UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ x ] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly six month period ended June 30, 2011 |
|
[ ] | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT |
For the transition period from [ ] to [ ] |
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Commission File Number: 000-50431
CHINA MEDIA GROUP CORPORATION
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(Exact name of small business issuer as specified in its charter)
Texas |
7310 |
32-0034926 |
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------------------------ |
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(State or other jurisdiction of incorporation or organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification No.) |
1403 Wan Chai Commercial Center, 204 Johnston Road, |
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(Address of Company's principal executive offices) |
(Zip Code) |
+011 852 3171 1208 (ext.222)
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(Company's Telephone Number, Including Area Code)
Not Applicable
(Former Name, Former Address and Former Fiscal Year if Changed Since Last Report)
Indicate by check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. |
Yes [ x ] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). |
Yes [ x ] No [ ]
Indicate by check whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "small reporting company" in Rule 12b-2 of the Exchange Act. (check one) |
Large Accelerated Filer [ ] Accelerated Filer[ ] Non-Accelerated Filer [ ] Smaller Reporting Company [ x ]
SEC 1296 (03-10) | Potential persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number. |
|
Yes [ ] No[ x ]
The number of common equity shares outstanding as of June 30, 2011 was 554,132,450 shares of Common Stock, no par value. |
FORWARD-LOOKING STATEMENTS |
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PART I |
Item 1. | Condensed Consolidated Financial Statements |
China Media Group Corporation
Condensed Consolidated Financial Statements
June 30, 2011
(Unaudited)
(Expressed In United States Dollars)
Condensed Consolidated Balance Sheets as of June 30, 2011 and December 31, 2010 |
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CHINA MEDIA GROUP CORPORATION |
CONSOLIDATED BALANCE SHEETS |
AS OF JUNE 30, 2011 AND DECEMBER 31, 2010 |
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|
||||
(Unaudited) |
(Audited) |
||||
US$ |
US$ |
||||
Notes |
-------------------- |
--------------------- |
|||
ASSETS | |||||
Current Assets: | |||||
Cash and cash equivalents | 29,376 |
17,654 |
|||
Investment available for sale | 83,300 |
170,000 |
|||
Due from related parties | 7 |
349,584 |
339,715 |
||
Prepayments, deposit and other receivables | 154,146 |
128,990 |
|||
--------------------- |
--------------------- |
||||
Total current assets | 616,406 |
656,359 |
|||
Non-current assets | |||||
Property and equipments, net | 8 |
8,243 |
15,044 |
||
Advance payment for distribution rights | 9 |
138,000 |
138,000 |
||
Investment in shares | 17 |
81,556 |
- |
||
--------------------- |
--------------------- |
||||
227,799 |
153,044 |
||||
--------------------- |
--------------------- |
||||
844,205 |
809,403 |
||||
============= |
============= |
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LIABILITIES AND STOCKHOLDERS' EQUITY | |||||
Current liabilities: | |||||
Other payables and accruals | 11 |
487,351 |
547,654 |
||
Short term debt | 12 |
214,591 |
214,591 |
||
Due to officer and directors | 13 |
452,760 |
1,085,855 |
||
Due to related parties | 14 |
1,562,908 |
855,388 |
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Option liabilities | 5 |
236,504 |
202,014 |
||
--------------------- |
--------------------- |
||||
Total current liabilities | 2,954,114 |
2,905,502 |
|||
--------------------- |
--------------------- |
||||
Long-term debts | 15 |
2,000,000 |
2,000,000 |
||
Stockholders' equity: | |||||
Common stock, no par value, 85,000,000,000 shares authorized, 544,132,450 (2009: 534,132,450) shares issued and outstanding | 4 |
7,773,902 |
7,773,902 |
||
Additional paid-in-capital | 1,799,358 |
1,799,358 |
|||
Shares to be issued | 17 | 52,510 |
- |
||
Comprehensive income | 67,444 |
67,176 |
|||
Accumulated deficits | (13,927,245) |
(13,867,043) |
|||
Uncontrolled interest | 124,122 |
130,508 |
|||
---------------------- |
--------------------- |
||||
Total stockholders' equity | (4,109,909) |
(4,096,099) |
|||
---------------------- |
--------------------- |
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844,205 |
809,403 |
||||
============= |
============ |
The accompanying notes are an integral part of these consolidated financial statements
F-3
CHINA MEDIA GROUP CORPORATION |
CONSOLIDATED STATEMENTS OF OPERATIONS |
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010 |
(UNAUDITED) |
Three months periods |
Six months periods |
|||||||
Ended June 30 | Ended June 30 | |||||||
------------------------------ | ------------------------------ | |||||||
2011 |
2010 |
2011 |
2010 |
|||||
------------ |
---------- |
----------- |
----------- |
|||||
US$ |
US$ |
US$ |
US$ |
|||||
Net revenue | 30,930 |
11,042 |
59,819 |
26,574 |
||||
Cost of revenue | (9,702) |
(7,116) |
(22,261) |
(13,356) |
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-------------- |
------------- |
-------------- |
------------- |
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Gross profit | 21,228 |
3,926 |
37,558 |
13,218 |
||||
Operating expenses: | ||||||||
Selling, general and administrative expenses | 44,253 |
227,897 |
112,899 |
329,637 |
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--------------- |
--------------- |
--------------- |
--------------- |
|||||
Loss from operations before other expense | (23,025) |
(223,971) |
(75,341) |
(316,419) |
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Other income / (expenses) | ||||||||
Gain on disposal of investment | 89,838 |
- |
89,838 |
- |
||||
Other income | 12,150 |
- |
12,150 |
- |
||||
Interest expenses | (46,615) |
(43,047) |
(93,235) |
(85,538) |
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----------------- |
-------------- |
----------------- |
-------------- |
|||||
Net profit / (loss) before uncontrolled interest | 32,348 |
(267,018) |
(66,588) |
(401,957) |
||||
Uncontrolled interest | 3,469 |
4,497 |
6,386 |
11,613 |
||||
----------------- |
-------------- |
----------------- |
-------------- |
|||||
Net profit / (loss) | 35,817 |
(265,521) |
(60,202) |
(390,344) |
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-------------- |
----------------- |
-------------- |
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Other comprehensive income | ||||||||
Foreign currency translation gain | 414 |
6,981 |
268 |
9,011 |
||||
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-------------- |
----------------- |
-------------- |
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Comprehensive loss | 36,231 |
(255,540) |
(59,934) |
(381,333) |
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========= |
========= |
========= |
========= |
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Basic and diluted loss per common share | (0.00) |
(0.00) |
(0.00) |
(0.00) |
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========= |
========= |
========= |
========= |
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Basic and diluted weighted average number of common shares * | 554,132,450 |
535,451,131 |
554,132,450 |
534,795,433 |
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========= |
=============== | ========= |
=============== |
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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 |
AND FOR THE SIX MONTHS ENDED JUNE 30, 2011 |
(UNAUDITED) |
Common |
Additional |
Total |
|||||||||
Stock |
Paid-in |
Comprehensive |
Shares to |
Accumulated |
Uncontrolled |
Stockholders' |
|||||
Shares |
Amount |
Capital |
Income |
be issued |
Deficit |
Interest |
Equity |
||||
US$ |
US$ |
US$ |
US$ |
US$ |
US$ |
US$ |
|||||
---------- |
-------- |
---------- |
----------- |
----------- |
----------- |
----------- |
----------- |
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January 1, 2009 | 534,132,450 |
7,428,902 |
1,660,183 |
43,265 |
- |
(5,735,198) |
168,230 |
3,565,382 |
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Amortization of options granted | - |
- |
100,691 |
- |
- |
- |
100,691 |
||||
Comprehensive income | - |
- |
- |
883 |
- |
- |
883 |
||||
Net loss | - |
- |
- |
- |
- |
(2,534,104) |
(20,255) |
(2,554,359)) |
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---------- |
--------- |
---------- |
----------- |
----------- |
----------- |
----------- |
----------- |
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December 31, 2009 | 534,132,450 |
7,428,902 |
1, 760,874 |
44,148 |
- |
(8,269,302) |
147,975 |
1,112,597 |
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Amortization of options granted | - |
- |
38,484 |
- |
- |
- |
- |
38,484 |
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Comprehensive income | - |
- |
- |
23,028 |
- |
- |
- |
23,028 |
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Issuance of shares for acquisition of share investments | 20,000,000 |
345,000 |
- |
- |
- |
- |
- |
345,000 |
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Gain on disposal of subsidiary | - |
- |
- |
- |
- |
- |
5,110 |
5,110 |
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Net loss | - |
- |
- |
- |
- |
(5,597,741) |
(22,577) |
(5,620,318) |
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--------- |
--------- |
---------- |
----------- |
----------- |
----------- |
----------- |
----------- |
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December 31, 2010 | 554,132,450 |
7,773,902 |
1,799,358 |
67,176 |
- |
(13,867,043) |
130,508 |
(4,096,099) |
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Shares to be issued for acquisition of share investment |
- |
- |
- |
- |
52,510 |
- |
- |
52,510 |
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Comprehensive income | - |
- |
- |
268 |
- |
- |
- |
268 |
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Net loss | - |
- |
- |
- |
- |
(60,202) |
(6,386) |
(66,588) |
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--------- |
--------- |
---------- |
----------- |
----------- |
----------- |
----------- |
----------- |
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June 30, 2011 | 554,132,450 |
7,773,902 |
1,799,358 |
67,444 |
52,510 |
(13,927,245) |
124,122 |
(4,109,909) |
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========= |
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======== |
======== |
========= |
The accompanying notes are an integral part of these consolidated financial statements.
F-5
CHINA MEDIA GROUP CORPORATION |
CONSOLIDATED STATEMENTS OF CASH FLOWS |
FOR THE SIX MONTHS ENDED JUNE 30, 2011 AND 2010 |
(UNAUDITED) |
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US$ |
US$ |
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-------------------- |
-------------------- |
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Cash flows from operating activities: | |||||
Net loss | (60,202) |
(390,344) |
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Adjustment to reconcile net loss to net cash used in operating activities: | |||||
Depreciation | 6,801 |
6,280 |
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Uncontrolled interest | (6,386) |
(11,613) |
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Option expenses for employee compensation | - |
38,484 |
|||
Goodwill on acquisition of subsidiary | - |
(245,095) |
|||
(Increase) / decrease in assets and liabilities: | |||||
Prepaid expenses, deposit and other receivables | (25,156) |
(23,765) |
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Due from former subsidiary company | 14 |
- |
|||
Due from related parties | (38,929) |
- |
|||
Accounts payable and accrued expenses | (60,303) |
97,255 |
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Short term debt | - |
14,946 |
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Convertible loan | - |
50,000 |
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Option liabilities | 34,490 |
142,888 |
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Due to directors and officers | (633,095) |
2,208 |
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Due to related parties | 707,520 |
79,649 |
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-------------------- |
-------------------- |
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Net cash used in operating activities | (75,246) |
(239,107) |
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-------------------- |
-------------------- |
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Cash flows from investing activities: | |||||
Disposal of investment | 86,700 |
- |
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-------------------- |
-------------------- |
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Net cash provided by investing activities | 86,700 |
- |
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-------------------- |
-------------------- |
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Cash flows from financing activities : | |||||
Issue of shares for acquisition of subsidiary | - |
225,000 |
|||
-------------------- |
-------------------- |
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Net cash provided by financing activities | - |
225,000 |
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-------------------- |
-------------------- |
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Net increase / (decrease) in cash and cash equivalents | 11,454 |
(14,107) |
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Effect of exchange rate changes on cash and cash equivalents | 268 |
9,011 |
|||
Cash and cash equivalents, beginning | 17,654 |
32,860 |
|||
-------------------- |
-------------------- |
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Cash and cash equivalents, ending | 29,376 |
27,764 |
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============ |
============ |
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Supplemental disclosure of cash flow information: | |||||
Interests paid | 93,235 |
85,538 |
|||
============ |
============ |
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Income tax paid | - |
- |
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============ |
============ |
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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. |
The Group will be engaged in the media and advertising business, focusing mainly in China, and the marketing and distribution of convergent devices and the sale and marketing of organic fertilizers and produce. During the period, the Group recorded sales in the provision of advertising services. |
NOTE 2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Basis of Presentation |
The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principals generally accepted in the United States of America and the rules of the U.S. Securities and Exchange Commission, and should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2010. They do not include all information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. However, except as disclosed herein, there has been no material change in the information disclosed in the notes to the financial statements for the year ended December 31, 2010 included in the Company Form 10-K filed with the Securities and Exchange Commission. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of financial position and results of operations for the interim period presented have been included. Operating results for the interim period are not necessary indicative of the results that may be expected for the respective full. |
Principles of Consolidation |
The consolidated financial statements for the year ended June 30, 2011 include the financial statements of the Company, its wholly owned subsidiaries Ren Ren Media Group Limited, Good World Investments Limited, and two 50% subsidiaries, namely Beijing Ren Ren Health Culture Promotion Limited and ATC Marketing Limited. The Company consolidated both of these 50% ownership companies during the period of control because has control of the Board of these companies. |
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 (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 three months and six months period ended June 30, 2011 and 2010 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 (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 Group to the MPF schemes were $671 and $nil for the six months year June 30, 2011 and 2010, 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 (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 ASC 220 "Comprehensive Income" which codified SFAS No. 130, "Reporting Comprehensive Income. As of June 30, 2011, the comprehensive income was $67,444. |
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 (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 (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 June 2011, the Financial Accounting Standard Board ("FASB") issued Accounting Standard Update ("ASU") 2011-05, Presentation of Comprehensive Income, which requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income, or in two separate but consecutive statements. ASU 2011-05 eliminates the option to present components of other comprehensive income as part of the statement of equity. ASU 2011-05 will be effective for the Company beginning after December 15, 2011. The Company does not expect the adoption of ASU 2011-05 to have a material effect on its operating results or financial position. However, it will impact the presentation of comprehensive income. |
In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards ("IFRS"). ASU 2011-04 clarifies some existing concepts, eliminates wording differences between U.S. GAAP and IFRS, and in some limited cases, changes some principles to achieve convergence between U.S. GAAP and IFRS. ASU 2011-04 results in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between U.S. GAAP and IFRS. ASU 2011-04 also expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. ASU 2011-04 will be effective for the Company beginning after December 15, 2011. The Company does not expect the adoption of ASU 2011-04 to have a material effect on its operating results or financial position. |
F-12
CHINA MEDIA GROUP CORPORATION |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
Recent Pronouncements (Continued) |
Recently Issued Standards (continued) |
In April 2011, the FASB issued ASU 2011-03, Consideration of Effective Control on Repurchase Agreements, which deals with the accounting for repurchase agreements and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. ASU 2011-03 changes the rules for determining when these transactions should be accounted for as financings, as opposed to sales. The guidance in ASU 2011-03 is effective for the first interim or annual period beginning on or after December 15, 2011. The guidance should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. Early adoption is not permitted. The adoption of ASU 2011-03 is not expected to have a material impact on the Company's financial condition or results of operation. |
In April 2011, the FASB issued ASU 2011-02, "A Creditor's Determination of Whether a Restructuring is a Troubled Debt Restructuring", which clarifies when creditors should classify loan modifications as troubled debt restructurings. The guidance is effective for interim and annual periods beginning on or after June 15, 2011, and applies retrospectively to restructurings occurring on or after the beginning of the year. The guidance on measuring the impairment of a receivable restructured in a troubled debt restructuring is effective on a prospective basis. A provision in ASU 2011-02 also ends the FASB's deferral of the additional disclosures about troubled debt restructurings as required by ASU 2010-20. The adoption of ASU 2011-02 is not expected to have a material impact on the Company's financial condition or results of operations. |
In 2010, the FASB issued ASC Update ("ASU") No. 2010-01, Equity (Topic 505): Accounting for Distributions to Shareholders with Components of Stock and Cash. This update clarify that the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a potential limitation on the total amount of cash that all shareholders can elect to receive in the aggregate is considered a share issuance that is reflected in earnings per share prospectively and is not a stock dividend. This ASU codified the consensus reached in EITF Issue No. 09-E "Accounting for Stock Dividends, Including Distributions to Shareholders with Components of Stock and Cash". ASU 2010-01 is effective for interim and annual periods ending on or after December 15, 2009, and should be applied on a retrospective basis. The adoption of this update did not have any impact on the Company's financial statements.. |
In 2010, the FASB issued ASC Updated ("ASU") No. 2010-02, Consolidation (Topics 810) - Accounting and Reporting for Decreases in Ownership of a Subsidiary - A Scope Clarification This updated provides 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. The adoption of this update did not have any impact on the Company's financial statements. |
F-13
CHINA MEDIA GROUP CORPORATION |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
Recent Pronouncements (Continued) |
Accounting Standards Issued But Not Yet Effective |
In 2010, the FASB issued ASC Update ("ASU") No. 2010-13, Compensation - Stock Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades. This update is to codify the consensus reached in EITF Issue No. 09-J, "Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying equity Security Trades" The amendments to the Codification clarify that an employee share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity's equity shares trades should not be considered to contain a condition that is not a market, performance, or services condition. Therefore, an entity would not classify such an award as a liability if it otherwise qualifies as equity. The adoption of this update did not have any impact on the Company's financial statements. |
In 2010, the FASB issued ASC Update ("ASU") No. 2010-21, Accounting for Technical Amendments to Various SEC Rules and Schedules. This update amends various SEC paragraphs in the FASB Accounting Standards Codification pursuant to SEC Final Rule, "Technical Amendments to Rules Forms, Schedules and Codification of Financial Reporting Policies". The adoption of this update did not have any impact on the Company's financial statements. |
In 2010, the FASB issued ASC Update ("ASU") No. 2010-22, Accounting for Various Topics. This update amends various SEC paragraphs in the FASB Accounting Standards Codification based on external comments received and the issuance of Staff Accounting Bulletin (SAB) No. 112 which amends or rescinds portion of certain SAB topics. SAB 112 was issued to being existing SEC guidance into conformity with ASC 805 "Business Combination" and ASC 810 "Consolidation". The adoption of this update did not have any impact on the Company's financial statements. |
Reclassifications |
Certain comparative amounts have been reclassified to conform to the current period's presentation. |
F-14
CHINA MEDIA GROUP CORPORATION |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 3 | UNCERTAINTY OF ABILITY TO CONTINUE AS A GOING CONCERN |
The Company's financial statements are prepared using the generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. As of June 30, 2011, the Company has incurred an accumulated deficits totaling $13,927,245 and its current liabilities exceed its current assets by $2,337,708. 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 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 |
On June 18, 2010 the Company issued 10,000,000 shares of Common Stock pursuant to a Stock Purchase Agreement to acquire 50% controlling interests in AX Organic Limited. |
On October 8, 2010 the Group completed the transaction to acquire 69% interests in China Integrated Media Corporation Limited ("CIMC"), a public company in Australia, by the issuance of 10,000,000 shares in the Company as part of the purchase consideration. |
On February 22, 2011 the Group entered into an agreement to issue 2,205,376 shares in the Company as part of the consideration to acquire share investment. As at the date of this report, the Company still has not issued the Company shares as it is pending the delivery of the acquisition shares. |
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 June 30, 2011, the Company has 19,000,000 stock options outstanding and the option liabilities is $236,504. |
F-15
CHINA MEDIA GROUP CORPORATION |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 5 | STOCK OPTIONS AND WARRANTS (Continued) |
Following is a summary of the activities of the 2002 Stock Option Plan for the period ended June 30, 2011: |
|
|
Outstanding, December 31, 2010 | 19,000,000 |
Granted during the period | - |
Forfeited/lapsed during the period | - |
Exercised during the period | - |
--------------------------- |
|
Outstanding, June 30, 2011 | 19,000,000 |
================ |
Following is a summary of the status of options outstanding at June 30, 2011: |
||||||
Outstanding Options |
Exercisable Options |
|||||
--------------------- | -------------------------------------------- | |||||
Grant |
Exercise |
Number |
Average Remaining |
Average Exercise Price |
Number |
Intrinsic Price |
4/16/2010 |
$0.010 |
19,000,000 |
3.79 |
$0.010 |
19,000,000 |
$0.00 |
|
The assumptions used in calculating the fair value of options granted using the Black-Scholes option pricing model are as follows: |
i) The 17,500,000 stock options granted on December 23, 2006 were expired on December 22, 2009: |
|||||
Grant date: | 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 2009 and 2008. As at June 30, 2010 there were 32,588,700 shares available underlying stock options under the 2007 Stock Incentive Plan. |
As of June 30, 2011, 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 $2,500,000. As part of this agreement, the Company issued, inter alia, stock warrants for a total of 31,250,000 shares of Common Stock in the Company. In October 2007, 500,000 warrant shares were exercised. The remaining 30,750,000 stock warrants expired in May 2009. |
As part of the ELOC agreement above, the Company also issued 527,776 stock warrants as part of commission in relation to the draw down of the Debenture Purchase Agreement. All these stock warrants expired in May 2009. |
As at June 30, 2011, there is no warrant share outstanding. |
F-17
CHINA MEDIA GROUP CORPORATION |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 6 | STOCK PURCHASE AGREEMENTS |
a) | On June 18, 2010 the Company issued 10,000,000 shares of Common Stock pursuant to a Stock Purchase Agreement to acquire 50% controlling interests in AX Organic Limited. |
b) | On October 8, 2010 the Company issued 10,000,000 shares of Common Stock as part of the purchase consideration pursuant to a Sale and Purchase Agreement to acquire 69% controlling interests in China Integrated Media Corporation Limited. |
c) | On February 22, 2011 the Company entered into an agreement to issue 2,205,376 shares in the Company as part of the consideration to acquire share investment. |
NOTE 7 | DUE FROM RELATED PARTIES |
Due from related parties are summarized as follows: |
|
|
|||
US$ |
US$ |
|||
Advance to supplier | 252,592 |
231,424 |
||
Due from investment company | 1,470 |
12,143 |
||
Due from former subsidiary company | a |
95,522 |
95,535 |
|
Due from director of subsidiary company | - |
613 |
||
---------------- |
---------------- |
|||
349,584 |
339,715 |
|||
=========== |
=========== |
|||
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 in 2010 |
NOTE 8 | PROPERTY AND EQUIPMENT, NET |
Property and equipment is summarized as follows: |
June 30, 2011 |
December 31, 2010 |
|||
US$ |
US$ |
|||
Cost | ||||
Furniture, fixtures and equipment | 3,836 |
7,216 |
||
Computers | 3,520 |
8,058 |
||
Automobile | 47,951 |
47,951 |
||
---------------- |
---------------- |
|||
55,307 |
63,225 |
|||
Additional cost : | ||||
Accumulated depreciation | (47,064) |
(48,181) |
||
---------------- |
---------------- |
|||
Balance at end of period / year | 8,243 |
15,044 |
||
=========== |
=========== |
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 |
June 30, 2011 |
December 31, 2010 |
|||
US$ |
US$ |
|||
Balance at beginning of period /year | - |
4,791,676 |
||
Impairment charge during period / year | - |
(4,791,676) |
||
---------------- |
---------------- |
|||
Balance at end of period / year | - |
- |
||
=========== |
=========== |
|||
NOTE 11 | OTHER PAYABLES AND ACCRUALS |
Other payables and accruals are summarized as follows: |
||||
June 30, 2011 |
December 31, 2010 |
|||
US$ |
US$ |
|||
Accrued salaries and wages | 18.138 |
25,694 |
||
Accrued interest | 23,709 |
12,629 |
||
Accrued accounting, legal and consulting fee | 193,323 |
218,823 |
||
Accrued office and related expenses | 13,698 |
96,182 |
||
Other payables | a |
132,327 |
97,804 |
|
Other payables to staff | 76,950 |
76,951 |
||
Deposit from customers | 29,206 |
19,571 |
||
---------------- |
---------------- |
|||
Balance at end of period / year | 487,351 |
547,654 |
||
=========== |
=========== |
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 June 30, 2011 and 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 has 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 and thereafter has been accrued monthly. 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. 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 $452,760 as of June 30, 2011 (December 31, 2010: $1,085,855 ). |
NOTE 14 | DUE TO RELATED PARTIES |
Due to related parties are summarized as follows: |
June 30, 2011 |
December 31, 2010 |
|||
US$ |
US$ |
|||
Due to beneficial shareholders | (a) |
1,392,141 |
698,889 |
|
Due to investment company | (b) |
12,777 |
- |
|
Due to directors of subsidiary companies | (c) |
157,990 |
156,499 |
|
---------------- |
---------------- |
|||
1,562,908 |
855,388 |
|||
=========== |
=========== |
|
|
|
F-20
CHINA MEDIA GROUP CORPORATION |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 15 | LONG-TERM DEBTS |
June 30, 2011 |
December 31, 2010 |
|||
US$ |
US$ |
|||
Shareholder 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. |
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. During the period under review, the Company paid the Directors and officers a total remuneration of $1,350. |
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) and $80,000 for the six months period ended June 30, 2011 ($80,000 for the six months period ended June 30, 2010). |
NOTE 17 | INVESTMENT IN SHARES |
Investment in shares relates to acquisition of 5% interests in Advance Tech Communications Sdn. Bhd. ("ATC") for US$81,556 as announced in Form 8K filed on February 22, 2011. Pursuant to the agreement, the Company shall issue the 2,205,376 shares as part of the consideration within two months from the completion date. As at the date of this report, the Company still has not issued the shares as it is pending the delivery of the ATC shares, which is expected in September 2011. |
NOTE 18 | 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, 20 10 and 2009 was approximately $4,624,137 and $2,601,000, respectively. A 100% valuation allowance has been established against the deferred tax assets, as the utilization of the loss carry-forwards cannot reasonably be assured. A reconciliation between the income tax computed at the Hong Kong and PRC China statutory rate and the Group's provision for income tax is as follows: |
|
|
||||
----------------- |
--------------- |
||||
Hong Kong statutory rate | 16.5% |
16.5% |
|||
Valuation allowance - Hong Kong rate | (16.5%) |
(16.5%) |
|||
PRC China Enterprise Income Tax | 25% |
25% |
|||
Valuation allowance - PRC rate | (25%) |
(25%) |
|||
----------------- |
--------------- |
||||
Provision for income tax | - |
- |
|||
============= |
============ |
F-21
CHINA MEDIA GROUP CORPORATION |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 19 | SEGMENT REPORTING |
Business Segments For management purposes, the Group currently organized into three operating units - advertising, telecommunication devices, and other services. Turnover represents the net amounts received and receivable for goods sold or services provided by the Group during the period. These units are the basis on which the Group reports its primary segment information. Segment information about these businesses is presented below. |
Advertising | Telecommunication Device |
Product Services | Consolidated | |||||
For the six months |
For the six months |
For the six months |
For the six months |
|||||
2011 |
2010 |
2011 |
2010 |
2011 |
2010 |
2011 |
2010 |
|
US$ |
US$ |
US$ |
US$ |
US$ |
US$ |
US$ |
US$ |
|
Turnover | 59,819 |
26,574 |
- |
- |
- |
- |
59,819 |
26,574 |
======= |
======= |
======= |
====== |
====== |
====== |
========= |
========= |
|
Segment results | 31,195 |
(11,759) |
(23) |
(4,650) |
- |
(1,217) |
31,172 |
(17,625) |
======= |
======= |
======= |
====== |
====== |
====== |
|||
Unallocated corporate income | 101,988 |
- |
||||||
Unallocated corporate expenses | (100,127) |
(287,181) |
||||||
-------------- |
-------------- |
|||||||
Profit / (Loss) from operations | 33,033 |
(304,806) |
||||||
Finance costs | (93,235) |
(85,538) |
||||||
-------------- |
-------------- |
|||||||
Loss for the period | (60,202) |
(390,344) |
||||||
========= |
========= |
|||||||
As at June 30 |
||||||||
2011 |
2010 |
|||||||
ASSETS | ||||||||
Segment assets | 6,551 |
4,809,949 |
354,819 |
356,059 |
- |
260,025 |
361,370 |
5,426,033 |
Unallocated corporate assets | 482,835 |
75,444 |
||||||
-------------- |
-------------- |
|||||||
Consolidated total assets | 844,205 |
5,501,477 |
||||||
========= |
========= |
|||||||
LIABILITIES | ||||||||
Segment liabilities | 124,122 |
147,071 |
- |
(9,492) |
- |
- |
124,122 |
136,362 |
Unallocated corporate liabilities | 4,954,114 |
4,518,342 |
||||||
-------------- |
-------------- |
|||||||
Consolidated total liabilities | 5,078,236 |
4,654,704 |
||||||
========= |
========= |
|||||||
Depreciation of fixed assets | 6,127 |
5,594 |
673 |
686 |
- |
- |
6,800 |
6,280 |
======= |
======= |
======= |
====== |
====== |
====== |
========= |
========= |
F-22
CHINA MEDIA GROUP CORPORATION |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 20 | 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 six month ended June 30, 2011 and for the year ended December 31, 2010 was $11,678 and $24,404 respectively. Future minimum rental payments under non-cancelable operating leases as at June 30, 2011 is $12,280. |
(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 21 | SUBSEQUENT EVENTS |
(a) | The Group has evaluated all subsequent events through August 19, 2011, the date these consolidated financial statements were issued, and determined that there were no subsequent events or transactions that require recognition or disclosures in the financial statements. |
F-23
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations. |
Forward Looking Statements |
THE ASSUMPTIONS USED FOR PURPOSES OF THE FORWARD-LOOKING STATEMENTS SPECIFIED IN THE FOLLOWING INFORMATION REPRESENT ESTIMATES OF FUTURE EVENTS AND ARE SUBJECT TO UNCERTAINTY AS TO POSSIBLE CHANGES IN ECONOMIC, LEGISLATIVE, INDUSTRY, AND OTHER CIRCUMSTANCES. AS A RESULT, THE IDENTIFICATION AND INTERPRETATION OF DATA AND OTHER INFORMATION AND THEIR USE IN DEVELOPING AND SELECTING ASSUMPTIONS FROM AND AMONG REASONABLE ALTERNATIVES REQUIRE THE EXERCISE OF JUDGMENT. TO THE EXTENT THAT THE ASSUMED EVENTS DO NOT OCCUR, THE OUTCOME MAY VARY SUBSTANTIALLY FROM ANTICIPATED OR PROJECTED RESULTS, AND, ACCORDINGLY, NO OPINION IS EXPRESSED ON THE ACHIEVABILITY OF THOSE FORWARD-LOOKING STATEMENTS. WE CANNOT GUARANTY THAT ANY OF THE ASSUMPTIONS RELATING TO THE FORWARD-LOOKING STATEMENTS SPECIFIED IN THE FOLLOWING INFORMATION ARE ACCURATE, AND WE ASSUME NO OBLIGATION TO UPDATE ANY SUCH FORWARD-LOOKING STATEMENTS. |
Critical Accounting Policy and Estimates |
|
Overview |
|
|
|
|
|
In March 2007, we acquired the entire issued share capital of Good World Investments Limited ("Good World") which owns 50% of Beijing Ren Ren Health Culture Promotion Limited ("Beijing Ren Ren"). Good World is an investment holding company and Beijing Ren Ren is in the business of advertising in promoting health education and health awareness in China under the program Great Wall of China Project as further described below. |
|
|
|
|
|
Telecommunications Unit |
|
|
Products Services Units |
|
Plan of operations OUR PLAN OF OPERATION FOR THE NEXT TWELVE MONTHS. We hope to generate additional revenues in the next twelve months by engaging business operations through internal growth and through strategic acquisitions and cooperative advertising agreements, as described more fully under "Overview" above. |
|
|
|
|
|
|
Results of operation. |
|
For the three months period ended June 30, 2011, the Group has realized revenue of $30,930 and a cost of revenue of $9,702, achieving a gross profit of $21,228. For the three month period ended June 30, 2010, the Group has realized revenue of $11,042 and a cost of revenue of $7,116 achieving a gross profit of $3,926. We hope to generate additional revenues when we begin to receive contracts from clients or through acquisitions. Depending upon the availability of operating capital, we intend to expand our operations in the next 12 months. |
|
OPERATING EXPENSES. For the three month period ended June 30, 2011, our gross profit was $21,228 and our total operating expenses were $44,253, all of which were selling, general and administrative expenses. We also had $46,615 in interest expenses, $89,838 in gain on disposal of investment, $12,150 in other income and loss attributable to uncontrolled interest of $3,469, so that the net profit to our shareholders for the three months period ended June 30, 2011 was $35,817. This is in comparison to the same period ended June 30, 2010, where our gross profit was $3,926 and our total operating expenses were $227,897, all of which were selling, general and administrative expenses. We also had $43,047 in interest expenses and loss attributable to uncontrolled interest of $4,497, so that the net loss to our shareholders for the three months period ended June 30, 2010 was $262,521. |
|
|
At present the Company does not have sufficient cash resources to provide for all general corporate operations in the foreseeable future. The Company will be required to raise additional capital in order to continue to operate in fiscal 2011. |
Going Concern |
|
|
|
Item 3. | Quantitative and Qualitative Disclosure About Market Risk. |
Quantitative and Qualitative Disclosures about Market Risk: |
|
Item 4. |
Controls and Procedures. |
Evaluation of Controls and Procedures: |
|
Evaluation of Disclosure Controls and Procedures: |
|
* |
|
|
Changes in Internal Controls over Financial Reporting: |
|
PART II - OTHER INFORMATION |
Item 1. |
Legal Proceedings |
None. |
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
|
Item 3. |
Defaults Upon Senior Securities |
None. |
Item 4. |
Submissions of Matters to a Vote of Security Holders |
None. |
Item 5. |
Other Information |
None. |
Item 6. | Exhibits |
Exhibit No. |
Description of Exhibit |
2.1 |
Shareholders' Agreement between Good World Investments Limited, Advance Tech Communications Sdn. Bhd. and ATC Marketing Limited(7) |
2.2 |
Operational Agreement between AX Organic Limited and Huangpi High Yield Cultivation Experiment Base (8) |
2.3 |
Sale and Purchase Agreement between Good World Investments Limited, Tidewell Limited and the Company(9) |
2.4 |
Sale and Purchase Agreement entered by Good World Investments Limited to acquire 5% equity interest in Advance Tech Communications Sdn. Bhd. (11) |
2.5 |
Sale and Purchase Agreement between Good World Investments Limited and Keen Star International (HK) Limited (10) |
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.(6) |
3.2 |
Bylaws (1) |
4.1 |
Executive Services Agreement between China Media Group Corporation and Con Unerkov (3) |
10.3 |
2002 Stock Option Plan (4) |
10.4 |
2007 Stock Incentive Plan (5) |
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 Annual Report on Form 10-KSB/A as filed with the SEC on August 11, 2006. |
4. |
Incorporated by reference to our Registration Statement on Form SB-2 as filed with the SEC on April 15, 2003. |
5. |
Incorporated by reference to our Registration Statement on Form S8 as filed with the SEC on March 8, 2007. |
6. |
Incorporated by reference to our Registration Statement on Form SB-2 as filed with the SEC on March 16, 2007. |
7. |
Incorporated by reference to our Current Report on Form 8-K as filed with the SEC on May 26, 2009. |
8. |
Incorporated by reference to our Current Report on Form 8-K as filed with the SEC on June 23, 2010. |
9. |
Incorporated by reference to our Current Report on Form 8-K as filed with the SEC on September 22, 2010. |
10. |
Incorporated by reference to our Current Report on Form 8-K as filed with the SEC on April 14, 2011. |
11. |
Incorporated by reference to our Current Report on Form 8-K as filed with the SEC on February 22, 2011. |
* Filed herewith. |
SIGNATURES |
|
China Media Group Corporation |
|
a Texas corporation | |
/s/ Cheng Pheng Loi | |
--------------------------------------- | |
Cheng Pheng Loi | |
Chief
Executive Officer Principal executive officer |
|
China Media Group Corporation | |
a Texas corporation | |
/s/ Con Unerkov | |
--------------------------------------- | |
Con Unerkov | |
Chief
Financial Officer Principal executive officer |
|
By: | /s/ Cheng Pheng Loi | August 22, 2011 |
-------------------------------------------- | ||
Cheng Pheng Loi | ||
Its: | Principal executive officer, | |
President, Director |
By: | /s/ Con Unerkov | August 22, 2011 |
-------------------------------------------- | ||
Con Unerkov | ||
Its: | Chief financial officer, | |
Director |
By: | /s/ Lam Pui Kit | August 22, 2011 |
-------------------------------------------- | ||
Lam Pui Kit | ||
Its: | Secretary, Treasurer, | |
Director |
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Exhibit 31.1 |
Certification
of Chief Executive Officer of the Company |
I, Cheng Pheng LOI, certify that: |
1. I have reviewed this quarterly report on Form 10-Q of China Media Group Corporation; |
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; |
(c) |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) |
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. |
5. I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. |
Date: August 22, 2011 |
/s/ Cheng Pheng LOI |
----------------------- |
Cheng Pheng LOI |
Chief Executive Officer |
Exhibit 31.2 |
Certification
of Chief Financial Officer of the Company |
I, Con Unerkov, certify that: |
1. I have reviewed this quarterly report on Form 10-Q of China Media Group Corporation; |
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; |
(c) |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) |
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. |
5. I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. |
Date: August 22, 2011 |
/s/ Con Unerkov |
----------------------- |
Con Unerkov |
Chief Financial Officer |
Exhibit 32.1 |
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of China Media Group Corporation a Texas corporation (the "Company") on Form 10-Q for the six months period ending June 30, 2011, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Cheng Pheng LOI, Chief Executive Officer of the Company, certifies to the best of his knowledge, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: |
|
|
|
|
|
|
-------------------------- |
Cheng Pheng LOI |
Chief Executive Officer |
August 22, 2011 |
Exhibit 32.2 |
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of China Media Group Corporation a Texas corporation (the "Company") on Form 10-Q for the three months period ending June 30, 2011, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Con Unerkov, Chief Financial Officer of the Company, certifies to the best of his knowledge, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: |
|
|
|
|
|
|
-------------------------- |
Con Unerkov |
Chief Financial Officer |
August 22, 2011 |