UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE QUARTERLY PERIOD ENDED March 31, 2006
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission File Number: 000-50431
China Media Group Corporation
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(Exact name of registrant as specified in its charter)
Texas 5813 32-0034926
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(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction Classification Code Number) Identification No.)
of incorporation
or organization)
9901 I.H. 10 West, Suite 800, San Antonio, TX 78230
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(Address of registrant's principal executive offices) (Zip Code)
+1 310 689 8859
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(Registrant's Telephone Number, Including Area Code)
Check whether the issuer: (1) 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 issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
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State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practical date.
As of May 6, 2006 there were 345,774,145 no par value common stock of the Company issued and outstanding.
#
PART I - CONSOLIDATED FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CHINA MEDIA GROUP CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
MARCH 31, 2006
(UNAUDITED)
ASSETS | |||||
| |||||
Current assets: | |||||
Cash and cash equivalents | $93,381 | ||||
Prepayments, deposits and other receivables | 18,445 | ||||
111,826 | |||||
Non-current assets: | |||||
Fixed assetsProperty & equipment, net | 11,465 | ||||
Advance payment for distribution rights | 138,000 | ||||
149,465 | |||||
Total assets | $ 261,291 | ||||
LIABILITIES AND STOCKHOLDERS' DEFICITEQUITY | |||||
Current liabilities: | |||||
Accrued expenses | $ 41,733 | ||||
Short-term debt | 48,800 | ||||
Other payables | 48,094 | ||||
Due to related parties | 38,046 | ||||
Total current liabilities | 176,673 | ||||
Long-term debt | 18,800 | ||||
Total liabilities | 195,473 | ||||
Stockholders' equity: | |||||
Common stock, no par value, 85,000,000,000 shares authorized; | |||||
345,774,145 shares issued and outstanding | 470,170 | ||||
Additional paid-in-capital | 80,000 | ||||
Deficit accumulated during the development stage | (484,352) | ||||
Total stockholders' equity | 65,818 | ||||
Total liabilities and stockholders' equity | $ 261,291 | ||||
The accompanying notes form an integral part of these unaudited consolidated financial statements.
CHINA MEDIA GROUP CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLDIATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2006 AND 2005
AND FOR THE PERIOD FROM OCTOBER 1, 2002 (INCEPTION) TO MARCH 31, 2006
(UNAUDITED)
Period from | ||||||||||||
For the Three Month Periods | October 1, 2002 | |||||||||||
Ended March 31, | (inception) to | |||||||||||
2006 | 2005 | March 31, 2006 | ||||||||||
Net revenue | $ &nb sp; - | $ - | $ - | |||||||||
Operating Expenses | - | - | - | |||||||||
Gross profit | ; - | - | - | |||||||||
Selling, general and administrative | ||||||||||||
expenses | 143,578 | 31,602 | 468,207 | |||||||||
Loss from operations before other expense | ||||||||||||
and provision for income taxes | (143,578) | (31,602) | (468,207) | |||||||||
Other expense - | ||||||||||||
Interest expense | (2,260) | (1,395) | (16,145) | |||||||||
Net loss | $ (145,838) | $ (32,997) | $ (484,352) | |||||||||
Weighted average number of shares - | ||||||||||||
basic and diluted |
| 345,124,145 |
| 343,940,812 |
| 345,124,145 | ||||||
Loss per share - basic and diluted | $ (0.00) | $ (0.00) | $ (0.00) | |||||||||
*Basic and diluted weighted average number of shares is the same since the effect of diluted securities is anti-diluted
The accompanying notes form an integral part of these unaudited consolidated financial statements.
#
CHINA MEDIA GROUP CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
FROM INCEPTION (OCTOBER 1, 2002 TO MARCH 31, 2006
(UNAUDITED)
Deficit | |||||||||||||||
accumulated | |||||||||||||||
Additional | during the | Total | |||||||||||||
Common stock | paid-in | Deferred | development | stockholders' | |||||||||||
Shares | Amount | capital | compensation | stage | equity (deficit) | ||||||||||
Balance at October 1, 2002 | - | $ - | $ - | $ - | $ - | $ - | |||||||||
(inception) | |||||||||||||||
Issuance of founder shares for | |||||||||||||||
services at $0.001 per share - | |||||||||||||||
October 2002 | 283,333,336 | 2,550 | - | - | - | 2,550 | |||||||||
Issuance of shares for services | |||||||||||||||
at $0.15 per share - | |||||||||||||||
October 2002 | 41,666,698 | 56,250 | - | - | - | 56,250 | |||||||||
Deferred compensation | - | - | - | (42,188) | - | (42,188) | |||||||||
Issuance of shares for cash at $0.15 | |||||||||||||||
per share - December 2002 | 17,581,444 | 23,735 | - | - | - | 23,735 | |||||||||
Capital contribution for office | |||||||||||||||
space and salary expense | - | - | 5,800 | - | - | 5,800 | |||||||||
Net loss | - | - | - | - | (32,315) | (32,315) | |||||||||
Balance at December 31, 2002 | 342,581,478 | 82,535 | 5,800 | (42,188) | (32,315) | 13,832 | |||||||||
IssuanceSale of shares for cash at $0.15 | |||||||||||||||
per share - February 2003 | 1,359,334 | 1,835 | - | - | - | 1,835 | |||||||||
Capital contribution for office | |||||||||||||||
space and salary expense | - | - | 28,800 | - | - | 28,800 | |||||||||
Amortization of deferred | |||||||||||||||
compensation | - | - | - | 42,188 | - | 42,188 | |||||||||
Net loss | - | - | - | - | (122,724) | (122,724) | |||||||||
Balance at December 31, 2003 | 343,940,812 | 84,370 | 34,600 | - | (155,039) | (36,069) | |||||||||
Capital contribution for office | |||||||||||||||
space and salary expense | - | - | 28,800 | - | - | 28,800 | |||||||||
Net loss | - | - | - | - | (51,572) | (51,572) | |||||||||
Balance at December 31, 2004 | 343,940,812 | 84,370 | 63,400 | - | (206,611) | (58,841) | |||||||||
Capital contribution for office | |||||||||||||||
space and salary expense | - | - | 14,400 | - | - | 14,400 | |||||||||
Change to no par value stock | - | 77,800 | (77,800) | - | - | - | |||||||||
Net loss | - | - | - | - | (131,903) | (131,903) | |||||||||
Balance at December 31, 2005 | 343,940,812 | 162,170 | - | - | (338,514) | (176,344) | |||||||||
Issuance of sharesStock issued for cash | 833,333 | 170,000 | 80,000 | - | - | 250,000 | |||||||||
Issuance of sharesStock issued for acquisition of | 1,000,000 | 138,000 | - | - | - | 138,000 | |||||||||
distribution rights | |||||||||||||||
Net loss | - | - | - | - | (145,838) | (145,838) | |||||||||
Balance at March 31, 2006 | 345,774,145 | $ 470,170 | $ 80,000 | $ - | $ (484,352) | $ 65,818 | |||||||||
The accompanying notes form an integral part of these unaudited consolidated financial statements.
CHINA MEDIA GROUP CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2006 AND 2005
AND FOR THE PERIOD FROM OCTOBER 1, 2002 (INCEPTION) TO MARCH 31, 2006
(UNAUDITED)
For the period | ||||||||
For The Three Month Period Ended | from October 1, 2002 | |||||||
March 31, | (inception) to | |||||||
2006 | 2005 | March 31, 2006 | ||||||
Cash flows from operating activities: | ||||||||
Net loss | $ (145,838) | $ (32,997) | $ (484,352) | |||||
Depreciation | 166 | - | 166 | |||||
Adjustments to reconcile net loss to net | ||||||||
cash used in operating activities: | ||||||||
Issuance of sharesStock issued for acquisition of | ||||||||
for services | - | - | 58,800 | |||||
Services provided as addition to equity | - | 7,200 | 77,800 | |||||
Increase in current assets: | ||||||||
Prepaid expenses | (18,445) | (4,750) | (18,445) | |||||
Increase (decrease) in liabilities: | ||||||||
Accounts payable and accrued expenses | 10,920 | 19,954 | 36,184 | |||||
Other payables | 48,094 | - | 48,094 | |||||
Deposit from customer | - | 5,000 | - | |||||
Due to related parties | (30,886) | 1,395 | 43,595 | |||||
Total adjustments | (9,849) | 28,799 | 246,194 | |||||
Net cash used in operating activities | (135,989) | (4,198) | (238,158) | |||||
Cash flows from investing activities: | ||||||||
Purchase of fixed assetsPproperty & equipment | (11,631) | - | (11,631) | |||||
______________ | ______________ | __________________ | ||||||
Net cash used in investing activities | (11,631) | - | (11,631) | |||||
Cash flows from financing activities: | ||||||||
Proceeds from issuance of debtloans | - | 12,000 | 83,600 | |||||
Payment of debtloanst | (16,000) | (16,000) | ||||||
Issuance of common stockshares and warrants | 250,000 | - | 275,570 | |||||
Net cash provided by financing | ||||||||
activities | 234,000 | 12,000 | 343,170 | |||||
Net increase in cash and | ||||||||
cash equivalents | 86,380 | 7,802 | 93,381 | |||||
Cash and cash equivalents, beginning | 7,001 | 411 | - | |||||
Cash and cash equivalents, ending | $ 93,381 | $ 8,213 | $ 93,381 | |||||
|
| |||||||
Supplemental disclosure of cash flow information: | ||||||||
Interest paid | $ 3,700 | $ - | $ - | |||||
Income taxes paid | $ - | $ - | $ - | |||||
Supplemental disclosure of non-cash financing activity:
A former officer of the Company provided office space to the Company for $1,400 per month, on a month-to-month basis, and received a salary of $1,000 per month for services performed as the Company's President. These fees were recorded as a contribution to capital before June 30, 2005 and as due to related party after June 30, 2005. For the three month periods ended March 31, 2006 and 2005, and the period from October 1, 2002 (inception) to March 31, 2006, the Company recognized office expense of $Nil, $4,200, and $50,400, respectively.
In October 2002, the Company issued 2,833,336 shares (after 5000 for 1 split and 45 for 1 reverse split) of its common stock in exchange for services to incorporate the Company, totaling $2,550. The Founder Shares were valued at the then par value of the Company's common stock, which represented its fair market value on the date of issuance.
In October 2002, 41,666,698 shares (after 5000 for 1 split and 45 for 1 reverse split) of common stock were issued in exchange for services rendered totaling of $56,250, which was the fair market value of the Company's common stock on the date of issuance.
In March 2006, the Company issued 1,000,000 shares of common stock as an advance payment for the acquisition of distribution rights for convergent device. The 1,000,000 common stock was valued at $138,000 which was the market value of the Company’s stock on the date of issuance.
The accompanying notes form an integral part of these unaudited consolidated financial statements.
CHINA MEDIA GROUP CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
ORGANIZATIONS AND DESCRIPTION OF BUSINESS
China Media Group Corporation, (formerly International Debt Exchange Associates, Inc.) (the "Company") is a Texas corporation, incorporated on October 1, 2002. The Company is currently a development stage enterprise.
On September 19, 2005, the Company filed a certificate of amendment of articles of incorporation to change its name to China Media Group Corporation.
The Company is a “Next Generation” advertising/media company focusing on the Chinese market. As of March 31, 2006, the Company has had no revenue.
In February 2006, the Company established Ren Ren Media Group Limited, a wholly owned subsidiary in Hong Kong and commenced operations in advertising/media.
NOTE 2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES & REALIZATION OF ASSETS
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Ren Ren Media Group Limited. All material inter-company accounts have been eliminated in consolidation
Use of estimates
The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
Statement of financial accounting standard No. 107, Disclosures about fair value of financial instruments, requires that the Company disclose estimated fair values of financial instruments. Unless otherwise indicated, the fair values of all reported assets and liabilities, which represent financial instruments, none of which are held for trading purposes, approximate are carrying values of such amounts.
Cash and Cash Equivalents
The Company considers all liquid investments with a maturity of three months or less from the date of purchase that are readily convertible into cash to be cash equivalents.
Property and Equipment
Property and equipment is stated at cost. Depreciation for property and equipment is computed using the straight-line method over an estimated useful life of three years for computer equipment and five years for non-electronic property.
Intangible Assets
The Company evaluates intangible assets for impairment, at least on an annual basis and whenever events or changes in circumstances indicate that the carrying value may not be recoverable from its estimated future cash flows. Recoverability of intangible assets, other long-lived assets and, goodwill is measured by comparing their net book value to the related projected undiscounted cash flows from these assets, considering a number of factors including past operating results, budgets, economic projections, market trends and product development cycles. If the net book value of the asset exceeds the related undiscounted cash flows, the asset is considered impaired, and a second test is performed to measure the amount of impairment loss.
Accounts payable and accrued expenses
Accounts payable and accrued expenses consist of the following at March 31, 2006:
Accrued interest
$10,079 Accrued accounting
6,500 Accrued salaries 19,004 Accrued other
6,150 Total
$41,733 |
Income taxes
The Company accounts for income taxes under SFAS 109, “Accounting for Income Taxes.” Under the asset and liability method of SFAS 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under SFAS 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs. A valuation allowance is provided for certain deferred tax assets if it is more like ly than not that the Company will not realize tax assets through future operations.
Stock-based compensation
SFAS No. 123 prescribes accounting and reporting standards for all stock-based compensation plans, including employee stock options, restricted stock, employee stock purchase plans and stock appreciation rights. SFAS No. 123 requires compensation expense to be recorded (i) using the new fair value method or (ii) using the existing accounting rules prescribed by Accounting Principles Board Opinion No. 25, “Accounting for stock issued to employees” (APB 25) and related interpretations with proforma disclosure of what net income and earnings per share would have been had the Company adopted the new fair value method. The Company has chosen to account for stock-based compensation using Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and has adopted the disclosure onl y provisions of SFAS 123. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company's stock at the date of the grant over the amount an employee is required to pay for the stock.
The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of SFAS 123 and the Emerging Issues Task Force consensus in Issue No. 96-18 ("EITF 96-18"), "Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring or in Conjunction with Selling, Goods or Services". Valuation of shares for services is based on the estimated fair market value of the services performed.
Issuance of shares for service
The Company accounts for the issuance of equity instruments to acquire goods and services based on the fair value of the goods and services or the fair value of the equity instrument at the time of issuance, whichever is more reliably measurable.
Revenue Recognition
The Company recognizes its revenue in accordance with the Securities and Exchange Commissions (“SEC”) Staff Accounting Bulletin No. 104, “Revenue Recognition in Financial Statements” (“SAB 104”). Revenue is recognized upon shipment, provided that evidence of an arrangement exists, title and risk of loss have passed to the customer, fees are fixed or determinable and collection of the related receivable is reasonably assured. Revenue is recorded net of estimated product returns, which is based upon the Company’s return policy, sales agreements, management estimates of potential future product returns related to current period revenue, current economic trends, changes in customer composition and historical experience.
Foreign Currency Translation
The accounts of the Company’s Hong Kong subsidiary are maintained, in the Hong Kong dollars (HK). Such financial statements are translated into U.S. Dollars (USD) in accordance with Statement of Financial Accounts Standards ("SFAS") No. 52, "Foreign Currency Translation," with the HK as the functional currency. According to the Statement, all assets and liabilities were translated at the exchange rate on the balance sheet date, stockholder's equity are translated at the historical rates and statement of operations items are translated at the weighted average exchange rate for the year. The resulting translation adjustments are reported under other comprehensive income in accordance with SFAS No. 130, "Reporting Comprehensive Income. As of MMarch 31, 2006 and for the three months month periods ended March 31, 2006 and 2005 and since inception, such differences were immaterial.
Recent Pronouncements
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections." This statement applies to all voluntary changes in accounting principle and requires retrospective application to prior period’s financial statements of changes in accounting principle, unless this would be impracticable. This statement also makes a distinction between "retrospective application" of an accounting principle and the "restatement" of financial statements to reflect the correction of an error. This statement is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company believes that the adoption of this standard will have no material impact on its consolidated financial statements.
In February 2006, FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments”. SFAS No. 155 amends SFAS No 133, “Accounting for Derivative Instruments and Hedging Activities”, and SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”. SFAS No. 155, permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS No. 133, establishes a requirement to evaluate interest in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded deriva tive requiring bifurcation, clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives, and amends SFAS No. 140 to eliminate the prohibition on the qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. This statement is effective for all financial instruments acquired or issued after the beginning of the Company’s first fiscal year that begins after September 15, 2006. SFAS No. 155 is not expected to have a material effect on the consolidated financial position or results of operations of the Company.
In March 2006 FASB issued SFAS 156 ‘Accounting for Servicing of Financial Assets’ this Statement amends FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, with respect to the accounting for separately recognized servicing assets and servicing liabilities. This Statement:
1.
Requires an entity to recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset by entering into a servicing contract.
2.
Requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable.
3.
Permits an entity to choose ‘Amortization method’ or ‘Fair value measurement method’ for each class of separately recognized servicing assets and servicing liabilities.
4.
At its initial adoption, permits a one-time reclassification of available-for-sale securities to trading securities by entities with recognized servicing rights, without calling into question the treatment of other available-for-sale securities under Statement 115, provided that the available-for-sale securities are identified in some manner as offsetting the entity’s exposure to changes in fair value of servicing assets or servicing liabilities that a servicer elects to subsequently measure at fair value.
5.
Requires separate presentation of servicing assets and servicing liabilities subsequently measured at fair value in the statement of financial position and additional disclosures for all separately recognized servicing assets and servicing liabilities.
This Statement is effective as of the beginning of the Company’s first fiscal year that begins after September 15, 2006. Management believes that this statement will not have a significant impact on the consolidated financial statements.
Reclassifications
Certain comparative amounts have been reclassified to conform with the current year's presentation.
NOTE 3
UNCERTAINTY OF ABILITY TO CONTINUE AS A GOING CONCERN
The Company's consolidated financial statements are prepared using the generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. As of March 31, 2006, the Company has not generated any revenue and has incurred an accumulated deficit totaling $484,352 at March 31, 2006 and its current liabilities exceed its current assets by $64,847.
In view of the matters described above, recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheets is dependent upon continued operations of the Company, which in turn is dependent upon the Company’s ability to raise additional capital, obtain financing and to succeed in its future operations. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Management has taken the following steps to revise its operating and financial requirements, which it believes are sufficient to provide the Company with the ability to continue as a going concern. The Company is actively pursuing additional funding and potential merger or acquisition candidates and strategic partners, which would enhance stockholders’ investment. Management believes that the above actions will allow the Company to continue operations through the next fiscal year. However there can be no assurances that sufficient financing will be available on terms acceptable to the Company or at all.
NOTE 4
STOCKHOLDERS’ EQUITY
On February 2, 2005, the Company announced 5,000 for 1 stock split of the Company’s issued and outstanding common stock which effectuated through a dividend of common stock outstanding as of record date.
In February 2005, the Company also changed the common stock from a par value per share of $.001 to no par value. Accordingly the paid in capital account and the additional paid in value account was reclassified into one paid in value account.
On September 14, 2005, the Company announced a 45 for 1 reverse stock split of the Company’s issued common stock.
In January 2006, the Company issued 1,000,000 shares of common stock valued at $138,000 as an advance payment for the acquisition of distribution rights for convergent device. The shares were valued at the market price on the date of issuance.
In February 2006, the Company sold 833,333 shares of common stock and 1,666,666 warrants for $250,000. The Company recorded the fair value of the warrants as additional paid in capital. The fair value of these warrants was estimated at grant date using a Black-Scholes option pricing model with the following weighted average assumptions: risk free interest rate of 4.30%; dividend yield of 0%; expected weighted average option life of 1 year; and volatility of 130%.
All fractional shares are rounded up and the authorized shares remain the same. The consolidated financial statements have been retroactively restated for the effects of the above stock splits.
NOTE 5
DUE TO DIRECTORS
The due to directors are interests free, unsecured and due on demand. The balance of due to directors is $38,046 as of March 31, 2006.
NOTE 6
RELATED COMPANY TRANSACTIONS
During the three month period ended March 31, 2005, the Company recorded interest of $1,385 on a note payable due to the former officers of the Company. During the three month period ended December 31, 2005, the note payable were transfer to third parties. The interest payable is included in the accrued expense in the accompanying consolidated financial statements.
During three month period ended March 31, 2005, an officer of the Company provided office space to the Company at $1,400 per month on a month-to-month basis, totaling $4,200, of which, $4,200 was recorded as contribution to capital. There were no such transaction with related parties for the three month period ended March 31, 2006.
The Company agreed to pay directors a monthly salary for services performed for two years commencing on October 1, 2005 and the agreements shall continue thereafter unless terminated by either parties.. During the three month periods ended March 31, 2006 and 2005, the Company paid the directors a total remuneration of $54,000 and $3,000, respectively, of which $nil and $3,000, respectively, was recorded as contribution to capital.
NOTE 7
STOCK PURCHASE AGREEMENTS
On October 12 2005, the Company entered into two non-binding Stock Purchase Agreements with Central High Limited (“Central High”)
1)
for the entire issued share capital of Good World Investments Limited for 50 million new common stock of the Company, subject to satisfactory completion of legal, financial and operational due diligence. Good World Investments Limited holds 50% interests in Beijing Ren Ren Health Culture Promotion Limited;
2)
for 50,000,000 shares in Cody Ventures Corporation (“CVC”) representing about 52.1% of the issued share capital in CVC in exchange for 30 million new common stock of the Company, subject to satisfactory completion of legal, financial and operational due diligence. CVC is quoted on the US Pink Sheets Market under the symbol CDYV.
Both directors, Messrs Con Unerkov and Alex Ho own 25% each in the issued share capital of Central High. The stock purchase transactions have not been complete as of March 31, 2006.
NOTE 8 COMMITMENTS AND CONTINGENCIES
The Company has employment agreements with the Chairman and Director (the “Executives”) for two years commencing on October 1, 2005 and the agreements shall continue thereafter unless terminated by either parties. The Executives will receive a monthly salary at a rate to be agreed by the Company and the Executives from time to time. In addition, the Executives will receive an annual management bonus to be determined by the majority of the Board based on the operating results of the Company and the Executives’ performances, provided that it does not exceed 8.8 % of the net profit of the Company
On or about February 6, 2006, the Company received a correspondence from the Florida Attorney General’s office regarding some complaints on some transmissions of unsolicited facsimile allegedly from the Company, and advised of potential civil penalties. The Company’s legal council contacted the Attorney General office to state that the Company has never sent or authorized any unsolicited facsimile transmission, and that the Company has taken every possible effort to distance from these unauthorized transmissions including adding a “pop up” window on its website. The Company has offered its assistance in any investigation to the Attorney General office. The Attorney General office has not imposed any penalties on the Company to date. The Company would vigorously defend any such civic action if pursued.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
THIS FOLLOWING INFORMATION SPECIFIES CERTAIN FORWARD-LOOKING STATEMENTS OF MANAGEMENT OF THE COMPANY. FORWARD-LOOKING STATEMENTS ARE STATEMENTS THAT ESTIMATE THE HAPPENING OF FUTURE EVENTS AND ARE NOT BASED ON HISTORICAL FACT. FORWARD-LOOKING STATEMENTS MAY BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY, SUCH AS "MAY", "SHALL", "COULD", "EXPECT", "ESTIMATE", "ANTICIPATE", "PREDICT", "PROBABLE", "POSSIBLE", "SHOULD", "CONTINUE", OR SIMILAR TERMS, VARIATIONS OF THOSE TERMS OR THE NEGATIVE OF THOSE TERMS. THE FORWARD-LOOKING STATEMENTS SPECIFIED IN THE FOLLOWING INFORMATION HAVE BEEN COMPILED BY OUR MANAGEMENT ON THE BASIS OF ASSUMPTIONS MADE BY MANAGEMENT AND CONSIDERED BY MANAGEMENT TO BE REASONABLE. OUR FUTURE OPERATING RESULTS, HOWEVER, ARE IMPOSSIBLE TO PREDICT AND NO REPRESENTATION, GUARANTY, OR WARRANTY IS TO BE INFERRED FROM THOSE FORWARD-LOOKING STATEMENTS.
THE ASSUMPTIONS USED FOR PURPOSES OF THE FORWARD-LOOKING STATEMENTS SPECIFIED IN THE FOLLOWING INFORMATION REPRESENT ESTIMATES OF FUTURE EVENTS AND ARE SUBJECT TO UNCERTAINTY AS TO POSSIBLE CHANGES IN ECONOMIC, LEGISLATIVE, INDUSTRY, AND OTHER CIRCUMSTANCES. AS A RESULT, THE IDENTIFICATION AND INTERPRETATION OF DATA AND OTHER INFORMATION AND THEIR USE IN DEVELOPING AND SELECTING ASSUMPTIONS FROM AND AMONG REASONABLE ALTERNATIVES REQUIRE THE EXERCISE OF JUDGMENT. TO THE EXTENT THAT THE ASSUMED EVENTS DO NOT OCCUR, THE OUTCOME MAY VARY SUBSTANTIALLY FROM ANTICIPATED OR PROJECTED RESULTS, AND, ACCORDINGLY, NO OPINION IS EXPRESSED ON THE ACHIEVABILITY OF THOSE FORWARD-LOOKING STATEMENTS. WE CANNOT GUARANTY THAT ANY OF THE ASSUMPTIONS RELATING TO THE FORWARD-LOOKING STATEMENTS SPECIFIED IN THE FOLLOWING INFORMATION ARE ACCURA TE, AND WE ASSUME NO OBLIGATION TO UPDATE ANY SUCH FORWARD-LOOKING STATEMENTS.
CRITICAL ACCOUNTING POLICY AND ESTIMATES.
Our Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations section discusses our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to revenue recognition, accrued expenses, financing operations, and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The most significant accounting estimates inherent in the preparation of our consolidated financial statements include estimates as to the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources. These accounting policies are described at relevant sections in this discussion and analysis and in the notes to the consolidated financial statements included in our Quarterly Report on Form 10-QSB for the period ended March 31, 2006.
OVERVIEW
The Company was incorporated in Texas on October 1, 2002 and was originally formed to be a frozen drink machine rental service. It was intended to specialize in renting frozen drink machines for gatherings such as wedding receptions, birthday parties, football parties, anniversaries, family reunions, weekend barbeques, social functions and fund raising events, as well as any other type of occasion. At the beginning of the year, this business was at the first stage of development and the primary focus was on continuing to developing and revising our business strategies.
In 2005, the Company changed its name to International Debt Exchange Associates Inc. reflecting the Company’s intent to become a diverse company through mergers and acquisitions and still maintained the current business as a frozen drink machine rental service.
In September 2005, the Company changed its board of directors whom has since changed the Company nameto China Media Group Corporation to reflect the Company’s intent to focus all its efforts in advertising and media in the emerging China market. Under new management, the Company commenced to position the Company to capitalize on the growth of the Chinese advertising market where global companies are rushing into China to try to grab and hold the attention of its 1.3 billion citizens. It is estimated that advertising expenditure in China will surpass those in Japan by 2010, making China the second largest advertising market in the world after the USA.
Our mission is to become one of China’s leading new age media companies through the use of new technologies and devices combined with traditional media of TV, Newspapers, Magazines, Billboards and Internet to reach today’s mobile society. In order to facilitate this the Company established 4 strategic business units being “Television”, “Advertising” “Print” and “Telecommunications and Mobile Computing”.
The Company has acquired the rights to M.A.G.I.C. convergent device which is expected to be commercially available for sales in the coming months. M.A.G.I.C. is a next generation convergent device that has the full capabilities of a notebook computer shrink to a size of a PDA phone. No other acquisitions have been completed as of this report, but a number of letters of intents and non-binding acquisitions have been made by the Company as announced. Strategically we have signed a non binding Sale and Purchase Agreement to acquire the entire issued share capital of Good World Investments Limited which owns 50% of Beijing Ren Ren Health Culture Promotion Limited, a Chinese company that has the nationwide advertising license. We anticipate to finalize the negotiations for the acquisition for Good World befo re June 30, 2006.
It is the Company’s intention to increase the Company’s size and earning potential through internal growth, joint venture, acquisitions and mergers with similar businesses to gain a greater foothold in the marketplace. We are continuing to search for possible acquisition and\or merger candidates to be identified and this will be competitors, business associates and other similar businesses that would help strengthen the Company.
PLAN OF OPERATIONS
OUR PLAN OF OPERATION FOR THE NEXT TWELVE MONTHS.
We hope to generate revenues in the next six months by engaging business operations through internal growth and through strategic acquisition. In October 2005, the Company announced the signing of two acquisitions agreements in the advertising/media business. These acquisitions, once completed, are the Company’s first foray into the exciting growth advertising industry in China and USA. Our strategy is to build on the China advertising/media sector with synergistic operation in USA. To this end, we have signed agreements to acquire 1) a 50% stake in Beijing Ren Ren Health Promotion Limited, a company that holds a nationwide advertising license in China and 2) a 52% stake in Cody Ventures Corporation, a company that publish and distribute a free publication called “Tidbits” in southw est Dallas Texas area. In January 2006, the Company further announced the acquisition of the rights to the M.A.G.I.C. Convergent Mobile Devices for the territory of China and Hong Kong, and the possible acquisition of Dongguang Zhishixin Advertising Limited, a company that publishes an Furniture Advertising Newspaper in Southern China.
We have cash and cash equivalents of $93,381 as of March 31, 2006; an increase from the previous year end. In the opinion of management, these funds will not satisfy our working capital requirements to operate at our current level of activity for the next twelve months. To effectuate our business plan, including completing the acquisitions above, during the next twelve months, we must arrange for adequate funding to implement our plans of increasing our offerings and promote our services. Subsequent to the year end, the Company entered into an agreement to sell $250,000 common stock in February 2006 and another $1 million of common stock in 4 equal tranches over the next 8 months thereafter, subject to certain conditions. Management intends to continue to raise additional financing through debt and equity financing or other means and interests that it deems necessary, with a view to implement our business plan and build a revenue base. We plan to use the proceeds of such financings to provide working capital to our operations and increase our capital expenditure for marketing and working with our co-operative partners. There can be no assurances that sufficient financing will be available on terms acceptable to us or at all. Our forecast for the period for which financial resources will be needed to support our operations involves risks and uncertainties and actual results could fail as a result of a number of factors.
Specifically, we hope to accomplish the steps listed below to implement our business plan. We estimate that we will require approximately $2,000,000 to commence operations as envisioned below during the next twelve months. The figures and steps outlined below are estimates only, and our actual progress and cost may vary from these estimates and is subject to our ability to obtain adequate funding. Such additional capital may be raised through public or private equity financing, borrowings, or other sources, such as contributions from our officers and directors. If we are unable to obtain funds necessary to implement our business plan, we may revise or scale back our business plan.
Over the course of the next two years, we propose to build up our advertising presences to over 5 regional offices in China. We have opened an office in Zhuhai and we expect to open 2 more offices within the next few months after finding suitable locations. Over the next two years, we also propose to acquire strategic partners that have existing operations in cities or regions to grow our business by acquisition subject to available funding. Additional support staff may be hired as necessity and resources dictate within the next twelve months.
We are not currently conducting any research and development activities, other than the continual development of our website both English and Chinese. We do not anticipate conducting such activities in the near future. In the event that we expand our business scope, then we may need to hire additional employees or independent contractors as well as purchase or lease additional equipment.
RESULTS OF OPERATIONS.
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2006 COMPARED TO THE THREE MONTH PERIODS ENDED MARCH 31, 2005.
REVENUES.
We have not realized any revenues for the period from October 1, 2002, our date of formation, through the period ended March 31, 2006. We hope to generate revenues when we begin to receive contracts from clients or through acquisitions. Depending upon the availability of operating capital, we intend to begin operations within 6 months. Our officers and directors have not committed to make any capital contributions to our operations other than what has been announced as to our intended acquisitions and co-operations.
OPERATING EXPENSES.
For the three month period ended March 31, 2006, our total operating expenses were $143,578, all of which were selling, general and administrative expenses. We also had $2,260 in interest expenses, so that our net loss for the three month period ended March 31, 2006 was $145,838. This is in comparison to the same period ended March 31, 2005, where we had $31,602 in selling, general and administrative expenses and $1,395 in interest expenses, making our net loss for that period $32,997.
For the period from our inception on October 1, 2002 through March 31, 2006, our total operating expenses were $468,207, all of which were selling, general and administrative expenses. We also had $ 16,145 in interest expense, so that our net loss for the period from inception to March 31, 2006 was $484,352.
LIQUIDITY AND CAPITAL RESOURCES
As at March 31, 2006, the Company had cash and cash equivalents totaling $93,381 and had fixed assets of $11,465, and intangible assets of $138,000 and other current assets of $18,445. Do they need to disclose the info highlighted?. The total assets of the Company were $261,291 as of March 31, 2006. We believe that our available cash and cash equivalents are not sufficient to pay our day-to-day expenditures. However, our officers and directors have committed to pay our day-to-day expenses so that we are able to continue operations until we are able to obtain additional funding through other sources at levels to implement our business plan. As of March 31, 2006, we had current liabilities of $176,673 which were represented by $41,733 in accruals, $48,800 in short term debt to stockholders, $48,094 in other payables, and $38,046 due to related parties. We also had $18,800 in long-term debt to shareholders as of March 31, 2006, making our total liabilities $195,473.
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ITEM 3. CONTROLS AND PROCEDURES
(a)
Evaluation of disclosure controls and procedures. We maintain controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Based upon their evaluation of those controls and procedures performed as of June 30, 2004, our chief executive officer and the principal financial officer concluded that our disclosure controls and procedures were adequate.
(b)
Changes in internal controls. There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation of those controls by the chief executive officer and principal financial officer.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
3.1 Articles of Incorporation*
3.2 Bylaws*
31. Rule 13a-14(a)/15d-14(a) Certifications of Chief Executive Officer and Chief Financial Officer of the Company
32. Section 906 Certification by Chief Executive Officer and Chief Financial Officer
* Included in the registration statement on Form SB-2 filed on September 26, 2002.
(b) Reports on Form 8-K
On January 26, 2006, a Form 8K was filed to report that on January 25, 2006, the Company entered into an agreement with Fleming Assets Limited (“Fleming”) to acquire the distribution rights for the M.A.G.I.C. Convergent Communications Device for the territory of China and Hong Kong. Under the agreement the Company will issue the following shares to Fleming:
o
Within one month of signing the agreement, one million shares of the Company;
o
Within one month of receiving the prototype devices, one million shares of the Company;
o
Within one month of receiving the product from commercial production, two million shares of the Company; and
o
A royalty payment of 100,000 shares of the Company for every 5,000 devices sold for the next 3 years.
On February 2, 2006, a Form 8K was filed to report that on February 1, 2006, the Company entered into a non-binding Stock Purchase Agreement with Dongguang Zhishixin Advertising Limited (“Zhishixin”) for the controlling interests in Zhishixin (“Stock Purchase Agreement”). Under the Stock Purchase Agreement the Company will subscribe about $68,500 (RMB550,000) of registered capital, representing about 52.3% of the enlarged capital, in Zhishixin. This Agreement is conditional on satisfactory completion of the legal, financial and operational due diligence by the Company.
On February 14, 2006, a Form 8K was filed to report that on February 13, 2006, the Company announced a Stock Purchase Agreement with Central Star Holdings Limited (“Central Star”). Under the agreement, Central Star will purchase 833,333 shares in the Company for $250,000 upon signing the agreement and thereafter purchasing an additional $1 million worth of stock of the Company in 4 equal tranches every 2 months over an 8 months period. Central Star is obliged to purchase the additional tranches provided that the share price of the 5 days prior to the relevant date is not below $0.33 per share. However if the share price is below $0.33 then Central Star still has the right, but not the obligation, to purchase the stock at $.30 per share. For every stock purchased, Central Star will be entitled to receive an option to purchase 2 additional shares in the Company at the same price that it paid for the shares subscribed over a one year period from the later date of the final payment of the last tranche to complete the $1 million additional stock purchase and one year anniversary of the date of closing of the initial purchase of the stock.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
China Media Group Corporation, a Texas corporation
May 10, 2006
By: /s/ Con Unerkov
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Con Unerkov
President, Director
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Exhibit 31
Rule 13a-14(a)/15d-14(a)
Certification of Chief Executive Officer and Chief Financial Officer of the Company
I, Con Unerkov, certify that:
1.
I have reviewed this annual report on Form 10-QSB of China Media Group Corporation;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the consolidated financial statements, and other financial information included in this report, fairly present in all material respects the consolidated financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;
4.
The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c)
Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and
5.
The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting.
Date: May 10, 2006
/s/ Con Unerkov
-----------------------
Con Unerkov
Chief Executive Officer and Chief Financial Officer
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Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2003
In connection with the Quarterly Report of China Media Group Corporation, a Texas corporation (the "Company") on Form 10-QSB for the period ended March 31, 2006, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Con Unerkov, Chief Executive Officer and Chief Financial Officer of the Company, certifies to the best of his knowledge, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2003, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in the Report fairly presents, in all material respects, the consolidated financial condition and result of operations of the Company.
A signed original of this written statement required by Section 906 has been provided to China Media Group Corporation, and will be retained by China Media Group Corporation and furnished to the Securities and Exchange Commission or its staff upon request.
/s/ Con Unerkov
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Con Unerkov
Chief Executive Officer and Chief Financial Officer
May 10, 2006
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