and pension obligations


Mandatory contributions of five percent of gross salary payments, subject to certain minimum and maximum levels, are made to defined contribution Mandatory Provident Fund schemes ("MPF schemes") pursuant to the laws of Hong Kong. These contributions are charged to expense in the same period as the related salary cost. Total contributions made by the Company to the MPF schemes were $nil and $542 for the year December 31, 2010 and 2009, respectively.


Issuance of shares for service


The Company accounts for the issuance of equity instruments to acquire goods and services based on the fair value of the goods and services or the fair value of the equity instrument at the time of issuance, whichever is more reliably measurable.


Revenue Recognition


The Company recognizes its revenue in accordance with the Securities and Exchange Commissions ("SEC") Staff Accounting Bulletin No. 104, "Revenue Recognition in Financial Statements" ("SAB 104"). Revenue is recognized upon shipment, provided that evidence of an arrangement exists, title and risk of loss have passed to the customer, fees are fixed or determinable and collection of the related receivable is reasonably assured. Revenue is recorded net of estimated product returns, which is based upon the Company's return policy, sales agreements, management estimates of potential future product returns related to current period revenue, current economic trends, changes in customer composition and historical experience.

F-9


CHINA MEDIA GROUP CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES & REALIZATION OF ASSETS (Continued)

Foreign Currency Translation

The accounts of the Company's Hong Kong and China subsidiaries are maintained, in the Hong Kong dollars (HK) and Chinese Renminbi, respectively. Such financial statements are translated into U.S. Dollars (USD) in accordance with ASC 830 "Foreign Currency Translation" which codified Statement of Financial Accounts Standards ("SFAS") No. 52, "Foreign Currency Translation," with the respective currency as the functional currency. According to the Statement, all assets and liabilities were translated at the exchange rate on the balance sheet date, stockholder's equity are translated at the historical rates and statement of operations items are translated at the weighted average exchange rate for the year. The resulting translation adjustments are reported under other comprehensive income in accordance with SFAS No. 130, "Reporting Comprehensive Income. As of December 31, 2010, the comprehensive income was $67,176, and $44,148 in 2009.


Recent Pronouncements

Recently Implemented Standards


ASC 105, Generally Accepted Accounting Principles ("ASC 105") (formerly Statement of Financial Accounting Standards No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles a replacement of FASB Statement No. 162) reorganized by topic existing accounting and reporting guidance issued by the Financial Accounting Standards Board ("FASB") into a single source of authoritative generally accepted accounting principles ("GAAP") to be applied by nongovernmental entities. All guidance contained in the Accounting Standards Codification ("ASC") carries an equal level of authority. Rules and interpretive releases of the Securities and Exchange Commission ("SEC") under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. Accordingly, all other accounting literature will be deemed "non-authoritative". ASC 105 is effective on a prospective basis for financial statements issued for interim and annual periods ending after September 15, 2009. The Company has implemented the guidance included in ASC 105 as of July 1, 2009. The implementation of this guidance changed the Company's references to GAAP authoritative guidance but did not impact the Company's financial position or results of operations.


 ASC 855, Subsequent Events ("ASC 855") (formerly Statement of Financial Accounting Standards No. 165, Subsequent Events) includes guidance that was issued by the FASB in May 2009, and is consistent with current auditing standards in defining a subsequent event. Additionally, the guidance provides for disclosure regarding the existence and timing of a company's evaluation of its subsequent events. ASC 855 defines two types of subsequent events, "recognized" and "non-recognized". Recognized subsequent events provide additional evidence about conditions that existed at the date of the balance sheet and are required to be reflected in the financial statements. Non-recognized subsequent events provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date and, therefore; are not required to be reflected in the financial statements. However, certain non-recognized subsequent events may require disclosure to prevent the financial statements from being misleading. This guidance was effective prospectively for interim or annual financial periods ending after June 15, 2009. The Company implemented the guidance included in ASC 855 as of April 1, 2009. The effect of implementing this guidance was not material to the Company's financial position or results of operations.


ASC 944, Financial Services - Insurance ("ASC 944") contains guidance that was previously issued by the FASB in May 2008 as Statement of Financial Accounting Standards No. 163, Accounting for Financial Guarantee Insurance Contracts - an interpretation of FASB Statement No. 60 that provides for changes to both the recognition and measurement of premium revenues and claim liabilities for financial guarantee insurance contracts that do not qualify as a derivative instrument in accordance with ASC 815, Derivatives and Hedging (formerly included under Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities). This financial guarantee insurance contract guidance also expands the disclosure requirements related to these contracts to include such items as a company's method of tracking insured financial obligations with credit deterioration, financial information about the insured financial obligations, and management's policies for placing and monitoring the insured financial obligations. ASC 944, as it relates to financial guarantee insurance contracts, was effective for fiscal years beginning after December 15, 2008, except for certain disclosures related to the insured financial obligations, which were effective for the third quarter of 2008. The Company does not have financial guarantee insurance products, and, accordingly, the implementation of this portion of ASC 944 did not have an effect on the Company's results of operations or financial position.

F-10


CHINA MEDIA GROUP CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES & REALIZATION OF ASSETS (Continued)

Recent Pronouncements (Continued)

Recently Implemented Standards (Continued)

ASC 805, Business Combinations ("ASC 805") (formerly included under Statement of Financial Accounting Standards No. 141 (revised 2007), Business Combinations) contains guidance that was issued by the FASB in December 2007. It requires the acquiring entity in a business combination to recognize all assets acquired and liabilities assumed in a transaction at the acquisition-date fair value, with certain exceptions. Additionally, the guidance requires changes to the accounting treatment of acquisition related items, including, among other items, transaction costs, contingent consideration, restructuring costs, indemnification assets and tax benefits. ASC 805 also provides for a substantial number of new disclosure requirements. ASC 805 also contains guidance that was formerly issued as FSP FAS 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies which was intended to provide additional guidance clarifying application issues regarding initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. ASC 805 was effective for business combinations initiated on or after the first annual reporting period beginning after December 15, 2008. The Company implemented this guidance effective January 1, 2009. Implementing this guidance did not have an effect on the Company's financial position or results of operations; however it will likely have an impact on the Company's accounting for future business combinations, but the effect is dependent upon acquisitions, if any, that are made in the future.

ASC 810, Consolidation ("ASC 810") includes new guidance issued by the FASB in December 2007 governing the accounting for and reporting of noncontrolling interests (previously referred to as minority interests). This guidance established reporting requirements which include, among other things, that noncontrolling interests be reflected as a separate component of equity, not as a liability. It also requires that the interests of the parent and the noncontrolling interest be clearly identifiable. Additionally, increases and decreases in a parent's ownership interest that leave control intact shall be reflected as equity transactions, rather than step acquisitions or dilution gains or losses. This guidance also requires changes to the presentation of information in the financial statements and provides for additional disclosure requirements. ASC 810 was effective for fiscal years beginning on or after December 15, 2008. The Company implemented this guidance as of January 1, 2009. The effect of implementing this guidance was not material to the Company's financial position or results of operations.

ASC 825, Financial Instruments ("ASC 825") includes guidance which was issued in February 2007 by the FASB and was previously included under Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities Including an amendment of FASB Statement No. 115. The related sections within ASC 825 permit a company to choose, at specified election dates, to measure at fair value certain eligible financial assets and liabilities that are not currently required to be measured at fair value. The specified election dates include, but are not limited to, the date when an entity first recognizes the item, when an entity enters into a firm commitment or when changes in the financial instrument causes it to no longer qualify for fair value accounting under a different accounting standard. An entity may elect the fair value option for eligible items that exist at the effective date. At that date, the difference between the carrying amounts and the fair values of eligible items for which the fair value option is elected should be recognized as a cumulative effect adjustment to the opening balance of retained earnings. The fair value option may be elected for each entire financial instrument, but need not be applied to all similar instruments. Once the fair value option has been elected, it is irrevocable. Unrealized gains and losses on items for which the fair value option has been elected will be reported in earnings. This guidance was effective as of the beginning of fiscal years that began after November 15, 2007. The Company does not have eligible financial assets and liabilities, and, accordingly, the implementation of ASC 825 did not have an effect on the Company's results of operations or financial position.

F-11


CHINA MEDIA GROUP CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES & REALIZATION OF ASSETS (Continued)

Recent Pronouncements (Continued)

Recently Implemented Standards (Continued)

ASC 820, Fair Value Measurements and Disclosures ("ASC 820") (formerly included under Statement of Financial Accounting Standards No. 157, Fair Value Measurements) includes guidance that was issued by the FASB in September 2006 that created a common definition of fair value to be used throughout generally accepted accounting principles. ASC 820 applies whenever other standards require or permit assets or liabilities to be measured at fair value, with certain exceptions. This guidance established a hierarchy for determining fair value which emphasizes the use of observable market data whenever available. It also required expanded disclosures which include the extent to which assets and liabilities are measured at fair value, the methods and assumptions used to measure fair value and the effect of fair value measures on earnings. ASC 820 also provides additional guidance for estimating fair value when the volume and level of activity for the asset or liability have significantly decreased. The emphasis of ASC 820 is that fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants, under current market conditions. ASC 820 also further clarifies the guidance to be considered when determining whether or not a transaction is orderly and clarifies the valuation of securities in markets that are not active. This guidance includes information related to a company's use of judgment, in addition to market information, in certain circumstances to value assets which have inactive markets.

Fair value guidance in ASC 820 was initially effective for fiscal years beginning after November 15, 2007 and for interim periods within those fiscal years for financial assets and liabilities. The effective date of ASC 820 for all non-recurring fair value measurements of nonfinancial assets and nonfinancial liabilities was fiscal years beginning after November 15, 2008. Guidance related to fair value measurements in an inactive market was effective in October 2008 and guidance related to orderly transactions under current market conditions was effective for interim and annual reporting periods ending after June 15, 2009.

The Company applied the provisions of ASC 820 to its financial assets and liabilities upon adoption at January 1, 2008 and adopted the remaining provisions relating to certain nonfinancial assets and liabilities on January 1, 2009. The difference between the carrying amounts and fair values of those financial instruments held upon initial adoption, on January 1, 2008, was recognized as a cumulative effect adjustment to the opening balance of retained earnings and was not material to the Company's financial position or results of operations. The Company implemented the guidance related to orderly transactions under current market conditions as of April 1, 2009, which also was not material to the Company's financial position or results of operations.

Recently Issued Standards

In August 2009, the FASB issued ASC Update ("ASU") No. 2009-05, Fair Value Measurements and Disclosures (Topic 820): Measuring Liabilities at Fair Value ("ASC Update No. 2009-05"). This update amends ASC 820, Fair Value Measurements and Disclosures and provides further guidance on measuring the fair value of a liability. The guidance establishes the types of valuation techniques to be used to value a liability when a quoted market price in an active market for the identical liability is not available, such as the use of an identical or similar liability when traded as an asset. The guidance also further clarifies that a quoted price in an active market for the identical liability at the measurement date and the quoted price for the identical liability when traded as an asset in an active market when no adjustments to the quoted price of the asset are required are both Level 1 fair value measurements. If adjustments are required to be applied to the quoted price, it results in a level 2 or 3 fair value measurement. The guidance provided in the update is effective for the first reporting period (including interim periods) beginning after issuance. The Company does not expect that the implementation of ASC Update No. 2009-05 will have a material effect on its financial position or results of operations.

F-12


CHINA MEDIA GROUP CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES & REALIZATION OF ASSETS (Continued)


Recent Pronouncements (Continued)


Recently Issued Standards (continued)


In September 2009, the FASB issued ASC Update ("ASU") No. 2009-12, Fair Value Measurements and Disclosures (Topic 820): Investments in Certain Entities that Calculate Net Asset Value per Share (or Its Equivalent) ("ASU No. 2009-12"). This update sets forth guidance on using the net asset value per share provided by an investee to estimate the fair value of an alternative investment. Specifically, the update permits a reporting entity to measure the fair value of this type of investment on the basis of the net asset value per share of the investment (or its equivalent) if all or substantially all of the underlying investments used in the calculation of the net asset value is consistent with ASC 820. The update also requires additional disclosures by each major category of investment, including, but not limited to, fair value of underlying investments in the major category, significant investment strategies, redemption restrictions, and unfunded commitments related to investments in the major category. The amendments in this update are effective for interim and annual periods ending after December 15, 2009 with early application permitted. The Company does not expect that the implementation of ASC Update No. 2009-12 will have a material effect on its financial position or results of operations.


In October 2009, the FASB issued FASB issued ASU No. 2009-13, Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements (a consensus of the FASB Emerging Issues Task Force). ( "ASC Update No. 2009-13"). This updates set forth the guidance on the existing multiple-element arrangement currently in FASB Topic 605-25 (Revenue Recognition - Multiple-Element Arrangements). This new guidance eliminates the requirement that all undelivered elements have objective evidence of fair value before a company can recognize the portion of the overall arrangement fee that is attributable to the items that have already been delivered. Further, companies will be required to allocate revenue in arrangements involving multiple deliverables based on the estimated selling price of each deliverable, even though such deliverables are not sold separately by either company itself or other vendors. This new guidance also significantly expands the disclosures required for multiple-element revenue arrangements. The revised guidance will be effective for the first annual period beginning on or after June 15, 2010. The Company does not expect that the implementation of ASU No. 2009-13 will have a material effect on its financial statements.


In June 2009, FASB issued Statement of Financial Accounting Standards No. 167, Amendments to FASB Interpretation No. 46(R) ("Statement No. 167"). Statement No. 167 amends FASB Interpretation No. 46R, Consolidation of Variable Interest Entities an interpretation of ARB No. 51 ("FIN 46R") to require an analysis to determine whether a company has a controlling financial interest in a variable interest entity. This analysis identifies the primary beneficiary of a variable interest entity as the enterprise that has a) the power to direct the activities of a variable interest entity that most significantly impact the entity's economic performance and b) the obligation to absorb losses of the entity that could potentially be significant to the variable interest entity or the right to receive benefits from the entity that could potentially be significant to the variable interest entity. The statement requires an ongoing assessment of whether a company is the primary beneficiary of a variable interest entity when the holders of the entity, as a group, lose power, through voting or similar rights, to direct the actions that most significantly affect the entity's economic performance. This statement also enhances disclosures about a company's involvement in variable interest entities. Statement No. 167 is effective as of the beginning of the first annual reporting period that begins after November 15, 2009. Although Statement No. 167 has not been incorporated into the Codification, in accordance with ASC 105, the standard shall remain authoritative until it is integrated. The Company does not expect the adoption of Statement No. 167 to have a material impact on its financial position or results of operations.


In June 2009, the FASB issued Statement of Financial Accounting Standards No. 166, Accounting for Transfers of Financial Assets an amendment of FASB Statement No. 140 ("Statement No. 166"). Statement No. 166 revises FASB Statement of Financial Accounting Standards No. 140, Accounting for Transfers and Extinguishment of Liabilities a replacement of FASB Statement 125 ("Statement No. 140") and requires additional disclosures about transfers of financial assets, including securitization transactions, and any continuing exposure to the risks related to transferred financial assets. It also eliminates the concept of a "qualifying special-purpose entity", changes the requirements for derecognizing financial assets, and enhances disclosure requirements. Statement No. 166 is effective prospectively, for annual periods beginning after November 15, 2009, and interim and annual periods thereafter. Although Statement No. 166 has not been incorporated into the Codification, in accordance with ASC 105, the standard shall remain authoritative until it is integrated. The Company does not expect the adoption of Statement No. 166 will have a material impact on its financial position or results of operations.


In March 2010, the FASB issued new accounting guidance on embedded credit derivatives. This new accounting guidance clarifies the scope exception for embedded credit derivatives and defines which embedded credit derivatives should be evaluated for bifurcation and separate accounting. The Company does not expect that the implementation of this new accounting guidance will have a material effect on its financial position or results of operations.

F-13


CHINA MEDIA GROUP CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES & REALIZATION OF ASSETS (Continued)


Recent Pronouncements (Continued)


Accounting Standards Issued But Not Yet Effective


In January 2010, the Financial Accounting Standards Board ("FASB ") issued an accounting standard update, Fair Value Measurements and Disclosures (Topic 820), Improving Disclosures about Fair Value Measurements. The Update would affect all entities that are required to make disclosures about recurring and nonrecurring fair value measurements. The Board concluded that users will benefit from improved disclosures in this Update and that the benefits of the increased transparency in financial reporting will outweigh the costs of complying with the new requirements. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 30, 2010, and for interim periods within those fiscal years. We are currently evaluating the impact this update will have on our financial statements.


In January 2010,  the Financial Accounting Standards Board ("FASB ") issued an accounting standard update to address implementation issues related to the changes in ownership provisions in the Consolidation-Overall Subtopic (Subtopic 810-10) of the FASB Accounting Standards Codification™, originally issued as FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements. Subtopic 810-10 establishes the accounting and reporting guidance for noncontrolling interests and changes in ownership interests of a subsidiary. An entity is required to deconsolidate a subsidiary when the entity ceases to have a controlling financial interest in the subsidiary. Upon deconsolidation of a subsidiary, an entity recognizes a gain or loss on the transaction and measures any retained investment in the subsidiary at fair value. The gain or loss includes any gain or loss associated with the difference between the fair value of the retained investment in the subsidiary and its carrying amount at the date the subsidiary is deconsolidated. In contrast, an entity is required to account for a decrease in its ownership interest of a subsidiary that does not result in a change of control of the subsidiary as an equity transaction.


In December 2009, the Financial Accounting Standards Board ("FASB ") issued an accounting standard update for improvements to financial reporting by enterprises involved with Variable Interest Entities. The subsections clarify the application of the General Subsections to certain legal entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the legal entity to finance its activities without additional subordinated financial support [FIN 46(R), paragraph 1, sequence 55.1] or, as a group, the holders of the equity investment at risk lack any one of the following three characteristics: [FIN 46(R), paragraph 1, sequence 55.2] .


a. The power, through voting rights or similar rights, to direct the activities of a legal entity that most significantly impact the entity's economic performance [FIN 46(R), paragraph 1, sequence 55.2.1].


b. The obligation to absorb the expected losses of the legal entity [FIN 46(R), paragraph 1, sequence 55.2.2].


c. The right to receive the expected residual returns of the legal entity. [FIN 46(R), paragraph 1, sequence 55.2.3].


The amendments in this update to the Accounting Standards Codification are the result of FASB Statement No. 167, Amendments to FASB Interpretation No. 46(R). The adoption of this update to improving the financial reporting by enterprises involved with Variable Interest Entities, as codified in ASC 810, did not have any impact on the Company's financial statements.


In December 2009, the Financial Accounting Standards Board ("FASB") issued an accounting standard update, Transfers and Servicing (Topic 860) Accounting for Transfers of Financial Assets. The amendments in this update to the Accounting Standards Codification are the result of FASB Statement No. 166, Accounting for Transfers of Financial Assets. The adoption of this update did not have any impact on the Company's financial statements .


Reclassifications

Certain comparative amounts have been reclassified to conform to the current year's presentation.

F-14


CHINA MEDIA GROUP CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3

UNCERTAINTY OF ABILITY TO CONTINUE AS A GOING CONCERN

The Company's financial statements are prepared using the generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. As of December 31, 2010, the Company has incurred an accumulated deficits totaling $13,867,043 and its current liabilities exceed its current assets by $2,249,143. In view of the matters described above, recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheets is dependent upon continued operations of the Company, which in turn is dependent upon the Company's ability to raise additional capital, obtain financing and to succeed in its future operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Management has taken the following steps to revise its operating and financial requirements, which it believes are sufficient to provide the Company with the ability to continue as a going concern. The Company is actively pursuing additional funding and potential merger or acquisition candidates and strategic partners, which would enhance stockholders' investment. Management believes that the above actions will allow the Company to continue operations through the next fiscal year.

NOTE 4

STOCKHOLDERS' EQUITY

Common Stock

In January 2008, the Company issued 2,631,579 shares of common stock pursuant to a Second Amendment Agreement to extend the repayment of the $50,000 Convertible Debenture to March 28, 2008.

On August 3, 2008 the Company issued 10,000,000 shares of Common Stock pursuant to a Letter Agreement to terminate the ELOC Agreement.

During the year, on June 18, 2010 the Company issued 10,000,000 shares of Common Stock pursuant to a Stock Purchase Agreement to acquire 50% controlling interests in AX Organic Limited.

On October 8, 2010 the Group acquired 100% equity interest of "Jademan International Limited, which holds a short term investment of 19,200,000 shares in China Integrated Media Corporation Limited, a public company in Australia, by the issuance of 10,000,000 shares in the Company as part of the purchase consideration. CIMC is in the business of television media and digital signage boards.

NOTE 5

STOCK OPTIONS AND WARRANTS

Stock Options

The Company adopted ASC 718 "Compensation - Stock Compensation" codified SFAS No. 123 (Revised 2004), Share Based Payment ("SFAS No. 123R"), under the modified-prospective transition method on April 1, 2006. SFAS No. 123R requires companies to measure and recognize the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value.


2002 Stock Option Plan

Effective on October 11, 2002, the Company adopted the 2002 Stock Option Plan (the "2002 Plan") allowing for the awarding of options to acquire shares of common stock. This plan provides for the grant of incentive stock options to key employees and directors. Options issued under this plan will expire over a maximum term of ten years from the date of grant.

On May 18, 2007, the board of directors approved to issue 12,300,000 stock options to employees to purchase shares of our Common Stock under the 2002 Stock Option Plan, at exercise price of $0.038 for a vesting period of 3 years. The 12,300,000 stock options expired on May 17, 2010.

On April 16, 2010, the board of directors approved to issue 19,000,000 stock options to employees to purchase shares of our Common Stock under the 2002 Stock Option Plan, at exercise price of $0.010 for an option period of 5 years, and for these options 50% of the entitlement is vested immediately to option holders and the remaining 50% shall be vested in one year from the date of issue of the option.

As of December 31, 2010, the Company has 19,000,000 stock options outstanding and the option liabilities is $202,014.

F-15


CHINA MEDIA GROUP CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5

STOCK OPTIONS AND WARRANTS (Continued)


Following is a summary of the activities of the 2002 Stock Option Plan for the year ended December 31, 2010:


Options outstanding

Outstanding, December 31, 2009

12,300,000

Granted during the year

19,000,000

Forfeited/lapsed during the year

(12,300,000)

Exercised during the year

-

---------------------------

Outstanding, December 31, 2010

19,000,000

================


Following is a summary of the status of options outstanding at December 31, 2010:

Outstanding Options

Exercisable Options

------------------------------------

----------------------------------------------------------------------

Grant
Date

Exercise
Price

Number

Average Remaining
Contractual Life

Average Exercise Price

Number

Intrinsic Price

4/16/2010

$0.010

19,000,000

4.29

$0.010

19,000,000

$0.00



During the year on May 17, 2010, 12,300,000 stock options expired and on April 16, 2010, the Company granted 19,000,000 stock options to 5 qualified persons. As of December 31, 2010, there were 19,000,000 outstanding stock options.


The assumptions used in calculating the fair value of options granted using the Black-Scholes option pricing model are as follows:

i) The 17,500,000 stock options granted on December 23, 2006 were expired on December 22, 2009:
Grant date:

12/23/2006

Risk-free interest rate

4.63%

Expected life of the options

3.00 years

Expected volatility

95%

Expected dividend yield

0


ii) The 12,300,000 stock options granted on May 18, 2007 were expired on May 17, 2010:
Grant date:

5/18/2007

Risk-free interest rate

4.63%

Expected life of the options

3.00 years

Expected volatility

139%

Expected dividend yield

0


ii) The outstanding 19,000,000 stock options granted on April 16, 2010 and will expire on April 16, 2015:
Grant date:

4/16/2010

Risk-free interest rate

3.25%

Expected life of the options

5.00 years

Expected volatility

250%

Expected dividend yield

0

F-16


CHINA MEDIA GROUP CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5

STOCK OPTIONS AND WARRANTS (Continued)

2007 Stock Incentive Plan

On February 19, 2007, the Company adopted the 2007 Stock Incentive Plan (the "2007 Plan") allowing for the awarding of options to acquire shares of common stock. This plan provides for the grant of incentive stock options to key employees, directors and consultants. Options issued under this plan will expire over a maximum term of ten years from the date of grant. The Company had not issued any stock options under this scheme.

On March 8, 2007, we registered 38,400,000 shares underlying stock options under the 2007 Stock Incentive Plan with the SEC pursuant to a registration statement on Form S-8.

During the year 2007, the Company had issued a total of 5,811,300 shares to its staff and consultants for their service provided.

No shares were issued under the registration statement on Form S-8 during the year 2010 and 2009. As at December 31, 2010 there were 32,588,700 shares available underlying stock options under the 2007 Stock Incentive Plan.

As of December 31, 2010, there were no outstanding stock options to purchase shares of our Common Stock under the 2007 Stock Incentive Plan.

Warrants

In December 2006, the Company entered into an Equity Line of Credit Agreement ("ELOC") to sell commons stock of the Company up to $2,500,000. As part of this agreement, the Company issued, inter alia, stock warrants for a total of 31,250,000 shares of Common Stock in the Company. In October 2007, 500,000 warrant shares were exercised. The remaining 30,750,000 stock warrants expired in May 2009.

As part of the ELOC agreement above, the Company also issued 527,776 stock warrants as part of commission in relation to the draw down of the Debenture Purchase Agreement. All these stock warrants expired in May 2009.

As at December 31, 2010 and 2009, there is no warrant share outstanding.

NOTE 6

STOCK PURCHASE AGREEMENTS

a)

In January 2008 the Company issued 2,631,579 shares pursuant to a Second Amendment Agreement to extend the repayment of the $50,000 Convertible Debenture to March 28, 2008.

b)

On August 3, 2008 the Company issued 10,000,000 shares of Common Stock pursuant to a Letter Agreement to terminate the ELOC Agreement.

c)

On June 18, 2010 the Company issued 10,000,000 shares of Common Stock pursuant to a Stock Purchase Agreement to acquire 50% controlling interests in AX Organic Limited.

d)

On October 8, 2010 the Company issued 10,000,000 shares of Common Stock as part of the purchase consideration to acquire a short term investment in 100% equity interest of "Jademan International Limited, which holds 19,200,000 shares in China Integrated Media Corporation Limited.

F-17


CHINA MEDIA GROUP CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7

DUE FROM RELATED PARTIES

Due from related parties are summarized as follows:


December 31, 2010


December 31, 2009

US$

US$

Advance to supplier

(a)

231,422

215,918

Due from investment company

(b)

12,143

-

Due from former subsidiary company

(c)

95,535

-

Due from director of subsidiary company

613

-

-------------------

-------------------

339,715

215,918

===========

===========

a)

Advance to suppliers is the deposit for the purchases of M.A.G.I.C. phone paid to AdvanceTech Communications Sdn. Bhd. ("ATC"). Our director, Mr. LOI Cheng Pheng is a director and shareholder of ATC.

b)

Due from investment company is an amount due from a company in which our director Mr. Con Unerkov is a shareholder.

c)

This is amount due from a former subsidiary company, AX Organic Limited, which was disposed during the year.


NOTE 8


PROPERTY AND EQUIPMENT, NET


Property and equipment is summarized as follows:


December 31, 2010


December 31, 2009

US$

US$

Cost
Furniture, fixtures and equipment

7,216

6,945

Computers

8,058

8,058

Automobile

47,951

47,951

-------------------

-------------------

63,225

62,954

Additional cost :
Furniture, fixtures and equipment

-

271

Accumulated depreciation

(48,181)

(35,619)

-------------------

-------------------

Balance at end of year

15,044

27,606

===========

===========

F-18


CHINA MEDIA GROUP CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9

ADVANCE PAYMENT FOR DISTRIBUTION RIGHTS

On January 25, 2006, the Company entered into an agreement with Fleming Assets Limited ("Fleming") to acquire the distribution rights for the M.A.G.I.C. Convergent Communications Device for the territories of China and Hong Kong. Under the agreement the Company will issue the following shares to Fleming:


*


Within one month of signing the agreement, one million shares of the Company;

*

Within one month of receiving the prototype devices, one million shares of the Company;

*

Within one month of receiving the product from commercial production, two million shares of the Company; and

*

A royalty payment of 100,000 shares of the Company for every 5,000 devices sold for the next 3 years.


The Company issued 1,000,000 shares of common stock in 2006 upon signing the agreement.


NOTE 10


GOODWILL


December 31, 2010


December 31, 2009

US$

US$

Balance at beginning of year

4,791,676

6,791,676

Impairment charge during year

(4,791,676)

(2,000,000)

Goodwill on acquisition of subsidiary during year

-

-

-------------------

-------------------

Balance at end of year

-

4,791,676

===========

===========


NOTE 11


OTHER PAYABLES AND ACCRUALS


Other payables and accruals are summarized as follows:


December 31, 2010


December 31, 2009

US$

US$

Accrued salaries and wages

25,694

33,049

Accrued interest

12,629

10,795

Accrued accounting, legal and consulting fee

218,823

153,654

Accrued office and related expenses

96,182

78,901

Other accrued expenses

-

15,926

Other payables

a

97,804

68,153

Other payables to staff

76,951

76,951

Deposit from customers

19,571

19,782

-------------------

-------------------

Balance at end of year

547,654

457,211

===========

===========

a)

Other payables are Company expenses such as postage, sundries, etc., and advanced on behalf of the Company from various parties.

F-19


CHINA MEDIA GROUP CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12

SHORT - TERM DEBT


As of December 31, 2010, the Company had two short term debts for a total amount of $214,591 which consisted of a debt of $114,591 and $100,000 as further described below.

The Company had an outstanding unsecured debt payable, of $114,591 (December 31, 2009: $99,645), with annual interest rate of 10%. This debt is due on May 31, 2011. The Company recorded accrued interest of $6,684 for the year ended December 31, 2010 (year ended December 31, 2009: $9,964).

The Company also had during the year entered into two loan agreements of $50,000 each for a total of $100,000. Both the loans are unsecured, bears interest at 10% per annum, repayable on June 3, 2011 and July 5, 2011. Initially, the holder of these loans can convert the loan into Common Stock of the Company at any time prior to the maturity of the loan and at a conversion price of US$0.02 per share. Subsequent to the year end in April 2011, the terms of the loan was amended as follows: i) the interest rate was increased to 12% with effect from January 1, 2011, and ii) the loan was extended for one more year and the convertible feature was cancelled with effect December 30, 2010.


NOTE 13


DUE TO OFFICERS AND DIRECTORS


The amounts due to directors and officers are interests free, unsecured and repayable on demand. The balance of due to directors and officers is $1,085,855 as of December 31, 2010 (December 31, 2009: $1,083,686).


NOTE 14


DUE TO RELATED PARTIES


Due to related parties are summarized as follows:


December 31, 2010


December 31, 2009

US$

US$

Due to shareholders

(a)

698,889

419,603

Due to directors of subsidiary companies

156,499

71,251

-------------------

-------------------

855,388

490,854

===========

===========


(a) The amounts due to shareholders are unsecured, repayable on demand and is interest free except for the $50,000 which bears interests at 6% per annum. Included in the amount is $229,435 (2009: $159,856) which id due to our beneficial shareholder and new director of the Company Mr. PK Lam.


NOTE 15


LONG-TERM DEBTS


December 31, 2010


December 31, 2009

US$

US$

Shareholder Loan

2,000,000

2,000,000

Other Loan

-

-

-------------------

-------------------

2,000,000

2,000,000

===========

===========


The long term shareholder loan of $2,000,000 is unsecured, bears interest at 8% per annum, repayable on November 25, 2010. On November 25, 2009 the repayment of the loan was extended for a further two years to November 25, 2012.

F-20


NOTE 16

RELATED COMPANY TRANSACTIONS

The Company agreed to pay directors and officers a monthly salary for services performed. During the year ended December 31, 2010 and 2009, the Company paid the directors and its officers and their services companies a total remuneration of $9,000 and $12,000, respectively.

On November 25 2005, a subsidiary of the Company signed a loan agreement with one of its major shareholder, Central High Limited for a loan of $2,000,000. This long term shareholder loan is unsecured and repayable on November 25, 2010, and bears interest of 8% per annum. On November 25, 2009 the repayment of the loan was extended for a further two years to November 25, 2012. The accrued interest for 2010 was $160,000 (2009: $160,000).

On October 8, 2010, the Group issued a promissory note of $50,000 (refer to Note 14) to Tidewell Limited ("Tidewell") which owns 10,000,000 shares in the Company. Our director, Mr. Con Unerkov, owns 49% beneficial interests in Tidewell.


NOTE 17


INCOME TAXES

No provision was made for income tax for the year ended December 31, 2010 and 2009, since the Company and its subsidiaries had significant net operating loss. In the year ended December 31, 2010 and 2009, the Company and its subsidiaries incurred net operating losses for tax purposes of approximately $5,597,741 and $2,534,104, respectively. Total net operating losses carry forward at December 31, 2010 and 2009, (i) for Federal and State purpose were $11,063,748 and $6,113,311, respectively and (ii) for its entities outside of the United States were $1,707,655 and $1,454,671, respectively for the two years. The net operating loss carry-forwards may be used to reduce taxable income through the year 2025. The availability of the Company's net operating loss carry-forwards are subject to limitation if there is a 50% or more change in the ownership of the Company's stock.

There was no significant difference between reportable income tax and statutory income tax. The gross deferred tax asset balance as of December 31, 2009 and 2008 was approximately $4,624,137 and $2,601,000, respectively. A 100% valuation allowance has been established against the deferred tax assets, as the utilization of the loss carry-forwards cannot reasonably be assured.

A reconciliation between the income tax computed at the Hong Kong and PRC China statutory rate and the Group's provision for income tax is as follows:


2010


2009

-----------------------

--------------------

Hong Kong statutory rate

16.5%

16.5%

Valuation allowance - Hong Kong rate

(16.5%)

(16.5%)

PRC China Enterprise Income Tax

25%

25%

Valuation allowance - PRC rate

(25%)

(25%)

----------------------

--------------------

Provision for income tax

-

-

=============

============

F-21


CHINA MEDIA GROUP CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18

SEGMENT REPORTING


Business Segments

For management purposes, the Group currently organized into three operating units - advertising, telecommunication devices, and other services. Turnover represents the net amounts received and receivable for goods sold or services provided by the Group during the year. These units are the basis on which the Group reports its primary segment information.

Segment information about these businesses is presented below.

Advertising


Telecommunication Device

Product Services

Consolidated

2010

2009

2010

2009

2010

2009

2010

2009

US$

US$

US$

US$

US$

US$

US$

US$

Turnover

52,389

110,322

-

29,567

7,341

-

59,730

139,889

========

========

========

========

========

========

=========

=========

Segment results

(4,815,274)

(1,968,785)

(4,685)

(4,641)

1,498

-

(4,818,461)

(1,973,426)

========

========

========

========

========

========

Unallocated corporate income

45

86

Unallocated corporate expenses

(602,440)

(389,850)

--------------

--------------

Loss from operations

(5,420,856)

(2,363,190)

Finance costs

(176,885)

(170,914)

--------------

--------------

Loss for the year

(5,597,741)

(2,534,104)

=========

=========

As at December 31

2010

2009

ASSETS
Segment assets

12,679

4,834,890

356,283

357,656

170,000

-

538,962

5,192,546

Unallocated corporate assets

270,441

51,447

--------------

--------------

Consolidated total assets

809,403

5,243,993

=========

=========

LIABILITIES
Segment liabilities

140,036

152,817

(9,528)

(4,842)

-

-

130,508

147,975

Unallocated corporate liabilities

4,905,502

4,131,396

--------------

--------------

Consolidated total liabilities

5,036,010

4,279,371

=========

=========

Depreciation of fixed assets

11,422

11,413

1,370

1,326

-

-

12,792

12,739

========

========

========

========

========

========

=========

=========

F-22


CHINA MEDIA GROUP CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19

COMMITMENTS AND CONTINGENCIES

(a)

The Company leases office premises for its operations in United States and Hong Kong under operating leases. Rental expenses under operating lease for the year ended December 31, 2010 and for the year ended December 31, 2009 was $24,404 and $24,060, respectively.

Future minimum rental payments under non-cancelable operating leases for the year ended December 31, 2010 is $25,023.

(b)

On or about May 7, 2008, the Company received a correspondence from a law firm regarding complaints on some transmission of unsolicited facsimile allegedly from the Company in 2006, and advised of potential litigation. The Company has never sent or authorized any unsolicited facsimile transmission, and the Company has taken every possible effort to distance from these unauthorized transmissions. The Company firmly believes that the complaint is frivolous and without basis, and is consulting with its solicitor. The Company would vigorously defend any such legal action if pursued.

(c)

Under the Distribution Rights Agreement for M.A.G.I.C. Convergent Device, the Company is committed to issue shares under certain conditions as set out in Note 9.


NOTE 20


SUBSEQUENT EVENTS

(a)

As disclosed in the Form 8-K filed with the SEC on February 22, 2010 the Group acquired 5% equity interests in Advancetech Communications Sdn. Bhd. for RM293,000 (about US$96,642) which was paid by RM87,900 cash and the balance paid by the issuance of 2,205,376 shares in the Company.

(b)

As disclosed in the Form 8-K filed with the SEC on April 14, 2011 the Group disposed 51% interests in its investment in Jademan International Limited ("Jademan") for HK$1,377,000 (about US$176,538). The Group realized a gross profit of about $89,000 on the sale of these investment in shares. Jademan's main asset was its holding in China Integrated Media Corporation Limited.

F-23