As filed with the Securities and Exchange Commission on February 16, 2007
File No. 0-52408
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-SB
(Amendment No. 1)
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GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of The Securities Exchange Act of 1934
Emerging Media Holdings, Inc.
(Name of small business issuer in its charter)
Nevada 13-1026995
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
125, 31 August 1989 Str.m Suite # 5
Chisinau, MD-2012, Moldova
Phone: (373) 22 23-79-81, 23-33-86
Address in USA:
1809 E. BROADWAY ST, SUITE 175
Oviedo, FL 32765
(407) 620 1063
(Address and Telephone Number of principal executive offices)
Iurie Bordian
309 Celtic Ct.
Oviedo, FL 32765
(407) 620-1063
(Name, address and phone number for agent for service)
Copies to:
Michael S. Krome, Esq.
8 Teak Court
Lake Grove, New York, 11755
(631) 737-8381
(631) 737-8382 (fax)
Securities to be registered under Section 12(b) of the Act: none
Securities to be registered under Section 12(g) of the Act:
Common Stock, $.001 par value per share
Table of Contents
Part I
Item 1. Description of Business 4
Item 2. Management's Discussion and Analysis or Plan of Operation 11
Item 3. Description of Property 14
Item 4. Security Ownership of Certain Beneficial Owners and 14
Management
Item 5. Directors and Executive Officers, Promoters and 15
Control Persons
Item 6. Executive Compensation 15
Item 7. Certain Relationships and Related Transactions 15
Item 8. Description of Securities 16
Part II
Item 1. Market Price of and Dividends on the Registrant's Common 17
Equity and Related Stockholders Matters
Item 2. Legal Proceedings 17
Item 3. Changes in and Disagreements with Accountants 17
Item 4. Recent Sales of Unregistered Securities 17
Item 5. Indemnification of Directors and Officers 18
Part Financial Statements
Part III
Item 1. Index to Exhibits 20
Item 2. Description of Exhibits 20
SIGNATURES
Cautionary Note Regarding Forward-Looking Statements
This report contains both historical and forward-looking statements. All
statements other than statements of historical fact are, or may be deemed to be,
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. The forward-looking statements in this annual report are not based
on historical facts, but rather reflect the current expectations of our
management concerning future results and events.
The forward-looking statements generally can be identified by the use of terms
such as "believe," "expect," "anticipate," "intend," " plan," "foresee,"
"likely" or other similar words or phrases. Similarly, statements that describe
our objectives, plans or goals are or may be forward-looking statements.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause our actual results, performance or achievements to
be different from any future results, performance and achievements expressed or
implied by these statements. You should review carefully all information,
including the financial statements and the notes to the financial statements
included in this report. The following important factors could affect future
results, causing the results to differ materially from those expressed in the
forward-looking statements in this annual report.
o the timing, impact and other uncertainties related to pending and
future acquisitions by us;
o the impact of new technologies;
o changes in laws or rules or regulations of governmental agencies; and
o currency exchange rate fluctuations.
These factors are not necessarily all of the important factors that could cause
actual results to differ materially from those expressed in the forward-looking
statements in this annual report. Other unknown or unpredictable factors also
could have material adverse effects on our future results. The forward-looking
statements in this annual report are made only as of the date of this annual
report, and we do not have any obligation to publicly update any forward-looking
statements to reflect subsequent events or circumstances. We cannot assure you
that projected results will be achieved.
3
PART I
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Introductory Note
The consolidated financial statements, including the information in the notes
thereto, as of and for the 9 months ending September 30, 2006 included in this
Form 10 are unaudited. The consolidated financial statements for the years
ending December 31, 2005 and December 31, 2004 are audited by Wiener, Goodman &
Company, P.C.
Item 1 DESCRIPTION OF BUSINESS
General
Throughout this Form 10, the terms "we," "us," "our," "AMG" and
"Company" refer to Emerging Media Holdings, Inc., a Nevada corporation, and,
unless the context indicates otherwise, includes our subsidiaries.
We were formerly known as China Bio Health Group, Inc and were
incorporated under the laws of the State of Nevada September 3, 2003. On June
30, 2006, we effectuated a share exchange (Merger) whereby we acquired all of
the outstanding interest in our wholly-owned subsidiary, Cabavarum , the 100%
owner of Analiticmedia-Grup both Moldovan companies ("AMG"). AMG was formed in
October of 1998 as a Republic of Moldova limited liability company, which is
materially similar to a limited liability company in the United States, which we
refer to as the U.S. AMG. has been producing and broadcasting TV programs and
news reports primarily for the Moldovan viewers.
We own 100% of the equity interest in AMG, The vast majority of our operations
are conducted through our subsidiaries, and the following discussion of our
business includes the business of AMG.
All of our TV production and broadcasting operations are conducted in the
Republic of Moldova, which is located between Romania and Ukraine in Eastern
Europe. Having our production facilities in the Republic of Moldova generates
certain challenges for us, such as:
o Obtaining independent public authority (CCA) government approval and
licensing relating to the operation of a business can still be
time-consuming, costly and bureaucratic.
o The country's legal, regulatory and accounting systems are in the
process of transitioning to a market based system versus a
state-influenced system and these new systems are not yet entirely
consistent with international laws. The infrastructure in the country
is relatively poor by not only U.S. standards, but Western European
standards also.
o The majority of the parliament and the president of the country are
current members of the Communist party, which is one of several
political parties in the country. The Communist party won the majority
vote in the new Moldovan parliament during the March 2005 elections.
4
o Although an extensive legislative base and a Center for Combating
Corruption exists in Moldova, Corruption in the federal government of
Moldova as well as local governments is extensive and the current
laws, regulations and penalties against corruption are not strictly
enforced which can lead to uncertainty when working with government
personnel and agencies.
All measurements referring to any financial information is reflected in U.S.
dollars, unless otherwise noted.
Our fiscal year ends on December 31, and references to "fiscal 2005" refer to
the year ended December 31, 2005, references to "fiscal 2004" refer to the year
ended December 31, 2004.
History of the AMG
AMG was formed in October 1998 to acquire media holdings in Moldova and
surrounding countries and to broadcast and publish acquired and original media
content. In 1998, AMG signed a contract with Russian Public Television ("ORT")
to broadcast its programs in Moldova. In 1999, AMG established the newspaper
"Vremea" and took over management of the newspaper "De Facto ". In 2002, AMG
sold its newspaper holdings to focus on the fast growing television market.
At the beginning of 2003 AMG held an estimated 60%-70% of the
advertisement market of Moldova, a position confirmed by TNS GALLUP Media and
AGB Nielsen Media Research through an official measurement of TV channels rating
in Moldova. In September of 2005, the shareholders of AMG voted to create a
separate frequency for their television channel and give up operating on the
state television frequency, thus giving up a large portion of the Company's
revenues. On March 1, 2006, AMG launched its own television channel TV7 that
broadcasts on the 43rd decimetres frequency.
AMG signed a contract with the Russian television companies NTV and NTV
world ("NTV"), which are the leading television channels in Russia and owned by
Gasprom Media. On March 6, 2006, the News Department of TV7 has begun to
broadcast the "News Bulletin" a specialized news program.
Products
EMH's products consist of programs of the Russian TV channel NTV and
in-house production programs. NTV is a news channel. Traditionally news programs
collect the greatest audience. NTV is the only broadcasting company in Russia
that daily prepares more than 10 news releases.
TV7 channel also produces its own news and analytical programs, such
as:
o "Today in Moldova" in Russian;
5
o "Cotidian" in Romanian language;
o "Cotidian Exclusive" in Romanian language;
o "Vedete cu sort" ("Stars in the kitchen") in Romanian language;
o Weather forecast in Russian and Romanian languages.
The revenues of the company depend on placement of advertisements and
broadcasting sponsorships.
Competition
TV7 is among the three leaders in the industry based on commercial
quotas and ratings. In 2006, TV7 reached the second place among other TV
channels in Moldova, with 21.6% of the commercial quota for the Capital of
Moldova and 9% of the commercial quota for the Republic of Moldova.
The channel's competition in the Moldovan broadcasting market is other
news programs and the market share indicators are based on the number of people
watching and third party ratings. Other non state-owned news channels in Moldova
are NIT channel and Pro-TV channel, with 12.4% and 3.8% of the commercial quota
for the Capital of Moldova and 7.7% and 2.1%, respectively, of the commercial
quota for the country.
The Company's competitive advantage in the market is the news
broadcasting and a strong brand name. According to AGB Nielsen Media Research
independent marketing study conducted in 2006, TV7 is among the first three most
popular news channels in Moldova.
Broadcasting
- ------------
TV7 television channel's technical base consists of a newsroom that can
also be used as a studio for television transmissions in recordings and live
broadcasts. TV7 also has an "on-air" apparatus room, an apparatus room for
creation of play lists, and an apparatus room for video tape editing suite and
sound scoring.
The news room has three video cameras, Sony DSR-390, DSR-500 and
DSR-250, studio pedestals Vinten, auto cues Odyssey, vision production switcher
DSC 545, fader Beringer 16. The lighting equipment of the television channel TV7
consists of Logocam company projectors and Ianiro filling instruments, and
suspension lighting instruments of Logocam Company.
The camera device studio includes 4 television reporter sets of DVCAM
format. The Television Reporter Complex is completed with Sennheizer radio
systems, lighting instruments, jackets and other accessories.
The channel team is composed of 56 highly qualified employees.
6
Risk Factors
Risk Factors That May Affect Our Future Results and the Market Price of Our
Stock
In addition to the other information set forth elsewhere in this report, you
should carefully consider the following factors when evaluating us. An
investment in EMG will be subject to risks inherent in our business. The trading
price of our shares will be affected by the performance of our business relative
to, among other things, our competitors, market conditions and general economic
and industry conditions. The value of an investment in EMG may decrease,
resulting in a loss. If any of the following risks actually occurs, our
business, financial condition and results of future operations could suffer. In
such case, the trading price of our shares could decline, and you could lose all
or part of your investment.
Dependence on media rules and regulations.
We sell advertising time to the third parties for further resale to advertisers.
Media channels have been characterized in recent years by rapid change,
including changes in rules and regulations. Future changes may adversely affect
our ability to effectively sell advertising space, and thus may adversely affect
our ability to generate revenues.
We depend on the services of our chief executive officer, and implementation of
our business plan could be seriously harmed if we lost the services of our CEO.
We depend heavily on the services of Iurie Bordian, our Chairman, Chief
Executive Officer and President. We do not have an employment agreement with Mr.
Iurie Bordian, nor do we have a "key person" life insurance policy on Mr. Iurie
Bordian to cover our losses in the event of his death. There can be no assurance
that our CEO will remain in his management positions with us, and the loss of
his services would disrupt our business operations which could reduce our
revenues and profits.
Our revenue could decline if we are unable to maintain or increase prices, there
is a general decline in the advertisements or consumers decide to purchase
competitive products instead of our products.
Our channel competes in all of the media market segments with many other
Moldovan and foreign broadcasting companies. Advertisers purchasing decisions
are influenced by, among other things, the perceived absolute or relative
overall value of our channel, including its quality or pricing, compared to
competitive products. We could also experience higher than expected selling,
general and administrative expenses if we find it necessary to increase
advertising or promotional expenditures, or the number of our personnel to
maintain our competitive position, or for other reasons.
Integration of the business and product offerings of acquired companies could
disrupt our business operations.
We have made a few acquisitions in the recent year and anticipate that we may,
from time to time, acquire additional businesses, assets or securities of
companies that we believe would provide a strategic fit with our business. Any
7
business we acquire will need to be integrated with our existing operations.
While we have not had difficulty in the past effectively assimilating the
business or product offerings of companies we have acquired, there can be no
assurance that we will not have difficulties doing so in the future. In
addition, we could incur unknown or contingent liabilities of acquired
companies. Difficulties in integrating the operations and personnel of the
acquired companies could disrupt our business operations, divert management's
time and attention and impair relationships with and risk the possible loss of
key employees and customers of the acquired business. Our failure to adequately
manage the integration of any acquisition could disrupt our business operations
and lower our revenues and profits.
We depend on our trademarks and proprietary rights for a competitive advantage
in the Moldovan market, and any failure to protect our intellectual property
rights may damage our competitive position.
Our success depends largely upon our ability to protect our current and future
brands and products, and to defend our intellectual property rights. Competitors
infringing on our trademarks by using trademarks, trade names or trade dress
that resemble ours will dilute our intellectual property rights, which could
materially harm our ability to maintain or expand our sales and our future
financial results.
It may be difficult to effect service of U.S. process and enforce U.S. legal
process against our directors and us.
We are organized under the laws of Nevada. Therefore, our stockholders are able
to effect service of process in the U.S. upon us. However, our directors and
almost all of our operating assets are located outside the U.S. in the Republic
of Moldova. As a result, it may not be possible to effect service of process
upon our directors in the Republic of Moldova, nor may it be possible to enforce
judgments of U.S. courts against these directors or our assets. Any judgments of
U.S. courts against our directors residing in the Republic of Moldova will have
to be domesticated in the Republic of Moldova in accordance with the Moldovan
civil code, including the code of civil procedure and related laws and
directives approved by the Moldovan Parliament and the Plenum of the Supreme
Court Justice of the Republic of Moldova. Original actions or actions for
enforcement of judgments of U.S. courts predicated solely upon the laws of the
U.S., including the U.S. federal securities laws, may not be enforceable in the
Republic of Moldova. In addition, awards of punitive damages in actions brought
in the U.S. or elsewhere may not be enforceable in Moldova.
We do not plan to pay cash dividends.
Holders of our common stock are entitled to cash dividends when, as and if
declared by the board of directors out of funds legally available for the
payment of dividends. We have never paid dividends and our management does not
anticipate the declaration or payments of any dividends in the foreseeable
future. We intend to retain earnings, if any, to finance the development and
expansion of our business. Our future dividend policy will be subject to the
discretion of our board of directors and will be contingent upon future
8
earnings, if any, our financial condition, capital requirements, general
business conditions and other factors.
Deterioration of the market reforms undertaken by the Moldovan government may
undermine our ability to operate our business and predict financial performance.
The Republic of Moldova has undergone significant political and economic change
since 1990 and any substantial change in current laws or regulations (or in the
interpretations of existing laws or regulations), whether caused by changes in
the government of Moldova or otherwise, could have an impact on our results of
operations. For example, currently there are no significant limitations on the
repatriation of profits from Moldova, and for the last ten years the government
continuously has been improving the national economy for the liberalization, but
there is no assurance that foreign exchange control restrictions or similar
limitations will not be imposed in the future with regard to repatriation of
earnings and investments from the country. If such exchange control
restrictions, or similar limitations are imposed, the ability of our U.S. parent
holding company to receive payments from its subsidiaries could be reduced,
which would reduce our ability to invest in our operations in countries other
than Moldova. If we are unable to invest in our non-Moldovan operations, our
operating results could suffer which could reduce the value of our shareholders'
investment in our common stock.
There is no guarantee that the Republic of Moldova government will not exert
greater control over media.
The Republic of Moldova became the first former republic of the USSR to elect a
communist majority parliament and a communist president in 2001. The communist
party also won the majority of votes during the March 2005 parliamentary
elections, which had been recognized by US, EU and other international
observers, thus extending its majority in the parliament until 2008. Current
political forces in the parliament are promoting significantly greater
government controls over the economy and in particular over media production. If
the president and parliament decide to exert additional control over media
production, our business, financial condition and results of future operations
could suffer. We may be required to pay additional taxes and/or fees in
connection with our production and we may not have as much control over the
operations of our day-to-day business operations in the Republic of Moldova.
Changes in exchange rates could affect our financial results and management's
ability to make financial projections.
Our operations are conducted primarily in the Republic of Moldova, and the
functional currency of our subsidiaries in Moldova is the Moldova lei. This
exposes us to risks associated with both foreign currency translation, and
foreign currency transactions.
9
While the functional currency of our operating subsidiaries is the lei, we
report in U.S. dollars. In preparing our financial statements, the revenues and
expenses of such subsidiaries are translated into U.S. dollars at average
exchange rates prevailing during the period. The assets and liabilities are
translated at the rates of exchange on the balance sheet date. The resulting
translation gain and loss adjustments are recorded directly as a separate
component of shareholders' equity. The amount of such gain or loss will depend
in changes in the exchange rate between the lei and the U.S. dollar and the
composition of our assets and liabilities in Moldova. If the U.S. dollar
increases in value against the lei, the amount reported in U.S. dollars for
assets, liabilities, revenues and expenses originally recorded in the Moldovan
lei will decrease. Conversely, if the U.S. dollar decreases in value against the
lei, the amount reported in U.S. dollars for assets, liabilities, revenues and
expenses originally recorded in the lei will increase.
10
Item 2 PLAN OF OPERATION
Sales and Marketing .
The year 2006 is the initial period of formation of channel TV7. During
this period the TV channel focused on increasing its audience. As a result of
our successful effort, according to AGB data Analysis, TV7 channel was propelled
to the second place in the Capital of Moldova, Chisinau.
Next year, based on the TV viewers' data and assessment of professional TV
market observers, channel TV7 is expected to have at least 20% commercial quota
in Moldova. The expected turnover from the TV advertisements is likely to result
in a substantial revenue growth in the 2007 and 2008.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
The following is derived from our audited consolidated financial
statements as of and for the fiscal years ended December 31, 2005 and 2004.
FISCAL YEAR ENDED DECEMBER 31, 2005 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
2004.
REVENUES. Revenues increased $631,448 or 27.40% to $2,937,588 for the
fiscal year ended December 31, 2005 from $2,306,140 for the fiscal year ended
December 31, 2004. This increase was primarily due to increased sales resulting
from our additional advertising placements in 2004 through 2005.
COST OF SALES. Cost of Sales increased by $369,863 or 35,9 % to
$1,400,293 for the fiscal year ended December 31, 2005, from $1,030,430 for the
fiscal year ended December 31, 2004. This increase was primarily due to
increased sales resulting from our additional expenses connected to new
advertising placements in 2004 through 2005 as well as the increased production
costs as a result of the Company turning over to production of higher quality
broadcasting. We expect further decrease of gross margin during 2006 due to our
increasing focus on producing of high qualified broadcasting, which requires
purchases of more expensive services.
SELLING AND ADMINISTRATIVE. Selling and administrative expenses
increased by $4,878 or 5,73% to $89,900 for the fiscal year ended December 31,
2005 from $85,022 for the fiscal year ended December 31, 2004. This increase was
primarily due to increased overhead resulting from our additional expenses in
2004 through 2005 as well as increased legal fees.
INCOME FROM OPERATIONS. As a result of the foregoing, our income after
certain expenses and before other items, interest expense and income taxes
increased by $303,687 or 30,67, 67% to $1,293,738 for the fiscal year ended
December 31, 2005 from $990,051 for the fiscal year ended December 31, 2004.
11
OTHER ITEMS. Net loss from sale of fixed assets were $334,123 for the
fiscal year ended December 31, 2005 as compared to profit from sales of fixed
assets for the fiscal year ended December 31, 2004 of $1,941. Other income was
$29 for the fiscal year ended December 31, 2005 from $0 for the fiscal year
ended December 31, 2004.
INTEREST EXPENSE. Interest expenses decreased by $32,147 or 82,80% to
$6,658 for the fiscal year ended December 31, 2005 from $38,805 for the fiscal
year ended December 31, 2004. This decrease was primarily due to no existing new
debt we incurred for operations during fiscal year 2005.
INCOME TAXES. Income taxes increased by $36,026 or 19,45% to $221,230
for the fiscal year ended December 31, 2005 from $185,204 for the fiscal year
ended December 31, 2004.
NET INCOME. Net income decreased by $36,227 to $731,756 for the fiscal
year ended December 31, 2005 from a net income of $767,983 for the fiscal year
ended December 31, 2004. This decrease was due to increasing of income taxes in
2004 through 2005.
LIQUIDITY AND CAPITAL RESOURCES
During 2005, we have funded capital requirements through operations. As
of December 31, 2005, we had a cash balance of $493,553. This compares to
increase in a cash balance of $449,160 at December 31, 2004.
Net cash used by operating activities decreased by $281,156 to $798,683
during the fiscal year ended December 31, 2005 from net cash used by operating
activities of $1,079,839 during the fiscal year ended December 31, 2004. This
decrease in cash used by operations resulted primarily from an increase in trade
receivables of $339,785.
Cash flows used in investing activities during the fiscal year ended
December 31, 2005 increased by $143,719 to $515,497 from $371,778 during the
fiscal year ended December 31, 2004. This increase in cash flows used in
investing activities was primarily due to payments on investment of $352,397
during the fiscal year ended December 31, 2005 as compared to $44,820 during the
fiscal year ended December 31, 2004.
Cash flows provided by financing activities during the fiscal year
ended December 31, 2005 decreased by $114,965 to $270,000 from $384,965 during
the fiscal year ended December 31, 2004. We paid notes payable approximately
$270,000 during the fiscal year ended December 31, 2005 compared to $410,327
during the fiscal year ended December 31, 2004.
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Environmental Matters
The Company is not aware of any environmental liability relating to its
operations that would have a material adverse effect on the Company, its
business, assets or results of operations.
Inflation
Inflation has not historically been a material effect on the Company's
operations and is not expected to have a material impact on the Company or its
operations in the future.
Dependence on one or a few major customers
The Issuer has no dependence on one or a few major customers.
13
Item 3: DESCRIPTION OF PROPERTY
The Issuer does not own any real estate. The Issuer's operational offices are in
Moldavia where the Corporation's President and Board Chairman, Iurie Bordian
operates the business of the Company.
Item 4: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following information table sets forth certain information regarding the
Company's common stock ownership on January 22, 2007, by (1) any person
(including any "group") who is known by the Company to own beneficially more
than 10% of its outstanding Common Stock, (2) each director and executive
officer, and (3) all executive officers and directors as a group.
Name and address Shares Owned Percentage
- ---------------- ----------------- -------------
Chiril Luchinsky 5,051,000 34%
c/o the Company
Iurie Bordian 100,000 0.6%
c/o the Company
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Item 5: DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The directors and officers of the Company are listed below with information
about their respective backgrounds.
Name Age Position
- ------- ----- ----------
Iurie Bordian 45 Sole Director, President and CEO
Iurie Bordian, President and CEO and Sole Director since October 2006. CEO of
Cabavarum SRL.
From 2002 to 2003 he co-founded MILLAGRO SRL in Moldova and serves as CEO and
Director General. In 2002, he was Director General of MA-VEST SRL, in Moldova.
From 1998 to 2000 he was CFO of MA-VEST SRL, Moldova. From 1994-1998 he was
Chief Legal Council of "MA-VEST" SRL. From 1992-1994 he worked in the State
Control Department of the Republic of Moldova as Chief of its District Branch in
the District of Soroca. From 1990-1992 he was legal counselor the City Council
in the District of Soroca From 1988-1990 he worked as investigator (Economic and
Financial offences) for the Ministry of Internal Affairs of the Republic of
Moldova. From 1985-1990 he served as Chief Investigator at the Public
Prosecutor's Office of the Republic of Moldova. From 1983 to 1985 he worked as
Legal Counselor at the Soroca District Trade Association. Mr. Bordian's
education includes the State University of Moldova and the University of
Cluj-Napoca, Romania. He has a degree in Financial Law. He is fluent in
Romanian, Russian, and French and has working knowledge of English. Address:
21,Viilor 9/4 str. Soroca, Republic of Moldova, MD-2000
Item 6: EXECUTIVE COMPENSATION
The Company currently pays no compensation to its officers and directors and has
paid no compensation in any amount or of any kind to its executive officers or
directors for the period through the date of this filing.
Item 7: CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS
None
15
Item 8: DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 100,000,000 shares of
common stock with a par value of $0.001 per share. The holders of common stock
(1) are entitled to one non-cumulative vote per share on all matters that the
stockholders may vote on at meetings of stockholders; (2) do not have
pre-emptive, subscription or conversion rights, and there are no redemption of
sinking fund provisions applicable thereto; and (3) are entitled to share
ratably in the assets of the Company, after the payment of all debts and
liabilities, available for distribution to holders of common stock upon the
liquidation, dissolution or winding up of affairs of the Company. The Company
has no preferred stock, debentures, warrants, options or other instruments
outstanding or that could be converted into common stock of the Company.
Holders of shares of the common stock do not have cumulative voting rights,
which means that the holders of more than 50% of such outstanding shares
("majority shareholders", when voting for the election or directors, can elect
all of the directors and, in such situations, the holders of the remaining
shares will not be able to elect as the Company's directors anyone other than
those candidates supported by the majority shareholders. Holders of shares of
the common stock are entitled to receive dividends if and when declared by the
Board of Directors out of funds legally available therefore.
16
PART II
Item 1: MARKET PRICE AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND OTHER
RELATED SHAREHOLDER MATTERS
As of the date of this filing, shares of the Company are traded on the "Pink
Sheets" under the symbol "EMDH." As of December 31, 2006 there are a total of
15,053,000 issued and outstanding. Of this number a total of 5,251,000 are
deemed to be "restricted securities" as defined in Rule 144 under the Securities
Act. None of the restricted shares may be sold except pursuant to a Registration
Statement under the Securities Act of 1933. Thereafter, restricted shares may be
sold in the public market only if registered or if they qualify for an exemption
from registration under Rule 144 promulgated under the Securities Act.
In general, under Rule 144, any person, or persons whose shares are aggregated,
who has beneficially owned restricted shares for at least one year is entitled
to sell, within any three-month period, a number of shares that does not exceed
the greater of 1% of the then outstanding shares of common stock, or the average
weekly trading volume during the four calendar weeks preceding such sales. Sales
under Rule 144 are also subject to the requirements as to the manner of sale,
notice and availability of current public information about the Company. In
addition, restricted shares, which have been beneficially owned for at least two
years and which are held by non-affiliates, may be sold free of any restrictions
under Rule 144.
Dividend Policy
The Company has never paid or declared a cash dividend on its Common Stock. The
Board of Directors does not intend to declare or pay cash dividends in the
foreseeable future. It is the current policy to retain all earnings if any, to
support future growth and expansion.
Item 2: LEGAL PROCEEDINGS
The Company is not a party to any pending litigation nor is it aware of any
threatened legal proceedings.
Item 3: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
None
Item 4: RECENT SALES OF UNREGISTERED SECURITIES
None
17
Item 5: INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation and By-laws provide that the Company
will indemnify its directors and officers to the full extent authorized or
permitted under Nevada law.
As to indemnification for liabilities arising under the Securities Act of 1933
for directors, officers and controlling persons of the Company, the registrant
has been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy and is unenforceable.
SHARES ELIGIBLE FOR FUTURE SALE
As of December 12, 2006, the Company had 15,053,000 outstanding shares
of Common Stock. Of that number, a total of 5,251,000 shares are not registered
hereby, are "restricted securities" as defined under Rule 144, and may not be
sold except pursuant to a Registration Statement pursuant to the Securities Act
of 1933, and thereafter, subject to the provisions of Rule 144 under the
Securities Act of 1933.
In general, under Rule 144 as currently in effect, a person or persons
whose shares are aggregated, including an Affiliate, who has beneficially owned
Restricted Shares for at least one year is entitled to sell, within any
three-month period, a number of such shares that does not exceed the greater of:
(i) One percent of the outstanding shares of Common Stock; or
(ii) The average weekly trading volume in the Common Stock during the
four calendar weeks preceding the date on which notice of such sale is filed
with the Securities and Exchange Commission.
Sales under Rule 144 are also subject to certain manner of sale provisions and
notice requirements and to the availability of current public information about
Emerging Media Holdings In addition, a person who is not an Affiliate and has
not been an Affiliate for at least three months prior to the sale and who has
beneficially owned Restricted Shares for at least two years may resell such
shares without regard to the requirements described above. Emerging Media
Holdings is unable to estimate the number of Restricted Shares that ultimately
will be sold under Rule 144 because the number of shares will depend in part on
the market price for the Common Stock, the personal circumstances of the sellers
and other factors.
18
Emerging Media Holdings, Inc.
Financial Statements
and
Auditor's Report
19
EMERGING MEDIA HOLDINGS INC.
FINANCIAL STATEMENTS
SEPTEMBER 30, 2006 AND DECEMBER 31, 2005
EMERGING MEDIA HOLDINGS INC.
INDEX TO FINANCIAL STATEMENTS
Page
Financial Statements
Balance Sheets as of September 30, 2006 (unaudited) and
December 31, 2005 F-2
Statement of Operations for the nine months ended September 30, 2006
and 2005 (unaudited) and the years ended December 31, 2005 and 2004 F-3
Statement of Stockholders' Deficiency for the years ended
December 31, 2005 and 2004 and for the nine months ended
September 30, 2006 (unaudited) F-4
Statement of Cash Flows for the years ended December 31, 2005 and
2004 and for the nine months ended September 30, 2006 (unaudited) F-5
Notes to the Financial Statements. F-7-14
F-1
EMERGING MEDIA HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, December 31,
2006 2005
---- ----
(Unaudited)
CURRENT ASSETS:
Cash $ 229,727 $ 493,553
Marketable securities 460,965 401,200
Accounts receivable 326,231 247,688
Inventories 13,882 48,801
Refundable taxes and tax deposits 33,952 54,230
Employee receivables and other current assets 3,912 150,433
---------- ----------
Total Current Assets 1,068,669 1,395,905
Property, plant and equipment, net 268,346 287,940
---------- ----------
TOTAL ASSETS $1,337,015 $1,683,845
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 203,094 $ 119,738
Accrued expenses 44,416 37,467
Income taxes payable - 83,452
Deferred income taxes payable 3,117 3,228
Dividend payable 646,606 -
---------- ----------
Total Current Liabilities 897,233 243,885
---------- ----------
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value, 100,000,0000 shares
authorized 15,053,000 and 15,053,000
shares issued and outstanding at September 30, 2006 and
December 31, 2005 15,053 15,053
Additional paid-in-capital 14,208 14,208
Retained earnings 392,737 1,406,456
Accumulated other comprehensive income 17,784 4,243
---------- ----------
Total Stockholders' Equity 439,782 1,439,960
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,337,015 $1,683,845
========== ==========
See notes to consolidated financial statements
F-2
EMERGIN MEDIA HOLDINGS INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Nine
Months Ended For the Year Ended
September 30, December 31,
2006 2005 2005 2004
---- ---- ---- ----
(Unaudited)
-----------
Sales $ 338,209 $ 1,896,062 $ 2,937,588 $ 2,306,140
------------ ------------ ------------ ------------
Costs and expenses:
Cost of sales 269,225 647,740 1,400,293 1,030,430
Selling and marketing expenses 2,276 76,741 89,900 85,022
General and administrative expenses 89,245 104,804 148,119 169,680
Other operating expenses 15,164 26,875 5,538 30,957
------------ ------------ ------------ ------------
375,910 856,160 1,643,850 1,316,089
------------ ------------ ------------ ------------
Income (loss) from operations (37,701) 1,039,902 1,293,738 990,051
Other income (expense):
Net gain (loss) on sale of fixed assets (3,480) (334,123) (334,123) 1,941
Other income 27,462 15,011 29 -
Interest expense - (6,658) (6,658) (38,805)
------------ ------------ ------------ ------------
Total other income (expense) 23,982 (325,770) (340,752) (36,864)
------------ ------------ ------------ ------------
Earnings (loss) before provision for income taxes (13,719) 714,132 952,986 953,187
Income tax provision - (165,607) (221,230) (185,204)
------------ ------------ ------------ ------------
Net earnings (loss) $ (13,719) $ 548,525 $ 731,756 $ 767,983
============ ============ ============ ============
Earnings (loss) per common share -
basic and diluted $ - $ 0.04 $ 0.05 $ (0.01)
============ ============ ============ ============
Wieghted average number of common
shares outstanding - basic and diluted 15,053,000 15,053,000 15,053,000 15,053,000
============ ============ ============ ============
See notes to consolidated financial statements
F-3
EMERGING MEDIA HOLDINGS INC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004 AND THE NINE MONTHS ENDED
SEPTEMBER 30, 2006
Common Stock Accumulated
------------ Retained Other
Comprehensive Number of Additional Paid Earnings Comprehensive
Total Income Shares Amount In Capital (Deficit) Income (Loss)
----- ------ ------ ------ ---------- ----------- -------------
Balance, January 1, 2004 $ (64,022) 15,053,000 $ 15,053 $ 14,208 $ (93,283) $ -
Net earnings, 2004 767,983 $ 767,983 - 767,983
Currency translation (26,964) (26,964) - - (26,964)
------------
Comprehensive income $ 741,019
============
------------ ----------------------------------------------------------------------
Balance, December 31, 2004 676,997 15,053,000 15,053 14,208 674,700 (26,964)
Net earnings, 2005 731,756 $ 731,756 - 731,756 -
Currency translation 31,207 31,207 - - 31,207
------------
Comprehensive income $ 762,963
============
------------ ----------------------------------------------------------------------
Balance, December 31, 2005 1,439,960 15,053,000 15,053 14,208 1,406,456 4,243
Net loss, nine months ended
September 30, 2006 (13,719) $ (13,719) (13,719)
Currency translation 13,541 13,541 13,541
Dividend (1,000,000) (1,000,000)
------------
Comprehensive (loss) $ (178)
============
------------ ----------------------------------------------------------------------
$ 439,782 15,053,000 $ 15,053 $ 14,208 $ 392,737 $ 17,784
============ ======================================================================
See notes to consolidated financial statements
F-4
EMERGING MEDIA HOLDINGS INC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the
Nine Months Ended For the Year Ended
September 30, December 31,
2006 2005 2004
---- ---- ----
Cash flows from operating activities:
Net income (loss) $ (13,719) $ 731,756 $ 767,983
Adjustmets to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 44,546 128,934 127,100
(Gain) loss on disposition of fixed assets, net 3,645 334,123 (1,941)
Deferred income taxes (111) 670 2,558
Changes in operating assets and liabilities:
(Increase) decrease in trade receivables (78,543) 339,785 (391,554)
(Increase) decrease in inventories 34,919 29,929 (42,795)
(Increase) decrease in employee receivables and other 146,521 (148,843) 50,408
(Increase) decrease in refundable taxes and tax deposits 20,278 4,995 (69,986)
Increase (decrease) in accounts payable,
accrued liabilities and income taxes payable 40,573 (622,666) 638,066
----------- ----------- -----------
Net Cash Provided by Operating
Activities 198,109 798,683 1,079,839
----------- ----------- -----------
Cash flows from investing activities:
Purchase of property, plant and equipment (93,000) (263,057) (326,958)
Proceeds from sale of fixed assets 14,060 99,957 -
Payments made on investment (59,765) (352,397) (44,820)
----------- ----------- -----------
Net Cash Used In Investing Activities (138,705) (515,497) (371,778)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from borrowings - - 25,362
Payments on notes payable - (270,000) (410,327)
Dividends paid (353,394) - -
----------- ----------- -----------
Net Cash Used In Financing Activities (353,394) (270,000) (384,965)
----------- ----------- -----------
Effect of exchange rate changes on cash 30,164 31,207 (26,964)
----------- ----------- -----------
Net Increase (decrease) in Cash (263,826) 44,393 296,132
Cash - Beginning of Year 493,553 449,160 153,028
----------- ----------- -----------
Cash - End of Year $ 229,727 $ 493,553 $ 449,160
=========== =========== ===========
See notes to consolidated financial statements
F-5
EMERGING MEDIA HOLDINGS INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the
Nine Months Ended For the Year Ended
September 30, December 31,
2006 2005 2004
---- ---- ----
Supplemental disclosure cash flow information:
Cash paid for interest $ - $ 115,600 $ 11,445
========= ========== ========
Cash paid for income taxes $ 83,452 $ 231,379 $ 45,617
========= ========== ========
See notes to consolidated financial statements
F-6
EMERGING MEDIA HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2006, DECEMBER 31, 2005 and 2004
(The notes for September 30, 2006 are unaudited)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated balance sheet as of September 30, 2006, and the consolidated
statements of operations, stockholders' equity and cash flows for the periods
presented have been prepared by Emerging Media Holdings, Inc. (the "Company" or
"EMH") and are unaudited. In the opinion of management, all adjustments,
(consisting solely of normal recurring adjustments) necessary to present fairly
the financial position, results of operations and changes in stockholders'
equity and cash flows have been made. The information for December 31, 2005 and
2004 was derived from audited financial statements.
Organization
- ------------
Emerging Media Holdings, Inc was incorporated in the State of Nevada on
September 3, 2003. The Company directs its operations through its subsidiaries,
Cabavarum S.R.L. ("Cabavarum") and Analytic Media Group, S.A. ("AMG"). Both
subsidiaries' operations and assets are located in the Republic of Moldova.
Through its subsidiaries, the Company's primary activities are in radio and
television broadcasting. The Company earns its revenue primarily through
advertisement sales. The Company also derives revenues from the sale of concrete
mixes. This segment is currently in its initial stages. Revenue and net earnings
from this segment represent less then 1% of total revenues and net earnings for
the year ended December 31, 2005 and 2004. The segment is immaterial to the
consolidated statements and no segment information is provided.
Basis of Presentation
- ---------------------
In July 2006, EMH entered into a share exchange agreement with Cabavarum S.R.L.
("Cabavarum"), a Moldavia company, with primary activities in radio and
television broadcasting. In connection with the share exchange, the Company
acquired the assets and assumed the liabilities of Cabavarum. For accounting
purposes, the share exchange will be treated as a recapitalization of Cabavarum.
As provided for in the share exchange agreement, the stockholders of Cabavarum
received 5,251,000 shares of newly issued EMH common stock in exchange for the
outstanding shares of Cabavarum they held, which will be accounted for as a
reverse acquisition. In addition, certain shareholders of EMH transferred
additional shares to associates of the stockholders of Cabavarum.
F-7
Immediately following the share exchange, EMH had a total of 15,053,000 common
shares issued and outstanding, of which the shareholders and associates of
Cabavarum controlled 76% of the outstanding common stock.
The financial statements of EMH have been revised to retroactively reflect the
share exchange.
The acquisition of Cabavarum will be reported as a purchase with no goodwill,
with book values considered to be fair value.
In addition, the resignation of the former officer and directors of EMH took
effect upon the class of the share acquisition exclusion. The Cabavarum Board of
Directors became the Board of Directors of EMH and Chiril Luchinsky became
president and Chief Executive Officer.
Significant Accounting Policies
- -------------------------------
Principles of Consolidation
- ---------------------------
The consolidated financial statements of the Company include the Company and its
wholly-owned subsidiaries. All material intercompany balances and transactions
have been eliminated.
Economic and Political Risks
- ----------------------------
The Company faces a number of risks and challenges since its operations are in
the Republic of Moldova and its primary market is in Moldova. The financial
statements have been prepared assuming the Company will continue as a going
concern. 100% of the consolidated assets are located in Moldova and 100% of the
consolidated revenue is earned in Moldova.
Cash Equivalents
- ----------------
Cash equivalents include short-term investments in commercial paper with an
original maturity of three months or less when purchased at September 30, 2006
and December 31, 2005, cash equivalents approximated $250,000 and $250,000,
respectively.
Marketable Securities
- ---------------------
The Company classifies its equity securities as "available for sale", and
accordingly, reflects gains and losses, net of deferred taxes, as other
comprehensive income.
The fair values of marketable securities are based on quoted market prices.
Realized gains or losses from the sale of marketable securities are based on the
specific identification method.
F-8
Inventories
- -----------
Inventories are stated at the lower of cost or market on average cost basis, and
includes finished goods, raw materials, packaging material and product
merchandise relating to the concrete mixers. Finished goods include costs of raw
materials, packaging, labor used in production, and warehousing on facilities
and equipment.
Property, Plant and Equipment
- -----------------------------
Property, plant and equipment are carried at cost less accumulated depreciation.
The cost of repairs and maintenance is expensed as incurred; major replacements
and improvements are capitalized. When assets are retired or disposed of, the
cost and accumulated depreciation are removed from the accounts, and any
resulting gains or losses are included in income in the year of disposition.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets. The lives applied are as follows:
Vehicles and office equipment 7 Years
Buildings and storage facilities 30 - 35 Years
Manufacturing equipment 5 Years
Foreign Currency Translation
- ----------------------------
Conversion of currency from a Republic of Moldova lei ("MDL$") into a United
States dollar ("US$") has been made at the respective applicable rates of
exchange. Monetary assets and liabilities denominated in foreign currencies are
converted into US$ at the applicable rate of exchange at the balance sheet date.
Conversion of currency from MDL$ into US$ has been made at the rate of exchange
on September 30, 2006 and December 31, 2005: at US$1.00: MDL 13.29: and US$1.00:
MDL$12.83. Income and expense items were converted at the average rates for the
years and period then ended.
Use of Estimates
- ----------------
The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Revenue Recognition
- -------------------
Revenue from advertisement sales is recognized on a contract basis and is earned
over the life of the contract as the services for advertising are performed.
F-9
Revenue from the concrete mixers segment is recognized when title passes to the
customer upon delivery of the product to a third party shipper.
Evaluation of Long-lived Assets
- -------------------------------
The Company reviews property and equipment for impairment whenever events or
changes in circumstances indicate the carrying value may not be recoverable in
accordance with guidance in SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". If the carrying value of the long-lived assets
exceeds the present value of the related estimated future cash flows, the asset
would be adjusted to its fair value and an impairment loss would be charged to
operations in the period identified.
Income Taxes
- ------------
Taxes are calculated in accordance with taxation principles currently effective
in the Republic of Moldova and the Untied States of America.
The Company accounts for income taxes using the asset and liability approach
under which deferred income taxes are recognized by applying enacted tax rates
applicable to future years to the differences between the financial statement
carrying amounts and the tax basis of reported assets and liabilities.
Concentration of Credit Risk
- ----------------------------
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of cash, accounts receivable and accrued
expenses.
The Company's cash and cash equivalents are concentrated primarily in four banks
in Moldova. At times, such deposits could be in excess of insured limits.
Management believes that the financial institution that hold the
Company financial instrument is financially sound and, accordingly, minimal
credit risk is believed to exist with respect to these financial instruments.
Receivables are reviewed daily and credit is given after the review of the
Company's credit policies.
F-10
New Financial Accounting Standards
- ----------------------------------
In September 2006, the SEC issued Staff Accounting Bulletin ("SAB") No. 108,
"Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements," which provides interpretive
guidance on the consideration of the effects of prior year misstatements in
quantifying current year misstatements for the purpose of a materiality
assessment. The SEC staff believes that registrants must quantify errors using
both a balance sheet and income statement approach and evaluate whether either
approach results in quantifying a misstatement that, when all relevant
quantitative and qualitative factors are considered, is material. SAB No. 108 is
effective for annual financial statements covering the first fiscal year ending
after November 15, 2006, with earlier application encouraged for any interim
period of the first fiscal year ending after November 15, 2006, filed after the
publication of SAB No. 108 (September 13, 2006). The Company is currently
evaluating the impact that SAB No. 108 could have on its results of operations
or financial condition.
In September 2006, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 158, "Employers' Accounting for Defined Benefit Pension and Other Post
Retirement Plans", an amendment of FASB Statements No. 87, 88, 106 and 132(R).
FASB 158 will require employers to recognize their defined benefit plans'
overfunded or underfunded status in their balance sheets, require employers to
measure plan assets and plan obligations as of the balance sheet date,
immediately recognize any remaining transition obligation currently being
deferred, and recognize actuarial gains and losses through other comprehensive
income. The statement is effective for fiscal years ending after December 15,
2006. The Company is evaluating SFAS No. 158 and has not determined the impact
it will have on its consolidated financial statements as of and for the year
ended December 31, 2006.
In May 2005, the Financial Accounting Standards Board ("FASB") issued Statement
on Financial Accounting Standards ("SFAS") No. 154, "Accounting Changes and
Error Correction" - a replacement of APB Opinion No. 20 and FASB statement No.
3. This statement applies to all voluntary changes in accounting principles. It
also applies to changes required by an accounting pronouncement in the unusual
instance that the pronouncement does not include specific transition provisions.
This statement requires retrospective application to prior periods' financial
statements of changes in accounting principle, unless it is impracticable to
determine either the period-specific effects or the cumulative effect of the
change. The statement also carries forward the guidance in APB Opinion No. 20
requiring justification of a change in accounting principle on the basis of
preferability. This statement is effective for accounting changes and
corrections made in fiscal years beginning after December 31, 2005. The adoption
of SFAS 154 is not expected to have a material effect on the Company's financial
position or results of operations.
F-11
New Financial Accounting Standards(continued)
- ----------------------------------
In December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 123(R) that will require compensation costs related to share-based payment
transactions to be recognized in the financial statements. With limited
exceptions, the amount of compensation cost will be measured based on the
grant-date fair value of the equity or liability instruments issued.
Compensation cost will be recognized over the period that an employee provides
service in exchange for the reward. SFAS No. 123(R) is effective as to the
Company as of the beginning of the Company's 2006 fiscal year. The Company will
account for stock-based compensation costs prospectively at the time of
adoption. The adoption of SFAS 123(R) is not expected to have a material effect
on the Company's results of operations.
In December 2004, the FASB issued SFAS No. 153, an amendment of APB Opinion No.
29 "Exchanges of Nonmonetary Assets". SFAS No. 153 amends APB Opinion No. 29 by
eliminating the exception under APB No. 29 for nonmonetary exchanges of similar
productive assets and replaces it with a general exception for exchanges of
nonmonetary assets that do not have commercial substance. A nonmonetary exchange
has commercial substance if the future cash flows of the entity are expected to
change significantly as a result of the exchange. SFAS No. 153 is effective for
fiscal years beginning after June 15, 2005. The adoption of SFAS No. 153 is not
expected to have a material effect on the Company's financial position or
results of operations.
2. MARKETABLE SECURITIES
At September 30, 2006 and December 31, 2005, respectively, marketable
securities have a cost and estimated fair value of $460,965 and $401,200.
3. INVENTORIES
Inventories are summarized as follows at September 30, 2006 and December 31,
2005:
September 30, December 31,
2006 2005
---- ----
Raw materials $ 7,491 $11,200
Small tools 3,098 3,177
Purchased goods and other 3,293 34,424
------- -------
$13,882 $48,801
======= =======
F-12
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at September 30,
2006 and December 31, 2005:
September 30, December 31,
2006 2005
---- ----
Land $ 6,605 $ 6,842
Buildings, machinery and equipment 604,286 544,653
Construction in progress and other 33,825 97,235
--------- ---------
644,716 648,730
Less accumulated depreciation (376,230) (360,790)
--------- ---------
$ 268,486 $ 287,940
========= =========
Depreciation expense for the years ended December 31, 2005 and 2004 and the
nine months ended September 30, 2006 and 2005 totalled $128,934, $127,100,
$44,546 and $96,700, respectively.
5. NOTES PAYABLE
The Company was advanced funds from a foreign company in 2000. The loan in
the amount of $270,000 was paid in March 2005. The loan bears interest at 10%
per annum. The Company recorded interest of $6,658 and $27,360 for the years
ended December 31, 2005 and 2004.
During 2004, the Company paid off a capital lease obligation in the amount of
approximately $410,000. The Company expensed interest of $11,445 during the year
ended December 31, 2004.
6. INCOME TAXES
The nominal statutory corporate rate in the Republic of Moldova is 20% for 2004
and 18% for 2005 and 2006. Taxes are calculated in accordance with Moldovan
regulations and are paid annually. Taxes are calculated on a separate entity
basis since consolidation for tax purposes is not permitted in Moldova. Deferred
income taxes are provided for the temporary differences between the financial
reporting and tax basis of the Company's assets and liabilities. The principal
items giving rise to deferred taxes are the use of accelerated depreciation
methods for machinery and equipment. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
F-13
6. INCOME TAXES (continued)
Significant components of the Company's deferred tax assets and liabilities are
as follows at September 30, 2006 and December 31, 2005:
September 30, December 31,
2006 2005
Temporary Tax Temporary Tax
Difference Effect Difference Effect
---------- ------ ---------- ------
Deferred tax assets:
Net operating loss carryforwards $ - $ - $ - $ -
Less valuation allowance - - - -
------- ------- ------- -------
Net deferred tax assets - - - -
------- ------- ------- -------
Deferred tax liabilities
Book depreciation in excess of tax depreciation 17,317 3,117 17,933 3,228
------- ------- ------- -------
Net deferred tax $17,317 $ 3,117 $17,933 $ 3,228
======= ======= ======= =======
7. STOCKHOLDERS' EQUITY
In March, 2006, the Board of Directors of the Company's AMG subsidiary
authorized a dividend of $1,000,000, of which $353,394 was paid and the balance
due of $646,606 is included on the Company's balance sheet at September 30,
2006.
F-14
EMERGING MEDIA HOLDINGS INC.
FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
EMERGING MEDIA HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Registered Public Accounting Firm F2-1
Financial Statements
Balance Sheets as of December 31, 2005 and 2004 F2-2
Statement of Operations for the years ended December 31, 2005
and 2004 and for the period September 3, 2003 (Date of Formation)
through December 31, 2005 F2-3
Statement of Stockholders' Deficiency for the period
September 3, 2003 (Date of Formation) through December 31, 2005. F2-4
Statement of Cash Flows for the years ended December 31, 2005
and 2004 and for the period September 3, 2003 (Date of Formation)
through December 31, 2005 F2-5
Notes to the Financial Statements. F2-6-8
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee of Emerging Media Holdings Inc.
We have audited the accompanying balance sheet of Emerging Media Holdings, Inc.
(the "Company") (a development stage company) as of December 31, 2005 and 2004
and the related statements of operations, stockholders' deficiency and cash
flows for the years then ended and the Period September 3, 2003 (Date of
Formation) through December 31, 2005. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 2005 and
2004, and the results of their operations and their cash flows for the years
then ended and the period September 3, 2003 (Date of Formation) through December
31, 2005 in conformity with accounting principles generally accepted in the
United States of America.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As more fully explained in Note 1 to the
financial statements as of December 31, 2005 the Company had no operations and
no assurance that additional capital would be obtained or the Company would be
in a position to find a merger candidate.
These uncertainties raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans are also described in Note 1.
The accompanying financial statements do not include any adjustments that might
result from the outcome of these uncertainties should the Company be unable to
continue as a going concern.
/s/ Wiener Goodman & Company P.C.
WIENER, GOODMAN & COMPANY, P.C.
Eatontown, New Jersey
October 25, 2006
F2-1
EMERGING MEDIA HOLDINGS INC.
BALANCE SHEETS
(A Development Stage Company)
ASSETS
December 31,
2005 2004
---- ----
TOTAL ASSETS $ - $ -
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
TOTAL CURRENT LIABILITIES $ - $ -
Commitments and Contingencies
Stockholders' Deficiency:
Common Stock, $.001 par value - 100,000,000
shares authorized; 15,053,000 shares outstanding 15,053 15,053
Deficit accumulated during the development stage (15,053) (15,053)
--------
Total Stockholders' Deficiency - -
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIENCY $ - $ -
======== ========
See notes to financial statements.
F2-2
EMERGING MARKETS HOLDINGS INC.
STATEMENT OF OPERATIONS
(A Development Stage Company)
Years Ended Period September 3, 2003
December 31, (Date of Formation)
------------ through December
2005 2004 31, 2005
---- ---- --------
Costs and expenses:
General and
administrative expenses $ - $ - $ 15,053
========== ---------- -----------
Net loss $ - $ - $ 15,053
========== ========== ===========
Loss per common share -
basic and diluted $ - $ - $ -
========== ========== ===========
Weighted average number of
common shares outstanding -
basic and diluted 15,053,000 15,053,000
========== ==========
See notes to financial statements.
F2-3
EMERGING MEDIA HOLDINGS INC.
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
PERIOD SEPTEMBER 30, 2003 (DATE OF FORMATION)
THROUGH DECEMBER 31, 2005
(A Development Stage Company)
Deficit
Accumulated
During the
Common Stock Paid- In Development
Total No of shares Amount Capital Stage
----------- ------------ ----------- ---------- -----------
September 3, 2003 (Date of Formation) $ - - $ - $ - $ -
Issuance of folunder shares 15,053 15,053,000 15,053 - -
Net loss (15,053) - - - (15,053)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 2003 - 15,053,000 15,053 - (15,053)
Net loss for the year ended December 31, 2004 and 2005 - - - - -
----------- ----------- ----------- ----------- -----------
Balance, December 31, 2005 and 2004 $ - $15,053,000 $ 15,053 $ - $ (15,053)
=========== =========== =========== =========== ===========
See notes to financial statements.
F2-4
EMERGING MARKETS HOLDINGS INC.
STATEMENT OF CASH FLOWS
(A Development Stage Company)
Period September 3,
Years Ended 2003 (Date of Formation)
December 31, through December 31,
2005 2004 2005
---- ---- ----
Cash flows from operating activities:
Net loss $ - $ - $ 15,053
Adjustments to reconcile net loss to net cash
used in operating activities:
Stock issued as founder shares - - (15,053)
-------- -------- --------
Net cash used in operating activities - - -
-------- -------- --------
Net increase in cash - - -
Cash - beginning of period - - -
-------- -------- --------
Cash - end of period $ - $ - $ -
======== ======== ========
See notes to financial statements.
F2-5
EMERGING MEDIA HOLDINGS INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
(A DEVELOPMENT STAGE COMPANY)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
- ---------------------
Emerging Media Holdings, Inc. (the "Company" or "EMH") was incorporated in the
State of Nevada on September 3, 2003. Since inception, the Company has been
engaged in organizational efforts and obtaining initial financing. The Company
was formed to pursue a business combination.
Organization
- ------------
The Company is considered a development stage enterprise as defined in Financial
Accounting Standards Board ("FASB") Statement No. 7, "Accounting and Reporting
for Development Stage Companies". As of December 31, 2005, the Company had no
specific plan or purpose to merge with an identified company or companies.
Going Concern
- -------------
The Company's initial activities have been dedicated to pursue a business
combination. In July 2006, the Company executed a share exchange agreement with
Cabavarum S.R.L. (see Subsequent Events footnote).
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the financial
statements, development stage losses from September 3, 2003 (Date of Formation)
through December 31, 2005 aggregated $15,053. As of December 31, 2005, the
Company had no operations and no assurance that additional capital will be
obtained. This raises substantial doubt about the ability of the Company to
continue as a going concern.
These financial statements do not include any adjustments relating to
recoverability and classification of recorded asset amounts or the amounts and
classifications of liabilities that might be necessary should the Company be
enable to continue as a going concern.
F2-6
Significant Accounting Policies
- -------------------------------
Use of Estimates
- ----------------
The preparation of financial statements in conformity with accounting principles
accepted in the United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Income Taxes
- ------------
The Company accounts for income taxes using an asset and liability approach
under which deferred income taxes are recognized by apply enacted tax rates
applicable to future years to the differences between the financial statement
carrying amount and the tax basis of reported assets and liabilities.
The principal item giving rise to deferred taxes are temporary differences
caused by the capitalization of start-up expenditures as required by Section 195
of the Internal Revenue Code of 1986, as amended, for tax purposes and expensing
for book purposes.
Loss Per Share
- --------------
Basic loss per common share are computed by dividing net loss by weighted
average number of common shares outstanding during the year. Diluted earnings
per common share are computed by dividing net earnings by the weighted average
number of common share and potential common shares outstanding during the year.
As of December 31, 2005, there were no potential common shares.
New Financial Accounting Standards
- ----------------------------------
The Company does not expect that the adoption of other recent accounting
pronouncements will have a material effect on its financial statements.
2. COMMON STOCK
In the month of the Company's formation, the Company issued 10,300,000 shares of
its common stock, $.001 par value to principals of the Company as founder shares
in the amount of $10,300.
In July 2006, 498,000 shares of common stock were cancelled and returned to
treasury.
F2-7
3. SUBSEQUENT EVENTS
In July 2006, EMH entered into a share exchange agreement with Cabavarum S.R.L.
("Cabavarum"), a Moldavia company, with primary activities in radio and
television broadcasting. In connection with the share exchange, the Company
acquired the assets and assumed the liabilities of Cabavarum. For accounting
purposes, the share exchange will be treated as a recapitalization of Cabavarum.
As provided for in the share exchange agreement, the stockholders of Cabavarum
received 5,251,000 shares of newly issued EMH common stock in exchange for the
outstanding shares of Cabavarum they held, which will be accounted for as a
reverse acquisition. In addition, certain shareholders of EMH transferred
additional shares to associates of the stockholders of Cabavarum.
Immediately following the share exchange, EMH had a total of 15,053,000 common
shares issued and outstanding, of which the shareholders and associates of
Cabavarum controlled 76% of the outstanding common stock.
The financial statements of EMH have been revised to retroactively reflect the
share exchange.
The acquisition of Cabavarum will be reported as a purchase with no goodwill,
with book values considered to be fair value.
In addition, the resignation of the former officer and directors of EMH took
effect upon the class of the share acquisition exclusion. The Cabavarum Board of
Directors became the Board of Directors of EMH and Chiril Luchinsky became
president and Chief Executive Officer.
F2-8
CABAVARUM S.R.L. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Financial Statements Page
Report of Independent Registered Public Accounting Firm F3-1
Consolidated Balance Sheets as of December 31, 2005
and 2004 F3-2
Consolidated Statement of Operations for the years ended
December 31, 2005 and 2004 F3-3
Consolidated Statement of Stockholder's Equity for the
years ended December 31, 2005 and 2004 F3-4
Consolidated Statement of Cash Flows for the years ended
December 31, 2005 and 2004 F3-5-6
Notes to the Consolidated Financial Statements F3-7-12
- --------------------------------------------------------------------------------
Ten Industrial Way East, Suite 2, Eatontown, NJ 07724
(732) 544-8111 Fax (732) 544-8788 E-mail: tax@wgpc.net
Wiener, Goodman
& Company, P.C.
----------------------------
Certified Public Accountants
& Consultants
Memberships Joel Wiener, CPA
SEC Practice Section of AICPA Gerald Goodman, CPA
PCPS of AICPA
American Institute of CPA
New Jersey Society of CPA
Board of Directors
Cabavarum S.R.L. and Subsidiary
Chisinau, Moldova
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have audited the accompanying balance sheets of Cabavarum S.R.L. and
subsidiary at December 31, 2005 and 2004, and the related statements of
operations, stockholder's equity, and cash flows for the years then ended.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards as established by the Auditing Standards Board (United States)
and in accordance with the auditing 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 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 with 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 balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Cabavarum S.R.L. and
subsidiary at December 31, 2005 and 2004, and the related statements of
operations, stockholder's equity, and cash flows for the years then ended
in conformity with accounting principles generally accepted in the United
States of America.
/s/ Wiener Goodman & Company P.C.
Eatontown, NJ
October 9, 2006
F3-1
CABAVARUM S.R.L. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31,
2005 2004
---- ----
CURRENT ASSETS:
Cash $ 493,553 $ 449,160
Marketable securities 401,200 48,803
Accounts receivable 247,688 587,473
Inventories 48,801 78,730
Refundable taxes and tax deposits 54,230 59,225
Employee receivables and other current assets 150,433 1,590
----------- -----------
Total Current Assets 1,395,905 1,224,981
Property, plant and equipment, net 287,940 587,897
----------- -----------
TOTAL ASSETS $ 1,683,845 $ 1,812,878
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable $ 119,738 $ 443,410
Notes payable - 270,000
Accrued expenses 37,467 324,007
Income taxes payable 83,452 95,906
Deferred income taxes payable 3,228 2,558
----------- -----------
Total Current Liabilities 243,885 1,135,881
----------- -----------
STOCKHOLDER'S EQUITY:
Common stock, par value $2.926 per share,
authorized 10,000 shares; 10,000 and 10,000
shares issued and outstanding at
December 31, 2005 and 2004 29,261 29,261
Retained earnings 1,406,456 674,700
Accumulated other comprehensive income (loss) 4,243 (26,964)
----------- -----------
Total Stockholder's Equity 1,439,960 676,997
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 1,683,845 $ 1,812,878
=========== ===========
See notes to consolidated financial statements
F3-2
CABAVARUM S.R.L. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Year Ended
December 31,
2005 2004
---- ----
Sales $ 2,937,588 $ 2,306,140
----------- -----------
Costs and expenses:
Cost of sales 1,400,293 1,030,430
Selling and marketing expenses 89,900 85,022
General and administrative expenses 148,119 169,680
Other operating expenses 5,538 30,957
----------- -----------
1,643,850 1,316,089
----------- -----------
Income from operations 1,293,738 990,051
Other income (expense):
Net gain (loss) on sale of fixed assets (334,123) 1,941
Other income 29 -
Interest expense (6,658) (38,805)
----------- -----------
Total other income (expense) (340,752) (36,864)
----------- -----------
Earnings before provision for income taxes 952,986 953,187
Income tax provision (221,230) (185,204)
----------- -----------
Net earnings $ 731,756 $ 767,983
=========== ===========
See notes to consolidated financial statements
F3-3
CABAVARUM S.R.L. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004
Accumulated
Other
Comprehensive Retained Comprehensive
Total Income Common Stock Earnings (Deficit) Income (Loss)
----- ------ ------------ ------------------ -------------
Balance, January 1, 2004 $ (64,022) $ 29,261 $ (93,283) $ -
Net earnings, 2004 767,983 $ 767,983 - 767,983
Currency translation (26,964) (26,964) - - (26,964)
----------
Comprehensive income $ 741,019
==========
----------- ---------------------------------------------------
Balance, December 31, 2004 676,997 29,261 674,700 (26,964)
Net earnings, 2005 731,756 $ 731,756 - 731,756 -
Currency translation 31,207 31,207 - - 31,207
----------
Comprehensive income $ 762,963
==========
----------- ---------------------------------------------------
Balance, December 31, 2005 $ 1,439,960 $ 29,261 $ 1,406,456 $ 4,243
=========== ============ =========== ===========
See notes to consolidated financial statements
F3-4
CABAVARUM S.R.L. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Year Ended
December 31,
2005 2004
---- ----
Cash flows from operating activities:
Net income $ 731,756 $ 767,983
Adjustmets to reconcile net income to net cash
provided by operating activities:
Depreciation 128,934 127,100
(Gain) loss on disposition of fixed assets, net 334,123 (1,941)
Deferred income taxes 670 2,558
Changes in operating assets and liabilities:
(Increase) decrease in trade receivables 339,785 (391,554)
(Increase) decrease in inventories 29,929 (42,795)
(Increase) decrease in employee receivables and other (148,843) 50,408
(Increase) decrease in refundable taxes and tax deposits 4,995 (69,986)
Increase (decrease) in accounts payable,
accrued liabilities and income taxes payable (622,666) 638,066
----------- -----------
Net Cash Provided by Operating
Activities 798,683 1,079,839
----------- -----------
Cash flows from investing activities:
Purchase of property, plant and equipment (263,057) (326,958)
Proceeds from sale of fixed assets 299,957 -
Payments made on investment (352,397) (44,820)
----------- -----------
Net Cash Used In Investing Activities (515,497) (371,778)
----------- -----------
Cash flows from financing activities:
Proceeds from borrowings - 25,362
Payments on notes payable (270,000) (410,327)
----------- -----------
Net Cash Used In Financing Activities (270,000) (384,965)
----------- -----------
Effect of exchange rate changes on cash 31,207 (26,964)
----------- -----------
Net Increase in Cash 44,393 296,132
Cash - Beginning of Year 449,160 153,028
----------- -----------
Cash - End of Year $ 493,553 $ 449,160
=========== ===========
See notes to consolidated financial statements
F3-5
CABAVARUM S.R.L. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year Ended
Supplemental disclosure cash flow information: December 31,
2005 2004
---- ----
Cash paid for interest $115,600 $ 11,445
========= ========
Cash paid for income taxes $231,379 $ 45,617
========= ========
See notes to consolidated financial statements
F3-6
CABAVARUM S.R.L. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------
Organization
------------
Cabavarum S.R.L. (the "Company"), a limited liability company in the Republic
of Moldova, commenced operations in 1999. The Company is located in Chisinau,
the capital of the Republic of Moldova. The Company's primary activities are in
radio and television broadcasting. The Company earns its revenue primarily
through advertisement sales. The Company also derives revenues from the sale of
concrete mixers. This segment is currently in its initial stages. Revenue and
net earnings from this segment represent less than 1% of total revenue and net
earnings for the years ended December 31, 2005 and 2004. This segment is
immaterial to the consolidated statements and no segment information is
provided.
BASIS OF PRESENTATION
---------------------
The consolidated financial statements are prepared in accordance with
generally accepted accounting principles in the United States of America ("US
GAAP"). The Company consolidates all entities that it controls by ownership of a
majority voting interest as well as variable interest entities for which the
Company is the primary beneficiary or owns 100%. Refer to "Variable Interest
Entities" for a discussion of variable interest entities This basis of
accounting differs from that used in the statutory financial statements of the
Moldovan companies, which are prepared in accordance with the accounting
principles generally accepted in Moldova.
The Company acquired controlling interest in Analitic Media Group, S.A.
("AMG") (100%) in June 2006 (before that Mr. Cyril Lucinschi, present 100% owner
of Cabavarum, S.R.L., was holding the controlling interest (100%) in AMG since
July, 1999).
Variable Interest Entities
--------------------------
In December 2003, the Financial Accounting Standards Board ("FASB") issued
FASB Interpretation No. 46 (revised December 2003), "Consolidation of Variable
Interest Entities" ("Interpretation 46" or "FIN 46"). Application of this
interpretation was required in the Company's consolidated financial statements
for the year ended December 31, 2005 and 2004 for interests in variable interest
entities that were considered to have common ownership interests.
Interpretation 46 addresses the consolidation of business enterprises to
which the usual condition (ownership of a majority voting interest) of
consolidation does not apply. This interpretation focuses on controlling
financial interests that may be achieved through arrangements that do not
involve voting interests. The Company is owned 100% by an individual who also
owns 100% of another related company. Interpretation 46 concludes that in the
absence of clear control through voting interests, a company's exposure
(variable interest) to the economic risks and potential rewards from the
variable interest entity's assets and activities are the best evidence of
control. If any entity holds a majority of the variable interest of an entity,
or 100% of both entities, it would be considered the primary beneficiary. Upon
consideration, the primary beneficiary is generally required to include assets,
liabilities and non-controlling interests at fair value and subsequently account
for the variable interest as if it were consolidated based on majority voting
interest.
F3-7
In the Company's financial statements as of December 31, 2005 and 2004, the
Company consolidated all entities that it controlled by ownership of a majority
of voting interests. As a result of Interpretation 46, effective as of December
31, 2004, the Company's consolidated balance sheet includes the assets and
liabilities of Cabavarum S.R.L. and Analytic Media Group, S.A.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Principles of Consolidation
---------------------------
The consolidated financial statements of the Company include the Company and
its one wholly-owned subsidiary. All material intercompany balances and
transactions have been eliminated.
Economic and Political Risks
----------------------------
The Company faces a number of risks and challenges since its operations are
in the Republic of Moldova and its primary market is in Moldova. The financial
statements have been prepared assuming the Company will continue as a going
concern. 100% of the consolidated assets are located in Moldova and 100% of the
consolidated revenue is earned in Moldova.
Cash Equivalents
----------------
Cash equivalents include short-term investments in commercial paper with an
original maturity of three months or less when purchased at December 31, 2005
and 2004, cash equivalents approximated $250,000 and $-0-, respectively.
Marketable Securities
---------------------
The Company classifies its equity securities as "available for sale", and
accordingly, reflects gains and losses, net of deferred taxes, as other
comprehensive income.
The fair values of marketable securities are based on quoted market prices.
Realized gains or losses from the sale of marketable securities are based on the
specific identification method.
Inventories
-----------
Inventories are stated at the lower of cost or market on average cost basis,
and includes finished goods, raw materials, packaging material and product
merchandise relating to the concrete mixers. Finished goods include costs of raw
materials, packaging, labor used in production, and warehousing on facilities
and equipment.
Property, Plant and Equipment
-----------------------------
Property, plant and equipment are carried at cost less accumulated
depreciation. The cost of repairs and maintenance is expensed as incurred; major
replacements and improvements are capitalized. When assets are retired or
disposed of, the cost and accumulated depreciation are removed from the
accounts, and any resulting gains or losses are included in income in the year
of disposition.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets. The lives applied are as follows:
Vehicles and office equipment 7 Years
Buildings and storage facilities 30 - 35 Years
Manufacturing equipment 5 Years
F3-8
Foreign Currency Translation
----------------------------
Conversion of currency from a Republic of Moldova lei ("MDL$") into a United
States dollar ("US$") has been made at the respective applicable rates of
exchange. Monetary assets and liabilities denominated in foreign currencies are
converted into US$ at the applicable rate of exchange at the balance sheet date.
Conversion of currency from MDL$ into US$ has been made at the rate of
exchange on December 31, 2005 and 2004: at US$1.00: MDL$12.8320 and US$1.00:
MDL$12.4600. Income and expense items were converted at the average rates for
the years ended.
Use of Estimates
----------------
The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Revenue Recognition
-------------------
Revenue from advertisement sales is recognized on a contract basis and is
earned over the life of the contract as the services for advertising are
performed.
Revenue from the concrete mixers segment is recognized when title passes to
the customer upon delivery of the product to a third party shipper.
Evaluation of Long-lived Assets
-------------------------------
The Company reviews property and equipment for impairment whenever events or
changes in circumstances indicate the carrying value may not be recoverable in
accordance with guidance in SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". If the carrying value of the long-lived assets
exceeds the present value of the related estimated future cash flows, the asset
would be adjusted to its fair value and an impairment loss would be charged to
operations in the period identified.
Income Taxes
------------
Taxes are calculated in accordance with taxation principles currently
effective in the Republic of Moldova and the Untied States of America.
The Company accounts for income taxes using the asset and liability approach
under which deferred income taxes are recognized by applying enacted tax rates
applicable to future years to the differences between the financial statement
carrying amounts and the tax basis of reported assets and liabilities.
Concentration of Credit Risk
----------------------------
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash, accounts receivable
and accrued expenses.
The Company's cash and cash equivalents are concentrated primarily in
four banks in Moldova. At times, such deposits could be in excess of insured
limits. Management believes that the financial institution that hold the
F3-9
Company financial instrument is financially sound and, accordingly, minimal
credit risk is believed to exist with respect to these financial instruments.
Receivables are reviewed daily and credit is given after the review of the
Company's credit policies.
New Financial Accounting Standards
----------------------------------
In May 2005, the Financial Accounting Standards Board ("FASB") issued
Statement on Financial Accounting Standards ("SFAS") No. 154, "Accounting
Changes and Error Correction" - a replacement of APB Opinion No. 20 and
FASB statement No. 3. This statement applies to all voluntary changes in
accounting principles. It also applies to changes required by an accounting
pronouncement in the unusual instance that the pronouncement does not
include specific transition provisions. This statement requires
retrospective application to prior periods' financial statements of changes
in accounting principle, unless it is impracticable to determine either the
period-specific effects or the cumulative effect of the change. The
statement also carries forward the guidance in APB Opinion No. 20 requiring
justification of a change in accounting principle on the basis of
preferability. This statement is effective for accounting changes and
corrections made in fiscal years beginning after December 31, 2005. The
adoption of SFAS 154 is not expected to have a material effect on the
Company's financial position or results of operations.
In December 2004, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 123(R) that will require compensation costs related to share-based
payment transactions to be recognized in the financial statements. With
limited exceptions, the amount of compensation cost will be measured based
on the grant-date fair value of the equity or liability instruments issued.
Compensation cost will be recognized over the period that an employee
provides service in exchange for the reward. SFAS No. 123(R) is effective
as to the Company as of the beginning of the Company's 2006 fiscal year.
The Company will account for stock-based compensation costs prospectively
at the time of adoption. The adoption of SFAS 123(R) is not expected to
have a material effect on the Company's results of operations.
In December 2004, the FASB issued SFAS No. 153, an amendment of APB Opinion
No. 29 "Exchanges of Nonmonetary Assets". SFAS No. 153 amends APB Opinion
No. 29 by eliminating the exception under APB No. 29 for nonmonetary
exchanges of similar productive assets and replaces it with a general
exception for exchanges of nonmonetary assets that do not have commercial
substance. A nonmonetary exchange has commercial substance if the future
cash flows of the entity are expected to change significantly as a result
of the exchange. SFAS No. 153 is effective for fiscal years beginning after
June 15, 2005. The adoption of SFAS No. 153 is not expected to have a
material effect on the Company's financial position or results of
operations.
2. MARKETABLE SECURITIES
At December 31, 2005 and 2004, respectively, marketable securities have a
cost and estimated fair value of $401,200 and $48,803.
F3-10
3. INVENTORIES
Inventories are summarized as follows at December 31, 2005 and 2004:
2005 2004
--------- ---------
Raw materials $ 11,200 $ 27,727
Small tools 3,177 3,082
Purchased goods and other 34,424 47,921
--------- ---------
$ 48,801 $ 78,730
========= =========
Certain inventory is pledged as collateral for notes (See Note 5).
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at December 31, 2005
and 2004:
2005 2004
----------- -----------
Land $ 6,842 $ 25,240
Buildings, machinery and equipment 544,653 717,603
Construction in progress and other 97,235 118,533
----------- -----------
Gross 648,730 861,376
Less accumulated depreciation (360,790) (273,479)
----------- -----------
Net $ 287,940 $ 587,897
=========== ===========
Depreciation expense for 2005 and 2004 totalled $128,934 and $127,100,
respectively. Certain property, plant and equipment is pledged as collateral for
notes (See note 5).
5. NOTES PAYABLE
The Company was advanced funds from a foreign company in 2000. The loan in
the amount of $270,000 was paid in March 2005. The loan bears interest at 10%
per annum. The Company recorded interest of $6,658 and $27,360 for the years
ended December 31, 2005 and 2004. Accrued interest of $108,942 is included in
accrued expenses as of December 31, 2004.
During 2004, the Company paid off a capital lease obligation in the amount of
approximately $410,000. The Company expensed interest of $11,445 during the year
ended December 31, 2004.
6. INCOME TAXES
The nominal statutory corporate rate in the Republic of Moldova is 20% for
2004 and 18% for 2005. Taxes are calculated in accordance with Moldovan
regulations and are paid annually. Taxes are calculated on a separate entity
basis since consolidation for tax purposes is not permitted in Moldova. Deferred
income taxes are provided for the temporary differences between the financial
reporting and tax basis of the Company's assets and liabilities. The principal
items giving rise to deferred taxes are the use of accelerated depreciation
methods for machinery and equipment. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
F3-11
6. INCOME TAXES (continued)
Significant components of the Company's deferred tax assets and liabilities
are as follows at December 31:
December 31,
2005 2004
Temporary Tax Temporary Tax
Difference Effect Difference Effect
---------- ------ ---------- ------
Deferred tax assets:
Net operating loss carryforwards $ - $ - $ - $ -
Less valuation allowance - - - -
------- ------- ------- -------
Net deferred tax assets - - - -
------- ------- ------- -------
Deferred tax liabilities
Book depreciation in excess of tax depreciation 17,933 (3,228) 12,790 (2,558)
------- ------- ------- -------
Net deferred tax $17,933 $(3,228) $12,790 $(2,558)
======= ======= ======= =======
A reconciliation of income tax computed at the nominal statutory corporate tax
rate to the provision for income taxes follows:
2005 2004
---- ----
Income taxes at nominal rate $171,537 $190,637
Increase (decrease) in taxes
resulting from:
Expenses deductible for
books not deductible for tax 49,693 (5,433)
------- -------
$221,230 $185,204
7. SUBSEQUENT EVENTS
In July, 2006, the Company executed a Share Exchange Agreement with Emerging
Media Holdings, Inc., a Nevada corporation ("EMH"). As provided for in the share
exchange agreement, the stockholders of Cabavarum S.R.L. received 5,251,000
shares of newly issued EMH common stock, in exchange for the outstanding shares
of Cabavarum S.R.L. common stock they held, which was accounted for as a reverse
acquisition. In addition, certain shareholders of EMH transferred additional
shares to associates of the stockholders of the Company. Immediately following
the share exchange, EMH had a total of 15,053,000 common shares issued and
outstanding, of which the shareholders and associates of Cabavarum controlled
76% of the outstanding common stock.
F3-12
PART III
Item 1: INDEX TO EXHIBITS
Attached hereto are the exhibits as required.
Item 2: DESCRIPTION OF EXHIBITS
Exhibit No. Description of Exhibit
- ----------- ----------------------------
3.1 Articles of Incorporation (1)
3.2 By-Laws (1)
10 Distribution Agreement, dated December 29, 2006 with
NTV Hungary Commercial Limited Liability Company (1)
27 Financial Data Schedule (2)
23.1(1) Consent of Wiener, Goodman & Company, P.C.
23.2(1) Consent of Wiener, Goodman & Company, P.C.
(1) Previously filed on Form 10-SB filed January 23, 2007
(2) Filed Herewith
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
Emerging Media Holdings
February 16, 2007 By: /s/ Iurie Bordian
------------------------
Iurie Bordian, President
20