10-Q 1 r10q2-063009cmg.htm 2Q QUARTERLY REPORT 30 JUNE 2009 CHINA MEDIA GROUP CORPORATION

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

FORM 10-Q

[ x ]

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

For the quarterly three month period ended June 30, 2009

[    ]

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from [           ] to [           ]

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Commission File Number: 000-50431

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

Texas

7310

32-0034926

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

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(State or other jurisdiction of incorporation or organization)

(Primary Standard Industrial Classification Code Number)

(I.R.S. Employer Identification No.)

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

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(Address of Company's principal executive offices)

(Zip Code)

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

Not Applicable
(Former Name, Former Address and Former
Fiscal Year if Changed Since Last Report)

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

Yes [ x ]     No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T ("232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [ x ]     No [ ]

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

Large Accelerated Filer [ ] Accelerated Filer[ ] Non-Accelerated Filer [ ] Smaller Reporting Company [ x ]

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

Yes [ ] No[ x ]

The number of common equity shares outstanding as of July 31, 2009 was 534,132,450 shares of Common Stock, no par value.


FORWARD-LOOKING STATEMENTS

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

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

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

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


PART I

Item 1. Condensed Consolidated Financial Statements

cmg_logo

China Media Group Corporation
Condensed Consolidated Financial Statements
June 30, 2009
(Unaudited)
(Expressed In United States Dollars)

Condensed Consolidated Balance Sheets as of June 30, 2009 and December 31, 2008


Condensed Consolidated Statements of Operations for the three months period ended June 30, 2009 and June 30, 2008


Condensed Consolidated Statements of Stockholders' Equity for the years ended December 31, 2008 and 2007, and for the six months period ended June 30, 2009


Condensed Consolidated Statements of Cash Flows for the six months periods ended June 30, 2009 and 2008


Notes to Condensed Consolidated Financial Statements


CHINA MEDIA GROUP CORPORATION

CONSOLIDATED BALANCE SHEETS

AS OF JUNE 30, 2009 AND DECEMBER 31, 2008

June 30, 2009

December 31, 2008

(Unaudited)

(Audited)

Notes

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

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

US$

US$

ASSETS
Current Assets:
Cash and cash equivalents

21,800

67,764

Accounts receivables

-

5,807

Loans to unrelated parties

8

132,588

132,737

Prepayments, deposit and other receivables

9

198,160

91,227

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

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

Total current assets

352,548

297,535

Non-current assets
Property and equipments, net

10

33,596

39,851

Advance payment for distribution rights

11

138,000

138,000

Goodwill

6,791,676

6,791,676

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

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

6,963,272

6,969,527

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

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

7,315,820

7,267,062

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

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

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable

430

430

Other payables and accruals

12

568,671

466,403

Convertible debentures

13

-

-

Short term debt

14

99,645

-

Due to officer and directors

15

982,888

1,118,674

Due to a shareholder

356,528

16,528

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

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

Total current liabilities

2,008,162

1,602,035

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

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

Long-term debt

16

2,000,000

2,099,645

Minority interest

159,979

168,230

Stockholders' equity:
Common stock, no par value, 85,000,000,000 shares authorized, 534,132,450 (2008: 534,132,450) shares issued and outstanding

6

7,428,902

7,428,902

Additional paid-in-capital

1,710,529

1,660,183

Shares issued for prepaid consulting services

17

-

-

Comprehensive income

43,030

43,265

Accumulated deficits

(6,034,782)

(5,735,198)

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

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

Total stockholders' equity

3,147,679

3,397,152

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

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

7,315,820

7,267,062

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

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

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

F-3


CHINA MEDIA GROUP CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS AND SIX MONTHS PERIOD ENDED JUNE 30, 2009 AND 2008

Three months periods

Six months periods

Ended June 30

Ended June 30

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

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

2009

2008

2009

2008

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

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

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

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

US$

US$

US$

US$

Net revenue

30,148

26,126

41,756

51,401

Cost of revenue

(31,937)

(11,803)

(36,797)

(27,960)

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

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

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

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

Gross (loss) / profit

(1,789)

14,323

4,959

23,441

Operating expenses:
Selling, general and administrative expenses

114,534

233,603

226,836

615,989

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

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

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

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

Loss from operations before other expense

(116,323)

(219,280)

(221,877)

(592,548)

Other income / (expenses)
Interest income

-

-

-

37

Interest expenses

(43,441)

(42,524)

(85,958)

(105,903)

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

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

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

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

Net loss before minority interests

(159,764)

(261,804)

(307,835)

(698,414)

Minority interest

4,517

6,333

8,251

11,720

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

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

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

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

Net loss

(155,247)

(255,471)

(299,584)

(686,694)

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

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

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

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

Other comprehensive income
Foreign currency translation gain

213

11,224

(235)

25,946

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

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

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

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

Comprehensive loss

(155,034)

(244,247)

(299,819)

(660,748)

==========

==========

=========

=========

Basic and diluted loss per common share

(0.00)

(0.00)

(0.00)

(0.00)

==========

==========

=========

=========

Basic and diluted weighted average number of common shares *

524,132,450

524,132,450

534,132,450

524,089,072

==========

==========

=========

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

*

Weighted average number of shares used to compute basic and diluted loss per share for the three months ended June 30, 2009 and 2008 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, 2008 AND 2007

AND FOR THE SIX MONTHS ENDED JUNE 30, 2009

Additional

Total

Common stock

paid-in

Comprehensive

Prepaid

Accumulated

stockholders'

Shares

Amount

capital

income

Expenses

Deficit

equity (deficit)

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

----------

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

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

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

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

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

US$

US$

US$

US$

US$

US$

Balance at January 1, 2007

361,274,145

776,670

576,936

-

(55,375)

(1,854,257)

(556,026)

Issuance of shares for staff

11,731,542

312,232

116,337

-

-

-

428,569

Issuance of shares for share investment

3,518,518

190,000

-

-

-

-

190,000

Issuance of shares for acquisition of subsidiary

125,000,000

6,000,000

-

-

-

-

6,000,000

Issuance of shares for services

17,476,666

85,000

603,420

-

(238,026)

-

450,394

Exercise of warrants

500,000

15,000

-

-

-

-

15,000

Sell shares under ELOC Agreement

2,000,000

50,000

-

-

-

-

50,000

Issuance of warrants

-

-

15,590

-

-

-

15,590

Options granted

-

-

62,208

-

-

-

62,208

Issuance of convertible debenture

75,000

-

-

-

75,000

Comprehensive income

-

-

-

20,766

-

-

20,766

Net loss

-

-

-

-

-

(1,728,032)

(1,728,032)

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

----------

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

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

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

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

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

Balance at December 31, 2007 and January 1, 2008

521,500,871

7,428,902

1,449,491

20,766

(293,401)

(3,582,289)

5,023,469

Amortization of issuance of shares for services expenses

-

-

-

-

293,401

-

293,401

Amortization of options granted

-

-

100,692

-

-

-

100,692

Issuance of shares for extension of repayment of debenture

2,631,579

-

50,000

-

-

-

50,000

Issuance of shares for termination of ELOC Agreement

10,000,000

-

60,000

-

-

-

60,000

Comprehensive income

-

-

-

22,499

-

-

22,499

Net loss

-

-

-

-

-

(2,152,909)

(2,152,909)

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

-----------

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

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

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

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

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

Balance at December 31, 2008

534,132,450

7,428,902

1,660,183

43,265

-

(5,735,198)

3,397,152

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

-----------

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

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

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

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

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

Amortization of options granted

-

-

50,346

-

-

-

50,346

Comprehensive income

-

-

-

(235)

-

-

(235)

Net loss

-

-

-

-

-

(299,584)

(299,584)

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

-----------

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

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

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

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

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

Balance at June 30, 2009

534,132,450

7,428,902

1,710,529

43,030

-

(6,034,782)

3,147,679

=========

=======

========

=========

========

========

=========

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

F-5


CHINA MEDIA GROUP CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008

Six months period ended June 30

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

2009

2008

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

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

US$

US$

Cash flows from operating activities:
Net Loss

(299,584)

(686,694)

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

6,255

6,082

Minority interest

(8,251)

(11,720)

Common stock issuance for services

-

214,733

Common stock issuance for extension of repayment of convertible debentures

-

50,000

Option expenses for employee compensation

50,346

50,346

Amortization of convertible debenture

-

17,742

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

(106,933)

1,454

Account receivable

5,807

(11,774)

Loan receivable

149

-

Accounts payable and accrued expenses

102,268

133,141

Short term debt

99,645

-

Long term debt

(99,645)

-

Due to related parties

(135,786)

282,257

Due to a shareholder

340,000

-

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

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

Net cash (used in) / generated from operating activities

(45,729)

45,567

Cash flows from investing activities:
Purchase of property and equipment

-

(2,250)

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

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

Net cash used in investing activities

-

(2,250)

Cash flows from financing activities:
Repayment of convertible debenture

-

(125,000)

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

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

Net cash used in financing activities

-

(125,000)

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

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

Net decrease in cash and cash equivalents

(45,729)

(81,683)

Effect of exchange rate changes on cash and cash equivalents

(235)

25,946

Cash and cash equivalents, beginning

67,764

107,903

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

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

Cash and cash equivalents, ending

21,800

52,166

===========

===========

Supplemental disclosure of cash flow information:
Interest paid

85,958

105,903

===========

===========

Income taxes paid

-

-

===========

===========

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

F-6


CHINA MEDIA GROUP CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1

ORGANIZATION


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


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


In May 2009, the 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.


The Group will be engaged in the media and advertising business, focusing in China, and the marketing and distribution of convergent devices. During the period, the Company recorded sales in mobile internet devices and the provision of advertising services.


NOTE 2


SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES & REALIZATION OF ASSETS


Basis of Presentation


The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States and the rules of the U.S. Securities and Exchange Commission, and should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2008. They do not include all information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. However, except as disclosed herein, there has been no material change in the information disclosed in the notes to the financial statements for the year ended December 31, 2008 included in the Company Form 10-K filed with the Securities and Exchange Commission. In the opinion of the management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of financial position and results of operations for the interim period presented have been included. Operating results for the interim period are not necessary indicative of the results that may be expected for the respective year.


Use of estimates


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


Principles of Consolidation


The consolidated financial statements for the six months period ended June 30, 2009 include the financial statements of the Company, its wholly owned subsidiaries Ren Ren Media Group Limited, Good World Investments Limited, and two 50% subsidiaries, namely Beijing Ren Ren Health Culture Promotion Limited and ATC Marketing Limited. ATC Marketing Limited was established on the date of May 21, 2009. The Company consolidated both of these 50% ownership companies because of the sole largest shareholding status and/or controlling of the Board of Directors.


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


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

F-7


Net Income (Loss) per Share

Basic earnings per share were computed by dividing net loss by the weighted average number of shares of common stock outstanding during year. Diluted loss per common share for the six months ended June 30, 2009 and year ended December 31, 2008 are not presented as it would be anti-dilutive.

Fair Value of Financial Instruments

Statement of financial accounting standard No. 107, Disclosures about Fair Value of Financial Instruments, requires that the Company disclose estimated fair values of financial instruments. Unless otherwise indicated, the fair values of all reported assets and liabilities, which represent financial instruments, none of which are held for trading purposes, approximate are carrying values of such amounts.

Cash and Cash Equivalents

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

Inventories

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

Property & equipment

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

Leasehold improvements

5 years

Furniture, fixture and equipment

5 years

Intangible Assets

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

Income taxes

The Company accounts for income taxes under SFAS 109, "Accounting for Income Taxes." Under the asset and liability method of SFAS 109, 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 SFAS 109, 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.

F-8


Stock-based compensation

SFAS No. 123 prescribes accounting and reporting standards for all stock-based compensation plans, including employee stock options, restricted stock, employee stock purchase plans and stock appreciation rights. SFAS No. 123 requires compensation expense to be recorded (i) using the new fair value method or (ii) using the existing accounting rules prescribed by Accounting Principles Board Opinion No. 25, "Accounting for stock issued to employees" (APB 25) and related interpretations with proforma disclosure of what net income and earnings per share would have been had the Company adopted the new fair value method. The Company has chosen to account for stock-based compensation using Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and has adopted the disclosure only provisions of SFAS 123. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company's stock at the date of the grant over the amount an employee is required to pay for the stock.

The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of SFAS 123 and the Emerging Issues Task Force consensus in Issue No. 96-18 ("EITF 96-18"), "Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring or in Conjunction with Selling, Goods or Services". Valuation of shares for services is based on the estimated fair market value of the services performed.

Employees' benefits and pension obligations

Mandatory contributions of five percent of gross salary payments, subject to certain minimum and maximum levels, are made to defined contribution Mandatory Provident Fund schemes ("MPF schemes") pursuant to the laws of Hong Kong. These contributions are charged to expense in the same period as the related salary cost. Total contributions made by the Company to the MPF schemes were $2,159 and 3,057 for the year December 31, 2008 and 2007, respectively and $542 for the six months ended June 30, 2009.

Issuance of shares for service

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

Revenue Recognition

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

Foreign Currency Translation

The accounts of the Company's Hong Kong and China subsidiaries are maintained, in the Hong Kong dollars (HK) and Chinese Renminbi, respectively. Such financial statements are translated into U.S. Dollars (USD) in accordance with Statement of Financial Accounts Standards ("SFAS") No. 52, "Foreign Currency Translation," with the respective currency as the functional currency. According to the Statement, all assets and liabilities were translated at the exchange rate on the balance sheet date, stockholder's equity are translated at the historical rates and statement of operations items are translated at the weighted average exchange rate for the year. The resulting translation adjustments are reported under other comprehensive income in accordance with SFAS No. 130, "Reporting Comprehensive Income. As of June 30, 2009, the comprehensive income was $43,030, and $43,265 in 2008, differences were immaterial.

F-9


Recent Pronouncements


In February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities, which permits entities to choose to measure many financial instruments and certain other items at fair value. The unrealized gains and losses on items for which the fair value option has been elected should be reported in earnings. The decision to elect the fair value option is determined on an instrument-by-instrument basis, should be applied to an entire instrument and is irrevocable. Assets and liabilities measured at fair values pursuant to the fair value option should be reported separately in the balance sheet from those instruments measured using other measurement attributes. SFAS No. 159 is effective as of the beginning of the Company's 2008 fiscal year. We are currently in the process of evaluating the expected effect of SFAS No. 159 on our results of operations and financial position.


In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements, an amendment of Accounting Research Bulletin No 51" (SFAS 160). SFAS 160 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, changes in a parent's ownership of a noncontrolling interest, calculation and disclosure of the consolidated net income attributable to the parent and the noncontrolling interest, changes in a parent's ownership interest while the parent retains its controlling financial interest and fair value measurement of any retained noncontrolling equity investment. SFAS 160 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. The adoption of SFAS No. 160 is not expected to have a material effect on its financial position, results of operations or cash flows.


In December 2007, the FASB issued SFAS 141R, Business Combinations ("SFAS 141R"), which replaces FASB SFAS 141, Business Combinations. This Statement retains the fundamental requirements in SFAS 141 that the acquisition method of accounting be used for all business combinations and for an acquirer to be identified for each business combination. SFAS 141R defines the acquirer as the entity that obtains control of one or more businesses in the business combination and establishes the acquisition date as the date that the acquirer achieves control. SFAS 141R will require an entity to record separately from the business combination the direct costs, where previously these costs were included in the total allocated cost of the acquisition. SFAS 141R will require an entity to recognize the assets acquired, liabilities assumed, and any non-controlling interest in the acquired at the acquisition date, at their fair values as of that date. This compares to the cost allocation method previously required by SFAS No. 141. SFAS 141R will require an entity to recognize as an asset or liability at fair value for certain contingencies, either contractual or non-contractual, if certain criteria are met. Finally, SFAS 141R will require an entity to recognize contingent consideration at the date of acquisition, based on the fair value at that date. This Statement will be effective for business combinations completed on or after the first annual reporting period beginning on or after December 15, 2008. Early adoption of this standard is not permitted and the standards are to be applied prospectively only. Upon adoption of this standard, there would be no impact to the Company's results of operations and financial condition for acquisitions previously completed. The adoption of SFAS No. 141R is not expected to have a material effect on its financial position, results of operations or cash flows.

F-10


In March 2008, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard ("SFAS") No. 161 "Disclosures about Derivative Instruments and Hedging Activities". SFAS 161 is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity's financial position, financial performance, and cash flows. It is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company is currently evaluating the impact of SFAS 161 on its consolidated financial statements but does not expect it to have a material effect.

In April 2008, the FASB issued FASB Staff Position (FSP) FAS 142-3, Determination of the Useful Life of Intangible Assets, which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142, Goodwill and Other Intangible Assets. This Staff Position is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. Application of this FSP is not currently applicable to the Company as the Company's intangible assets consist of land used rights which has a fixed useful life of 47 years.

In May 2008, the FASB issued SFAS No. 163, "Accounting for Financial Guarantee Insurance Contracts-an interpretation of FASB Statement No. 60." Diversity exists in practice in accounting for financial guarantee insurance contracts by insurance enterprises under FASB Statement No. 60, Accounting and Reporting by Insurance Enterprises. This results in inconsistencies in the recognition and measurement of claim liabilities. This Statement requires that an insurance enterprise recognize a claim liability prior to an event of default (insured event) when there is evidence that credit deterioration has occurred in an insured financial obligation. This Statement requires expanded disclosures about financial guarantee insurance contracts. The accounting and disclosure requirements of the Statement will improve the quality of information provided to users of financial statements. SFAS 163 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The adoption of FASB 163 is not expected to have a material impact on the Company's financial position.

In May 2009, the FASB issued SFAS No. 165, "Subsequent Events." This Statement sets forth: 1) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; 2) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements; and 3) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. This Statement is effective for interim and annual periods ending after June 15, 2009. The company adopted this Statement in the quarter ended June 30, 2009. This Statement is not expected to have a material impact on the Company's consolidated financial results.

In June 2009, the FASB issued SFAS No. 166 amends SFAS No. 140 by removing the exemption from consolidation for Qualifying Special Purpose Entities (QSPEs). This Statement also limits the circumstances in which a financial asset, or portion of a financial asset, should be derecognized when the transferor has not transferred the entire original financial asset to an entity that is not consolidated with the transferor in the financial statements being presented and/or when the transferor has continuing involvement with the transferred financial asset. The adoption of these standards is not expected to have any material impact on the Company's Consolidated Financial Statements.

In June 2009, the FASB issued SFAS No. 167, "Amendments to FASB Interpretation No. 46(R)," SFAS No. 167 amends FASB Interpretation 46(R) to eliminate the quantitative approach previously required for determining the primary beneficiary of a variable interest entity and requires ongoing qualitative reassessments of whether an enterprise is the primary beneficiary of a variable interest entity. The adoption of these standards is not expected to have any material impact on the Company's Consolidated Financial Statements.

In June 2009, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 168, "The FASB Accounting Standards Codification TM and the Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162" (the Codification). The Codification, which was launched on July 1, 2009, became the single source of authoritative nongovernmental U.S. GAAP, superseding existing FASB, American Institute of Certified Public Accountants (AICPA), Emerging Issues Task Force (EITF) and related literature. The Codification eliminates the GAAP hierarchy contained in SFAS No. 162 and establishes one level of authoritative GAAP. All other literature is considered non-authoritative. This Statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The implementation of this Statement is not expected to have change to the company's Consolidated Financial Statements.


Reclassifications

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

F-11


NOTE 3

UNCERTAINTY OF ABILITY TO CONTINUE AS A GOING CONCERN


The Company's financial statements are prepared using the generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. As of June 30, 2009, the Company has incurred an accumulated deficits totaling $6,034,782 and its total assets exceed its total liabilities by $3,147,679. In view of the matters described above, recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheets is dependent upon continued operations of the Company, which in turn is dependent upon the Company's ability to raise additional capital, obtain financing and to succeed in its future operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

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


NOTE 4


BUSINESS COMBINATIONS


Sale and Purchase Agreement between the Company and Central High Limited


On March 13, 2007, the Company entered into a Sales and Purchase agreement (the "Purchase Agreement") to acquire 100% of the issued and outstanding shares of Good World Investments Limited ("Good World") from Central High Limited.


The consideration for the acquisition is 125,000,000 shares of the Company's common stock valued at $6,000,000 based upon the market value of shares as it traded on the Over-the-Counter Bulletin Board (OTCBB) at the date of acquisition. Our directors, Messrs. Con Unerkov and Alex Ho, each own 25% interests in Central High Limited. Good World, an investment holding company, owns 50% of the registered capital of Beijing Ren Ren Health Culture Promotion Limited (the "BRR"). BRR is a company incorporated in the People's Republic of China, and is working with the Chinese Government on a benevolent project named "Great Wall of China Project" to promote health education and health awareness to China.


The purchase price was allocated as follows:

US$

Cash

26,671

Current assets

416,378

Current liabilities

(30,008)

Property, plant and equipment

7,471

Goodwill

7,791,676

Long-term loan

(2,000,000)

Minority interest (50%)

(212,188)

Purchase price

6,000,000


The goodwill of the above transaction is measured and recognized according to SFAS 141 (revised 2007) Business Combination which is the difference between the purchase price and total assets less total liabilities and minority interest. The carrying value of Goodwill is $7,791,676. No amortization was provided in 2007 and 2008. In 2008 a $1,000,000 impairment charge was made.

F-12


NOTE 5

STOCKHOLDERS' EQUITY


Common Stock


In March 2006, the Company issued 1,000,000 shares of common stock under the agreement for the acquisition of the distribution rights for M.AG.I.C. Convergent Device.

In March 2006, the Company issued 833,333 shares of common stock for $250,000.

In November and December 2006, the Company issued a total of 3,000,000 shares of common stock for services valued at a total of $69,000.

In December 2006, the Company issued 12,500,000 shares of common stock as a commitment fee under an Equity Line of Credit Agreement.

In December 2006, the Company entered into an agreement to issued 4,342,464 shares of common stock for accrued services for $158,500. These shares were issued on January 3, 2007.

In January 2007, the Company entered into an agreement to acquire 18% in Guangzhou Waho Culture & Media Co., Ltd. for $243,000 of which $53,000 was paid in cash and $190,000 was paid by the issuance of 3,518,518 shares of common stock in the Company. The Company impaired the investment made in Waho Culture & Media Co., Ltd., as of March 31, 2007, as the marketable value is uncertain. In 2009, this investment was disposed for a nominal value of $10,000 as this company was in a net deficit position.

In March 2007, the Company issued 1,700,000 shares of common stock for services valued at $85,000.

In March 2007, the Company entered into an agreement to acquire 100% of Good World Investments Limited for a consideration of $6,000,000, which was settled by the issuance of 125,000,000 common stock in the Company.

In May 2007, the Company issued a total of 2,667,095 unrestricted shares of Common Stock to its staff and consultants in accordance with the Form S8 registration statements filed on March 8, 2007.

In June 2007, the Company issued 1,230,000 shares of common stock for services valued at $60,550.

In July 2007, the Company distributed S8 stocks of 800,000 shares of common stock to its employees and consultant for their services valued at $34,000.

Between August and October 2007, the Company issued a total of 10,846,666 shares of common stock for promotional and consulting services valued at a total of $406,870.

In October 2007, the Company issued 500,000 and 2,000,000 shares of common stock in relation to the exercise of 500,000 warrant shares at $0.030 per share for a total of $15,000 and sold $50,000 commons stock, respectively, under the ELOC Agreement.

In November 2007, the Company issued 2,500,000 shares of common stock for services valued at $90,000.

In November and December 2007, the Company issued a total of 2,344,205 unrestricted shares of Common Stock to its staff and consultants in accordance with the Form S8 registration statements filed on March 8, 2007.

In December 2007, the Company issued 2,777,778 restricted shares of common stock for accrued services of $100,000.

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

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

F-13


Warrants

In February 2006, the Company issued stock warrants for 1,666,666 shares of common stock to Central Star Holdings Limited. The warrants expired on February 21, 2008 and have an exercise price of $0.30 per share. The Company booked expense of $80,000. On February 21, 2008, these warrants lapsed.

The Company issued stock warrants for 31,250,000 shares of common stock to Tailor-Made Capital Limited ("TMC"), as part of the Equity Line of Credit Agreement between TMC and the Company, in which TMC was to invest up to $2,500,000 to purchase the Company's common stock. The warrants expire on or about May 12, 2009. The warrants have an exercise price for 15,625,000 shares of common stock at $0.030 per share and the other 15,625,000 shares of common stock at $0.036 per share. The Company recorded expense of $311,508. In 2007, 500,000 warrant shares were exercised at an exercise price of $0.030 per share for a total of $15,000. There was no warrants exercise in the first half of 2009 to May 12, 2009 when all the remaining stock warrants expired.

The Company also issued 138,889 stock warrants as part of commission in relation to the Equity Line of Credit Agreement above. These warrants have an exercise price of $0.036 per share and expired on May 12, 2009.

In March 2007, the Company issued 208,333 stock warrants as part of commission in relation to the issuance of $75,000 Convertible Debenture under the Debenture Purchase Agreement with TMC. These warrants have an exercise price of $0.036 per share and expired on May 12, 2009.

In October 2007, the Company issued 41,666 and 138,888 stock warrants as part of commission in relation to the $15,000 received from the exercise of warrant and $50,000 received from the draw down, respectively, under the ELOC Agreement with TMC. These warrants have an exercise price of $0.036 per share and expired on May 12, 2009.


NOTE 6


STOCK OPTIONS AND WARRANTS


Stock Options

The Company adopted SFAS No. 123 (Revised 2004), Share Based Payment ("SFAS No. 123R"), under the modified-prospective transition method on April 1, 2006. SFAS No. 123R requires companies to measure and recognize the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value. Share-based compensation recognized under the modified-prospective transition method of SFAS No. 123R includes share-based compensation based on the grant-date fair value determined in accordance with the original provisions of SFAS No. 123, Accounting for Stock-Based Compensation, for all share-based payments granted prior to and not yet vested as of April 1, 2006 and share-based compensation based on the grant-date fair-value determined in accordance with SFAS No. 123R for all share-based payments granted after April 1, 2006. SFAS No. 123R eliminates the ability to account for the award of these instruments under the intrinsic value method proscribed by Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and allowed under the original provisions of SFAS No. 123. Prior to the adoption of SFAS No. 123R, the Company accounted for our stock option by using the intrinsic value method in accordance with the provisions of APB Opinion No. 25 and related interpretation.

F-14


2002 Stock Option Plan

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


On May 18, 2007, the board of directors approved to issue 12,300,000 stock options to employees to purchase shares of our Common Stock under the 2002 Stock Option Plan, at exercise price of $0.038 for a vesting period of 3 years. The Company had 29,800,000 stock options outstanding as at June 30, 2009.


Following is a summary of the activities of the 2002 Stock Option Plan in the first half of 2009:


Options outstanding

Outstanding, December 31, 2008

29,800,000

Granted during the period

-

Forfeited/lapsed during the period

-

Exercised during the period

-

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

Outstanding, June 30, 2009

29,800,000

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


Following is a summary of the status of options outstanding at June 30, 2009:

Outstanding Options

Exercisable Options

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

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

Grant
Date

Exercise
Price

Number

Average Remaining
Contractual Life

Average Exercise Price

Number

Intrinsic Price

12/23/2006

$0.0365

17,500,000

0.48

$0.0365

17,500,000

$0.00

5/18/2007

$0.0380

12,300,000

0.88

$0.0380

12,300,000

$0.00


The assumptions used in calculating the fair value of options granted using the Black-Scholes option pricing model are as follows:
i) The outstanding 17,500,000 stock options granted on December 23, 2006:
Grant date:

12/23/2006

Risk-free interest rate

4.63%

Expected life of the options

3.00 years

Expected volatility

95%

Expected dividend yield

0


ii) The outstanding 12,300,000 stock options granted on May 18, 2007:
Grant date:

5/18/2007

Risk-free interest rate

4.63%

Expected life of the options

3.00 years

Expected volatility

139%

Expected dividend yield

0

F-15


2007 Stock Incentive Plan

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

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

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

No shares were issued under the registration statement on Form S-8 during the year 2008 and for the six months ended June 30, 2009. As at June 30, 2009 there were 32,588,700 shares available underlying stock options under the 2007 Stock Incentive Plan.

As of June 30, 2009, there were no outstanding stock options to purchase shares of our Common Stock under the 2007 Stock Incentive Plan.


Warrants

Following is a summary of the warrant activity in the second quarter of 2009:
Outstanding, December 31, 2008

31,277,776

Granted during the period

-

Forfeited during the period

-

Exercised during the period

-

Expired during the period

(31,277,776)

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

Outstanding, June 30, 2009

0

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


Details of the warrants are specified in Note 7 (b), (c), (d), (h) and (o).

On February 13, 2008, 1,666,666 warrant shares were expired.

In May 2009, a total of 31,277,776 warrant shares were expired. As at June 30, 2009, there is no warrant share outstanding.

F-16


NOTE 7

STOCK PURCHASE AGREEMENTS


a) On or about 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 territory of China and Hong Kong. Under the agreement the Company will issue the following shares to Fleming:


-


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

-

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

-

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

-

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

As of December 31, 2006, the Company has only issued one million shares in respect of this agreement.


b) On or about February 13, 2006, the Company announced a Stock Purchase Agreement with Central Star Holdings Limited ("Central Star"). Under the agreement, Central Star will purchase 833,333 shares in the Company for $250,000 upon signing the agreement and thereafter purchasing an additional $1 million worth of stock of the Company in 4 equal tranches every 2 months over an 8 months period. Central Star is obliged to purchase the additional tranches provided that the share price of the 5 days prior to the relevant date is not below $0.33 per share. However if the share price is below $0.33 then Central Star still has the right, but not the obligation, to purchase the stock at $.30 per share. For every stock purchased, Central Star will be entitled to receive an option to purchase 2 additional shares in the Company at the same price that it paid for the shares subscribed over a one year period from the later date of the final payment of the last tranche to complete the $1 million additional stock purchase and February 21, 2007. The Company received $250,000 in February 2006. $80,000 was expensed for issuing the warrants.


c) On or about December 7, 2006 the Company entered into an Equity Line of Credit Agreement ("ELOC") with Tailor-Made Capital Limited ("TMC"). Pursuant to Equity Line of Credit Agreement, the Company may at its sole discretion, periodically sell to TMC common stock for a total purchase price of up to US$2,500,000 during the two year period commencing on the effective date of the registration statement but not later than three years from the date of the ELOC. The amount of each advance is subject to a maximum amount of US$250,000, and the Company may not submit an advance within 5 trading days of a prior notice of an advance. For each common stock purchased under the ELOC, TMC will pay between 90-100% of the volume weighted average price of our common stock quoted on the Over-the-Counter Bulletin Board for the 5 days immediately preceding the notice date. As part of this agreement, the Company issued to TMC 12,500,000 common stock as commitment fee and stock warrants for a total of 31,250,000 shares of common stock. The warrants expired on May 7, 2009. The warrants had an exercise price for 15,625,000 shares of common stock at $0.030 per share and the other 15,625,000 shares of common stock at $0.036 per share.


d) On December 12, 2006, the Company also issued 138,889 stock warrants as part of commission in relation to the issuance of $50,000 Convertible Debenture to TMC in respect of the Debenture Purchase Agreement. These warrants had an exercise price of $0.036 per share and were expired on May 12, 2009.


e) On January 3, 2007, the Company issued 4,342,464 shares of common stock for accrued services of $158,500.


f) On January 13, 2007 the Company acquired 18% interests in Guangzhou Waho Culture & Media Co., Ltd. (the "GWCM") for $243,000, of which $190,000 was to be paid by the issuance of 3,518,518 common stock of the Company. GWCM is a company focused in the business of online advertising for the China market.


g) On March 13, 2007, the Company entered into a Sales and Purchase Agreement to acquire the entire issued share capital of Good World Investments Limited which owns 50% issued shares capital of Beijing Ren Ren Health Culture Promotion Limited. Pursuant to the agreement, the Company issued 125 million shares to Central High Limited as the consideration. This purchase consideration was negotiated with reference to the BRR accounts and the underlying projects in BRR. Our directors Messrs. Con Unerkov and Alex Ho each owns 25% interests in, but are not directors or officers of, Central High Limited.

F-17


h) On March 27, 2007, the Company issued 208,333 stock warrants as part of commission in relation to the issuance of $75,000 Convertible Debenture to TMC in respect of the Debenture Purchase Agreement. These warrants had an exercise price of $0.036 per share and were expired on May 12, 2009.


i) On May 18, 2007, the Company issued 2,667,095 unrestricted shares of common stock for accrued services of $97,349. These shares were issued in accordance with the Form S8 registration statements.


j) On July 18, 2007, the Company issued 800,000 unrestricted shares of common stock to its staff and consultant for services of $34,000. These shares were issued in accordance with the Form S8 registration statements.


k) On August 14, 2007, the Company issued the third tranche of 1,500,000 shares to an independent third party for 3 months consulting services in accordance with the Consultant Agreement executed on December 1, 2006. The services were valued at fair market value of the common stock issued for $57,000.


l) On August 20, 2007, the Company entered into an agreement with a third party consultant to provide promotional works for the Company and, in return, the Company issued 1,250,000 shares of Common Stock as compensation fee. The term of this agreement is for a period of 3 months commencing immediately after the date of this agreement. The services were valued at fair market value of the common stock issued for $43,750.


m) On September 19, 2007, we entered into a Financial Public Relation Agreement ("FPR Agreement") with a third party consultant to provide promotion services for the Company. Pursuant to the FPR Agreement, the term of the Agreement shall be for 30 days commencing immediately after the date of execution. The Company issued to the consultant 180,000 shares of common stock as consideration pursuant to the FPR Agreement. The services were valued at fair market value of the common stock issued for $6,120.


n) On October 9, 2007, we entered into a Consulting Services Agreement ("CS Agreement") with a third party consultant to provide consulting services for the Company. Pursuant to the CS Agreement, The term of the CS Agreement shall be for 3 months commencing immediately after the date of execution. The Company issued to the consultant 1,250,000 shares of common stock as a consideration in the CS Agreement. The services were valued at fair market value of the common stock issued for $60,000 of which $4,667 was prepaid service expense at December 31, 2007.


o) On October 15, 2007, 500,000 warrant shares were exercised at an exercise price of $0.030 per share under the ELOC Agreement.


p) On October 18, 2007, the Company sold 2,000,000 common stock of the Company for $50,000 under the ELOC Agreement.


q) On October 30, 2007, the Company entered into an Advertising Agreement ("Agreement") with a third party consultant to provide promotional services for the Company. Pursuant to the Agreement, The term of the Agreement shall be for 12 months commencing after the date of execution. The Company issued to the consultant 6,666,666 shares of common stock as a consideration of the Agreement. The services were valued at fair market value of the common stock issued for $240,000, of which $198,667 was prepaid service expense at December 31, 2007.


r) On November 26, 2007, the Company issued 1,000,000 unrestricted shares of common stock for accrued services of $36,000, of which $27,400 was prepaid service expenses at December 31, 2007. These shares were issued in accordance with the Form S8 registration statements.

F-18


s) On November 28, 2007, the Company entered into an agreement with a third party consultant to provide promotional works for the Company and, in return, the Company issued 2,500,000 shares of Common Stock as compensation fee. The term of this agreement is for a period of 3 months commencing on December 3, 2007. The services were valued at fair market value of the common stock issued for $90,000, of which $61,000 was prepaid service expense at December 31, 2007.


t) On December 19, 2007, the Company issued 1,344,205 unrestricted shares of common stock for accrued services of $48,720. These shares were issued in accordance with the Form S8 registration statements.


u) On December 28, 2007, the Company issued 2,777,778 restricted shares of common stock for accrued services of $100,000.

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


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


NOTE 8


LOANS TO UNRELATED PARTIES


Loans to unrelated parties amounted to $132,588 in 2009 (2008: $132,737). The loans are unsecured, interest free and repayable on or before December 31, 2010.


NOTE 9


PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES


Prepayments, deposits and other receivables are summarized as follows:


As of June 30, 2009


As of December 31, 2008

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

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

US$

US$

Rental deposits

5,961

5,961

Utility and other deposits

633

777

Advance to suppliers

139,954

78,279

Other receivable

51,612

6,210

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

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

198,160

91,227

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

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

F-19


NOTE 10

PROPERTY AND EQUIPMENT, NET


Property and equipment is summarized as follows:


As of June 30, 2009


As of December 31, 2008

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

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

Cost

US$

US$

Furniture, fixture and equipment

6,035

6,945

Computers

8,058

8,058

Automobile

47,951

47,951

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

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

62,044

62,954

Accumulated depreciation

(28,448)

(23,103)

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

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

33,596

39,851

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

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


NOTE 11


ADVANCE PAYMENT FOR DISTRIBUTION RIGHTS


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


*


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

*

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

*

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

*

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


The Company issued 1,000,000 shares of common stock valued at $138,000. The shares were valued at the market price on the date of issuance.

F-20


NOTE 12

OTHER PAYABLES AND ACCRUALS


Other payables and accruals are summarized as follows:


As of June 30, 2009


As of December 31, 2008

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

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

US$

US$

Accrued salaries and wages

150,557

130,263

Accrued interest

5,812

830

Accrued accounting, legal and consulting fee

120,998

83,048

Accrued office and related expenses

14,323

11,329

Accrued audit fee

40,000

40,000

Accrued others

31,942

21,170

Other payables

185,389

160,113

Deposit from customers

19,650

19,650

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

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

568,671

466,403

===========

=========


NOTE 13


CONVERTIBLE DEBENTURES


On December 7, 2006 the Company entered into a Debenture Purchase Agreement ("DPA") with TMC whereby TMC agreed to purchase certain convertible securities issued by the Company. Pursuant to the terms of the DPA, the Company may sell and issue to TMC, and TMC will purchase from the Company, up to an aggregate of US$125,000 of convertible debenture ("Convertible Debenture") of the Company which will be due 12 months from the date of issuance. The terms of the Convertible Debenture due one year from the date of issue, bears interest at a rate of 10% per annum which is payable on the conversion date or at maturity, and can be converted at TMC's discretion at any time prior to maturity date at a conversion price of US$0.024 per share. Under the DPA, the Company can issue the Convertible Debentures in 3 stages: 1) US$50,000 upon signing the DPA, 2) US$50,000 upon filing the registration statement in accordance to the SPA, and 3) US$25,000 upon the aforementioned registration statement being declared effective by the Securities Exchange Commission. On December 20, 2006, the Company issued US$50,000 Convertible Debenture pursuant to the DPA and this was the only Convertible Debenture outstanding as at December 31, 2006.


On March 28, 2007, the Company issued US$75,000 Convertible Debenture pursuant to the DPA and as at December 31, 2007 a total of US$125,000 Convertible Debentures were issued and outstanding.


On January 4, 2008, the Company issued 2,631,579 common stock as consideration to extend the repayment date of the $50,000 Convertible Debenture to March 28, 2008. These common stock were registered and declared effective by the Securities Exchange Commission on February 13, 2008.


On April 7, 2008, the Company paid the two Convertible Debentures totaling $125,000 and accrued interests of $14,198.

F-21


NOTE 14

SHORT-TERM DEBT


As of June 30, 2009, the Company has an outstanding unsecured debt payable, which was reclassifies from long term debts (Note 16), of $99,645(2008: $91,200), with annual interest rate of 10%. This debt is due on May 31, 2010. The Company recorded accrued interest of $4,982 in 2009 (2008: $4,560).


NOTE 15


DUE TO OFFICERS AND DIRECTORS


The due to directors and officers are interests free, unsecured and repayable on demand. The balance of due to directors and officers is $982,888 as of June 30, 2009 (2008: $1,118,674).


NOTE 16


LONG-TERM DEBTS


As of June 30, 2009


As of December 31, 2008

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

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

US$

US$

Shareholder Loan

2,000,000

2,000,000

Other Loan

-

99,645

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

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

2,000,000

2,099,645

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

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


The long term shareholder loan of $2,000,000 is unsecured, repayable on November 25, 2010. This long term loan bears no interest for the first two years to November 25, 2007 and thereafter 8% per annum.


The other loan is unsecured, accrue interest at 10% per annum and payable on May 31, 2010. In this period, this loan was reclassified to short term loan (note 14).


NOTE 17


SHARES ISSUED FOR PREPAID EXPENSES


As of June 30, 2009


As of December 31, 2008

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

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

US$

US$

Balance at January 1

-

293,401

Issue of shares for service during period/year

-

-

Less: service expensed during period/year

-

(293,401)

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

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

Balance at June 30/December 31

-

-

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

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


NOTE 18


RELATED COMPANY TRANSACTIONS


The Company agreed to pay directors and officers a monthly salary for services performed. During the years ended December 31, 2008 and 2007, the Company paid the directors and its officers and their services companies a total remuneration of $162,000 and $289,512, respectively and $24,000 for the six months period ended June 30, 2009

On November 25 2005, a subsidiary of the Company signed a loan agreement with its major shareholder, Central High Limited for a loan of $2,000,000. This long term shareholder loan is unsecured and repayable on November 25, 2010, and bears no interest for the first two years until November 25, 2007 and thereafter 8% per annum. The accrued interest for 2008 was $160,000 (2007: $16,444) and $80,000 for the six months period ended June 30, 2009.

F-22


NOTE 19

SEGMENT REPORTING


Business Segments

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

Segment information about these businesses is presented below.

Advertising

Telecommunication Device

Other Services

Consolidated

For the six months ended June 30

For the six months ended June 30

For the six months ended June 30

For the six months

ended June 30

2009

2008

2009

2008

2009

2008

2009

2008

US$

US$

US$

US$

US$

US$

US$

US$

Turnover

12,189

41,296

29,567

5,137

-

4,968

41,756

51,401

========

=======

=======

=======

=======

=======

=========

=========

Segment results

(22,410)

(13,504)

201

(1,973)

-

4,968

(22,209)

(10,509)

========

=======

=======

=======

=======

=======

Unallocated corporate income

--

37

Unallocated corporate expenses

(191,417)

(570,319)

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

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

Loss from operations

(213,626)

(580,791)

Finance costs

(85,958)

(105,903)

Loss for the period

(299,584)

(686.694)

=========

=========

As at June 30, 2009

As at June 30, 2008

ASSETS
Segment assets

6,821,138

7,844,102

282,087

220,067

-

-

7,103,225

8,064,169

Unallocated corporate assets

212,595

431,373

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

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

Consolidated total assets

7,315,820

8,495,542

=========

=========

LIABILITIES
Segment liabilities

159,979

176,084

430

30,952

-

-

160,409

207,036

Unallocated corporate liabilities

4,007,732

3,610,706

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

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

Consolidated total liabilities

4,168,141

3,817,742

=========

=========

Depreciation of fixed assets

5,711

5,677

660

485

-

-

6,371

6,162

=======

=======

=======

=======

=======

=======

=========

=========

Geographical Segments

The Group's customers are principally located in Hong Kong.

F-23


NOTE 20

COMMITMENTS AND CONTINGENCIES


a)


The Company leases office premises for its operations in United States and Hong Kong under operating leases. Rental expenses under operating lease for the six months ended June 30, 2009 and for the year ended December 31, 2008 was $13,150 and $33,215.


Future minimum rental payments under non-cancelable operating leases for the six month ended December 31, 2009 and the year ended June 30, 2010 are $11,089 and $23,438, respectively.


b)


The Company has service or employment agreements with the Directors and Officer and its service companies (the "Executives") for two years commencing on October 1, 2005 and the agreements shall continue thereafter unless terminated by either parties. The Executives will receive a monthly salary at a rate to be agreed by the Company and the Executives from time to time. In addition, the Executives will receive an annual management bonus to be determined by the majority of the Board based on the operating results of the Company and the Executives' performances, provided that it does not exceed 8.8 % of the net profit of the Company.


c)


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

F-24


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

Forward Looking Statements


THIS FOLLOWING INFORMATION SPECIFIES CERTAIN FORWARD-LOOKING STATEMENTS OF MANAGEMENT OF THE COMPANY. FORWARD-LOOKING STATEMENTS ARE STATEMENTS THAT ESTIMATE THE HAPPENING OF FUTURE EVENTS AND ARE NOT BASED ON HISTORICAL FACT. FORWARD-LOOKING STATEMENTS MAY BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY, SUCH AS "MAY", "SHALL", "COULD", "EXPECT", "ESTIMATE", "ANTICIPATE", "PREDICT", "PROBABLE", "POSSIBLE", "SHOULD", "CONTINUE", OR SIMILAR TERMS, VARIATIONS OF THOSE TERMS OR THE NEGATIVE OF THOSE TERMS. THE FORWARD-LOOKING STATEMENTS SPECIFIED IN THE FOLLOWING INFORMATION HAVE BEEN COMPILED BY OUR MANAGEMENT ON THE BASIS OF ASSUMPTIONS MADE BY MANAGEMENT AND CONSIDERED BY MANAGEMENT TO BE REASONABLE. OUR FUTURE OPERATING RESULTS, HOWEVER, ARE IMPOSSIBLE TO PREDICT AND NO REPRESENTATION, GUARANTY, OR WARRANTY IS TO BE INFERRED FROM THOSE FORWARD-LOOKING STATEMENTS.

THE ASSUMPTIONS USED FOR PURPOSES OF THE FORWARD-LOOKING STATEMENTS SPECIFIED IN THE FOLLOWING INFORMATION REPRESENT ESTIMATES OF FUTURE EVENTS AND ARE SUBJECT TO UNCERTAINTY AS TO POSSIBLE CHANGES IN ECONOMIC, LEGISLATIVE, INDUSTRY, AND OTHER CIRCUMSTANCES. AS A RESULT, THE IDENTIFICATION AND INTERPRETATION OF DATA AND OTHER INFORMATION AND THEIR USE IN DEVELOPING AND SELECTING ASSUMPTIONS FROM AND AMONG REASONABLE ALTERNATIVES REQUIRE THE EXERCISE OF JUDGMENT. TO THE EXTENT THAT THE ASSUMED EVENTS DO NOT OCCUR, THE OUTCOME MAY VARY SUBSTANTIALLY FROM ANTICIPATED OR PROJECTED RESULTS, AND, ACCORDINGLY, NO OPINION IS EXPRESSED ON THE ACHIEVABILITY OF THOSE FORWARD-LOOKING STATEMENTS. WE CANNOT GUARANTY THAT ANY OF THE ASSUMPTIONS RELATING TO THE FORWARD-LOOKING STATEMENTS SPECIFIED IN THE FOLLOWING INFORMATION ARE ACCURATE, AND WE ASSUME NO OBLIGATION TO UPDATE ANY SUCH FORWARD-LOOKING STATEMENTS.


Critical Accounting Policy and Estimates


Our Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations section discusses our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to revenue recognition, accrued expenses, financing operations, and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The most significant accounting estimates inherent in the preparation of our consolidated financial statements include estimates as to the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources. These accounting policies are described at relevant sections in this discussion and analysis and in the notes to the consolidated financial statements included in our Quarterly Report on Form 10-Q for the period ended June 30, 2009.


Overview


DESCRIPTION OF BUSINESS.


OVERVIEW

In September 2005, the Company refocused the efforts in advertising and media in the emerging China market where global companies are rushing into China to try to grab and hold the attention of its 1.3 billion citizens. Our objective is to be a new age media company 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. The Company will initially focus on two main business units being "Advertising" and "Telecommunications and Mobile Computing" and "Product Services."..


OUR BUSINESS.


In March 2007, we acquired the entire issued share capital of Good World Investments Limited ("Great World") which owns 50% of Beijing Ren Ren Health Culture Promotion Limited ("Beijing Ren Ren"). Good World is an investment holding company and Beijing Ren Ren is in the business of advertising in promoting health education and health awareness in China under the program Great Wall of China Project.

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


Due to the global economic recession and faced extreme uncertainty, advertisers in most sectors planned for the worst and cut their costs in anticipation of steep drops in revenue. In uncertain times, advertising expenditure is often treated as discretionary spending and easily reduced. It is reported that China to be the fourth largest ad market in 2009 and that China ad market will experience growth of 5.4% in 2009. These are cautiously optimistic prediction of the ad revenue, however many corporations are still facing uncertain economic times and we will need to monitor signs of economic recovery. We will move cautiously in the second half of 2009. We will monitor the economic conditions before we deploy any activities. We will also explore other markets in the Asia region for any synergistic business opportunities.


Advertising Unit


On March 13, 2007, the Company acquired 100% of the issued and outstanding shares of Good World Investments Limited, which owns 50% of the registered capital of Beijing Ren Ren Health Culture Promotion Limited ("BRR"). BRR is working with the Chinese Government on a benevolent project named "Great Wall of China Project" to advertise and promote health education and health awareness in China. We believe BRR provides a strategic advertising platform for us to launch our advertising operations in China as it is can advertise in hospitals and districts in China. During the period, the company did not derive any advertising income from the BRR project but has recorded $581 in relation to advertising services.


During the period we have published two editions of the Hong Kong Tourist Maps "Hong Kong Fantasy Map". Although we have received modest ad revenue from these two initial subscriptions, the ad customer responses have been very positive. We plan to issue at least 2 more editions before the end of the year. Our aim is to cater to the large number of China tourists. In future, we plan to explore working with local Chinese partners to expand to China, as we expect the tourism sector in China to grow.


Telecommunications Unit

In January 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.


Advertising through mobile devices is becoming more prominent to reach the mobile society of today. The goal of the Telecommunications and Mobile Computing Unit is to provide the Company with entry into the new sector of advertising through telecommunication media, mobile computing and other convergent devices. Our strategy on gaining access in telecommunication media is through cooperation with existing networks or establishes select networks. However our longer-term strategy is to partner with network operators to provide extensive network access for our advertising media. We have secured the distribution rights for M.A.G.I.C. Convergent Device for the territory of China and Hong Kong. M.A.G.I.C. is a next generation convergent device that has the full capabilities of a notebook computer shrink to a size of a PDA phone. We expect the M.A.G.I.C. Device will provide us with a unique device to enter the information and advertising sector of the mobile society. As announced in our Form 8-K of May 21, 2009, we entered into an agreement with Advance Tech Communications Sdn. Bhd. ("ATC"), the developer of M.A.G.I.C., to establish a joint venture company to market the convergent devices worldwide (other than China and Hong Kong) developed by ATC.


The Company has recently received the latest prototype unit, know as M.A.G.I.C. S1, and it is now at the final stage of conducting compliance, functional, stability, load and usability testing on the device prior to testing by our resellers and partners. After such testing, we expect to enter into commercial production of the M.A.G.I.C. S1 unit in Q4. We are now working with potential retailers in Malaysia, India and Thailand to launch our M.A.G.I.C. S1 which is based on our S1 Platform. There will be further new release of other convergent devices based on the S1 Platform in Q1 2010.


During this period under review, the Group sold US$29,567 of netbooks in China as a prelude to selling the M.A.G.I.C. True Convergent Devices and other Multimedia Internet Devices ("MIDs") in China. We will endeavor to continue to sell other convergent devices in Hong Kong and China in the upcoming quarter to start to prepare the distribution channels for M.A.G.I.C.


Products Services Units

We have commenced a Products Services Unit to build brands recognition and to take advantage of our contacts networks, distribution channel and trading partners. We will leverage off our advertising platform to develop our own brands name for select products. This will uniquely position our Product Services for brand awareness as well as develop a long term business unit that will serve both consumers and industries markets. In the meantime, no revenue was derived from this business unit.


Plan of operations

OUR PLAN OF OPERATION FOR THE NEXT TWELVE MONTHS.

We hope to generate additional revenues in the next twelve months by engaging business operations through internal growth and through strategic acquisitions and cooperative advertising agreements, as described more fully under "Overview" above.


We have cash and cash equivalents of $21,800 as of June 30, 2009; a decrease from the previous period end of December 31, 2008. In the opinion of management, these funds will not satisfy our working capital requirements to operate at our current level of activity for the next twelve months. To effectuate our business plan, during the next twelve months, we must arrange for adequate funding to implement our plans of increasing our advertising offerings and promote our advertising services, through cooperation agreements and otherwise.


Financing and funding

On or about December 7, 2006, the Company entered into an Equity Line of Credit Arrangement ("ELOC") with a private equity firm that will purchase up to US$2.5 million of our Common Stock under certain conditions after we have successfully registered the Registration Statement with the SEC. On the same date, the Company entered into a Debenture Purchase Agreement with the same party a $125,000 convertible debenture under certain conditions. Details of both financing arrangements can be found on the Company's filing on the SEC website. The Company intended to use this funding to for working capital and to aggressively roll out its business plans. At the date of this report, the Company has draw down US$50,000 on the Equity Line of Credit but has received $125,000 under the Debenture Purchase Agreement. Furthermore the private equity firm has exercised US$15,000 in warrants. In April 2008, the Company repaid the $125,000 Convertible Debenture. In August 2008, the Company terminated the ELOC agreement except for the stock warrants issued pursuant to the ELOC Agreement. On May 12, 2009 all the remaining 30,750,000 unexercised stock warrants in respect of the ELOC Arrangement expired.


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


Specifically, we hope to accomplish the steps listed below to implement our business plan. We estimate that we will require approximately $2,000,000 to commence operations as envisioned below during the next twelve months. The figures and steps outlined below are estimates only, and our actual progress and cost may vary from these estimates and is subject to our ability to obtain adequate funding. Such additional capital may be raised through public or private equity financing, borrowings, or other sources, such as contributions from our officers and directors. If we are unable to obtain funds necessary to implement our business plan, we may revise or scale back our business plan.


Over the course of the next two years, subject to available resources, we propose to build up our advertising presences to over 5 regional offices in China. Over the next two years, we also propose to acquire strategic partners that have existing operations in cities or regions to grow our business by acquisition and through cooperation agreements and otherwise, subject to available funding. Additional support staff may be hired as necessity and resources dictate within the next twelve months.


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


Results of operation.


FOR THE THREE MONTHS AND SIX MONTHS PERIOD ENDED JUNE 30, 2009 COMPARED TO THE THREE MONTHS AND SIX MONTHS PERIOD ENDED JUNE 30, 2008


REVENUES.

For the three months period ended June 30, 2009, the Group has realized revenue of $30,148 and a cost of revenue of $31,937, achieving a gross loss of $1,789. For the three months period ended June 30, 2008, the Group has realized revenue of $26,126 and a cost of revenue of $11,803 achieving a gross profit of $14,323. We hope to generate additional revenues when we begin to receive contracts from clients or through acquisitions. Depending upon the availability of operating capital, we intend to expand our operations in the next 12 months.


For the six months period ended June 30, 2009, the Group has realized revenue of $41,756 and a cost of revenue of $36,797, achieving a gross profit of $4,959. For the six months period ended June 30, 2008, the Group has realized revenue of $51,401 and a cost of revenue of $27,960 achieving a gross profit of $23,441. We hope to generate additional revenues when we begin to receive contracts from clients or through acquisitions. Depending upon the availability of operating capital, we intend to expand our operations in the next 12 months.


OPERATING EXPENSES.

For the three month period ended June 30, 2009, our gross loss was $1,789 and our total operating expenses were $114,534, all of which were selling, general and administrative expenses. We also had $43,441 in interest expenses, and loss attributable to minority interests of $4,517, so that the net loss to our shareholders for the three months period ended June 30, 2009 was $155,247. This is in comparison to the same period ended June 30, 2008, where our gross profit was $14,323 and our total operating expenses were $233,603, all of which were selling, general and administrative expenses. We also had $42,524 in interest expenses and loss attributable to minority interests of $6,333, so that the net loss to our shareholders for the three months period ended June 30, 2008 was $255,471.


For the six month period ended June 30, 2009, our gross profit was $4,959 and our total operating expenses were $226,836, all of which were selling, general and administrative expenses. We also had $85,958 in interest expenses, and loss attributable to minority interests of $8,251, so that the net loss to our shareholders for the six months period ended June 30, 2009 was $299,584. This is in comparison to the same period ended June 30, 2008, where our gross profit was $23,441 and our total operating expenses were $615,989, all of which were selling, general and administrative expenses. We also had $37 in interest income, $105,903 in interest expenses and loss attributable to minority interests of $11,720, so that the net loss to our shareholders for the six months period ended June 30, 2008 was $686,694.


Liquidity and Capital Resources


As at June 30, 2009, the Company had cash and cash equivalents totaling $21,800, other current assets of $330,748 and non-current assets totaling $6,963,272 which were represented by $33,596 in fixed assets, $138,000 in distribution rights and $6,791,676 in goodwill. The total assets of the Company were $7,315,820 as of June 30, 2009. We also had current liabilities of $2,008,162 which were represented by $430 in accounts payable, $568,671 in accruals, $99,645 in short term debt, $982,888 due to related parties, $356,528 due to a shareholder as of June 30, 2009. We also had $2,000,000 in long-term shareholders loan and $159,979 in minority interests as of June 30, 2009, made our total liabilities $4,168,141.

At present the Company does not have sufficient cash resources to provide for all general corporate operations in the foreseeable future. The Company will be required to raise additional capital in order to continue to operate in fiscal 2009.


Going Concern


The Company's financial statements are presented on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has experienced significant losses from operations in recent periods. For the three months ended June 30, 2009 the Company incurred net losses of $155,247 and has accumulated losses of $6,034,782 as at June 30, 2009. The Company's ability to continue as a going concern must be considered in light of the problems, expenses and complications frequently encountered in developing markets and the competitive environment in which the Company operates. The Company is pursuing financing for its operations and seeking additional investment. In addition, the Company is seeking to expand its revenue base by adding new customers and to start out its advertising business. Failure to secure such financing, to raise additional equity capital and to expand its revenue based may result in the Company depleting its available funds and not being able to pay its obligations. These financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.


Off Balance Sheet Arrangements


As of June 30, 2009, there were no off balance sheet arrangements. The Company has no off balance sheet obligations or guarantees and has not historically used special purpose entities for any transactions.


Item 3. Quantitative and Qualitative Disclosure About Market Risk.

Quantitative and Qualitative Disclosures about Market Risk:


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


Item 4.

Controls and Procedures.

Evaluation of Disclosure Controls and Procedures:


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


Changes in Internal Controls over Financial Reporting:


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


PART II - OTHER INFORMATION


Item 1.

Legal Proceedings

None.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

Submissions of Matters to a Vote of Security Holders

None.

Item 5.

Other Information

None.

Item 6. Exhibits


Exhibit Number


Description of Exhibit

2.1

Non-Blinding Stock Purchase Agreement with Dongguan Zhishixin Advertising Limited to acquire 52.3% controlling interests in Zhishixin. (1)

2.2

Stock Purchase Agreement with Central Star Holdings Limited. (2)

2.3

Sales and Purchase Agreement to purchase the entire share capital of Good World Investments Limited. (3)

3.1

Articles of Incorporation (4)

3.1.1

Certificate of Amendment to Articles of Incorporation (5)

3.1.2

Certificate of Amendment to Articles of Incorporation, as amended.(13)

3.2

Bylaws (4)

4.1

Consultancy Agreement between China Media Group Corporation and Waterville Investment Research, Inc. (6)

4.2

Consultancy Agreement between China Media Group Corporation and Uptick Limited. (7)

4.3

Executive Services Agreement between China Media Group Corporation and Con Unerkov (8)

4.4

Executive Services Agreement between China Media Group Corporation and Alex Ho (8)

4.5

Warrants to Purchase Common Stock (9)(10)

10.1

ELOC Arrangement with Tailor-Made Capital Ltd. (9)

10.2

Debenture Purchase Agreement with Tailor-Made Capital Ltd.(9).

10.3

2002 Stock Option Plan (11)

10.4

2007 Stock Incentive Plan (12)

10.5

Second Amendment Agreement (14)

10.6

Termination Letter Agreement (15)

31*

Certification as required by Rule 13a-14(a)/15d-14(a).

32*

Certification as required by 18 U.S.C. Section 1350.

Notes

1.

Incorporated by reference to our Current Report on Form 8-K as filed with the SEC on February 7, 2006.

2.

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

3.

Incorporated by reference to our Current Report on Form 8-K as filed with the SEC on March 15, 2007.

4.

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

5.

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

6.

Incorporated by reference to our Current Report on Form 8-K as filed with the SEC on November 28, 2006.

7.

Incorporated by reference to our Current Report on Form 8-K as filed with the SEC on December 4, 2006.

8.

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

9.

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

10.

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

11.

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

12.

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

13.

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

14.

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

15.

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

* Filed herewith.

SIGNATURES

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

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

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


By:

/s/ Cheng Pheng Loi

August 12, 2009
--------------------------------------------
Cheng Pheng Loi

Its:

Principal executive officer
President, director

Exhibit 31.1

Rule 13a-14(a)/15d-14(a)

Certification of Chief Executive Officer of the Company
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
and Securities and Exchange Commission Release 34-46427

I, Cheng Pheng Loi, certify that:

1. I have reviewed this quarterly report on Form 10-Q of China Media Group Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


(a)


Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.


5. I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):


(a)


All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting.




Date: August 12, 2009
/s/ Cheng Pheng Loi
-----------------------
Cheng Pheng Loi
Chief Executive Officer

Exhibit 31.2

Rule 13a-14(a)/15d-14(a)

Certification of Chief Financial Officer of the Company
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
and Securities and Exchange Commission Release 34-46427

I, Con Unerkov, certify that:

1. I have reviewed this quarterly report on Form 10-Q of China Media Group Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


(a)


Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.


5. I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):


(a)


All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting.




Date: August 12, 2009
/s/ Con Unerkov
-----------------------
Con Unerkov
Chief Financial Officer

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of China Media Group Corporation a Texas corporation (the "Company") on Form 10-Q for the three months period ending June 30, 2009, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Con Unerkov, Chief Executive Officer of the Company, certifies to the best of his knowledge, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:


(1)


The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and


(2)


The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.


A signed original of this written statement required by Section 906 has been provided to China Media Group Corporation, and will be retained by China Media Group Corporation and furnished to the Securities and Exchange Commission or its staff upon request.



/s/ Cheng Pheng Loi

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

Cheng Pheng Loi

Chief Executive Officer

August 12, 2009


Exhibit 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of China Media Group Corporation a Texas corporation (the "Company") on Form 10-Q for the three months period ending June 30, 2009, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Con Unerkov, Chief Financial Officer of the Company, certifies to the best of his knowledge, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:


(1)


The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and


(2)


The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.


A signed original of this written statement required by Section 906 has been provided to China Media Group Corporation, and will be retained by China Media Group Corporation and furnished to the Securities and Exchange Commission or its staff upon request.



/s/ Con Unerkov

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

Con Unerkov

Chief Financial Officer

August 12, 2009