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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURUTIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2010
Commission File Number 333-146263
IN Media Corporation
(Exact name of Registrant as specified in its charter)
Nevada 1711 20-8644177
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employee
Incorporation or Organization) Classification Code Number) Identification No.)
4920 El Camino Real, Suite 100, Los Altos, CA 94022 408-849-9499
(Address of principal executive offices) (Registrant's telephone number,
including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to section 12(g) of the Act:
Common Stock, $.001 par value
Indicate by check mark if the registrant is a well-known seasoned issuer as
defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S- K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
definitions of "large accelerated filer," "accelerated filer," and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(Do not check if a smaller reporting company)
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 March 28, 2011, the registrant had 45,562,618 shares of common stock
issued and outstanding. The current market value of our common stock as of March
28, 2011 is $0.17 per share. The aggregate market value, as at the last business
day of the registrant's most recently completed fiscal year, based on the
closing price of the common stock on December 31, 2010 of $0.35, was
$15,946,916.
Documents Incorporated by Reference: None
IN MEDIA CORPORATION
TABLE OF CONTENTS
Page No.
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Part I
Item 1. Business 3
Item 1A. Risk Factors 13
Item 1B. Unresolved Staff Comments 13
Item 2. Properties 13
Item 3. Legal Proceedings 13
Item 4. Removed and Reserved 13
Part II
Item 5. Market for Common Equity and Related Stockholder Matters 14
Item 6. Selected Financial Data 16
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 16
Item 7A. Quantitative and qualitative disclosures about market risk 18
Item 8. Financial Statements 19
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 29
Item 9A. Controls and Procedures 29
Item 9B. Other Information 30
Part III
Item 10. Directors and Executive Officers 31
Item 11. Executive Compensation 33
Item 12. Security Ownership of Certain Beneficial Owners and Management 38
Item 13. Certain Relationships and Related Transactions 39
Item 14. Principal Accounting Fees and Services 39
Part IV
Item 15. Exhibits 41
Signatures 42
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As used in this report, the terms "we", "us", "our" and "our company" refer to
IN Media Corporation (formerly Tres Estrellas Enterprises, Inc.).
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Our disclosure and analysis in this Current Report on Form 10-K contains some
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 ("PSLRA"). Certain of the matters discussed
concerning our operations, cash flows, financial position, economic performance
and financial condition, and the effect of economic conditions include
forward-looking statements.
Statements that are predictive in nature, that depend upon or refer to future
events or conditions or that include words such as "expects," "anticipates,"
"intends," "plans," "believes," "estimates" and similar expressions are
forward-looking statements. Although we believe that these statements are based
upon reasonable assumptions, including projections of orders, sales, operating
margins, earnings, cash flow, research and development costs, working capital,
capital expenditures and other projections, they are subject to several risks
and uncertainties.
Investors are cautioned that our forward-looking statements are not guarantees
of future performance and the actual results or developments may differ
materially from the expectations expressed in the forward-looking statements.
As for the forward-looking statements that relate to future financial results
and other projections, actual results will be different due to the inherent
uncertainty of estimates, forecasts and projections may be better or worse than
projected. Given these uncertainties, you should not place any reliance on these
forward-looking statements. These forward-looking statements also represent our
estimates and assumptions only as of the date that they were made.
Forward-looking statements involve risks and uncertainties that may cause actual
results to differ materially from the results contained in the forward-looking
statements. The risks included herein are not exhaustive. This annual report on
Form 10-K, and quarterly reports on Form 10-Q, current reports on Form 8-K and
other documents filed with the SEC include additional factors which could impact
our business and financial performance. Moreover, we operate in a rapidly
changing and competitive environment. New risk factors emerge from time to time
and it is not possible for management to predict all such risk factors.
We expressly disclaim a duty to provide updates to these forward-looking
statements, and the estimates and assumptions associated with them, after the
date of this filing to reflect events or changes in circumstances or changes in
expectations or the occurrence of anticipated events.
PART I
ITEM 1. BUSINESS
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, and in
return 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 December 31, 2010. Our fiscal year end is
December 31.
With our registered office in 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,
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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 IPTV 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,
* 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 is a potential IPTV viewer.
Although we have focused our efforts on developing business opportunities in
China, the demand is universal, and in September and October 2010, we received
purchase orders for approximately $1 million and $4 million of our hardware
products from Sri Lanka and India, respectively. As a result of our lack of
financial resources and inability to secure credit terms from our sub-contract
manufacturer we have not yet managed to solve the problems of financing
production of the inventory that we need to fulfill these orders, and the order
from India has subsequently lapsed. We are continuing to explore credit
arrangements with our sub-contract manaufacturer to finance production of the
order for Sri Lanka, and hope, although we cannot guarantee, to move beyond our
development stage into an 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 December 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 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 via 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 product
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 sales
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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 $2.0 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.
In September and October 2010, we received purchase orders for approximately $1
million and $4 million of our hardware products from Sri Lanka and India,
respectively. As a result of our lack of financial resources and inability to
secure credit terms from our sub-contract manufacturer we have not yet managed
to solve the problems of financing production of the inventory that we need to
fulfill these orders, and the order from India has subsequently lapsed. We will
not be able to fulfill the Sri Lanka or accept other 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 a purchase order from a potential customer. This
customer has agreed to work with us while we seek and negotiate financing
arrangements to fund these orders, however, as a result of the delay, they are
asking us to upgrade or customize certain features to remain at the forefront of
the competitive market by the time we actually ship the products ordered. If we
are unable to secure financing for production and delivery of this purchase
order within a reasonable period of time we face the risk that the order 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.
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.
EMPLOYEES
We outsource our employees; consequently, we have access to the services of
approximately 10 contract employees including 1 executive and administration, 1
in business development, with the balance working in engineering.
WHERE YOU CAN FIND MORE INFORMATION
We will make available free of charge any of our filings as soon as reasonably
practicable after we electronically file these materials with, or otherwise
furnish them to, the Securities and Exchange Commission ("SEC"). We are not
including the information contained in our website as part of, or incorporating
it by reference into, this report on Form 10-K.
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The public may read and copy any materials we file with the SEC at the SEC's
Public Reference Room at 100 F Street, N.E., Room 1580, Washington, D.C. 20002.
The public may obtain information on the operation of the Public Reference Room
by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that
contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC at (http://www.sec.gov).
ITEM 1A. RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW AND THE OTHER INFORMATION CONTAINED
IN THIS PROSPECTUS BEFORE DECIDING TO INVEST IN OUR COMMON STOCK.
If any of the following risks, or any other risks not described below because
they are currently unknown to us or we currently deem such risks as immaterial,
but they later become material, actually occurs, it is likely that our business,
financial condition, and operating results could be seriously harmed. As a
result, the trading price of our Common Stock could decline and you could lose
part or all of your investment.
MINIMAL OPERATING HISTORY AND NO REVENUE MEANS THAT IT IS DIFFICULT TO DETERMINE
WHEN, IF AT ALL, WE WILL EVER BE PROFITABLE, AND PROVIDE A RETURN TO INVESTORS.
Prior to the merger we had a minimal operating history and have generated no
revenues or earnings from operations. We have no significant assets or financial
resources. We will, in all likelihood, sustain operating expenses without
corresponding revenues, at least until we begin selling our product. This will
result in us incurring a net operating loss which will increase continuously
until we can generate sufficient revenue. There is no assurance that we can
generate or sustain profitable operations.
THE REPORT OF OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM CONTAINS
EXPLANATORY LANGUAGE THAT SUBSTANTIAL DOUBT EXISTS ABOUT OUR ABILITY TO CONTINUE
AS A GOING CONCERN
The independent auditor's report on our financial statements contains
explanatory language that substantial doubt exists about our ability to continue
as a going concern, specifically in Note 2 to the financial statements. The
report states that we had accumulated a loss from operations of $1.7 million and
have earned no revenues since inception, and our liabilities exceed our assets
by over $970,000. Management 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 our capital
expenditures, working capital and other cash requirements for the year ending
December 31, 2011. 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.
SPECULATIVE NATURE OF THE COMPANY'S PROPOSED OPERATIONS MEANS THAT IT IS
DIFFICULT TO DETERMINE WHEN, IF AT ALL, OUR BUSINESS MODEL WILL BE ACCEEPTED BY
THE MARKET, AND ENABLE US TO EARN PROFITS AND PROVIDE A RETURN TO INVESTORS.
The success of our proposed plan of operation will depend to a great extent on
the operations, financial condition and management of the Company. In the
immediate future we will spend most of our resources, efforts and expenditures
in two primary areas: 1) The securing of key customers in China and 2) the
development of our IPTV set top box. We have generated no revenue since
inception due to the fact that we have not yet made any commercial shipments of
our products. The success of our operations will be dependent upon acceptance of
our product and numerous other factors beyond our control, including, but not
limited to development of our sales channels, competitive features and pricing
compared to our competitors in a dynamic and evolving market, the impact of
economic and political instability on consumer spending habits, consumer
awareness of IP TV and interest in available libraries of content, and our
ability to finance and manage production and distribution of inventories for
resale. Additionally, even if we succeed in winning orders for our products, we
may not be able to finance the building of the inventory necessary to fulfill
such orders on acceptable terms, or on any terms at all.
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REPORTING REQUIREMENTS MAY UTILIZE A SUBSTANTIAL PORTION OF OUR CASH AND REDUCE
THE PERIOD OF TIME WE CAN SURVIVE ON OUR AVAILABLE CASH RESERVES PRIOR TO
GENERATING REVENUE.
We will incur ongoing costs and expenses for SEC reporting and compliance. To be
eligible for quotation on the OTCBB, issuers must remain current in their
filings with the SEC. Market Makers are not permitted to begin quotation of a
security whose issuer does not meet this filing requirement. Securities already
quoted on the OTCBB that become delinquent in their required filings will be
removed following a 30 day grace period if they do not make their required
filing during that time. In order for us to remain in compliance we will require
future revenues to cover the cost of these filings, which could comprise a
substantial portion of our available cash resources.
THE REGULATION OF PENNY STOCKS BY SEC AND FINRA MAY DISCOURAGE THE TRADABILITY
OF THE COMPANY'S SECURITIES AND THEREBY MAKE IT HARD FOR INVESTORS TO SELL THEIR
SHARES AT THE TIME AND PRICES THEY MIGHT OTHERWISE EXPECT.
We are a "penny stock" company. We are subject to a Securities and Exchange
Commission rule that imposes special sales practice requirements upon
broker-dealers who sell such securities to persons other than established
customers or accredited investors. For purposes of the rule, the phrase
"accredited investors" means, in general terms, institutions with assets in
excess of $5,000,000, or individuals having a net worth in excess of $1,000,000
or having an annual income that exceeds $200,000 (or that, when combined with a
spouse's income, exceeds $300,000). For transactions covered by the rule, the
broker-dealer must make a special suitability determination of the purchaser and
receive the purchaser's written agreement to the transaction prior to the sale.
Effectively, this discourages broker-dealers from executing trades in penny
stocks. Consequently, the rule will affect the ability of purchasers in this
offering to sell their securities in any market that might develop, because it
imposes additional regulatory burdens on penny stock transactions.
In addition, the Securities and Exchange Commission has adopted a number of
rules to regulate "penny stocks". Such rules include Rules 3a51-1, 15g-1, 15g-2,
15g-3, 15g-4, 15g-5, 15g-6, and 15g-9 under the Securities and Exchange Act of
1934, as amended. Because our securities constitute "penny stocks" within the
meaning of the rules, the rules would apply to us and to our securities. The
rules will further affect the ability of owners of shares to sell their
securities in a market that might develop for them because it imposes additional
regulatory burdens on penny stock transactions.
Shareholders should be aware that, according to the Securities and Exchange
Commission Release No. 34-29093, the market for penny stocks has suffered in
recent years from patterns of fraud and abuse. Such patterns include (i) control
of the market for the security by one or a few broker-dealers that are often
related to the promoter or issuer; (ii) manipulation of prices through
prearranged matching of purchases and sales and false and misleading press
releases; (iii) "boiler room" practices involving high-pressure sales tactics
and unrealistic price projections by inexperienced sales persons; (iv) excessive
and undisclosed bid-ask differentials and markups by selling broker-dealers; and
(v) the wholesale dumping of the same securities by promoters and broker-dealers
after prices have been manipulated to a desired level, leaving investors with
losses. Our management is aware of the abuses that have occurred historically in
the penny stock market. Although we do not expect to be in a position to dictate
the behavior of the market or of broker-dealers who participate in the market,
management will strive within the confines of practical limitations to prevent
the described patterns from being established with respect to the Company's
securities.
RULE 144 SALES IN THE FUTURE MAY HAVE A DEPRESSIVE EFFECT ON THE COMPANY'S STOCK
PRICE AS AN INCREASE IN SUPPLY OF SHARES FOR SALE, WITH NO CORRESPONDING
INCREASE IN DEMAND WILL CAUSE PRICES TO FALL.
All of the outstanding shares of common stock held by the present officers,
directors, and affiliate stockholders are "restricted securities" within the
meaning of Rule 144 under the Securities Act of 1933, as amended. As restricted
shares, these shares may be resold only pursuant to an effective registration
statement or under the requirements of Rule 144 or other applicable exemptions
from registration under the Act and as required under applicable state
securities laws. Officers, directors and affiliates will be able to sell their
shares if this Registration Statement becomes effective. Rule 144 provides in
essence that a person who is an affiliate or officer or director who has held
restricted securities for six months may, under certain conditions, sell every
three months, in brokerage transactions, a number of shares that does not exceed
the greater of 1.0% of a Company's outstanding common stock. There is no limit
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on the amount of restricted securities that may be sold by a non-affiliate after
the owner has held the restricted securities for a period of six months if the
company is a current, reporting company under the 1934 Act. A sale under Rule
144 or under any other exemption from the Act, if available, or pursuant to
subsequent registration of shares of common stock of present stockholders, may
have a depressive effect upon the price of the common stock in any market that
may develop. In addition, if we are deemed a shell company pursuant to Section
12(b)-2 of the Act, our "restricted securities", whether held by affiliates or
non-affiliates, may not be re-sold for a period of 12 months following the
filing of a Form 10 level disclosure or registration pursuant to the Act.
FUTURE ISSUANCES OF SHARES FOR VARIOUS CONSIDERATIONS INCLUDING WORKING CAPITAL
AND OPERATING EXPENSES WILL INCREASE THE NUMBER OF SHARES OUTSTANDING WHICH WILL
DILUTE EXISTING INVESTORS AND MAY HAVE A DEPRESSIVE EFFECT ON THE COMPANY'S
STOCK PRICE.
There may be substantial dilution to our shareholders purchasing in future
offerings as a result of future decisions of the Board to issue shares without
shareholder approval for cash, services, or acquisitions.
THEIR MAY IN ALL LIKLIHOOD BE LITTLE DEMAND FOR SHARES OF OUR COMMON STOCK AND
AS A RESULT INVESTORS MAY BE UNABLE TO SELL AT OR NEAR ASK PRICES OR AT ALL IF
THEY NEED TO LIQUIDATE THEIR INVESTMENT.
There may be little demand for shares of our common stock on the OTC Bulletin
Board, or Pink Sheet, meaning that the number of persons interested in
purchasing our common shares at or near ask prices at any given time may be
relatively small or non-existent. This situation is attributable to a number of
factors, including the fact that it is a small company which is relatively
unknown to stock analysts, stock brokers, institutional investors and others in
the investment community that generate or influence sales volume, and that even
if the Company came to the attention of such persons, they tend to be
risk-averse and would be reluctant to follow an unproven, early stage company
such as ours or purchase or recommend the purchase of any of our Securities
until such time as it became more seasoned and viable. As a consequence, there
may be periods of several days or more when trading activity in the Company's
securities is minimal or non-existent, as compared to a seasoned issuer which
has a large and steady volume of trading activity that will generally support
continuous sales without an adverse effect on the securities price. We cannot
give investors any assurance that a broader or more active public trading market
for the Company's common securities will develop or be sustained, or that any
trading levels will be sustained. Due to these conditions, we can give investors
no assurance that they will be able to sell their shares at or near ask prices
or at all if they need money or otherwise desire to liquidate their securities
of the Company.
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,
we are required to prepare assessments regarding internal controls over
financial reporting and 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
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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
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.
The systems of internal controls and procedures that we have developed and
implemented to date are adequate in a business that has no revenue, few purchase
and expense transactions, and little in the way of tangible assets and working
capital. However, the reliance on third party sub-contractors and lack of
employees makes it difficult to ensure segregation of key duties, provide
multiple levels of review, and ensure that specified checks and balances exist
and are enforced and acted upon where necessary. The current transaction volume
and limited transaction channels mean that operating management, financial
management, and the independent board member and auditor can, and do,
efficiently perform a very extensive and detailed transaction review to ensure
compliance with the Company's established procedures and controls. When we
secure purchase orders and start purchasing product from our sub-contract
manufacturers, shipping product to our customers, collecting receivables, and
paying our vendors we will need to apply significantly more resources to the
management of our controls and procedures and to ensure and continue effective
compliance. If our business grows rapidly, we may not be able to keep up with
recruiting and training personnel, and enhancing our systems of internal control
in line with the growth in transaction volumes and compliance risks which could
result in loss of assets, profit, and ability to manage the daily operations of
our Company
CERTAIN NEVADA CORPORATION LAW PROVISIONS COULD PREVENT A POTENTIAL TAKEOVER,
WHICH COULD ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK.
We are incorporated in the State of Nevada. Certain provisions of Nevada
corporation law could adversely affect the market price of our common stock.
Because Nevada corporation law requires board approval of a transaction
involving a change in our control, it would be more difficult for someone to
acquire control of us. Nevada corporate law also discourages proxy contests
making it more difficult for you and other shareholders to elect directors other
than the candidate or candidates nominated by our board of directors
THE MARKET PRICE FOR OUR COMMON SHARES IS PARTICULARLY VOLATILE GIVEN OUR STATUS
AS A RELATIVELY UNKNOWN COMPANY WITH A SMALL AND THINLY TRADED PUBLIC FLOAT,
LIMITED OPERATING HISTORY AND LACK OF PROFITS WHICH COULD LEAD TO WIDE
FLUCTUATIONS IN OUR SHARE PRICE. THE PRICE AT WHICH YOU PURCHASE OUR COMMON
SHARES MAY NOT BE INDICATIVE OF THE PRICE THAT WILL PREVAIL IN THE TRADING
MARKET. YOU MAY BE UNABLE TO SELL YOUR COMMON SHARES AT OR ABOVE YOUR PURCHASE
PRICE, WHICH MAY RESULT IN SUBSTANTIAL LOSSES TO YOU.
The market for our common shares is characterized by significant price
volatility when compared to seasoned issuers, and we expect that our share price
will continue to be more volatile than a seasoned issuer for the indefinite
future. The volatility in our share price is attributable to a number of
9
factors. First, as noted above, our common shares are sporadically and thinly
traded. As a consequence of this lack of liquidity, the trading of relatively
small quantities of shares by our shareholders may disproportionately influence
the price of those shares in either direction. The price for our shares could,
for example, decline precipitously in the event that a large number of our
common shares are sold on the market without commensurate demand, as compared to
a seasoned issuer which could better absorb those sales without adverse impact
on its share price. Secondly, we are a speculative or "risky" investment due to
our limited operating history and lack of profits to date, shortage of working
capital, and uncertainty of future market acceptance for our potential products.
As a consequence of this enhanced risk, more risk-adverse investors may, under
the fear of losing all or most of their investment in the event of negative news
or lack of progress, be more inclined to sell their shares on the market more
quickly and at greater discounts than would be the case with the stock of a
seasoned issuer. Many of these factors are beyond our control and may decrease
the market price of our common shares, regardless of our operating performance.
We cannot make any predictions or projections as to what the prevailing market
price for our common shares will be at any time, including as to whether our
common shares will sustain their current market prices, or as to what effect
that the sale of shares or the availability of common shares for sale at any
time will have on the prevailing market price.
VOLATILITY IN OUR COMMON SHARE PRICE MAY SUBJECT US TO SECURITIES LITIGATION,
THEREBY DIVERTING OUR RESOURCES THAT MAY HAVE A MATERIAL EFFECT ON OUR
PROFITABILITY AND RESULTS OF OPERATIONS.
As discussed in the preceding risk factor, the market for our common shares is
characterized by significant price volatility when compared to seasoned issuers,
and we expect that our share price will continue to be more volatile than a
seasoned issuer for the indefinite future. In the past, plaintiffs have often
initiated securities class action litigation against a company following periods
of volatility in the market price of its securities. We may in the future be the
target of similar litigation. Securities litigation could result in substantial
costs and liabilities and could divert management's attention and resources.
WE DO NOT HAVE KEY MAN INSURANCE ON OUR CEO AND CFO, ON WHOM WE RELY FOR THE
MANAGEMENT OF OUR BUSINESS AND IT MAY BE DIFFICULT, OR TIME CONSUMING TO FIND
SUITABLE REPLACEMENTS WHICH COULD LEAD TO LOSS OF BUSINESS MOMENTUM.
We depend, to a large extent, on the abilities and participation of our current
management team, but have a particular reliance upon Nitin Karnik, the Company's
Chief Executive Officer and Simon Westbrook, our Company's Chief Financial
Officer. The loss of the services of Nitin Karnik or Simon Westbrook for any
reason may have a material adverse effect on our business and prospects. We
cannot assure you that their services will continue to be available to us, or
that we will be able to find a suitable replacement for either of them. We do
not carry key man life insurance for any key personnel.
WE MAY NOT BE ABLE TO HIRE AND RETAIN QUALIFIED PERSONNEL TO SUPPORT OUR GROWTH
AND IF WE ARE UNABLE TO RETAIN OR HIRE SUCH PERSONNEL IN THE FUTURE, OUR ABILITY
TO IMPROVE OUR PRODUCTS AND IMPLEMENT OUR BUSINESS OBJECTIVES COULD BE ADVERSELY
AFFECTED.
If one or more of our senior executives or other key personnel are unable or
unwilling to continue in their present positions, we may not be able to replace
them easily or at all, and our business may be disrupted and our financial
condition and results of operations may be materially and adversely affected.
Competition for senior management and senior technology personnel is intense,
the pool of qualified candidates is very limited, and we may not be able to
retain the services of our senior executives or senior technology personnel, or
attract and retain high-quality senior executives or senior technology personnel
in the future. Considering our current cash position, we do not have adequate
cash resources to hire and retain key personnel should our current offering fail
to raise adequate funding. Such failure could materially and adversely affect
our future growth and financial condition.
WE HAVE ISSUED CONVERTIBLE NOTES WHICH COME DUE FOR CONVERSION OR REPAYMENT
BASED ON A VARIABLE AVERAGE SHARE PRICE AT THAT TIME, AND SHAREHOLDERS MAY
SUFFER SIGNIFICANT DILUTION IF OUR STOCK PRICE IS THEN LOW.
On June 8, July 27, and November 17, 2010, the Company issued Convertible Notes
in the principal amounts of $100,000, $53,000, and $47,500 due for repayment on
10
March 8, 2011, April 29, 2011, and July 17, 2011 respectively, all carrying
interest at 8% per annum. The Notes can be converted at the noteholder's option
any time after six months from the issuance date based on 62.5% of the average
of the lowest three closing bid prices over the ten days preceding the
conversion date. We have experienced considerable volatility in our share price
and if the share price falls in advance of the conversion date, investors could
suffer significant dilution when the notes are converted into shares of common
stock.
WE ARE RESPONSIBLE FOR THE INDEMNIFICATION OF OUR OFFICERS AND DIRECTORS AND IN
THE EVENT OF CLAIMS NOT COVERED BY OUR DIRECTORS AND OFFICERS INSURANCE, WE MAY
HAVE TO SPEND OUR LIMITED RESOURCES ON LEGAL FEES DIVERTING CASH FROM FUNDING
BUSINESS OPERATING EXPENSES AND WORKING CAPITAL.
Our Bylaws provide for the indemnification of our directors, officers,
employees, and agents, under certain circumstances, against costs and expenses
incurred by them in any litigation to which they become a party arising from
their association with or activities on our behalf. Consequently, we may be
required to expend substantial funds to satisfy these indemnity obligations.
THE COMPANY IS PLANNING ON DOING A SIGNIFICANT PORTION OF ITS BUSINESS IN THE
PEOPLE'S REPUBLIC OF CHINA ("PRC"). GIVEN A HISTORY OF POLITICAL AND ECONOMIC
INSTABILITY, IT IS POSSIBLE THAT MEASURES BEYOND OUR CONTROL COULD AFFECT OUR
OWNERSHIP OF ASSETS, ABILITY TO DO BUSINESS, ACQUIRE NECESSARY LICENSES AND
PERMITS, COMPLY WITH IMPORT LEGISLATION AND DUTIES, REMIT PROFITS, OR IN OTHER
WAYS ADVERSELY AFFECT OUR PROFFITABILITY, OR ABILITY TO CONTINUE TO DO BUSINESS
IN THIS MARKET.
The PRC is passing from a planned economy to a market economy. The Chinese
government has confirmed that economic development will follow a model of market
economy under socialism. While the PRC government has pursued economic reforms
since its adoption of the open-door policy in 1978, a large portion of the PRC
economy is still operating under five-year plans and annual state plans adopted
by the government that set down national economic development goals. Through
these plans and other economic measures, such as control on foreign exchange,
taxation and restrictions on foreign participation in the domestic market of
various industries, the PRC government exerts considerable direct and indirect
influence on the economy. Many of the economic reforms are unprecedented or
experimental for the PRC government, and are expected to be refined and
improved. Other political, economic and social factors can also lead to further
re-adjustment of such reforms. This refining and re-adjustment process may not
necessarily have a positive effect on our operations or future business
development. Our operating results may be adversely affected by changes in the
PRC's economic and social conditions as well as by changes in the policies of
the PRC government, which we may not be able to foresee, such as changes in laws
and regulations (or the official interpretation thereof), measures which may be
introduced to control inflation, changes in the rate or method of taxation, and
imposition of additional restrictions on currency conversion.
THE RECENT NATURE AND UNCERTAIN APPLICATION OF MANY PRC LAWS APPLICABLE TO US
CREATE AN UNCERTAIN AND POTENTIALLY ADVERSE ENVIRONMENT FOR BUSINESS OPERATIONS
AND THEY COULD HAVE A NEGATIVE EFFECT ON OUR ABILITY TO SELL OUR PRODUCTS
PROFITABLY IN THE PRC MARKET.
The PRC legal system is a civil law system. Unlike the common law system, such
as the legal system used in the United States, the civil law system is based on
written statutes in which decided legal cases have little value as precedents.
In 1979, the PRC began to promulgate a comprehensive system of laws and has
since introduced many laws and regulations to provide general guidance on
economic and business practices in the PRC and to regulate foreign investment.
Progress has been made in the promulgation of laws and regulations dealing with
economic matters such as corporate organization and governance, foreign
investment, commerce, taxation and trade. The promulgation of new laws, changes
of existing laws and the abrogation of local regulations by national laws could
have a negative impact on our business and business prospects. In addition, as
these laws, regulations and legal requirements are relatively recent, their
interpretation and enforcement involve significant uncertainty.
IF RELATIONS BETWEEN THE UNITED STATES AND CHINA WORSEN, INVESTORS MAY
ANTICIPATE FUTURE ECONOMIC TRADE RESTRICTIONS OR OTHER DIFFICULTIES AND DECIDE
TO SELL OR AVOID BUYING SHARES OF COMPANIES OPERATING IN PRC. THIS WOULD LIKELY
11
LEAD TO A DECLINE IN OUR STOCK PRICE AND WE MAY HAVE DIFFICULTY ACCESSING THE
U.S. CAPITAL MARKETS.
At various times during recent years, the United States and China have had
disagreements over political and economic issues. Controversies may arise in the
future between these two countries. Any political or trade controversies between
the United States and China could adversely affect the market price of our
common stock and our ability to access U.S. capital markets.
GOVERNMENTAL CONTROL OF CURRENCY CONVERSION MAY AFFECT THE DOLLAR VALUE OF
REVENUES EARNED IN PRC, AND THE REALISED VALUE OF REMITTANCES WHICH COULD REDUCE
THE PROFITABILITY OF OUR BUSINESS AND THE VALUE OF YOUR INVESTMENT.
The PRC government imposes controls on the convertibility of RMB ("RMB") into
foreign currencies and, in certain cases, the remittance of currency out of the
PRC. Currently, the RMB is not a freely convertible currency. Shortages in the
availability of foreign currency may restrict our ability to remit sufficient
foreign currency to pay dividends, or otherwise satisfy foreign currency
denominated obligations. Under existing PRC foreign exchange regulations,
payments of current account items, including profit distributions, interest
payments and expenditures from the transaction, can be made in foreign
currencies without prior approval from the PRC State Administration of Foreign
Exchange by complying with certain procedural requirements. However, approval
from appropriate governmental authorities is required where RMB is to be
converted into foreign currency and remitted out of China to pay capital
expenses such as the repayment of loans and corporate debt obligations
denominated in foreign currencies.
The PRC government may also at its discretion restrict access in the future to
foreign currencies for current account transactions. If the foreign exchange
control system prevents us from obtaining sufficient foreign currency to satisfy
our currency demands, we may not be able to pay certain of our expenses as they
come due.
THE FLUCTUATION OF THE RMB ("RMB") MAY MATERIALLY AND ADVERSELY AFFECT THE
DOLLAR VALUE OF REVENUES EARNED IN PRC, AND THE REALISED VALUE OF REMITTANCES
WHICH COULD REDUCE THE PROFITABILITY OF OUR BUSINESS AND THE VALUE OF YOUR
INVESTMENT.
The value of the RMB against the U.S. dollar and other currencies may fluctuate
and is affected by, among other things, changes in the PRC's political and
economic conditions. Any significant revaluation of the RMB may materially and
adversely affect our cash flows, revenues and financial condition. For example,
to the extent that we need to convert U.S. dollars into RMB for our operations,
appreciation of the RMB against the U.S. dollar could have a material adverse
effect on our business, financial condition and results of operations.
Conversely, if we decide to convert our RMB into U.S. dollars for business
purposes and the U.S. dollar appreciates against the RMB, the U.S. dollar
equivalent of the RMB we convert would be reduced. Any significant evaluation of
RMB may reduce our operation costs in U.S. dollars but may also reduce our
earnings in U.S. dollars. In addition, the depreciation of significant U.S.
dollar denominated assets could result in a charge to our income statement and a
reduction in the value of these assets.
Commencing from July 21, 2005, China has adopted a managed floating exchange
rate regime based on market demand and supply with reference to a basket of
currencies. The exchange rate of the US dollar against the RMB was adjusted from
approximately RMB 8.28 per US dollar to approximately RMB 8.11 per US dollar on
July 21, 2005. Since then, the PRC administers and regulates the exchange rate
of the US dollar against the RMB taking into account demand and supply of RMB,
as well as domestic and foreign economic and financial conditions and as of
December 31, 2010 stood at RMB 6.59.
In addition, there can be no assurance that we will be able to obtain sufficient
foreign exchange to pay dividends or satisfy other foreign exchange requirements
in the future and we currently do not intend to pay dividends.
PUBLIC DISCLOSURE REQUIREMENTS AND COMPLIANCE WITH CHANGING REGULATION OF
CORPORATE GOVERNANCE POSE CHALLENGES FOR OUR MANAGEMENT TEAM AND RESULT IN
ADDITIONAL EXPENSES AND COSTS WHICH MAY REDUCE THE FOCUS OF MANAGEMENT AND THE
PROFITABALITY OF OUR COMPANY.
12
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.
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
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This filing contains forward-looking statements about our business, financial
condition and prospects that reflect our management's assumptions and good faith
beliefs based on information currently available. We can give no assurance that
the expectations indicated by such forward-looking statements will be realized.
If any of our assumptions should prove incorrect, or if any of the risks and
uncertainties underlying such expectations should materialize, our actual
results may differ materially from those indicated by the forward-looking
statements.
The key factors that are not within our control and that may have a direct
bearing on operating results include, but are not limited to, acceptance of our
proposed services and the products we expect to market, our ability to establish
a customer base, managements' ability to raise capital in the future, the
retention of key employees and changes in the regulation of our industry.
There may be other risks and circumstances that management may be unable to
predict. When used in this filing, words such as, "believes," "expects,"
"intends," "plans," "anticipates," "estimates" and similar expressions are
intended to identify and qualify forward-looking statements, although there may
be certain forward-looking statements not accompanied by such expressions.
ITEM 1B. UNRESOLVED STAFF COMMENTS
This Item is not applicable to us as we are not an accelerated filer, a large
accelerated filer, or a well-seasoned issuer.
ITEM 2. PROPERTIES
Our principal executive office address is 4920 El Camino Real, Suite 100, Los
Altos, CA 94022. We currently use the office of a third party at no expense
(direct or accrued). As a consequence, we currently have no long term lease
obligations.
We currently have no investment policies as they pertain to real estate, real
estate interests or real estate mortgages.
ITEM 3. LEGAL PROCEEDINGS
We are currently not involved in any litigation that we believe could have a
materially adverse effect on our financial condition or results of operations.
There is no action, suit, proceeding, inquiry or investigation before or by any
court, public board, government agency, self-regulatory organization or body
pending or, to the knowledge of the executive officers of our company or any of
our subsidiaries, threatened against or affecting our company, our common stock,
or of our company's officers or directors in their capacities as such, in which
an adverse decision could have a material adverse effect.
ITEM 4. REMOVED AND RESERVED
13
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
Our Common stock is currently traded on the OTC Pink Sheets (OTCQB) under the
symbol "IMDC". The following table sets forth, for the periods indicated, the
high and low inter-dealer closing prices per share of our common stock as
reported on the OTC Bulletin Board, without retail mark-up, mark-down or
commission and may not represent actual transactions.
The following table sets forth the high and low bid prices for our common stock
for the last two years.
Year Quarter High Low
---- ------- ---- ---
2009 First -- --
2009 Second -- --
2009 Third -- --
2009 Fourth $ 1.40 $ 0.60
2010 First $ 0.12 $ 0.08
2010 Second $ 1.53 $ 0.12
2010 Third $ 1.20 $ 0.51
2010 Fourth $ 0.92 $ 0.17
HOLDERS
As of December 31, 2010, there were 45,562,618 shares of our common stock issued
and outstanding with 208 shareholders of record.
TRANSFER AGENT
Our Transfer Agent is TranShare Corporation.
DIVIDEND POLICY
Dividends, if any, will be contingent upon our revenues and earnings, if any,
capital requirements and financial conditions. The payment of dividends, if any,
will be within the discretion of our Board of Directors. We presently intend to
retain all earnings, if any, for use in our business operations.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
As of the fiscal year ended December 31, 2010, the Company did not have any
equity compensation plans and therefore did not grant any stock options or
authorize securities for issuance under an equity compensation plan.
As a result, we did not have any options, warrants or rights outstanding as of
December, 2010.
14
Number of securities
remaining available for
Number of Securities to be Weighted-average exercise future issuance under
issued upon exercise of price of outstanding equity compensation plans
outstanding options, options, warrants and (excluding securities
Plan Category warrants and rights rights reflected in column (a))
------------- ------------------- ------ ------------------------
(a) (b) (c)
Equity compensation plans
approved by security holders -0- -0- -0-
Equity compensation plans not
approved by security holders -0- -0- -0-
Total -0- -0- -0-
RECENT SALES OF UNREGISTERED SECURITIES
In December, 2010, the Company issued 145,618 fully-paid shares of common stock
to a note holder in conversion of $30,000 of outstanding Notes.
PENNY STOCK RULES
The Securities and Exchange Commission has also adopted rules that regulate
broker-dealer practices in connection with transactions in penny stocks. Penny
stocks are generally equity securities with a price of less than $5.00 (other
than securities registered on certain national securities exchanges or quoted on
the Nasdaq system, provided that current price and volume information with
respect to transactions in such securities is provided by the exchange or
system).
Our shares are considered penny stock under the Securities and Exchange Act. The
shares will remain penny stocks for the foreseeable future. The classification
of penny stock makes it more difficult for a broker-dealer to sell the stock
into a secondary market, which makes it more difficult for a purchaser to
liquidate his/her investment. Any broker-dealer engaged by the purchaser for the
purpose of selling his or her shares in us will be subject to Rules 15g-1
through 15g-10 of the Securities and Exchange Act. Rather than creating a need
to comply with those rules, some broker-dealers will refuse to attempt to sell
penny stock.
The penny stock rules require a broker-dealer, prior to a transaction in a penny
stock not otherwise exempt from those rules, to deliver a standardized risk
disclosure document, which:
- contains a description of the nature and level of risk in the market
for penny stock in both public offerings and secondary trading;
- contains a description of the broker's or dealer's duties to the
customer and of the rights and remedies available to the customer with
respect to a violation of such duties or other requirements of the
Securities Act of 1934, as amended;
- contains a brief, clear, narrative description of a dealer market,
including "bid" and "ask" price for the penny stock and the
significance of the spread between the bid and ask price;
- contains a toll-free telephone number for inquiries on disciplinary
actions;
- defines significant terms in the disclosure document or in the conduct
of trading penny stocks; and
- contains such other information and is in such form (including
language, type, size and format) as the Securities and Exchange
Commission shall require by rule or regulation;
15
The broker-dealer also must provide, prior to effecting any transaction in a
penny stock, to the customer:
- the bid and offer quotations for the penny stock;
- the compensation of the broker-dealer and its salesperson in the
transaction;
- the number of shares to which such bid and ask prices apply, or other
comparable information relating to the depth and liquidity of the
market for such stock; and
- monthly account statements showing the market value of each penny
stock held in the customer's account.
In addition, the penny stock rules require that prior to a transaction in a
penny stock not otherwise exempt from those rules; the broker-dealer must make a
special written determination that the penny stock is a suitable investment for
the purchaser and receive the purchaser's written acknowledgment of the receipt
of a risk disclosure statement, a written agreement to transactions involving
penny stocks, and a signed and dated copy of a written suitability statement.
These disclosure requirements will have the effect of reducing the trading
activity in the secondary market for our stock because it will be subject to
these penny stock rules. Therefore, stockholders may have difficulty selling
their securities.
SHARES AVAILABLE UNDER RULE 144
There are currently 31,055,392 shares of common stock that are considered
restricted securities under Rule 144 of the Securities Act of 1933. All
31,055,392 shares are held by affiliates, as that term is defined in Rule
144(a)(1) and other shareholders. Under Rule 144, such shares can be publicly
sold, subject to volume restrictions and certain restrictions on the manner of
sale, commencing six months after their acquisition for those companies that
have been subject to the reporting requirements of section 13 or 15(d) of the
Exchange Act for a period of at least 90 days before the sale.
ITEM 6. SELECTED FINANCIAL DATA
Not required for smaller reporting companies.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with our
financial statements and related notes thereto included elsewhere in this annual
report. Portions of this document that are not statements of historical or
current fact are forward-looking statements that involve risk and uncertainties,
such as statements of our plans, objectives, expectations and intentions. The
cautionary statements made in this annual report should be read as applying to
all related forward-looking statements wherever they appear in this annual
report. From time to time, we may publish forward-looking statements relative to
such matters as anticipated financial performance, business prospects,
technological developments and similar matters. The Private Securities
Litigation Reform Act of 1995 provides a safe harbor for forward-looking
statements. All statements other than statements of historical fact included in
this section or elsewhere in this report are, or may be deemed to be,
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Important
factors that could cause actual results to differ materially from those
discussed in such forward-looking statements include, but are not limited to,
the following: changes in the economy or in specific customer industry sectors;
changes in customer procurement policies and practices; changes in product
manufacturer sales policies and practices; the availability of product and
labor; changes in operating expenses; the effect of price increases or
decreases; the variability and timing of business opportunities including
acquisitions, alliances, customer agreements and supplier authorizations; our
ability to realize the anticipated benefits of acquisitions and other business
strategies; the incurrence of debt and contingent liabilities in connection with
acquisitions; changes in accounting policies and practices; the effect of
organizational changes within the Company; the emergence of new competitors,
including firms with greater financial resources than ours; adverse state and
federal regulation and legislation; and the occurrence of extraordinary events,
including natural events and acts of God, fires, floods and accidents.
16
The following discussion and analysis of our plan of operations should be read
in conjunction with our financial statements and related notes appearing
elsewhere in this report. This discussion and analysis contain forward-looking
statements that involve risks, uncertainties and assumptions. Actual results may
differ materially from those anticipated in these forward-looking statements as
a result of certain factors, including, but not limited to, those presented
under the heading of "Risk Factors" and elsewhere in this annual report. As used
in this report, "we", "us", "our", "In Media", "Company" or "our company" refers
to In Media Corporation, unless the context requires otherwise.
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 we have
not yet generated any revenues while we have incurred $1,690,280 in expenses
since inception through December 31, 2010. In September and October 2010, we
received purchase orders for approximately $1 million and $4 million of our
hardware products from Sri Lanka and India, respectively. As a result of our
lack of financial resources and inability to secure credit terms from our
sub-contract manufacturer we have not yet managed to solve the problems of
financing production of the inventory that we need to fulfill these orders, and
the order from India has subsequently lapsed. We will not be able to fulfill the
Sri Lanka or accept other 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 a purchase
order from a potential customer. This customer has agreed to work with us while
we seek and negotiate financing arrangements to fund these orders, however, as a
result of the delay, they are asking us to upgrade or customize certain features
to remain at the forefront of the competitive market by the time we actually
ship the products ordered. 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 order may be cancelled or diverted to other providers of IP TV
equipment.
We incurred $655,717 and $513,336 in general administrative expenses for the
years ended December 31, 2010 and 2009, respectively. These costs consisted of
sub-contracted general and administrative, engineering designs and business
development expenses, and professional and administrative expenses associated
with our financial reports and SEC filings. The increase of 27.7% over the same
period in 2009 was principally due to greater engineering design costs
associated with development of additional products and new product features.
Additionally, we incurred $207,500 and $203,250 of software maintenance expenses
in connection with our IPTV operating platform license in the year ended
December 31, 2010. This license agreement, which commenced in the second half of
2009, was renegotiated with Numerity Corporation to reflect delays in commercial
shipments of IN Media hardware and related licensed software. As a result,
maintenance fees for the year ended December 31, 2010 were reduced from $415,000
to $207,500.
We also incurred $6,715 of interest expense in 2010 on the $170,500 of
convertible notes issued and still outstanding as at December 31, 2010.
The following table provides selected financial data about our company as at
December 31, 2010.
Balance Sheet Data: September 30, 2010
------------------- ------------------
Cash $ 62
Total assets $ 207,562
Total liabilities $ 1,180,342
Shareholders' equity (deficit) $ (972,780)
17
LIQUIDITY AND CAPITAL RESOURCES
Our cash balance at December 31, 2010 was $162. During the year ended December
31, 2010, the Company consumed $200,501 in cash as a result of operating
activities which included $869,932 of operating losses partially offset by
$397,500 of common stock issued to consultants in lieu of cash settlements, and
$207,500 amortization of pre-paid maintenance fees due on the licensing
agreement with Numerity Corporation. Cash was contributed principally by the
increase in certain operating liabilities, and by the issuance of $200,500 in
convertible notes, Since inception, $290,000 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 $290,000 through the issuance of common stock,
secured advances from directors and officers of the Company, obtained extended
credit from related parties in connection with services provided, and raised
funding from the issuance of convertible notes, aggregating $200,500 as of
December 31, 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 listed on the
OTCQB exchange rather than on the OTC Bulletin Board, and this may hamper our
ability to raise additional note financing from our current note finance partner
or other potential investors. 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RESEARCH
We do not hold any derivative instruments and do not engage in any hedging
activities.
18
ITEM 8. FINANCIAL STATEMENTS
GEORGE STEWART, CPA
316 17th AVENUE SOUTH
SEATTLE, WASHINGTON 98144
(206) 328-8554 FAX(206) 328-0383
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
In Media Corporation
I have audited the accompanying balance sheet of In Media Corporation (A
Development Stage Company) as of December 31, 2010 and 2009, and the related
statement of operations, stockholders' equity and cash flows for the years then
ended and from October 27, 2008 (inception), to December 31, 2010. These
financial statements are the responsibility of the Company's management. My
responsibility is to express an opinion on these financial statements based on
my audit.
I conducted my audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that I 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. I believe that my audit provides a reasonable
basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of In Media Corporation, (A
Development Stage Company) as of December 31, 2010 and 2009, and the results of
its operations and cash flows for the years then ended and from October 27, 2008
(inception), to December 31, 2009 in conformity with generally accepted
accounting principles in the United States of America.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note # 2 to the financial
statements, the Company has had no operations and has no established source of
revenue. This raises substantial doubt about its ability to continue as a going
concern. Management's plan in regard to these matters is also described in Note
# 2. The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
/s/ George Stewart
-----------------------------
George Stewart
Seattle, Washington
March 29, 2011
19
In Media Corporation
(A Development Stage Company)
Balance Sheets
December 31, December 31,
2010 2009
---------- ----------
ASSETS
CURRENT ASSETS
Cash $ 62 $ 63
Prepaid expenses and license fees 207,500 416,970
---------- ----------
TOTAL ASSETS $ 207,562 $ 417,033
========== ==========
LIABILITIES & STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 48,479 $ 21,816
Accrued interest 6,715 --
Consulting contract fees payable 467,000 480,000
Loan from director 2,100 30,565
---------- ----------
TOTAL CURRENT LIABILITIES 524,294 532,381
---------- ----------
LONG TERM LIABILITIES
Convertible Note 170,500 --
Contract Amounts payable to Numerity 485,548 415,000
STOCKHOLDERS' EQUITY
Common stock - 75,000,000 shares authorized at $0.001 par
value; 45,562,618 and 45,000,000 shares issued and
outstanding at December 31, 2010 and 2009, respectively 45,563 45,000
Additional paid-in Capital 671,937 245,000
Deficit accumulated during the development stage (1,690,280) (820,348)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY (972,780) (530,348)
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 207,562 $ 417,033
========== ==========
The accompanying footnotes are an integral part of these financial statements.
20
In Media Corporation
(A Development Stage Company)
Statements of Operations
Inception
October 27, 2008
Year Ended Year Ended Through
December 31, December 31, December 31,
2010 2009 2010
------------ ------------ ------------
EXPENSES
General & administrative $ 655,717 $ 513,336 $ 1,272,815
Development expenses 207,500 $ 203,250 $ 410,750
Interest expense 6,715 -- 6,715
------------ ------------ ------------
NET (LOSS) $ (869,932) $ (716,586) $ (1,690,280)
============ ============ ============
Basic earnings (loss) per share $ (0.02) $ (0.04)
============ ============
Weighted average number of basic
common shares outstanding 45,117,713 17,282,192
============ ============
Fully diluted earnings (loss) per share $ (0.02) $ (0.04)
============ ============
Weighted average number of fully
diluted common shares outstanding 45,305,606 17,282,192
============ ============
The accompanying footnotes are an integral part of these financial statements.
21
In Media Corporation
(A Development Stage Company)
Statements of Cash flows
Inception
October 27, 2008
Year ended Year ended Through
December 31, December 31, December 31,
2010 2009 2010
------------ ------------ ------------
CASH FLOW FROM OPERATING ACTIVITIES
Net loss $ (869,932) $ (716,586) (1,690,280)
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 207,500 (207,500)
Foregivness of director's loan (30,565)
Accrual of interest in notes payable 6,715 6,715
Write off of organization expenses 1,970
Issuance of stock on merger (50,965)
(Increase) decrease in operating assets
Prepaid expenses and license fees --
Increase (decrease) in operating liabilities
Accounts payable 26,663 19,716 48,479
Consulting fees payable 57,548 480,000 952,548
Loan from director 2,100 8,095 2,100
------------ ------------ ------------
Total cash provided by (used in) operating activities $ (200,501) $ (259,740) $ (490,438)
------------ ------------ ------------
CASH FLOW FROM INVESTING ACTIVITIES
Total cash provided by (used in) investing activities $ -- $ -- $ --
------------ ------------ ------------
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 255,000 290,000
Sale of convertible notes 200,500 200,500
------------ ------------ ------------
Total cash provided by (used in) financing activities $ 200,500 $ 255,000 $ 490,500
------------ ------------ ------------
Net increase (decrease) in cash (1) (4,740) 62
Cash at beginning of period 63 4,803 --
------------ ------------ ------------
Cash at end of period $ 62 $ 63 $ 62
============ ============ ============
Supplemental Cash Flow Information:
Interest Paid -- -- --
============ ============ ============
Taxes Paid -- -- --
============ ============ ============
The accompanying footnotes are an integral part of these financial statements.
22
In Media Corporation
(A Development Stage Company)
Statements of Shareholders' Equity and Retained Earnings
Deficit
Accumulated
Common Additional During the
Common Stock Paid-in Development
Stock Amount Capital Stage Total
----- ------ ------- ----- -----
Balance December 31, 2007 11,500,000 $ 11,500 $ 23,500 $ (20,759) $ 14,241
Net loss, year ended December 31, 2008 $ (32,038) $ (32,038)
----------- --------- ---------- ----------- ----------
Balance, December 31, 2008 11,500,000 $ 11,500 $ 23,500 $ (52,797) $ (17,797)
----------- --------- ---------- ----------- ----------
Merger of Tres Estrellas and In Media
Corporation, October 30, 2009 33,500,000 $ 33,500 $ 221,500 $ (50,965) $ 204,035
Net loss through Dec 31, 2009 $ (716,586) $ (716,586)
----------- --------- ---------- ----------- ----------
Balance December 31, 2009 45,000,000 $ 45,000 $ 245,000 $ (820,348) $ (530,348)
----------- --------- ---------- ----------- ----------
Net loss for year ended December 31, 2010 $ (869,932) $ (869,932)
Issuance of Common stock to consultants 417,000 $ 417 $ 397,083 $ 397,500
Isuance of Common Stock in conversion of notes 145,618 $ 146 $ 29,854 $ 30,000
----------- --------- ---------- ----------- ----------
Balance December 31, 2010 45,562,618 $ 45,563 $ 671,937 $(1,690,280) $ (972,780)
=========== ========= ========== =========== ==========
The accompanying notes are an integral part of these financial statements.
23
IN MEDIA CORPORATION
NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 2010 AND 2009
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 December 31, 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 December 31, 2010, the Company had accumulated a loss
from operations of $1.7 million and has earned no revenues since inception, and
our liabilities exceed our assets by over $970,000. 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, 2011.
In September and October 2010, we received purchase orders for approximately $1
million and $4 million of our hardware products from Sri Lanka and India,
respectively. As a result of our lack of financial resources and inability to
secure credit terms from our sub-contract manufacturer we have not yet managed
to solve the problems of financing production of the inventory that we need to
fulfill these orders, and the order from India has subsequently lapsed. We will
not be able to fulfill the Sri Lanka or other orders until we can establish
additional funding to open letters of credit, or place security deposits with
our sub-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 a purchase order from a potential customer. This customer has
agreed to work with us while we seek and negotiate financing arrangements to
fund these orders, however, as a result of the delay, they are asking us to
upgrade or customize certain features to remain at the forefront of the
competitive market by the time we actually ship the products ordered. If we are
unable to secure financing for production and delivery of this purchase order
within a reasonable period of time we face the risk that the order 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 our 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.
24
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
December 31, 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 December 31, 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
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
25
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) CONVERTIBLE DEBT INSTRUMENTS
ASC 470-20-05-7 provides that convertible debt instruments be bifurcated to show
the underlying impact of discounted interest costs that result from a
noteholder's option to convert the note into equity at a subsequent date. The
Company issued a total of $200,500 in convertible debt during the year ended
December 31, 2010. Since the notes are all relatively short term, and both the
Company and noteholder recognize that the Company is unlikely to have sufficient
cash at maturity to repay the notes, the Company has taken the view that the
Notes, and total cost including interest expense and conversion price, are an
integral equity transaction.
I) 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 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.
During the period from registration to December 31, 2010, the Company issued
417,000 shares to consultants and employees, and has 2,083,000 registered shares
available for future issuance.
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 December 31, 2010, the Company has issued
the following shares:
(i) 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.
(ii) 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.
(iii)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.
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.
26
In addition, the Company has issued:
(iv) A total of 417,000 common stock shares to certain officers, directors
and consultants under the Company's 2010 Stock Grant and Option Plan
as payment for services provided in the value of $505,500.
(v) A total of 145,618 common stock shares to a noteholder in settlement
of $30,000 of convertible debt
5. NOTES PAYABLE
On June 8, July 27, and November 17, 2010, the Company issued Convertible Notes
in the principal amounts of $100,000, $53,000, and $47,500 due for repayment on
March 8, 2011, April 29, 2011, and July 17, respectively, all carrying interest
at 8% per annum. The Notes can be converted at the noteholder's option any time
after six months from the issuance date based on 62.5% of the average of the
lowest three closing bid prices over the ten days preceding the conversion date.
The Company is required to maintain an available pool of common shares equal to
300% of the number of shares required for conversion. As at December 31, 2010,
$30,000 of the Notes had been converted into 145,618 shares of common stock, and
the Company has reserved 4,639,804 shares of common stock to cover the
conversion of the outstanding Notes and accrued interest. There are no warrants
attached to the note.
6. INCOME TAXES
The Company has incurred operating losses of $1,690,280, 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:
December 31,
2010
----------
Future income tax assests:
Net operating loss from October 27, 2008
(inception) to December 31, 2010 $1,690,280
Statutory tax rate (combined federal and state) 38.5%
Non-capital tax loss 650,758
Valuation allowance (650,758)
----------
$ --
==========
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 carry forwards 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, 2010 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. Subsequently, in the
fourth quarter of 2010, Mr. Karnick paid off supplier balances of $2,100 on
behalf of the Company and the balance is reported as a loan from a director. The
loan is unsecured, interest-free, and will be repaid when the Company raises
sufficient cash to do so.
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
27
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
$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. The
balance due to Numerity at December 31, 2010 is $467,000.
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.
10. SUBSEQUENT EVENTS
Between December 31, 2010 and March 15, 2011, the Company's noteholders
exercised their right to convert an additional eight installments of the
convertible notes for an aggregate conversion of $129,120, inclusive of accrued
interest of $10,120, resulting in the issuance of an additional 1,196,339
shares.
28
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management, including
our principal executive officer and the principal financial officer, we have
conducted an evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities and Exchange Act of 1934, as of the end of the period
covered by this report. Based on this evaluation, our principal executive
officer and principal financial officer concluded as of the evaluation date that
our disclosure controls and procedures were effective such that the material
information required to be included in our Securities and Exchange Commission
reports is accumulated and communicated to our management, including our
principal executive and financial officers, recorded, processed, summarized and
reported within the time periods specified in Securities and Exchange Commission
rules and forms relating to our company, particularly during the period when
this report was being prepared.
MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
We are responsible for establishing and maintaining adequate internal control
over financial reporting, as such term is defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act.
Internal control over financial reporting includes those policies and procedures
that: (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of our assets;
(2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that our receipts and expenditures are being made
only in accordance with authorizations of its management and directors; and (3)
provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that could have a
material effect on the financial statements.
Management recognizes that there are inherent limitations in the effectiveness
of any system of internal control, and accordingly, even effective internal
control can provide only reasonable assurance with respect to financial
statement preparation and may not prevent or detect material misstatements. In
addition, effective internal control at a point in time may become ineffective
in future periods because of changes in conditions or due to deterioration in
the degree of compliance with our established policies and procedures.
A material weakness is a significant deficiency, or combination of significant
deficiencies, that results in there being a more than remote likelihood that a
material misstatement of the annual or interim financial statements will not be
prevented or detected.
Our principal executive officer and the principal financial officer conducted an
evaluation of the effectiveness of our internal control over financial
reporting, as of December 31, 2010, based on the framework set forth in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO). Based on our evaluation under this framework,
we concluded that our internal control over financial reporting was effective
for the current level of business activities but requires that we address the
factors stated below before we see significant growth in transactions..
We assessed the effectiveness of the Company's internal control over financial
reporting as of evaluation date and identified the following weaknesses:
29
INSUFFICIENT RESOURCES: We have an inadequate number of personnel with requisite
expertise in the key functional areas of finance and accounting.
INADEQUATE SEGREGATION OF DUTIES: We have an inadequate number of personnel to
properly implement control procedures.
LACK OF AUDIT COMMITTEE & OUTSIDE DIRECTORS ON THE COMPANY'S BOARD OF DIRECTORS:
We do not have a functioning audit committee or outside directors on our board
of directors, resulting in lack of independent oversight in the establishment
and monitoring of required internal controls and procedures.
We are committed to improving the internal controls and will (1) continue to use
third party specialists to address shortfalls in staffing and to assist us with
accounting and finance responsibilities, (2) increase the frequency of
independent reconciliations of significant accounts which will mitigate the lack
of segregation of duties until there are sufficient personnel and (3) may
consider appointing outside directors and audit committee members in the future.
We have discussed the material weakness noted above with our independent
registered public accounting firm. Due to the nature of this material weakness,
there is a more than remote likelihood that misstatements which could be
material to the annual or interim financial statements could occur that would
not be prevented or detected.
This annual report does not include an attestation report of our registered
public accounting firm regarding internal control over financial reporting. Our
report was not subject to attestation by our registered public accounting firm
pursuant to temporary rules of the SEC that permit us to provide only our report
in this annual report.
CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
There have been no changes in our internal control over financial reporting that
occurred during our fiscal year ended December 31, 2010 that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
30
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
As at December 31, 2010 our Board of Directors was comprised of the following:
Name Age Served Since Positions With Company
---- --- ------------ ----------------------
Nitin Karnik 49 October 2008 CEO & Director
Danny Mabey 61 April 2, 2010 Director
Simon Westbrook 62 February 18, 2010 CFO
Jose Chavez 32 October 27, 2008 CEO, resigned October 2009, CFO,
(inception) resigned February 18, 2010 and
Director resigned December 31,
2009
There are currently no employment contracts in place for any officers.
The following is a brief description of the business experience of our executive
officers, director and significant employees: Dr. Nitin Karnik has been the
Chief Executive Officer of IN Media from October 2008 to present. Dr. Karnik has
been the President and Chief Executive Officer since April 9, 2009. From 2007
through 2009, Dr. Karnik served as the Chief Executive Officer of RSR Consulting
Inc., a California company covering media consulting in the area of IPTV,
broadband, voice over IP technology, video on demand technology, and streaming
technology with clients in India and China. From 2002 through 2007, Dr. Karnik
was the Senior Vice President of Mars Entertainment Group, Singapore, where his
assignments included content production, distribution, movie production,
designing technology for media, digital cinema technology development, and
business development to Hollywood studios, Bollywood studios and world-wide
television networks.
Mr. Mabey was hired to provide an independent perspective to the board of
directors based on his extensive industry experience and knowledge of IPTV
technology and markets. Mr. Mabey has been the President of 121View USA, a Utah
corporation since 2009. He directed the development process of 121View, a
Singapore based company, into the U.S. market. In addition, since 2004, Mr.
Mabey has been President of Interactive Devices Inc., a California corporation
that directs the business operations and development team of software developers
in California, Israel and Utah. From 2003 through 2009, Mr. Mabey was the Vice
President of Broadcast International, a Utah corporation in which Mr. Mabey was
involved in patent development and intellectual property management, product
development, business and network expansion and corporate funding development.
Mr. Mabey received his Bachelors of Arts at Boise State University and his
Masters of Public Administration at Idaho State University.
Mr. Westbrook served as CFO of Public Wireless, Inc., a wireless communication
infrastructure business from 2005-2009. From 2004-2005, Mr. Westbrook served as
CFO of Nanoamp Solutions Inc., a memory IC company. Prior to 2004, Mr. Westbrook
served as CFO at Sage, Inc., (NASDAQ: SAGI), a company specializing in flat
panel display controller ICs. Mr. Westbrook is a Chartered Accountant and holds
a Masters degree in Economics from Trinity College, Cambridge in the United
Kingdom.
Jose Chavez served as a director of the Company for the period from inception to
December 31, 2009. Additionally he served as CEO of the Company from inception
until the date of the merger in October 2009, and CFO from inception until he
resigned in February, 2010. Mr. Chavez has operated as a general plumbing
contractor and construction superintendent in Mexico since 2003.
31
COMPENSATION OF DIRECTORS
Our bylaws provide that, unless otherwise restricted by our certificate of
incorporation, our Board of Directors has the authority to fix the compensation
of directors. The directors may be paid their expenses, if any, related to
attendance at each meeting of the board of directors and may be paid a fixed sum
for attendance at each meeting of the board of directors or a stated salary as
our director. Our bylaws further provide that no such payment will preclude any
director from serving our Company in any other capacity and receiving
compensation therefore. Further, members of special or standing committees may
be given compensation for attending committee meetings.
AUDIT COMMITTEE FINANCIAL EXPERT
We do not have an audit committee or a compensation committee of our board of
directors. In addition, our board of directors has determined that we do not
have an audit committee financial expert serving on the board. When we develop
our operations, we will create an audit and a compensation committee and will
seek an audit committee financial expert for our board and audit committee.
CONFLICTS OF INTEREST
Our officers and directors are now and may in the future become shareholders,
officers or directors of other companies, which may be formed for the purpose of
engaging in business activities similar to ours. Accordingly, additional direct
conflicts of interest may arise in the future with respect to such individuals
acting on behalf of us or other entities. Moreover, additional conflicts of
interest may arise with respect to opportunities which come to the attention of
such individuals in the performance of their duties or otherwise. Currently, we
do not have a right of first refusal pertaining to opportunities that come to
their attention and may relate to our business operations.
Our officers and directors are, so long as they are our officers or directors,
subject to the restriction that all opportunities contemplated by our plan of
operation which come to their attention, either in the performance of their
duties or in any other manner, will be considered opportunities of, and be made
available to us and the companies that they are affiliated with on an equal
basis. A breach of this requirement will be a breach of the fiduciary duties of
the officer or director. If we or the companies with which the officers and
directors are affiliated both desire to take advantage of an opportunity, then
said officers and directors would abstain from negotiating and voting upon the
opportunity. However, all directors may still individually take advantage of
opportunities if we should decline to do so. Except as set forth above, we have
not adopted any other conflict of interest policy with respect to such
transactions.
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
$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. The
balance due to Numerity at December 31, 2010 is $467,000.
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.
32
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.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
To the best of our knowledge, during the past five years, none of the following
occurred with respect to a present or former director or executive officer of
the Company: (1) any bankruptcy petition filed by or against any business of
which such person was a general partner or executive officer either at the time
of the bankruptcy or within two years prior to that time; (2) any conviction in
a criminal proceeding or being subject to a pending criminal proceeding
(excluding traffic violations and other minor offenses); (3) being subject to
any order, judgment or decree, not subsequently reversed, suspended or vacated,
of any court of any competent jurisdiction, permanently or temporarily
enjoining, barring, suspending or otherwise limiting his involvement in any type
of business, securities or banking activities; and (4) being found by a court of
competent jurisdiction (in a civil action), the Securities and Exchange
Commission or the commodities futures trading commission to have violated a
Federal or state securities or commodities law, and the judgment has not been
reversed, suspended or vacated.
CODE OF ETHICS
We do not currently have a code of ethics. Because we currently have only
limited business operations and two officers and directors, we believe a code of
ethics would have limited utility. We intend to adopt a code of ethics as our
business operations expand and we have additional directors, officers and
employees.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT 9.A. DIRECTORS AND EXECUTIVE
OFFICERS, PROMOTERS, AND CONTROL PERSONS:
The Company is aware that all filings of Form 4 and 5 required of Section 16(a)
of the Exchange Act of Directors, Officers or holders of 10% of the Company's
shares have not been timely and the Company has instituted procedures to ensure
compliance in the future.
ITEM 11. EXECUTIVE COMPENSATION
Change in
Pension
Value and
Non-Equity Nonqualified
Name and Incentive Deferred
Principal Stock Option Plan Compensation All Other
Position Year Salary($) Bonus($) Awards($) Awards($) Compensation($) Earnings($) Compensation($) Totals($)
-------- ---- --------- -------- --------- --------- --------------- ----------- --------------- ---------
Nitin Karnik 2010 $ -- (a) $357,500 $357,500
2009 $ -- (a) $895,000 $895,000
2008 $ -- $11,770 $ 11,770
Danny Mabey 2010 $ -- (b) $ --
2009 $ -- $ --
Simon Westbrook 2010 $ -- (c) $ --
2009 $ -- $ --
Jose Chavez 2010 $ --
2009 $ 800 (d) $ 800
2008 $4,800 (d) $ 4,800
SUMMARY COMPENSATION TABLE
(a) In the years ended December 31, 2010 and 2009 we were billed, accrued, but
did not pay, $150,000 and $480,000 respectively, for executive,
administrative and engineering services under the terms of a service
agreement with Numerity Corporation. We were also billed, accrued, but did
not pay, $207,500 and $480,000 respectively, for maintenance and support
under terms of a license agreement, with Numerity Corporation. Mr. Karnik
is the owner and chief executive officer of Numerity Corporation.
(b) Mr Mabey was granted compensation of $67,500 for consulting services
through the issuance of 50,000 shares of fully paid common stock in June
2010. Subsequent to December 31, 2010, in March 2011, Mr Mabey renounced
this compensation and returned all the shares paid.
(c) Mr Westbrook did not receive any compensation for services provided.
(d) Mr. Chavez resigned as CEO of the Company in October 2009, as a director at
the end of December, 2009, and as CFO on February 18, 2010.
33
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END TABLE
Option Awards Stock Awards
--------------------------------------------------------------- ---------------------------------------------
Equity
Incentive
Equity Plan
Incentive Awards:
Plan Market or
Awards: Payout
Equity Number of Value of
Incentive Number Unearned Unearned
Plan Awards; of Market Shares, Shares,
Number of Number of Number of Shares Value of Units or Units or
Securities Securities Securities or Units Shares or Other Other
Underlying Underlying Underlying of Stock Units of Rights Rights
Unexercised Unexercised Unexercised Option Option That Stock That That That
Options Options Unearned Exercise Expiration Have Not Have Not Have Not Have Not
Name Year Exercisable(#) Unexercisable(#) Options(#) Price($) Date Vested(#) Vested($) Vested(#) Vested(#)
---- ---- -------------- ---------------- ---------- ----- ---- --------- --------- --------- ---------
Nitin 2010 -- -- -- -- -- -- -- -- --
Karnik 2009 -- -- -- -- -- -- -- -- --
2008 -- -- -- -- -- -- -- -- --
Danny (a) 2010 -- -- -- -- -- -- -- -- --
Mabey
Simon (a) 2010 -- -- -- -- -- -- -- -- --
Westbrook
Jose (b) 2010 -- -- -- -- -- -- -- -- --
Chavez 2009 -- -- -- -- -- -- -- -- --
2008 -- -- -- -- -- -- -- -- --
(a) Mr Mabey and Mr Westbrook were appointed in 2010.
(b) Mr Chavez resigned in 2010.
OPTION EXERCISES AND STOCK VESTED TABLE
Option Awards Stock Awards
--------------------------------------------------------------- ---------------------------------------------
Equity
Incentive
Equity Plan
Incentive Awards:
Plan Market or
Awards: Payout
Equity Number of Value of
Incentive Number Unearned Unearned
Plan Awards; of Market Shares, Shares,
Number of Number of Number of Shares Value of Units or Units or
Securities Securities Securities or Units Shares or Other Other
Underlying Underlying Underlying of Stock Units of Rights Rights
Unexercised Unexercised Unexercised Option Option That Stock That That That
Options Options Unearned Exercise Expiration Have Not Have Not Have Not Have Not
Name Year Exercisable(#) Unexercisable(#) Options(#) Price($) Date Vested(#) Vested($) Vested(#) Vested(#)
---- ---- -------------- ---------------- ---------- ----- ---- --------- --------- --------- ---------
Nitin 2010 -- -- -- -- -- -- -- -- --
Karnik 2009 -- -- -- -- -- -- -- -- --
2008 -- -- -- -- -- -- -- -- --
Danny 2010 -- -- -- -- -- -- -- -- --
Mabey
Simon 2010 -- -- -- -- -- -- -- -- --
Westbrook
Jose 2010 -- -- -- -- -- -- -- -- --
Chavez 2009 -- -- -- -- -- -- -- -- --
2008 -- -- -- -- -- -- -- -- --
34
PENSION BENEFITS TABLE
Number of Present
Years Value of Payments
Plan Credited Accumulated During Last
Name Year Name Service(#) Benefit($) Fiscal Year($)
---- ---- ---- ---------- ---------- --------------
Nitin Karnik 2010 -- -- -- --
2009 -- -- -- --
2008 -- -- -- --
Danny Mabey (a) 2010 -- -- -- --
Simon Westbrook (a) 2010 -- -- -- --
Jose Chavez (b) 2010 -- -- -- --
2009 -- -- -- --
2008 -- -- -- --
(a) Mr Mabey and Mr Westbrook were appointed in 2010
(b) Mr Chavez resigned in 2010.
NONQUALIFIED DEFERRED COMPENSATION TABLE
Executive Registrant Agregate Aggregate
Contributions Contributions Earnings Aggregate Balance
in Last Fiscal in Last Fiscal in Last Fiscal Withdrawals at Last Fiscal
Name Year Year($) Year($) Year($) Distributions($) Year-end($)
---- ---- ------- ------- ------- ---------------- -----------
Nitin Karnik 2010 -- -- -- -- --
2009 -- -- -- -- --
2008 -- -- -- -- --
Danny Mabey (a) 2010 -- -- -- -- --
Simon Westbrook (a) 2010 -- -- -- -- --
Jose Chavez (b) 2010 -- -- -- -- --
2009 -- -- -- -- --
2008 -- -- -- -- --
(a) Mr Mabey and Mr Westbrook were appointed in 2010
(b) Mr Chavez resigned in 2010.
35
DIRECTOR COMPENSATION TABLE
Change in
Pension
Value and
Fees Non-Equity Nonqualified
Earned Incentive Deferred
Paid in Stock Option Plan Compensation All Other
Name Year Cash($) Awards($) Awards($) Compensation($) Earnings($) Compensation($) Total($)
---- ---- ------- --------- --------- --------------- ----------- --------------- --------
Nitin Karnik 2010 -- -- -- -- -- -- --
2009 -- -- -- -- -- -- --
2008 -- -- -- -- -- -- --
Danny Mabey (a) 2010 -- -- -- -- -- -- --
Simon Westbrook (a) 2010 -- -- -- -- -- -- --
Jose Chavez (b) 2010 -- -- -- -- -- -- --
2009 -- -- -- -- -- -- --
2008 -- -- -- -- -- -- --
(a) Mr Mabey and Mr Westbrook were appointed in 2010
(b) Mr Chavez resigned in 2010.
ALL OTHER COMPENSATION TABLE
Perquisites Company Change
and Other Contributions to Severance in Control
Personal Tax Insurance Retirement and Payments / Payments /
Name Year Benefits($) Reimbursements($) Premiums($) 401(k) Plans($) Accruals($) Accruals($) Total($)
---- ---- ----------- ----------------- ----------- --------------- ----------- ----------- --------
Nitin Karnik 2010 -- -- -- -- -- -- --
2009 -- -- -- -- -- -- --
2008 -- -- -- -- -- -- --
Danny Mabey (a) 2010 -- -- -- -- -- -- --
Simon Westbrook (a) 2010 -- -- -- -- -- -- --
Jose Chavez (b) 2010 -- -- -- -- -- -- --
2009 -- -- -- -- -- -- --
2008 -- -- -- -- -- -- --
(a) Mr Mabey and Mr Westbrook were appointed in 2010
(b) Mr Chavez resigned in 2010.
36
PERQUISITES TABLE
Total
Perquisites
Personal Use Financial and Other
of Company Planning/ Executive Personal
Name Year Car/Parking Legal Fees Club Dues Relocation Benefits
---- ---- ----------- ---------- --------- ---------- --------
Nitin Karnik 2010 -- -- -- -- --
2009 -- -- -- -- --
2009 -- -- -- -- --
Danny Mabey (a) 2010 -- -- -- -- --
Simon Westbrook (a) 2010 -- -- -- -- --
Jose Chavez (b) 2010 -- -- -- -- --
2009 -- -- -- -- --
2008 -- -- -- -- --
(a) Mr Mabey and Mr Westbrook were appointed in 2010
(b) Mr Chavez resigned in 2010.
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL TABLE
Before Change After Change
in Control in Control
Termination Termination
w/o Cause or for w/o Cause or Voluntary Change in
Name Year Benefit Good Reason for Good Reason Termination Death Disability Control
---- ---- ------- ----------- --------------- ----------- ----- ---------- -------
Nitin Karnik 2010 -- -- -- -- -- -- --
2009 -- -- -- -- -- -- --
2008 -- -- -- -- -- -- --
Danny Mabey (a) 2010 -- -- -- -- -- -- --
Simon Westbrook (a) 2010 -- -- -- -- -- -- --
Jose Chavez (b) 2010 -- -- -- -- -- -- --
2009 -- -- -- -- -- -- --
2008 -- -- -- -- -- -- --
(a) Mr Mabey and Mr Westbrook were appointed in 2010
(b) Mr Chavez resigned in 2010.
EMPLOYMENT AGREEMENTS
As of this time, there are no employment agreements with any named executive
officer.
37
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS, CONFLICTS OF
INTEREST.
No retirement, pension, profit sharing, stock option or insurance programs or
other similar programs have been adopted by us for the benefit of our employees.
LEGAL PROCEEDINGS.
We are currently not involved in any litigation that we believe could have a
materially adverse effect on our financial condition or results of operations.
There is no action, suit, proceeding, inquiry or investigation before or by any
court, public board, government agency, self-regulatory organization or body
pending or, to the knowledge of the executive officers of our company or any of
our subsidiaries, threatened against or affecting our company, our common stock,
any of our subsidiaries or of our company's or our company's subsidiaries'
officers or directors in their capacities as such, in which an adverse decision
could have a material adverse effect.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table lists stock ownership of our common stock, as of December
31, 2010 based on an aggregate of 45,562,618 common shares of the combined
entities. The information includes beneficial ownership by (i) holders of more
than 5% of our common stock, (ii) each of our directors and executive officers
and (iii) all of our directors and executive officers as a group. Except as
noted below, to our knowledge, each person named in the table has sole voting
and investment power with respect to all shares of our common stock beneficially
owned by them.
Name and Address Amount of Percentage
of Beneficial Owner Beneficial Ownership of Class
------------------- -------------------- --------
Nitin Karnik (1) 11,823,529 26.0%
255 W El Camino Real,
Sunnyvale, CA 94087
Danny Mabey (2) 50,000 0.1%
1715 Canyon Circle,
Farmington, UT
Directors and officers
as a group (1) 11,823,529 26.0%
Guifeng Qui 13,137,255 28.8%
6-03 Xue Xi Yuan Vanke, New Town
Xin Yi Bau Da Doe, Tianjin, PRC 300402
Sulu Karnik (3) 4,269,608 9.4%
255 W El Camino Real,
Sunnyvale, CA 94087
Maxway Electronics, Ltd. (4) 3,869,608 8.5%
Room 1609-12 Nan Fung Tower
173 Des Voeux Road, Hong Kong, PRC
1. Excludes holdings by Nitin Karnik's spouse, Sulu Karnik.
2. In March 2011, Mr Mabey renounced his stock grant and returned the
certificates for cancellation.
3. Spouse of Nitin Karnik, excludes holdings by Nitin Karnik.
4. Maxway Electronics, Ltd. is controlled by Sanjeev Dandpande.
38
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Between inception and December 31, 2010 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. Subsequently, in the
fourth quarter of 2010, Mr Karnick paid off supplier balances of $2,100 on
behalf of the Company and the balance is reported as a loan from director. The
loan is unsecured, interest-free, and will be repaid when the Company raises
sufficient cash to do so.
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
$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. The
balance due to Numerity at December 31, 2010 is $467,000.
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.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The following table sets forth fees related to services performed by George
Stewart, CPA:
2010 2009
-------- --------
Audit Fees (1) $ 9,749 $ 8,400
Audit Related Fees (2) -- --
Tax Fees (3) -- --
All Other fees (4) -- --
-------- --------
Total $ 9,749 $ 8,400
======== ========
(1) Audit fees represent fees for professional services provided in connection
with the audit of our financial statements and review of our quarterly
financial statements.
(2) During 2010, we did not incur fees for assurance services related to the
audit of our financial statements and for services in connection with
audits of our benefit plans, which services would be reported in this
category.
(3) Tax fees principally include tax advice, tax planning and tax return
preparation.
(4) Other fees relate to registration statement reviews and comments.
39
The Board of Directors has reviewed and discussed with the Company's management
and independent registered public accounting firm the audited financial
statements of the Company contained in the Company's Annual Report on Form 10-K
for the Company's 2010 fiscal year. The Board has also discussed with the
auditors the matters required to be discussed pursuant to SAS No. 61
(Codification of Statements on Auditing Standards, AU Section 380), which
includes, among other items, matters related to the conduct of the audit of the
Company's financial statements.
The Board has received and reviewed the written disclosures and the letter from
the independent registered public accounting firm required by Independence
Standards Board Standard No. 1 (Independence Discussions with Audit Committees),
and has discussed with its auditors its independence from the Company. The Board
has considered whether the provision of services other than audit services is
compatible with maintaining auditor independence.
Based on the review and discussions referred to above, the Board approved the
inclusion of the audited financial statements be included in the Company's
Annual Report on Form 10-K for its 2010 fiscal year for filing with the SEC.
PRE-APPROVAL POLICIES
The Board's policy is to pre-approve all audit services and all permitted
non-audit services (including the fees and terms thereof) to be provided by the
Company's independent registered public accounting firm; provided, however,
pre-approval requirements for non-audit services are not required if all such
services (1) do not aggregate to more than five percent of total revenues paid
by the Company to its accountant in the fiscal year when services are provided;
(2) were not recognized as non-audit services at the time of the engagement; and
(3) are promptly brought to the attention of the Board and approved prior to the
completion of the audit.
The Board pre-approved all fees described above.
40
PART IV
ITEM 15. EXHIBITS
The following exhibits are included with this filing:
Exhibit
Number Description
------ -----------
3(i) Articles of Incorporation*
3(ii) Bylaws*
31.1 Sec. 302 Certification of CEO**
31.2 Sec. 302 Certification of CFO**
32.1 Sec. 906 Certification of CEO**
32.1 Sec. 906 Certification of CFO**
* Included in our original SB-2 filed with the Securities & Exchange
Commission on September 24, 2007 under File Number 333-146263.
** Filed herein.
41
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
March 30, 2011 IN Media Corporation
By /s/ Nitin Karnik
-------------------------------------------------
Nitin Karnik
Chief Executive Officer and Director
(Principal Executive Officer)
By /s/ Simon P. Westbrook
-------------------------------------------------
Simon P. Westbrook
Chief Financial Officer, Chief Accounting Officer
(Principal Financial Officer)
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
dates stated.
/s/ Nitin Karnik March 30, 2011
------------------------------------------------- --------------
Nitin Karnik Date
Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Simon P. Westbrook March 30, 2011
------------------------------------------------- --------------
Simon P. Westbrook Date
Chief Financial Officer, Chief Accounting Officer
(Principal Financial Officer)
/s/ Danny Mabey March 30, 2011
------------------------------------------------- --------------
Danny Mabey Date
Director
4
