10-K 1 r10k-010914cmg.htm FORM 10-K FOR 31 DECEMBER 2012 CHINA MEDIA GROUP CORPORATION

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

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

 

For the fiscal year ended December 31, 2012

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

 

For the transition period from [ ] to [ ]

 

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Commission File Number: 000-50431

 

 

 

CHINA MEDIA GROUP CORPORATION

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

Texas 7310 32-0034926
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation or organization)    

 

No. 55 Jalan Snuker 13/28, Tadisma Business Park,
Section 13, 40100 Shah Alam, Selangor, Malaysia
N/A
(Address of Company's principal executive offices) (Zip Code)

 

Tel: +60355197079    Fax: +60355190839

(Company's Telephone Number, Including Area Code)

 

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

 

Title of each class registered:

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None

Name of each exchange on which registered:

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None

 

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

 

Common Stock, No Par Value

(Title of Class)

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

[   ] Yes [ x ] No

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

[   ] Yes [ x ] No

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

[ x ] Yes [   ] No

 

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

[   ]

 

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

 

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

 

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

[   ]Yes [ x ] No

 

The aggregate market value of the registrant's voting stock held by non-affiliates (626,816,368 shares) of the registrant based upon the per share closing price of $0.0130 on December 31, 2012 was approximately $8,148,613.

 

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

 

As of November 30, 2013, there were 1,113,623,296 no par value common stock of the Company issued and outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Exhibits incorporated by reference are referred under Part IV.

 

 

DEFINITIONS AND CONVENTIONS
 
 
References to "China" refer to the Peoples' Republic of China.
 
References to "Common Stock" means the common stock, no par value, of China Media Group Corporation.
 
References to the "Commission" or "SEC" means the U.S. Securities and Exchange Commission.
References to "ECE" means ECE Technologies Sdn. Bhd., a company incorporated in Malaysia.
References to the "ATeam" means A-Team Resources Sdn. Bhd., a company incorporated in Malaysia that is engaged in the business of consumer electronics and light appliances.
References to the "BRR" means Beijing Ren Ren Health Culture Promotion Co., Limited, a company incorporated in China that is a 50% subsidiary of Good World. BRR is engaged in advertising sales in China.
References to the "ATC Marketing" means ATC Marketing Limited, a company incorporated in Hong Kong that is a 50% subsidiary of Good World. ATC Marketing is a joint venture company with AdvanceTech Communications Sdn. Bhd. holding the worldwide marketing rights, other than certain rights belonging to the Company, of a convergent communication device named M.A.G.I.C.
References to the "Good World" means Good World Investments Limited, an investment holding company incorporated in the British Virgin Islands that is a wholly owned subsidiary of CMG.  
References to the "ATC" means AdvanceTech Communications Sdn. Bhd., a Malaysia incorporated company that is developing a convergent communication device named M.A.G.I.C.
References to the "RRMG" means Ren Ren Media Group Limited, a company incorporated in Hong Kong that is a wholly owned subsidiary of CMG. RRMG is an administrative and advertising sales company in Hong Kong and China.
References to the "Clixster Mobile" means Clixster Mobile Sdn. Bhd., a company incorporated in Malaysia that is a mobile virtual network operator (MVNO) and principally engaged in providing cellular and mobile broadband services in Malaysia.
 
References to "Company", "CHMD", "we", "our" means China Media Group Corporation and include, unless the context requires or indicate otherwise, the operation of its subsidiaries (all hereinafter defined).
 
References to "33 Act" or "Securities Act" means the Securities Act of 1933, as amended.
 
References to "34 Act" or "Exchange Act" means the Securities Exchange Act of 1934, as amended.

 

FORWARD-LOOKING STATEMENTS

 

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

 

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

 

 

 

 

TABLE OF CONTENTS

 

PART I      
       
ITEM 1. Business 1  
ITEM 1A. Risk Factors 7  
ITEM 1B. Unresolved Staff Comments 20  
ITEM 2. Properties 20  
ITEM 3. Legal Proceedings 20  
ITEM 4. Mine Safety Disclosures 20  

 

PART II      
ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities 21  
ITEM 6. Selected Financial Data 25  
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operation 26  
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk 28  
ITEM 8. Financial Statements and Supplementary Data 29  
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures 29  
ITEM 9A Controls and Procedures 29  
ITEM 9B. Other Information 30  

 

PART III      
       
Item 10 Directors, Executive Officers and Corporate Governance 31  
Item 11 Executive Compensation 33  
Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 35  
Item 13 Certain Relationships and Related Transactions, and Director Independence 37  
Item 14 Principal Accounting Fees and Services 38  

 

PART IV      

 

ITEM 15 Exhibits, Financial Statement Schedules 39  

 

SIGNATURES   41  

 

 

 

PART I
 
ITEM 1. 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.

 

The Company conducts its advertising business through Ren Ren Media Group Limited, its wholly owned subsidiary company in Hong Kong. For its trading in mobile convergent devices, it will trade through a 50/50 joint venture subsidiary company ATC Marketing Limited. For the Millennium Development Goals Program, we conduct this business through our 50% owned subsidiary company Beijing Ren Ren Health Culture Promotion Co., Limited.

 

On June 8, 2012, Good World, CMG and ECE Technologies Sdn. Bhd. closed the sales and purchase agreement for Good World to acquire 100% equity interests in A-Team Resources Sdn. Bhd. ("Acquisition"), a privately held Malaysian corporation ("ATeam") that is in the consumer electronics and light appliances businesses for 558,779,837 shares in the Company, representing 51% of the then enlarged share capital of the Company. Immediately after the transaction closed, ECE transferred 200,000,000 shares in the Company to independent third parties, and ECE then held 358,779,837 shares representing about 31.62% equity interests in the Company.

 

The transaction has been accounted for in substance as a reverse acquisition of the Company by ATeam since the stockholders of ATeam owned a majority of the Company's voting power immediately following the Acquisition and ATeam ' s management has assumed operational, management and governance control.  For accounting purposes, ATeam shall be the accounting acquirer and or the surviving entity.  Accordingly, the historical financial statements are those of Ateam, the accounting acquirer, immediately following the consummation of the reverse merger.

 

As announced in the Form 8K filed on October 30, 2013 the Company entered into a conditional sales and purchase agreement ("SP Agreement") to acquire 63.2% equity interests in Clixster Mobile for a consideration of new issuance of 10,193,609,664 shares at a price of US$0.01 per share in CMG which represented approximately 90% of the enlarged issued share capital of CMG to the vendors of the SP Agreement.

 

This SP Agreement is conditional upon the satisfactory due diligence determined by both the Company as purchaser and the vendors to the transaction on or before January 31, 2014 (amended "Long Stop Date").  If either the Company or the vendors are not satisfied with their due diligence prior to the Long Stop Date or any later date as agreed by the parties, the transaction will be cancelled with no effect.

 

Pursuant to the SP Agreement, the Company shall dispose all of its subsidiary companies prior to the close of the transaction.

 

If the SP Agreement is successfully closed and CMG issues the above consideration shares to the Vendors, the Vendors shall be the new controlling shareholder of the Company. As at the date of this report, this transaction has not closed.

 

Clixster Mobile, a private company incorporated in Malaysia, is a mobile virtual network operator and principally engaged in providing cellular and mobile broadband services.

 

OUR BUSINESS REVIEW AND FUTURE STRATEGY. The consumer electronics and light appliances buisness in 2012 faced with  a very competive enviornment from other low costs manufacturer. The management took the view to restructure and rationalize the operation so that it can face the challenges ahead.  In the first half of 2013, the Group rationalize the trading operation for consumer electronics and light appliances products with a view to reduce costs. To a certain extent it was successful however, we were not able to be competitive in face of the competitive environment.

 

In October 2013, the Company entered into the SP Agreement to acquire Clixster Mobile, a MVNO company engages in the provisioning of cellular and mobile broadband services in Malaysia. The provisioning of cellular and mobile broadband business is an exciting and growth industry as more people rely on the mobile network to enhance their daily lives. Thus if this acquisition closes it will change the direction of the Company from a trading in consumer electronics and light appliances to a service company providing cellular and mobile data services. This transaction has not closed as at the date of this report. Therefore the review of operation and business contained in this report as set out below will focus on the existing business of trading in consumer electronics and light appliances.

 

1

 

 

OUR BUSINESS. Prior to the acquisition of the consumer electronics and light appliances business in 2012, our mission was 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. However, with the acquisition of the consumer electronics and light appliances businesses which will bring us the major revenue source to the Company now, our business focus will be on the development of this business segment to further strengthen our Products and Services business unit.

 

We have reorganized our business units to two business units mainly "Products and Services" and "Telecommunications and Mobile Computing" business units and with less focus on the "Advertising" business unit unless we have the necessary resources to pursue opportunities in this business segment.

 

As discussed above, in June 2012, the Group acquired 100% equity interests in ATeam, a distributor of electronics and light appliances. This acquisition strengthened the Products and Services division by providing for sale a range of products in the electronic and light appliance business segment and possibly extending the marketing to new markets in China and India. ATeam will also provide a steady revenue base and operations to the Group.

 

ATeam was established in 2004 specialized in the manufacturing and assembling of home appliances products (white goods). ATeam is operating from Selangor, which is located in the central part of Western Malaysia. Their main markets are in Southeast Asia, Africa, Mid East and Eastern Asia.    

 

2012 Products & Services Overview

 

 

Although we have established 2 business units, those are "Telecommunication and Mobile" and "Product Services". A brief review and description of these two business units' strategies and operations are described below.

 

We intend to leverage on our advertising platform, if and when it is set up, to develop our own brand names for select products. This will uniquely position our product and services for brand awareness as well as develop a long term business unit that will serve both consumers and industrial markets.

 

In June 2012, we completed the acquisition of ATeam, a company that distributes consumer electronics and light appliances. ATeam has a range of products and some under its own brand name of ECE, Maco and ATech. ATeam's products are currently being sold and distributed in Malaysia, Indonesia, Thailand, Vietnam, Singapore, Sri Lanka, South Africa, Middle East countries, and in India Sub-Continent. The growth of ATeam will be in the developing countries and we will look for opportunities to sell ATeam's range of products to China.

 

ATeam markets and sells washing machines, chest freezers, wine and display chillers, and refrigeration-based products manufactured by Total E&E Industries Sdn. Bhd., a company owned by certain directors of ATeam.

 

ATeam was established in 2001 specialised in the distribution and trading of home appliances products (white goods). Currently, the Group is operating from Selangor, which is located in the central part of Malaysia.

 

2

 

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.

 

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 Group. 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 have received the first prototype of the M.A.G.I.C. W3 in October 2012 but we have requested additional units for technical due diligence. At the date of this report, we are still waiting for the upgraded W3 units. There has been no other significant update for the M.A.G.I.C. W3. No revenue was recorded for year ended December 31, 2012.

 

Marketing & Sales Overview

 

Products Services Unit

 

For our Products Services unit, we will focus on building on ATeam's existing products, markets and distribution channels. We also plan to focus on opening the India and China markets and develop additional products. We expect our major revenue generation will be from this business unit in the coming future.

 

Telecommunication Unit

 

There are many competitors in the market place offering a variation of the M.A.G.I.C W3 now and the market place is getting more crowded. With the emergence of newer convergent device technologies, there is an opportunity to offer convergent devices with 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, once commercially available. We believe mobile executives will recognize the benefit of having notebook functionality in a handheld device combined with video and data capabilities.

 

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.  

 

3

 

 

Advertising Unit

 

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. We plan to co-operate with international advertising firms to place out the advertising on 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.  This will require resources commitments and the Group will only pursue business in this advertising unit if the right opportunities arise where our commitment is not onerous but strategically synergistic. For the current period under review, we have not re-started this business unit.

 

4

 

 

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.  With the emergence of newer convergent device technologies, the convergent devices product line has become more competitive with an every growing list of convergent mobile devices with new functionality. 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, once commercially available. We believe mobile executives will recognize the benefit of having notebook functionality in a handheld device combined with video and data capabilities.

 

The washing machines, chest freezers, wine and display chillers, and refrigeration-based products are a competitive industry with many brands in the market place. Since we have been in the markets in Southeast Asia, Middle East and in the Indian sub continent, our established sales channels and products have certain recognition in the market place.

 

5

 

 

Governmental Regulation

 

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

 

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

 

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

 

Employees

 

As of the date of this report, we have 22 full time employees. From time to time, we utilize consultants or contractors for specific assignments. None of our employees are represented by a labor union and we have never experienced a work stoppage. We believe that our relationships with our employees are good.

 

Facilities

 

During the period under review, we lease and occupy 1,500 square feet of office space in Hong Kong for our executive and administrative office at a cost of about $3,760 per month. The lease expires in April 2013 after which we have moved our administrative office to Malaysia. Currently, we are operating in Jalan Ikan Mata Duyong, Off Jalan Telok Gong, Mukim Klang, Selangor, Malaysia with an area of 2,000 square feet. We believe we will be able to obtain additional space, as needed, on commercially reasonable terms.

 

6

 

 

 

ITEM 1A. RISK FACTORS

 

Risk Factors

There are numerous and varied risks, known and unknown, that may prevent us from achieving our goals. If any of these risks actually occur, our business, financial condition or results of operation may be materially adversely affected. In such case, the trading price of our Common Stock could decline and investors could lose all or part of their investment.

 

 

Risks Related to Our Business

 

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

 

RISKS RELATED TO EXISTING AND PROPOSED OPERATIONS

 

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

 

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

 

We do not have substantial cash resources and if we cannot raise additional funds or generate more revenues, we will not be able to pay our vendors and will probably not be able to continue as a going concern.

 

We will need to raise additional funds to pay outstanding debts, vendor invoices and execute our business plan. Our future cash flows depend on our ability to enter into, and be paid under, contracts with our distributors for the consumer electronics and light appliances business. There can be no assurance that additional funds will be available when needed from any source or, if available, will be available on terms that are acceptable to us.

 

We may be required to pursue sources of additional capital through various means, including joint venture projects and debt or equity financings. Future financings through equity investments will be dilutive to existing stockholders. Also, the terms of securities we may issue in future capital transactions may be more favorable for our new investors. Newly issued securities may include preferences, superior voting rights, the issuance of warrants or other convertible securities, which will have additional dilutive effects. Further, we may incur substantial costs in pursuing future capital and/or financing, including investment banking fees, legal fees, accounting fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection with certain securities we may issue, such as convertible notes and warrants, which will adversely impact our financial condition and results of operations.

 

Our ability to obtain needed financing may be impaired by such factors as the weakness of capital markets and the fact that we have not been profitable, which could impact the availability or cost of future financings. If the amount of capital we are able to raise from financing activities, together with our revenues from operations, is not sufficient to satisfy our capital needs, even to the extent that we reduce our operations accordingly, we may be required to cease operations.

 

7

 

 

We have a limited operating history, and it may be difficult for potential investors to evaluate our business.

 

The consumer electronics and light appliance business started in early 2000 and the advertising business stated in August 2006. Our limited operating history makes it difficult for potential investors to evaluate our business or prospective operations. We are subject to all the risks inherent in the initial organization, financing, expenditures, complications and delays inherent in a relatively new business. Investors should evaluate an investment in us in light of the uncertainties encountered by such companies in a competitive environment. Our business is dependent upon the implementation of our business plan, as well as the ability of our merchants to enter into agreements with consumers for their respective products and/or services. There can be no assurance that our efforts will be successful or that we will be able to attain profitability.

 

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

 

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

 

ATeam has generated profits for the past few years, however it has come under competitive price pressure recently which the management is rationalizing the operation in order to be competitive and to build up the customer base for future years.The advertising and mobile devices operations in April 2006 with a very limited operating history for these operations due to the lack of operating and financial resources. Our operating results to date relate principally to trading in consumer electronics and light appliances, and mobile devices. Accordingly, our future prospects are uncertain in light of the risks and uncertainties experienced by early stage companies in evolving industries, and in particular our future operations in Malaysia and China. Due to our limited history and limited resources, it is difficult for us to predict future revenues and operating expenses. We based our expense levels, in part, on our expectations of future revenues from anticipated transactions. If our consumer electronics and light appliances, advertising and mobile device business develops slower than we expect, our losses may be higher than anticipated, we may have to curtail parts of our business plan and to the market price of our stock may decline.

 

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

 

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

 

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

 

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

 

Our principal focus is on our advertising and mobile device and products services businesses. We have closed the acquisition of ATeam and other potential acquisitions have not closed to date and may never close. Accordingly, it is difficult to evaluate our business based upon our historical financial results, including those for the year ended December 31, 2012. Even when we close acquisitions like ATeam, our business will not be successful if we are unable to successfully operate and integrate the businesses we acquire. We expect to continually look for new businesses to acquire to maintain and sustain our operations. If we fail to identify such business, are unable to acquire such businesses on reasonable terms, or fail to successfully integrate such businesses, our operating results and prospects could be harmed.

 

8

 

 


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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

We are subject to reporting obligations under the U.S. securities laws. The SEC, as required by Section 404 of the Sarbanes-Oxley Act of 2002, adopted rules requiring every public company to include in its annual report a management report on such company's internal controls over financial reporting which contains management's assessment of the effectiveness of the company's internal controls over financial reporting. In addition, an independent registered public accounting firm must attest to and report on management's assessment of the effectiveness of the company's internal controls over financial reporting. These requirements may first apply to our annual report on Form 10-K for the fiscal year ending December 31, 2011. Our management may conclude that our internal controls over financial reporting are not effective. Moreover, even if our management concludes that our internal controls over financial reporting are effective, our independent registered public accounting firm may still decline to attest to our management's assessment or may issue a report that is qualified if they are not satisfied with our controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us. Our reporting obligations as a public company will place a significant strain on our management, operational and financial resources and systems for the foreseeable future. We are a young company with limited accounting personnel and other resources with which to address our internal financial controls and procedures. If we fail to timely achieve and maintain the adequacy of our internal financial controls, we may not be able to conclude that we have effective internal controls over financial reporting at a reasonable assurance level. Moreover, effective internal controls over financial reporting are necessary for us to produce reliable financial reports and are important to help prevent fraud. As a result, our failure to achieve and maintain effective internal controls over financial reporting could result in the loss of investor confidence in the reliability of our financial statements, which in turn could harm our business and negatively impact the market price of our Common Stock.

 

9

 

 

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

 

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

 

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

 

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

 

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

 

We commenced our mobile device and advertising services operations in early 2006. We anticipate continuous developing of our business in 2013 as we focus growth in our customer base and consumer market opportunities. To manage the potential growth of our operations and personnel, we will be required to improve operational and financial systems, procedures and controls, and expand, train and manage our growing employee base. Furthermore, our management will be required to maintain and expand our relationships with customers. We cannot assure that our current and planned personnel, systems, procedures and controls will be adequate to support our future operations.

 

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

 

Global economic conditions could have a negative effect on our business and results of operations like the global economic downturn in 2008 when economic activity in China, United States and throughout much of the world has undergone a sudden, sharp economic downturn following the recent housing downturn and subprime lending collapse in both the United States and Europe. Since then the global credit and liquidity have tightened in much of the world. Some of our customers in Southeast Asia and China may face business downturn and credit issues, and could experience cash flow problems and other financial hardships, which could affect timeliness of doing business with us.

 

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

 

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

 

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

 

10

 

 

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

 

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

 

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

 

The success of our business depends on the continuing contributions of Mohd Mahyudin bin Zainal and other key personnel who may terminate their employment with us at any time, and we will need to hire additional qualified personnel.

 

We rely heavily on the services of Mr. Mohd Mahyudin bin Zainal, director and CEO of our Company and Ms. Norlizah binti Zainal, our Chief Technology Officer, as well as several other management personnel. Loss of the services of any such individuals would adversely impact our operations. In addition, we believe our technical personnel represent a significant asset and provide us with a competitive advantage over many of our competitors and that our future success will depend upon our ability to retain these key employees and our ability to attract and retain other skilled financial, engineering, technical and managerial personnel. We do not currently maintain any "key man" life insurance with respect to any of such individuals.

 

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

 

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

 

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

 

We have no business insurance coverage.

 

We do not have any business liability or disruption insurance coverage for our operations in China and Malaysia. Any business disruption, litigation or natural disaster may result in our incurring substantial costs and the diversion of our resources.

 

We are exposed to risks associated with the ongoing financial crisis and weakening global economy, which increase the uncertainty of consumers purchasing products and/or services.

 

The recent severe tightening of the credit markets, turmoil in the financial markets, and weakening global economy are contributing to a decrease in spending by consumers.  If these economic conditions are prolonged or deteriorate further, the market for layaway services will decrease accordingly.

 

11

 

 

Our Company has experience, and continues to experience, rapid growth in operations, which has placed, and will continue to place, significant demands on its management, operational and financial infrastructure.

 

If the Company does not effectively manage its growth, the quality of its products and services could suffer, which could negatively affect the Company's brand and operating results. To effectively manage this growth, the Company will need to continue to improve its operational, financial and management controls and its reporting systems and procedures. Failure to implement these improvements could hurt the Company's ability to manage its growth and financial position.

 

Our Company's business faces inherent risk in the electronics and light appliances industry.

 

Our Group's business is subject to certain risks inherent in the electronics and light appliances industry. Our Group's revenue and operating results could be adversely affect by many factors which include, amongst others, changes in general economic, business and credit conditions, fluctuation in foreign exchange rates, changes in demand for and market acceptance of our products and services, our ability to introduce new products and services and enhancements in a timely manner, rapid technological changes, increase in operating expenses, lower profit margins due to pricing competition and delay in expansion plans.

 

Our Group seeks to limit these business risks through, inter-alia prudent management policies, keeping abreast with new developments and technologies in the relevant industries and maintaining good relationship with customers and suppliers. However there can be no assurance that any changes in these factors will not have any material adverse effect on our Group's business.

 

Our Company's business faces competition from local and foreign competitors.

 

Our Group faces competition from both local and foreign competitors which offer similar products that of our Group offerings. Increased competition could result in competitive pricing resulting in lower profit margins. However, our Group believes that we have competitive edge over our competitors; including amongst others, quality products from our suppliers, access to R&D capabilities and technological expertise acquired over the years.

 

Our Group seeks to limit the competitive risks through, inter-alia constant review of our development and marketing strategies to adapt to changes in economic conditions and market demands as well as focusing on certain markets and industries. However, there can be no assurance that our Group will be able to compete effectively against our competitors and that competitive pressure will not materially and adversely affect our Group's business, operations and results and or financial condition.

 

12

 

 

Risks Relating to Our Organization and Our Common Stock

 

Public company compliance may make it more difficult for us to attract and retain officers and directors.

 

The Sarbanes-Oxley Act and new rules subsequently implemented by the SEC have required changes in corporate governance practices of public companies. As a public company, we expect these new rules and regulations to increase our compliance costs and to make certain activities more time consuming and costly. As a public company, we also expect that these new rules and regulations may make it more difficult and expensive for us to obtain director and officer liability insurance in the future and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our board of directors or as executive officers.

 

We may not be able to attract the attention of major brokerage firms.

 

Securities analysts of major brokerage firms may not provide coverage of us since there is no incentive to brokerage firms to recommend the purchase of our Common Stock. No assurance can be given that brokerage firms will, in the future, want to conduct any secondary offerings on behalf of our Company.

 

Our stock price may be volatile.

 

The market price of our Common Stock is likely to be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control, including the following:

 

  * changes in our industry;
  * competitive pricing pressures;
  * our ability to obtain working capital financing;
  * additions or departures of key personnel;
  * limited "public float" in the hands of a small number of persons whose sales or lack of sales could result in positive or negative pricing pressure on the market price for our Common Stock;
  * sales of our Common Stock;
  * our ability to execute our business plan;
  * operating results that fall below expectations;
  * loss of any strategic relationship;
  * regulatory developments;
  * economic and other external factors; and
  * period-to-period fluctuations in our financial results.

 

In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our Common Stock.

 

We may not pay dividends in the future. Any return on investment may be limited to the value of our Common Stock.

 

We do not anticipate paying cash dividends in the foreseeable future. The payment of dividends on our Common Stock will depend on earnings, financial condition and other business and economic factors affecting us at such time as our board of directors may consider relevant. If we do not pay dividends, our Common Stock may be less valuable because a return on your investment will only occur if our stock price appreciates.

 

13

 

There is currently no liquid trading market for our Common Stock and we cannot ensure that one will ever develop or be sustained.

 

To date there has not been a liquid trading market for our Common Stock. We cannot predict how liquid the market for our Common Stock might become. As soon as is practicable after becoming eligible, we anticipate applying for listing of our Common Stock on either the NYSE Amex Equities, The Nasdaq Capital Market or other national securities exchange, assuming that we can satisfy the initial listing standards for such exchange. We currently do not satisfy the initial listing standards for any of these exchanges, and cannot ensure that we will be able to satisfy such listing standards or that our Common Stock will be accepted for listing on any such exchange. Should we fail to satisfy the initial listing standards of such exchanges, or our Common Stock is otherwise rejected for listing and remains quoted on the OTC Bulletin Board or is suspended from the OTC Bulletin Board, the trading price of our Common Stock could suffer and the trading market for our Common Stock may be less liquid and our Common Stock price may be subject to increased volatility.

 

Furthermore, for companies whose securities are quoted on the OTC Bulletin Board, it is more difficult (i) to obtain accurate quotations, (ii) to obtain coverage for significant news events because major wire services generally do not publish press releases about such companies and (iii) to obtain needed capital.

 

Our Common Stock is currently a "penny stock," which may make it more difficult for our investors to sell their shares.

 

Our Common Stock is currently and may continue in the future to be subject to the "penny stock" rules adopted under Section 15(g) of the Exchange Act. The penny stock rules generally apply to companies whose Common Stock is not listed on The NASDAQ Stock Market or other national securities exchange and trades at less than $4.00 per share, other than companies that have had average revenue of at least $6,000,000 for the last three years or that have tangible net worth of at least $5,000,000 ($2,000,000 if the company has been operating for three or more years). These rules require, among other things, that brokers who trade penny stock to persons other than "established customers" complete certain documentation, make suitability inquiries of investors and provide investors with certain information concerning trading in the security, including a risk disclosure document and quote information under certain circumstances. Many brokers have decided not to trade penny stocks because of the requirements of the penny stock rules and, as a result, the number of broker-dealers willing to act as market makers in such securities is limited. If we remain subject to the penny stock rules for any significant period, it could have an adverse effect on the market, if any, for our securities. Since our securities are subject to the penny stock rules, investors may find it more difficult to dispose of our securities.  

 

Offers or availability for sale of a substantial number of shares of our Common Stock may cause the price of our Common Stock to decline.

 

If our stockholders sell substantial amounts of our Common Stock in the public market, or upon the expiration of any statutory holding period under Rule 144, or issued upon the exercise of outstanding options or warrants, it could create a circumstance commonly referred to as an "overhang" and in anticipation of which the market price of our Common Stock could fall. The existence of an overhang, whether or not sales have occurred or are occurring, also could make more difficult our ability to raise additional financing through the sale of equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate.

 

Mr. Mohd Mahyudin bin Zainal, our CEO and Director, and his siblings Ms. Norlizah binti Zainal, our CTO and Director, and Ms. Norjannah binti Zainal beneficially owns or holds the proxies for a substantial portion of our outstanding Common Stock, which enables him to influence many significant corporate actions and in certain circumstances may prevent a change in control that would otherwise be beneficial to our stockholders.

 

Mr. Mohd Mahyudin bin Zainal and his siblings beneficially owns and holds the proxies for approximately 32% of our outstanding Common Stock. As such, he has a substantial impact on matters requiring the vote of the stockholders, including the election of our directors and most of our corporate actions. This control could delay, defer, or prevent others from initiating a potential merger, takeover or other change in our control, even if these actions would benefit our stockholders and us. This control could adversely affect the voting and other rights of our other stockholders and could depress the market price of our Common Stock.

 

14

 

 

RISKS RELATED TO DOING BUSINESS IN CHINA

 

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

 

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

 

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

 

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

 

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

 

We face risks related to health epidemics and other outbreaks.

 

Our business could be adversely affected by the effects of SARS, Avian Flu or another epidemic or outbreak. China reported a number of cases of H5N9 in March/April 2013. Any prolonged recurrence of SARS or other adverse public health developments in China may have a material adverse effect on our business operations. For instance, health or other governmental regulations adopted in response may require temporary closure of Internet cafes, which is one of the avenues where users could access our websites, or of our offices. Such closures would severely disrupt our business operations and adversely affect our results of operations. We have not adopted any written preventive measures or contingency plans to combat any future outbreak of SARS or any other epidemic.

 

15

 

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

16

 

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

17

 

 

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

 

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

 

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

 

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

 

18

 

 

RISKS RELATED TO THE ELECTRICAL AND ELECTRONICS SECTOR IN MALAYSIA

 

Electrical and electronics sector is not homogeneous and therefore has its own life cycle and is difficult to track

 

The Electrical and Electronics (E&E) sector is not homogeneous, covering a wide range of products and technologies including consumer electronics, semiconductors, personal computers, RF (radio frequency) and Wireless Systems, Test and Measurement as well as Light Emitting Diodes (LEDs). This diversity makes the sector difficult to track, as each of these technologies, individually, has its own life cycle, value supply chain, and accordingly issues and challenges. While the focus thus far has been on individual companies and their needs, there is a strong need to look at these companies as part of a technology platform ecosystem and understand how the activities can be expanded, integrated and linked to the local economy, so that a more holistic picture of the ecosystem emerges.

 

The industry is dominated by the MNCs and the role of local companies has largely been confined to being vendors, suppliers or outsourcing partners. Despite this sector being in Malaysia for more than 35 years, there is no internationally acclaimed Malaysian company in this field. The role of local vendors, largely in the fields of metalworking (machining, mould and die, stamping) and plastics (injection molding) and packaging and testing has been challenged by the practice of international procurement, driven by processes such as e-Bidding and Approved Vendor lists. Inability to secure long-term steady revenue and faced with cyclical demand that requires considerable staying power, many local companies shifted into other areas of business or downsized.

 

Rapid technological developments can render the present technology utilised by E & E companies obsolete

 

Rapid technological developments can render the present technology utilised by E & E companies obsolete and result in the inability of these companies to compete effectively. Realising that technology is a vital component in product development and manufacturing, such companies should provide for continuous research and development to ensure that its products maintain a high standard and quality suitable for its clients' brand names. The research and development undertaken also encompasses improvement to product design, material and finished goods development.

 

Increase competition in China will have downward pressure on our pricing, business and profitability.

 

The WTO, AFTA and other regional arrangements will further liberalize trade, intensifying competition both in the domestic as well as international markets. The strong emergence of China in the global economy will also increase competition, particularly for the common exports of both countries.

 

At the firm and industry levels, initiatives must be taken to increase productivity so as to reduce the cost of production and raise the quality of the product or service. This will require firms to upgrade their technology by introducing new machinery and raising technological capability. Efforts towards this end must also be complemented by increasing labour productivity through continuous skill upgrading of employees as well as improving entrepreneurial and managerial skills. In addition, firms need to accelerate the implementation of the productivity linked wage system.

 

Pricing of key components such as oil and crucial parts may fluctuate and increase our costs and reducing our profitability.

 

The E & E activities are dependent on petrochemical based raw materials; this includes raw materials for its parts and components. Hence, fluctuations in the price of oil could affect the E & E companies' cost structure whereby sudden increases in oil prices would impinge on their profitability.

 

Also, the availability of raw materials will invariably have an impact on the performance of E & E manufacturing based companies which source its raw materials both locally and overseas. However, there can be no assurance that any shortages in raw materials will not have any impact on the performance of these companies.

 

We are subject to foreign exchange fluctuations and government imposition of restrictions to capital market

 

Most E & E companies are subject to foreign exchange fluctuations through the import of raw materials and export of finished goods. Previously, the Malaysian government imposed capital market restrictions and fixed the exchange rate of USD1 to RM3.80. Currently however, there can be no assurance that the removal of the capital control regime will not affect the performance of these companies.

 

19

 

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

None.

 

ITEM 2. PROPERTIES.
 
PROPERTY HELD BY US. Neither the Company nor its subsidiaries own any properties or facilities.
 
OUR FACILITIES. As at December 31 2012, our executive and administrative office is located at 1402 Wan Chai Commercial Center, 194-204 Johnston Road, Wanchai, Hong Kong. The Company uses about 1,500 square feet of this office at a cost of about US$3,760 per month. We have terminated the lease in April 2013.

 

The other operating office is currently located at Jalan Ikan Mata Duyong, Off Jalan Telok Gong, Mukim Klang, Selangor, Malaysia where we have a 2,000 sq. ft. administration office to handle sales and trading enquiry at monthly rent of approximately $11,810.

 

ITEM 3. LEGAL PROCEEDINGS.
 
There are no legal actions pending against us nor are any legal actions contemplated by us at this time.

 

ITEM 4. MINE SAFETY DISCLOSURES.
 
Not applicable.

 

20

 

 

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

 

MARKET INFORMATION.

 

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

 

The following table shows the reported quarterly high and low closing sales price for our shares within the last two fiscal years on the OTC Bulletin Board. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions. Investors should not rely on historical prices of our Common Stock as an indication of its future price performance. The closing price of our Common Stock on December 31, 2012 was $ 0.013 per share.

 

  Quarter High Low
  ------------------------ ------------- --------------
  Fourth Quarter 2012 $0.020 $0.010
  Third Quarter 2012 $0.030 $0.010
  Second Quarter 2012 $0.038 $0.007
  First Quarter 2012 $0.0119 $0.0030
       
  Fourth Quarter 2011 $0.01 $0.004
  Third Quarter 2011 $0.01 $0.0045
  Second Quarter 2011 $0.021 $0.008
  First Quarter 2011 $0.034 $0.014
       

 

HOLDERS.

 

The number of record holders of our common stock as of September 5, 2013, was approximately 60 based on information received from our transfer agent. This amount excludes an indeterminate number of shareholders whose shares are held in "street" or "nominee" name.

 

DIVIDENDS.

 

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

 

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

 

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STOCK OPTIONS.

 

During the year, we have two effective equity compensation plans: (1) the 2002 Stock Option Plan and (2) the 2007 Stock Incentive Plan. The 2002 Stock Option Plan expired in October 2012. The following table presents information relating to these plans as of December 31, 2012.

 

EQUITY COMPENSATION PLAN INFORMATION.

 

Plan Category   Number of Securities to be issued upon Exercise of outstanding options, warrants and rights   Weighted average of exercise price of outstanding options, warrants and rights   Number of securities remaining available for future issuance under equity compensation plans (Excluding securities reflected in column a)
    (a)   (b)   (c)
             
Equity compensation plans approved by security holders   19,000,000   $0.010   35,588,700
             
Equity compensation plans not approved by security holders   -   -   -
             
Total   19,000,000   $0.010   35,588,700
             

 

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2002 Stock Option Plan

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

There were 19,000,000 stock options to purchase our Common Stock under the 2002 Stock Option Plan, issued in 2010 and outstanding as at January 1 2012 and as at December 31, 2012.  In September 2013, these 19,000,000 stock options were terminated.

 

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2007 Stock Incentive Plan

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

From 2007 to 2010 the Company issued a total of 5,811,300 shares under the 2007 Stock Incentive Plan.

 

In 2011 and 2012, the Company did not issue any shares under the 2007 Stock Incentive Plan.

 

In summary, as of December 31, 2012, (i) the Company has issued 5,811,300 shares under the 2007 Stock Incentive Plan, (ii) there are no outstanding stock options to purchase our Common Stock under the 2007 Stock Incentive Plan and, (iii) there are still 32,588,700 shares issuable under the 2007 Stock Incentive Plan.

 

 

24

 

 

 

ISSUER PURCHASES OF EQUITY SECURITIES.

 

No repurchases of our Common Stock were made during the fourth quarter and during our fiscal year ended December 31, 2012.

 

PENNY STOCK REGULATIONS.

 

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

 

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

 

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

 

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

 

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

 

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

 

ITEM 6. SELECTED FINANCIAL DATA

 

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

 

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

 

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

 

Year ended December 31, 2012 compared with year ended December 31, 2011

 

Results of Operations

 

For the year ended December 31, 2012, net sales was $2,449,487 as compared to the prior year of $4,299,648, representing a decrease of about 43%. This sales decrease was due mainly to the decrease of the washing machines and freezers and export sales.

 

For the year ended December 31, 2012, the cost of goods sold was $1,557,672 as compared to the prior year of $2,804,919, making our gross profit of $891,815 (2011: $1,494,729) for the year.

 

For the year ended December 31, 2012 operating expenses were $8,012,585 as compared $965,886, an increase of $7,046,699 or about 730% from the prior year which was mainly attributable to the increase of provision for bad debts and investment in shares of a total of $618,807, impairment of goodwill of $6,323,061. (2011: nil) and combined with the decrease in the following: i) the staffing costs of $386,174 (2011: $479,545), and ii) marketing expenses of $27,213 (2011: $48,942), iii) no administrative expense from related party (2011: $160,000) and iii) administration expenses of $189,420 (2011: $250,456).  

 

In 2012, the Company incurred an impairment of goodwill loss of $6,323,061 (2011: nil) relating to the acquisition of the ATeam by China Media Group Corporation prior to the reverse merger as described in detail in Note 1 to the financial statements.

 

During the year the interest expenses increased to $147,322 as compared to $73,919 in the prior year.

 

During the year the Group earned losses and accordingly the Group did not have any income tax expense (2011: $127,947).

 

The operating loss increased to $7,190,445 for the year ended December 31, 2012 from the prior year profit of $355,678.

 

26

 

 

Liquidity and Capital Resources.

 

Net cash provided by operating activities was $57,897 during the year ended December 31, 2012 as compared to net cash used in operating activities of $71,341 in the prior year.  The Company intends to monitor the monthly cash outlays in the coming months and conserve cash until additional financing can be received through other funding. The net loss for the year was $7,190,445 compared to net profit of $355,678 in the prior year.

 

Net cash provided by investing activities was $18,047 (2011: $19,258) during the year ended December 31, 2012.

 

Net cash used in financing activities was $126,101 during the year ended December 31, 2012 as compared to net cash

provided by financing activities of $297,781 for the year ended December 31, 2011.

 

At present the Company does not have sufficient cash resources, receivables and cash flow to provide for all general corporate operations in the foreseeable future. In 2012, the Group acquired through reverse merger ATeam which brought immediate business to the Group.  However the Group requires cashflow of funds to develop and sustain the consumer electronic business.  The Company will be required to raise further funds to meet its other liabilities and operation requirements to continue to operation in 2013 by i) selling its Common Stock ii) raise from the capital markets, iii) sell additional assets.

 

In October 2013, the Company entered into the SP Agreement to acquire Clixster Mobile by the issuance of 10,193,609,664 Common Stock representing approximately 90% of the enlarged issued share capital of the Company. Clixster Mobile is a MVNO company engage in the provisioning of cellular and mobile broadband services in Malaysia. If this acquisition closes, it will change the direction of the Company from a trading in consumer electronics and light appliances to a service company providing cellular and mobile data services. This transaction has not closed as at the date of this report.

 

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.

 

As of December 31, 2012, the Company has an accumulated deficits totaling $5,995,435 and its current liabilities exceed its current assets by $1,202,196. The Company has also experienced a significant loss from operations in 2012 as a result of the write down of the goodwill. For the year ended December 31, 2012, the Company incurred net losses of $7,190,445.
The Company's ability to continue as a going concern is contingent upon its ability to secure additional financing and attain profitable operations. In addition, the Company's ability to continue as a going concern must be considered in light of the problems, expenses and complications frequently encountered in developing markets and the competitive environment in which the Company operates.

 

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

 

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

 

Off-Balance Sheet Arrangements.

 

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

 

Capital Expenditure Commitments.

 

We had no material capital expenditures for the year ended December 31, 2012. However we expect to invest, subject to availability of funding, approximately $500,000 in capital expenditure over the next 12 month for the electronics trading business.

 

27

 

 

Critical Accounting Policies.

 

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

 

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

 

Revenue Recognition

 

In general, the Company records revenue when persuasive evidence of an arrangement exists, services have been rendered or product delivery has occurred; the sales price to the customer is fixed or determinable and collect ability is reasonably assured. The following policies reflect specific criteria for the various revenues streams of the Company: - Revenue is recognized at the time the product is delivered. Provision for sales returns will be estimated based on the Company's historical return experience. Revenue is presented net of returns.

 

Stock-Based Compensation

 

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

 

The Company accounts for stock based compensation in accordance with ASC 718 "Compensation ¨C Stock Compensation" which, 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 ¨CBased Payments to Non-Employees". Measurement of share-based payment transactions with non-employees shall be based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction should be determined at the earlier of performance commitment date or performance completion date.

 

Recently Issued Accounting Pronouncements

 

Recently issued accounting pronouncements and their effect on us are discussed in the notes to the consolidated financial statements in our December 31, 2012 audited financial statements.

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

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

 

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

Consolidated Financial Statements

 

Please see page F-1 through F-25 of this Form 10-K.

 

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

 

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

 

ITEM 9A. CONTROLS AND PROCEDURES.

 

Disclosure Controls and Procedures

 

Under the supervision and with the participation of our management, including our Chief Executive Officer, Mohd Mahyudin bin Zainal, and our Chief Financial Officer, Mohd Suhaimi bin Rozali, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act as of a date (the "Evaluation Date") within ninety (90) days prior to the filing of our December 31, 2012 Form 10-K.

 

Based upon that evaluation, our Management has concluded that, as of December 31, 2012, our disclosure controls and procedures were not effective in timely alerting management to the material information relating to us (or our consolidated subsidiaries) required to be included in our periodic filings with the SEC.

 

Internal Control over Financial Reporting

 

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

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

 

29

 

 

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

 

Our management, with the participation of its CEO and President, assessed the effectiveness of our internal control over financial reporting as of December 31, 2012. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of The Treadway Commission (COSO) in Internal Control-Integrated Framework.  Based on that assessment under such criteria, management concluded that our internal controls over financial reporting were not effective as of December 31, 2012 due to control deficiencies that constituted material weaknesses. A material weakness is a control deficiency, or combination of control deficiencies, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

 

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

 

We are in the process of developing and implementing remediation plans to address our material weaknesses.

 

Management has identified specific remedial actions to address the material weaknesses described above:

 

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

 

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

 

Changes in Controls and Procedures

 

There were no significant changes made in our internal controls over financial reporting during the year ended December 31, 2012 that have materially affected or are reasonably likely to materially affect these controls. Thus, no corrective actions with regard to significant deficiencies or material weaknesses were necessary.

 

Attestation Report of the Registered Public Accounting Firm

 

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

 

ITEM 9B. OTHER INFORMATION

 

None.

 

30

 

 

PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERANCE.
 
Executive Officers and Directors. Our directors and principal executive officers are as specified on the following table:
 

 

NAME AGE POSITION
------------------------------ ------- -------------------------------------------------------------------------------------------
MohdMahyudin bin ZAINAL 44 President, Chief Executive Officer and Director
Norlizah binti ZAINAL 48 Director
Mohd Suhaimi bin ROZALI 52 Chief Financial Officer, Company Secretary, and Treasurer
     
Mohd Khairudin bin RAMLI 42 Director
------------------------------ ------- ------------------------------------------------------------------------------------------
     

 

MOHD MAHYUDIN BIN ZAINAL. Mr. Zainal was appointed as Director and Chief Executive Officer of the Company on June 8, 2012. Since August 2008, Mr. Zainal has been the Chief Executive Officer of ECE Technologies Sdn. Bhd which is now the major shareholder of China Media Group Corporation. Mr. Zainal obtained a Bachelor of Law Degree LLB (Hons) from Universiti Kebangsaan Malaysia and has been admitted as Advocate & Solicitor of High Court Of Malaya in 1994. He has extensive experience in many spheres of law including commercial litigation, conveyancing and corporate legal practice. He has been involved in large scale corporate restructuring exercises involving corporate restructuring, mergers and acquisitions of public listed companies locally in Malaysia and also acquisitions of foreign companies in South East Asia. He was directly involved in the listing of Mutiara Goodyear Development Berhad on the Main Board of Bursa Malaysia and the restructuring of Idaman Unggul Berhad (formerly known as Idris Hydraulic (M) Berhad). He was also directly involved in the establishment of Tahan Insurance Berhad via the merger of three insurance companies namely Talasco Insurance Berhad, Tenaga Insurance Berhad and People Insurance Berhad.

 

Prior to joining ECE Technologies in August 2008, he was a Chief Executive Officer/President of WWCable Berhad (company listed in Bursa Malaysia). He was involved in various industries such as manufacturing, property development, construction, financial and insurance and also an executive director and director of several public listed companies listed in Bursa Malaysia namely Idaman Unggul Berhad, Idris Hydraulic Berhad, Mutiara Goodyear Development Berhad, Sern Kou Resources Berhad, Tap Resouces Berhad. He was also Director of Talasco Insurance Berhad, People Insurance Berhad and Tahan Insurance Berhad. Mr. Zainal is not an officer or director of any reporting company.

 

NORLIZAH BINTI ZAINAL. Ms. Zainal was appointed as Director and Chief Technology Officer of the Company on June 8, 2012. Ms. Zainal graduated with a Degree in Electrical Engineering (Hons) from Universiti Teknologi Malaysia in 1989 and obtained a Diploma in Translation (Science and Technical) from Dewan Bahasa dan Pustaka Malaysia in 1990. She was attached to Muhibbah Engineering CMS Berhad as a consultant engineer before joining Ericsson Telecommunications, Malaysia in 1990. During her eleven years at Ericsson, she was responsible for local and international tenders as well as conducting training for local and international staff and clients. In 2002, she joined Unique Network Sdn Bhd. She joined ECE Technologies, the now major shareholder of China Media Group Corporation, on August 1, 2008 as Chief Technical Officer. Ms. Zainal is not an officer nor a director of any reporting company.

 

MOHD SUHAIMI BIN ROZALI. Mr. Rozali was appointed Chief Financial Officer, Treasurer and Secretary of the Company on June 8, 2012. Mr Rozali graduated from Universiti Teknologi Mara and started his career with Bank Bumiputra Malaysia Berhad, serving at its branches and in the commercial banking division. He later joined the public listed company, Idris Hydraulic (Malaysia) Bhd ("IHMB") in November 2000 and was part of the white knight's team that undertook the comprehensive corporate debt restructuring exercise of IHMB. Upon the completion of the restructuring exercise of IHMB, the white knight company, Idaman Unggul Berhad ("IUB") assumed the listing status of IHMB and was listed on the Main Board of Bursa Malaysia on November 2003. Mr Rozali left IUB to join Transmission Resources Sdn. Bhd. in November 2005, before leaving Transmission Resources Sdn. Bhd. to set up his own company in February 2007. He joined ECE Technologies in December 2009. Mr. Rozali is not an officer or director of any reporting company.

 

31

 

 

 

 

 

MOHD KHAIRUDIN BIN RAMLI. Mr. Ramli was appointed to be our director on March 9, 2012. Mr. Ramli is a seasoned businessman with over 15 years of experience in Malaysia and South East Asia.  Mr. Ramli has broad experience and proven ability to execute and deliver successful business operations and proven his entrepreneurship skills For the past 5 years, Mr. Ramli has been doing trading business in Malaysia. Mr. Ramli is not an officer or director of any reporting company.

 

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

 

 
AUDIT COMMITTEE AND FINANCIAL EXPERT. The Committee has adopted regulations relating to audit committee composition and functions, including disclosure requirements relating to the presence of an "audit committee financial expert" serving on its audit committee. In connection with these requirements, our Board of Directors examined the Committee's definition of "audit committee financial expert" and concluded that we do not currently have a person that qualifies as such an expert. Presently, there are only five directors serving on our Board of which two are in the audit committee, and we are not in a position at this time to attract, retain and compensate additional directors in order to acquire a director who qualifies as an "audit committee financial expert", but we intend to retain an additional director who will qualify as such an expert, as soon as reasonably practicable. While neither of our current audit committee members meet the qualification of an "audit committee financial expert", each of our audit committee members, by virtue of his past employment experience, has considerable knowledge of financial statements, finance, and accounting, and has significant employment experience involving financial oversight responsibilities. Accordingly, we believe that our current audit committee members capably fulfill the duties and responsibilities of an audit committee in the absence of such an expert.
 
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE. Section 16(a) of the Securities Act of 1934 requires our directors, executive officers, and any persons who own more than 10% of a registered class of our equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission. SEC regulation requires executive officers, directors and greater than 10% stockholders to furnish us with copies of all Section 16(a) forms they file. Based solely on our review of the copies of such forms received by us, or written representations from certain reporting persons, we believe that during the fiscal year ended December 31, 2012 our executive officers, directors, and greater than 10% stockholders complied with all applicable filing requirements.
 
CODE OF ETHICS. We have adopted a corporate code of ethics that applies to the Company's principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions. The full text of our Code of Conduct is published on our website at www.chinamediagroup.net. The Company shall disclose any substantive amendments to the Code of Ethics or any waivers from a provision of the code on its website at  www.chinamediagroup.net or in a report on Form 8-K.

 

32

 

 

ITEM 11. EXECUTIVE COMPENSATION.
 
Any compensation received by our officers, directors, and management personnel will be determined from time to time by our Board of Directors. Our officers, directors, and management personnel will be reimbursed for any out-of-pocket expenses incurred on our behalf.
 
COMPENSATION FOR DIRECTORS AND EXECUTIVES.
 
The following table sets forth the annual and long-term compensation for services in all capacities to the Company for its fiscal year ended December 31, 2012 paid to our directors and executive officers who earned more than $100,000 per year at the end of the last completed fiscal year. We refer to all of these officers collectively as our "named executive officers."

 

SUMMARY COMPENSATION TABLE
Name and principal position Year (6) Salary ($) Bonus ($)

Stock Awards

($)

Option Awards

($)

Non-Equity Incentive Plan Compensation

($)

Nonqualified Deferred Compensation Earnings

($)

All Other Compensation ($) Total ($)
---------------------- ------- ------------- ------------ --------- ---------- --------------- ------------------ --------------- --------------
Mohd Mahyudin bin Zainal (1) 2012 - - - - - - - -
Norizah binti Zainal (2) 2012 - - - - - - - -
Mohd Suhaimi bin Rozali (3) 2012 - - - - - - - -
Mohd Khairudin bin Ramli (4) 2012 - - - - - - - -
Pui Kit Lam (5) 2012 nil - - - - - - nil
  2011 3,943 - - - - - - 3,943
Cheng Pheng Loi (6) 2012 - - - - - - - -
  2011 - - - - - - - -
  2010 9,000 - - - - - - 9,000
Con Unerkov (7) 2012 - - - - - - - -
  2011 - - - - - - - -
  2010 - - - - - - - -
Alex Ho (8) 2011 - - - - - - - -
  2010 - - - - - - - -
                   

 

(1) Mohd Mahyudin bin Zainal was appointed as CEO, President and Director on June 8, 2012.
(2) Norizah binti Zainal was appointed as CTO and Director on June 8, 2012.
(3) Mohd Suhaimi bin Rozali was appointed as CFO, Treasurer and Secretary on June 8, 2012.
(4) Mohd Khairudin bin Ramli was appointed as Director on March 9, 2012.
(5) Mr. Pui Kit Lam has been a director from April 8, 2011 to February 25, 2013 and the Treasurer and Secretary from April 8, 2011 to June 8, 2012.
(6) Mr. Cheng Pheng Loi is the President, CEO, and Director of the Company with effect from May 2009 until June 8, 2012 when he resigned from all positions.
(7) Mr. Con Unerkov is the CFO, and Director and he resigned from these two positions on June 8, 2012 and January 25, 2013, respectively.  
(8) Mr. Alex Ho was the Treasurer, Secretary and Director from January 1, 2010 until April 8, 2011 when he resigned.
(9) Figures represent the year ended December 31 for the indicative years.

 

 

33

 

 

 

 

 

The following table sets forth certain information concerning stock option awards granted to our executive officers and our directors. No options were exercised by our executive officers or directors during the year ended December 31, 2012 and 2011.

 

OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2012
------------------------------------------------------------------------------------------------------------------------------------------------------
OPTION AWARDS STOCK AWARDS
                   
Name Number of securities underlying unexercised options (#) Exercisable

Number of securities underlying unexercised options (#)

Unexercisable

Equity Incentive Plan Awards: Number of Securities underlying unexercised unearned options (#) Option exercise price ($) Option expiration date Number of shares or units of stock that have not vested (#) Market value of shares or units of stock that have not vested ($) Equity incentive plan awards: number of unearned shares, units or other rights that have not vested (#) Equity incentive plan awards: Market or payout value of unearned shares, units or other rights that have not vested (#)
  ---------- ------------ ----------- -------- --------- --------- ---------- ---------- ----------
Mohd Mahyudin bin Zainal (1) - - - - - - - - -
Norizah binti Zainal (2) - - - - - - - - -
Mohd Suhaimi bin Rozali (3) - - - - - - - - -
Mohd Khairudin bin Ramli (4) - - - - - - - - -
 Pui Kit LAM (5) - - - - - - - - -
Cheng Pheng LOI(6) - - - - - - - - -
Con Unerkov (7) - - - - - - - - -
Alex Ho (8) - - - - - - - - -
                   
                     

 

(1) Mohd Mahyudin bin Zainal was appointed as CEO, President and Director on June 8, 2012.
(2) Norizah binti Zainal was appointed as CTO and Director on June 8, 2012.
(3) Mohd Suhaimi bin Rozali was appointed as CFO, Treasurer and Secretary on June 8, 2012.
(4) Mohd Khairudin bin Ramli was appointed as Director on March 9, 2012.
(5) Mr. Pui Kit Lam has been a director from April 8, 2011 to February 25, 2013 and the Treasurer and Secretary from April 8, 2011 to June 8, 2012.
(6) Mr. Cheng Pheng Loi is the President, CEO, and Director of the Company with effect from May 2009 until June 8, 2012 when he resigned from all positions.
(7) Mr. Con Unerkov is the CFO, and Director and he resigned from these two positions on June 8, 2012 and January 25, 2013, respectively.  
(8) Mr. Alex Ho was the Treasurer, Secretary and Director from January 1, 2011 until April 8, 2011 when he resigned.

 

 

Employment Agreements

 

In 2012, all the directors did not receive any salaries and did not have any employment contracts with the Group.

 

In 2011, Mr. Pheng Cheng LOI was working on 3 months contracts at a monthly fee of US$3,000 and Messrs. Unerkov and Ho did not receive any salary for 2011. Mr. Lam received a salary remuneration of $3,943 in 2011.

 

34

 

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT RELATED STOCKHOLDER MATTERAS.
 
The following table sets forth information regarding shares of our common stock beneficially owned as of December 31, 2012 by: (i) each of our officers and directors; (ii) all officers and directors as a group; and (iii) each person known by us to beneficially own five percent or more of the outstanding shares of our common stock.

 

Name/Address(1)

Common

Stock

Common Stock

Options

Exercisable

Within

60 Days

Common Stock

Purchase

Warrants/

Convertible Note

Exercisable

Within 60 Days

Total Stock

and Stock

Based

Holdings (1)

%

Ownership (2)

--------------------------- ------------------ ----------------- -------------------- ------------------ -----------------
Mohd Mahyudin bin Zainal(3)(4) (9) 57,404,774 - - 57,404,774 5.06%
Norlizah binti Zainal(3)(4) (8) 79,864,392 - - 79,864,392 7.04%
Mohd Suhaimi bin Rozali(4) - - - - -
Mohd Khairudin bin Ramli(3) - - - - -
Lam Pui Kit (3)(7)   62,500,000 - - 62,500,000 5.51%
Con Unerkov(3) (5) (11) 32,619,863 - - 32,619,863 2.87%
           
  ------------------ ------------------- -------------------- ------------------ ------------------

All officers and directors as a group

(6 persons)

232,389,029 - - 232,389,029 20.48%
           
           

Maxcom Group International Ltd. (MGIL)

of P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands.

141,666,668 - - 141,666,668 12.48%
           

Liu Kang (6),

No 42, Tujilin Wuchan, Wuhan City, Hubei Ching, China.

141,666,668 - - 141,666,668 12.48%
           

Central High Limited (CHL)

of P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands.

125,000,000 - - 125,000,000 11.01%

ECE Technologies Sdn. Bhd. (ECE)

of No.55 Jalan Snuker 13/28, Tadisma Business Park, Section 13, 40100 Shah Alam, Malaysia

358,779,837 - - 358,779,837 31.62%
Norjannah binti Zainal(10) 79,864,392 - - 79,864,392 7.04%
           

 

35

 

 

 

 

Notes:

 

(1) Except as otherwise indicated, based on information furnished by the owners, we believe that the beneficial owners listed above have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them, subject to community property laws where applicable and to the information contained in the footnotes to this table. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Unless otherwise indicated, the address of the beneficial owner is c/o China Media Group Corporation at No.55 Jalan Snuker 13/28, Tadisma Business Park, Section 13, 40100 Shah Alam, Malaysia.
(2) For purposes of computing the percentage of outstanding Common Stocks held by each person or group of persons named above, any shares that such person or group has the right to acquire within 60 days are deemed outstanding but are not deemed to be outstanding for purposes of computing the percentage ownership of any other person or group. As of the date of the table above, there were 1,113,623,296 outstanding shares of our common stock and options, warrants, and convertible notes entitling the holders to purchase 21,205,376 additional shares of our Common Stock owned by officers and/or directors of the Company.
(3) A director of Company as of December 31, 2012.
(4) An officer of Company as of December 31, 2012
(5) Includes 31,250,000 shares of common stock held by CHL. Mr. Con Unerkov holds 25% shareholding of CHL.
(6) Includes 141,666,668 shares of common stock held by MGIL. Mr. Liu Kang is a director and holds 100% shareholding of MGIL.
(7) Includes 62,500,000 shares of common stock held by CHL. Mr. Lam Pui Kit is a director and holds 50% shareholding of CHL.
(8) Includes 79,864,392 shares of Common Stock indirectly held by Ms. Norlizah binti Zainal through the holding of ECE. Ms. Norlizah binti Zainal holds 22.26% of ECE. Ms. Norlizah binti Zainal is a sibling of Mr. Mohd Mahyudin bin Zainal.
(9) Includes 57,404,774 shares of Common Stock indirectly held by the spouse of Mr. Mohd Mahyudin bin Zainal, Ms. Nuriati binti Mohd Nordin through the holding of ECE. Ms. Nuriati binti Mohd Nordin holds 16.0% of ECE.
(10) Includes 79,864,392 shares of Common Stock indirectly held by Norjannah binti Zainal through the holding of ECE. Ms. Norjannah binti Zainal holds 22.26% of ECE. Ms. Norjannah binti Zainal is the sibling of Mr. Mohd Mahyudin bin Zainal and Ms. Norlizah binti Zainal.
(11) Resigned as director on January 25, 2013.

 

 

 

Changes in Control

 

During the year, the Company issued 558,779,837 shares to ECE to acquire 100% in ATeam. As a result of the issuance of shares, ECE became the largest single shareholder and control the board after the acquisition on June 8, 2012. As announced in the From 8K on October 30, 2013, the Company on October 29, 2013 entered into a conditional agreement to acquire 63.2% equity interests in Clixster Mobile for the purchase consideration of the issuance of 10,193,609,664 Common Stock representing approximately 90% of the enlarged issued share capital of the Company. Once this transaction is closed then the Vendors, the current owners of Clixster Mobile, will become the new controlling shareholder of the Company. As at the date of this report, except for the Clixster Mobile transaction noted above, we are unaware of any contract, or other arrangement or provisions, the operation of which may at a subsequent date result in a change of control of the Company.

 

36

 

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
 
Other than disclosed below or under the caption entitled "Executive Compensation and Other Matters", since the beginning of the Company's last fiscal year, the Company was not a participant in any transaction in which a director, officer or stockholder of the Company, or any family member of any such person, had a direct or indirect material interest where the amount involved exceeded $120,000.

 

The directors and officers of the Company during the year, Messrs. Con Unerkov, Pui Kit LAM, LOI Cheng Pheng (a former director whom resigned on June 8, 2012), Mohd Khairudin bin Ramli (appointed as a director on March 9, 2012), Mohd Suhaimi bin Rozali (appointed as an officer on June 8, 2012), and Mohd Mahyudin bin Zainal, Norlizah binti Zainal (both appointed as director on June 8, 2012) advanced a total of $152,280 and $133,027, to the Group for the years ended December 31, 2012 and 2011, respectively. Such advances were non-interest bearing, unsecured and payable on demand.

 

As at December 31, 2012, the Group advanced $0 (2011: $1,197,686) to a company in which a director has financial interests. This advance is non-interests bearing, unsecured and payable on demand.

 

During the years ended December 31, 2012 and 2011, the Company generated agency income of $227,793 and $228,948 from Total E&E Industrial Sdn. Bhd, a related company owned by certain shareholders and directors of the subsidiary company.

 

In 2011, the Company agreed to pay a monthly salary to its officers and directors for services performed. Compensation expenses of nil and $3,943 have been recognized for services provided by the officers and directors and their service companies for the year ended December 31, 2012 and 2011, respectively.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

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

 

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

 

37

 

 

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
 
AUDIT FEES. The aggregate fees billed in each of the fiscal years ended December 31, 2012 and 2011 for professional services rendered by the principal accountant for the audit of our annual financial statements and review of the financial statements included in our Form 10-K or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements as well as registration statement filings for those fiscal years were $18,000 and $20,000 respectively.
 
AUDIT-RELATED FEES. There aggregate fees billed for services reasonably related to the performance of the audit or review of the financial statements outside of those fees disclosed above under "Audit Fees" for fiscal years 2012 and 2011 were $4,200 and $3,000, respectively.
 
TAX FEES. For the fiscal years ended December 31, 2012 and December 31, 2011, our principal accountants did not render any services for tax compliance, tax advice, and tax planning work.
 
ALL OTHER FEES. None
 
PRE-APPROVAL POLICIES AND PROCEDURES. Prior to engaging its accountants to perform a particular service, our board of directors obtains an estimate for the service to be performed. All of the services described above were approved by the board of directors in accordance with its procedures.

 

38

 

 

PART IV

 

ITEM 15. EXIBITS, FINANCIAL STATEMENT SCHEDULES

 

(a) Index to Financial Statements and Financial Statement Schedules

 

Table of Contents
 
Report of Independent Registered Public Accounting Firm  
 
Consolidated Balance Sheets  
 
Consolidated Statements of Operations  
 
Consolidated Statements of Stockholders' Deficits  
 
Consolidated Statements of Cash Flows  
 
Notes to Consolidated Financial Statements

 

39

 

 

 

(c) Exhibits.
 

 

Exhibit Number Description of Exhibit
   
   
2.1 Shareholders' Agreement between Good World Investments Limited, Advance Tech Communications Sdn. Bhd. and ATC Marketing Limited(6)
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)
10.1 2002 Stock Option Plan (3)
10.2 2007 Stock Incentive Plan (4)
10.3 Sale and Purchase Agreement with ATeam Resources Sdn. Bhd (7)
10.4 Sale and Purchase Agreement with Clixster Mobile Sdn. Bhd.  (8)
21.1* Subsidiaries of small business issuer.
31.1* Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2* Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1* Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2* Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   

 

   
1. Incorporated by reference to our Registration Statement on Form SB-2 as filed with the SEC on April 15, 2003.
2. Incorporated by reference to our Current Report on Form 8-K as filed with the SEC on February 3, 2005.
3. Incorporated by reference to our 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 March 16, 2013.
8. Incorporated by reference to our Current Report on Form 8-K as filed with the SEC on October 30, 2013.
   

 

* Filed herewith.

 

40

 

 

 

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/ Mohd Mahyudin bin Zainal
  ---------------------------------------
  Mohd Mahyudin bin Zainal
 

Chief Executive Officer

 

 

 

  China Media Group Corporation
  a Texas corporation
   
    /s/ Mohd Suhaimi bin Rozali
  ---------------------------------------
  Mohd Suhaimi bin Rozali
 

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/ Mohd Mahyudin bin Zainal January 9, 2014
  --------------------------------------------  
  Mohd Mahyudin bin Zainal  
Its: Principal executive officer, President, Director  

 

By:   /s/  Norlizah binti Zainal January 9, 2014
  --------------------------------------------  
  Norlizah binti Zainal  
Its: Director  

 

By:   /s/  Mohd Suhaimi bin Rozali January 9, 2014
  --------------------------------------------  
  Mohd Suhaimi bin Rozali  
Its: Chief Financial Officer, Company Secretary, Treasurer  

 

By:   /s/ Mohd Khairudin Bin Ramli January 9, 2014
  --------------------------------------------  
  Mohd Khairudin Bin Ramli  
Its: Director  

 

41

 

 

 
China Media Group Corporation and Subsidiary
Index to Consolidated Financial Statements
For the Years Ended December 31, 2012 and 2011
 

 

Table of Contents Page
   
Report of Independent Registered Public Accounting Firm   F-2  
   
Consolidated Balance Sheets   F-3
   
Consolidated Statements of Operations   F-4
   
Consolidated Statements of Stockholders' Equity F-5
   
Consolidated Statements of Cash Flows   F-6
   
Notes to Consolidated Financial Statements F-7 to F-25

 

F-1

 

 

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

To the Stockholders and Board of Directors
China Media Group Corporation and its subsidiaries
 
We have audited the accompanying consolidated balance sheets of China Media Group Corporation and its subsidiaries (the "Company") as of December 31, 2012 and 2011 (restated), and the related consolidated statements of operations, stockholders' deficits and cash flows for the years ended December 31, 2012 and 2011 (restated). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of China Media Group Corporation and its subsidiaries as of December 31, 2012 and 2011 (restated), and the results of its operations and its cash flows for the years ended December 31, 2012 and 2011 (restated), in conformity with accounting principles generally accepted in the United States of America.
 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has incurred substantial losses this year, all of which raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. These consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

 

 
/s/ HKCMCPA Company Limited
CERTIFIED PUBLIC ACCOUNTANTS
 
Hong Kong, China
January 9, 2014
 

 

 

Unit 602, 6/F., Hoseinee House, 69 Wyndham Street, Central, Hong Kong

Tel: (852) 2573 2296 Fax: (852) 2384 2022 http://www.hkcmcpa.us

 

 

F-2

 

 

 

CHINA MEDIA GROUP CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2012 AND 2011 (Restated)

 

      2012   2011
  Notes   US$   US$
ASSETS          
Current assets:          
Cash and cash equivalents 6   38,720   23,992
Restricted cash 6   70,093   57,395
Trade receivables, net 7   869,412   1,819,683
Due from related parties 8   263,833   1,197,686
Prepayments, deposit and other receivables 9   315,154   139,055
Total current assets     1,557,212   3,237,811
           
Non-current assets:          
Property and equipment, net 10   118,574   83,905
Advanced payment for distribution rights, net 11   -   -
Investment in shares, net 12   -   -
           
Total non-current assets     118,574   83,905
           
Total assets     1,675,786   3,321,716
           
LIABILITIES AND STOCKHOLDERS' EQUITY          
Current liabilities:          
Trade payables 13   46,739   44,197
Other payables and accruals 14   1,393,115   298,534
Short term debt 15   291,548   181,030
Due to related parties 16   493,338   133,027
Trade finance payables 17   148,467   335,671
Income tax payable     124,046   90,739
Obligations under finance lease 18   25,651   24,433
Option liabilities 5   236,504   -
Total current liabilities     2,759,408   1,107,631
           
Non-current liabilities:          
Term loans 15   68,385   274,589
Obligations under finance leases 18   91,578   54,921
Shareholder loans 19   2,000,000   -
Total non-current liabilities   2,159,963   329,510
           
Total liabilities     4,919,371   1,437,141
           
Commitments and contingencies          
           
Stockholders' (deficit) equity:          
Common stock, no par value, 85,000,000,000 shares authorized, 1,113,623,296  (2011: 558,779,837) shares issued and outstanding 4   2,580,543   583,107
Comprehensive income     171,343   106,458
Non-controlling interest     (36)   -
(Accumulated deficits) retained earnings     (5,995,435)   1,195,010
Total stockholders' (deficit) equity     (3,243,585)   1,884,575
           
Total liabilities and stockholders' (deficit) equity     1,675,786   3,321,716

 

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

 

F-3

 

 

 

CHINA MEDIA GROUP CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011 (Restated)

 

 

      2012   2011
      US$   US$
           
Net revenue          
-       Agency income from related parties     227,793   228,948
-       Sale of goods from third parties     2,221,694   4,070,700
      2,449,487   4,299,648
Cost of revenue          
-       Related parties     (1,543,509)   (2,745,012)
-       Non related parties     (14,163)   (59,907)
      (1,557,672)   (2,804,919)
           
Gross profit     891,815   1,494,729
           
Operating expenses:          
Administration expenses     (1,662,311)   (916,944)
Selling and distribution expenses     (27,213)   (48,942)
Impairment on goodwill     (6,323,061)   -
(Loss)/income from operations     (7,120,770)   528,843
           
Other income / (expenses)          
    Gain on foreign exchange     16,317   -
    Gain on disposal of fixed assets     -   11,364
    Other income     61,030   16,599
    Interest income     264   738
    Interest expenses     (147,322)   (73,919)
           
(Loss)/income before taxation     (7,190,481)   483,625
Taxation     -   (127,947)
Net (loss)/income before non-controlling interest     (7,190,481)   355,678
           
Non-controlling interest     36   -
Net (loss)/income     (7,190,445)   355,678
           
Other comprehensive income:          
    Foreign currency translation gain     64,885   (51,442)
Comprehensive (loss) income     (7,125,560)   304,236
           
           
           
Basic and diluted (loss) income per common share     (0.01)   0.00
           
Basic and diluted weighted average number of common shares *     871,924,365   558,779,837

 

 

 

*

Weighted average number of shares used to compute basic and diluted loss per share for the years ended December 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, 2012 AND 2011

 

 

                             
        Number of shares   Common Stock Amount   Comprehensive Income   Retained earnings (accumulated deficits)   Non-controlling Interest   Total Stockholders' Equity (Deficit)
            US$   US$   US$   US$   US$
                       
Balance at January 1, 2011, as restated 558,779,837   583,107   157,900   839,332   -   1,580,339
Comprehensive loss ¨C foreign currency translation loss -   -   (51,442)   -   -   (51,442)
Net income for the year -   -   -   355,678   -   355,678
Balance at December 31, 2011 558,779,837   583,107   106,458   1,195,010   -   1,884,575
Issuance of shares for acquisition of legal acquirer 554,843,459   1,997,436   -   -   -   1,997,436
Comprehensive income ¨C foreign currency translation gain -   -   64,885   -   -   64,885
Net loss for the year -   -   -   (7,190,445)   (36)   (7,190,481)
Balance at December 31, 2012 1,113,623,296   2,580,543   171,343   (5,995,435)   (36)   (3,243,585)
                             

 

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

 

F-5

 

 

 

CHINA MEDIA GROUP CORPORATION
CONSOLIDATED STATEMENTS OF CASHFLOWS
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011 (Restated)

 

 

      2012   2011
      US$   US$
Cash flows from operating activities:          
 Net (loss)/income     (7,190,445)   355,678
Adjustment to reconcile net loss to net cash provided by (used in) operating activities:          
  Depreciation     35,386   64,835
  Uncontrolling interest     (36)   -
  Allowances for doubtful debts     520,829   -
  Impairment on goodwill     6,323,061   -
  Impairment on investment in shares     29,046   -
  Impairment for advance on distribution rights     68,932   -
  Gain on disposal of property and equipment     -   (11,364)
(Increase) / decrease in operating assets:          
  Trade receivable     429,442   (630,496)
  Prepaid expenses, deposit and other receivables     (87,744)   (57,677)
  Due from related parties     (931,339)   680,470
Increase / (decrease) in operating liabilities:          
  Trade payable     2,542   (38,786)
  Other payable and accrued expenses     691,867   5,604
  Trade financing payables     (187,204)   (524,059)
  Tax payables     33,307   90,739
  Due to related parties     320,253   (6,285)
Net cash provided by (used in) operating activities     57,897   (71,341)
           
Cash flows from investing activities:          
Acquisition of legal acquirer, net of cash     20,676   -
Proceeds from disposal of property and equipment     -   42,813
Purchase of property and equipment     (2,629)   (23,555)
Net cash provided by investing activities     18,047   19,258
           
Cash flows from financing activities :          
Change in restricted cash     (12,698)   (8,014)
(Repayment of) proceeds from term loans     (95,686)   342,954
Obligation under finance lease     (17,717)   (37,159) 
 Net cash (used in) provided by financing activities     (126,101)   297,781 
           
Net (decrease) / increase in cash and cash equivalents     (50,157)   245,698
Effect of exchange rate changes on cash and cash equivalents     64,885   (51,442)
Cash and cash equivalents, beginning     23,992    (170,264)
           
Cash and cash equivalents, ending     38,720   23,992
           
Supplemental disclosure of cash flow information:          
Interests paid     115,602    73,919
           
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 (Restated)

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

 

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 Company established a 50/50 joint venture company, ATC Marketing Limited, which is to be in the business of marketing and distributing of convergent multimedia communication and internet devices.  

 

In June 2012, the Company acquired 100% equity interest of A-Team Resources Sdn. Bhd. ("ATeam"), a distributor of electronics and light appliances, at a consideration price of $2,011,607 by the issuance of 558,779,837 shares, at a price of $0.0036 per share.  

 

The Company is engaged in the distribution of electronics and light appliances and the marketing and distribution of contingent devices. During the year ended December 31, 2012, the Company recorded sales in the distribution of electronics and light appliances products.

 

Subsequent to the balance sheet date, in October 2013, the Company entered into a conditional sale and purchase agreement (SP Agreement") to acquire 63.2% equity interests of Clixster Mobile Sdn. Bhd., a company incorporated in Malaysia and is a mobile virtual network provider and principally engaged in providing cellular and mobile broadband services.  Pursuant to the SP Agreement, the Company shall dispose of the current operation upon the close of this SP Agreement.  At the date of this report, the SP Agreement has not closed and further details of this transaction are set out in Note 25.  

 

NOTE 2 UNCERTAINTY OF ABILITY TO CONTINUE AS A GOING CONCERN

 

The Company's consolidated financial statements are prepared using the generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. As of December 31, 2012, the Company has an accumulated deficits totaling $5,995,435 and its current liabilities exceed its current assets by $1,202,196. 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 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.

 

F-7

 

 

 

CHINA MEDIA GROUP CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Restated)

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

 

NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

China Media Group Corporation. ("CMG" or the "Registrant"), a public traded and holding company was incorporated under the laws of the State of Texas in October 2002.  In connection with the consummation of the reverse merger transaction on June 8, 2012 with A-Team Resources Sdn. Bhd., a Malaysia corporation ("ATeam"), ATeam is considered as the accounting acquirer.

 

The share exchange transaction has been accounted for as a reverse acquisition of the Company whereby ATeam is deemed to be the accounting acquirer (legal acquiree) and the Company to be the accounting acquiree (legal acquirer). The accompanying consolidated financial statements are in substance those of ATeam, with the assets and liabilities, and revenues and expenses, of the Company being included effective from the date of the reverse acquisition. The Company is deemed to be a continuation of the business of ATeam.

 

Accordingly, the accompanying consolidated financial statements include the following:

 

(1)

the balance sheet consists of the net assets of the accounting acquirer at historical cost and the net assets of the accounting acquiree at historical cost;

 

(2) the financial position, results of operations, and cash flows of the accounting acquirer for all periods presented as if the reverse transaction had occurred at the beginning of the earliest period presented and the operations of the accounting acquiree from the date of share exchange transaction.

 

CMG and its subsidiaries are hereinafter referred to as (the "Company").

 

All references that refer to (the "Company" or "CMG" or "we" or "us" or "our") are to CMG, the Registrant and its wholly or majority owned subsidiaries unless otherwise differentiated.  The Company is now engaged in the business of distributing electronics and light appliances.

 

These accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States ("US GAAP"), and are expressed in U.S. dollars. The Company's fiscal year end is December 31.

 

Principles of Consolidation

 

The consolidated financial statements for the years ended December 31, 2012 include the financial statements of the Company, ATeam, and its wholly owned subsidiaries Ren Ren Media Group Limited, Good World Investments Limited, and two 50% subsidiaries, namely Beijing Ren Ren Health Culture Promotion Limited and ATC Marketing Limited. The Company consolidated all the above subsidiaries including the two 50% ownership companies during the period of control because of the sole largest shareholding status and/or controlling of the Board of Directors with effect from June 8, 2012 after the completion of the reverse merger with ATeam.

 

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-8

 

 

 

CHINA MEDIA GROUP CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Restated)

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

 

NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Use of Estimates

 

The preparation of consolidated 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 years presented. Actual results could differ from those estimates.

 

 

Net (Loss) Income per Share

 

Basic earnings per share were computed by dividing net loss or net profit by the weighted average number of shares of common stock outstanding during the year. Diluted loss and profit per common share for the years ended December 31, 2012 and 2011, respectively are not presented as it would be anti-dilutive. Pursuant to acquisition transaction in June 2012, the weighted average number of common shares issued and outstanding was adjusted to account for the effects of the stock exchange transaction as a reverse acquisition as more fully described in Note 1.

 

Fair Value Measurements and Disclosures

 

ASC 820 "Fair Value Measurements and Disclosures" 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

 

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

 

Restricted Cash

 

The Company maintains restricted cash accounts held with financial institutions in Malaysia, which are pledged as collateral for certain term loans that will be expired or matured in the next twelve months.

 

Trade Receivables

 

Accounts receivable are recorded at the invoiced amount and do not bear interest. The Company extends unsecured credit to its customers in the ordinary course of business but mitigates the associated risks by performing credit checks and actively pursuing past due accounts. An allowance for doubtful accounts is established and determined based on managements' assessment of known requirements, aging of receivables, payment history, the customer's current credit worthiness and the economic environment. The Company recorded $520,829 (2011: Nil) allowance for doubtful accounts for the years presented.

 

Property and Equipment

 

Property and 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
Motor vehicles 5-10 years
Office equipment and computers 2-5 years
Moulds 5 years

 

Expenditure for maintenance and repairs is expensed as incurred. The gain or loss on the disposal of plant and equipment is the difference between the net sales proceeds and the carrying amount of the relevant assets and is recognized in the statement of operations.

F-9

 

 

 

 

 

CHINA MEDIA GROUP CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Restated)

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

 

NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES & REALIZATION OF ASSETS (Continued)

 

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.

 

Impairment of Long-lived Assets

 

In accordance with the provision of ASC Topic 360-10-5, " Impairment or Disposal of Long-Lived Assets ", the Company evaluates all of its long-lived assets, such as motor vehicles, furniture and fittings, office equipment, mould, renovation and other intangibles, for impairment in accordance with ASC 360, Property, Plant and Equipment, when events or changes in circumstances warrant such a review. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset are compared to the asset's carrying amount to determine if an adjustment to fair value is required.

 

 

Lease  

 

(a) Finance Lease
 

Finance leases, which transfer to the Company substantially all the risks and rewards incidental to ownership of the leased item, are capitalized at the inception of the lease at the fair value of the leased asset or, if lower, at the present value of the minimum lease payments. Any initial direct costs are also added to the amount capitalized. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged to the statement of comprehensive income. Contingent rents, if any, are charged as expenses in the periods in which they are incurred.

 

Leased assets are depreciated over the estimated useful life of the asset. However, if there is no reasonable certainty that the Company will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life and the lease term.

 

(b) Operating Lease
  Operating lease payments are recognized as an expense in statement of income on a straight-line basis over the lease term. The aggregate benefit of incentives provided by the lessor is amortized as a reduction of rental expense over the lease term on a straight-line basis.

 

 

Borrowing Costs

 

All borrowing costs are recognized in statement of income when incurred. Borrowing costs consist of interest and other costs that the Company incurred in connection with the borrowing of funds.

 

F-10

 

 

 

 

CHINA MEDIA GROUP CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Restated)

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

 

NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES & REALIZATION OF ASSETS (Continued)

 

Income Taxes  

 

The Company accounts for income taxes under ASC 740 "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.

 

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

 

(a) Current Tax
 

Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the reporting date.

 

Current taxes are recognized in the statement of income except to the extent that the tax relates to items recognized outside the statement of income, either in other income or directly in equity.

 

(b) Deferred Tax
 

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carry-forwards. 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.

 

The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company records a valuation allowance for deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

 

 

Contingent Liabilities

 

A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by the occurrence of one or more uncertain future events not wholly within the control of the Company. It can also be a present obligation arising from past events that is not recognized because it is not probable that an outflow of economic resources will be required or the amount of obligation cannot be measured reliably.

 

The Company has acted as guarantor for bank loans granted to certain local authorities and certain business associates. The Company assessed its obligation under this guarantee pursuant to the provision of ASC 460 "Guarantee".

 

F-11

 

 

 

 

CHINA MEDIA GROUP CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Restated)

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

 

NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES & REALIZATION OF ASSETS (Continued)

 

Stock-Based Compensation

 

ASC 718 "Compensation ¨C Stock Compensation" prescribes accounting and reporting standards for all stock-based payments award to employees, including employee stock options, restricted stock, employee stock purchase plans and stock appreciation rights. , may be classified as either equity or liabilities. The Company should determine if a present obligation to settle the share-based payment transaction in cash or other assets exists. A present obligation to settle in cash or other assets exists if: (a) the option to settle by issuing equity instruments lacks commercial substance or (b) the present obligation is implied because of an entity's past practices or stated policies. If a present obligation exists, the transaction should be recognized as a liability; otherwise, the transaction should be recognized as equity.

 

The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of ASC 505-50 "Equity ¨CBased Payments to Non-Employees". 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' Pension Obligations

 

Contributions to retirement schemes (which are defined contribution plans) are charged to general and administrative expenses in the statements of operation and comprehensive income as and when the related employee service is provided.

 

The Company is required to make contribution under a defined contribution pension scheme for all of its eligible employees in Malaysia and Hong Kong. The Company is required to contribute a specified percentage of the participants' relevant income based on their ages and wages level. The total contributions made were $23,793 and $34,143 for the years ended December 31, 2012 and 2011, respectively.

 

Revenue Recognition

 

Revenue from the product sales of consumer electronics and light appliances to third parties on a "gross' basis pursuant to under ASC Topic 605-45, "Principal Agent Considerations", when the Company has (i) obtained persuasive evidence of an arrangement, (ii) taken titles to the products being sold, (iii) collection is probable, and (iv) payment terms are fixed or determinable and the right of return remains, in accordance with ASC Topic 605, "Revenue Recognition".

 

Revenue is recorded net of estimated product returns, which is based upon the Company's return policy for 7 days upon delivery, sales agreements, management estimates of potential future product returns related to current period revenue, current economic trends, changes in customer composition and historical experience. The Company experienced no material product returns and recorded no reserve for sales returns for the years ended December 31, 2012 and 2011.

 

The Company also records revenue on a "net" basis, as acting as an intermediary or agent in export sales, in which the Company does not have substantial risks and rewards of ownership.

 

 

Product Warranty

 

The Company offers product sales generally a twelve-months' hardware warranty, which only includes the replacement of potentially defective products. The Company calculates a product warranty liability based on historical activities, which are generally claimed back from the manufacturers. The liability for product warranty is not significant for the years ended December 31, 2012 and 2011.

 

Shipping and Handling

 

The costs associated with shipping goods to customers are recorded as selling and distribution expenses.

 

 

F-12

 

 

 

CHINA MEDIA GROUP CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Restated)

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

 

NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES & REALIZATION OF ASSETS (Continued)

 

Foreign Currency Translation

 

The accounts of the Company's Hong Kong, China and Malaysia subsidiaries are maintained, in the local currencies of their respective countries namely Hong Kong dollars (HK), Chinese Renminbi and Malaysia Riggnet, respectively. Such financial statements are translated into U.S. Dollars (USD) in accordance with ASC 830 "Foreign Currency Translation" with the respective currency as the functional currency. According to the Statement, all assets and liabilities were translated at the exchange rate on the balance sheet date, stockholder's equity are translated at the historical rates and statement of operations items are translated at the weighted average exchange rate for the year. The resulting translation adjustments are reported under other comprehensive income in accordance with ASC 220 "Comprehensive Income". As of December 31, 2012 and 2011, the accumulated comprehensive income was $171,343 and $106,458, respectively.

 

Comprehensive Income

 

ASC Topic 220, "Comprehensive Income " establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income as defined includes all changes in equity during a period from non-owner sources. Accumulated comprehensive income, as presented in the accompanying statements of stockholders' equity consists of changes in unrealized gains and losses on foreign currency translation. This comprehensive income is not included in the computation of income tax expense or benefit.

 

Segment Reporting

 

ASC Topic 280, "Segment Reporting" establishes standards for reporting information about operating segments on a basis consistent with the Company's internal organization structure as well as information about geographical areas, business segments and major customers in financial statements. The Company operates in two reportable operating segments: the trading of electronics and light appliances in Malaysia and the advertising business in Hong Kong during the years ended December 31, 2012 and 2011.

 

Related Parties

 

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

 

 

Reclassifications

 

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

 

F-13

 

 

 


CHINA MEDIA GROUP CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Restated)

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

 

NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES & REALIZATION OF ASSETS (Continued)

 

Recent Pronouncements

 

Recently Implemented Standards

 

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

 

In June 2011, the Financial Accounting Standards Board ("FASB") issued ASU No. 2011-05, " Comprehensive Income (Topic 220): Presentation of Comprehensive Income " ("ASU 2011-05"). ASU 2011-05 eliminates the option to report other comprehensive income and its components in the statement of changes in equity. ASU 2011-05 requires that all non-owner changes in stockholders' equity be presented in either a single continuous statement of comprehensive income or in two separate but consecutive statements. This new guidance is to be applied retrospectively. The Company adopted this ASU by presenting the comparative components of comprehensive income within our consolidated financial statements of operation and comprehensive income.

 

In September 2011, the FASB issued ASU No. 2011-08, "Intangibles - Goodwill and Other (Topic 350): Testing Goodwill for Impairment "("ASU 2011-08"). This ASU is intended to simplify how entities test goodwill for impairment and permits an entity to first assess qualitative factors to determine whether it is "more likely than not" that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The adoption of these changes had no impact on the Company's consolidated financial statements.

 

On July 2012, the FASB issued ASU 2012-02, "Intangibles-Goodwill and Other (Topic 350) - Testing Indefinite-Lived Intangible Assets for Impairment ". The ASU provides entities with an option to first assess qualitative factors to determine whether events or circumstances indicate that it is more likely than not that the indefinite-lived intangible asset is impaired. If an entity concludes that it is more than 50% likely that an indefinite-lived intangible asset is not impaired, no further analysis is required. However, if an entity concludes otherwise, it would be required to determine the fair value of the indefinite-lived intangible asset to measure the amount of actual impairment, if any, as currently required under US GAAP. The ASU is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted. The adoption of this pronouncement will not have a material impact on the Company's consolidated financial statements.

 

In February 2013, the FASB issued ASU No. 2013-02, "Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income " ("ASU 2013-02"). This standard requires companies to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, companies are required to present, either on the face of the statement where net income is presented or in the accompanying notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income, but only if the amount reclassified is required to be reclassified to net income in its entirety in the same reporting period. For amounts that are not required to be reclassified in their entirety to net income, companies are required to cross-reference to other disclosures that provide additional detail on those amounts. ASU 2013-02 is effective prospectively for reporting periods beginning after December 15, 2012. The adoption of this pronouncement will not have a material impact on the Company's consolidated financial statements.

 

F-14

 

 

 

CHINA MEDIA GROUP CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Restated)

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

 

NOTE 4 STOCKHOLDERS' EQUITY

 

Common Stock

 

On February 22, 2011 the Company entered into an agreement to issue 2,205,376 shares 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. Subsequent to the year end in December 2013, the Company terminated the agreement and as a result it will not be issuing the shares relating to this agreement (refer to Note 25).

 

In May 2012, the Company issued 711,009 shares of its common stock to a consultant for his services under the 2007 Stock Incentive Plan (note 5).

 

On June 8, 2012, the Company issued 558,779,837 shares of its common stock in consideration of the acquisition of 100% equity interests in ATeam.

 

As a result, the number of shares of the Company's common stock issued and outstanding was 1,113,623,296 shares at December 31, 2012, after giving effect to the June reverse merger as if it occurred as of the earliest period presented in these consolidated financial statements.

 

NOTE 5 STOCK OPTIONS

 

Stock Options

 

The Company adopts ASC 718 "Compensation ¨C Stock Compensation" and 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 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.

 

The 2002 Plan expired in October 2012.

 

As of December 31, 2012, the Company has 19,000,000 stock options outstanding and the option liability was $236,504.

 

 

F-15

 

 
 
 

 

CHINA MEDIA GROUP CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Restated)

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

 

NOTE 5 STOCK OPTIONS (Continued)

 

Following is a summary of the activities of the 2002 Stock Option Plan for the year ended December 31, 2012:

 

  Options outstanding
Outstanding, December 31, 2011 19,000,000
Granted during the year -
Forfeited/lapsed during the year -
Exercised during the year -
Outstanding, December 31, 2012 19,000,000

 

On April 16, 2010, the Company granted 19,000,000 stock options to 5 qualified persons. As of December 31, 2012, there were 19,000,000 outstanding stock options.

 

Following is a summary of the status of options outstanding at December 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 2.29 $0.010 19,000,000 $0.00
                 

 

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

 

 
  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      

 

Subsequent to the balance sheet date, all the stock options were forfeited in September 2013.

 

F-16

 

 

 

CHINA MEDIA GROUP CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Restated)

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

 

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 2007-2010, the Company had issued a total of 5,811,300 shares to its staff and consultants for their service provided.

 

In May 2012, the Company paid a consultant $15,500 for his services by issuing 711,009 shares in the Company at the then current market value of $0.0218 per share.

 

As at December 31, 2012, i) there were no outstanding stock options and ii) there were 31,877,681 shares available to be issued under the 2007 Stock Incentive Plan.   

 

NOTE 6 CASH AND CASH EQUIVALENTS

 

Cash and cash equivalents are summarized as follows:   

 

    2012   2011
    US$   US$
         
Cash and bank balances   38,720   13,807
Fixed deposits with licensed banks (a) 70,093   67,580
    108,813   81,387
Less:   Restricted cash   (70,093)   (57,395)
Cash and cash equivalents, as shown in the cash flows statements (b) 38,720   23,992
         

 

a) The fixed deposits with licensed banks bear interest rate at 3% per annum, which are pledged against term loans (note 15)
b) Cash and cash equivalents comprise of the following as at the end of the reporting period.

 

F-17

 

 

 

CHINA MEDIA GROUP CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Restated)

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

 

NOTE 7 TRADE RECEIVABLES

 

    2012   2011
    US$   US$
         
Trade receivables (i) 1,390,241   1,819,683
Less:   Allowance for impairment losses   (520,829)   -
    869,412   1,819,683
         

 

Trade receivables are non-interest bearing and the normal credit terms range from 30 to 90 days (2011: 30 to 90 days) terms. Other credit terms are assessed and approved on a case-by-case basis.   

 

The Company has no significant concentration of credit risk that arises from exposure to a single debtor or to groups of debtors.   

 

The fair value of trade receivables approximates its carrying amount.

 

NOTE 8 DUE FROM RELATED PARTIES

 

Due from related parties are summarized as follows:

 

    2012   2011
    US$   US$
         
Advance to supplier (a) 255,554   -
Due from a corporation in which a director of a subsidiary has a financial interests (b) -   1,197,686
Due from director of subsidiary company (c) 8,279   -
    263,833   1,197,686

 

a) Advance to suppliers is the deposit for the purchases of M.A.G.I.C. phone paid to AdvanceTech Communications Sdn. Bhd. ("ATC"), a minority shareholder of our subsidiary company.
b) Due from a related company mainly relates to trading activities, which is unsecured, non-interests bearing and repayable on demand.
c) The amount due from director of subsidiary company is unsecured, non-interests bearing and repayable on demand.

 

NOTE 9 PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES

 

    2012   2011
    US$   US$
         
Other receivables   144,989   372
Deposits   52,068   25,302
Prepayments   118,097   113,381
    315,154   139,055

 

F-18

 

 

 

CHINA MEDIA GROUP CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Restated)

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

 

NOTE 10 PROPERTY AND EQUIPMENT, NET

 

Property and equipment is summarized as follows:

 

    2012   2011
    US$   US$
         
Leasehold improvements   79,298   79,298
Furniture, fixtures and equipment   79,436   62,303
Office equipment and computers   86,323   87,631
Motor vehicles   296,790   181,778
Moulds   4,225   4,225
    546,072   415,235
Accumulated depreciation   (427,498)   (331,330)
Balance, end of year   118,574   83,905

 

Depreciation expense for the years ended December 31, 2012 and 2011 were $35,386 and $64,835, respectively.

 

NOTE 11 ADVANCED 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:

 

a) Within one month of signing the agreement, one million shares of the Company;
b) Within one month of receiving the prototype devices, one million shares of the Company;
c) Within one month of receiving the product from commercial production, two million shares of the Company; and
d) 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.

 

The Company made $68,932 in a full provision for the distribution rights during the year ended December 31, 2012.

 

Up to December 31, 2012, the Company has not issued any shares to Fleming under the above items (b) to (d).

 

NOTE 12 INVESTMENT IN SHARES

 

Investment in shares relates to acquisition of 5% interests in AdvanceTech 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 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 which is still outstanding at the date of this report. During the year ended December 31, 2012, the Company provided an impairment in the full provision of $29,046.

 

Subsequent to year end in December 2013, the Company terminated the agreement and as a result it will not be issuing the shares under this agreement (refer to Note 25).

 

NOTE 13 TRADE PAYABLES
    2012   2011
    US$   US$
         
Trade payables   46,739   44,197
         
             

 

These amounts are non-interest bearing. Trade payables are normally settled on 30 to 90 days (2011: 30-90 days) terms.

 

F-19

 

 

 


CHINA MEDIA GROUP CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Restated)

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

 

NOTE 14 OTHER PAYABLES AND ACCRUALS

 

    2012   2011
    US$   US$
         
Accruals   187,093   170,165
Accrued salaries and wages   18,582   -
Accrued accounting, legal and consulting fees   287,427   -
Accrued interest   31,720   -
Potential tax penalty liability   310,000   -
Other payables (a) 538,645   128,369
Deposit from customers   19,648   -
    1,393,115   298,534

 

a) Other payables are Company expenses such as postage, sundries, etc., and advanced on behalf of the Company from various parties. These amounts are non-interest bearing and normally settled on an average term of 6 months.

 

NOTE 15 TERM LOANS

 

    2012   2011
    US$   US$
         
Current portion:        
Not later than one (1) year   291,548   181,030
         
Non-current portion:        
later than one (1) year and not later than two (2) years   68,385   194,788
later than two (2) years and not later than five (5) years   -   79,801
    68,385   274,589
         
    359,933   455,619

 

The term loan  provided by Alliance Bank Malaysia Berhad is secured by the followings : -

 

i) Pledged of Company's fixed deposit (note 6);
ii) Guaranteed by a third party corporation in which the Directors have financial interest:
iii) Notice of assignment and receivables finance agreement; and
iv) Joint and several guarantees by the directors of the subsidiary company and a third party
v) Guaranteed by the Government of Malaysia under the Working Capital Guarantee Scheme

 

The interest rate to the facility is fixed at 1.00 percentage points above the lenders' base lending rates prevailing in Malaysia.

 

The term loan is repayable by 36 equal monthly installment of $18,640 (RM 57,000) per month.

 

F-20

 

 

 

CHINA MEDIA GROUP CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Restated)

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

 

NOTE 16 DUE TO RELATED PARTIES

 

    2012   2011
    US$   US$
         
Due to shareholders (a) 63,017   -
Due to directors of subsidiary companies (b) 152,280   133,027
Due to a director of the Company (b) 230,979   -
Due to former directors of the Company (b) 47,062   -
    493,338   133,027

 

a) The amounts due to beneficial shareholders are unsecured, repayable on demand and are interest-free, except for $50,000 balance, which bears interests at 6% per annum.
b) The amount due to directors of subsidiary companies, directors and former directors of the Company are interest-free, unsecured and repayable on demand.

 

NOTE 17 TRADE FINANCING PAYABLES

 

Trade financing payables for the years ended December 31, 2012 and 2011 which bear interest at 1.0 percentage points above the lender's base lending rates prevailing in Malaysia are secured as follows:-

 

i) Acceptance of the Facility Offer Letter;
ii) Execution of the Receivables Finance Agreement; and
iii) Jointly and severally guaranteed by a Director of the subsidiary company and a third party.

 

Trade financing payables are normally settled on 30 to 90 days (2011: 30 to 90 days) terms.

 

NOTE 18 OBLIGATIONS UNDER FINANCE LEASES

 

    2012   2011
    US$   US$
Minimum lease payments::        
Not later than one (1) year   39,621   30,332
Later than one (1) year but not later than five (5) years   103,566   68,512
Total minimum lease payments   143,187   98,844
Less: Future interest charges   (25,958)   (19,490)
Present value of minimum lease payments   117,229   79,354
         
Repayable as follows:        
later than one (1) year and not later than two (2) years   25,651   24,433
later than two (2) years and not later than five (5) years   91,578   54,921
    117,229   79,354

 

The effective rates implicit in the lease is ranged from 4.76% to 7.30% (2011: 4.76% to 7.30%) per annum.

 

The leased assets were mainly related to motor vehicles.

 

F-21

 

 

 

CHINA MEDIA GROUP CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Restated)

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

 

NOTE 19 SHAREHOLDER LOAN

 

    2012   2011
    US$   US$
         
Shareholder loan   2,000,000   -
         

 

The long term shareholder loan of $2,000,000 is unsecured, bears interest at 8% per annum, repayable on May 25, 2015.

 

NOTE 20 RELATED COMPANY TRANSACTIONS

 

For the years ended December 31, 2012 and 2011, the Company did not pay the directors and its officers any remuneration for their services provided to the Company.

 

The Company accrued interest of approximately $80,000 (2011: nil) for the year ended December 31, 2012 under a long-term shareholder loan of $2,000,000, which is unsecured, bears interest of 8% per annum and repayable on May 25, 2015.

 

During the years ended December 31, 2012 and 2011, the Company generated agency income of $227,793 and $228,948 from its related company that a director of the subsidiary company has interests.

 

During the year ended December 31, 2012, the Company incurred administrative expense $nil (2011: $160,000) from a company that a director of the Company has interests.

 

As of December 31, 2012, the Company issued financial guarantee to a financial institution in Malaysia for banking facilities granted to a related company which a director has financial interest. This guarantee has no fixed maturity date and no fee is charged to the issuance of financial guarantee to a related party.

 

NOTE 21 INCOME TAXES

 

No provision was made for income tax for the year ended December 31, 2012, since the Company and its subsidiaries had significant net operating loss. The Company made an income tax provision under Malaysian tax jurisdiction while Malaysian operation generates an operating profit.

 

For the years ended December 31, 2012 and 2011, the Company and its subsidiaries incurred net operating losses for tax purposes of approximately $557,384 and $99,304, respectively. Total net operating losses carry forward at December 31, 2012 and 2011, (i) for Federal and State purpose were $11,282,393 and $11,228,165, respectively and (ii) for its entities outside of the United States were $2,112,509 and $1,730,470, 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, 2012 and 2011 was approximately $4,825,982 and $4,694,677, 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.

 

The Company is subject to U.S. federal income tax as well as income tax of multiple state and foreign jurisdictions. The Company has not concluded all U.S. federal income tax matters for the years through fiscal 2012, with remaining fiscal years subject to income tax examination by federal tax authorities.

 

The Company's policy is to recognize accrued interest and penalties related to unrecognized tax benefits in its income tax provision. The Company has not accrued or paid interest or penalties which were material to its results of operations for the years ended December 31, 2012 and 2011. The Company has adopted ASC 740-10 "Accounting for Income Taxes" and recorded a liability for an uncertain income tax position, tax penalties and any imputed interest thereon. The amount, recorded as an obligation, is $310,000 at December 31, 2012.

 

F-22

 

 


CHINA MEDIA GROUP CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Restated)

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

 

NOTE 21 INCOME TAXES (continued)

 

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

 

    2012   2011
         
Malaysia statutory rate   25%   25%
Tax allowance   -   1%
Valuation allowance ¨C Loss carryforward under Malaysia rate   (25%)   -
         
Hong Kong statutory rate   16.5%   -
Valuation allowance ¨C Loss carryforward under Hong Kong rate   (16.5%)  

-

 

PRC China Enterprise Income Tax   25%   -
Valuation allowance ¨C Loss carryforward under PRC rate   (25%)   -
         
Provision for income tax   -   26%

 

As of December 31, 2012 and 2011, there were no material deferred tax liabilities to be recognized.

 

NOTE 22 SEGMENT REPORTING

 

Business Segments

 

For management purposes, the Company currently organized into two operating units -Trading of electronics and light appliances and advertising which are operated in Malaysia and Hong Kong, respectively. Turnover represents the net amounts received and receivable for goods sold or services provided by the Company during the period was presented. These units are the basis on which the Company reports its primary segment information.

 

Segment information about these businesses is presented below.

 

                           
  Trading of Electronics and Light Appliances in Malaysia   Advertising in Hong Kong     Consolidated  
  Year Ended December 31   Year Ended December 31     Year Ended December 31  
  2012   2011   2012   2011     2012   2011  
   US$    US$    US$    US$      US$    US$  
Turnover 2,449,487   4,299,648   -   -     2,449,487   4,299,648  
                           
Segment results (280,070)   400,896   (61,340)   -     (341,410)   400,896  
                           
Unallocated corporate income                   77,611   28,701  
Unallocated corporate expenses                   (6,779,324)   -  
                           
(Loss)/income from operations                   (7,043,123)   429,597  
Finance costs                   (147,322)   (73,919)  
                           
(Loss)/income for the year                   (7,190,445)   355,678  
                           
                    As at December 31  
                    2012   2011  
ASSETS                          
Segment assets 1,226,115   3,321,716   360,365   -     1,586,480   3,321,716  
Unallocated corporate assets                   89,306   -  
Consolidated total assets                   1,675,786   3,321,716  
                           
LIABILITIES                          
Segment liabilities 1,550,262   1,346,402   214,273   -     1,764,535   1,346,402  
Unallocated corporate liabilities                   3,154,836   90,739  
Consolidated total liabilities                   4,919,371   1,437,141  
                           
Depreciation of fixed assets 35,056   64,835   330   -     35,386   64,835  
                         
                                         

F-23

 

 

CHINA MEDIA GROUP CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Restated)

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

 

NOTE 23 CONCENTRATIONS OF RISK

 

The Company is exposed to the following concentrations of risk:

 

(a) Major customers

 

For the years ended December 31, 2012 and 2011 the customer who accounted for 10% or more of the Company's revenues is presented as follows:

 

  2012   2012   2012   2011   2011   2011
  Revenue   Percentage of Revenue   Trade accounts Receivable   Revenue   Percentage of Revenue   Trade accounts Receivable
  US$       US$   US$       US$
Customer A 580,696   23.71%   -   1,854,655   43.14%   229,917
Customer B 438,129   17.89%   78,302   131,196