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UNITED STATES FORM 10-K (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACTOF 1934 For the fiscal year ended December 31, 2009 ( ) TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from [ ] to [ ]
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Commission File Number: 000-50431
CHINA MEDIA GROUP CORPORATION
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(Exact name of small business issuer as specified in its charter) |
Texas |
7310 |
32-0034926 |
(State or other |
(Primary Standard Industrial |
(I.R.S. Employer |
jurisdiction of |
Classification Code Number) |
Identification No.) |
incorporation or organization) |
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1403 Wan Chai Commercial Center, 194-204 Johnston Road, Wanchai, Hong Kong. |
N/A |
(Address of Company's principal executive offices) |
(Zip Code) |
+011 852 3171 1208 (ext. 222)
(Company's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Act:
Title of each class registered: |
Name of each exchange on which registered: |
Securities registered under Section 12(g) of the Act:
Common Stock, No Par Value
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. [ ] Yes [ x ] No |
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. [ ] Yes [ x ] No |
[ x ] Yes [ ] No |
[ ] |
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[ ] Large accelerated filer |
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[ ]Yes [ x ] No |
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DEFINITIONS AND CONVENTIONS |
References to "China" refer to the Peoples' Republic of China. |
References to "Common Stock" means the common stock, no par value, of China Media Group Corporation. |
References to the "Commission" or "SEC" means the U.S. Securities and Exchange Commission. |
References to "Company", "CHMD", "we", "our" means China Media Group Corporation and include, unless the context requires or indicate otherwise, the operation of its subsidiaries (all hereinafter defined). |
References to "33 Act" or "Securities Act" means the Securities Act of 1933, as amended. |
References to "34 Act" or "Exchange Act" means the Securities Exchange Act of 1934, as amended. |
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PART I |
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ITEM 1. |
Business |
1 |
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ITEM 1A. |
Risk Factors |
6 |
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ITEM 1B. |
Unresolved Staff Comments |
14 |
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ITEM 2. |
Properties |
14 |
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ITEM 3. |
Legal Proceedings |
14 |
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ITEM 4. |
Submission of Matters to a Vote of Security Holders |
14 |
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PART II |
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ITEM 5. |
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
15 |
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ITEM 6. |
Selected Financial Data |
20 |
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ITEM 7. |
Management's Discussion and Analysis of Financial Condition and Results of Operation |
21 |
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ITEM 7A. |
Quantitative and Qualitative Disclosures About Market Risk |
23 |
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ITEM 8. |
Financial Statements and Supplementary Data |
24 |
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ITEM 9. |
Changes in and Disagreements with Accountants on Accounting and Financial Disclosures |
24 |
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ITEM 9A |
Controls and Procedures |
24 |
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ITEM 9B. |
Other Information |
25 |
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PART III |
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Item 10 |
Directors, Executive Officers and Corporate Governance |
26 |
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Item 11 |
Executive Compensation |
28 |
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Item 12 |
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
30 |
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Item 13 |
Certain Relationships and Related Transactions, and Director Independence |
32 |
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Item 14 |
Principal Accounting Fees and Services |
33 |
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PART IV |
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ITEM 15 |
Exhibits, Financial Statement Schedules |
34 |
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SIGNATURES |
36 |
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Company Our mission is to become one of China's leading new age media companies through the use of new technologies and devices combined with traditional media of TV, Newspapers, Magazines, Billboards and Internet to reach today's mobile society. In order to facilitate our mission, the Company initially established 4 strategic business units: "Television", "Advertising" "Print" and "Telecommunications and Mobile Computing". However due to the lack of financial and other resources available to the Company in the near future, the Company will now only focus on "Advertising" and "Telecommunication and Mobile Computing" units, and introduce a business unit "Products Services" in the coming year. History and Overview The Company was incorporated in Texas on October 1, 2002 and was originally formed to be a frozen drink machine rental service. It was intended to specialize in renting frozen drink machines for gatherings such as wedding receptions, birthday parties, football parties, anniversaries, family reunions, weekend barbeques, social functions and fund raising events, as well as any other type of occasion. From the beginning, this business was at the first stage of development and the primary focus was on continuing to develop and revise our business strategies. In January 2005, the Company changed its name to International Debt Exchange Associates Inc., reflecting the Company's intent to become a diverse company through mergers and acquisitions and still maintained the current business as a frozen drink machine rental service. In September 2005, the Company changed its board of directors which had since changed the Company name to China Media Group Corporation to reflect the Company's intent to focus all its efforts in advertising and media in the emerging China market. Under new management, the Company commenced to position the Company to capitalize on the growth of the Chinese advertising market where, we believe, global companies are rushing into China to try to grab and hold the attention of its 1.3 billion citizens. In April 2006, our Telecommunications and Mobile Computing business unit commenced selling mobile phone devices. In February 2007, we formed a new Trading Services unit to build brands and to take advantage of our contacts, distribution network and trading opportunities. |
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In late 2009, the Group has commenced selling advertising for digital kiosk signs in Hong Kong and we expect to expand this sector to China in 2010. |
Our activities are based predominately in the People's Republic of China ("PRC"), but we expect to commence adverting operations in Malaysia in the coming year. |
1
Corporate StrategyOur goal is to become one of China's leading new age media companies through the use of new technologies and devices combined with traditional media of TV, Newspapers, Magazines, Billboards and Internet to reach today's mobile society. Key elements to our strategy include the following: |
- | Increase our value to customers by developing a nationwide advertising platform. We intend to develop a nationwide advertising platform in China so that our customers can conduct country wide advertising through one supplier. | |
- | Increase our value with the healthcare industry to advertise through us. We intend to expand on the ad/sign placement at hospitals so that we can create a network of hospitals for the healthcare companies to advertise. | |
- | Continue to explore complimentary acquisitions. We intend to continue to seek acquisitions of companies or strategic relationships that will allow us to acquire more ad/sign placements or to develop more distribution channels or create more applications for our M.A.G.I.C. Convergent device. | |
- | Increase our product services unit to establish and promote our brands by leveraging on our advertising platform. |
2009 Products & Services OverviewAlthough we have established 4 business units, we have only started activities in two of them; those are "Advertising" and "Telecommunication and Mobile". After adding the Product Services business unit, we will have three business units in operation. A brief review and description of these three business units' operation strategies are described below. Advertising Unit Our principal focus is on our China based advertising under Beijing Ren Ren Health Culture Promotion Limited. Beijing Ren Ren has a nationwide advertising license to undertake the program of promoting health education and health awareness under the United Nations Millennium Development Goals Program which has been named the Great Walls of China Project in China. Beijing Ren Ren obtains the rights to advertise in hospitals as well as the rights of three outdoor signs in every district in China. Our strategy in the advertising unit is to secure ad placements with our partners and through acquisitions, and then work with advertising agencies to sell these ad placements. Some of the upcoming tasks are: |
- | commencing selling the approved sign/ad placements in Chao Yang district in Beijing; | |
- | finalizing negotiations on the agreement to acquire billboard signs in China; and | |
- | co-operating with partners in China to develop advertising revenue. |
Furthermore, we will utilize the advertisement place inside and outside the hospitals to capture the advertising positions in the health sector. Our strategy is to invite domestic and international healthcare companies to place advertisement in these hospitals. Our goal is to co-ordinate with hospitals nationwide so that we can deliver our health awareness and health education messages across all China. |
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Telecommunications and Mobile Computing Unit Advertising through mobile devices is becoming more prominent to reach the mobile society of today. The goal of the Telecommunications and Mobile Computing Unit is to provide the Company with entry into the new sector of advertising through telecommunication media and devices. Our strategy on gaining access through telecommunication media is through cooperation with existing networks or to establish select networks. However our longer term strategy is to establish a partnership with network operators to provide extensive network access for our advertising media. We have secured the distribution rights for M.A.G.I.C. Convergent Device for the territory of China and Hong Kong. M.A.G.I.C. is the next generation convergent device that has the full capabilities of a notebook computer but shrink down to the size of a PDA phone. During the year, the Company received the prototype unit "M.A.G.I.C. Shiv 1" or "S1" and conducted the compliance, functional, stability, load and usability tests. However after analyzing the market, we decided to proceed with the next platform M.A.G.I.C. W3 which feature a more superior specs and functionality. We believe that the W3 will be positioned as the high end convergent device for professional users running special applications. |
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Products Services Unit |
We plan to distribute products that would leverage on our current business activities and programs. We are reviewing certain operations and products that fall under the guidelines of the Millennium Development Goals program. We hope to have one of these operations and products starting in the first half of 2010. |
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Marketing & Sales OverviewSubject to limited resources available to the Group we plan to secure ad/sign placements in districts in China under our Great Walls of China Project. We plan to co-operate with international advertising firms to place out the advertising on these ad/sign placements on either an agent or outsourced basis. We plan to work with our government sponsors to secure ad/sign placements. We will recruit a team to manage the 10 largest cities in China where we would secure, manage and administer ad/sign placements for these cities. For the other cities we will look for partners or agents to work with us to secure ad/sign placements. Once we have certain ad/sign placements network for the second-tier cities, we will approach advertising agencies to sell these ad/sign placements to their customers. For our M.A.G.I.C. Convergent devices, we will sell through distribution channels, network operators and small enterprises. We will approach distribution channels and network operators in Hong Kong and China to sell the M.A.G.I.C. Device. We will also sell to certain enterprises that will take advantage of the special functions in M.A.G.I.C. Device and customize to their operational needs. Select firms that we will target are transportation and logistic companies, courier companies, and direct sales companies. We will also target corporate and financial executives to customize the M.A.G.I.C. Device to their requirements. To sell this high value product with innovative applications, we plan to employ business development teams focused on creating high-value strategic customers and business alliances. For our Products Services unit, we will work with our advertisers to cross promote and sell their products. In some cases, we will look to develop our own brands. We will employ a small team to handle enquires and to provide support to our advertising customers. Industry Overview and Competition The key to our success is the occupation of prime advertising locations throughout China. The premium locations with heavy pedestrian traffic are not common but are the focus of all advertising agencies and media owners. Our differentiator is our ability to secure advertising locations under the Beijing Ren Ren's Great Wall of China project. So far, we have been able to secure some locations both in hospitals and in Chao Yang district because of our partners in Beijing Ren Ren. Under the Great Wall of China Project, we will be able to access to at least 3 signs in each district in China. There is competition in the market but the market is also very big and growing. We believe there is ample room for our Company to grow in the China market. With the emergence of newer convergent device technologies, there is an opportunity for us to offer convergent devices and applications and solutions that have more functionality than traditional mobile devices. The new devices are easier to integrate with existing data and video applications and systems, and are easier to maintain and administer. We believe that the rate of adoption of convergent device and its applications and solutions by corporate executives and innovative applications will accelerate the adaptation of our M.A.G.I.C. Convergent device is recognized as more secure, and more functional in internet-based applications. We believe mobile executives will recognize the benefit of having notebook functionality in a handheld device combined with video and data capabilities. Based on these foreseeable trends, the capacity provided by our advertising and convergent devices will have a market niche. We believe we are well-positioned to offer advertising on a nationwide basis by combining both traditional and new age advertising for the mobile society. |
4
Governmental RegulationWe are subject to federal, state and local laws and regulations applied to businesses in general. We believe that we comply with the requirements in China for any licenses or approvals to pursue our proposed business plan. In locations where we operate, the applicable laws and regulations are subject to amendment or interpretation by regulatory authorities. Generally, such authorities are vested with relatively broad discretion to grant, renew and revoke licensee and approvals, and to implement regulations. Licenses may be denied or revoked for various reasons, including the violation of such regulations, conviction of crimes and the like. Possible sanctions which may be imposed include the suspension of individual employees, limitations on engaging in a particular business for specific periods of time, revocation of licenses, censures, redress to customers and fines. We believe that we are in conformity with all applicable laws in all relevant jurisdictions. We may be prevented from operating if our activities are not in compliance and must take action to comply with the relevant laws and regulations. China has a long standing law on the ownership of advertising agencies but not the advertising placements locations. The onus is placed on the advertising agency to ensure proper contents in the advertisement. One of the WTO requirements is for China to relax the advertising agency ownership requirements. Our China subsidiaries are only subject to regular business laws in China. We have posted our privacy policy and practices concerning the use and disclosure of any consumer information collected on our website, www.chinamediagroup.net. Any failure by us to comply with posted privacy policies, Federal Trade Commission requirements or other domestic or international privacy-related laws and regulations could result in proceedings by governmental or regulatory bodies that could potentially harm our business, results of operations and financial condition. In this regard, there are a large number of legislative proposals before the U.S. Congress and various state legislative bodies regarding privacy issues related to online commerce. It is not possible to predict whether or when such legislation may be adopted, and certain proposals, if adopted, could harm our business by causing a decrease in the use of our applications and services by our small business customers and thereby a decrease in our revenues. Such decreases could be caused by, among other possible provisions, the required use of disclaimers or other requirements before consumers can utilize our Internet technology solutions. Employees As of the date of this report, we have approximately 5 full time and 4 part time employees. From time to time, we utilize consultants or contractors for specific assignments. None of our employees are represented by a labor union and we have never experienced a work stoppage. We believe that our relationships with our employees are good. Facilities We currently lease and occupy 1,000 square feet of office space in Hong Kong for our executive and administrative office at a cost of about $2,000 per month. The lease expires in December 2011. We also share a 300 square feet office in Kuala Lumpur, Malaysia as our Southeast Asia office, which is free of rent. The other operating office is located in Beijing where we have a 300 square feet administration office. We do not have a written lease or sublease agreement for the office location in Beijing. We believe we will be able to obtain additional space, as needed, on commercially reasonable terms. |
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ITEM 1A. RISK FACTORS |
RISKS RELATED TO EXISTING AND PROPOSED OPERATIONS We have a history of losses and accumulated deficit and could incur losses in the future. We have a history of net losses. For the years ended December 31, 2009, 2008 and 2007, our net losses have been $2.53 million, $2.15 million and $1.73 million, respectively. As of December 31, 2009, we had accumulated deficits of $8.26 million. If we do achieve profitability in the future, we may not be able to sustain or increase our profitability in the future. If we are unable to obtain additional funds from other financings we may have to curtail the scope of our operations significantly and alter our business model. We must achieve profitability for our business model to succeed. Prior to accomplishing this goal, we may need to raise additional funds, from equity or debt sources. Our cash requirements are substantial and our current financing arrangement through the warrants are insufficient to meet our cash needs in the future If additional financing is not available when required or is not available on acceptable terms, we may be unable to continue our operations at current or planned levels. In addition, any failure to raise additional funds in the future may result in our inability to successfully secure our advertising platform, take advantage of business opportunities or respond to competitive pressures, any of which circumstances could have a material adverse effect on our financial condition and results of operations. We have incurred losses since our inception and we may not achieve or maintain profitability. We have not been profitable in any fiscal period since our inception and may not be profitable in future periods. At December 31, 2009, we had accumulated deficits of approximately $8.26 million. We expect that our expenses relating to sales and marketing, technology development, general and administrative functions, as well as the development of our advertising platform and infrastructure, will increase in the future. We will need to increase our revenues to be able to achieve and then maintain profitability in the future. We may not be able in a timely manner to obtain necessary financing or to reduce our expenses in response to any decrease or shortfall in our revenues, and our failure to do so would adversely affect our operating results and our efforts to achieve or maintain profitability. We cannot predict when, or if, we will become profitable in the future. Even if we achieve profitability, we may not be able to sustain it. We have a significant working capital deficit and will need additional funding to support our operations and capital expenditures; sufficient funding may not be available to us, and the unavailability of funding could adversely affect our business. As of December 31, 2009, we had a working capital deficit of approximately $1.84 million. We have no committed sources of additional capital to finance the expansion of our business. Due to our recurring losses, negative cash flows, working capital deficits, and accumulated deficits, the report of our independent registered public accounting firm on our consolidated financial statements for the year ended December 31, 2009 expressed substantial doubt about our ability to continue as a going concern. For capital expenditures, we will need additional funds to continue our operations, expand our staffing, develop our advertising and mobile devise businesses, pursue business opportunities (such as licensing or acquisition of complementary technologies or businesses), react to unforeseen difficulties and respond to competitive pressures. We cannot assure that any financing will be available to us at any time in the future, in amounts or on terms acceptable to us, or at all. Furthermore, the sale of additional equity or convertible debt securities may result in additional dilution to our existing stockholders. If adequate additional funds are not available, we may be required to delay, reduce the scope of or eliminate implementation of material parts of our business strategy, potentially including the development or acquisition of additional advertising and mobile device businesses and capabilities. |
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Our limited operating history and rapidly evolving business makes it difficult for us to accurately forecast revenues and expenses. We have a limited operating history on which to base an evaluation of our business and prospects. Our operating results may fluctuate as a result of a number of factors, many of which are outside of our control. For these reasons, comparing our operating results on a period-to-period basis may not be meaningful, and you should not rely on our past results as an indication of our future performance. Our prospects must be considered in light of inherent risks, expenses, and difficulties encountered by companies in their early stages of development, particularly in new and evolving markets. We commenced our advertising and mobile devices operations in April 2006 with a very limited operating history for these operations due to the lack of operating resources. Our operating results to date relate principally to advertising and the mobile device business. Accordingly, our future prospects are uncertain in light of the risks and uncertainties experienced by early stage companies in evolving industries, and in particular our future operations in China. Due to our limited history and lack of resources, it is difficult for us to predict future revenues and operating expenses. We based our expense levels, in part, on our expectations of future revenues from anticipated transactions. If our advertising and mobile device business develops slower than we expect, our losses may be higher than anticipated, we may have to curtail parts of our business plan and to the market price of our stock may decline. Some of the other risks and uncertainties of our business relate to our ability to: |
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offer new and innovative products and services to attract and retain a larger consumer base; |
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- | attract customers; | |
- | increase awareness of our brand and continue to develop consumer and customer loyalty; | |
- | respond to competitive market conditions; | |
- | respond to changes in our regulatory environment; | |
- | manage risks associated with intellectual property rights; | |
- | maintain effective control of our costs and expenses; | |
- | raise sufficient capital to sustain and expand our business; | |
- | attract, retain and motivate qualified personnel; and | |
- | upgrade our technology to support increased traffic and expanded services. |
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Our principal focus is on our advertising and mobile device businesses in the People's Republic of China, which we are creating through the acquisition of various entities and assets, and organic growth. These potential acquisitions have not closed to date and may never close. Accordingly, it is difficult to evaluate our business based upon our historical financial results, including those for the year ended December 31, 2009. Even if we closed potential acquisitions, our business will not be successful if we are unable to successfully operate and integrate the businesses we acquire. We expect to continually look for new businesses to acquire to maintain and sustain our operations. If we fail to identify such business, are unable to acquire such businesses on reasonable terms, or fail to successfully integrate such businesses, our operating results and prospects could be harmed. |
We expect to face significant competition in our advertising business, particularly from other companies that seek to provide similar services. Many of these competitors have significantly greater financial resources and more personnel than we do. They may also have longer operating histories and more experience in attracting and retaining and managing customers. They may use their experience and resources to compete with us in a variety of ways, including by competing more for users, customers, distributors, media channels and by investing more heavily in research and development and making acquisitions. If we fail to compete effectively, our business, financial condition and results of operation will be adversely affected. |
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Our business depends on a strong brand, and if we are not able to maintain and enhance our brand, our business and operating results may be harmed. We believe that recognition of our brand will contribute significantly to the success of our business. We also believe that maintaining and enhancing our brand is critical to expanding our base of consumers and customers. As our market becomes increasingly competitive, maintaining and enhancing our brand will depend largely on our ability to remain as an advertising leader in China, which may be increasingly difficult and expensive. We may face intellectual property infringement claims and other related claims that could be time-consuming and costly to defend and may result in our inability to continue providing certain of our existing services. Technology and advertising companies are frequently involved in litigation based on allegations of infringement of intellectual property rights, unfair competition, invasion of privacy, defamation and other violations of third-party rights. The validity, enforceability and scope of protection of intellectual property, particularly in China, are uncertain and still evolving. In addition, many parties are actively developing and seeking protection for technologies, including seeking patent protection. There may be patents issued or pending that are held by others that cover significant aspects of our technologies, products, business methods or services. As we face increasing competition and as litigation becomes more common in China for resolving commercial disputes, we face a higher risk of being the subject of intellectual property infringement claims. Intellectual property litigation is expensive and time consuming and could divert resources and management attention from the operations of our businesses. If there is a successful claim of infringement, we may be required to pay substantial fines and damages or enter into royalty or license agreements that may not be available on commercially acceptable terms, if at all. Our failure to obtain a license of the rights on a timely basis could harm our business. Any intellectual property litigation could have a material adverse effect on our business, financial condition or results of operations. If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. We are subject to reporting obligations under the U.S. securities laws. The SEC, as required by Section 404 of the Sarbanes-Oxley Act of 2002, adopted rules requiring every public company to include in its annual report a management report on such company's internal controls over financial reporting which contains management's assessment of the effectiveness of the company's internal controls over financial reporting. In addition, an independent registered public accounting firm must attest to and report on management's assessment of the effectiveness of the company's internal controls over financial reporting. These requirements may first apply to our annual report on Form 10-K for the fiscal year ending December 31, 2010. Our management may conclude that our internal controls over financial reporting are not effective. Moreover, even if our management concludes that our internal controls over financial reporting are effective, our independent registered public accounting firm may still decline to attest to our management's assessment or may issue a report that is qualified if they are not satisfied with our controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us. Our reporting obligations as a public company will place a significant strain on our management, operational and financial resources and systems for the foreseeable future. We are a young company with limited accounting personnel and other resources with which to address our internal financial controls and procedures. If we fail to timely achieve and maintain the adequacy of our internal financial controls, we may not be able to conclude that we have effective internal controls over financial reporting at a reasonable assurance level. Moreover, effective internal controls over financial reporting are necessary for us to produce reliable financial reports and are important to help prevent fraud. As a result, our failure to achieve and maintain effective internal controls over financial reporting could result in the loss of investor confidence in the reliability of our financial statements, which in turn could harm our business and negatively impact the market price of our common stock. Furthermore, we anticipate that we will incur considerable costs and use significant management time and other resources in an effort to comply with and the rules adopted by the SEC. |
Our advertising customers will not maintain their business relationships with us if we cannot secure attractive ad/sign placements. In addition our distributors will not work with us if the convergent device does not sell well or does not have adequate sales margin for their sales channels. Failure to retain advertisers, customers, distributors or channel partners could seriously harm our business and growth prospects. |
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Because we primarily rely on distributors in distributing M.A.G.I.C. Convergent Devices, our failure to retain key distributors or attract additional distributors could materially and adversely affect our business. We will rely heavily on a nationwide distribution network of third-party distributors for sales to, and collection of payment from, our corporate and consumer customers. If our distributors do not provide quality services to our consumer customers or otherwise breach their contracts with our consumer customers, we may lose customers and our results of operations may be materially and adversely affected. We will sign distributing agreements with our distributors, although we may not sign any long-term agreements with them, but we cannot assure that we can maintain favorable relationships with them. Our distribution arrangements will be non-exclusive. Furthermore, some of our potential distributors may have contracts with our competitors or potential competitors and may not sign distribution agreements with us. If we fail to retain our key distributors or attract additional distributors on terms that are commercially reasonable, our business and results of operations could be materially and adversely affected. |
We commenced our mobile device and advertising services operations in early 2006. We anticipate continuous developing of our business in 2010 as we focus growth in our - customer base and consumer market opportunities. To manage the potential growth of our operations and personnel, we will be required to improve operational and financial systems, procedures and controls, and expand, train and manage our growing employee base. Furthermore, our management will be required to maintain and expand our relationships with customers. We cannot assure that our current and planned personnel, systems, procedures and controls will be adequate to support our future operations. |
Starting in 2008 till now, the current global economic conditions could have a negative effect on our business and results of operations. Economic activity in China, United States and throughout much of the world has undergone a sudden, sharp economic downturn following the recent housing downturn and subprime lending collapse in both the United States and Europe. Global credit and liquidity have tightened in much of the world. Some of our customers in China may face business downturn and credit issues, and could experience cash flow problems and other financial hardships, which could affect timeliness of advertising through our platform. Consumer confidence and spending are down significantly in China and USA. Changes in governmental banking, monetary and fiscal policies to restore liquidity and increase credit availability may not be effective in alleviating the global economic declines. It is difficult to determine the breadth and duration of the economic and financial market problems and the many ways in which they may affect our customers and our business in general. Nonetheless, continuation or further worsening of these difficult financial and macroeconomic conditions could have a significant effect on our business and results of operations. . |
The general disruption in the U.S. capital markets has impacted the broader financial and credit markets and reduced the availability of debt and equity capital for the market as a whole. These conditions could persist for a prolonged period of time or worsen in the future. Our ability to access the capital markets may be restricted at a time when we would like, or need, to access such markets, which could have an impact on our flexibility to react to changing economic and business conditions. The resulting lack of available credit, lack of confidence in the financial sector, increased volatility in the financial markets and reduced business activity could materially and adversely affect our business, financial condition, results of operations and our ability to obtain and manage our liquidity. In addition, the cost of debt financing may be materially adversely impacted by these market conditions. |
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Our success depends on the continuing efforts of our senior management team and other key personnel and our business may be harmed if we lose their services. Our future success depends heavily upon the continuing services of the members of our senior management. If one or more of our senior executives or other key personnel are unable or unwilling to continue in their present positions, we may not be able to replace them easily or at all, and our business may be disrupted and our financial condition and results of operations may be materially and adversely affected. Competition for senior management and key personnel is intense, the pool of qualified candidates is very limited, and we may not be able to retain the services of our senior executives or key personnel, or attract and retain high-quality senior executives or key personnel in the future. In addition, if any member of our senior management team or any of our other key personnel joins a competitor or forms a competing company, we may lose customers, distributors, know-how and key professionals and staff members. Each of our executive officers and key employees has entered into an employment agreement with us which contains confidentiality and non-competition provisions. Legal proceedings to enforce such provisions would be costly in both money and management time and such provisions may not be enforced or enforceable. We rely on highly skilled personnel and if we are unable to retain or motivate key personnel or hire qualified personnel, we may not be able to grow effectively. Our performance and future success depends on the talents and efforts of highly skilled individuals. We will need to continue to identify, hire, develop, motivate and retain highly skilled personnel for all areas of our organization. Competition in our industry for qualified employees is intense. Our continued ability to compete effectively depends on our ability to attract new employees and to retain and motivate our existing employees. As competition in our industry intensifies, it may be more difficult for us to hire, motivate and retain highly skilled personnel. If we do not succeed in doing so, we may be unable to grow effectively. We have limited business insurance coverage. The insurance industry in China is still at an early stage of development. Insurance companies in China offer limited business insurance products. We do not have any business liability or disruption insurance coverage for our operations in China. Any business disruption, litigation or natural disaster may result in our incurring substantial costs and the diversion of our resources. Any change of the indefinite status of any of our intangible assets may require us to record additional amortization expenses Some of our intangible assets are characterized as indefinite intangible assets and therefore are not required to be amortized. Any changes of the conditions upon which we based categorization of these intangible assets as indefinite will likely require us to amortize these intangible assets over their economic life. Such additional amortization cost could adversely impact our net income and earnings per share. |
Goodwill accounted for over 91% of the carrying value of our total assets as of December 31, 2009. Goodwill, which represents the excess of cost over the fair value of the net assets of businesses acquired, had a carrying value of $4,791,676 million as of December 31, 2009, representing 91% of total Company assets. Goodwill is recorded at fair value on the date of acquisition and is reviewed at least annually for potential impairment. To date, we have recognized a total impairment charge of $3,000,000. Impairment may result from, among other things, deterioration in the performance of our operations, adverse market conditions, and adverse changes in applicable laws or regulations. In 2009, we recognized a $2 million (2008: $1 million) impairment charge due to the recent adverse economic conditions. We may never realize the full value of our intangible assets. Any future determination requiring the write-off of a significant portion of intangible assets would reduce our profits for the fiscal period in which the write-off occurs, and could have a material impact on our consolidated financial statements. |
10
RISKS RELATED TO DOING BUSINESS IN CHINA PRC laws and regulations governing our businesses and the validity of certain of our contractual arrangements are uncertain. If we are found to be in violation, we could be subject to sanctions. In addition, changes in such PRC laws and regulations may materially and adversely affect our business. There are substantial uncertainties regarding the interpretation and application of PRC laws and regulations, including, but not limited to, the laws and regulations governing our business, or the enforcement and performance of our contractual arrangements with certain of our affiliated Chinese entities. We are considered foreign persons or foreign invested enterprises under PRC law. As a result, we are subject to PRC law limitations on foreign ownership of advertising companies. These laws and regulations are relatively new and may be subject to change, and their official interpretation and enforcement may involve substantial uncertainty. The effectiveness of newly enacted laws, regulations or amendments may be delayed, resulting in detrimental reliance by foreign investors. New laws and regulations that affect existing and proposed future businesses may also be applied retroactively. The PRC government has broad discretion in dealing with violations of laws and regulations, including levying fines, revoking business and other licenses and requiring actions necessary for compliance. In particular, licenses and permits issued or granted to us by relevant governmental bodies may be revoked at a later time by higher regulatory bodies. We cannot predict the effect of the interpretation of existing or new PRC laws or regulations on our businesses. We cannot assure you that our current ownership and operating structure would not be found in violation of any current or future PRC laws or regulations. As a result, we may be subject to sanctions, including fines, and could be required to restructure our operations or cease to provide certain services. Any of these or similar actions could significantly disrupt our business operations or restrict us from conducting a substantial portion of our business operations, which could materially and adversely affect our business, financial condition and results of operations. |
As our advertising and convergent devices business expands, we expect an increasing portion of our business operations to be conducted in China. Accordingly, our results of operations, financial condition and prospects are subject to a significant degree to economic, political and legal developments in China. China's economy differs from the economies of most developed countries in many respects, including the amount of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. While China's economy has experienced significant growth in the past 20 years, growth has been uneven across different regions and among various economic sectors of China. The PRC government has implemented various measures to encourage economic development and guide the allocation of resources. Some of these measures benefit the overall PRC economy, but may also have a negative effect on us. For example, our financial condition and results of operations may be adversely affected by governmental control over capital investments or changes in tax regulations that are applicable to us. Since early 2004, the PRC government has implemented certain measures to control the pace of economic growth. Such measures may cause a decrease in the level of economic activity in China, which in turn could adversely affect our results of operations and financial condition. |
11
Our subsidiaries and affiliates are subject to restrictions on paying dividends and making other payments to us and we do not intend to pay cash dividends in the future. As our advertising and convergent devices business develops, we expect to increasingly rely on dividends payments from our subsidiaries and affiliated entities in China. However, PRC regulations currently permit payment of dividends only out of accumulated profits, as determined in accordance with PRC accounting standards and regulations. Our subsidiaries and affiliated entities in China are also required to set aside a portion of their after-tax profits according to PRC accounting standards and regulations for certain reserve funds. The PRC government also imposes controls on the conversion of RMB into foreign currencies and the remittance of currencies out of China. We may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currency. Furthermore, if our subsidiaries or affiliated entities in China incur debt on their own in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments. If either we or our subsidiaries is unable to receive all of the revenues from our operations through these contractual or dividend arrangements we may be un able to declare dividends on our common stock. Moreover, we do not intend to pay cash dividends in the future, but to use any earnings to develop and grow our business. |
We will conduct a substantial and increasing portion our business through subsidiaries and affiliated entities based in China. Our operations in China are governed by PRC laws and regulations. Our subsidiaries are generally subject to laws and regulations applicable to foreign investments in China and, in particular, laws applicable to wholly foreign-owned enterprises. The PRC legal system is based on written statutes. Prior court decisions may be cited for reference but have limited precedent value. Since 1979, PRC legislation and regulations have significantly enhanced the protections afforded to various forms of foreign investments in China. However, China has not developed a fully integrated legal system and recently-enacted laws and regulations may not sufficiently cover all aspects of economic activities in China. In particular, because these laws and regulations are relatively new, and because of the limited published decisions and their non-binding nature, the interpretation and enforcement of these laws and regulations involve uncertainties. In addition, the PRC legal system is based in part on governmental policies and internal rules (some of which are not published on a timely basis or at all) that may have a retroactive effect. As a result, we may not be aware of our violation of these policies and rules until after the occurrence of the violation. In addition, any litigation in China may be protracted and result in substantial costs and diversion of resources and management attention. Governmental control of currency conversion may affect the value of your investment. The PRC government imposes controls on the conversion of RMB to foreign currencies and, in certain cases, the remittance of currencies out of China. As our internet and advertising business expands, we expect to derive an increasing percentage of our revenues in RMB. Under our current structure, we expect our income will be primarily derived from dividend payments from our PRC subsidiaries. Shortages in the availability of foreign currency may restrict the ability of our PRC subsidiaries and our affiliated entities to remit sufficient foreign currency to pay dividends or other payments to us, or otherwise satisfy their foreign currency denominated obligations. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and expenditures from trade-related transactions, can be made in foreign currencies without prior approval from the PRC State Administration of Foreign Exchange by complying with certain procedural requirements. However, approval from appropriate government authorities is required when RMB is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of bank loans denominated in foreign currencies. The PRC government may also at its discretion restrict access in the future to foreign currencies for current account transactions. If the foreign exchange control system prevents us from obtaining sufficient foreign currency to satisfy our demands, we may not be able to pay dividends in foreign currencies to our stockholders, including holders of our common stock. |
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Fluctuation in the value of RMB may have a material adverse effect on your investment. The value of RMB against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in political and economic conditions. On July 21, 2005, the PRC government changed its decades-old policy of pegging the value of the RMB to the U.S. dollar. Under the new policy, the RMB is permitted to fluctuate within a narrow and managed band against a basket of foreign currencies. This change in policy has resulted in an approximately 2.0% appreciation of the RMB against the U.S. dollar. While the international reaction to the RMB revaluation has generally been positive, there remains significant international pressure on the PRC government to adopt a more flexible currency policy, which could result in a further and significant appreciation of the RMB against the U.S. dollar. As our internet and advertising business continues to grow, a greater portion of our revenues and costs will be denominated in RMB, while a significant portion of our financial assets may be denominated in U.S. dollars. We expect to rely significantly on dividends and other fees paid to us by our subsidiaries and affiliated entities in China. Any significant revaluation of RMB may materially and adversely affect our cash flows, revenues, earnings and financial position, and the value of, and any dividends payable on, our common stock in U.S. dollars. For example, an appreciation of RMB against the U.S. dollar would make any new RMB denominated investments or expenditures more costly to us, to the extent that we need to convert U.S. dollars into RMB for such purposes. We may not be able to consolidate the financial results of some of our affiliated companies or such consolidation could materially adversely affect our operating results and financial condition. For PRC regulatory reasons, much of our operations are/will be conducted through affiliated companies which currently are considered for accounting purposes as variable interest entities ("VIEs"), and we are considered the primary beneficiary, enabling us to consolidate its financial results in our consolidated financial statements. In the event that in the future a company we hold as a VIE would no longer meet the definition of a VIE, or we are deemed not to be the primary beneficiary, we would not be able to consolidate line by line that entity's financial results in our consolidated financial statements for PRC purposes. Also, if in the future an affiliate company becomes a VIE and we become the primary beneficiary, we would be required to consolidate that entity's financial results in our consolidated financial statements for PRC purposes. If such entity's financial results were negative, this could have a corresponding negative impact on our operating results for PRC purposes. However, any material variations in the accounting principles, practices and methods used in preparing financial statements for PRC purposes from the principles, practices and methods generally accepted in the United States and in the SEC accounting regulations must be discussed, quantified and reconciled in financial statements for United States and SEC purposes. We face risks related to health epidemics and other outbreaks. Our business could be adversely affected by the effects of SARS, Avian Flu or another epidemic or outbreak. China reported a number of cases of SARS in April 2004. Any prolonged recurrence of SARS or other adverse public health developments in China may have a material adverse effect on our business operations. For instance, health or other governmental regulations adopted in response may require temporary closure of Internet cafes, which is one of the avenues where users could access our websites, or of our offices. Such closures would severely disrupt our business operations and adversely affect our results of operations. We have not adopted any written preventive measures or contingency plans to combat any future outbreak of SARS or any other epidemic. |
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ITEM 1B. UNRESOLVED STAFF COMMENTS |
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OUR FACILITIES. As at December 31 2009, our executive and administrative office is located at 1403 Wan Chai Commercial Center, 194-204 Johnston Road, Wanchai, Hong Kong. The Company uses about 1,000 square feet of this office at a cost of about US$2,000 per month. The lease expires in 18 December 2011. |
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PART II
ITEM 5. MARKET PRICE FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES. |
MARKET INFORMATION. |
The following table shows the reported quarterly high and low closing sales price for our shares within the last two fiscal years on the OTC Bulletin Board. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions. Investors should not rely on historical prices of our Common Stock as an indication of its future price performance. The closing price of our Common Stock on December 31, 2009 was $ 0.0025 per share. |
Quarter |
High |
Low |
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------------------------ | ------------- | -------------- | |
Fourth Quarter 2009 | $0.0085 | $0.005 | |
Third Quarter 2009 | $0.003 | $0.00131 | |
Second Quarter 2009 | $0.0045 | $0.002 | |
First Quarter 2009 | $0.006 | $0.003 | |
Fourth Quarter 2008 | $0.009 | $0.0030 | |
Third Quarter 2008 | $0.009 | $0.0050 | |
Second Quarter 2008 | $0.013 | $0.0030 | |
First Quarter 2008 | $0.021 | $0.0055 |
The number of record holders of our common stock as of March 5, 2010, was approximately 60 based on information received from our transfer agent. This amount excludes an indeterminate number of shareholders whose shares are held in "street" or "nominee" name. |
There have been no cash dividends declared on our common stock since inception. It is the present policy of the Company to retain earnings to finance the growth and development of the business and, therefore, the Company does not anticipate paying dividends on its common stock in the foreseeable future. |
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STOCK OPTIONS. We have two equity compensation plans: (1) the 2002 Stock Option Plan and (2) the 2007 Stock Incentive Plan. The following table presents information relating to these plans as of December 31, 2009. EQUITY COMPENSATION PLAN INFORMATION. |
Plan Category |
Number of Securities to be issued upon Exercise of outstanding options, warrants and rights |
Weighted average of exercise price of outstanding options, warrants and rights |
Number of securities remaining available for future issuance under equity compensation plans (Excluding securities reflected in column a) |
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(a) |
(b) |
(c) |
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-------------------------------- |
------------------------ |
------------------------- |
------------------------ |
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Equity compensation plans approved by security holders | 12,300,000 |
$0.0365 |
177,011,112 |
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-------------------------------- |
------------------------ |
------------------------- |
------------------------ |
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Equity compensation plans not approved by security holders | 5,811,300 |
- |
32,588,700 |
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-------------------------------- |
------------------------ |
------------------------- |
------------------------ |
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Total |
18,111,300 |
$0.0365 |
209,599,812 |
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-------------------------------- |
------------------------ |
------------------------- |
------------------------ |
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2002 Stock Option Plan In October 2002, our Board of Directors authorized and approved the adoption of the 2002 Stock Option Plan effective the same date (the "2002 Stock Option Plan"). The purpose of the 2002 Stock Option Plan was to enhance our long-term stockholder value by offering opportunities to our directors, officers, employees and eligible consultants to acquire and maintain stock ownership in order to give these persons the opportunity to participate in our growth and success, and to encourage them to remain in our service. The 2002 Stock Option Plan is administered by our Board of Directors or a committee ("Plan Administrator") appointed by and consisting of two or more members of our Board of Directors, which shall determine (i) the persons to be granted stock options under the 2002 Stock Option Plan; (ii) the number of shares subject to each option, the exercise price of each stock option; and (iii) whether the stock option shall be exercisable at any time during the option period of ten years or whether the stock option shall be exercisable in installments or by vesting only. The 2002 Stock Option Plan provides authorization to the Board of Directors to grant stock options to purchase a total number of shares not to exceed 211,111,112 shares as at the date of adoption by the Board of Directors. At the time a stock option is granted under the 2002 Stock Option Plan, the Plan Administrator shall fix and determine the exercise price at which shares may be acquired. In the event an optionee ceases to be employed by or to provide services to us for reasons other than cause or voluntary resignation of position, any stock option that is vested and held by such optionee generally may be exercisable within up to one year after the effective date that his position ceases, and after such one year period any unexercised stock option shall expire. In the event an optionee ceases to be employed by or to provide services to us for reasons of cause or voluntary resignation from the position, any stock option that is vested and held by such optionee shall forthwith terminate. No stock options granted under the 2002 Stock Option Plan will be transferable by the optionee other than by will or by the laws of descent and distribution following the optionee's death, and each stock option will be exercisable during the lifetime of the optionee subject to the option period of ten years or limitations described above. |
The 2002 Stock Option Plan further provides that the Plan Administrator may grant to any key individuals who are employees eligible to receive options one or more incentive stock options to purchase the number of shares allotted by the Board of Directors (the "Incentive Stock Options"). The option price per share of Common Stock deliverable upon the exercise of an Incentive Stock Option shall be at least 100% of the fair market value of the shares and in the case of an Incentive Stock Option granted to an optionee who owns more than 10% of the total combined voting power of all classes of our stock, shall not be less than 110% of the fair market value. The option term of each Incentive Stock Option shall be determined by the Plan Administrator, and shall not commence sooner than from the date of grant and shall terminate no later than ten years from the date of grant, except for an optionee who owns more than 10% of the total combined voting power of all classes of our stock and whose Incentive Stock Option shall terminate no later than five year from the date of grant. |
There were no stock options issued in 2009. As of December 31, 2009 there were a total of 12,300,000 outstanding stock options to purchase shares of our Common Stock under the 2002 Stock Option Plan. |
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2007 Stock Incentive Plan On February 19, 2007, our Board of Directors authorized and approved the adoption of the 2007 Stock Incentive Plan effective the same date (the "2007 Stock Incentive Plan"). The purpose of the 2007 Stock Incentive Plan is to enhance our long-term stockholder value by offering opportunities to our directors, officers, employees and eligible consultants to acquire and maintain stock ownership in order to give these persons the opportunity to participate in our growth and success, and to encourage them to remain in our service. The 2007 Stock Incentive Plan is to be administered by our Board of Directors or a committee ("Plan Administrator") appointed by and consisting of two or more members of our Board of Directors, which shall determine (i) the persons to be granted stock options under the 2007 Stock Incentive Plan; (ii) the number of shares subject to each option, the exercise price of each stock option; and (iii) whether the stock option shall be exercisable at any time during the option period of ten years or whether the stock option shall be exercisable in installments or by vesting only. The 2007 Stock Incentive Plan provides authorization to the Board of Directors to grant stock options to purchase a total number of shares, not exceed 38,400,000 shares as at the date of adoption by the Board of Directors. At the time a stock option is granted under the 2007 Stock Incentive Plan, the Board of Directors shall fix and determine the exercise price at which shares of our Common Stock may be acquired. In the event an optionee ceases to be employed by or to provide services to us for reasons other than cause, retirement, disability or death, any stock option that is vested and held by such optionee generally may be exercisable for such period of time thereafter as shall be determined by the Plan Administrator and set forth in the documents evidencing the option. The Plan Administrator shall have complete discretion either at the time an option is granted or at any time while the option remains outstanding, to i) extend the period of time which the option is to be exercisable following the optionees cessation of service, but not beyond the expiration of the option term and/or ii) permit the option to be exercised after the cessation of employment of both vested and unvested options at the time of cessation of employment. No stock options granted under the 2007 Stock Incentive Plan will be transferable by the optionee other than by will or by the laws of descent and distribution following the optionee's death, and each stock option will be exercisable during the lifetime of the optionee subject to the option period of ten years or limitations described above. The options can be assigned in whole or in part during the Optionee's lifetime to one or more members of the optionee's immediate family, provided the assignment is connected to estate planning or pursuant to a domestic relations order. |
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The exercise price of a stock option granted pursuant to the 2007 Stock Incentive Plan shall be paid in full to us by delivery of consideration equal to the product of the number of shares multiplied by the exercise price. Any stock option settlement, including payment deferrals or payments deemed made by way of settlement of pre-existing indebtedness from the Company may be subject to such conditions, restrictions and contingencies as may be determined by the Plan Administrator. The 2007 Stock Incentive Plan further provides that, subject to the provisions of the 2007 Stock Incentive Plan and prior Stockholder approval, the Board of Directors may grant to any key individuals who are our employees eligible to receive options, one or more incentive stock options to purchase the number of shares of Common Stock allotted by the Board of Directors (the "Incentive Stock Options"). The option price per share of Common Stock deliverable upon the exercise of an Incentive Stock Option shall be at lease 100% of the fair market value of the Common Shares of the Company and in the case of an Incentive Stock Option granted to an optionee who owns more than 10% of the total combined voting power of all classes of our stock, shall not be less than 110% of the fair market value of our Common Stock. The option term of each Incentive Stock Option shall be determined by the Plan Administrator, which shall not commence sooner than from the date of grant and shall terminate no later than ten years from the date of grant of the Incentive Stock Option, except for optionee who owns more than 10% of the total combined voting power of all classes of our stock whom shall terminate no later than five year from the date of grant of the Incentive Stock Option. On March 8, 2007, we registered 38,400,000 shares underlying stock options under the 2007 Stock Incentive Plan with the SEC pursuant to a registration statement on Form S-8. In 2007, the Company issued 5,811,300 shares under the 2007 Stock Incentive Plan. In 2008 and 2009, the Company did not issue any shares under the 2007 Stock Incentive Plan. In summary, as of December 31, 2009, (i) the Company has issued 5,811,300 shares under the 2007 Stock Incentive Plan, (ii) there are no outstanding stock options to purchase shares of our Common Stock under the 2007 Stock Incentive Plan and, (iii) there are still 32,588,700 shares issuable under the 2007 Stock Incentive Plan. |
ISSUER PURCHASES OF EQUITY SECURITIES.No repurchases of our common stock were made during the fourth quarter and during our fiscal year ended December 31, 2009. |
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PENNY STOCK REGULATIONS. Shares of our common stock are subject to rules adopted by the Securities and Exchange Commission that regulate broker-dealer practices in connection with transactions in "penny stocks". Penny stocks are generally equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the Nasdaq system, provided that current price and volume information with respect to transactions in those securities is provided by the exchange or system). |
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a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; |
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- | a description of the broker's or dealer's duties to the customer and of the rights and remedies available to the customer with respect to violation to such duties or other requirements of securities' laws; | |
- | a brief, clear, narrative description of a dealer market, including "bid" and "ask" prices for penny stocks and the significance of the spread between the "bid" and "ask" price; | |
- | a toll-free telephone number for inquiries on disciplinary actions; | |
- | definitions of significant terms in the disclosure document or in the conduct of trading in penny stocks; and | |
- | such other information and is in such form (including language, type, size and format), as the Securities and Exchange Commission shall require by rule or regulation |
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the bid and offer quotations for the penny stock; |
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- | the compensation of the broker-dealer and its salesperson in the transaction; | |
- | the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and | |
- | monthly account statements showing the market value of each penny stock held in the customer's account. |
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A registrant that qualifies as a smaller reporting company is not required to provide the information required by this item. |
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
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GENERAL |
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Results of Operations |
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Liquidity and Capital Resources |
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Critical Accounting Policies |
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Recently Issued Accounting Pronouncements |
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
Consolidated Financial Statements |
Please see page F-1 through F-23 of this Form 10-K. |
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. |
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ITEM 9A. CONTROLS AND PROCEDURES. |
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Based upon that evaluation, our Management has concluded that, as of December 31, 2009, our disclosure controls and procedures were not effective in timely alerting management to the material information relating to us (or our consolidated subsidiaries) required to be included in our periodic filings with the SEC. |
Internal Control over Financial Reporting |
(a) Management's Annual Report on Internal Control Over Financial Reporting |
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A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the registrant's annual or interim financial statements will not be prevented or detected on a timely basis. |
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We are in the process of developing and implementing remediation plans to address our material weaknesses. |
Management has identified specific remedial actions to address the material weaknesses described above: |
* |
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* | Improve segregation procedures by strengthening cross approval of various functions including cash disbursements and quarterly internal audit procedures where appropriate. |
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Changes in Controls and Procedures |
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Attestation Report of the Registered Public Accounting Firm |
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ITEM 9B. OTHER INFORMATION |
None. |
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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERANCE. |
Executive Officers and Directors. Our directors and principal executive officers are as specified on the following table: |
NAME |
AGE |
POSITION |
------------------------------ | ------- | ------------------------------------------------------------------------------------------- |
Cheng Pheng LOI | 60 | President, Chief Executive Officer and Director |
Con UNERKOV | 41 | Chief Financial Officer and Director |
Alex HO | 55 | Treasurer, secretary and a director |
------------------------------ | ------- | ------------------------------------------------------------------------------------------ |
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AUDIT COMMITTEE AND FINANCIAL EXPERT. Our board of directors had appointed Mr. Cheng Pheng LOI as the chairman of the audit committee in May 2009, replacing Mr. ZHANG Guosheng. The Committee has adopted regulations relating to audit committee composition and functions, including disclosure requirements relating to the presence of an "audit committee financial expert" serving on its audit committee. In connection with these requirements, our Board of Directors examined the Committee's definition of "audit committee financial expert" and concluded that we do not currently have a person that qualifies as such an expert. Presently, there are only three directors serving on our Board of which two are in the audit committee, and we are not in a position at this time to attract, retain and compensate additional directors in order to acquire a director who qualifies as an "audit committee financial expert", but we intend to retain an additional director who will qualify as such an expert, as soon as reasonably practicable. While neither of our current audit committee members meet the qualification of an "audit committee financial expert", each of our audit committee members, by virtue of his past employment experience, has considerable knowledge of financial statements, finance, and accounting, and has significant employment experience involving financial oversight responsibilities. Accordingly, we believe that our current audit committee members capably fulfill the duties and responsibilities of an audit committee in the absence of such an expert. |
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ITEM 11. EXECUTIVE COMPENSATION. |
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Name and principal position | Year (5) |
Salary ($) |
Bonus ($) |
Stock Awards |
Option Awards |
Non-Equity Incentive Plan Compensation |
Nonqualified Deferred Compensation Earnings |
All Other Compensation |
Total ($) |
---------------------- | ------- |
---------------- |
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------------------ |
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Cheng Pheng Loi (1) | 2009 |
18,000 |
- |
- |
- |
- |
- |
- |
18,000 |
Con Unerkov (2) | 2009 |
18,000 |
18,000 |
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2008 |
102,000 |
- |
- |
- |
- |
- |
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102,000 |
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2007 |
120,000 (4) |
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120,000 |
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Alex Ho (3) | 2009 |
18,000 |
18,000 |
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2008 |
60,000 |
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60,000 |
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2007 |
96,000 |
- |
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96,000 |
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(1) | Mr. Cheng Pheng Loi is the President, CEO, and Director of the Company with effect from May 2009. |
(2) | Mr. Con Unerkov is the CFO, and Director. Mr. Unerkov was the CEO from beginning of the year till May 2009. |
(3) | Mr. Alex Ho is the Treasurer, Secretary, and Director. |
(4) | Portion of the executive's salary was paid to his respective service company. |
(5) | Figures represent the year ended December 31 for the indicative years. |
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The following table sets forth certain information concerning stock option awards granted to our executive officers and our directors. No options were exercised by our executive officers or directors during the year ended December 31, 2009 and 2008. |
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OPTION AWARDS |
STOCK AWARDS |
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Name |
Number of securities underlying unexercised options (#) Exercisable |
Number of securities underlying unexercised options (#) Unexercisable |
Equity Incentive Plan Awards: Number of Securities underlying unexercised unearned options (#) |
Option exercise price ($) |
Option expiration date |
Number of shares or units of stock that have not vested (#) |
Market value of shares or units of stock that have not vested ($) |
Equity incentive plan awards: number of unearned shares, units or other rights that have not vested (#) |
Equity incentive plan awards: Market or payout value of unearned shares, units or other rights that have not vested (#) |
|
---------- |
------------ |
----------- |
-------- |
--------- |
--------- |
---------- |
---------- |
---------- |
||
Cheng Pheng LOI | - |
- |
- |
- |
- |
- |
- |
- |
- |
|
Con Unerkov (1) | - |
7,500,000(3) |
- |
0.0365 |
12/22/2009 |
- |
- |
- |
- |
|
Alex Ho (2) | - |
7,500,000(3)- |
- |
0.0365 |
12/22/2009 |
- |
- |
- |
- |
|
(1) |
Mr. Cheng Pheng Loi is the CEO, and Director. |
(2) |
Mr. Con Unerkov is the CFO, and Director |
(3) |
Mr. Alex Ho is the Treasurer, Secretary, and Director. |
(4) |
The stock options were granted on December 23, 2006 under the 2002 Stock Option Plan and were expired on December 22, 2009. |
Director CompensationDirectors are not compensated for services as directors. Non-employee directors are reimbursed for reasonable travel and related expenses incurred in attending meetings of the board of directors and committee meetings. |
|
|||||||
Name |
Fees Earned or Paid in Cash |
Stock Awards |
Option Awards |
Non-Equity Incentive Plan Compensation |
Change in Pension Value and Nonqualified Deferred
Compensation Earnings |
All Other Compensation |
Total |
---------- |
-------- |
--------- |
------------ |
----------- |
----------- |
------------ |
|
Zhang Guosheng(1) | - |
- |
- |
- |
- |
- |
- |
Luo Qiang(2) | - |
- |
- |
- |
- |
- |
- |
(1) | Mr. Zhang Guosheng was the Independent Non-Executive Director of the Company till May 2009 when he resigned as director of the Company. |
(2) | Mr. Luo Qiang was the Independent Non-Executive Director of the Company till April 2009 when he resigned as director of the Company. |
Mr. Pheng Cheng LOI is working on 3 months contracts at a monthly fee of US$3,000. Effective from July 1, 2008, Messrs. Con Unerkov's and Alex Ho received a salary of US$24,000 per annum to September 2009. Thereafter Messrs. Unerkov and Ho did not receive any salary. |
29
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT RELATED STOCKHOLDER MATTERAS. |
The following table sets forth information regarding shares of our common stock beneficially owned as of December 31, 2009 by: (i) each of our officers and directors; (ii) all officers and directors as a group; and (iii) each person known by us to beneficially own five percent or more of the outstanding shares of our common stock. |
Name/Address(1) |
Common |
Common Stock |
|
Total Stock |
% |
--------------------------- |
------------------ |
----------------- |
-------------------- |
------------------ |
----------------- |
Con Unerkov(3) (5) |
32,619,863 |
- |
- |
32,619,863 |
6.11% |
Alex Ho(3) (6) |
32,482,876 |
- |
- |
32,482,876 |
6.08% |
Cheng Pheng Loi (3) |
- |
- |
- |
- |
- |
Zhang Guosheng(3) |
- |
- |
- |
- |
- |
Luo Qiang(3) |
- |
- |
- |
- |
- |
------------------ |
------------------- |
-------------------- |
------------------ |
------------------ |
|
All officers and directors as a group (4 persons) | 65,102,739 |
- |
- |
65,102,739 |
12.19% |
Maxcom Group International Ltd. (MGIL) of P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands. | 141,666,668 |
- |
- |
141,666,668 |
26.52% |
Liu Kang (7), No 42, Tujilin Wuchan, Wuhan City, Hubei Ching, China. | 141,666,668 |
- |
- |
141,666,668 |
26.52% |
Central High Limited (CHL), of P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands. | 125,000,000 |
- |
- |
125,000,000 |
23.40% |
Lam Pui Kit (8), No.4, Dong Wen Chan Street, West City District, Beijing, China. | 62,500,000 |
7,000,000 |
- |
69,500,000 |
12.84% |
30
Notes: |
(1) | Except as otherwise indicated, based on information furnished by the owners, we believe that the beneficial owners listed above have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them, subject to community property laws where applicable and to the information contained in the footnotes to this table. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Unless otherwise indicated, the address of the beneficial owner is c/o China Media Group Corporation at 1403 Wan Chai Commercial Center, 194-204 Johnston Road, Wanchai, Hong Kong. |
(2) | For purposes of computing the percentage of outstanding Common Stocks held by each person or group of persons named above, any shares that such person or group has the right to acquire within 60 days are deemed outstanding but are not deemed to be outstanding for purposes of computing the percentage ownership of any other person or group. As of the date of the table above, there were 534,132,450 outstanding shares of our common stock and options, warrants, and convertible notes entitling the holders to purchase 15,000,000 additional shares of our Common Stock owned by officers and/or directors of the Company. |
(3) | A director of Company As of December 31, 2009. |
(4) | Mr. Zhang Guosheng and Mr. Lou Qiang resigned as directors on May 8, 2009 and April 17, 2009, respectively. |
(5) | Includes 31,250,000 shares of common stock held by CHL. Mr. Con Unerkov holds 25% shareholding of CHL |
(6) | Includes 31,250,000 shares of common stock held by CHL. Mr. Alex Ho holds 25% shareholding of CHL. |
(7) | Includes 141,666,668 shares of common stock held by MGIL. Mr. Liu Kang is a director and holds 100% shareholding of MGIL. |
(8) | Includes 62,500,000 shares of common stock held by CHL. Mr. Lam Pui Kit is a director and holds 50% shareholding of CHL. |
Changes in ControlWe are unaware of any contract, or other arrangement or provisions, the operation of which may at a subsequent date result in a change of control of our Company. |
31
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. |
|
The Company agreed to pay a monthly salary to its officers and directors for services performed. Compensation expenses of $54,000 and $162,000 have been recognized for services provided by the officers and directors and their service companies for the years ended December 31, 2009 and 2008, respectively. |
Section 16(a) Beneficial Ownership Reporting ComplianceSection 16(a) of the Securities Exchange Act of 1934 requires our executive officers and directors and persons who beneficially own more than 10% of our common stock to file with the SEC initial statements of beneficial ownership and reports of changes in beneficial ownership. Such persons are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. Based solely on our review of such statements and reports furnished to us and written representations from certain reporting persons, we believe that our executive officers, directors and greater-than-10% stockholders were complied with the beneficial ownership reporting requirements of Section 16(a). |
32
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES. |
AUDIT FEES. The aggregate fees billed in each of the fiscal years ended December 31, 2009 and 2008 for professional services rendered by the principal accountant for the audit of our annual financial statements and review of the financial statements included in our Form 10-K or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements as well as registration statement filings for those fiscal years were $20,586 and $21,315 respectively. |
AUDIT-RELATED FEES. There aggregate fees billed for services reasonably related to the performance of the audit or review of the financial statements outside of those fees disclosed above under "Audit Fees" for fiscal years 2009 and 2008 were $9,000 and $24,000, respectively. |
TAX FEES. For the fiscal years ended December 31, 2009 and December 31, 2008, our principal accountants did not render any services for tax compliance, tax advice, and tax planning work. |
ALL OTHER FEES. None |
PRE-APPROVAL POLICIES AND PROCEDURES. Prior to engaging its accountants to perform a particular service, our board of directors obtains an estimate for the service to be performed. All of the services described above were approved by the board of directors in accordance with its procedures. |
33
ITEM 15. EXIBITS, FINANCIAL STATEMENT SCHEDULES |
|
Table of Contents |
Report of Independent Registered Public Accounting Firm - Albert Wong & Co. |
Consolidated Financial Statements: |
Consolidated Balance Sheets as of December 31, 2009 and 2008 |
Consolidated Statements of Operations for the years ended December 31, 2009 and 2008 |
Consolidated Statements of Stockholders' Deficits for the years ended December 31, 2009 and 2008 |
Consolidated Statements of Cash Flows for the years ended December 31, 2009 and 2008 |
Notes to Consolidated Financial Statements |
34
(c) Exhibits. |
Exhibit Number |
Description of Exhibit |
2.1 |
Shareholders' Agreement between Good World Investments Limited, Advance Tech Communications Sdn. Bhd. and ATC Marketing Limited(11) |
2.2 |
Shareholders' Agreement between Good World Investments Limited, Allan Gallyot and Premium Multimedia Sdn. Bhd.(12) |
3.1 |
Articles of Incorporation (1) |
3.1.1 |
Certificate of Amendment to Articles of Incorporation (2) |
3.1.2 |
Certificate of Amendment to Articles of Incorporation, as amended.(8) |
3.2 |
Bylaws (1) |
4.1 |
Executive Services Agreement between China Media Group Corporation and Con Unerkov (3) |
4.2 |
Executive Services Agreement between China Media Group Corporation and Alex Ho (3) |
4.3 |
Warrants to Purchase Common Stock (4)(5) |
10.1 |
ELOC Arrangement with Tailor-Made Capital Ltd. (4) |
10.2 |
Debenture Purchase Agreement with Tailor-Made Capital Ltd.(4). |
10.3 |
2002 Stock Option Plan (6) |
10.4 |
2007 Stock Incentive Plan (7) |
10.5 |
Second Amendment Agreement (9) |
10.6 |
Termination Letter Agreement (10) |
21.1* |
Subsidiaries of small business issuer. |
31.1* |
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
31.2* |
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
32.1* |
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
32.2* |
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
1. |
Incorporated by reference to our Registration Statement on Form SB-2 as filed with the SEC on April 15, 2003. |
2. |
Incorporated by reference to our Current Report on Form 8-K as filed with the SEC on February 3, 2005. |
3. |
Incorporated by reference to our Current Report on Form 10-KSB/A as filed with the SEC on August 11, 2006. |
4. |
Incorporated by reference to our Current Report on Form 8-K/A as filed with the SEC on March 8, 2007. |
5. |
Incorporated by reference to our Current Report on Form 8-K as filed with the SEC on February 16, 2006. |
6. |
Incorporated by reference to our Registration Statement on Form SB-2 as filed with the SEC on April 15, 2003. |
7. |
Incorporated by reference to our Registration Statement on Form S8 as filed with the SEC on March 8, 2007. |
8. |
Incorporated by reference to our Registration Statement on Form SB-2 as filed with the SEC on March 16, 2007. |
9. |
Incorporated by reference to our Current Report on Form 8-K as filed with the SEC on January 8, 2008. |
10. |
Incorporated by reference to our Current Report on Form 8-K as filed with the SEC on August 7, 2008. |
11. |
Incorporated by reference to our Current Report on Form 8-K as filed with the SEC on May 26, 2009. |
12. |
Incorporated by reference to our Current Report on Form 8-K as filed with the SEC on September 30, 2009. |
* Filed herewith. |
35
SIGNATURES |
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 34, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. |
China Media Group Corporation | |
a Texas corporation | |
/s/ Cheng Pheng Loi | |
--------------------------------------- | |
Cheng Pheng Loi | |
Chief Executive Officer Principal executive officer |
|
China Media Group Corporation | |
a Texas corporation | |
/s/ Con Unerkov | |
--------------------------------------- | |
Con Unerkov | |
Chief Financial Officer Principal executive officer |
|
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. |
By: | /s/ Cheng Pheng Loi | April 14, 2010 |
-------------------------------------------- | ||
Cheng Pheng Loi | ||
Its: | Principal executive officer, | |
President, Director |
By: | /s/ Con Unerkov | April 14, 2010 |
-------------------------------------------- | ||
Con Unerkov | ||
Its: | Chief financial officer, | |
Director |
By: | /s/ Alex Ho | April 14, 2010 |
-------------------------------------------- | ||
Alex Ho | ||
Its: | Secretary, Treasurer, | |
Director |
36
China Media Group Corporation and Subsidiary |
Consolidated Financial Statements |
For the Year Ended December 31, 2009 |
Table of Contents | Page |
Report of Independent Registered Public Accounting Firm - Albert Wong & Co. | F-2 |
Consolidated Financial Statements: | |
Consolidated Balance Sheets as of December 31, 2009 and 2008 | F-3 |
Consolidated Statements of Operations for the years ended December 31, 2009 and 2008 | F-4 |
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2009 and 2008 | F-5 |
Consolidated Statements of Cash Flows for the years ended December 31, 2009 and 2008 | F-6 |
Notes to Consolidated Financial Statements | F-7 to F-23 |
F-1
To the Stockholders and Board of Directors |
China Media Group Corporation |
We have audited the accompanying consolidated balance sheet of China Media Group Corporation (the "Company") and its subsidiaries as of December 31, 2009 and 2008, and the related consolidated statements of operations, stockholders' deficits and cash flows for the year ended December 31, 2009 and 2008. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. |
We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. |
We were not engaged to examine management's assertion about the effectiveness of the Company's internal control over financial reporting as of December 31, 2009 included in the Company's Item 9A "Controls and Procedures" in the Annual Report on Form 10-K and, accordingly, we do not express an opinion thereon. |
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of China Media Group Corporation and its subsidiaries as of December 31, 2009 and 2008 and the results of its operations and its cash flows for December 31, 2009 and 2008, in conformity with accounting principles generally accepted in the United States of America. |
The Company's consolidated financial statements are prepared using the generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has deficits accumulated as at December 31, 2009 of $8,269,302 including net losses of $2,534,104 for the year ended December 31, 2009. These factors as discussed in Note 3 to the financial statements, raises substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. |
/s/ Albert Wong & Co. |
CERTIFIED PUBLIC ACCOUNTANTS |
Hong Kong |
April 14, 2010 |
F-2
CHINA MEDIA GROUP CORPORATION |
CONSOLIDATED BALANCE SHEETS |
AS OF DECEMBER 31, 2009 AND 2008 |
2009 |
2008 |
||||
Notes |
US$ |
US$ |
|||
ASSETS | |||||
Current Assets: | |||||
Cash and cash equivalents | 32,860 |
67,764 |
|||
Accounts receivables | - |
5,807 |
|||
Loans to unrelated parties | 7 |
- |
132,737 |
||
Prepayments, deposit and other receivables | 8 |
253,851 |
91,227 |
||
--------------- |
--------------- |
||||
Total current assets | 286,711 |
297,535 |
|||
Non-current assets | |||||
Property and equipments, net | 9 |
27,606 |
39,851 |
||
Advance payment for distribution rights | 10 |
138,000 |
138,000 |
||
Goodwill | 11 |
4,791,676 |
6,791,676 |
||
--------------- |
--------------- |
||||
4,957,282 |
6,969,527 |
||||
--------------- |
--------------- |
||||
5,243,993 |
7,267,062 |
||||
========= |
========= |
||||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||
Current liabilities: | |||||
Accounts payable | - |
430 |
|||
Other payables and accruals | 12 |
688,318 |
466,403 |
||
Short term debt | 13 |
99,645 |
- |
||
Due to officer and directors | 14 |
1,083,686 |
1,118,674 |
||
Due to a shareholder | 15 |
259,747 |
16,528 |
||
--------------- |
--------------- |
||||
Total current liabilities | 2,131,3966 |
1,602,035 |
|||
--------------- |
--------------- |
||||
Long-term debts | 16 |
2,000,000 |
2,099,645 |
||
Minority interest | 147,975 |
168,230 |
|||
Stockholders' equity: | |||||
|
|||||
|
4 |
7,428,902 |
7,428,902 |
||
Additional paid-in-capital | 1,760,874 |
1,660,183 |
|||
Comprehensive income | 44,148 |
43,265 |
|||
Accumulated deficits | (8,269,302) |
(5,735,198) |
|||
--------------- |
--------------- |
||||
Total stockholders' equity | 964,622 |
3,397,152 |
|||
--------------- |
--------------- |
||||
5,243,993 |
7,267,062 |
||||
========= |
========= |
The accompanying notes are an integral part of these consolidated financial statements
F-3CHINA MEDIA GROUP CORPORATION |
CONSOLIDATED STATEMENTS OF OPERATIONS |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
2009 |
2008 |
||||
US$ |
US$ |
||||
Net revenue | 139,889 |
88,450 |
|||
Cost of revenue | (54,600) |
(44,702) |
|||
--------------- |
--------------- |
||||
Gross profits | 85,289 |
43,748 |
|||
Operating expenses: | |||||
Impairment of goodwill | 2,000,000 |
1,000,000 |
|||
Selling, general and administrative expenses | 468,820 |
1,026,407 |
|||
--------------- |
--------------- |
||||
Loss from operations before other expense | (2,383,531) |
(1,982,659) |
|||
Other income(expenses) | |||||
Interest income | 86 |
267 |
|||
Interest expense | (170,914) |
(190,091) |
|||
--------------- |
--------------- |
||||
Net loss before minority interest | (2,554,359) |
(2,172,483) |
|||
Minority interest | 20,255 |
19,574 |
|||
--------------- |
--------------- |
||||
Net loss | (2,534,104) |
(2,152,909) |
|||
Other comprehensive income: - Foreign currency translation gain | 883 |
22,499 |
|||
--------------- |
--------------- |
||||
Comprehensive loss | (2,533,221) |
(2,130,410) |
|||
========= |
========= |
||||
Basic and diluted loss per common share | $0.00 |
$0.00 |
|||
========= |
========= |
||||
Basic and diluted weighted average number of common shares* | 534,132,450 |
528,291,208 |
|||
========= |
========= |
||||
* | Weighted average number of shares used to compute basic and diluted loss per share for the years ended December 31, 2009 and 2008 are the same since the effect of dilutive securities are anti-dilutive. |
The accompanying notes are an integral part of these consolidated financial statements.
F-4
CHINA MEDIA GROUP CORPORATION |
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
|
|
||||||
Common stock |
paid-in |
Comprehensive |
Prepaid |
Accumulated |
stockholders' |
||
Shares |
Amount |
capital |
income |
Expenses |
Deficit |
equity |
|
US$ |
US$ |
US$ |
US$ |
US$ |
US$ |
||
---------------- |
---------- |
-------------- |
--------------- |
------------- |
-------------- |
--------------- |
|
Balance at 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 and January 1, 2009 | 534,132,450 |
7,428,902 |
1,660,183 |
43,265 |
- |
(5,735,198) |
3,397,152 |
Amortization of options granted | - |
- |
100,691 |
- |
- |
- |
100,691 |
Comprehensive income | - |
- |
- |
883 |
- |
- |
883 |
Net Loss | - |
- |
- |
- |
- |
(2,534,104) |
(2,534,104) |
---------------- |
----------- |
-------------- |
--------------- |
------------- |
-------------- |
--------------- |
|
December 31, 2009 | 534,132,450 |
7,428,902 |
1, 760,874 |
44,148 |
- |
(8,269,302) |
964,622 |
========= |
======= |
======== |
========= |
======== |
======== |
========= |
The accompanying notes are an integral part of these consolidated financial statements.
F-5CHINA MEDIA GROUP CORPORATION |
CONSOLIDATED STATEMENTS OF CASHFLOWS |
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
2009 |
2008 |
|||||
Notes |
US$ |
US$ |
||||
Cash flows from operating activities: | ||||||
Net Loss | (2,534,104) |
(2,152,909) |
||||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||
Depreciation | 12,516 |
12,279 |
||||
Minority interest | (20,255) |
(19,574) |
||||
Impairment on goodwill | 2,000,000 |
1,000,000 |
||||
Common stock issuance for extension of repayment of convertible debentures | - |
50,000 |
||||
Common stock issuance for termination of ELOC agreement | - |
60,000 |
||||
Option expenses for employee compensation | 100,691 |
100,692 |
||||
Prepaid expense for services | - |
293,401 |
||||
Amortization of convertible debenture | - |
17,742 |
||||
Changes in assets and liabilities: | ||||||
Prepaid expenses, deposit and other receivables | (162,624) |
23,753 |
||||
Account receivable | 5,807 |
(5,807) |
||||
Loan receivable | 132,737 |
210,750 |
||||
Accounts payable and accrued expenses | 221,485 |
59,634 |
||||
Short term debt | 99,645 |
(67,600) |
||||
Due to related parties | (34,988) |
390,813 |
||||
Due to a shareholder | 243,219 |
16,528 |
||||
Long term debt | (99,645) |
76,045 |
||||
--------------- |
--------------- |
|||||
Net cash(used in) / general from operating activities | (35,516) |
65,747 |
||||
--------------- |
--------------- |
|||||
Cash flows from investing activities: | ||||||
Purchase of property and equipment | (271) |
(3,385) |
||||
--------------- |
--------------- |
|||||
Net cash used in investing activities | (271) |
(3,385) |
||||
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 | (35,787) |
(62,638) |
||||
Effect of exchange rate changes on cash and cash equivalents | 883 |
22,499 |
||||
Cash and cash equivalents, beginning | 67,764 |
107,903 |
||||
--------------- |
--------------- |
|||||
Cash and cash equivalents, ending | 32,860 |
67,764 |
||||
========= |
========= |
Supplemental disclosure of cash flow information: | |||||
Interest paid | 170,914 |
190,091 |
|||
========= |
========= |
||||
Income tax paid | - |
- |
|||
========= |
========= |
The accompanying notes are an integral part of these consolidated financial statements.
F-6
CHINA
MEDIA GROUP CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 1 |
|
|
|
|
|
|
NOTE 2 |
|
|
These financial statements and related notes are presented in accordance with accounting principals generally accepted in the United States, and are expressed in U.S. dollars. The Company 's fiscal year end is December 31. |
|
|
|
All significant inter-company transactions and balances have been eliminated on consolidation. |
F-7
CHINA
MEDIA GROUP CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 2 |
|
|
|
|
|
|
|
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 |
|
F-8
CHINA
MEDIA GROUP CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 2 |
|
Income taxes |
|
|
|
|
|
|
|
|
|
|
F-9
CHINA MEDIA GROUP CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 2 |
|
Foreign Currency Translation |
|
|
|
|
|
|
F-10
CHINA MEDIA GROUP CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 2 |
|
|
|
|
|
|
F-11
CHINA MEDIA GROUP CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 2 |
|
|
|
|
|
|
|
|
F-12
CHINA MEDIA GROUP CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 2 |
|
|
|
|
|
|
|
F-13
CHINA MEDIA GROUP CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 2 |
|
|
Accounting Standards Issued But Not Yet Effective |
|
|
|
|
|
|
|
|
|
|
F-14
CHINA MEDIA GROUP CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 3 |
|
|
|
NOTE 4 |
|
Common Stock |
In January 2008, the Company issued 2,631,579 shares of common stock pursuant to a Second Amendment Agreement to extend the repayment of the $50,000 Convertible Debenture to March 28, 2008. |
On August 3, 2008 the Company issued 10,000,000 shares of Common Stock pursuant to a Letter Agreement to terminate the ELOC Agreement. |
NOTE 5 |
|
Stock Options |
|
2002 Stock Option PlanEffective 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. |
|
F-15
CHINA MEDIA GROUP CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 5 |
|
|
|
|
Outstanding, December 31, 2008 | 29,800,000 |
Granted during the year | - |
Forfeited/lapsed during the year | (17,500,000) |
Exercised during the year | - |
-------------------------------- |
|
Outstanding, December 31, 2009 | 12,300,000 |
=================== |
Following is a summary of the status of options outstanding at December 31, 2009: |
||||||||
Outstanding Options |
Exercisable Options |
|||||||
------------------------------------ |
---------------------------------------------------------------------- |
|||||||
Grant |
Exercise |
Number |
Average Remaining |
Average Exercise Price |
Number |
Intrinsic Price |
||
5/18/2007 |
$0.0380 |
12,300,000 |
0.38 |
$0.0380 |
12,300,000 |
$0.00 |
|
The assumptions used in calculating the fair value of options granted using the Black-Scholes option pricing model are as follows: |
i) The 17,500,000 stock options granted on December 23, 2006 were expired on December 22, 2009: |
|||||
Grant date: | 12/23/2006 |
||||
Risk-free interest rate |
4.63% |
||||
Expected life of the options | 3.00 years |
||||
Expected volatility | 95% |
||||
Expected dividend yield | 0 |
ii) The outstanding 12,300,000 stock options granted on May 18, 2007: |
|||||
Grant date: | 5/18/2007 |
||||
Risk-free interest rate |
4.63% |
||||
Expected life of the options | 3.00 years |
||||
Expected volatility | 139% |
||||
Expected dividend yield | 0 |
F-16
CHINA MEDIA GROUP CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 5 |
|
2007 Stock Incentive Plan |
|
During the year 2007, the Company had issued a total of 5,811,300 shares to its staff and consultants for their service provided. No shares were issued under the registration statement on Form S-8 during the year 2009 and 2008. As at December 31, 2009 there were 32,588,700 shares available underlying stock options under the 2007 Stock Incentive Plan. As of December 31, 2009, there were no outstanding stock options to purchase shares of our Common Stock under the 2007 Stock Incentive Plan. |
Warrants |
Following is a summary of the warrant activity during the year: |
|
Outstanding, December 31, 2008 | 31,277,776 |
Granted during the year | - |
Forfeited during the year | - |
Exercised during the year | - |
Expired during the year - May 2009 | (31,277,776) |
------------------------ |
|
Outstanding, December 31, 2009 | - |
============== |
Details of the warrants are described below: |
|
|
|
F-17
CHINA MEDIA GROUP CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 6 |
|
a) |
|
b) |
|
NOTE 7 |
|
|
NOTE 8 |
|
Prepayments, deposits and other receivables are summarized as follows: |
|
|
|||
US$ |
US$ |
|||
Rental deposits | 6,369 |
5,961 |
||
Utilities and other deposits | 19,850 |
777 |
||
Advance to suppliers | a |
215,918 |
78,279 |
|
Other receivable | 11,714 |
6,210 |
||
------------------- |
------------------- |
|||
253,851 |
91,227 |
|||
=========== |
=========== |
a) |
|
NOTE 9 |
|
Property and equipment is summarized as follows: |
|
|
|||
US$ |
US$ |
|||
Cost | ||||
Furniture, fixtures and equipment | 6,945 |
6,945 |
||
Computers | 8,058 |
8,058 |
||
Automobile | 47,951 |
47,951 |
||
------------------- |
------------------- |
|||
62,954 |
62,954 |
|||
Additional
cost : Furniture, fixtures and equipment |
271 |
- |
||
Accumulated depreciation | (35,619) |
(23,103) |
||
------------------- |
------------------- |
|||
Balance at December 31 | 27,606 |
39,851 |
||
=========== |
=========== |
F-18
CHINA MEDIA GROUP CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 10 |
|
|
|
|
* |
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. |
|
NOTE 11 |
|
|
|
|||
US$ |
US$ |
|||
Balance at beginning of year | 6,791,676 |
7,791,676 |
||
Impairment charge | 2,000,000 |
1,000,000 |
||
------------------- |
------------------- |
|||
Balance at end of year | 4,791,676 |
6,791,676 |
||
=========== |
=========== |
NOTE 12 |
|
Other payables and accruals are summarized as follows: |
||||
|
|
|||
US$ |
US$ |
|||
Accrued salaries and wages | 33,049 |
130,263 |
||
Accrued interest | 10,795 |
830 |
||
Accrued accounting, legal and consulting fee | 153,654 |
83,048 |
||
Accrued office and related expenses | 78,901 |
51,329 |
||
Other accrued expenses | 15,926 |
21,170 |
||
Other payables | a |
376,211 |
160,113 |
|
Deposit from customers | 19,782 |
19,650 |
||
------------------- |
------------------- |
|||
Balance at December 31 | 688,318 |
466,403 |
||
=========== |
=========== |
a) |
|
F-19
CHINA MEDIA GROUP CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 13 |
|
|
NOTE 14 |
|
|
NOTE 15 |
|
|
NOTE 16 |
|
|
|
|||
US$ |
US$ |
|||
Shareholder Loan | 2,000,000 |
2,000,000 |
||
Other Loan | - |
99,645 |
||
------------------- |
------------------- |
|||
2,000,000 |
2,099,645 |
|||
=========== |
=========== |
|
|
NOTE 17 |
|
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 interest of 8% per annum. On November 25, 2009 the repayment of the loan was extended for a further two years to November 25, 2012. The accrued interest for 2009 was $160,000 (2008: $160,000). |
F-20
CHINA MEDIA GROUP CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 18 |
|
There was no significant difference between reportable income tax and statutory income tax. The gross deferred tax asset balance as of December 31, 2009 and 2008 was approximately $2,601,000 and $1,710,000, respectively. A 100% valuation allowance has been established against the deferred tax assets, as the utilization of the loss carry-forwards cannot reasonably be assured. A reconciliation between the income tax computed at the Hong Kong and PRC China statutory rate and the Group's provision for income tax is as follows: |
|
|
|||
----------------------- |
-------------------- |
|||
Hong Kong statutory rate | 16.5% |
17.5% |
||
Valuation allowance - Hong Kong rate |
(16.5%) |
(17.5%) |
||
PRC China Enterprise Income Tax | 25% |
33% |
||
Valuation allowance - PRC rate | (25%) |
(33%) |
||
---------------------- |
-------------------- |
|||
Provision for income tax | - |
- |
||
============= |
============ |
F-21
CHINA MEDIA GROUP CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 19 |
|
For management purposes, the Group currently organized into three operating units - advertising, telecommunication devices, and other services. Turnover represents the net amounts received and receivable for goods sold or services provided by the Group during the period. These units are the basis on which the Group reports its primary segment information. Segment information about these businesses is presented below. |
Advertising |
Telecommunication Device |
Other Services |
Consolidated |
|||||||||
------------------------- |
----------------------- |
------------------------ |
------------------------------- |
|||||||||
Year ended |
Year ended |
Year ended |
Year ended |
|||||||||
2009 |
2008 |
2009 |
2008 |
2009 |
2008 |
2009 |
2008 |
|||||
US$ |
US$ |
US$ |
US$ |
US$ |
US$ |
US$ |
US$ |
|||||
Turnover | 110,322 |
78,344 |
29,567 |
5,137 |
- |
4,969 |
139,889 |
88,450 |
||||
======== |
======= |
======= |
======= |
======= |
======= |
========= |
========= |
|||||
Segment results | (1,968,785) |
(1,020,282) |
(4,641) |
(1,973) |
- |
(1,031) |
(1,973,426) |
(1,023,286) |
||||
======== |
======= |
======= |
======= |
======= |
======= |
|||||||
Unallocated corporate income | 86 |
267 |
||||||||||
Unallocated corporate expenses | (389,850) |
(939,799) |
||||||||||
-------------- |
-------------- |
|||||||||||
Loss from operations | (2,363,190) |
(1,962,818) |
||||||||||
Finance costs | (170,914) |
(190,091) |
||||||||||
Loss for the period | (2,534,104) |
(2,152,909 |
||||||||||
========= |
========= |
|||||||||||
As at |
As at |
|||||||||||
ASSETS | ||||||||||||
Segment assets | 4,834,890 |
6,832,540 |
357,656 |
221,073 |
5,192,546 |
7,053,613 |
||||||
Unallocated corporate assets | 51,447 |
213,449 |
||||||||||
-------------- |
-------------- |
|||||||||||
Consolidated total assets | 5,243,993 |
7,267,062 |
||||||||||
========= |
========= |
|||||||||||
LIABILITIES | ||||||||||||
Segment liabilities | 152,817 |
168,230 |
(4,842) |
430 |
- |
- |
147,975 |
168,660 |
||||
Unallocated corporate liabilities | 4,131,396 |
3,701,250 |
||||||||||
-------------- |
-------------- |
|||||||||||
Consolidated total liabilities | 4,279,371 |
3,869,910 |
||||||||||
========= |
========= |
|||||||||||
Depreciation of fixed assets | 11,413 |
11,379 |
1,326 |
1,087 |
- |
- |
12,739 |
12,466 |
||||
Impairment of goodwill | 2,000,000 |
1,000,000 |
- |
- |
- |
- |
2,000,000 |
1,000,000 |
||||
======= |
======= |
======= |
======= |
======= |
======= |
========= |
========= |
|||||
The Group's customers are principally located in Hong Kong. |
F-22
CHINA MEDIA GROUP CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 20 |
|
(a) |
Future minimum rental payments under non-cancelable operating leases as at December 31, 2009 and 2008 are $50,509 and $23,438, respectively. |
(b) |
|
(c) |
|
NOTE 21 |
|
|
F-23
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M55+BIK+IH*_D\00M
Exhibit 21.1 |
|
Company |
Place of Incorporation |
|
|
----------------- | --------------------------- | --------------------- |
|
1 |
Ren Ren Media Group Ltd | Hong Kong | 100% |
2 |
Good World Investments Ltd | British Virgin Islands | 100% |
3 |
Beijing Ren Ren Health Culture Promotion Ltd | PRC | 50% |
4 |
ATC Marketing Ltd | Hong Kong | 50% |
5 |
Premium Multimedia Sdn Bhd | Malaysia | 51% * |
|
shares to be issued |
Exhibit 31.1 |
Certification of Chief Executive Officer of the Company |
I, Cheng Pheng Loi, certify that: |
1. I have reviewed this annual report on Form 10-K of China Media Group Corporation; |
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. |
5. The registrant's other certifying officer(s) and 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 registrant's internal control over financial reporting. |
Date: April 14, 2010 |
/s/ Cheng Pheng Loi |
----------------------- |
Cheng Pheng Loi |
Chief Executive Officer |
Exhibit 31.2 |
Certification of Chief Financial Officer of the Company |
I, Con Unerkov, certify that: |
1. I have reviewed this annual report on Form 10-K of China Media Group Corporation; |
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. |
5. The registrant's other certifying officer(s) and 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 registrant's internal control over financial reporting. |
Date: April 14, 2010 |
/s/ Con Unerkov |
----------------------- |
Con Unerkov |
Chief Financial Officer |
Exhibit 32.1 |
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of China Media Group Corporation a Texas corporation (the "Company") on Form 10-K for the year ending December 31, 2009, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Cheng Pheng Loi, Chief Executive Officer of the Company, certifies to the best of his knowledge, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: |
(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 |
April 14,, 2010 |
Exhibit 32.2 |
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of China Media Group Corporation a Texas corporation (the "Company") on Form 10-K for the year ending December 31, 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 |
April 14, 2010 |