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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report under Section 13 or 15 (d) of
Securities Exchange Act of 1934
For the Period ended September 30, 2010
Commission File Number 333-146263
IN Media Corporation
(Exact name of Registrant as specified in its charter)
Nevada 20-8644177
(State of Incorporation) (IRS Employer ID Number)
4920 El Camino Real, Suite 100, Los Altos, CA 94022
Phone: (408) 849-9499
(Address and telephone number of principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes [ ] No [X]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company.
Large accelerated filer [ ] Accelerated Filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(Do Not Check if a Smaller Reporting Company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of October 31, 2010, the registrant had 45,297,000 shares of common stock,
$0.001 par value, issued and outstanding.
Transitional Small Business Disclosure Format Yes [ ] No [X]
IN MEDIA CORPORATION
Page
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PART I - FINANCIAL INFORMATION
Item 1. Interim Condensed Financial Statements (unaudited) 3
Interim Balance Sheets 4
Interim Statements of Operations 5
Interim Changes in Financial Positions 6
Notes to the Interim Financial Statements 7
Item 2. Management Discussion & Analysis of Financial Condition and
Results of Operations 12
Item 3 Quantitative and Qualitative Disclosures About Market Risk 17
Item 4. Controls and Procedures 17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 1A. Risk Factors 19
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 21
Item 3. Defaults Upon Senior Securities 21
Item 4. Removed and Reserved 21
Item 5 Other information 22
Item 6. Exhibits 22
2
PART 1
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying reviewed interim condensed consolidated financial statements
have been prepared in accordance with the instructions to Form 10-Q. Therefore,
they do not include all information and footnotes necessary for a complete
presentation of financial position, results of operations, cash flows, and
stockholders' equity in conformity with generally accepted accounting
principles. Except as disclosed herein, there has been no material change in the
information disclosed in the notes to the consolidated financial statements
included in the Company's annual report on Form 10-K for the year ended December
31, 2009. In the opinion of management, all adjustments considered necessary for
a fair presentation of the results of operations and financial position have
been included and all such adjustments are of a normal recurring nature.
Operating results for the three months and nine months ended September 30, 2010
are not necessarily indicative of the results that can be expected for the year
ending December 31, 2010.
3
In Media Corporation
(A Development Stage Company)
Condensed Balance Sheets
September 30, December 31,
2010 2009
------------ ------------
(Unaudited) Audited
ASSETS
CURRENT ASSETS
Cash $ 162 $ 63
Organizational costs -- 1,970
Prepaid expenses and license fees 401,250 415,000
------------ ------------
TOTAL ASSETS $ 401,412 $ 417,033
============ ============
LIABILITIES & STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 6,632 $ 21,816
Accrued interest 3,589 --
Consulting contract fees payable 892,000 895,000
Loan from director -- 30,565
------------ ------------
TOTAL CURRENT LIABILITIES 902,221 947,381
CONVERTIBLE NOTE 153,000 --
STOCKHOLDERS' EQUITY
75,000,000 shares common stock Authorized at $0.001/par value
45,297,000 shares issued and outstanding at September 30, 2010 45,297 45,000
Additional paid-in Capital 642,203 245,000
Deficit accumulated during the development stage (1,341,309) (820,348)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY (653,809) (530,348)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 401,412 $ 417,033
============ ============
The accompanying footnotes are an integral part of these
financial statements.
4
In Media Corporation
(A Development Stage Company)
(Unaudited)
Condensed Statements of Operations
Inception
Three Months Three Months Nine Months Nine Months October 27, 2008
Ending Ending Ending Ending Through
September 30, September 30, September 30, September 30, September 30,
2010 2009 2010 2009 2010
------------ ------------ ------------ ------------ ------------
EXPENSES
General & administrative $ 134,699 $ 4,740 $ 413,622 $ 14,201 $ 1,233,970
Development expenses 103,750 -- 103,750 -- 103,750
Interest expense 3,085 -- 3,589 -- 3,589
------------ ------------ ------------ ------------ ------------
NET (LOSS) $ (241,534) $ (4,740) $ (520,961) $ (14,201) $ (1,341,309)
============ ============ ============ ============ ============
Basic earnings (loss) per share $ (0.01) $ (0.00) $ (0.01) $ (0.00)
============ ============ ============ ============
Weighted average number of basic
common shares outstanding 45,297,000 11,500,000 45,066,000 11,500,000
============ ============ ============ ============
Fully diluted earnings (loss)
per share $ (0.01) $ (0.00) $ (0.01) $ (0.00)
============ ============ ============ ============
Weighted average number of fully
diluted common shares outstanding 45,563,899 11,500,000 45,119,016 11,500,000
============ ============ ============ ============
The accompanying footnotes notes are an integral part of these
financial statements.
5
In Media Corporation
(A Development Stage Company)
Condensed Statements of Cash flows
(Unaudited)
Inception
Nine Months Nine Months October 27, 2008
Ended Ended Through
September 30, September 30, September 30,
2010 2009 2010
---------- ---------- --------------
CASH FLOW FROM OPERATING ACTIVITIES
Net loss $ (520,961) $ (14,201) $(1,341,309.28)
Adjustments to reconcile net income to net cash
used in operating activities
Stock issued to consultants in lieu of cash 397,500 -- (397,500)
Amortization of prepaid maintenance expense 103,750 -- 103,750
Foregivness of director's loan (30,565) -- (30,565)
Accrual of interest in notes payable 3,589 -- 3,589
Write off of organization expenses 1,970 -- --
Issuance of stock on merger -- -- 1,120,000
(Increase ) decrease in operating assets
Prepaid expenses and license fees (90,000) -- (505,000)
Increase (decrease) in operating liabilities
Accounts payable (15,184) 5,100 6,632
Consulting fees payable (3,000) -- 892,000
Loan from director -- 4,995 30,565
---------- ---------- --------------
Total cash provided by (used in) operating activities $ (152,901) $ (4,106) $ (117,838)
---------- ---------- --------------
CASH FLOW FROM INVESTING ACTIVITIES
Total cash provided by (used in) investing activities $ -- $ -- $ --
---------- ---------- --------------
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock -- -- (35,000)
Sale of convertible notes 153,000 -- 153,000
---------- ---------- --------------
Total cash provided by (used in) financing activities $ 153,000 $ -- $ 118,000
---------- ---------- --------------
Net increase (decrease) in cash 99 (4,106) 162
Cash at beginning of period 63 4,803 --
---------- ---------- --------------
Cash at end of period $ 162 $ 697 $ 162
========== ========== ==============
Supplemental Cash Flow Information:
Interest Paid -- -- --
========== ========== ==============
Taxes Paid -- -- --
========== ========== ==============
The accompanying footnotes notes are an integral part of these
financial statements.
6
IN MEDIA CORPORATION
NOTES TO FINANCIAL STATEMENTS FOR THE THREE MONTHS AND NINE
MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
(UNAUDITED)
1. ORGANIZATION
IN Media Corporation (the "Company") is a Nevada corporation incorporated on
March 5, 2007 as Tres Estrellas Enterprises, Inc. ("Tres Estrellas"). Effective
February 3, 2010, the Company changed its name to IN Media Corporation. The
Company is a development stage company. On October 30, 2009 ("the Acquisition
Date"), we executed an agreement between IN Media Corporation ("IN Media") and
Tres Estrellas whereby IN Media shareholders acquired thirty-three million, five
hundred thousand (33,500,000) shares of the Company's common stock and the
Company acquired all the issued and outstanding shares of In Media and IN Media
was merged into Tres Estrellas. The Company reported this event on Form 8-K,
filed with the Securities and Exchange Agreement on November 2, 2009. For
financial accounting purposes, the acquisition was a reverse merger of the
Company by IN Media, under the purchase method of accounting, and was treated as
a recapitalization with IN Media as the acquirer. Upon consummation of the
merger, the Company adopted the business plan of IN Media. Accordingly, the
consolidated statements of operations include the results of operations of IN
Media from its inception on October 27, 2008 and the results of operations of
Tres Estrellas from the Acquisition Date through September 30, 2010. The
Company's fiscal year end is December 31.
2. GOING CONCERN AND LIQUIDITY CONSIDERATIONS
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern, which contemplates, among other
things, the realization of assets and satisfaction of liabilities in the normal
course of business. As at September 30, 2010, the Company had accumulated a loss
from operations of $1.3 million and has earned no revenues since inception, and
our liabilities exceed our assets by over $650,000. The Company intends to fund
its continuing operations through strict expense management and control, a
combination of equity or debt financing arrangements, reliance on third party
contractors to avoid the need for capital expenditure or commitment to fixed
overhead, and extended credit from suppliers and related parties, all of which
may be insufficient to fund its capital expenditures, working capital and other
cash requirements for the year ending December 31, 2010.
As of October 31, 2010, we have received purchase orders for approximately $5
million of our hardware products to be shipped over the next twelve months to
customers in India and Sri Lankar. We will not be able to fulfill these orders
until we can establish additional funding to open letters of credit, or place
security deposits with our contract manufacturer, and we are currently exploring
all financing options. We estimate that we may need to raise in the region of
$500,000 to secure the first delivery under these orders. While we have no
tangible assets as collateral to support debt financing, we believe we have
significant intangible value, including the licensed IP rights to our fully
operational IPTV products and systems, an established international distribution
channel for our products, and two purchase orders from two separate customers.
Our customers have agreed to work with us while we seek and finalize financing
arrangements to fund these orders, however, if we are unable to secure financing
for production and delivery of these purchase orders within a reasonable period
of time we face the risk that the orders may be cancelled or diverted to other
providers of IP TV equipment.
The ability of the Company to emerge from the development stage is dependent
upon, among other things, obtaining additional financing to purchase the
inventory required to fulfill current purchase order commitments, to make
on-account payments to vendors, and to service its current debt obligations.
These factors, among others, raise substantial doubt about the Company's ability
to continue as a going concern. The accompanying financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
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3. SIGNIFICANT ACCOUNTING POLICIES
A) BASIS OF PRESENTATION
The accounting and reporting policies of the Company conform to U.S. generally
accepted accounting principles (US GAAP) applicable to development stage
companies.
B) USE OF ESTIMATES
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
C) CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash in banks, money market funds, and
certificates of term deposits with maturities of less than three months from
inception, which are readily convertible to known amounts of cash and which, in
the opinion of management, are subject to an insignificant risk of loss in
value.
D) FAIR VALUE OF FINANCIAL INSTRUMENTS AND DERIVATIVE FINANCIAL INSTRUMENTS
The Company's financial instruments as defined by FASB ASC 825-10-50 include
cash, trade accounts receivable, and accounts payable and accrued expenses. All
instruments are accounted for on a historical cost basis, which, due to the
short maturity of these financial instruments, approximates fair value at
September 30, 2010. FASB ASC 820 defines fair value, establishes a framework for
measuring fair value in accordance with generally accepted accounting
principles, and expands disclosures about fair value measurements. ASC 820
establishes a three-tier fair value hierarchy which prioritizes the inputs used
in measuring fair value as follows:
Level 1. Observable inputs such as quoted prices in active markets;
Level 2. Inputs, other than the quoted prices in active markets, that are
observable either directly or indirectly; and
Level 3. Unobservable inputs in which there is little or no market data, which
requires the reporting entity to develop its own assumptions.
The Company does not have any assets or liabilities measured at fair value on a
recurring basis at September 30, 2010 and December 31, 2009.
E) INCOME TAXES
The Company accounts for income taxes under ASC 740 "Income Taxes" which
codified SFAS 109, "Accounting for Income Taxes" and FIN 48 "Accounting for
Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109."
Under the asset and liability method of ASC 740, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statements carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under ASC 740, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period the
enactment occurs. A valuation allowance is provided for certain deferred tax
assets if it is more likely than not that the Company will not realize tax
assets through future operations.
F) EARNINGS (LOSS) PER SHARE
FASB ASC 260, "Earnings Per Share" provides for calculation of "basic" and
"diluted" earnings per share. Basic earnings per share includes no dilution and
is computed by dividing net income (loss) available to common shareholders by
the weighted average common shares outstanding for the period. Diluted earnings
per share reflect the potential dilution of securities that could share in the
earnings of an entity similar to fully diluted earnings per share. Basic and
diluted loss per share was the same at the reporting dates, as the diluted loss
would be anti-dilutive.
G) STOCK-BASED COMPENSATION
ASC 718 "Compensation - Stock Compensation" codified SFAS No. 123 prescribes
accounting and reporting standards for all stock-based payments award to
employees, including employee stock options, restricted stock, employee stock
8
purchase plans and stock appreciation rights, may be classified as either equity
or liabilities. The Company should determine if a present obligation to settle
the share-based payment transaction in cash or other assets exists. A present
obligation to settle in cash or other assets exists if: (a) the option to settle
by issuing equity instruments lacks commercial substance or (b) the present
obligation is implied because of an entity's past practices or stated policies.
If a present obligation exists, the transaction should be recognized as a
liability; otherwise, the transaction should be recognized as equity. The
Company accounts for stock-based compensation issued to non-employees and
consultants in accordance with the provisions of ASC 505-50 "Equity - Based
Payments to Non-Employees" which codified SFAS 123 and the Emerging Issues Task
Force consensus in Issue No. 96-18 ("EITF 96-18"), "Accounting for Equity
Instruments that are Issued to Other Than Employees for Acquiring or in
Conjunction with Selling, Goods or Services". Measurement of share-based payment
transactions with non-employees shall be based on the fair value of whichever is
more reliably measurable: (a) the goods or services received; or (b) the equity
instruments issued. The fair value of the share-based payment transaction should
be determined at the earlier of performance commitment date or performance
completion date.
H) REVENUE RECOGNITION
The Company recognizes revenue from the sale of products and services in
accordance with Securities and Exchange Commission Staff Accounting Bulletin No.
104 ("SAB 104"), "Revenue Recognition in Financial Statements." Revenue will
consist of services income and will be recognized only when all of the following
criteria have been met: (i) Persuasive evidence for an agreement exists; (ii)
Service has occurred; (iii) The fee is fixed or determinable; and (iv) Revenue
is reasonably assured.
4. CAPITAL STOCK
A) AUTHORIZED STOCK
The Company has authorized 75,000,000 common shares with $0.001 par value. Each
common share entitles the holder to one vote, in person or proxy, on any matter
on which action of the stockholder of the corporation is sought.
On June 8 and July 27, 2010, the Company issued Convertible Notes in the
principal amounts of $100,000 and $53,000, due for repayment on March 8, 2011
and April 29, 2011, respectively, both carrying interest at 8% per annum,. As at
September 30, 2010, the Company has reserved 1,281,112 common shares for the
conversion of the note in accordance with the terms of the note purchase
agreement.
On June 17, 2010 the Company filed an S-8 registration with the SEC reserving
2,500,000 common shares for issuance under the Company's 2010 Stock Option Plan.
On August 27, 2010 the Company filed an S-1 registration with the SEC reserving
4,000,000 common shares for issuance under the terms of a self underwritten
public offering. The filing was subsequently withdrawn on October 18, 2010.
B) SHARE ISSUANCES
Since inception (October 27, 2008) to September 30, 2010, the Company has issued
the following shares:
A total of 5,500,000 common stock shares to an officer and director at
$0.002 per share for a total of $11,000. The shares bear a restrictive
transfer legend in accordance with Rule 144 under the Securities Act.
A total of 6,000,000 common stock shares to 40 unaffiliated investors at
$.004 per share for a total of $24,000 pursuant to an SB-2 Registration
Statement.
A total of 33,500,000 common stock shares to the shareholders of IN Media
Corporation pursuant to the terms and conditions of a Merger Agreement.
A total of 297,000 common stock shares to certain officers, directors and
consultants under the Company's 2010 Stock Grant and Option Plan as payment
for services provided.
This issuance of stock did not involve any public offering, general advertising
or solicitation. At the time of the issuance, IN Media had fair access to and
was in possession of all available material information about our company. The
shares bear a restrictive transfer legend in accordance with Rule 144 under the
Securities Act.
9
5. NOTES PAYABLE
On June 8 and July 27, 2010, the Company issued Convertible Notes in the
principal amounts of $100,000 and $53,000, due for repayment on March 8, 2011
and April 29, 2011, respectively, both carrying interest at 8% per annum,. As at
September 30, 2010, the Company has reserved 1,281,112 common shares for the
conversion of the note in accordance with the terms of the note purchase
agreement. There are no warrants attached to the note.
6. INCOME TAXES
The Company has incurred operating losses of $1,341,309, which, if unutilized,
will begin to expire in 2027. Future tax benefits, which may arise as a result
of these losses, have not been recognized in these financial statements, and
have been offset by a valuation allowance. Details of future income tax assets
are as follows:
Septemeber 30,
2010
-----------
Future income tax assets:
Net operating loss from inception (October 27, 2008
to September 30, 2010) $ 1,341,309
Statutory tax rate (combined federal and state) 34%
-----------
Non-capital tax loss 456,045
Valuation allowance (456,048)
-----------
$ --
===========
The potential future tax benefits of these losses have not been recognized in
these financial statements due to uncertainty of their realization. When the
future utilization of some portion of the carryforwards is determined not to be
"more likely than not," a valuation allowance is provided to reduce the recorded
tax benefits from such assets.
7. NEW ACCOUNTING PRONOUNCEMENTS
The Company does not expect any recent accounting pronouncements to have a
material impact on its financial statements.
8. RELATED PARTY TRANSACTIONS
Between inception and December 31, 2009 one of our directors, Mr Chavez,
provided and billed for services which were accrued but not paid. The balance
due to Mr Chavez was $30,565 on December 31, 2009. The balance due was
subsequently waived and written off as at March 31, 2010.
One of our shareholders, directors and officers, Mr Karnick, who, together with
his wife, owns approximately 16 million shares of restricted common stock, has a
controlling interest in Numerity Corporation from whom we have licensed our
engineering technology, IP and set top box designs, and to whom we are committed
to pay maintenance and royalties. On July 1, 2010, the Company agreed to amend
that licensing agreement to provide a deferral of maintenance dues, and an
extension of credit until the earlier of three months after first commercial
shipment, or June 30, 2011. The amendment was authorized for the Company by Mr
Danny Mabey, an independent board director.
One of our shareholders, directors and officers, Mr Karnick, who, together with
his wife, owns approximately 16 million shares of restricted common stock, has a
controlling interest in Numerity Corporation with whom we have contracted the
provision of executive, administration and business development services and to
whom we are committed to pay contract service fees of $40,000 per month. On July
1, 2010, the Company agreed to amend that Service agreement such that the next
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$330,000 of service fees payable would be waived by Numerity, and the
corresponding fees would be payable directly to Numerity's sub contractors ,
either in cash or common stock at the option of the Company. Additionally, the
parties agreed to extend credit of contract service fees currently due to
Numerity on a rolling quarterly basis, subject to mutual agreement. The
amendment was authorized by Mr Danny Mabey, an independent board director.
One of our shareholders, Guifeng Qui, who owns approximately 13 million shares
of restricted common stock, has a controlling interest in the Chinese
distributor who we have appointed to represent us in developing our business in
China. The Agreement with this distributor provides that we will receive a
margin of $20 on each unit of set-top box sold through that distribution
channel, and an additional $5 per month per subscriber for content distribution
contracts using our content library of over four thousand titles.
One of our shareholders, directors and officers, Mr Karnick owns the library of
film content which has been made available for our use at no charge to us, which
we intend to include as part of our product offerings.
11
As used in this quarterly report, "we", "us", "our", "In Media", "Company" or
"our company" refers to In Media Corporation, unless the context requires
otherwise.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION
Management's Discussion and Analysis contains various "forward looking
statements" within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended, regarding future events or the future financial performance of
the Company that involve risks and uncertainties. Certain statements included in
this Form 10-Q, including, without limitation, statements related to anticipated
cash flow sources and uses, and words including but not limited to
"anticipates", "believes", "plans", "expects", "future" and similar statements
or expressions, identify forward looking statements. Any forward-looking
statements herein are subject to certain risks and uncertainties in the
Company's business and any changes in current accounting rules, all of which may
be beyond the control of the Company. The Company adopted at management's
discretion, the most conservative recognition of revenue based on the most
stringent guidelines of the SEC. Management will elect additional changes to
revenue recognition to comply with the most conservative SEC recognition on a
forward going accrual basis as the model is replicated with other similar
markets (i.e. SBDC). The Company's actual results could differ materially from
those anticipated in these forward-looking statements. In addition, the
foregoing factors may affect generally our business, results of operations and
financial position. Forward-looking statements speak only as of the date the
statement was made. We do not undertake and specifically decline any obligation
to update any forward-looking statements. All material risks are described in
the risk section of this Form 10-Q and in the Company's Annual Report on Form
10-K for the year ended December 31, 2009.
BACKGROUND
IN Media Corporation (the "Company") is a Nevada corporation incorporated on
March 5, 2007 as Tres Estrellas Enterprises, Inc. ("Tres Estrellas"). Effective
February 3, 2010, we changed our name to IN Media Corporation. We are a
development stage company. On October 30, 2009 ("the Acquisition Date"), we
executed an agreement between IN Media Corporation ("IN Media") and Tres
Estrellas whereby IN Media shareholders acquired thirty-three million, five
hundred thousand (33,500,000) shares of the Company's common stock, we received
all the issued and outstanding stock of In Media, and IN Media was merged into
Tres Estrellas. We reported this event on Form 8-K, filed with the Securities
and Exchange Agreement on November 2, 2009. For financial accounting purposes,
the acquisition was a reverse merger of our company by IN Media, under the
purchase method of accounting, and was treated as a recapitalization with IN
Media as the acquirer. Upon consummation of the merger, we adopted the business
plan of IN Media. Accordingly, the consolidated statements of operations include
the results of operations of IN Media from its inception on October 27, 2008 and
the results of operations of Tres Estrellas from the Acquisition Date through
September 30, 2010. Our fiscal year end is December 31.
BUSINESS
With our registered office Reno, Nevada, and principal executive office in Los
Altos, CA, we are a development stage company positioned to exploit the emerging
market for Internet Protocol Television ("IPTV") services for cable, satellite,
internet, telephony and mobile services. IPTV delivers video content from public
domain and premium content sources over the internet to consumer display devices
ranging from large screen TVs in the home, to mobile display devices such as the
I-Phone or I-Pad. Our goal is to become a global leader of IPTV implementation
systems through the design and delivery of a combination of hardware, software,
manufacturing and content services at competitive prices. Our systems may be
offered to communications channel providers such as Comcast, AT&T, DirecTV, and
governmental organizations, content owners such as publishers, movie and video
game owners, and other premium content databases providers, or distributors and
re-sellers who support such channels to either complete their proprietary
offerings or provide an all-in-one solution.
TRENDS AND MARKET OPPORTUNITIES
* In recent years the opportunity for IP TV has been fuelled by various
factors including, but not limited to improvements in broadband
technology and infrastructure and consequent reduced cost
* Growth of mass market adoption of broadband access including mobile
applications
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* Consumer expectations and pressure for video on demand rather than
general broadcast distribution which has become increasingly expensive
and generally poor quality content
* Fragmentation and specialization of content ownership encouraging
content owners to make their content available by subscription,
advertising sponsorship, or as a message delivery medium
These trends have taken place in the North American market, but even more so in
developing countries around the world. According to eMarketer, the total
worldwide broadband subscriber base is expected grow to over 500,000,000
subscribers by 2011, and each broadband subscriber isa potential IP TV viewer.
Although we have focussed our efforts on developing business opportunities in
China, the demand is universal, and we have recently received our first purchase
orders for approximately $5 million of our hardware products from India and Sri
Lankar and provided we can solve the problems of financing production of the
inventory we need to fulfill these orders, and commence commercial shipment, we
expect to move beyond our development stage into a full operational stage within
the next two quarters.
PRODUCTS
We offer our customers fully integrated plug-and-play solutions comprising
hardware devices, operating software, and access to a library of video content.
As of October 31, 2010 we are currently offering a choice of three hardware
devices:
IPTV SET TOP BOX(IPSTB): The IPSTB enables a user to access video contant such
as movies, videos, games, and eductational or other promotional content simply
connecting the IPSTB to ethernet cable from a home Internet source such as a
Modem on one side to a Hi Definition TV set, or other convenient display on the
other. Once connected, the user gains access to the internet content like
YouTube, Yahoo, Google or premium distribution sites like NetFlix which stream
video over the internet.
TABLET PC : Our Tablet PC, offered in both 7 inch or 10 inch screen models works
in exactly the same way as our IPSTB enabling the user to access video over the
internet, however, because the display and the STB functionality are both
integrated into the device, the Tablet PC can also be used as a regular browser
for web surfing and other internet enabled functions like web surfing, checking
emails, or making phone calls, in the same way as a consumer might use an Apple
iPad.
PREMIUM VIDEO CONTENT: We currently have the rights to make available our
library of over 4,000 entertainment titles from Hollywood to "Bollywood" (the
informal term popularly used for the Mumbai-based Hindi-language film industry
in India) movies. This library can be made available and accessed by users
through their IPTV platform by direct subscription, or indirectly vis third
party channels.
DEVELOPMENT STAGE OPERATIONS
To date, we have built our business by focusing on outsourcing to experienced
and well established third party providers to reduce the risk of development
problems and delays, market and employee acquisition, and up-front cash flow.
These third party contractors have been responsible for designing our products
and operating software, QA testing, customer demonstration and evaluation
support, as well as market analysis, channel development and sale promotion.
They also provide general and operational support, such that we have no full
time employees, or full time employee equivalents on our own books. By adopting
this approach, we have managed to develop, test, and bring to market three
distinct product offerings in the highly competitive global market for IP TV for
a cumulative cost of less than $1.5 million. At the same time, we have been
working with distribution channels in China and other international markets to
demonstrate and prove our products and the integrated platform offering complete
with software and content. As of October 31, 2010 we have received our first
purchase order for our products, and provided we can solve the problems of
financing production of the inventory we need to fulfill these orders, and
commence commercial shipment, we expect to more beyond our development stage
into a full operational stage within the next two quarters. We plan to sub
contract our production and logistics to third parties in China so that we can
leverage their facilities and equipment, production, purchasing and logistics
management, and inventory and working capital resources. To date we have not
invested in any fixed assets, design, test, or production equipment, and have no
capital commitments to do so!
13
THE COMPETITION AND COMPETITIVE ADVANTAGE
The competitive landscape for IPTV services is very crowded as the market
potential is very large. The key players will be the platform providers who
control access to telephony, television, internet and content for consumers.
However, new players like Microsoft, Apple, Amazon, and the major Hollywood
studios are moving forward on their own solutions to monetize content and
services over the internet. Key hardware vendors like Motorola, Cisco, Intel,
etc. are also potential competitors for set-top box solutions as they have
previously established relationships with the platform providers.
Although our competitors have strong brands and significant engineering and
marketing budgets we believe that we will have an opportunity to compete because
we have outsourced our manufacturing and distribution function in China to local
partners who know and operate in the Chinese market where our cost is low and
the power of established US brands may not be so powerful. Since we already have
a fully functional product offering and have established local distribution we
believe our market offering in China is fully competitive with solutions from
our competitors.
RESULTS OF OPERATIONS
We are a development stage company and have been focused to date on developing
and refining our product hardware and operating platform to reflect market
feedback, and build our distribution channels and relationships, however have
not yet generated any revenues while we have incurred $1,341,309 in expenses
since inception through September 30, 2010. As of October 31, 2010, we have
received purchase orders for approximately $5 million of our hardware products
to be shipped over the next twelve months to customers in India and Sri Lankar.
We will not be able to fulfill these orders until we can establish additional
funding to open letters of credit, or place security deposits with our contract
manufacturer, and we are currently exploring all financing options. We estimate
that we may need to raise in the region of at least $500,000 to secure the first
delivery under these orders. Our customers have agreed to work with us while we
seek and finalize financing arrangements to fund these orders, however, if we
are unable to secure financing for production and delivery of these purchase
orders within a reasonable period of time we face the risk that the orders may
be cancelled or diverted to other providers of IP TV equipment.
We incurred $134,699 and $4,740 in general administrative expenses for the three
months ended September 30, 2010 and 2009, respectively. These costs consisted of
sub-contracted general and administrative, engineering designs and business
development expenses. Additionally, we incurred $103,750 of software maintenance
expenses in connection with our IP TV operating platform license in the current
September quarter. We also incurred $3,085 of interest expense on the $153,000
of convertible notes issued on June 8 and July 27, 2010.
The following table provides selected financial data about our company as at
September 30, 2010.
Balance Sheet Data: September 30, 2010
------------------- ------------------
Cash $ 162
Total assets $ 401,412
Total liabilities $ 917,521
Shareholders' equity (deficit) $(653,809)
LIQUIDITY AND CAPITAL RESOURCES
Our cash balance at September 30, 2010 was $162. During the nine months ended
September 30, 2010 the Company used $152,901 in operating activities which was
funded principally by the issuance of $153,000 of convertible notes. Since
inception, $35,000 has been raised through the issuance of our common stock.
We are a development stage company and have generated no revenue to date.
Although we have managed to raise $35,000 through the issuance of common stock,
secured advances from directors and officers of the Company, obtain extended
14
credit from related parties in connection with services provided, and raise
funding from the issuance of convertible notes, aggregating $150,000 as of
September 30, 2010, there is no assurance that we can secure additional funding
to cover our expenses or working capital requirements in the future. We filed an
S-1 registration statement on September 13, 2010 in contemplation of raising up
to $4 million from the sale of our common stock, however, this filing was
temporarily withdrawn on October 18, 2010 so as not to limit other short-term
fund-raising activities being undertaken in connection with providing the
working capital we need to fund recently received purchases orders. As a result
of the loss of our original market maker, and delays in finding a replacement
and completing the required approval with FINRA, our stock is now traded on the
"pink sheet" exchange rather than on the Bulletin Board, and this may hamper our
ability to raise additional note financing from our current note finance
partner. We are currently seeking other available sources of funding to provide
secured, back-to-back financing of our purchase order commitments with
production inventory. If we are unable to secure adequate capital to continue,
our business will likely fail, and our shareholders could lose some or all of
their investment. We cannot continually incur operating losses in the future and
may decide that we can no longer continue with our business operations as
detailed in our business plan because of a lack of financial results and a lack
of available financial resources.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that is material to investors.
RECENT ACCOUNTING PRONOUNCEMENTS
Recent accounting pronouncements that the Company has adopted or that will be
required to adopt in the future are summarized below.
On September 30, 2009, the Company adopted updates issued by the Financial
Accounting Standards Board (FASB) to the authoritative hierarchy of GAAP. These
changes establish the FASB Accounting Standards CodificationTM (ASC) as the
source of authoritative accounting principles recognized by the FASB to be
applied by nongovernmental entities in the preparation of financial statements
in conformity with GAAP. Rules and interpretive releases of the Securities and
Exchange Commission ("SEC") under authority of federal securities laws are also
sources of authoritative GAAP for SEC registrants. The FASB will no longer issue
new standards in the form of Statements, FASB Staff Positions, or Emerging
Issues Task Force Abstracts; instead the FASB will issue Accounting Standards
Updates. Accounting Standards Updates will not be authoritative in their own
right as they will only serve to update the Codification. These changes and the
Codification itself do not change GAAP. Other than the manner in which new
accounting guidance is referenced, the adoption of these changes had no impact
on the Condensed Consolidated Financial Statements.
In June 2009, the FASB issued guidance now codified as ASC Topic 105, "GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES" ("ASC 105"), which establishes the FASB
Accounting Standards Codification as the source of GAAP to be applied to
nongovernmental agencies. ASC 105 explicitly recognizes rules and interpretive
releases of the SEC under authority of federal securities laws as authoritative
GAAP for SEC registrants. ASC 105 became effective for interim or annual periods
ending after September 15, 2009. ASC 105 does not have a material impact on the
Company's consolidated financial statements presented hereby.
In May 2009, the FASB issued guidance now codified as ASC Topic 855, "SUBSEQUENT
EVENTS" ("ASC 855"). The pronouncement modifies the definition of what qualifies
as a subsequent event--those events or transactions that occur following the
balance sheet date, but before the financial statements are issued, or are
available to be issued--and requires companies to disclose the date through
which it has evaluated subsequent events and the basis for determining that
date. The Company adopted the provisions of ASC 855 in the second quarter of
2009, in accordance with the effective date.
On July 1, 2009, we adopted guidance issued by the FASB on business
combinations. The guidance retains the fundamental requirements that the
acquisition method of accounting (previously referred to as the purchase method
of accounting) be used for all business combinations, but requires a number of
changes, including changes in the way assets and liabilities are recognized and
measured as a result of business combinations. It also requires the
15
capitalization of in-process research and development at fair value and requires
the expensing of acquisition-related costs as incurred. We have applied this
guidance to business combinations completed since July 1, 2009.
On July 1, 2009, we adopted guidance issued by the FASB that changes the
accounting and reporting for non-controlling interests. Non-controlling
interests are to be reported as a component of equity separate from the parent's
equity, and purchases or sales of equity interests that do not result in a
change in control are to be accounted for as equity transactions. In addition,
net income attributable to a non-controlling interest is to be included in net
income and, upon a loss of control, the interest sold, as well as any interest
retained, is to be recorded at fair value with any gain or loss recognized in
net income. Adoption of the new guidance did not have a material impact on our
financial statements.
On July 1, 2009, we adopted guidance on fair value measurement for nonfinancial
assets and liabilities, except for items that are recognized or disclosed at
fair value in the financial statements on a recurring basis (at least annually).
Adoption of the new guidance did not have a material impact on our financial
statements.
In January 2010, the Financial Accounting Standards Board ("FASB") issued
guidance to amend the disclosure requirements related to recurring and
nonrecurring fair value measurements. The guidance requires new disclosures on
the transfers of assets and liabilities between Level 1 (quoted prices in active
market for identical assets or liabilities) and Level 2 (significant other
observable inputs) of the fair value measurement hierarchy, including the
reasons and the timing of the transfers. Additionally, the guidance requires a
roll forward of activities on purchases, sales, issuance, and settlements of the
assets and liabilities measured using significant unobservable inputs (Level 3
fair value measurements). The guidance became effective for us with the
reporting period beginning January 1, 2010, except for the disclosure on the
roll forward activities for Level 3 fair value measurements, which will become
effective for us with the reporting period beginning July 1, 2011. Other than
requiring additional disclosures, adoption of this new guidance did not have a
material impact on our financial statements.
On February 24, 2010, the FASB issued guidance in the "Subsequent Events" topic
of the FASC to provide updates including: (1) requiring the company to evaluate
subsequent events through the date in which the financial statements are issued;
(2) amending the glossary of the "Subsequent Events" topic to include the
definition of "SEC filer" and exclude the definition of "Public entity"; and (3)
eliminating the requirement to disclose the date through which subsequent events
have been evaluated. This guidance was prospectively effective upon issuance.
The adoption of this guidance did not impact the Company's results of operations
of financial condition.
In October 2009, the FASB issued guidance on revenue recognition that will
become effective for us beginning July 1, 2010, with earlier adoption permitted.
Under the new guidance on arrangements that include software elements, tangible
products that have software components that are essential to the functionality
of the tangible product will no longer be within the scope of the software
revenue recognition guidance, and software-enabled products will now be subject
to other relevant revenue recognition guidance. Additionally, the FASB issued
guidance on revenue arrangements with multiple deliverables that are outside the
scope of the software revenue recognition guidance. Under the new guidance, when
vendor specific objective evidence or third party evidence for deliverables in
an arrangement cannot be determined, a best estimate of the selling price is
required to separate deliverables and allocate arrangement consideration using
the relative selling price method. The new guidance includes new disclosure
requirements on how the application of the relative selling price method affects
the timing and amount of revenue recognition. We believe adoption of this new
guidance will not have a material impact on our financial statements.
In June 2009, the FASB issued guidance on the consolidation of variable interest
entities, which is effective for us beginning July 1, 2010. The new guidance
requires revised evaluations of whether entities represent variable interest
entities, ongoing assessments of control over such entities, and additional
disclosures for variable interest entities.
In January 2010, the FASB issued an amendment to ASC 505, Equity, where entities
that declare dividends to shareholders that may be paid in cash or shares at the
election of the shareholders are considered to be a share issuance that is
16
reflected prospectively in EPS, and is not accounted for as a stock dividend.
This standard is effective for interim and annual periods ending on or after
December 15, 2009 and is to be applied on a retrospective basis. The adoption of
this standard is not expected to have a significant impact on the Company's
consolidated financial statements.
The Company has implemented all new accounting pronouncements that are in effect
and that may impact its financial statements and does not believe that there are
any other new accounting pronouncements that have been issued that might have a
material impact on its financial position or results of operations.
WHERE YOU CAN FIND MORE INFORMATION
You are advised to read this Form 10-Q in conjunction with other reports and
documents that we file from time to time with the SEC. In particular, please
read our Quarterly Reports on Form 10-Q, Annual Report on Form 10-K, and Current
Reports on Form 8-K that we file from time to time. You may obtain copies of
these reports directly from us or from the SEC at the SEC's Public Reference
Room at 100 F. Street, N.E. Washington, D.C. 20549, and you may obtain
information about obtaining access to the Reference Room by calling the SEC at
1-800-SEC-0330. In addition, the SEC maintains information for electronic filers
at its website http://www.sec.gov.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not hold any derivative instruments and do not engage in any hedging
activities.
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our Exchange Act reports is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms and that such information
is accumulated and communicated to our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow for timely decisions regarding
required disclosure. In designing and evaluating the disclosure controls and
procedures, management recognizes that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, and management is required to apply
its judgment in evaluating the cost-benefit relationship of possible controls
and procedures. Our disclosure controls and procedures were designed to provide
reasonable assurance that the controls and procedures would meet their
objectives. As required by SEC Rule 13a-15(b), our Chief Executive Officer and
Chief Financial Officer carried out an evaluation of the effectiveness of the
design and operation of our disclosure controls and procedures as of the end of
the period covered by this report. Based on the foregoing, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and
procedures were effective at the reasonable assurance level.
Our Chief Executive Officer and Chief Financial Officer are responsible for
establishing and maintaining adequate internal control over our financial
reporting. In order to evaluate the effectiveness of internal control over
financial reporting, as required by Section 404 of the Sarbanes-Oxley Act,
management has conducted an assessment, including testing, using the criteria in
Internal Control -- Integrated Framework, issued by the Committee of Sponsoring
Organizations of the Treadway Commission ("COSO"). Our system of internal
control over financial reporting is designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles. Because of its inherent limitations, internal control
over financial reporting may not prevent or detect misstatements. Management has
used the framework set forth in the report entitled Internal Control-Integrated
Framework published by the Committee of Sponsoring Organizations of the Treadway
Commission, known as COSO, to evaluate the effectiveness of our internal control
17
over financial reporting. Based on this assessment, our Chief Executive Officer
and Chief Financial Officer have concluded that our internal control over
financial reporting was effective as of September 30, 2010. There has been no
change in our internal controls over financial reporting during our most recent
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, our internal controls over financial reporting.
CHANGES IN INTERNAL CONTROLS
There have been no changes in our internal controls over financial reporting or
in other factors that could materially affect, or are reasonably likely to
affect, our internal controls over financial reporting during the quarter ended
September 30, 2010. There have not been any significant changes in the Company's
critical accounting policies identified since the Company filed its Form 10-K as
of December 31, 2009.
18
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 1A. RISK FACTORS
You should carefully consider the following risk factors together with the other
information contained in this Interim Report on Form 10-Q, and in prior reports
pursuant to the Securities Exchange Act of 1934, as amended and the Securities
Act of 1933, as amended. If any of the risks factors actually occur, our
business, financial condition or results of operations could be materially
adversely affected. There have been no material changes to the risk factors
previously discussed in Item 1A of the Company's Form 10-K for the year ended
December 31, 2009, including but not limited, to the following:
OUR COMMON STOCK IS SUBJECT TO PENNY STOCK REGULATION
Our shares are subject to the provisions of Section 15(g) and Rule 15g-9 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), commonly
referred to as the "penny stock" rule. Section 15(g) sets forth certain
requirements for transactions in penny stocks and Rule 15g-9(d)(1) incorporates
the definition of penny stock as that used in Rule 3a51-1 of the Exchange Act.
The Commission generally defines penny stock to be any equity security that has
a market price less than $5.00 per share, subject to certain exceptions. Rule
3a51-1 provides that any equity security is considered to be penny stock unless
that security is: registered and traded on a national securities exchange
meeting specified criteria set by the Commission; authorized for quotation on
the NASDAQ Stock Market; issued by a registered investment company; excluded
from the definition on the basis of price (at least $5.00 per share) or the
registrant's net tangible assets; or exempted from the definition by the
Commission. Since our shares are deemed to be "penny stock", trading in the
shares will be subject to additional sales practice requirements on
broker/dealers who sell penny stock to persons other than established customers
and accredited investors.
FINRA SALES PRACTICE REQUIREMENTS MAY ALSO LIMIT A STOCKHOLDER'S ABILITY TO BUY
AND SELL OUR STOCK.
In addition to the "penny stock" rules described above, the Financial Industry
Regulatory Authority (FINRA) has adopted rules that require that in recommending
an investment to a customer, a broker-dealer must have reasonable grounds for
believing that the investment is suitable for that customer. Prior to
recommending speculative low priced securities to their non-institutional
customers, broker-dealers must make reasonable efforts to obtain information
about the customer's financial status, tax status, investment objectives and
other information. Under interpretations of these rules, FINRA believes that
there is a high probability that speculative low priced securities will not be
suitable for at least some customers. FINRA requirements make it more difficult
for broker-dealers to recommend that their customers buy our common stock, which
may limit your ability to buy and sell our stock and have an adverse effect on
the market for our shares.
WE MAY NOT HAVE ACCESS TO SUFFICIENT CAPITAL TO PURSUE OUR BUSINESS AND
THEREFORE WOULD BE UNABLE TO ACHIEVE OUR PLANNED FUTURE GROWTH.
We intend to pursue a growth strategy that includes development of the Company
business and technology. Currently we have limited capital which is insufficient
to pursue our plans for development and growth. Our ability to implement our
growth plans will depend primarily on our ability to obtain additional private
or public equity or debt financing. We are currently seeking additional capital.
Such financing may not be available at all, or we may be unable to locate and
secure additional capital on terms and conditions that are acceptable to us. Our
failure to obtain additional capital will have a material adverse effect on our
business.
19
NEVADA LAW AND OUR ARTICLES OF INCORPORATION PROTECT OUR DIRECTORS FROM CERTAIN
TYPES OF LAWSUITS, WHICH COULD MAKE IT DIFFICULT FOR US TO RECOVER DAMAGES FROM
THEM IN THE EVENT OF A LAWSUIT.
Nevada law provides that our directors will not be liable to our company or to
our stockholders for monetary damages for all but certain types of conduct as
directors. Our Articles of Incorporation require us to indemnify our directors
and officers against all damages incurred in connection with our business to the
fullest extent provided or allowed by law. The exculpation provisions may have
the effect of preventing stockholders from recovering damages against our
directors caused by their negligence, poor judgment or other circumstances. The
indemnification provisions may require our company to use our assets to defend
our directors and officers against claims, including claims arising out of their
negligence, poor judgment, or other circumstances.
THE NOTES TO OUR FINANCIAL STATEMENTS CONTAINS EXPLANATORY LANGUAGE THAT
SUBSTANTIAL DOUBT EXISTS ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN.
Note 2 to our financial statements contains explanatory language that
substantial doubt exists about our ability to continue as a going concern. We
depend on the continued contributions of our executive officers to work
effectively as a team, to execute our business strategy and to manage our
business. The loss of key personnel, or their failure to work effectively, could
have a material adverse effect on our business, financial condition, and results
of operations. If we are unable to obtain sufficient financing in the near term
or achieve profitability, then we would, in all likelihood, experience severe
liquidity problems and may have to curtail our operations. If we curtail our
operations, we may be placed into bankruptcy or undergo liquidation, the result
of which will adversely affect the value of our common shares.
FAILURE TO ACHIEVE AND MAINTAIN EFFECTIVE INTERNAL CONTROLS IN ACCORDANCE WITH
SECTION 404 OF THE SARBANES-OXLEY ACT COULD HAVE A MATERIAL ADVERSE EFFECT ON
OUR BUSINESS AND OPERATING RESULTS.
It may be time consuming, difficult and costly for us to develop and implement
the additional internal controls, processes and reporting procedures required by
the Sarbanes-Oxley Act. We may need to hire additional financial reporting,
internal auditing and other finance staff in order to develop and implement
appropriate additional internal controls, processes and reporting procedures. If
we are unable to comply with these requirements of the Sarbanes-Oxley Act, we
may not be able to obtain the independent accountant certifications that the
Sarbanes-Oxley Act requires of publicly traded companies.
If we fail to comply in a timely manner with the requirements of Section 404 of
the Sarbanes-Oxley Act regarding internal control over financial reporting or to
remedy any material weaknesses in our internal controls that we may identify,
such failure could result in material misstatements in our financial statements,
cause investors to lose confidence in our reported financial information and
have a negative effect on the trading price of our common stock.
Pursuant to Section 404 of the Sarbanes-Oxley Act and current SEC regulations,
beginning with our annual report on Form 10-K for our fiscal period ending
December 31, 2009, we are required to prepare assessments regarding internal
controls over financial reporting and beginning with our annual report on Form
10-K for our fiscal period ending December 31, 2009, furnish a report by our
management on our internal control over financial reporting.. Failure to achieve
and maintain an effective internal control environment or complete our Section
404 certifications could have a material adverse effect on our stock price.
In addition, in connection with our on-going assessment of the effectiveness of
our internal control over financial reporting, we may discover "material
weaknesses" in our internal controls as defined in standards established by the
Public Company Accounting Oversight Board, or the PCAOB. A material weakness is
a significant deficiency, or combination of significant deficiencies, that
results in more than a remote likelihood that a material misstatement of the
annual or interim financial statements will not be prevented or detected. The
PCAOB defines "significant deficiency" as a deficiency that results in more than
a remote likelihood that a misstatement of the financial statements that is more
than inconsequential will not be prevented or detected.
In the event that a material weakness is identified, we will employ qualified
personnel and adopt and implement policies and procedures to address any
material weaknesses that we identify. However, the process of designing and
20
implementing effective internal controls is a continuous effort that requires us
to anticipate and react to changes in our business and the economic and
regulatory environments and to expend significant resources to maintain a system
of internal controls that is adequate to satisfy our reporting obligations as a
public company. We cannot assure you that the measures we will take will
remediate any material weaknesses that we may identify or that we will implement
and maintain adequate controls over our financial process and reporting in the
future.
Any failure to complete our assessment of our internal control over financial
reporting, to remediate any material weaknesses that we may identify or to
implement new or improved controls, or difficulties encountered in their
implementation, could harm our operating results, cause us to fail to meet our
reporting obligations or result in material misstatements in our financial
statements. Any such failure could also adversely affect the results of the
periodic management evaluations of our internal controls and, in the case of a
failure to remediate any material weaknesses that we may identify, would
adversely affect the annual auditor attestation reports regarding the
effectiveness of our internal control over financial reporting that are required
under Section 404 of the Sarbanes-Oxley Act. Inadequate internal controls could
also cause investors to lose confidence in our reported financial information,
which could have a negative effect on the trading price of our common stock.
COMPLIANCE WITH CHANGING REGULATION OF CORPORATE GOVERNANCE AND PUBLIC
DISCLOSURE WILL RESULT IN ADDITIONAL EXPENSES AND POSE CHALLENGES FOR OUR
MANAGEMENT TEAM.
Changing laws, regulations and standards relating to corporate governance and
public disclosure, including the Dodd-Frank Wall Street Reform and Consumer
Protection Act and the rules and regulations promulgated thereunder, the
Sarbanes-Oxley Act and SEC regulations, have created uncertainty for public
companies and significantly increased the costs and risks associated with
accessing the U.S. public markets. Our management team will need to devote
significant time and financial resources to comply with both existing and
evolving standards for public companies, which will lead to increased general
and administrative expenses and a diversion of management time and attention
from revenue generating activities to compliance activities.
RISK OF SIGNIFICANT DILUTION TO SHAREHOLDERS ARISING FROM CONVERSION OF
CONVERTIBLE NOTE AT MATURITY
On June 8 and July 27, 2010 we raised $100,000 and $53,000 from the sale of
convertible notes, due March 8 and April 29, 2011, respectively. The conversion
price of the note is based on 62.5% of the average of lowest three prices in the
ten business days preceding the conversion date. We cannot control our share
price and if the price of our stock falls substantially shareholders could
suffer significant dilution at maturity.
SHOULD ONE OR MORE OF THE FOREGOING RISKS OR UNCERTAINTIES MATERIALIZE, OR
SHOULD THE UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS MAY DIFFER
SIGNIFICANTLY FROM THOSE ANTICIPATED, BELIEVED, ESTIMATED, EXPECTED, INTENDED OR
PLANNED.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. REMOVED AND RESERVED
21
ITEM 5. OTHER INFORMATION
There is no information with respect to which information is not otherwise
called for by this form.
ITEM 6. EXHIBITS
Exhibit Number
--------------
Certification of Chief Executive Officer pursuant to 31.1
18 U.S.C. 1350, as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer pursuant to 31.2
18 U.S.C. 1350, as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
Certification of Chief Executive Officer pursuant to 32.1
18 U.S.C. 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer pursuant to 32.2
18 U.S.C. 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
22
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
IN Media Corporation (Registrant)
/s/ Nitin Karnik Date: November 12, 2010
-----------------------------------------------
Nitin Karnik
President, Chief Executive Officer and Director
/s/ Simon Westbrook Date: November 12, 2010
-----------------------------------------------
Simon Westbrook
Chief Financial Officer
2