UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
x | ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended January 31, 2009
o | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___________ to __________
Commission File No. 000-28881
MEGA MEDIA GROUP, INC.
(Name of small business issuer in its charter)
NEVADA | 88-0403762 |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
1122 Coney Island Avenue Brooklyn, NY | 11235 |
(Address of principal executive offices) | (Zip Code) |
(718) 947-1100
(Registrant’s telephone number, including area code)
Securities registered under Section 12(b) of the Exchange Act: | |
Title of each class registered: | Name of each exchange on which registered: |
None | None |
Securities registered under Section 12(g) of the Exchange Act: | |
Common Stock, par value $.001 (Title of class) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceeding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act. Yes o No x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ¨ | Accelerated filer | ¨ |
Non-accelerated filer | ¨ | Smaller reporting company | x |
(Do not check if a smaller reporting company) |
Aggregate market value of the voting common stock held by non-affiliates of the registrant as of May 15, 2009, was: $1,865,413
Number of shares of the registrant’s common stock outstanding as of May 15, 2009 was: 304,753,677
Documents Incorporated by Reference: None.
TABLE OF CONTENTS
PAGE | ||||
PART I | ||||
ITEM 1. | 1 | |||
ITEM 1A. | 4 | |||
ITEM 2. | 4 | |||
ITEM 3. | 4 | |||
ITEM 4. | 5 | |||
PART II | ||||
ITEM 5. | 5 | |||
ITEM 6. | 7 | |||
ITEM 7. | 7 | |||
ITEM 7A. | 9 | |||
ITEM 8. | 10 | |||
ITEM 9. | 32 | |||
ITEM 9A(T). | 32 | |||
ITEM 9B. | 32 | |||
PART III | ||||
ITEM 10. | 32 | |||
ITEM 11. | 35 | |||
ITEM 12. | 36 | |||
ITEM 13. | 37 | |||
ITEM 14. | 37 | |||
PART IV | ||||
ITEM 15. | 38 | |||
SIGNATURES | ||||
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Overview
Mega Media Group, Inc. (“we”, “MMG” or the “Company”) was incorporated in New York State on February 3, 2004. In June 2007, we went public through a reverse merger and current trades on the Over-The-Counter Bulletin Board (“OTCBB”) under the symbol MMDA. We are a multi-media company whose core businesses are mainstream radio broadcasting, entertainment branding, music recording and social media. Our principal executive office and studios are located at 1122 Coney Island Avenue, Suite 210, Brooklyn, New York 11230. Our office number is (718) 947-1100. Our web address is www.megamediagroup.com.
On February 11th 2008, we launched a new Rhythmic Top 40 radio station, WNYZ Pulse 87.7FM (“Pulse 87”). Effective April 1, 2009 Pulse 87 is rated under Arbitron’s Portable People Meter (PPM) electronic ratings system, which became NY’s official radio advertising currency on October 8th, 2008. The other NY Top 40 CHR radio stations are Z100 WHTZ, which in 2008, generated $49 mil in revenue and WKTU over $25 million.
Pulse 87 has already secured advertising orders from various national and local brands included but not limited to: 1800-Flowers, Proactive Solutions, Long Island University, AXA Group, Cash for Gold, Major Word Automotive, New York City Police Department, Pepsi, LIVENATION, Jive Records Ultra Records, JRA Music Group, NY Minute Group, Dr. Dello Russo Laser Eye Vision, NYC Department of Corrections Recruitment and T-Mobile, Plaza Automall, and Fox Networks
Leveraging the strength of the Pulse 87 brand in NY, we have also signed Washington DC market and will start broadcasting by June 1, 2009. Our strategy is to partner with existing frequencies and provide content with revenue sharing with frequency owners as well as lease frequency on long term basis. We are aggressively pursuing immediate expansion into other markets. We believe our programming format will make a significant impact in these markets. In addition, MMG will actively pursue partnership agreements for syndication of their programming into various ancillary markets. Immediate expansion of the Pulse brand into other major markets will allow us to tailor custom advertising packages for our clients, and provide a far grater reach and audience demographic, generating a far greater impact over our competitors.
Given our vast exposure and foothold in mainstream media, in 2Q 2009, we will launch a new division to further promote and expand the Pulse FM brand. MUSICiKON will be a unique internet social networking environment where aspiring music artist and fans can unite, collaborate and make a real impact in launching a mainstream artist, by participating in various music contests. The winner of these contests will be given significant market exposure by having their music played on mainstream radio through our radio division. In addition to promoting the Pulse 87 brand, MUSICiKON will generate revenue from website advertising using in-house developed systems and 3rd party campaigns.
We are also the parent company of a Music Recording Division, a Celebrity & Corporate Branding Division and offers full service Audio and Video production studios. We also believe MUSICiKON will generate revenue for these divisions through artist management, master recording rights and distribution deals.
Company Mission
Our mission is to become a premier player in independent entertainment and media in the United States. We will achieve this goal by offering unique, cutting edge radio programming with an eye toward immediate expansion beyond the New York market, and by servicing our current and future, branding clients, artists, and advertisers with personalized attention from our experienced staff of professionals.
Business Focus
Mainstream Radio Programming
· | PULSE 87.7 FM – WNYZ-LP |
We recently renegotiated a ten year lease for to WNYZLP- 87.7FM serving New York, New Jersey and Connecticut. New York being the largest radio market in the country, generating in excess of $600,000,000 gross annually.
Our planned launch of Pulse 87.7FM took place in February of 2008 featuring A Rhythmic top 40 music format. The Pulse format is rhythmic top 40 with a dance element. This format plays today’s hits from artists like Britney Spears, Justin Timberlake and Madonna but with original re-mixes by Pulse giving a unique sound not heard elsewhere. The station logo is “New York’s Best Dance Station” however programming also includes – talk radio, music programming and the news, including national and international headlines, lifestyle and entertainment. Another staple of the programming is live broadcasting from in and around New York City. The talk show guest list ranges from celebrities and entertainers to politicians and governmental officials. All broadcasting is live, with listener participation and call-in segments. Our portable studio and road crew will be on the road daily on the streets of New York City, interacting with the audience and producing entertaining live segments from the city’s hotspots.
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Based on the first set of ratings released by Arbitron, the station has taken the 29th overall position in the market. Ratings are also broken down by day parts and Pulse87 has matched or beaten ratings in certain Day parts for Flagship stations like WFAN, WBLI, WRXP, WBAB, WALK, WEPN, these station showed annual billing for 2007 in the range of $7 to $35 million dollars.
In April 2009, we signed a multi-year air lease agreement for the WDCN-LP 87.7 frequency with Signal Above, LLC. Under the terms of the agreement, revenue will be shared between the parties with certain minimum lease fees paid by MMG. Pulse87 will start broadcasting on WDCN during the 2nd quarter of 2009 to the Washington, D.C. market.
Pulse 87.7 FM reached a total weekly audience of 705,000 in the first week of April; this number increased from 671,200 in the month of March.
· | OUR APPROACH TO RADIO ADVERTISING |
We broadcast a new type of radio program with more music and entertainment. The result is a better listening environment and better advertising environment. Advertisers receive more exposure, better recall and the comfort of knowing their spot will be heard and remembered. Our team of copywriters and producers will come up with effective 15 seconds spots for our advertisers. Small and medium-sized firms have sent their return on investment skyrocket by implementing 15 second spots. This allows for added media money to be invested in additional spots or weeks.
· | RATINGS |
On April 1, 2009 we announced that we signed a multi-year contract with Arbitron Inc., for station-specific custom Portable People Meter listening estimates for “Pulse 87 FM”. Arbitron provides ratings for Radio Stations across the country. These ratings are the basis for advertising dollars spent by brands and advertising agencies. For the first week in April 2009 our weekly audience estimates were measured at 705,000. The Full ratings for April will be released on May 20, 2009 and we anticipate substantial increase in advertising revenue from major local and national brands.
· | EVENTS AND CONCERTS |
Have been a large income stream for radio stations and create exposure for the awareness of the brand. Income is typically generated from corporate sponsors and ticket sales.
· | PULSE87.COM |
Pulse87.com is the website portal designed to reflect the radio station. The website is registration driven and offers listeners news, live streaming, programming and personality information, ability to purchase music they hear on air and banners for advertising space. The website has over 180,000 visitors per month, 19 million hits and over 336,316,000 Live Steaming Sessions for the month of March, we have seen a 215% increase in traffic in the first quarter of 2009. Our site has successfully surpassed traffic of WKTU or biggest competitor in the New York Market. Pulse87.com recently broke the top 100,000 websites in the world as measured by independent engine alexa.com. Streaming is also available through our I-Phone application, as of May 8, 2009 we had 25,021 downloads of the I-Phone Application.
MUSICiKON
MUSICiKON.COM is currently under development and is planned for launch in the second quarter of 2009. MUSICiKON will be a Social Networking website with a competitive twist for striving undiscovered artists.
· | BACKGROUND AND PHILOSPOHY FOR MUSICIKON |
Social Networks are offering an interactive, user-submitted network of friends, personal profiles, blogs, groups, photos, music and videos for teenagers and adults internationally. Myspace.com and Facebook.com are in the top 10 most visited sites in the world.
American Idol has become the most watched show on television. The concept is based on audience participation with over 30 million viewers for the final shows. It is a proven concept for audience based participation and music artists branding. The show producers own the rights to all artists and different revenue stream for years after the contestants finish the shows.
Our research has showed that social networks combined with aspiring artists and media can yield high ratings and traffic. MySpace which is the largest place for aspiring artists to brand themselves is limited because there is no real media exposure and aspiring artists have to compete for space with well known acts. Aspiring artists who have tens of thousands of friends still have very little chance of getting radio play for their music which can result in the break they so much need. Over the four months that Pulse87 has been broadcasting we have received thousands of request and submissions from new artists requesting to play their music however it is impossible to review these entries and without research, playing new artists music can be very risky for listenership. But on few occasions that we have done this we found that these aspiring artists create immense publicity and awareness of the station, i.e. Exit 59 and Velvet Code. From one artist the station can gain hundreds of listeners. Now this number multiplied by many artists can result in hundreds of thousands of new listeners and a unique listener loyalty.
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· | MUSICIKON DESCRIPTION |
The site will be built in to Pulse87.com and will be a destination for new artists to create profiles upload music, photos and videos. There will also be a fan section which will be limited to profiles. Voting will take place for all submitted materials by artists. The winner will be brought on air for interviews and the winning song will be put into a one week rotation on the station.
The Revenue from MUSICiKON will be generated from online advertising, Music downloading and the ownership of artists thru recordings, touring and branding.
We anticipate the positive effect of MUSICiKON to have several aspects as follows:
1. Ratings and website traffic - once artists register and upload their profiles they will be the best advertising for the site and station. We anticipate that each artists will use many resources to get votes, they will contact friends, relatives and use their current other social network pages to drive traffic to MUSICiKON.com and pulse87.com..
2. After a month of webcast’s from the Pulse87 studios we will broadcast on-location live from different venues thus creating event revenue and brand sponsorship.
3. The agreements signed by these artists for management will allow us to possibly tap into revenue streams from producing the acts, concerts or placing them with major labels for a fee. Based on today’s recording industry troubles major record labels would jump to sign acts that have an established awareness, following and radio play.
4. The new website traffic will also increase online advertising revenue.
· | REVENUE STREAMS |
We will generate income from Digital Downloads, Banner and impression advertising, and thru artist’s management thru Skeleton key Entertainment.
Celebrity and Corporate Branding
Our branding division has worked with celebrities and emerging artists, identifying opportunities to expand the individual’s “brand” into ancillary markets. Our management team anticipates to relaunch these activities of this division in 2009. .
Ancillary Businesses
In addition to its core businesses of mainstream radio programming and branding, we also have a recorded music division that provides all services of a fully-functioning record label, including funding, artist development, recording services (with access to our recording studios), promotions, marketing, artwork creation and retail distribution. DVD projects are also produced in-house in Mega Media's video facilities. Our recording and editing studios in Brooklyn provide a comfortable and functional setting for artists to create and record their art. Our goal is to acquire both established and new recording artists, balancing risk by tapping into the existing fan base of established artists while investing in unknown artists who management believes have the potential to be the superstars of tomorrow.
We have a multi-room, state-of-the-art, facility located in the heart of Brooklyn, just Minutes outside of Manhattan. The Studio features a 96 channel Euphonix console, extensive outboard gear custom Dynaudio Munro monitors, and a large isolation booth for the ultimate accommodations in live recording. Our studio personnel are experienced, professional and helpful. The studios are fully-equipped to handle projects from commencement to conclusion, and provide the perfect environment for artists signed to the recorded music division to create their product. Having everything handled in-house enables MMG to control recording costs, watch budgets and closely monitor the development of its artists. In addition, the studios will be made available for third-party projects in an effort to maximize the income-earning potential of the studios. We will actively market its facilities to independent and major record labels.
We also have a full-service film studio with a virtual 3D chromatic room and a 4A virtual studio. This studio is utilized to produce music videos for recording artists and multimedia projects. In addition to being used for music-based projects, we produce TV commercials, infomercials, and other video-related products. We have a talented and dedicated staff of full-time animators, visual effect designers and editors. The virtual 3D studio allows MMG to produce video products at a fraction of the cost of traditional films. Most of the video products filmed today require the use of large, physical sets. This is costly and time-consuming, since actual physical labor is required along with permits, adequate space on-site, and extensive personnel. We can create life-like virtual sets by using this new technology without the hassles of traditional filming. This allows for faster production time, which ultimately translates into dollars saved.
· | ANCILLARY BUSINESSES |
Our Ancillary Businesses are used to support our overall business model by integrating various music and entertainment services into one complete MMG product and service offering.
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Social Media
We promote our brands through various social media platforms as follows:
http://twitter.com/pulse87fm
http://www.myspace.com/pulse87fm
http://www.facebook.com/group.php?gid=12387940411
http://www.youtube.com/user/megamediagroup
Competition
Our competition is Clearchannel, CBS, Emmis Communications.
Intellectual Property and Other Proprietary Rights
Most of our print and radio content and original programming are proprietary and protected. We have copyrights in songs secured through our music publishing division and copyrights in master recordings secured through our recorded music divisions. We also expect that the Mega Media and Skeleton Key brands will have value beyond corporate identities which will allow us to engage in merchandising activities.
Government Regulation
There are no direct governmental approvals required for our products and services other then broadcasting policies under the FCC
Employees
We currently have over 22 fulltime and 21 art time employees and independent contractors.
ITEM 1A. RISK FACTORS.
Not applicable because we are a smaller reporting company.
ITEM 2. DESCRIPTION OF PROPERTY.
We presently maintain our principal executive offices and radio, studio and technical personnel at 1122 Coney Island Avenue, Suite 210, Brooklyn, NY 11230. The company owns much of its studio and radio broadcasting equipment and leases the remainder.
ITEM 3. LEGAL PROCEEDINGS.
Except as stated below, neither the Company nor any of its subsidiaries is a party to any pending or threatened legal proceedings.
As disclosed in our Form 8-K filed on May 15, 2009, on May 13, 2009, we entered into a Settlement Agreement and Mutual General Release (the “Settlement Agreement”) with Golden State Equity Investors, Inc., f/k/a Golden Gate Investors, Inc., a California corporation (“GSEI”) to settle that certain lawsuit filed by GSEI against the Company on March 16, 2009 in the Superior Court of the State of California, County of San Diego. Under the Settlement Agreement, we agreed to pay GSEI an aggregate of $250,000 in installments from June 1, 2009 to November 1, 2010 (the “Settlement Amount”), and in return GSEI has agreed to dismiss the lawsuit.
However, in the event that (i) the Company has satisfied all of the payments through February 1, 2010, for an aggregate payment amount of $125,000, on or prior to February 1, 2010, and (ii) an Event of Default has not occurred under the Settlement Agreement on or prior to February 1, 2010, then the Settlement Amount shall be deemed paid in full. Should any payment described above not be timely received by GSEI, such that an Event of Default exists under the Settlement Agreement, the outstanding Settlement Amount shall accrue interest from the date hereof at a rate of 9.75% per annum
As disclosed in our Form 8-K filed on March 16, 2009, in this lawsuit, GSEI alleged that the Company was liable for breach of certain investment agreements by failing and refusing to (i) pay to GSEI the interest prepayment required under the terms of certain debenture, and (ii) deliver shares of common stock of the Company in connection with a conversion of the debenture. The Settlement Agreement will settle approximately $511,966.53 plus accrued interest. It also terminates such investment agreements and releases all liabilities of the Company under the investment agreements.
As disclosed in our Form 8-K filed on March 16, 2009, on February 27, 2009, the Company and Aleksandr Shvarts, President and CEO of the Company (collectively, the “Third-Party Defendants”), were served with a third-party summons and counterclaim filed by Eric Schwartz, the original defendant (the “Third-Party Plaintiff”). The counterclaim is grounded in the Third-Party Defendants’ failure to repay certain loan agreement. The Third-Party Plaintiff alleged: (i) fraudulent representations against the Third-Party Defendants stemming from alleged representations that common stock of the Company will be issued to plaintiff when the Company becomes a public company and said shares of common stock will satisfy the amount owed under the loan agreement, and (ii) that the Company has been unjustly enriched in the amount of not less than $425,000 by virtue of its receipt of $425,000 from plaintiff. The case was filed in the Supreme Court of the State of New York, County of New York. The Third-Party Plaintiff seeks indemnification of not less than $1,000,000 from the fraudulent representations and not less than $425,000 plus accrued interest because of unjustified enrichment, all in the sum of not less than $1,425,000. We deny the allegations made in the complaint and have retained Nesenoff & Miltenberg, LLP as our legal counsel in this matter.
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As disclosed on our Form 8-K filed on October 14, 2008, on October 7, 2008, we, the Company, and our CEO Aleksandr Shvarts (collectively, the “Defendants”) were served with a summons and complaint filed by AJW Partners, LLC, AJW Offshore, Ltd., AJW Qualified Partners, LLC, and New Millennium Capital Partners II, LLC (collectively, the “Plaintiffs”). The complaint alleged that the Company has failed to make payments due on a series of notes from 2004 to 2006 issued by the Company, and failed to make payments of interest due on these notes, and other unlawful conducts by the Company. The case was filed in the Supreme Court of the State of New York, County of New York. The Plaintiffs seek all sums due from the notes and other agreements, prejudgment interest, compensatory damages, punitive damages, and attorneys' fees to be in excess of $650,000. The Company and Mr. Shvarts deny the allegations made in the complaint and intend to vigorously contest the allegations. We believe that we did not enter into any of the above referenced notes with the Plaintiffs and none of the notes or related legal documents were signed or executed on behalf of the Company or our CEO. We deny the allegations made in the complaint and have retained Nesenoff & Miltenberg, LLP as our legal counsel in this matter.
As disclosed in our Form 8-K filed on November 21, 2008, on September 3, 2008, we were served with a Notice of Motion for Summary Judgment in Lieu of Complaint filed by David Kokakis (“Plaintiff”). On November 11, 2008, the Company settled this litigation and entered into a settlement agreement (the “Stipulation of Settlement”) with Plaintiff. The Company signed two (2) confessions of judgment (the “Confession of Judgment”) which is in favor of Plaintiff. Pursuant to the first Confession of Judgment, in the event of default of the Stipulation of Settlement, the Company agrees to pay Plaintiff a total of $388,810, consisting of a principal amount of $329,500 plus accrued interests of $59,310. Pursuant to the second Confession of Judgment, in the event of default of the Stipulation of Settlement, the Company agreed to pay Plaintiff deferred compensation in the sum of $125,962. The second claim would be the basis of a second action brought by Plaintiff against the Company, which Plaintiff was about to commence. If the Company makes all of the payments, which is $329,500 in total, pursuant to the payment schedule, the two (2) Confessions of Judgment will not be filed and will be waived and returned to the Company’s attorney. Failing to make the payments, or failing to pay on time, as aforedescribed, will be deemed a default and permit Plaintiff’s counsel to file both Confessions of Judgment and Affidavits of Confession of Judgments with the Clerk of the Court without further notice.
On October 9, 2008, the Company and Echo (collectively, the “Defendants”) were served with a summons and complaint filed by Eric Schwartz, the former Director and Vice President of the Company until January 27, 2008 (“Plaintiff”). The complaint alleged that during Plaintiff’s employment by the Company and Echo, Plaintiff is owed the sum of not less than $119,621 plus accrued interest with respect to the unpaid base salary for 2006, 2007 and January 2008. The case was filed in the Supreme Court of the State of New York, County of Kings. The plaintiffs seek all sums for the unpaid base salary plus interest, compensation, liquidated damages equal to 25% of the total amount of wages due, attorneys’ fees, and a sum not exceeding $50 for expenses which may be taxed as costs, all in the sum of not less than $149,526.25. The Company and Echo deny the allegations made in the complaint and intend to vigorously contest the allegations. We deny the allegations made in the complaint and have retained Nesenoff & Miltenberg, LLP as our legal counsel in this matter and have filed a counterclaim against Eric Schwartz.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Market Information
Our common stock has traded on the OTC Bulletin Board system under the symbol “MMDA” since May 9, 2007. The following table sets forth the range of high and low bid quotations for each quarter within the last fiscal year. These quotations as reported by the OTCBB reflect inter-dealer prices without retail mark-up, mark-down, or commissions and may not necessarily represent actual transactions.
High | Low | |||||||
May 9, 2007 to July 31, 2007 | $ | 0.75 | $ | 0.30 | ||||
August 1, 2007 to October 31, 2007 | $ | 0.65 | $ | 0.31 | ||||
November 1, 2007 to January 31, 2008 | $ | 0.50 | $ | 0.11 | ||||
February 1, 2008 to April 30, 2008 | $ | 0.41 | $ | 0.11 | ||||
May 1, 2008 to July 31, 2008 | $ | 0.15 | $ | 0.03 | ||||
August 1, 2008 to October 31, 2008 | $ | 0.05 | $ | 0.005 | ||||
November 1, 2008 to January 31, 2009 | $ | 0.03 | $ | 0.0015 | ||||
February 1, 2009 to April 30, 2009 | $ | 0.02 | $ | 0.005 | ||||
The source of these high and low prices was the OTC Bulletin Board. These quotations reflect inter-dealer prices, without retail mark-up, markdown or commissions and may not represent actual transactions. The high and low prices listed have been rounded up to the next highest two decimal places.
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The market price of our common stock is subject to significant fluctuations in response to variations in our quarterly operating results, general trends in the market, and other factors, over many of which we have little or no control. In addition, broad market fluctuations, as well as general economic, business and political conditions, may adversely affect the market for our common stock, regardless of our actual or projected performance.
Holders
As of May 8, 2009 in accordance with our transfer agent records, we had 614 recordholders of our Common Stock.
Dividends
Holders of our common stock are entitled to receive dividends if, as and when declared by the Board of Directors out of funds legally available therefore. We have never declared or paid any dividends on our common stock. We intend to retain any future earnings for use in the operation and expansion of our business. Consequently, we do not anticipate paying any cash dividends on our common stock to our stockholders for the foreseeable future.
Recent Sales of Unregistered Securities
On February 6, 2008 certain officers and directors of the Company were granted a total of 3,200,000 stock options to purchase company’s $.001 par value common shares for $0.31 per share. The total cost of the stock options granted was $6,720.
In March 2008 certain officers of the Company exercised their options and purchased a total of 177,730 of the company’s $.001 par value common shares for $0.31 per share for a total of $55,096.
In May 2008 the Company issued 100,000 shares to its contractor in exchange for consulting services worth $20,000. Market value of the stock at the time of agreement was $0.09 per share.
On July 1, 2008, the Company issued to Island Broadcasting, Inc 1,000,000 of the company’s $.001 shares for $0.11 per share for satisfaction of the payment postponement agreement.
On July 2, 2008, the Company issued to Jaworek Capital LLC 1,224,023 shares in exchange for satisfaction of the Loan Agreement dated May 29, 2008, for the principal of $100,000 and accrued interest of $369.86, at conversion price 0.0820 per share.
On July 2, 2008, the Company issued to Jaworek Capital LLC 1,224,023 shares in exchange for satisfaction of the Loan Agreement dated June 16, 2008, for the principal of $100,000 and accrued interest of $369.86, at conversion price 0.0820 per share.
On July 15, 2008, the Company issued to FCIC 2,729,014 shares in exchange for satisfaction of the Loan Agreement dated March 14, 2007, for the principal of $250,000 and accrued interest of $29,301.37, at conversion price 0.10 per share.
On August 6, 2008, the Company issued to Jaworek Capital LLC 3,241,099 shares in exchange for satisfaction of the Loan Agreement dated July 1, 2008, for the principal of $100,000 and accrued interest of $863.01, at conversion price 0.0311 per share.
On August 8, 2008, the Company issued to Jaworek Capital LLC 3,138,239 shares in exchange for satisfaction of the Loan Agreement dated July 31, 2008, for the principal of $100,000 and accrued interest of $172.60, at conversion price 0.0319 per share.
On August 29, 2008, the Company issued to FD Import & Export Corp. 3,519,308 shares to in partial satisfaction of the Loan Agreement dated February 28, 2008, for principle of $71,512.33, at a conversion price 0.02032 per share.
On October 2, 2008, the Company issued to Tangiers Investors LP 443,656 shares in exchange for partial satisfaction of the Loan Agreement dated March 25, 2008, for the principal of $5,000, at conversion price 0.01127 per share.
On October 13, 2008, the Company issued to Golden Gate Investors, Inc 131,579 shares in exchange for partial satisfaction of the Loan Agreement dated April 18, 2008, for the principal of $1,000, at conversion price 0.0076 per share.
On January 16, 2009, the Company issued to Gap Asset Management 7,700,000 shares of its common stock for a total of $77,000 pursuant to a share purchase agreement.
On January 19, 2009, the Company entered into debt conversion agreements with several debt holders pursuant to which it issued a total of 154,740,295 shares in exchange for $1,547,402.95outstanding debt including principal and interest.
On February 10, 2009, the Company issued to Robert Catell 7,000,000 shares of its common stock for a total of $70,000 pursuant to a share purchase agreement.
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On April 27, 2009, the Company issued 25,279,614 shares of its common stock to Island Broadcasting Company to satisfy unpaid fees of $1,090,000 under certain amended time brokerage agreement owned by Echo.
From April 27, 2009 to April 30, 2009, the Company entered into 9% convertible promissory notes (the “Notes”) with certain investors (the “Holders”) for an aggregate of $193,000. The maturity date of these Notes is October 1, 2009. Pursuant to the terms of the Notes, the Holders shall have the right from time to time, and at any time on or prior to maturity to convert all or any part of the outstanding and unpaid principal amount of these Notes into fully paid and non-assessable shares of Common Stock, $.001 par value per share. The number of shares of Common Stock to be issued upon each conversion of these Notes shall be determined by dividing the amount of principal and accrued interest to be converted (“Conversion Amount”) by the applicable Conversion Price then in effect on the date specified in the notice of conversion, in the form attached hereto as Exhibit A (the “Notice of Conversion”). The Conversion Price shall be equal to the average closing bid price of the Common Stock (as reported by Bloomberg L.P.) on the OTC Bulletin Board for the ten (10) trading days prior to the date of the Conversion Notice (the “Conversion Date”) multiplied by .80 provided that the Notice of Conversion is submitted by to our company before 6:00 p.m., New York, New York time on such Conversion Date. However, the Conversion Price shall not exceed $0.05.
On May 15, 2009, the Company issued 7,000,000 shares of its common stock to Signal Above, LLC pursuant to a Time Brokerage Agreement and its amendment, as disclosed in its Form 8-K filed on May 15, 2009.
These securities are issued in reliance on the exemption under Section 4(2) of the Securities Act of 1933, as amended (the “Act”). These securities qualified for exemption under Section 4(2) of the Securities Act of 1933 since the issuance securities by us did not involve a public offering. The offering was not a “public offering” as defined in Section 4(2) due to the insubstantial number of persons involved in the deal, size of the offering, manner of the offering and number of securities offered. We did not undertake an offering in which we sold a high number of securities to a high number of investors. In addition, these shareholders had the necessary investment intent as required by Section 4(2) since they agreed to and received share certificates bearing a legend stating that such securities are restricted pursuant to Rule 144 of the 1933 Securities Act. This restriction ensures that these securities would not be immediately redistributed into the market and therefore not be part of a “public offering.” Based on an analysis of the above factors, we have met the requirements to qualify for exemption under Section 4(2) of the Securities Act of 1933 for this transaction.
Equity Compensation Plan Information
The following table sets forth certain information as of May 12, 2009, with respect to compensation plans under which our equity securities are authorized for issuance:
(a) | (b) | (c) | ||
_________________ | _________________ | _________________ | ||
Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average 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)) | ||
Equity compensation | None | |||
Plans approved by | ||||
Security holders | ||||
Equity compensation | None | |||
Plans not approved | ||||
By security holders | ||||
Total |
ITEM 6. SELECTED FINANCIAL DATA
Not applicable because we are a smaller reporting company.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS.
The discussion in this section contains certain statements of a forward-looking nature relating to future events or our future performance. Words such as “anticipates,” “believes,” “expects,” “intends,” “future,” “may” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not the only means of identifying forward-looking statements. Such statements are only predictions and that actual events or results may differ materially. In evaluating such statements, you should specifically consider various factors identified in this report, including the matters set forth under the caption “business risks,” which could cause actual results to differ materially from those indicated by such forward-looking statements.
-7-
BUSINESS OVERVIEW
We were incorporated in New York State on February 3, 2004. In June 2007, we went public through a reverse merger and current trades on the Over-The-Counter Bulletin Board (“OTCBB”) under the symbol MMDA. We are a multi-media company whose core businesses are mainstream radio broadcasting, entertainment branding, music recording and social media. We are also the parent company of a Music Recording Division, a Celebrity & Corporate Branding Division and offers full service Audio and Video production studios. We also believe MUSICiKON will generate revenue for these divisions through artist management, master recording rights and distribution deals. Our principal executive office and studios are located at 1122 Coney Island Avenue, Suite 210, Brooklyn, New York 11230. Our office number is (718) 947-1100. Our web address is www.megamediagroup.com.
Results of Operations
Results of Operations for the Year Ended January 31, 2009 Compared to the Year Ended January 31, 2008
Revenue
We derive revenue from sales of advertisements and program sponsorships to local advertisers, independent promotion agreements, ticket and other revenue related to special events we sponsor throughout the year and management fees from our subsidiaries. Advertising revenue is affected primarily by the advertising rates our radio stations and magazine are able to charge as well as the overall demand for radio advertising time in a market. For the year ended January 31, 2009 our revenue decreased by $3,053,635 to $1,481,820 as compared to $4,,535,455 for the year ended January 31, 2008. The decrease results primarily from programming format change.
Operating Expenses
Our significant operating expenses are broadcast expenses, consisting of (i) employee salaries and commissions, (ii) programming expenses, (iii) advertising and promotion expenses, (iv) rental of premises for studios, (v) rental of transmission tower space and (vi) freelance consultants. We strive to control these expenses by centralizing certain functions such as finance, accounting, legal, human resources and management information systems and the overall programming management function. For the year ended January 31, 2009 operating expenses decreased by $1,947,331 to $1,969,577 as compared to $3,916,908 for the year ended January 31, 2008. The decrease is principally attributable to decreased broadcasting expenses.
Selling, General and Administrative Expenses
Selling, General and Administrative expenses decreased by $390,157 to $2,797,995 for the year ended January 31, 2009 from $3,188,154 in 2008. The decrease is attributable to lower corporate expenses. Selling expenses are a significant part of our expenditures and relate directly to the marketing and development of products. We anticipate similar expenditures for the foreseeable future.
Depreciation and Amortization Expenses
Depreciation and Amortization expenses decreased by $70,038 to $320,222 year ended January 31, 2009 from $390,260 in 2008 due to the decrease in the intangible assets.
Stock Compensation Expense
Non-cash stock compensation expense decreased by $308,333 to $0 for the year ended January 31, 2009 from $308,333 in 2008 as result of the decrease in sale of common stock below the market price.
Loss on Sale of Intangible Assets
Loss on sale of intangible assets increased by $40,168 to $40,168 for the year ended January 31, 2009 from $0 in 2008 as result of the sale of business assets of VSE Magazine, a whole-owed subsidiary.
Loss on Disposition of Fixed Assets
Loss on disposition of fixed assets decreased by $60,025 to $0 for the year ended January 31, 2009 from $60,025 in 2008 as result of the abandonment of leasehold improvements due to the termination of the lease agreement in 2008.
Interest Expense
Interest expense increased by $302,002 to $380,828 for the year ended January 31, 2009 from $78,826 in 2008 due to the additional borrowings.
-8-
Beneficial Conversion Expense
Beneficial conversion expense increased by $1,034,694 to $1,086,504 for the year ended January 31, 2009 from $51,810 in 2008 due to the increase of borrowings with the attached beneficial conversion provisions.
Net Loss
We have a net loss of $5,113,474 for the year ended January 31, 2009 as compared to a net loss of $3,055,461 for the year ended January 31, 2008. The increase in net loss is primarily attributable to the decrease in our revenues and increase in interest expense.
Liquidity and Capital Resources
As of January 31, 2009, our Working Capital deficiency is $3,732,697.
Cash used in operating activities was $2,025,370 for the year ended January 31, 2009 as compared to $1,054,140 during the year ended January 31, 2008. The decrease in cash used in operating activities reflects the reduced outlays necessary to achieve the growth in revenues, which should ultimately result in positive operating cash flow.
Cash provided in investing activities was $154,904 for the year ended January 31, 2009 as compared to $75,044 cash used by investing activities for the year ended January 31, 2008. The increase in cash used by investing activities is primarily due reduced investments in various projects and reduction in security deposits.
Cash provided by financing activities was $1,883,947 for the year ended January 31, 2009 as compared to $1,092,135 for the year ended January 31, 2008. The increase in cash provided by financing activities is primarily due to the additional borrowings.
Going Concern
As reflected in the Company’s Financial Statements which accompany this report, our consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and liabilities and commitments in the normal course of business. In the near term, we expect operating costs to continue to exceed funds generated from operations. As a result, we expect to continue to incur operating losses and we may not have sufficient funds to grow our business in the future. We can give no assurance that we will achieve profitability or be capable of sustaining profitable operations. As a result, operations in the near future are expected to continue to use working capital.
To successfully grow the individual segments of the business, we must decrease our cash burn rate, improve our cash position and the revenue base of each segment, and succeed in our ability to raise additional capital through a combination of public or private debt and equity offerings or strategic alliances. We also depend on certain third party contractors and our executives.
We incurred net losses of $5,113,474 and $3,055,461 for the year ended January 31, 2009 and 2008, respectively, and have an accumulated deficit of $14,418,943 at January 31, 2009. As of January 31, 2009, we had total current assets of $229,993 and total current liabilities of $3,962,690 creating a working capital deficiency of $3,732,697.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as “special purpose entities” (SPEs).
CRITICAL ACCOUNTING POLICIES
Our financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States (“GAAP”). GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities revenue and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.
Our significant accounting policies are summarized in the summary “Background and Significant Accounting Policies” accompanying our financial statements. While all these significant accounting policies impact our financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates. Our management believes that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause effect on our consolidated results of operations, financial position or liquidity for the periods presented in this report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable because we are a smaller reporting company.
-9-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
KEMPISTY & COMPANY |
CERTIFIED PUBLIC ACCOUNTANTS, P.C. |
15 MAIDEN LANE - SUITE 1003 - NEW YORK, NY 10038 - TEL (212) 406-7272 - FAX (212) 513-1930 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
Board of Directors |
Mega Media Group, Inc |
We have audited the accompanying consolidated balance sheet of Mega Media Group, Inc and Subsidiaries (the "Company") as of January 31, 2009 and 2008 and the related consolidated statements of operations, changes in stockholders' equity (deficit) and cash flows for each of the years in the two years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit 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. The Company is not required at this time, to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Mega Media Group, Inc and Subsidiaries as of January 31, 2009 and 2008 and the results of its operations and cash flows for each of the years in the two years then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company had a net loss of approximately $3,000,000 an accumulated deficit of approximately $14,000,000 and a working capital deficiency of approximately $3,700,000. These factors raise substantial doubt about its ability to continue as a going concern. Management’s plans concerning this matter are also described in Note 1. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Kempisty & Company |
Certified Public Accountants PC |
New York, New York |
May 18, 2009 |
MEGA MEDIA GROUP, INC. AND SUBSIDIARIES | ||||||||
CONSOLIDATED BALANCE SHEETS | ||||||||
January 31, | January 31, | |||||||
ASSETS | 2009 | 2008 | ||||||
Current Assets | (Unaudited) | |||||||
Cash | $ | 13,877 | $ | 396 | ||||
Accounts receivable, net (Note3) | 137,855 | 68,036 | ||||||
Accrued revenues | 54,955 | - | ||||||
Prepaid Expenses | 13,307 | 76,222 | ||||||
Note Receivable | 10,000 | - | ||||||
Total Current Assets | 229,993 | 144,654 | ||||||
Fixed assets, net (Note 4) | 227,785 | 391,244 | ||||||
Master records, net (Note 5) | - | 125,000 | ||||||
Other intangible assets, net (Note 5) | - | 176,667 | ||||||
Advances | 20,000 | 20,000 | ||||||
Note Receivable-Golden Gate Investors (Note 14) | 1,400,000 | - | ||||||
Deposits | 13,486 | 183,486 | ||||||
Other | 16,010 | 16,010 | ||||||
TOTAL ASSETS | $ | 1,907,274 | $ | 1,057,061 | ||||
LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
Current Liabilities | ||||||||
Accounts payable | $ | 1,138,976 | $ | 458,009 | ||||
Bank overdraft | - | - | ||||||
Sales tax payable | 616 | 616 | ||||||
Payroll taxes payable (Note 13) | 1,112,966 | 728,350 | ||||||
Accrued Offices' Compensation | 504,893 | 473,786 | ||||||
Equipment loan - current portion (Note 9) | 7,248 | 8,304 | ||||||
Equipment lease - current portion (Note 10) | 19,440 | 19,440 | ||||||
Loans payable (Note 7) | 496,000 | 795,000 | ||||||
Due to related party (Note 6) | 366,283 | 398,783 | ||||||
Deferred revenues | 135,920 | 301,661 | ||||||
Accrued expenses | 158,201 | 24,508 | ||||||
Payable to shareholders (Note 6) | 12,148 | 239,148 | ||||||
Stock Payable (Note 10) | 10,000 | - | ||||||
Total Current Liabilities | 3,962,690 | 3,447,605 | ||||||
Equipment Loan Payable (Note 9) | 2,767 | 4,767 | ||||||
Equipment Lease Payable (Note 10) | 12,960 | 30,780 | ||||||
Note Payable (Note 14) | 1,497,000 | - | ||||||
TOTAL LIABILITIES | 5,475,417 | 3,483,152 | ||||||
Commitments and contingencies | - | - | ||||||
Stockholders' Deficit | ||||||||
Preferred stock, $.001 par value, 20,000,000 shares authorized, 0 shares issued and outstanding as of 10/31/08 and 01/31/08 (Note 8) | - | - | ||||||
Common stock, $.001 par value, 500,000,000 shares authorized, 261,348,938 shares issued and outstanding as of 01/31/09 and 80,552,254 shares issued and outstanding as of 01/31/08 (Note 8) | 261,349 | 80,552 | ||||||
Additional paid-in capital | 10,784,132 | 7,233,835 | ||||||
Deferred compensation | (194,681 | ) | (435,009 | ) | ||||
Accumulated Deficit | (14,418,943 | ) | (9,305,469 | ) | ||||
Total Stockholders' Deficit | (3,568,143 | ) | (2,426,091 | ) | ||||
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | $ | 1,907,274 | $ | 1,057,061 | ||||
The accompanying notes are an integral part of these financial statements.
-10-
MEGA MEDIA GROUP, INC. AND SUBSIDIARIES | ||||||||
CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||
Year Ended January 31, | ||||||||
2009 | 2008 | |||||||
(unaudited) | (unaudited) | |||||||
Revenues: | ||||||||
Advertising revenues | $ | 1,332,957 | $ | 4,210,294 | ||||
Other revenues | 148,862 | 325,161 | ||||||
Total Revenues | 1,481,820 | 4,535,455 | ||||||
Operating expenses | 1,969,577 | 3,916,908 | ||||||
Selling, general and administrative | 2,797,995 | 3,188,154 | ||||||
Depreciation and amortization | 320,222 | 390,260 | ||||||
Stock compensation expense | - | 308,333 | ||||||
5,087,794 | 7,803,655 | |||||||
Net loss from operations | (3,605,974 | ) | (3,268,200 | ) | ||||
Other Expenses: | ||||||||
Loss on sale of intangible assets | 40,168 | - | ||||||
Loss on disposition of fixed assets | - | 60,025 | ||||||
Gain on extinguishment of debt | - | (403,400 | ) | |||||
Interest expense | 380,828 | 78,826 | ||||||
Beneficial conversion expense | 1,086,504 | 51,810 | ||||||
Net loss before tax benefit | (5,113,474 | ) | (3,055,461 | ) | ||||
Tax benefit | - | - | ||||||
Net loss | $ | (5,113,474 | ) | $ | (3,055,461 | ) | ||
Basic and diluted loss per share | (0.05 | ) | (0.04 | ) | ||||
Weighted-Average shares used in computation of basic and diluted loss per share | 95,637,965 | 83,571,228 | ||||||
The accompanying notes are an integral part of these financial statements.
-11-
MEGA MEDIA GROUP, INC. AND SUBSIDIARIES | ||||||||||||||||||||||||||||||||
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||||||||||||||||||||||||||
UNAUDITED | ||||||||||||||||||||||||||||||||
Total | ||||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Additional | Deferred | Stockholders' | ||||||||||||||||||||||||||||
($.001 par value) | ($.001 par value) | Paid-In | Stock | Accumulated | Equity | |||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Comp | Deficit | (Deficit) | |||||||||||||||||||||||||
Balance January 31, 2007 | 14,492,000 | $ | 14,492 | 5,277,446 | $ | 5,277 | $ | 4,067,546 | $ | (1,392 | ) | $ | (6,146,720 | ) | $ | (2,060,797 | ) | |||||||||||||||
Sale of common stock | 50,000 | 50 | 49,950 | 50,000 | ||||||||||||||||||||||||||||
Cancellation of restricted stock award | ||||||||||||||||||||||||||||||||
to officers and shareholders | (1,175,000 | ) | (1,175 | ) | 1,175 | - | ||||||||||||||||||||||||||
Restricted stock award | 1,100,000 | 1,100 | (100 | ) | 1,000 | |||||||||||||||||||||||||||
to officers and shareholders | ||||||||||||||||||||||||||||||||
Effect of reversed merger | (14,417,000 | ) | (14,417 | ) | 67,651,248 | 67,651 | 857,726 | (103,288 | ) | 807,672 | ||||||||||||||||||||||
Sale of common stock | 1,000,000 | 1,000 | 599,000 | 600,000 | ||||||||||||||||||||||||||||
Sale of common stock | 166,667 | 167 | 58,167 | 58,334 | ||||||||||||||||||||||||||||
Capital contribution | - | - | - | - | 79,737 | - | 79,737 | |||||||||||||||||||||||||
Beneficial conversion of loans from shareholders | 51,810 | 51,810 | ||||||||||||||||||||||||||||||
Stock issued in exchange for air lease rent | 3,000,000 | 3,000 | 897,000 | 900,000 | ||||||||||||||||||||||||||||
Stock issued in exchange for legal services | 406,893 | 407 | 95,898 | 96,305 | ||||||||||||||||||||||||||||
Restricted stock award to contractor | ||||||||||||||||||||||||||||||||
for future consulting services | 3,000,000 | 3,000 | 477,000 | (480,000 | ) | - | ||||||||||||||||||||||||||
Restricted stock award to contractor | ||||||||||||||||||||||||||||||||
for earned services during the three months ended | ||||||||||||||||||||||||||||||||
January 31, 2008 | 45,308 | 45,308 | ||||||||||||||||||||||||||||||
Loss for the year ended | ||||||||||||||||||||||||||||||||
January 31, 2008 | (3,055,461 | ) | (3,055,461 | ) | ||||||||||||||||||||||||||||
Balance January 31, 2008 | - | - | 80,552,254 | 80,552 | 7,233,834 | (435,009 | ) | (9,305,469 | ) | (2,426,092 | ) | |||||||||||||||||||||
Stock options issued to officers for services | 6,720 | 6,720 | ||||||||||||||||||||||||||||||
Stock options issued to lenders in exchange for loans | 6,250 | 6,250 | ||||||||||||||||||||||||||||||
Stock issued in exchange for air lease rent | 1,000,000 | 1,000 | 91,000 | 92,000 | ||||||||||||||||||||||||||||
Stock issued in exchange for consulting services | 100,000 | 100 | 8,900 | 9,000 | ||||||||||||||||||||||||||||
Stock issued in exchange for rent | 8,901,182 | 8,901 | 80,111 | 89,012 | ||||||||||||||||||||||||||||
Beneficial conversion of loans payable | 1,086,504 | 1,086,504 | ||||||||||||||||||||||||||||||
Stock issued for conversion of | ||||||||||||||||||||||||||||||||
loans payable | 170,617,772 | 170,618 | 2,127,666 | 2,298,284 | ||||||||||||||||||||||||||||
Restricted stock award to contractor | ||||||||||||||||||||||||||||||||
for earned services during the year ended January 31, 2009 | 240,328 | 240,328 | ||||||||||||||||||||||||||||||
Capital contribution | - | - | - | - | 88,228 | - | 88,228 | |||||||||||||||||||||||||
Stock options exercised by officers | 177,730 | 178 | 54,918 | 55,096 | ||||||||||||||||||||||||||||
Loss for year ended | ||||||||||||||||||||||||||||||||
January 31, 2009 | (5,113,474 | ) | (5,113,474 | ) | ||||||||||||||||||||||||||||
Balance January 31, 2009 | - | - | 261,348,938 | 261,349 | 10,784,132 | (194,681 | ) | (14,418,943 | ) | (3,568,143 | ) | |||||||||||||||||||||
The accompanying notes are an integral part of these financial statements.
-12-
MEGA MEDIA GROUP, INC. AND SUBSIDIARIES | ||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
January 31, | January 31, | |||||||
2009 | 2008 | |||||||
(Unaudited) | (Unaudited) | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net loss | $ | (5,113,474 | ) | $ | (3,055,461 | ) | ||
Adjustments to reconcile net loss to net cash | ||||||||
used by operating activities: | ||||||||
Depreciation and amortization | 320,222 | 390,260 | ||||||
Loss on sale of intangible assets | 40,168 | - | ||||||
Loss on disposal of fixed assets | - | 60,025 | ||||||
Beneficial conversion of loans from shareholders | 1,086,504 | 51,810 | ||||||
Stock options issued to officers for services | 6,720 | - | ||||||
Stock options issued to lenders in exchange for loans | 6,250 | - | ||||||
Stock compensation for consulting services | 249,328 | 46,308 | ||||||
Stock compensation for legal services | - | 96,305 | ||||||
Stock issued for air lease rent | 92,000 | 900,000 | ||||||
Stock issued for rent | 89,012 | - | ||||||
Non-cash stock based compensation | - | 308,333 | ||||||
Extinguishment of Debt | - | (403,400 | ) | |||||
Changes in operating assets and liabilities: | ||||||||
(Increase) in note receivable | (10,000 | ) | - | |||||
(Increase) in accounts receivable | (94,819 | ) | 600 | |||||
(Increase) decrease in accrued revenues | (54,955 | ) | - | |||||
(Increase) decrease in prepaid expenses | 62,915 | 91,982 | ||||||
Increase in accounts payable | 680,966 | 63,139 | ||||||
Increase in stock payable | - | |||||||
Increase in sales tax payable | - | (276 | ) | |||||
Increase in accrued officers' compensation | 31,106 | 93,957 | ||||||
Increase in accrued expenses | 243,978 | 16,963 | ||||||
Increase in deferred revenue | (45,909 | ) | (150,739 | ) | ||||
Increase in payroll liabilities | 384,615 | 443,619 | ||||||
Increase in other current liabilities | - | (7,565 | ) | |||||
Total adjustments | 3,088,104 | 2,001,321 | ||||||
NET CASH USED BY OPERATING ACTIVITIES | (2,025,370 | ) | (1,054,140 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Master records | - | (14,000 | ) | |||||
Fixed assets | (15,096 | ) | (103,044 | ) | ||||
Deposits | 170,000 | 42,000 | ||||||
CASH PROVIDED (USED) BY INVESTING ACTIVITIES | 154,904 | (75,044 | ) | |||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Loan proceeds | 1,347,000 | 355,000 | ||||||
Increase (decrease) in equipment loan - current portion | (1,056 | ) | - | |||||
Equipment loan repayments | (2,001 | ) | (9,192 | ) | ||||
Proceeds from loans from shareholders | 375,000 | 454,030 | ||||||
Repayments of loans from shareholders | (5,000 | ) | (163,000 | ) | ||||
Repayments of loans from related parties | (32,500 | ) | (5,000 | ) | ||||
Equipment lease repayments | (17,820 | ) | (19,440 | ) | ||||
Capital Contributions | 88,228 | 79,737 | ||||||
Sale of common stock | 77,000 | 400,000 | ||||||
Options exercised by officers | 55,096 | - | ||||||
CASH PROVIDED BY FINANCING ACTIVITIES | 1,883,947 | 1,092,135 | ||||||
NET INCREASE IN CASH | 13,481 | (37,048 | ) | |||||
CASH: Beginning of period | 396 | 37,444 | ||||||
End of period | $ | 13,877 | $ | 396 | ||||
Supplemental disclosure of noncash financing and investing activities: | ||||||||
Cash paid during the period for income taxes | $ | 2,275 | $ | 2,275 | ||||
Cash paid during the period for interest | $ | 58,164 | $ | 130,636 | ||||
Non Cash Financing and Investing Activities: | ||||||||
Stock issued for conversion of loans to shareholders | $ | 596,999 | $ | 877,000 | ||||
Stock issued for air lease rent | - | 900,000 | ||||||
Stock issued for future consulting services | - | 480,000 | ||||||
Stock issued for prior legal services | - | 96,305 | ||||||
Stock issued for conversion of loans from third parties | $ | 1,295,000 | $ | - | ||||
Increase in note payable | $ | 1,400,000 | $ | - | ||||
(Increase) in note receivable | $ | (1,400,000 | ) | $ | - | |||
Preferred stock issued for services | $ | - | $ | 1,100 | ||||
Stock issues for compensation | $ | - | $ | 308,333 | ||||
Extinguishment of debt | $ | - | $ | 416,866 |
The accompanying notes are an integral part of these financial statements.
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MEGA MEDIA GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts and Disclosures at and for the years
ended January 31, 2009 and 2008)
NOTE 1 - ORGANIZATION AND NATURE OF BUSINESS
Mega Media Group, Inc. (the “MMG”) was incorporated in New York State on February 3, 2004. The Company is a multi-media holding company with five wholly owned subsidiaries. The Company’s focus is mainstream entertainment and media. The corporate headquarters is located in Brooklyn, NY. All references to the year ending January 31, 2005 are for the period February 3, 2004 (date of inception) to January 31, 2005.
As reflected in the accompanying combined financial statements, the Company has an accumulated deficit of $14,418,943 and $9,305,469 at January 31, 2009 and 2008 respectively that includes losses of $5,113,474 and $3,055,461 for the years ended January 31, 2009 and 2008 respectively and a working deficit of $3,732,697 and $3,302,951 at January 31, 2009 and 2008 respectively. The Company’s shareholders have funded the losses and cash shortfalls allowing management to develop sales and contingencies plans. The Company’s also arranging for additional funding. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Management has taken the following steps to revise its operating and financial requirements, which it believes are sufficient to provide the Company with the ability to continue as a going concern. The Company is actively pursing additional funding and a potential merger or acquisition candidate and strategic partners, which would enhance stockholders’ investment. Management believes that the above actions will allow the Company to continue operations through the next fiscal year.
NOTE-2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements include the accounts of the Mega Media Group Inc., and its subsidiary Mega Media Film, Inc., Mega Media Studios, Inc., Mega Media Records, Inc., VSE Magazine, Inc., and Echo Broadcasting Group, Inc. All significant intercompany balances and transactions have been eliminated.
Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that effects the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the of the combined financial statements and the reported amounts of revenue and expenses during the reported period. Actual results could differ from these estimates.
Cash And Cash Equivalents
Short-term investments with an original maturity of three months or less are considered to be cash equivalents.
Depreciation and Amortization
The cost of furniture and equipment is depreciated over the estimated useful lives of the related assets. The cost of leaseholds improvements is amortized over the lesser of the length of the related lease or the estimated useful life of the assets. Depreciation is computed on a straight line basis, with lives ranging from 3 to 7 years. Leasehold improvements are amortized over the life of the lease.
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Master Records
The Company records the cost of a record master borne by the Company as an asset if the past performance and current popularity of the artist provides a sound basis for estimating that the cost will be recovered from future sales. Otherwise, that cost is charged to expense. The amount recognized as an asset is amortized over the estimated life of the recorded performance.
Accounts Receivable
Accounts receivable are stated at the amount management expects to collect from outstanding balances. Management provides for probable uncollected amounts through a charge to earnings and a credit to an allowance for bad debts based on its assessment of the current status of individual accounts. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the allowance for bad debts and a credit to accounts receivable.
Revenue Recognition
The Company recognizes revenue for broadcast advertising when the commercial is broadcast and is reported, net of agency and outside sales representative commissions, in accordance with Staff Accounting Bulletin (“SAB”) No. 104, Topic 13, “Revenue Recognition, Revised and Updated.” Agency and outside sales representative commissions are calculated based on a stated percentage applied to gross billing. Generally, clients remit the gross billing amount to the agency or outside sales representative, and the agency or outside sales representative remits the gross billing, less their commission, to the Company.
Financial Instruments
Due to their short maturity, the carrying amounts of accounts and notes receivable, accounts payable, accrued liabilities, and short-term borrowings approximated their fair values at January 31, 2009 and January 31, 2008.
Income Taxes
The Company accounts for income taxes using the liability method. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting bases and tax bases of assets and liabilities and are measured using the enacted tax rates expected to apply to taxable income in the periods in which the deferred tax asset or liability is expected to be realized or settled. Deferred tax assets are reduced by valuation allowances if the Company believes it is more likely than not that some portion or all of the assets will not be realized.
Barter Transactions
The Company provides broadcast advertising time in exchange for advertising time in other media, as well as certain goods and services. The terms of the exchanges generally permit the Company to preempt such broadcast time in favor of advertisers who purchase time in exchange for cash. The Company includes the value of such exchanges in both broadcasting net revenues and station operating expenses. The valuation of barter time is based upon the fair value of the advertising time provided and goods and services received. For the years ended January 31, 2009 and 2008, barter transactions reflected in net broadcast revenue, operating expenses and selling, general and administrative expenses were approximately $134,931 and $290,896 respectively.
New Accounting Pronouncements
In March 2008, the FASB issued SFAS 161, “Disclosures about Derivative Instruments and Hedging Activities”. The new standard is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. It is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company is currently evaluating the impact of adopting SFAS 161 on its consolidated financial statements.
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On December 4, 2007, the FASB issued SFAS No. 160, Noncontrolling interest in Consolidated Financial Statements (SFAS No. 160). SFAS No. 160 requires all entities to report noncontrolling (minority) interests in subsidiaries as equity in the consolidated financial statements. The statement establishes a single method of accounting for changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation and expands disclosures in the consolidated financial statements. SFAS No. 160 is effective for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years. We have not yet determined the impact of the adoption of SFAS No. 160 on our consolidated financial statements and footnote disclosures.
On December 4, 2007, the FASB issued SFAS No.141R, Business Combinations (SFAS No. 141R). SFAS No. 141R requires the acquiring entity in a business combination to recognize all the assets acquired and liabilities assumed, establishes the acquisition date fair value as the measurement objective for all assets acquired and liabilities assumed, and requires the acquirer to expand disclosures about the nature and financial effect of the business combination. SFAS No. 141R is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. We have not yet determined the impact of the adoption of SFAS No. 141R on our consolidated financial statements and footnote disclosures.
The company has not elected the fair value option for any assets or liabilities under SFAS No. 159.
In September 2006, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements”, which establishes a framework for reporting fair and expands disclosure about fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The adoption of this standard had no impact on the Company’s financial position or results of operations.
In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities-Including an amendment of FASB Statement No. 115, (“SFAS No. 159”). SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. Most of the provisions of this Statement apply only to entities that elect the fair value option. However, the amendment to FASB Statement No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” (“SFAS No. 115”), applies to all entities with available-for-sale and trading securities. SFAS No. 159 is effective for the Company’s consolidated financial statements for the annual reporting period beginning after November 15, 2007. The adoption of SFAS 159 is not expected to have impact on the consolidated financial position or results of operations.
NOTE 3 – ACCOUNTS RECEIVABLE
Accounts receivable consist of the following: | January 31, 2009 | January 31, 2008 | ||||||
Accounts receivable-trade | $ | 150,855 | $ | 81,036 | ||||
Allowance for doubtful accounts | (13,000 | ) | (13,000 | ) | ||||
$ | 137,855 | $ | 68,036 |
NOTE 4 – FIXED ASSETS
January 31, 2009 | January 31, 2008 | |||||||
Fixed Assets consist of the following: | ||||||||
Equipment | $ | 518,210 | $ | 505,066 | ||||
Leasehold | 230,969 | 230,969 | ||||||
Furniture | 38,162 | 38,162 | ||||||
Trucks | 41,188 | 41,188 | ||||||
Computer software | 45,940 | 43,988 | ||||||
874,469 | 859,373 | |||||||
Less accumulated depreciation | 646,684 | 468,129 | ||||||
$ | 227,785 | $ | 391,244 |
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Depreciation expense was $178,555 and $171,250 for the years ended January 31, 2009 and 2008.
In August 2007 Company disposed one of its trucks. In addition, in August 2007 Company abandoned leasehold improvements for one of its office locations, since the lease agreement was terminated.
NOTE 5 – INTANGIBLE ASSETS
January 31, 2009 | January 31, 2008 | |||||||
Intangible Assets consist of the following: | ||||||||
Master records | $ | 320,676 | $ | 320,676 | ||||
Other intangible assets (see Notes 2 & 15) | 0 | 200,000 | ||||||
Less accumulated amortization | (320,676 | ) | (219,009 | ) | ||||
$ | 0 | $ | 301,667 |
Amortization expense was $141,667 and $219,009 for the years ended January 31, 2009 and 2008.
NOTE 6 – LOANS FROM SHARESHOLDERS AND RELATED PARTY TRANSACTIONS
In June, 2007 the company entered into debt conversion agreements with company's shareholders according to which loans from shareholders and certain loans due to related party in the amount of $877,000 were converted into shares of common stock at the conversion prices of $0.30 and $0.25 per share. These conversion agreements were part of the reverse merger agreement between the company and Family Healthcare Solutions, Inc., a Nevada Corporation (see note 12).
In January 2008 the company borrowed two loans of $100,000 each from the shareholders. Each loan has a beneficial conversion clause proving the option that the loan can be converted into the company’s common shares at a discount of 20% to market value, with a conversion price limit not to exceed $.40 per share. The company recognizes beneficial conversion features in accordance with the FASB Emerging Issues Task Force Issue 98-5. Accordingly, the company fully amortized the discount through the interest expense in the amount of $51,810 at the date of issuance of the loans.
At January 31, 2008 total loans payable to shareholders of $239,148 and due to related party of $398,783 mature in various amounts from July 11, 2008 to January 24, 2009 and have a stated interest rate of 9%.
During the year ended 01/31/09, the Company borrowed from its shareholders five loans of $50,000, $50,000, $75,000 ($5,000 was repaid), $50,000 and $150,000 a total of $375,000.
On January 16, 2009 the Company issued to certain shareholders 63,651,741 shares in exchange for satisfaction of the loans from shareholders for the principles of $596,999 and accrued interest of $39,518.41, at conversion prices of $0.01 per share.
At January 31, 2009 total loans payable to shareholders of $12,148 and due to related party of $366,283.
Certain founding shareholders of Echo Broadcasting Group Inc. have received free advertising time on Radio VSE. The fair market value of these services was $0 and $176,130 at January 31, 2009 and January 31, 2008 respectively.
On July 14th , 2008 the Company entered into an asset purchase agreement with Dr. Lev Paukman, a director of the Company (see Note 15).
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NOTE 7 - LOANS PAYABLE
During fiscal 2006, the Company borrowed two loans of $220,000 each, a total of $440,000 payable on June 7, 2008. ("STATUS") Extended for 12 months. The interest rate is the UBS Rate plus 5.5%.
During 2007, the Company borrowed $250,000 from First Capital Invest Corp (“FCIC”), Swiss-based financial institution. Loan is payable in six months from the inception.
On July 15, 2008, the Company issued to FCIC 2,729,014 shares in exchange for satisfaction of the Loan Agreement dated March 14, 2007, for the principal of $250,000 and accrued interest of $29,301.37, at conversion price 0.10 per share.
In August 2007, the Company borrowed $105,000 from Ocean Bridge, Inc. Loan has interest payable on the unpaid balance at the rate of 12%.
On January 16, 2009, the Company issued a credit for radio advertising to satisfy in part the Loan Agreement dated August 17, 2007, for principle of $25,000.00.
On January 16, 2009 the Company issued to Ocean Bridge, Inc. 9,794,220 shares to satisfy in part the Loan Agreement dated August 17, 2007, for outstanding principle of $80,000.00 and accrued interest of $17,942.20, at a conversion price 0.01 per share.
In February 2008 the Company borrowed $90,000 from ESJA Enterprises Inc. Loan has interest payable on the unpaid balance at the rate of 9%. Loan matures on August 20, 2008. Loan has a beneficial conversion clause proving the option that the loan can be converted into the company’s common shares at a discount of 20% to market value, with a conversion price limit not to exceed $.40 per share. The company recognizes beneficial conversion features in accordance with the FASB Emerging Issues Task Force Issue 98-5. Accordingly, the company fully amortized the discount through the interest expense in the amount of $58,171 at the date of issuance of the loan.
On January 16, 2009 the Company issued to ESJA Enterprises, Inc. 9,000,000 shares to satisfy in part the Loan Agreement dated February 21, 2008, for principle of $90,000.00, at a conversion price 0.01 per share.
In February 2008 the Company borrowed $100,000 from FD Import & Export Corp. Loan has interest payable on the unpaid balance at the rate of 9%. Loan matures on September 28, 2008. Loan has a beneficial conversion clause proving the option that the loan can be converted into the company’s common shares at a discount of 20% to market value, with a conversion price limit not to exceed $.40 per share. The company recognizes beneficial conversion features in accordance with the FASB Emerging Issues Task Force Issue 98-5. Accordingly, the company fully amortized the discount through the interest expense in the amount of $145,665 at the date of issuance of the loan.
On August 29, 2008 the Company issued to FD Import & Export Corp. 3,519,308 shares to satisfy in part the Loan Agreement dated February 28, 2008, for principle of $71,512.33, at a conversion price 0.02032 per share.
In March 2008 the Company borrowed another $100,000 from FD Import & Export Corp. Loan has interest payable on the unpaid balance at the rate of 9%. Loan matures on September 28, 2008. Loan has a beneficial conversion clause proving the option that the loan can be converted into the company’s common shares at a discount of 20% to market value, with a conversion price limit not to exceed $.40 per share. The company recognizes beneficial conversion features in accordance with the FASB Emerging Issues Task Force Issue 98-5. Accordingly, the company fully amortized the discount through the interest expense in the amount of $39,286 at the date of issuance of the loan.
On January 16, 2009 the Company issued to FD Import & Export Corp 14,176,742 shares to satisfy the Loan Agreement dated February 28, 2008, for outstanding principle of $28,487.67 and Loan Agreement dated March 10, 2008, for principle of $100,000 and total accrued interest of $13,279.75, at a conversion price 0.01 per share.
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On March 25, 2008 the Company borrowed $75,000 from Tangiers Investors LP. Loan has interest payable on the unpaid balance at the rate of 9.9%. Loan matures on March 24, 2010. Loan has a beneficial conversion clause proving the option that the loan can be converted into the company’s common shares at a discount of 30% to market value, with a conversion price limit not to exceed $.50 per share. The company recognizes beneficial conversion features in accordance with the FASB Emerging Issues Task Force Issue 98-5. Accordingly, the company fully amortized the discount through the interest expense in the amount of $24,668 at the date of issuance of the loan.
On October 2, 2008, the Company issued to Tangiers Investors LP 443,656 shares in exchange for partial satisfaction of the Loan Agreement dated March 25, 2008, for the principal of $5,000, at conversion price 0.01127 per share.
On January 5, 2009, the Company issued to Tangiers Investors LP 350,878 shares in exchange for partial satisfaction of the Loan Agreement dated March 25, 2008, for the principal of $2,000, at conversion price 0.0057 per share.
On January 16, 2009, the Company issued to Tangiers Investors LP 571,428 shares in exchange for partial satisfaction of the Loan Agreement dated March 25, 2008, for the principal of $2,000, at conversion price 0.0035 per share.
On May 29, 2008 the Company borrowed $100,000 from Jaworek Capital LLC. Loan had interest payable on the unpaid balance at the rate of 9% with the initial maturity date as of May 28, 2009. Loan had a beneficial conversion clause proving the option that the loan can be converted into the company’s common shares at a discount of 20% to market value, with a conversion price limit not to exceed $.40 per share. The company recognizes beneficial conversion features in accordance with the FASB Emerging Issues Task Force Issue 98-5. Accordingly, the company fully amortized the discount through the interest expense in the amount of $22,283 at the date of issuance of the loan.
On July 2, 2008, the Company issued to Jaworek Capital LLC 1,229,435 shares in exchange for satisfaction of the Loan Agreement dated May 29, 2008, for the principal of $100,000 and accrued interest of $813.70, at conversion price 0.0820 per share.
On June 16, 2008 the Company borrowed another $100,000 from Jaworek Capital LLC. Loan had interest payable on the unpaid balance at the rate of 9% with the initial maturity date as of June 15, 2009. Loan had a beneficial conversion clause proving the option that the loan can be converted into the company’s common shares at a discount of 20% to market value, with a conversion price limit not to exceed $.40 per share. The company recognizes beneficial conversion features in accordance with the FASB Emerging Issues Task Force Issue 98-5. Accordingly, the company fully amortized the discount through the interest expense in the amount of $15,741 at the date of issuance of the loan.
On July 2, 2008, the Company issued to Jaworek Capital LLC 1,224,023 shares in exchange for satisfaction of the Loan Agreement dated June 16, 2008, for the principal of $100,000 and accrued interest of $369.86, at conversion price 0.0820 per share.
On July 1, 2008 the Company borrowed another $100,000 from Jaworek Capital LLC. Loan had interest payable on the unpaid balance at the rate of 9% with the initial maturity date as of June 30, 2009. Loan had a beneficial conversion clause proving the option that the loan can be converted into the company’s common shares at a discount of 20% to market value, with a conversion price limit not to exceed $.40 per share. The company recognizes beneficial conversion features in accordance with the FASB Emerging Issues Task Force Issue 98-5. Accordingly, the company fully amortized the discount through the interest expense in the amount of $36,139 at the date of issuance of the loan.
Also, the Company entered into a Stock Purchase Agreement with the lender which entitles the lender to purchase 500,000 shares of the Company's common stock at a price of $0.11 cents per share for a period of 12 months from the time of the agreement. The total cost of the stock options granted was $4,350.
On August 6, 2008, the Company issued to Jaworek Capital LLC 3,241,099 shares in exchange for satisfaction of the Loan Agreement dated July 1, 2008, for the principal of $100,000 and accrued interest of $863.01, at conversion price 0.0311 per share.
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On July 31, 2008 the Company borrowed another $100,000 from Jaworek Capital LLC. Loan had interest payable on the unpaid balance at the rate of 9% with the initial maturity date as of June 30, 2009. Loan had a beneficial conversion clause proving the option that the loan can be converted into the company’s common shares at a discount of 20% to market value, with a conversion price limit not to exceed $.40 per share. The company recognizes beneficial conversion features in accordance with the FASB Emerging Issues Task Force Issue 98-5. Accordingly, the company fully amortized the discount through the interest expense in the amount of $19,048 at the date of issuance of the loan.
Also, the Company entered into a Stock Purchase Agreement with the lender which entitles the lender to purchase 150,000 shares of the Company's common stock at a price of $0.075 cents per share for a period of 12 months from the time of the agreement. The total cost of the stock options granted was $0.
On August 8, 2008, the Company issued to Jaworek Capital LLC 3,138,239 shares in exchange for satisfaction of the Loan Agreement dated July 31, 2008, for the principal of $100,000 and accrued interest of $172.60, at conversion price 0.0319 per share.
On August 29, 2008 the Company borrowed $110,000 from Steven Fruman. Loan had interest payable on the unpaid balance at the rate of 9% with the initial maturity date as of June 25, 2009. Loan had a beneficial conversion clause proving the option that the loan can be converted into the company’s common shares at a discount of 20% to market value, with a conversion price limit not to exceed $.20 per share. The company recognizes beneficial conversion features in accordance with the FASB Emerging Issues Task Force Issue 98-5. Accordingly, the company fully amortized the discount through the interest expense in the amount of $0 at the date of issuance of the loan.
Also, the Company entered into a Stock Purchase Agreement with the lender which entitles the lender to purchase 1,000,000 shares of the Company's common stock at a price of $0.05 cents per share for a period of 12 months from the time of the agreement. The total cost of the stock options granted was $0.
On January 16, 2009, the Company issued to Steven Fruman 12,450,000 shares in exchange for satisfaction of the Loan Agreement dated August 29, 2008, for the principal of $110,000 and Loan Agreement dated May 12, 2008, for the principle of $10,000 and a total accrued interest of $4,500.00, at conversion price 0.01 per share.
On September 11, 2008 the Company borrowed $62,000 from Jaworek Capital LLC. Loan had interest payable on the unpaid balance at the rate of 9% with the initial maturity date as of September 25, 2009. Loan had a beneficial conversion clause proving the option that the loan can be converted into the company’s common shares at a discount of 20% to market value, with a conversion price limit not to exceed $.20 per share. The company recognizes beneficial conversion features in accordance with the FASB Emerging Issues Task Force Issue 98-5. Accordingly, the company fully amortized the discount through the interest expense in the amount of $19,579 at the date of issuance of the loan.
Also, the Company entered into a Stock Purchase Agreement with the lender which entitles the lender to purchase 85,000 shares of the Company's common stock at a price of $0.05 cents per share for a period of 12 months from the time of the agreement. The total cost of the stock options granted was $0.
On January 16, 2009, the Company issued to Jaworek Capital LLC 6,322,301 shares in exchange for satisfaction of the Loan Agreement dated September 11, 2008, for the principal of $62,000 and accrued interest of $1,223.01, at conversion price 0.01 per share.
On October 24, 2008 the Company borrowed $50,000 from Inga Fruman. Loan had interest payable on the unpaid balance at the rate of 9% with the initial maturity date as of November 24, 2008.
On January 16, 2009, the Company issued to Inga Fruman 5,108,493 shares in exchange for satisfaction of the Loan Agreement dated October 24, 2008, for the principal of $50,000 and accrued interest of $1,084.93, at conversion price 0.01 per share.
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On December 1, 2008 the Company borrowed $250,000 from Robert Catell. Loan had interest payable on the unpaid balance at the rate of 10% with the initial maturity date as of June 1, 2009. Loan had a beneficial conversion clause proving the option that the loan can be converted into the company’s common shares at a discount of 20% to market value, with a conversion price limit not to exceed $.20 per share. The company recognizes beneficial conversion features in accordance with the FASB Emerging Issues Task Force Issue 98-5. Accordingly, the company fully amortized the discount through the interest expense in the amount of $323,394 at the date of issuance of the loan.
On January 16, 2009, the Company issued to Rober Catell 25,335,616 shares in exchange for satisfaction of the Loan Agreement dated December 1, 2008, for the principal of $250,000 and accrued interest of $3,356.16, at conversion price 0.01 per share.
NOTE 8 - PREFERRED AND COMMON STOCK
During the fiscal year ended January 31, 2008:
In April 2007 the Company sold 50,000 of its $.001 par value common shares to unrelated investors in private placements for $1.00 per share for proceeds of $50,000.
In June 2007 the company entered into stock conversion agreements with company's shareholders according to which all preferred shares issued to shareholders in the amount of $14,417 shall be converted into shares of common stock at the par value of 0.001 per share. These conversion agreements were part of the exchange agreement between the company and Family Healthcare Solutions, Inc., a Nevada Corporation (see Note 6).
In June 2007 as discussed, in Note 6, the company entered into debt conversion agreements with company's shareholders according to which loans from shareholders and certain loans from related party in the amount of $877,000 shall be converted into shares of common stock at the conversion prices of $0.30 and 0.25 per share.
In July 2007 the Company sold 1,000,000 of its $.001 par value common shares to unrelated investors for $0.30 per share for proceeds of $300,000. Market value of the stock at the time of sale was $0.60 per share.
In August 2007 the Company sold 166,667 of its $.001 par value common shares to unrelated investors for $0.30 per share for proceeds of $50,000. Market value of the stock at the time of sale was $0.35 per share.
On November 1, 2007, the Company issued to its attorney 177,420 unrestricted shares of common stock in pay of past and future legal services. Market value of the stock at the time of agreement was $0.31 per share.
On November 9, 2007, the Company issued to Island Broadcasting Company 3,000,000 restricted shares of common stock as a part of new Time Brokerage Agreement (see Note 10). Market value of the stock at the time of agreement was $0.30 per share.
On November 23, 2007, the Company issued to Ronn Torrossian, an independent consultant, 3,000,000 restricted shares of common stock as a part of new Consulting Agreement (see Note 11). Market value of the stock at the time of agreement was $0.16 per share.
On January 16, 2008, the Company issued to its attorney 229,473 unrestricted shares of common stock in pay of past and future legal services. Market value of the stock at the time of agreement was $0.18 per share.
During the year ended January 31, 2009:
On February 6, 2008 certain officers and directors of the Company were granted a total of 3,200,000 stock options to purchase company’s $.001 par value common shares for $0.31 per share. The total cost of the stock options granted was $6,720.
In March 2008 certain officers of the Company exercised their options and purchased a total of 177,730 of the company’s $.001 par value common shares for $0.31 per share for a total of $55,096.
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In May 2008 the Company issued 100,000 shares to its contractor in exchange for consulting services worth $20,000. Market value of the stock at the time of agreement was $0.09 per share.
On July 1, 2008, as discussed in the Note 10, the Company issued to Island Broadcasting, Inc 1,000,000 of the company’s $.001 shares for $0.11 per share for satisfaction of the payment postponement agreement.
On July 2, 2008, as discussed in the Note 7, the Company issued to Jaworek Capital LLC 1,224,023 shares in exchange for satisfaction of the Loan Agreement dated May 29, 2008, for the principal of $100,000 and accrued interest of $369.86, at conversion price 0.0820 per share.
On July 2, 2008, as discussed in the Note 7, the Company issued to Jaworek Capital LLC 1,224,023 shares in exchange for satisfaction of the Loan Agreement dated June 16, 2008, for the principal of $100,000 and accrued interest of $369.86, at conversion price 0.0820 per share.
During the year ended Januaryr 31, 2009 Dr. Paukman, a director of the Company made capital contributions in the amount of $88,228 to VSE Magazine, Inc as additional paid-in capital. No common stock issued.
On July 15, 2008, as discussed in the Note 7, the Company issued to FCIC 2,729,014 shares in exchange for satisfaction of the Loan Agreement dated March 14, 2007, for the principal of $250,000 and accrued interest of $29,301.37, at conversion price 0.10 per share.
On August 6, 2008, as discussed in the Note 7, the Company issued to Jaworek Capital LLC 3,241,099 shares in exchange for satisfaction of the Loan Agreement dated July 1, 2008, for the principal of $100,000 and accrued interest of $863.01, at conversion price 0.0311 per share.
On August 8, 2008, as discussed in the Note 7, the Company issued to Jaworek Capital LLC 3,138,239 shares in exchange for satisfaction of the Loan Agreement dated July 31, 2008, for the principal of $100,000 and accrued interest of $172.60, at conversion price 0.0319 per share.
On August 29, 2008, as discussed in the Note 7, the Company issued to FD Import & Export Corp. 3,519,308 shares to in partial satisfaction of the Loan Agreement dated February 28, 2008, for principle of $71,512.33, at a conversion price 0.02032 per share.
On October 2, 2008, as discussed in the Note 7, the Company issued to Tangiers Investors LP 443,656 shares in exchange for partial satisfaction of the Loan Agreement dated March 25, 2008, for the principal of $5,000, at conversion price 0.01127 per share.
On October 13, 2008, as discussed in the Note 14, the Company issued to Golden Gate Investors, Inc 131,579 shares in exchange for partial satisfaction of the Loan Agreement dated April 18, 2008, for the principal of $1,000, at conversion price 0.0076 per share.
On November 11, 2008, as discussed in the Note 14, the Company issued to Golden Gate Investors, Inc 500,000 shares in exchange for partial satisfaction of the Loan Agreement dated April 18, 2008, for the principal of $2,000, at conversion price 0.004 per share.
On January 16, 2009, as discussed in the Note 7, the Company issued to Tangiers Investors LP 571,428 shares in exchange for partial satisfaction of the Loan Agreement dated March 25, 2008, for the principal of $2,000, at conversion price 0.0035 per share.
On January 16, 2009, as discussed in the Note 7, the Company issued to Jaworek Capital LLC 6,322,301 shares in exchange for satisfaction of the Loan Agreement dated July 31, 2008, for the principal of $62,000 and accrued interest of $1,223.01, at conversion price 0.01 per share.
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On January 16, 2009, as discussed in the Note 7, the Company issued to FD Import & Export Corp 14,176,742 shares to satisfy the Loan Agreement dated February 28, 2008, for outstanding principle of $28,487.67 and Loan Agreement dated March 10, 2008, for principle of $100,000 and total accrued interest of $13,279.75, at a conversion price 0.01 per share.
On January 16, 2009, as discussed in the Note 7, the Company issued to ESJA Enterprises Inc 9,000,000 shares in exchange for satisfaction of the Loan Agreement dated February 21, 2008, for the principal of $90,000, at conversion price 0.01 per share.
On January 16, 2009, as discussed in the Note 7, the Company issued to Ocean Bridge, Inc 9,794,220 shares in exchange for satisfaction of the Loan Agreement dated August 17, 2008, for the outstanding principal of $80,000 and accrued interest of $17,942.20, at conversion price 0.01 per share.
On January 16, 2009, as discussed in the Note 7, the Company issued to Steven Fruman 12,450,000 shares in exchange for satisfaction of the Loan Agreement dated August 29, 2008, for the principal of $110,000 and Loan Agreement dated May 12, 2008, for the principle of $10,000 and a total accrued interest of $4,500.00, at conversion price 0.01 per share.
On January 16, 2009, as discussed in the Note 7, the Company issued to Inga Fruman 5,108,493 shares in exchange for satisfaction of the Loan Agreement dated October 24, 2008, for the principal of $50,000 and accrued interest of $1,084.93, at conversion price 0.01 per share.
On January 16, 2009, as discussed in the Note 7, the Company issued to Rober Catell 25,335,616 shares in exchange for satisfaction of the Loan Agreement dated December 1, 2008, for the principal of $250,000 and accrued interest of $3,356.16, at conversion price 0.01 per share.
On January 16, 2009, as discussed in the Note 6, the Company issued to certain shareholders 63,651,741 shares in exchange for satisfaction of the loans from shareholders for the principles of $596,999 and accrued interest of $39,518.41, at conversion prices of $0.01 per share.
In January 2008 the Company sold 7,700,000 of its $.001 par value common shares to unrelated investors at $0.01 per share for proceeds of $77,000.
On January 16, 2009, the Company issued 8,901,182 shares at $0.01 per share to satisfy its rent obligations for a total of $89,011.82.
NOTE 9 – EQUIPMENT LOANS PAYABLE
January 31, 2009 | January 31, 2008 | |||||||
Equipment loans consist of the following: | ||||||||
Raritan Bay FCU ("RBFCU") | $ | 0 | $ | 0 | ||||
Chrysler Credit ("CC") | 10,015 | 13,071 | ||||||
10,015 | 13,071 | |||||||
Less current portion | 7,248 | 8,304 | ||||||
$ | 2,767 | $ | 4,767 |
The loan from RBFCU is payable in 72 monthly loan payments of $899 that include principal and interest at 6.75% per annum and matures on September 1, 2011. The loan is secured by the vehicle purchased. The August 2007 loan was terminated and vehicle was returned to the lender.
The loan payable CC is payable in 60 monthly payments of $782 which includes principal and interest at 6.75% per annum and matures on July 9, 2010. The loan is secured by the truck purchased.
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NOTE 10 - COMMITMENTS AND CONTINGENCIES
Airtime Agreement (Lease)
The Company has an agreement (the "Agreement") with Island Broadcasting Company (the "Licensee") for airtime. Pursuant to the Agreement the Company has purchased airtime for the period November 1, 2005 to July 1, 2010. However, after July 1, 2006 the Licensee may terminate the Agreement upon 90 days notice to the Company. Per the Agreement the airtime is paid monthly.
On November 9, 2007, Echo Broadcasting Group, Inc. ("Echo Broadcasting "), a subsidiary of the Company, amended its Time Brokerage Agreement, originally dated November 1, 2005, with Island Broadcasting Company. In particular, Echo extended the term of the Time Brokerage Agreement through December 31, 2012 at 12:00 a.m. EST, modified the events of defaults for both Echo and Island Broadcasting Company, and converted the $170,000 escrow amount currently being held by Island Broadcasting Company into a payment from Echo to Island Broadcasting Company. Additionally, Company issued to Island Broadcasting Company 3,000,000 restricted shares of common stock, at the price of $0.30 per share.
Finally, the amended Time Brokerage Agreement now requires Echo to pay Island Broadcasting Company five percent of the gross receipts received by or credited to Echo and derived from advertising payments, sponsorships and other sources relating to the Station's activities. Echo must make such payments within sixty days following the close of each of Echo's full fiscal quarter from October 1, 2008 through December 31, 2012.
During the year ended January 31, 2008 the company paid $2,853,775 for airtime.
On April 28, 2008 Echo Broadcasting made a payment postponement agreement with Island Broadcasting Company. According to this provision, Echo Broadcasting will pay an annual interest rate charge of 8% on all outstanding monthly balances. In addition Echo Broadcasting will pay a fee of 200,000 restricted shares of the Company’s common stock per month for each month for which payment is not made. All shares are due to be issued on July 1, 2008. Accordingly, on July 1, 2008 the Company issued 1,000,000 of its $.001 par value common shares Island Broadcasting. Market value of the stock at the time when additional provision to the Time Brokerage Agreement was adopted was $0.11 per share.
On January 9, 2009, Echo Broadcasting amended its Time Brokerage Agreement (the "Amendment Agreement"), originally dated November 1, 2005 and amended November 7, 2007, with Island Broadcasting Company ("Island"). Pursuant to the Amendment Agreement, Echo shall make payments of $150,000 to Island on the following dates: February 1, March 1, April 1 and May 1, 2009. In addition, the amount that was due on December 31, 2008 which is approximately $1,640,000 shall be reduced by half, and paid $500,000 on March 1, 2009 and $320,000 on May 15, 2009. The $250,000 that was due on January 1, 2009, and the additional $100,000 due on February 1, March 1, April 1 and May 1, 2009 shall be waived. Payments of $250,000 per month, per the November 7, 2007 agreement, as disclosed in our Form 8-K on November 15, 2008, will commence on June 1, 2009 and continue thereafter. Additionally, the revenue sharing fee of the November 7, 2007 agreement shall be waived up to June 1, 2009 and continue thereafter. Effective June1, 2009, Echo will adhere to the original agreement and its amendment date November 7, 2007.
Both parties also agreed that the Amendment Agreement will be terminated at 5PM on the above due dates if any of the amounts stated above are not paid to Island on or before the due dates
During the year ended January 31, 2009 and 2008 company paid $1,635,910 and $2,853,775 for airtime respectively.
Remaining commitments under the Agreement are as follows:
Year Ending January 31, | ||||
2010 | 2,700,000 | |||
2011 | 3,410,000 | |||
2012 | 3,751,000 | |||
2013 | 3,670,075 | |||
$ | 14,681,075 |
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Premises and Equipment
The Company has entered into lease agreements for office space and equipment, which expire at various times through April 2009. During the years ended January 31, 2009 and 2008 the Company paid $156,140 and $152,249 in rent expense respectfully. Remaining commitments under the operating leases mature as follows:
Year Ending January 31, | ||||
2010 | 15,105 | |||
$ | 15,105 |
On May 1, 2006 the Company has entered into a new lease agreement for office space, which was originally expected to expire on April 30, 2011.
On May 1, 2007 the Company and the lessor of the premises, mutually terminated a lease agreement for office space, which was originally due to expire on April 30, 2011. All prior commitments under the original lease are terminated. The company continued to rent the office space on the month-to-month basis. During the year ended January 31, 2008 the Company paid $72,400 in rent expense. As of February 1, 2008 the Company vacated the premises.
Capital Lease
On October 4, 2006 the Company has entered into a lease agreement of the equipment, which expire on April 30, 2011. During the years ended January 31, 2009 and 2008 the Company paid $17,820 and $19,440 in lieu of the lease respectfully. The commitments under the lease agreement mature as follows:
Year Ending January 31, | ||||
2010 | 19,440 | |||
2011 | 12,960 | |||
$ | 32,400 |
Legal Contingencies
On September 3, 2008, we were served with a Notice of Motion for Summary Judgment in Lieu of Complaint filed by David Kokakis (the “Plaintiff”). In this Motion, filed in Supreme Court of the State of New York on September 3, 2008, David Kokakis alleged that the Company has filed to make payments due on a series of notes issued by the Company, and filed to make payments of interest due on these notes. David Kokakis asked the court to enter judgment in his favor in the total amount of $329,500 allegedly due under the notes, plus accrued interest.
On November 11, 2008, the Company settled this litigation and entered into a settlement agreement (the "Stipulation of Settlement") with Plaintiff. The Company signed two (2) confessions of judgment (the "Confession of Judgment") which is in favor of Plaintiff. Pursuant to the first Confession of Judgment, in the event of default of the Stipulation of Settlement, the Company agrees to pay Plaintiff a total of $388,810, consisting of a principal amount of $329,500 plus accrued interests of $59,310. Pursuant to the second Confession of Judgment, in the event of default of the Stipulation of Settlement , the Company agreed to pay Plaintiff deferred compensation in the sum of $125,962. The second claim would be the basis of a second action brought by Plaintiff against the Company, which Plaintiff was about to commence.
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Both Confessions of Judgment will be held in escrow by Plaintiff's counsel pending the Company's compliance with its agreement pursuant to the schedule detailed in the Stipulation of Settlement. The payments have a maximum of a five (5) day grace period, that is, they must be in Plaintiff's attorney's possession by no later than the 6th day of the month.
If the Company makes all of the payments, which is $316,955 in total, pursuant to the payment schedule, the two (2) Confessions of Judgment will not be filed and will be waived and returned to the Company's attorney. Failing to make the payments, or failing to pay on time, as a fore described, will be deemed a default and permit Plaintiff's counsel to file both Confessions of Judgment and Affidavits of Confession of Judgments with the Clerk of the Court without further notice.
On October 7, 2008, the Company and our CEO Aleksandr Shvarts (collectively, the "Defendants") were served with a summons and complaint filed by AJW Partners, LLC, AJW Offshore, Ltd., AJW Qualified Partners, LLC, and New Millennium Capital Partners II, LLC (collectively, the "Plaintiffs"). The complaint alleged that the Company has failed to make payments due on a series of notes from 2004 to 2006 issued by the Company, and failed to make payments of interest due on these notes, and other unlawful conducts by the Company. The case was filed in the Supreme Court of the State of New York, County of New York. The plaintiffs seek all sums due from the notes and other agreements, prejudgment interest, compensatory damages, punitive damages, and attorneys' fees to be in excess of $650,000.
The Company and Mr. Shvarts deny the allegations made in the complaint and intend to vigorously contest the allegations. We believe that we did not enter into any of the above referenced notes with the Plaintiffs and none of the notes or related legal documents were signed or executed on behalf of the Company or our CEO. We are in the process of retaining counsel to represent us in this matter and to file a counterclaim for damages based on breach of contract by the Plaintiffs.
NOTE 11 - STOCK-BASED COMPENSATION
The Company accounts for its employee stock-based compensation for all such compensation awarded beginning February 1, 2006 under FASB Statement No. 123R, Accounting for Stock-Based Compensation. For employee stock-based compensation awarded prior to January 1, 2006, we accounted for such compensation under Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees.
In February 2007, the Company canceled 1,175,000 preferred shares, $.001 par value, with a market value of $1,175 that were priorly awarded to employees and were part of deferred compensation in the equity section.
Also, In February 2007, the Company has issued 1,100,000, $.001 par value, preferred shares for past and future services performed by its officers, directors, employees and consultants. The preferred stock is convertible into common shares in 18 months after the issuance based upon a 2 to 1 conversion ratio. The shares of preferred stock have preferential treatment in case of liquidation. Each share of the preferred stock has 5 voting rights. Out of 1,100,000 preferred shares, 1,000,000 shares, with market value of $1,000, are fully vested and expensed under selling, general and administrative expenses. 100,000 of preferred shares, with market value of $100 are included in deferred compensation in the equity section of the balance sheets at January 31, 2008.
On November 23, 2007, the Company has issued 3,000,000, $.001 par value, common shares for future consulting services performed by Ronn Torrosian over a period two years. Market value of the stock at the time of agreement was $0.16 per share for a total cost of $480,000. At January 31, 2009, Ronn Torrosian earned consulting fees in the amount of $285,636.11. The remaining value of the Ronn Torrosian’s future services in the amount of $194,363.89 are included in deferred compensation in the equity section of the balance sheets at January 31, 2009.
NOTE 12 – REVERSED MERGER
On June 20, 2007, the company entered into a Stock Purchase and Share Exchange Agreement (the “Exchange Agreement”) Family Healthcare Solutions, Inc., a Nevada Corporation (“FHCS”), pursuant to which FHCS acquired 100% of the issued and outstanding capital stock of the company and wholly owned subsidiaries, making the company a wholly owned subsidiary of FHCS, and convert into equity $877,000 in convertible debentures from the company. Note Holders, in exchange for the issuance by FHCS to the company Shareholders and the company Note Holders of 49,990,406 shares of FHCS common stock, par value $0.001 per share, which constituted 68.50% of the company’s issued and outstanding fully diluted common stock after the transaction is closed. As additional consideration, the FHCS’s Shareholders agreed to cancel 13,161,033 shares of common stock. The FHCS’s stockholders own 28.50% of the issued and outstanding fully diluted common stock of the company after the transaction was closed.
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NOTE 13 - PAYROLL TAXES
The company has outstanding payroll taxes payable as of January 31, 2009 and January 31, 2008. As of January 31, 2009 the company has recorded an estimate for interest and penalties that are due to the company’s failure to timely pay payroll taxes for prior periods. The outstanding payroll tax liability is as following:
January 31, | January 31, | |||||||
2009 | 2008 | |||||||
Payroll taxes payable | $ | 997,152 | $ | 728,350 | ||||
Penalties and interest | 115,814 | 0 | ||||||
Accrued payroll and payroll taxes | $ | 1,112,966 | $ | 728,350 |
The Company implemented a payment plan with Internal Revenue Service.
NOTE 14 – NOTE PAYABLE AND NOTE RECEIVABLE
On April 18, 2008, the Company entered into a Securities Purchase Agreement with Golden Gate Investors, Inc. The aggregate purchase price was $1,500,000 for the initial tranche and the investment was as follows:
The Securities Purchase Agreement includes two tranches. The initial tranche consists of a 7.00% convertible debenture (the "Debenture") issued by the Company, in exchange for $100,000 in cash and a 7.25% Secured Promissory Note for $1,400,000 issued by the Golden Gate Investors, Inc which matures on May 31, 2012. The Promissory Note contains a prepayment provision which requires the Golden Gate Investors, Inc to make prepayments of interest and principal of $200,000 monthly upon satisfaction of certain conditions. One of the conditions to prepayment is that shares of the Company's common stock issued pursuant to the conversion rights under the debenture must be freely tradable under Rule 144 of the Securities Act of 1933, as amended. Pursuant to the terms of the debenture, the Golden Gate Investors, Inc shall have the right from time to time, and at any time on or prior to maturity to convert all or any part of the outstanding and unpaid principal amount of this debenture into fully paid and non-assessable shares of the Company's Common Stock, $.001 par value per share. The number of shares of Common Stock to be issued upon each conversion of the debenture shall be determined by dividing the amount of principal and accrued interest to be converted ("Conversion Amount") by the applicable conversion price then in effect on the date specified in the notice of conversion, as set forth in Exhibit A to the Debenture (the "Notice of Conversion"). The conversion price shall be equal to the lesser of: (i)$0.50 or (ii) the average of the lowest three (3) volume weighted average prices of the Company's Common Stock as reported on the OTC Bulletin Board (the "Volume Weighted Average Price") during the twenty (20) trading days prior to the date of the Conversion Notice (the "Conversion Date") multiplied by .75. As described in the respective instruments, the Debenture provides for an upward adjustment of the interest rate under certain circumstances and the Promissory Note provides for a downward adjustment of the interest rate under certain circumstances. In addition the Golden Gate Investors, Inc is required to prepay $250,000 of the Promissory Note issued on April 18, 2008 on the five month anniversary of the purchase of the Debenture that occurred on April 18, 2008, provided that certain conditions set forth in the Securities Purchase Agreement are satisfied.
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Provided that no event of default exists, as defined in the Debenture, the second tranche of the financing consists of the Company selling and the Golden Gate Investors, Inc purchasing a Debenture in the principal amount of $1,500,000 in exchange for a purchase price of $1,500,000 (the "Second Debenture"), with such purchase price paid via a cash payment of $250,000 and the issuance of a promissory note in the principal amount of $1,250,000 (the "Second Promissory Note"), with the form of and terms of the Second Debenture and the Second Promissory Note and payment of the purchase price subject to the same terms and conditions of the Securities Purchase Agreement, the Debenture and the Promissory Note, provided that the Discount Multiplier (as defined in the Second Debenture) for the Second Debenture shall be 90%, and when the Second Debenture is issued, the term "Debenture" as used in the Securities Purchase Agreement shall be deemed to include the Second Debenture in all respects and when the Second Promissory Note is issued, the term "Promissory Note" as used in the Securities Purchase Agreement shall be deemed to include the Second Promissory Note in all respects. Pursuant to the Securities Purchase Agreement, the Golden Gate Investors, Inc may eliminate the requirement to purchase the Second Debenture by a payment to the Company of $25,000, which payment shall be reduced under certain conditions to $5,000 or $0. As also set forth in the Securities Purchase Agreement, the Company has the right, during a specified ten trading day period prior to the Golden Gate Investors, Inc's purchase of the Second Debenture, subject to the satisfaction of certain conditions set forth in the Securities Purchase Agreement, to terminate the right of the Golden Gate Investors, Inc to purchase the Second Debenture.
If the Golden Gate Investors, Inc elects to convert a portion of the Debenture and, on the day that the election is made, the Volume Weighted Average Price per share of the Company's Common Stock is below $0.04 per share, the Company shall have the right to prepay that portion of the Debenture that the Golden Gate Investors, Inc elected to convert, plus any accrued and unpaid interest, at 125% of such amount. In the event that the Company elects to prepay that portion of the Debenture, the Golden Gate Investors, Inc shall have the right to withdraw its Conversion Notice. Pursuant to its terms, the Golden Gate Investors, Inc may not convert the principal amount of the Debenture to the extent that, following such conversion, the Golden Gate Investors, Inc would beneficially own in excess of 4.99% of the Company's outstanding Common Stock, which cap may be increased to 9.99% or entirely removed by the Investor on not less than 61 days' prior notice.
Finally, in the event that the Company obtains a commitment for any other financing (either debt, equity, or a combination thereof) which is to close during the term of the Debenture, Golden Gate Investors shall be entitled to a right of first refusal to enable it to, at Golden Gate Investors, Inc’s option, either: (i) match the terms of the other financing, or (ii) add additional principal to the Debenture, in the amount of such other financing, on the same terms and conditions as the Debenture.
Pursuant to the terms of the Securities Purchase Agreement, the Golden Gate Investors, Inc does not have any registration rights.
Other than their relationship as a result of the Securities Purchase Agreement, there is no material relationship between the Company and the Golden Gate Investors, Inc.
The company recognizes beneficial conversion features in accordance with the FASB Emerging Issues Task Force Issue 98-5. Accordingly, the company fully amortized the discount through the interest expense in the amount of $382,530 at the date of issuance of the loan.
The Company’s Common stock as of August 15, 2008 had traded on the Trading Market (as defined in the Debenture) for ten consecutive days at a price per share that was less than 0.039. Therefore, the interest rate was increased to 9.75 % as of August 15, 2008. In addition, under the terms of the Note, the interest rate applicable to the Note was decreased to 4.75 % effective as of August 15, 2008.
On October 13, 2008, the Company issued to Golden Gate Investors, Inc 131,579 shares in exchange for partial satisfaction of the Loan Agreement dated April 18, 2008, for the principal of $1,000, at conversion price 0.0076 per share.
NOTE 15 – SALE OF INTANGIBLE ASSETS
On July 14th , 2008 the Company entered into an asset purchase agreement with Dr. Lev Paukman, a director of the Company (the "Buyer").
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Pursuant to the terms of the agreement, the Company sold certain business assets of its wholly-owned subsidiary, VSE Magazine, to the Buyer. The Buyer will assume an advertising credit of $109,832 owed to KSP. The Buyer will also assume advertising credits in the magazine from clients that the Company or Echo Broadcasting Group, a wholly-owned subsidiary of the Company, might direct up to the amount of $50,000. In the event there are no advertising client credits then the buyer will pay the seller $10,000 cash within 90 days of this agreement.
VSE Magazine, Inc. is a Russian language publication currently operating under the trade name "METPO" that is distributed in the greater New York metro area.
As a result of the above-mentioned assets and share purchase agreement, the Company incurred losses from the proceeds of the sale of the assets in the amount of $40,168.
NOTE 16 - SEGMENT DATA
Currently the Company has three reportable segments, which it believes best reflects how the Company is currently managed – radio broadcasting, recorded music and corporate divisions. The category “other” includes audio & video recording studios, METRO magazine and other general support services and initiatives. Revenue and expenses earned and charged between segments are recorded at fair value and eliminated in consolidation.
Year Ended January 31, 2008 | ||||||||||||||||||||||||
Radio VSE | Recorded Music | Corporate | Metro | Other | Total | |||||||||||||||||||
Revenue | $ | 4,227,882 | $ | 70,000 | $ | 38,345 | $ | 155,806 | $ | 43,421 | $ | 43,421 | ||||||||||||
Direct operating expenses | 3,605,862 | 70,838 | 150 | 227,888 | 12,170 | 3,916,908 | ||||||||||||||||||
Selling, general and administrative expenses | 1,579,994 | 504,223 | 1,027,644 | 44,305 | 31,988 | 3,188,154 | ||||||||||||||||||
Depreciation and amortization | 52,077 | 205,962 | 108,525 | 23,333 | 363 | 390,260 | ||||||||||||||||||
Loss on disposal of fixed assets | (4,960 | ) | 64,985 | 0 | 0 | 0 | 60,025 | |||||||||||||||||
Stock compensation expense | 0 | 0 | 308,333 | 0 | 0 | 308,333 | ||||||||||||||||||
Gain on extinguishment of debt | 0 | 0 | (403,400 | ) | 0 | 0 | (403,400 | ) | ||||||||||||||||
Interest expenses | 64,019 | 0 | 66,617 | 0 | 0 | 130,636 | ||||||||||||||||||
Beneficial Conversion | 0 | 0 | 51,810 | 0 | 0 | 51,810 | ||||||||||||||||||
Operating income (loss) | $ | (1,069,109 | ) | $ | (776,008 | ) | $ | (1,069,524 | ) | $ | (139,720 | ) | $ | (1,100 | ) | $ | (3,055,461 | ) | ||||||
Year Ended January 31, 2009
Recorded | ||||||||||||||||||||||||
Radio | Music | Corporate | Metro | Other | Total | |||||||||||||||||||
Revenue | $ | 1,314,528 | $ | 3,213 | $ | 62,741 | $ | 101,338 | $ | 0 | $ | 1,481,820 | ||||||||||||
Direct operating expenses | 1,838,048 | 0 | 0 | 131,530 | 0 | 1,969,577 | ||||||||||||||||||
Selling, general and | ||||||||||||||||||||||||
administrative expenses | 1,769,631 | 417 | 995,630 | 31,479 | 837 | 2,797,995 | ||||||||||||||||||
Depreciation and amortization | 64,317 | 134,560 | 104,315 | 16,667 | 363 | 320,222 | ||||||||||||||||||
Loss on sale of intangible assets | 0 | 0 | 0 | 40,168 | 0 | 40,168 | ||||||||||||||||||
Interest expense | 95,893 | 0 | 284,935 | 0 | 0 | 380,828 | ||||||||||||||||||
Beneficial Conversion | 0 | 0 | 1,086,504 | 0 | 0 | 1,086,504 | ||||||||||||||||||
Operating income (loss) | $ | (2,453,361 | ) | $ | (131,764 | ) | $ | (2,408,643 | ) | $ | (118,505 | ) | $ | (1,201 | ) | $ | (5,113,474 | ) |
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NOTE 17 – INCOME TAXES
Due to the Company’s net loss, there was no provision for income taxes. The Company has net operating loss carry forwards for income tax purposes of approximately $8,500,000 at January 31, 2009, and $6,100,000 at January 31, 2008. These carry forward losses are available to offset future taxable income, if any, and expire starting in the year 2026. The Company’s utilization of this carry forward against future taxable income may become subject to an annual limitation due to a cumulative change in ownership of the Company of more than 50 percent.
The components of the Company’s Tax provision were as follows: | January 31, | January 31, | ||||||
2009 | 2008 | |||||||
Current income tax (benefit) expense | $ | (2,408,000 | ) | $ | (1,375,000 | ) | ||
Deferred income tax expense (benefit) | 2,408,000 | 1,375,000 | ||||||
$ | - | $ | - |
The reconciliation of the income tax computed at the U.S. Federal statutory rate to income tax expense for the periods ended January 31, 2009 and 2008:
January 31, | January 31, | |||||||
2009 | 2008 | |||||||
Tax expense (benefit) at Federal rate (34%) | $ | (1,904,000 | ) | $ | (1,088,000 | ) | ||
State and local income tax, net of Federal benefit | (504,000 | ) | (287,000 | ) | ||||
Change in valuation allowance | 2,408,000 | 1,375,000 | ||||||
Net income tax (benefit) allowance | $ | - | $ | - |
Deferred income taxes reflect the net income tax effect of temporary differences between the carrying amounts of the assets and liabilities for financial reporting purposes and amounts used for income taxes. The Company’s deferred income tax assets and liabilities consist of the following:
Deferred tax asset: | January 31, | January 31, | ||||||
2009 | 2008 | |||||||
Net operating loss carry forward | $ | 4,983,000 | $ | 2,575,000 | ||||
Valuation allowance | (4,983,000 | ) | (2,575,000 | ) | ||||
Net deferred tax assets | $ | - | $ | - |
The Company recognized no income tax benefit for the loss generated for the periods through January 31, 2009.
SFAS No. 109 requires that a valuation allowance be provided if it is more likely than not that some portion or all of a deferred tax asset will not be realized. The Company’s ability to realize the benefit of its deferred tax asset will depend on the generation of future taxable income. Because the Company has yet to recognize significant revenue from the sale of its products, it believes that the full valuation allowance should be provided.
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NOTE 18 – SUBSEQUENT EVENTS
On February 10, 2009, the Company entered into a share purchase agreement ("Share Purchase Agreement") with Robert Catell (the "Buyer"), pursuant to which we issued to the Buyer 7,000,000 shares of our common stock for a total of $70,000 at the closing of the transaction. The closing date is February 10, 2009.
On February 27, 2009, Mega Media Group, Inc. the Company and Aleksandr Shvarts, President and CEO of the Company (collectively, the "Third-Party Defendants"), were served with a third-party summons and counterclaim filed by Eric Schwartz, the original defendant (the "Third-Party Plaintiff"). The counterclaim is grounded in the Third-Party Defendants' failure to repay certain loan agreement. The Third-Party Plaintiff alleged: (i) fraudulent representations against the Third-Party Defendants stemming from alleged representations that common stock of the Company will be issued to plaintiff when the Company becomes a public company and said shares of common stock will satisfy the amount owed under the loan agreement, and (ii) that the Company has been unjustly enriched in the amount of not less than $425,000 by virtue of its receipt of $425,000 from plaintiff. The case was filed in the Supreme Court of the State of New York, County of New York. The Third-Party Plaintiff seeks indemnification of not less than $1,000,000 from the fraudulent representations and not less than $425,000 plus accrued interest because of unjustified enrichment, all in the sum of not less than $1,425,000.
The Company and Mr. Shvarts deny the allegations made in the counterclaim and intend to vigorously contest the allegations. We have retained Nesenoff & Miltenberg, LLP as our legal counsel in this matter.
On March 16, 2009, the Company (the "Defendant"), was served with a summons and complaint filed by Golden State Equity Investors, Inc., a California corporation (the "Plaintiff"). The complaint is grounded in the Defendant's breach of certain investment agreements by failing and refusing to (i) pay to Plaintiff the interest prepayment required under the terms of certain debenture, and (ii) deliver shares of common stock of the Defendant in connection with a conversion of the debenture. The case was filed in the Superior Court of the State of California, County of San Diego. The Plaintiff seeks $511,966.53 plus accrued interest for the cause of action stated above, and costs of suit including reasonable attorneys' fees.
We deny the allegations made in the complaint and are in the process of retaining legal counsel to represent us in this matter.
On April 27, 2009, the Company, Echo Broadcasting Group, Inc., a subsidiary of the Company, entered into certain amended time brokerage agreement (the "Amended and Restated TBA"), originally dated November 1, 2005, as amended November 7, 2007, and further amended January 9, 2009 (collectively, the "Original TBA"), with Island Broadcasting Company ("Island"), pursuant to which we issued 25,279,614 shares of our common stock to Island to satisfy an unpaid fees of $1,090,000 under the Original TBA owned by Echo on April 27, 2009. Both parties agreed that the Amended and Restated TBA shall satisfy the obligation of Echo and Island shall have no obligation to provide any other consideration for the shares issued above. There are 295,753,677 shares of our common stock outstanding as of to date. Upon issuance of 25,279,614 shares of common stock, Island holds a total of 29,279,614 shares, which represent 9.9% of the Company's common stock.
From April 27, 2009 to April 30, 2009, we entered into 9% convertible promissory notes (the "Notes") with certain investors (the "Holders") for an aggregate of $193,000. The maturity date of these Notes is October 1, 2009. Pursuant to the terms of the Notes, the Holders shall have the right from time to time, and at any time on or prior to maturity to convert all or any part of the outstanding and unpaid principal amount of these Notes into fully paid and non-assessable shares of Common Stock, $.001 par value per share. The number of shares of Common Stock to be issued upon each conversion of these Notes shall be determined by dividing the amount of principal and accrued interest to be converted ("Conversion Amount") by the applicable Conversion Price then in effect on the date specified in the notice of conversion, in the form attached hereto as Exhibit A (the "Notice of Conversion"). The Conversion Price shall be equal to the average closing bid price of the Common Stock (as reported by Bloomberg L.P.) on the OTC Bulletin Board for the ten (10) trading days prior to the date of the Conversion Notice (the "Conversion Date") multiplied by .80 provided that the Notice of Conversion is submitted by to our company before 6:00 p.m., New York, New York time on such Conversion Date. However, the Conversion Price shall not exceed $0.05.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) (the Company’s principal financial and accounting officer), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
Management's Annual Report on Internal Control Over Financial Reporting.
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Our internal control system was designed to, in general, provide reasonable assurance to the Company’s management and board regarding the preparation and fair presentation of published financial statements, but because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of the Company’s internal control over financial reporting as of January 31, 2009. The framework used by management in making that assessment was the criteria set forth in the document entitled “ Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that assessment, our management has determined that as of January 31, 2009, the Company’s internal control over financial reporting was effective for the purposes for which it is intended.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this annual report.
Changes in Internal Control over Financial Reporting
No change in our system of internal control over financial reporting occurred during the period covered by this report, fourth quarter of the fiscal year ended January 31, 2009 that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION.
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth the name and age of our directors and officers.
Name | Age | Position | Date of Appointment | |||
Alex Shvarts | 40 | Chief Executive Officer, Director | Inception | |||
Dr. Elan Kaufman | 34 | Director | Inception | |||
Dr. Lev Paukman | 67 | Director | Inception | |||
Kurt Dalmata * | 59 | Director | June 2007 | |||
Gennady Pomeranets | 38 | Chief Financial Officer | January 2005 | |||
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* As disclosed on our Form 8-K, on December 31, 2008, Kurt Dalmata submitted a letter of resignation notifying us that he resigned from the Board of Directors of Mega Media Group, Inc. (the “Company”), effective December 31, 2008. Mr. Dalmata’s resignation was due to personal reasons, and not the result of any disagreement with the Company or any officers or directors of the Company. The Board of Directors of the Company has not yet appointed a director to fill the vacancy created by Mr. Dalmata’s resignation.
Set forth below is a brief description of the background and business experience of our directors and officers.
ALEX SHVARTS, Chief Executive Officer
Mr. Shvarts has served as the CEO of Mega Media Group, Inc., since 2004 and is responsible for the overall direction of the company. He launched the company’s Russian-language radio programming (Radio VSE), its Russian-language magazine (Metpo Magazine), online Ticket site ConcertRU.com and has organizing live radio broadcasts and company-sponsored community events in New York City and Brooklyn, and overseeing the operations of the company’s other divisions. Mr. Shvarts also oversees the general operations of the company and has implemented the marketing and growth strategies for the company. He is responsible for implementing the forthcoming format change for the company’s radio station to mainstream, English-language programming. Mr. Shvarts has more than fifteen years of experience in the financial community. From 1987 to 1999 Mr. Shvarts worked as an account executive and managed Broker/Dealers, doing corporate finance, M/A and underwritings. Mr. Shvarts consulted for various international trading companies based in Russia and Ukraine. Outside of the financial world, Mr. Shvarts has been involved in numerous entertainment activities, including live concerts promotions, video production and recording artist development. Mr. Shvarts has received various acknowledgements from organizations in New York. In 2006 he was named Businessman of The Year , for his work with Elite High School, a non- profit school for underprivileged children. He has been awarded various recognition awards by city councilmen Nelson, State Senator Kruger, Borough President Markowitz and the office of Mayor Michael Bloomberg for his ongoing work in the community. Mr. Shvarts was voted Mass Media person of the year for 2006 by the users of Rambler.ru in the United States.
GENNADY POMERANETS, CPA Chief Financial Officer
Mr. Pomeranets is a certified public accountant with years of experience in fashion, entertainment, audio recording and video production industries. He is a graduate of Brooklyn College and practiced accounting at various local accounting firms, and is both a member of the American Institute of Certified Public Accountants and the New York State Society of Certified Public Accountants. He is a managing director of a local New York public accounting firm with diversified clientele serving varieties of industries and communities. Mr. Pomeranets has extensive experience in entertainment industry and is currently serving as a director of several local not-for-profit charitable organizations.
DR. LEV PAUKMAN, Director
Dr. Paukman has served as a Director of Mega Media since February 1, 2006. Dr. Paukman is one of the most distinguished members of the Russian-speaking Community of New York. Since the late 70s Dr. Paukman has practiced medicine in prestigious NY City hospitals like NY Methodist, Mt Sinai, Victory Memorial Medical Center, just to name a few. His medical research has been published in major medical journals. Despite the demanding schedule imposed by his private practice, Dr. Paukman is a committed public servant, who works tirelessly on behalf of the Ethnic Russian Community.
He is an active Board Member of the United Jewish Appeal, Council of Jewish Immigrant Community Organization, Bnei Zion, and other Charitable and Civic organizations. Renown for his personal generosity and compassion to those less fortunate has received numerous awards for his relentless philanthropic activities and communal involvement. He has been an active political liaison to the Russian Community. Recently he has begun an active campaign to educate Russian community against the addictions of drugs in teenagers. In 2003 Dr. Paukman implemented his vision of creating a vehicle that would unite the Ethnic Russians of New York, be one source of information and entertainment and be a bridge between the mainstream and ethnic New Yorkers. The vision was Radio VSE.
DR. ELAN KAUFMAN, Director
Dr. Kaufman has served as a Director of Mega Media since April 2007. Dr. Kaufman is one of the founders of Radio VSE, one of our subsidiaries. He is one of a select few professionals in New York who holds the honor of being a Diplomate of the American Board of Pediatric Dentistry. He is the Chief of Pediatric Dentistry at both St. Luke’s-Roosevelt Hospital Center, NYC, and Coney Island Hospital, Brooklyn. In addition to his work in the hospitals, he owns and operates a pediatric and orthodontic group practice in Brooklyn that employs over thirty professionals. He serves as an Assistant Clinical Professor of Dentistry at both Columbia University School of Dental Medicine and Mt. Sinai School of Medicine and is a member of the American Academy of Pediatric Dentistry and of the American Dental Association. He is a graduate of Tufts University School of Dental Medicine and completed his pediatric dental residency at Brookdale University Hospital, in affiliation with NYU College of Dentistry. Dr. Kaufman is the pediatric dental liaison to the American Academy of Pediatrics, Chapter II and is involved in several charities benefiting children. In addition to his professional dental activities, Dr. Kaufman owns and operates a real estate holding company based in Manhattan.
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KURT DALMATA, Director
Mr. Dalmata is representing First Capital Investment Corp.’s interests in the issuer. In 2004 Mr. Dalmata was appointed to the position of Chief Financial Officer and Director of Wysak Petroleum. As former Associate Director of UBS Securities in London, Mr. Dalmata over saw equity placements and M & A transactions. In addition, his corporate history includes an executive position with the Bank of America's offices in Munich, London and Vienna. Among Mr. Dalmata's educational achievements are a degree in Law and an MBA from INSEAD. Mr. Dalmata is a resident of Zurich, Switzerland and is currently active in advising private clients regarding mergers and acquisitions, corporate finance, strategic and financial advisory services.
JOEL SALKOWITZ, Program Director
Mr. Salkowitz is a veteran major market programming and operations executive. He was most recently Vice President of Music Programming and Content at Sirius Satellite Radio where he was responsible for overseeing the programming for the premiere satellite radio providers 65 music stations and managing the staff of program directors, producers and on-air talent. Prior to joining Sirius, Salkowitz was with Clear Channel Communications as a Format Director and Brand Manager overseeing the launch and programming for 10 major market stations, as well as serving as Program Director for JAMMIN 105 – New York (WTJM-FM). His past experience also includes management, production and programming positions at Fox Television, EMI Records, Westwood One, ABC Radio, NBC Radio and Emmis Communications.
As Regional VP of Programming at Emmis’ HOT97 (WQHT) in New York, he helped develop the Rhythm Top 40 format that dominated contemporary radio during the late 1980s and early 1990s and was also responsible for overseeing programming at Emmis’ WAVA (Washington DC) and WLOL (Minneapolis). During his tenure, HOT 97 was the most listened to Rhythm Top 40 station in the country. At Westwood One, Salkowitz developed two nationally syndicated programs. He has also consulted for numerous clients including Saga Communications, MJI Broadcasting and J-Wave Radio in Japan and since 2004, Salkowitz has operated his own company, Sound Ideas Programming Consultants LLC and continues to work with radio stations and content providers on all areas of operations, programming and marketing. He recently launched and currently operates an Internet radio station, “Original HOT 97.COM”, which has quickly become the #1 Dance/Pop station on Live 365.
A graduate of The University of Hartford in West Hartford CT with a BA in Mass Communications, Salkowitz is also an experienced audio engineer with more than 10 years of live television production experience for clients including Fox Sports and News, ESPN, MSG Network, CBS and HD Net. He has been nominated as Major Market Program Director of The Year by Billboard Magazine and won the award for Major Market Station/Operations Manager of the Year from The Pop Music Survey. He is the recipient of the New York Metro A.I.R. Award for Best One Time Programming Feature.
RICK HERNANDEZ, General Sales Manager
A Twenty year veteran of Media sales and Marketing. Rick Hernandez began his career as a retail account executive for 770 WABC-AM Radio in New York. Rick moved quickly into Management as the National Sales Manager for one of Infinity Broadcasting’s Top billing Radio Stations; KLSX-FM in Los Angeles. Overseeing National Sales, Rick’s team increased revenue by double digits from Year to Year. After a successful six years as National Sales Manager, Rick moved back to New York as General Sales Manager for Univision Radio in New York overseeing the sales growth of WADO-AM, the Nations largest and most listened to Spanish Language Radio Station and Latino Mix 105.9. His achievements at Univision included double digit sales growth and implementation of strategic marketing initiatives for Fortune 500 companies such as Pepsi, Diagio, BMW, General Motors, Citigroup and Pfizer.
After more than Fourteen Years in broadcast media, Rick successfully transitioned to the Out Of home industry with OOH Vision Networks; a start up digital signage network in Quick Serve Restaurants in the Northeast. In the role as Director of Sales, Rick developed and recruited a regional account team responsible for the development and generation of revenue in excess of 2MM in less than nine months. His success in the regional market leads to a role as the Director of Regional Account Sales for the Captivate Network and subsequently the Director of Eastern Region Sales for the Brite Media Group, A Lifestyle Media Company.
In Addition to Rick’s proven abilities in the Industry; He is also a strong member of the business community. Rick is a member of the Westchester Chamber of Commerce, A Founding member and Chair of the Bronx Hispanic Chamber of Commerce and a Member of the Statewide Hispanic Chamber of Commerce of New Jersey.
VALIA PORTELA, Promotions Director
Valia Portela has had extensive Marketing, Promotional and Special Events experience. Starting her career in retail advertising followed by a brief assignment at the prestigious advertising agency, Ogilvy and Mather, her passion for the music and entertainment industry led her to pursue a career in radio.
During her time at Spanish Broadcasting System, the nation’s largest Hispanic-owned radio network, she became an integral member of the executive team that catapulted the New York station, Mega 97.9’s morning show to the #1 Arbitron-rated position, beating out Howard Stern. After producing and executing an impressive array of promotional campaigns and events, she joined Univision Radio, the largest Spanish language radio network in the nation.
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The responsibilities as Operations/Promotions Director allowed her to create targeted and flawless special events as well as successful station and client based promotional campaigns. Her strategies and execution were influential as substantiated by the stations’ Arbitron ratings increase into the top 10 positions.
Family Relationships
No family relationships exist among our directors or executive officers.
Involvement in Certain Legal Proceedings
Except as disclosed in Item 3 Legal Proceedings, to our knowledge, during the past five years, none of our directors, executive officers, promoters, control persons, or nominees has been:
· | the subject of any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; |
· | convicted in a criminal proceeding or is subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); |
· | subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or |
· | found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law. |
Code of Ethics
We have adopted a Code of Ethics applicable to our Chief Executive Officer and Chief Financial Officer.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's officers and directors, and persons who own more than ten (10%) percent of a registered class of the Company's equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission (SEC). Officers, directors, and greater than 10 percent stockholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such reports furnished to the Company, all reports under Section 16(a) required to be filed by its officers and directors and greater than ten percent beneficial owners were timely filed as of the date of this filing.
ITEM 11. EXECUTIVE COMPENSATION.
Compensation of Executive Officers
The following summary compensation table sets forth all compensation awarded to, earned by, or paid to the named executive officers paid by us during the fiscal years ended January 31, 2009 in all capacities for the accounts of our executives, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO):
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SUMMARY COMPENSATION TABLE
Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Non-Qualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Totals ($) | ||||||||||||||||||||||||
Aleksandr Shvarts, | 2008 | $ | 0 | 0 | 0 | 0 | 1,680 | 0 | 0 | 1,680 | |||||||||||||||||||||||
CEO & Director | 2007 | $ | 180,000 | 0 | 0 | 0 | 0 | 0 | 0 | $ | 180,000 | ||||||||||||||||||||||
Gennady Pomeranets, | 2008 | $ | 0 | 0 | 0 | 0 | 1,680 | 0 | 0 | 1,680 | |||||||||||||||||||||||
CFO | 2007 | $ | 60,000 | 0 | 0 | 0 | 0 | 0 | 0 | $ | 60,000 | ||||||||||||||||||||||
Dr. Elan Kaufman, | 2008 | $ | 0 | 0 | 0 | 0 | 1,680 | 0 | 0 | 1,680 | |||||||||||||||||||||||
Director | 2007 | $ | 0 | 0 | 0 | 0 | 0 | 0 | 0 | $ | 0 | ||||||||||||||||||||||
Dr. Lev Paukman, | 2008 | $ | 0 | 0 | 0 | 0 | 1,680 | 0 | 0 | 1,680 | |||||||||||||||||||||||
Director | 2007 | $ | 0 | 0 | 0 | 0 | 0 | 0 | 0 | $ | 0 | ||||||||||||||||||||||
Kurt Dalmata, | 2008 | $ | 0 | 0 | 0 | 0 | 0 | 0 | 0 | $ | 0 | ||||||||||||||||||||||
Director (1) | 2007 | $ | 0 | 0 | 0 | 0 | 0 | 0 | 0 | $ | 0 | ||||||||||||||||||||||
Ronn Torossian, | 2008 | $ | 0 | 0 | 240,328 | 0 | 0 | 0 | 0 | $ | 240,328 | ||||||||||||||||||||||
Executive Director of Marketing | 2007 | $ | 0 | 0 | 45,308 | 0 | 0 | 0 | 0 | $ | 45,308 |
(1) Kurt Dalmata was Director until December 31, 2008.
Employment Agreements
We do not have any employment agreements in place with our directors and officers.
Compensation of Directors
We have no arrangements for the remuneration of officers and directors, except that they will be entitled to receive reimbursement for actual, demonstrable out-of-pocket expenses, including travel expenses, if any, made on our behalf in the investigation of business opportunities. Other than as reflected in the table above, no remuneration has been paid to our officers or directors. There are no agreements or understandings with respect to the amount or remuneration those officers and directors are expected to receive in the future. As of the date of this Annual Report, no stock options have been issued to our officers or directors.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding the ownership of our capital stock, as of May 15, 2009, for: (i) each director; (ii) each person who is known to us to be the beneficial owner of more than 5%of our outstanding common stock; (iii) each of our executive officers named in the Summary Compensation Table; and (iv) all of our current executive officers and directors of as a group. Except as otherwise indicated in the footnotes, all information with respect to share ownership and voting and investment power has been furnished to us by the persons listed. Except as otherwise indicated in the footnotes, each person listed has sole voting power with respect to the shares shown as beneficially owned.
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Title of Class | Name and Address of Beneficial Owner | Amount and Nature of Beneficial Owner | Percent of Class (1) |
Common Stock | Aleksandr Shvarts | 9,091,168 (2) | 2.98% |
Common Stock | Dr. Elan Kaufman | 15,341,356 | 5.03% |
Common Stock | Dr. Lev Paukman | 23,186,701 | 7.61% |
Common Stock | Anna Paukman (2) | 634,667 | 0.21% |
Common Stock | Gennady Pomeranets | 2,265,935 | 0.74% |
Common Stock | Robert Catell | 32,335,616 | 10.61% |
Common Stock | Island Broadcasting | 29,279,614 | 9.61 |
Common Stock | Eugene Khavinson | 21,512,266 | 7.06% |
Common Stock | Steven Fruman (3) | 22,257,470 | 7.30% |
Common Stock | Michal Jaworek (4) | 15,605,097 | 5.12% |
Common Stock | All executive officers and directors as a group (5) | 50,519,827 | 16.58% |
(1) The percent of class is based on 304,753,677 shares of common stock issued and outstanding as of May 15, 2009.
(2) Anna Paukman, wife of Dr. Paukman, owns 634,667 common stocks, which is 0.21% of all the outstanding shares as of May 15, 2009.
(3) Including 10,465,939 shares of common stock owned by Mr. Fruman directly and 11,791,531 shares of common stock owned through FD Import Export.
(4) Including 450,000 shares of common stock owned by Mr. Jaworek directly and 15,155,097 shares of common stock owned through Jaworek Capital LLC.
(5) Common stock of all executive officers and directors as a group includes the shares of Anna Paukman as described in Note (2).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(1) Audit Fees
The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for our audit of annual financial statements and review of 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 for those fiscal years was:
2008 | $ | 72,500 | Kempisty & Company | ||
2007 | $ | 76,300 | Kempisty & Company |
Audit Related Fees
There were no fees for audit related services for the years ended January 31, 2009 and 2008.
Tax Fees
For the Company’s fiscal years ended January 31, 2009 and 2008, we were not billed for professional services rendered for tax compliance, tax advice, and tax planning.
All Other Fees
The Company did not incur any other fees related to services rendered by our principal accountant for the fiscal years ended January 31, 2009 and 2008.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Effective May 6, 2003, the Securities and Exchange Commission adopted rules that require that before our auditor is engaged by us to render any auditing or permitted non-audit related service, the engagement be:
- | approved by our audit committee; or |
- | entered into pursuant to pre-approval policies and procedures established by the audit committee, provided the policies and procedures are detailed as to the particular service, the audit committee is informed of each service, and such policies and procedures do not include delegation of the audit committee's responsibilities to management. |
We do not have an audit committee. Our entire board of directors pre-approves all services provided by our independent auditors. The pre-approval process has just been implemented in response to the new rules. Therefore, our board of directors does not have records of what percentage of the above fees were pre-approved. However, all of the above services and fees were reviewed and approved by the entire board of directors either before or after the respective services were rendered.
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PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
a) Documents filed as part of this Annual Report
1. Financial Statements
2. Financial Statement Schedules
3. Exhibits
Exhibit No. | Title of Document | Location | ||
3.1 | Articles of Incorporation | Incorporated by reference to Amendments to Articles of Incorporation or Bylaws on June 26, 2007 | ||
3.2 | Bylaws | Incorporated by reference to Amendments to Articles of Incorporation or Bylaws on June 26, 2007 | ||
14 | Code of Ethics | Incorporated by reference to Form 10-KSB/A filed on May 20, 2008 | ||
31.1 | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 | Filed herewith | ||
32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | Filed herewith | ||
31.1 | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 | Filed herewith | ||
32.1 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | Filed herewith |
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
MEGA MEDIA GROUP, INC. | ||
Date: May 15, 2009 | By: | /s/ Alex Shvarts |
Alex Shvarts | ||
Chief Executive Officer and Director |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Name | Title | Date | |
/s/ Alex Shvarts | Chief Executive Officer and Director | May 15, 2009 | |
Alex Shvarts | |||
/s/Gennady Pomeranets | Chief Financial Officer | May 15, 2009 | |
Gennady Pomeranets | |||
/s/ Elan Kaufman | Director | May 15, 2009 | |
Elan Kaufman | |||
/s/ Lev Paukman | Director | May 15, 2009 | |
Lev Paukman |
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