10-Q 1 r10q-033112cmg.htm FORM 10Q - 31 MARCH 2012

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

FORM 10-Q

[ x ]

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

For the quarterly three month period ended March 31, 2012

[    ]

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.)

1402 Wan Chai Commercial Center, 204 Johnston Road, Wanchai, Hong Kong

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(Address of Company's principal executive offices)

(Zip Code)

+011 852 3171 1208

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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.


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [    ]   No[ x ]

The number of common equity shares outstanding as of April 30, 2012 was 554,132,450 shares of Common Stock, no par value.


FORWARD-LOOKING STATEMENTS

This quarterly report contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may", "will", "should", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential" or "continue" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled "Risk Factors", that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

Our financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles. In this quarterly report, unless otherwise specified, all dollar amounts are expressed in United States Dollars.

As used in this quarterly report, the terms "we", "us", "our", "CHMD", and "the Company" mean China Media Group Corporation and its subsidiaries unless otherwise indicated.


PART I

Item 1. Condensed Consolidated Financial Statements

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China Media Group Corporation
Condensed Consolidated Financial Statements
March 31, 2012
(Unaudited)
(Expressed In United States Dollars)

Condensed Consolidated Balance Sheets as of March 31, 2012 and December 31, 2011


Condensed Consolidated Statements of Operations for the three months period ended March 31, 2012 and 2011


Condensed Consolidated Statements of Stockholders' Equity for the years ended December 31, 2011 and 2010, and for the three months period ended March 31, 2012


Condensed Consolidated Statements of Cash Flows for the three months periods ended March 31, 2012 and 2011


Notes to Condensed Consolidated Financial Statements


CHINA MEDIA GROUP CORPORATION

CONSOLIDATED BALANCE SHEETS

AS OF MARCH 31, 2012 AND DECEMBER 31, 2011


March 31, 2012

December 31, 2011

Notes

(Unaudited)

(Audited)

ASSETS

US$

US$

Current Assets:
Cash and cash equivalents

45,237

15,600

Due from related parties

7

372,466

372,541

Prepayments, deposit and other receivables

169,164

169,152

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

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

Total current assets

586,867

557,293


Non-current assets
Property and equipments, net

8

451

2,232

Advance payment for distribution rights

9

69,000

69,000

Investment in shares

16

81,556

81,556

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

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

151,007

152,788

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

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

737,874

710,081

=========

=========

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

10

471,634

424,396

Short term debt

11

100,000

100,000

Due to officer and directors

12

449,548

448,145

Due to related parties

13

1,714,692

1,656,981

Option liabilities

236,504

236,504

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

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

Total current liabilities

2,972,378

2,866,026

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

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

Long-term debts

14

2,000,000

2,000,000

Stockholders' equity:
Common stock, no par value, 85,000,000,000 shares authorized, 554,132,450 (2011: 554,132,450) shares issued and outstanding

4

7,773,902

7,773,902

Additional paid-in-capital

1,799,358

1,799,358

Shares to be issued

52,510

52,510

Comprehensive income

65,885

66,176

Accumulated deficits

(14,043,774)

(13,966,347)

Uncontrolled interest

117,615

118,456

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

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

Total stockholders' equity

(4,234,504)

(4,155,945)

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

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

737,874

710,081

=========

=========

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

F-3


CHINA MEDIA GROUP CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011

(UNAUDITED)

Three months periods

Ended March 31

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

2012

2011

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

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

US$

US$

Net revenue

22,829

28,889

Cost of revenue

(8,990)

(12,559)

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

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

Gross profit

13,839

16,330

Operating expenses:
Selling, general and administrative expenses

48,307

68,646

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

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

Loss from operations before other expense

(34,468)

(52,316)

Other income / (expenses)
    Interest income

33

-

    Interest expenses

(43,833)

(46,620)

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

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

Net loss before uncontrolled interests

(78,268)

(98,936)

Uncontrolled interest

841

2,917

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

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

Net loss

(77,427)

(96,019)

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

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

  Other comprehensive income
    Foreign currency translation gain

(291)

(146)

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

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

Comprehensive loss

(77,718)

(96,165)

=========

=========

Basic and diluted loss per common share

(0.00)

(0.00)

=========

=========

Basic and diluted weighted average number of common shares *

554,132,450

554,132,450

=========

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

*

Weighted average number of shares used to compute basic and diluted loss per share for the three months ended March 31, 2012 and 2011 are the same since the effect of dilutive securities are anti-dilutive.


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

F-4


CHINA MEDIA GROUP CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

AND FOR THE THREE MONTHS ENDED MARCH 31, 2012

(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$

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

----------

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

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

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

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

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

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

January 1, 2010

534,132,450

7,428,902

1, 760,874

44,148

-

(8,269,302)

147,975

1,112,597

Amortization of options granted

-

-

38,484

-

-

-

-

38,484

Comprehensive income

-

-

-

23,028

-

-

-

23,028

Issuance of shares for acquisition of share investments

20,000,000

345,000

-

-

-

-

-

345,000

Gain on disposal of subsidiary

-

-

-

-

-

-

5,110

5,110

Net loss

-

-

-

-

-

(5,597,741)

(22,577)

(5,620,318)

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

-----------

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

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

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

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

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

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

Balance at December 31, 2010

554,132,450

7,773,902

1,799,358

67,176

-

(13,867,043)

130,508

(4,096,099)

Comprehensive income

-

-

-

(1,000)

-

-

-

(1,000)

Shares to be issued for acquisition of share investments

-

-

-

-

52,510

-

-

52,510

Net loss

-

-

-

-

-

(99,304)

(12,052)

(111,356)

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

-----------

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

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

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

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

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

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

Balance at December 31, 2011

554,132,450

7,773,902

1,799,358

66,176

52,510

(13,966,347)

118,456

(4,155,945)

Comprehensive income

-

-

-

(291)

-

-

-

(291)

Net loss

-

-

-

-

-

(77,427)

(841)

(78,268)

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

-----------

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

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

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

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

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

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

Balance at March 31, 2012

554,132,450

7,773,902

1,799,358

65,885

52,510

(14,043,774)

117,615

(4,234,504)

========

=======

========

=========

========

========

========

=========

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 THREE MONTHS ENDED MARCH 30, 2012 AND 2011

(UNAUDITED)

For the Three Months ended March 31,
2012

For the Three Months ended March 31,
2011

US$

US$

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

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

Cash flows from operating activities:
Net loss

(77,427)

(96,019)

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

1,781

3,141

  Uncontrolled interest

(841)

(2,917)

  Option expenses for employee compensation

-

-

(Increase) / decrease in assets and liabilities:
  Prepaid expenses, deposit and other receivables

(12)

(7,898)

  Due from former subsidiary company

(41)

13

  Due from related parties

116

(27,625)

  Accounts payable and accrued expenses

47,238

51,578

  Option liabilities

-

29,563

  Due to directors and officers

1,403

(19,879)

  Due to related parties

57,711

76,412

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

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

Net cash provided by operating activities

29,928

6,369

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

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

Cash flows from investing activities:
Purchase of property and equipment

-

-

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

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

Net cash used in investing activities

-

-

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

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

Cash flows from financing activities :
Issue of shares for acquisition of subsidiary

-

-

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

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

  Net cash provided by financing activities

-

-

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

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

Net increase in cash and cash equivalents

29,928

6,369

Effect of exchange rate changes on cash and cash equivalents

(291)

(146)

Cash and cash equivalents, beginning

15,600

17,654

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

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

45,237

23,877

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

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

Supplemental disclosure of cash flow information:
Interests paid

43,833

46,620

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

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

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.


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.


In March 2012, the Group entered into a condition sales and purchase agreement to acquire 100% equity interest of A-Team Resources Sdn. Bhd., an manufacturer and distributor of electronics and light appliances, at a consideration price equal to the net asset value of ATeam for $2,011,607 by the issuance of 558,779,837 shares in the Company. As the date of this report, this transaction still has not completed as the Company is still conducting its due diligence.


NOTE 2


SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES & REALIZATION OF ASSETS


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, 2011. 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, 2011 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 March 31, 2012 include the financial statements of the Company, its wholly owned subsidiaries Ren Ren Media Group Limited, Good World Investments Limited, 51% subsidiary Premium Multimedia Sdn. Bhd., and two 50% subsidiaries, namely Beijing Ren Ren Health Culture Promotion Limited and ATC Marketing Limited. ATC Marketing Limited was established on the date of May 21, 2009 and Premium Multimedia Sdn. Bhd. was acquired on September 26, 2009 and the disposal in October 2010. The Company consolidated both of these 50% ownership companies during the period of control because of the sole largest shareholding status and/or controlling of the Board of Directors. On June 18, 2010, the Group acquired a 50% subsidiary, AX Organic Limited and then disposed of this investment in December 2010 and the Company consolidates this subsidiary into the Group accounts during this period as the Group has control of the Board of Directors.


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


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

F-7


CHINA MEDIA GROUP CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2


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


Use of estimates


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


Net Income (Loss) per Share


Basic earnings per share were computed by dividing net loss by the weighted average number of shares of common stock outstanding during the year. Diluted loss per common share for the year ended December 31, 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 & 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 $1,628 and $nil for the year December 31, 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 & 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 March 31, 2012, the comprehensive income was $65,885.


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 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 & REALIZATION OF ASSETS (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 & REALIZATION OF ASSETS (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 March 31, 2012, the Company has incurred an accumulated deficits totaling $14,043,774 and its current liabilities exceed its current assets by $2,385,511. 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


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


On October 8, 2010 the Group completed the transaction to acquire 69% interests in China Integrated Media Corporation Limited ("CIMC"), a public company in Australia, by the issuance of 10,000,000 shares in the Company as part of the purchase consideration. CIMC is in the business of television media and digital signage boards.


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 March 31, 2012, the Company has 19,000,000 stock options outstanding and the option liability 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 March 31, 2012:


Options outstanding

Outstanding, December 31, 2010

19,000,000

Granted during the period

-

Forfeited/lapsed during the period

-

Exercised during the period

-

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

Outstanding, March 31, 2012

19,000,000

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

Following is a summary of the status of options outstanding at March 31, 2012:


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

3.04

$0.010

19,000,000

$0.00


On April 16, 2010, the Company granted 19,000,000 stock options to 5 qualified persons. As of March 31, 2012, 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 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 March 31, 2012 there were 32,588,700 shares available underlying stock options under the 2007 Stock Incentive Plan.


As of March 31, 2012, there were no outstanding stock options to purchase shares of our Common Stock under the 2007 Stock Incentive Plan.


Subsequent to the quarter ended March 31, 2012, on May 7, 2012 the Company issued 711,009 shares at an options price of $0.0218 per share for a total amount of $15,500 under the 2007 Stock Incentive Plan to its consultant for the services rendered to the Company for the first quarter of 2012.

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:

March 31, 2012

December 31, 2011

US$

US$

Advance to supplier

(a)

255,095

254,985

Due from investment company

(b)

21,634

21,860

Due from former subsidiary company

(c)

95,737

95,696

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

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

372,466

372,541

===========

===========


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.


NOTE 8


PROPERTY AND EQUIPMENT, NET


Property and equipment is summarized as follows:


March 31, 2012


December 31, 2011

US$

US$

Cost
Furniture, fixtures and equipment

4,824

4,824

Computers

8,058

8,058

Automobile

47,951

47,951

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

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

60,833

60,833

Accumulated depreciation

(60,382)

(58,601)

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

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

Balance at end of period

451

2,232

===========

===========

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


OTHER PAYABLES AND ACCRUALS


Other payables and accruals are summarized as follows:

March 31, 2012

December 31, 2011

US$

US$

Accrued salaries and wages

25,740

25,715

Accrued interest

20,294

17,294

Accrued accounting, legal and consulting fee

261,824

245,323

Accrued office and related expenses

3,753

3,685

Other payables

a

140,411

112,775

Deposit from customers

19,612

19,604

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

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

Balance at end of period / year

471,634

424,396

===========

===========


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 11


SHORT - TERM DEBT


As of December 31, 2011, the Company had two short term debts for a total amount of $100,000 which relates to two loan agreements of $50,000 each entered into by the Company in 2010. 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 December 2010 , 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 loans were extended for one more year to be repayable on June 3, 2012 and July 5, 2012, respectively, and the convertible feature was cancelled with effect December 30, 2010.


NOTE 12


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 $449,548 as of March 31, 2012 (December 31, 2011: $448,145).


NOTE 13


DUE TO RELATED PARTIES


Due to related parties are summarized as follows:


March 31, 2012


December 31, 2011

US$

US$

Due to shareholders

(a)

1,555,380

1,497,634

Due to directors of subsidiary companies

(b)

159,312

159,347

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

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

1,714,692

1,656,981

===========

===========


(a) The amounts due to beneficial shareholders are unsecured, repayable on demand and are interest free except for the $50,000 which bears interests at 6% per annum.


(b) The amount due to directors of subsidiary companies is interest free, unsecured and repayable on demand.

F-20


CHINA MEDIA GROUP CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14


LONG - TERM DEBTS


March 31, 2012


December 31, 2011

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. On March 19, 2012 the loan was extended for a further one year to November 25, 2013.


NOTE 15


RELATED COMPANY TRANSACTIONS


The Company agreed to pay directors and officers a monthly salary for services performed. For the three months ended December 31, 2012 and 2011, the Company paid the directors and its officers and their services companies a total remuneration of $1,351 and $1,348, 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. On March 19, 2012 the loan was extended for a further one year to November 25, 2013. The accrued interest for the three months ended March 31, 2012 was $40,000 (2011: $40,000).


NOTE 16


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 has been extended to October 2012.


NOTE 17


INCOME TAXES


No provision was made for income tax for the year ended December 31, 2011 and 2010, since the Company and its subsidiaries had significant net operating loss. In the year ended December 31, 2011 and 2010, the Company and its subsidiaries incurred net operating losses for tax purposes of approximately $99,304 and $5,597,741, respectively. Total net operating losses carry forward at December 31, 2011 and 2010, (i) for Federal and State purpose were $11,228,165 and $11,063,748, respectively and (ii) for its entities outside of the United States were $1,730,470 and $1,707,655, 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, 2011 and 2010 was approximately $4,694,677 and $4,624,137, respectively. A 100% valuation allowance has been established against the deferred tax assets, as the utilization of the loss carry-forwards cannot reasonably be assured.

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


2011


2010

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

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

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 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 three months
ended March 31,

For the three months
ended March 31,

For the three months
ended March 31,

For the three months
ended March 31,

2012

2011

2012

2011

2012

2011

2012

2011

US$

US$

US$

US$

US$

US$

US$

US$

Turnover

22,829

28,889

-

-

-

-

22,829

28,889

=======

=======

=======

=======

======

======

=========

=========

Segment results

12,998

13,413

-

-

-

-

12,998

13,413

=======

=======

=======

=======

======

======

Unallocated corporate income

33

-

Unallocated corporate expenses

(46,625)

(62,812)

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

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

Loss from operations

(33,594)

(49,399)

Finance costs

(43,833)

(46,620)

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

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

Loss for the period

(77,427)

(96,019)

=========

=========

As at March 31

2012

2011

ASSETS
Segment assets

-

9,881

285,061

355,152

-

-

285,061

365,033

Unallocated corporate assets

452,813

535,472

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

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

Consolidated total assets

737,874

900,505

=========

=========

LIABILITIES
Segment liabilities

117,615

127,591

-

-

-

-

117,615

127,591

Unallocated corporate liabilities

4,972,378

5,043,176

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

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

Consolidated total liabilities

5,089,993

5,170,767

=========

=========

Depreciation of fixed assets

1,682

2,797

99

343

-

-

1,781

3,140

=======

=======

=======

======

======

======

=========

=========

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 three month ended March 31, 2012 and for the year ended December 31, 2011 was $11,776 and $28,564, respectively.

Future minimum rental payments under non-cancelable operating leases for the three month ended March 31, 2012 and for the year ended December 31, 2011 are $73,616 and $84,977, respectively.


(b)


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


(c)


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


(d)


As disclosed in Note 16 above, the Company has agreed to issue 2,205,376 shares for the acquisition of 5% of ATC. 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 has been extended to October 2012.


(e)


As announced in a Form 8K filed on March 16, 2012, on March 15, 2012 the Group entered into a conditional agreement to purchase A-Team Resources Sdn. Bhd. for a total consideration of about $2,011,607 which shall be satisfied by the issuance of 558,779,837 shares in the Company, representing 51% of the enlarged share capital of the Company. The agreement is conditional to the successful completion of the due diligence by the Group to be determined by the sole discretion of the Group on or before April 18, 2012 or a date agreed by the parties. On April 17, 2012 the parties agreed to extend the closing dated to be on or before May 31, 2012.


NOTE 20


SUBSEQUENT EVENTS


(a)


The Group has evaluated all subsequent events through May 15, 2012, the date these consolidated financial statements were issued, and determined that, other than as disclosed below, there were no subsequent events or transactions that require recognition or disclosures in the financial statements.


(b)


Subsequent to the quarter ended March 31, 2012, on May 7, 2012 the Company issued 711,009 shares at an options price of $0.0218 per share for a total amount of $15,500 under the 2007 Stock Incentive Plan to its consultant for the services rendered to the Company for the first quarter of 2012.

F-23


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Forward Looking Statements


THIS FOLLOWING INFORMATION SPECIFIES CERTAIN FORWARD-LOOKING STATEMENTS OF MANAGEMENT OF THE COMPANY. FORWARD-LOOKING STATEMENTS ARE STATEMENTS THAT ESTIMATE THE HAPPENING OF FUTURE EVENTS AND 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 SPECIFIED IN THE FOLLOWING INFORMATION HAVE BEEN COMPILED BY OUR MANAGEMENT ON THE BASIS OF ASSUMPTIONS MADE BY MANAGEMENT AND CONSIDERED BY MANAGEMENT TO BE REASONABLE. OUR FUTURE OPERATING RESULTS, HOWEVER, 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 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


Our Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations section discusses our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to revenue recognition, accrued expenses, financing operations, and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The most significant accounting estimates inherent in the preparation of our consolidated financial statements include estimates as to the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources. These accounting policies are described at relevant sections in this discussion and analysis and in the notes to the consolidated financial statements included in our Quarterly Report on Form 10-Q for the period ended March 31, 2012.


Overview


DESCRIPTION OF BUSINESS.


OUR BACKGROUND. The Company was incorporated in Texas on October 1, 2002 and in 2005 changed its business focus to 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 global companies are rushing into China to try to grab and hold the attention of its 1.3 billion citizens.


OUR BUSINESS. Our mission today is to become one of China's new age media companies through the use of new technologies and devices combined with traditional media of TV, Newspapers, Magazines, Billboards and Internet to reach today's mobile society. In order to facilitate this, the Company established 3 strategic business units being "Advertising", "Telecommunications and Mobile Computing", and "Products and Services".


We plan to offer advertising services in China. These advertising services would be targeted across all media thus we will offer our customers selective advertising on specific media for nationwide campaign. China's advertising industry is still young and fragmented. We aim to differ from other advertisers so that we can provide nationwide campaigns across all media spectrum. To this end, we will work to secure strategic ad placements in key cities in China so that our customers will have the ability to launch nationwide campaigns.


As announced in a Form 8K filed on March 16, 2012, on March 15, 2012 the Group entered into a conditional agreement to purchase A -Team Resources Sdn. Bhd. for a total consideration of about $2,011,607 which shall be satisfied by the issuance of 558,779,837 shares in the Company, representing 51% of the enlarged share capital of the Company. The agreement is conditional to the successful completion of the due diligence by the Group to be determined by the sole discretion of the Group on or before April 18, 2012 or a date agreed by the parties. On April 17, 2012 the parties agreed to extend the closing dated to be on or before May 31, 2012. This acquisition will strengthen the Products and Services division by providing for sale a range of products in the electronic and light appliance segment and possibly extending the marketing to new markets in China and India. This company will also provide a steady revenue base to the Group. This transaction is expected to close in May 2012.


A-Team was established in 2001 specialized in the manufacturing and assembling of home appliances products (white goods). Currently this company is operating from Selangor, which is located in the central part of Western Malaysia.Their main markets are in North America, Southeast Asia, Africa, Oceania, Mid East and Eastern Asia.


2011 Products & Services Overview

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


Advertising Unit


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. Given the capital requirement to activate this project on the national and provincial level will require us to raise at least US$2 million which is difficult given the financial situation of the Group today. Therefore we have determined to defocus from the BRR program and to focus on other advertising activities going forward. During the period, the Company did not derive any advertising income from the BRR project but it has recorded $22,829 and $142,132 for the three months ended 31 March 2012 and year ended 31 December 2011 in relation to other advertising services.


Telecommunications Unit


On or about January 23, 2006, the Company announced the establishment of the Telecommunications and Mobile Computing Division to focus on the new media advertising where we would take advantage of new convergent devices for telecommunications advertising. The business of selling advertising through telecommunications media and devices is still at an early stage as we are developing strategies to effectively enter the market. No revenue has been generated from advertising through telecommunications media and devices at the date of this report.


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 in telecommunication media is through cooperation with existing networks or establishes select networks. However our longer term strategy is to partner 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. M.A.G.I.C. is a next generation convergent device that has the full capabilities of a notebook computer shrink to a size of a PDA phone. In 2009, we have also entered into a joint venture with AdvanceTech Communications Sdn. Bhd. ("ATC") to market and distribute the devices developed by ATC worldwide other than the countries already under distribution by the Company. The current device under development, M.A.G.I.C. W3 is being positioned as the high end convergent device for professionals running special applications. We expect the M.A.G.I.C. W3 to enter the information and advertising sector of the mobile phone market. We expect to receive the final prototype for M.A.G.I.C. W3 by Q3, 2012. There has been no other significant update for the M.A.G.I.C. W3.


Products Services Units


We have commenced a Products Services Unit to build brands recognition and to take advantage of our contacts networks, distribution channel and trading partners. We will leverage off our advertising platform to develop our own brands name for select products. This will uniquely position our Product Services for brand awareness as well as develop a long term business unit that will serve both consumers and industries markets. In March 2012, the Group entered into an agreement to acquire a company that manufactures and distributes electronics and light electronics. If we are successful in acquiring this company then we will have a range of products for the Group, and with opportunities to expand this range of products to sell into China.The potential acquisition was established in 2001 and have 5 production lines being "Washing Machines", Refrigerators", Chest Freezers" "Wine Chillers" and "Display Chillers". Their main markets are in North America, Southeast Asia, Africa, Oceania, Mid East and Eastern Asia. During this quarter, we did not realize any revenue from this business unit. However the Group is in discussion and exploring other products that can be distributed in our product services unit.


Other Investments


In 2011 the Group disposed its investment in Jademan International Limited for $421,538 realizing a profits of $251,538 in order to raise some funds to pay its outstanding professional fees and other liabilities.


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. For our recently announced potential acquisition of A-Team Resources, the organization has an existing marketing and sales department / channels. We also plan to take much more of a focus on the China market and work together to open up additional growing markets. The potential acquisition is currently generating revenues and these revenues will be used to grow into additional markets.


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.


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.


We have cash and cash equivalents of $45,237 as of March 31, 2012; an increase from the previous period end of December 31, 2011. In the opinion of management, these funds will not satisfy our working capital requirements to operate at our current level of activity for the next twelve months. To effectuate our business plan, during the next twelve months, we must arrange for adequate funding to implement our plans of increasing our advertising offerings and promote our advertising services, through cooperation agreements and otherwise.


Financing and funding


Management intends to continue to raise additional financing through debt and equity financing or other means and interests that it deems necessary, with a view to implementing our business plan and building a revenue base. We plan to use the proceeds of such financings to provide working capital to our operations and increase our capital expenditure for marketing and working with our co-operative partners. There can be no assurances that sufficient financing will be available on terms acceptable to us or at all. Our forecast for the period for which financial resources will be needed to support our operations involves risks and uncertainties and actual results could fail as a result of a number of factors.


Specifically, we hope to accomplish the steps listed below to implement our business plan. We estimate that we will require approximately $1,500,000 to commence operations as envisioned below during the next twelve months. The figures and steps outlined below are estimates only, and our actual progress and cost may vary from these estimates and is subject to our ability to obtain adequate funding. Such additional capital may be raised through public or private equity financing, borrowings, or other sources, such as contributions from our officers and directors. If we are unable to obtain funds necessary to implement our business plan, we may revise or scale back our business plan.


We are not currently conducting any research and development activities, other than the continual development of our website in both English and Chinese. We do not anticipate conducting such activities in the near future. In the event that we expand our business scope, then we may need to hire additional employees or independent contractors as well as purchase or lease additional equipment.


Results of operation.


FOR THE THREE MONTHS PERIOD ENDED MARCH 31, 2012 COMPARED TO THE THREE MONTHS PERIOD ENDED MARCH 31, 2011


REVENUES.

For the three months period ended March 31, 2012, the Group has realized revenue of $22,829 and a cost of revenue of $8,990, achieving a gross profit of $13,839. For the three month period ended March 31, 2011, the Group has realized revenue of $28,889 and a cost of revenue of $12,559 achieving a gross profit of $16,330. 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 March 31, 2012, our gross profit was $13,839 and our total operating expenses were $48,307, all of which were selling, general and administrative expenses. We also had $43,833 in interest expenses, $33 in interest income and loss attributable to uncontrolled interests of $841, so that the net loss to our shareholders for the three months period ended March 31, 2012 was $77,427. This is in comparison to the same period ended March 31, 2011, where our gross profit was $16,330 and our total operating expenses were $68,646, all of which were selling, general and administrative expenses. We also had $$46,620 in interest expenses and loss attributable to uncontrolled interests of $2,917, so that the net loss to our shareholders for the three months period ended March 31, 2011 was $96,019.


Liquidity and Capital Resources


As at March 31, 2012, the Company had cash and cash equivalents totaling $45,237, other current assets of $541,630 and non-current assets totaling $151,007 which were represented by $451 in fixed assets, $69,000 in distribution rights and $81,556 in investment in shares. The total assets of the Company were $737,874 as of March 31, 2012. We also had current liabilities of $2,972,378 which were represented by $471,634 in accruals, $100,000 in short term debt, $449,548 due to directors and officers, $1,714,692 due to related parties, $236,504 in option liabilities as of March 31, 2012. We also had $2,000,000 in long-term shareholders loan and $117,615 in uncontrolled interests as of March 31, 2012, made our total liabilities $5,089,993.

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 2012.


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 significant losses from operations in recent periods. For the three months ended March 31, 2012 the Company incurred net losses of $77,427 and has accumulated losses of $14,043,774 as at March 31, 2012. 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 investment. In addition, the Company is seeking to expand its revenue base by adding new customers and to start out its advertising business. Failure to secure such financing, to raise additional equity capital and to expand its revenue based may result in the Company depleting its available funds and not being able to pay its obligations. These 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


As of March 31, 2012, there were no off balance sheet arrangements. The Company has no off balance sheet obligations nor guarantees and has not historically used special purpose entities for any transactions.


Item 3. Quantitative and Qualitative Disclosure About Market Risk.

Quantitative and Qualitative Disclosures about Market Risk:


The Company is exposed to various market risks, including changes in interest rates. Market risk is the potential loss arising from adverse changes in market rates and prices, such as interest rates and foreign currency exchange rates. The Company does not enter into derivatives or other financial instruments for trading or speculative purposes. The Company also has not entered into financial instruments to manage and reduce the impact of changes in interest rates and foreign currency exchange rates, although we may enter into such transactions in the future.


Item 4.

Controls and Procedures.

Evaluation of Disclosure Controls and Procedures:


Our disclosure controls and procedures are designed to ensure that information required to be disclosed in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the United States Securities and Exchange Commission. Our principal executive and financial officer have reviewed the effectiveness of our "disclosure controls and procedures" (as defined in the Securities Exchange Act of 1934 Rules 13a-14(c) and 15d-14(c)) within the end of the period covered by this Quarterly Report on Form 10-Q and have concluded that the disclosure controls and procedures are effective to ensure that material information relating to the Company is recorded, processed, summarized, and reported in a timely manner. There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the last day they were evaluated by our principal executive and financial officers.


Changes in Internal Controls over Financial Reporting:


There have been no changes in the Company's internal control over financial reporting during the last quarterly period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.


PART II - OTHER INFORMATION


Item 1.

Legal Proceedings

None.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds


None.


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(6)

2.2

Sale and Purchase Agreement between Good World Investments Limited, Tidewell Limited and the Company(7)

2.3

Sale and Purchase Agreement entered by Good World Investments Limited to acquire 5% equity interest in Advance Tech Communications Sdn. Bhd. (9)

2.4

Sale and Purchase Agreement between Good World Investments Limited and Keen Star International (HK) Limited (8)

2.5

Sale and Purchase Agreement between Good World Investments Limited and ECE Technologies Sdn. Bhd. (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.(5)

3.2

Bylaws (1)

10.3

2002 Stock Option Plan (3)

10.4

2007 Stock Incentive Plan (4)

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 Registration Statement on Form SB-2 as filed with the SEC on April 15, 2003.

4.

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

5.

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

6.

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

7.

Incorporated by reference to our Current Report on Form 8-K as filed with the SEC on September 22, 2010.

8.

Incorporated by reference to our Current Report on Form 8-K as filed with the SEC on April 14, 2011.

9.

Incorporated by reference to our Current Report on Form 8-K as filed with the SEC on February 22, 2011.

10.

Incorporated by reference to our Current Report on Form 8-K as filed with the SEC on March 16, 2012..

* Filed herewith.

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

May 16, 2012
--------------------------------------------
Cheng Pheng Loi
Its: Principal executive officer,
President, Director

By:

/s/ Con Unerkov

May 16, 2012
--------------------------------------------
Con Unerkov
Its: Chief financial officer,
Director

By:

/s/ Lam Pui Kit

May 16, 2012
--------------------------------------------
Lam Pui Kit
Its: Secretary, Treasurer,
Director

By:

/s/ Mohd Khairudin Bin Ramli

May 16, 2012
--------------------------------------------
Mohd Khairudin Bin Ramli
Its: Director