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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report under Section 13 or 15 (d) of
Securities Exchange Act of 1934
For the Period ended March 31, 2011
Commission File Number 333-146263
IN Media Corporation
(Exact name of Registrant as specified in its charter)
Nevada 20-8644177
(State of Incorporation) (IRS Employer ID Number)
4920 El Camino Real, Suite 100, Los Altos, CA 94022
Phone: (408) 849-9499
(Address and telephone number of principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes [ ] No [X]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company.
Large accelerated filer [ ] Accelerated Filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(Do Not Check if a Smaller Reporting Company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of March 31, 2011, the registrant had 47,408,957 shares of common stock,
$0.001 par value, issued and outstanding.
Transitional Small Business Disclosure Format Yes [ ] No [X]
IN MEDIA CORPORATION
Page
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PART I - FINANCIAL INFORMATION
Item 1. Interim Condensed Financial Statements (unaudited) 3
Interim Balance Sheets 4
Interim Statements of Operations 5
Interim Changes in Financial Positions 6
Notes to the Interim Financial Statements 7
Item 2. Management Discussion & Analysis of Financial Condition and
Results of Operations 13
Item 3 Quantitative and Qualitative Disclosures About Market Risk 18
Item 4. Controls and Procedures 18
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 1A. Risk Factors 20
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 27
Item 3. Defaults Upon Senior Securities 27
Item 4. Removed and Reserved 27
Item 5 Other information 27
Item 6. Exhibits 28
2
PART 1
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying reviewed interim condensed consolidated financial statements
have been prepared in accordance with the instructions to Form 10-Q. Therefore,
they do not include all information and footnotes necessary for a complete
presentation of financial position, results of operations, cash flows, and
stockholders' equity in conformity with generally accepted accounting
principles. Except as disclosed herein, there has been no material change in the
information disclosed in the notes to the consolidated financial statements
included in the Company's annual report on Form 10-K for the year ended December
31, 2010. In the opinion of management, all adjustments considered necessary for
a fair presentation of the results of operations and financial position have
been included and all such adjustments are of a normal recurring nature.
Operating results for the three months ended March 31, 2011 are not necessarily
indicative of the results that can be expected for the year ending December 31,
2011.
3
In Media Corporation
(A Development Stage Company)
Condensed Balance Sheets
Unaudited
March 31, 2011 December 31, 2010
-------------- -----------------
ASSETS
CURRENT ASSETS
Cash $ 53,759 $ 62
Prepaid expenses and license fees 103,750 207,500
----------- -----------
157,509 207,562
Movie distribution systems 40,000 --
----------- -----------
TOTAL ASSETS $ 197,509 $ 207,562
=========== ===========
LIABILITIES & STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 38,065 $ 48,479
Accrued interest 3,036 6,715
Advances and deposits received from customers 47,650 --
Consulting contract fees payable 471,000 467,000
Loan from director -- 2,100
----------- -----------
TOTAL CURRENT LIABILITIES 559,751 524,294
LONG TERM LIABILITIES
Convertible Note 90,000 170,500
Contract Amounts payable to Numerity 477,648 485,548
STOCKHOLDERS' EQUITY
Common stock - 75,000,000 shares authorized at $0.001 par value;
47,408,957 and 45,562,618 shares issued and outstanding
at March 31, 2011 and December 31, 2010, respectively 47,409 45,563
Additional paid-in Capital 903,484 671,937
Deficit accumulated during the development stage (1,880,783) (1,690,280)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY (929,890) (972,780)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 197,509 $ 207,562
=========== ===========
The accompanying footnotes are an integral part of these
financial statements.
4
In Media Corporation
(A Development Stage Company)
Condensed Statements of Operations
Unaudited
Inception
Three months Three months October 27, 2008
Ended Ended Through
March 31, March 31, March 31,
2011 2010 2011
------------ ------------ ------------
EXPENSES
General & administrative $ 20,038 $ 66,420 $ 1,292,853
Development expenses 167,750 -- 578,500
Interest expense 2,715 -- 9,430
------------ ------------ ------------
NET (LOSS) $ (190,503) $ (66,420) $ (1,880,783)
============ ============ ============
Basic earnings (loss) per share $ (0.00) $ (0.00)
============ ============
Weighted average number of basic
common shares outstanding 46,481,371 45,000,000
============ ============
Fully diluted earnings (loss) per share $ (0.00) $ (0.00)
============ ============
Weighted average number of fully
diluted common shares outstanding 47,793,537 45,000,000
============ ============
The accompanying footnotes are an integral part of these
financial statements.
5
In Media Corporation
(A Development Stage Company)
Condensed Statements of Cash flows
Unaudited
Inception
Three months Three months October 27, 2008
Ended Ended Through
March 31, March 31, March 31,
2011 2010 2011
------------ ------------ ------------
CASH FLOW FROM OPERATING ACTIVITIES
Net loss $ (190,503) $ (66,420) $ (1,880,783)
Adjustments to reconcile net income to net
cash used in operating activities
Stock issued to consultants in lieu of cash 64,000 -- 461,500
Amortization of prepaid maintenance expense 103,750 116,850 (103,750)
Foregivness of director's loan -- (30,565) --
Accrual of interest in notes payable 2,715 9,430
Write off of organization expenses -- 1,970 --
Increase (decrease) in operating liabilities
Accounts payable (10,415) (21,816) 38,064
Consulting fees payable (3,900) -- 948,648
Advances and deposits from customers 47,650 -- 47,650
Loan from director (2,100) -- --
------------ ------------ ------------
Total cash provided by (used in) operating activities 11,197 19 (479,241)
------------ ------------ ------------
CASH FLOW FROM INVESTING ACTIVITIES
Total cash provided by (used in) investing activities -- -- --
------------ ------------ ------------
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock -- -- 290,000
Sale of convertible notes 42,500 243,000
------------ ------------ ------------
Total cash provided by (used in) financing activities 42,500 -- 533,000
------------ ------------ ------------
Net increase (decrease) in cash 53,697 19 53,759
Cash at beginning of period 62 63 --
------------ ------------ ------------
Cash at end of period $ 53,759 $ 82 $ 53,759
============ ============ ============
Supplemental Cash Flow Information:
Interest Paid -- -- --
============ ============ ============
Taxes Paid -- -- --
============ ============ ============
The accompanying footnotes are an integral part of these
financial statements.
6
IN MEDIA CORPORATION
NOTES TO FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED
MARCH 31, 2011 AND 2010
(UNAUDITED)
1. ORGANIZATION
IN Media Corporation (the "Company") is a Nevada corporation incorporated on
March 5, 2007 as Tres Estrellas Enterprises, Inc. ("Tres Estrellas"). Effective
February 3, 2010, the Company changed its name to IN Media Corporation. The
Company is a development stage company. On October 30, 2009 (the "Acquisition
Date"), we executed an agreement between IN Media Corporation ("IN Media") and
Tres Estrellas whereby IN Media shareholders acquired thirty-three million, five
hundred thousand (33,500,000) shares of the Company's common stock and the
Company acquired all the issued and outstanding shares of In Media and IN Media
was merged into Tres Estrellas. The Company reported this event on Form 8-K,
filed with the Securities and Exchange Agreement on November 2, 2009. For
financial accounting purposes, the acquisition was a reverse merger of the
Company by IN Media, under the purchase method of accounting, and was treated as
a recapitalization with IN Media as the acquirer. Upon consummation of the
merger, the Company adopted the business plan of IN Media. Accordingly, the
consolidated statements of operations include the results of operations of IN
Media from its inception on October 27, 2008 and the results of operations of
Tres Estrellas from the Acquisition Date through 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 of March 31, 2011, the Company had accumulated a loss
from operations of $1.9 million and has earned no revenues since inception, and
our liabilities exceed our assets by approximately $930,000. 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 only limited
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. In March 2011, we
received an advance payment of $47,650 from a customer in India, for the
purchase of an initial order of hardware and software, and this advance will
enable us to have products manufactured and shipped from our sub-contract
manufacturer in fulfillment of this order during the second quarter of 2011.
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.
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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.
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 March 31, 2010 and December 31, 2010.
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.
8
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
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 the
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 $42,500 and $200,500 in convertible debt during the
three months ended March 31, 2011 and year ended December 31, 2010,
respectively. Since the notes are all short-term due in nine months, 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 March 31, 2011, the Company issued
817,000 shares to consultants and employees, and has 1,683,000 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 March 31, 2011, 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.
9
(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.
(iv) In addition, the Company has issued a total of 2,408,957 common stock
shares to (a) consultants for payment of services provided, (b)
vendors for the purchase and payment of movie distribution systems
including storage and distribution hardware, operating software, and
rights to distribute two thousand movie titles, and (c) a noteholder
for conversion of certain notes payable and accrued interest thereon
as set out in the following table:
SUMMARY ISSUANCE OF COMMON STOCK
Three months Year ended
ended ended
March 31, December 31,
2011 2010 Total
---------- ---------- ----------
# Shares
Payment of consultants 400,000 417,000 817,000
Purchase of assets 250,000 -- 250,000
Conversion of notes 1,140,968 145,618 1,286,586
Payment of note interest 55,371 -- 55,371
---------- ---------- ----------
Total 1,846,339 562,618 2,408,957
========== ========== ==========
2011 2010 Total
---------- ---------- ----------
Value of Shares
Payment of consultants $ 64,000 $ 503,999 $ 567,999
Purchase of assets 40,000 -- 40,000
Conversion of notes 30,000 123,000 153,000
Payment of note interest 6,120 -- 6,120
---------- ---------- ----------
Total $ 140,120 $ 626,999 $ 767,119
========== ========== ==========
5. NOTES PAYABLE
The Company issued Convertible Notes ("Notes"), all carrying interest at 8% per
annum, to a single note holder as set forth in the following table.
Date of Original Balance of notes
issuance note proceeds Converted Repaid outstanding
-------- ------------- --------- ------ -----------
8-Jun-10 $100,000 $(100,000) $ --
27-Jul-10 $ 53,000 $ (53,000) $ --
17-Nov-10 $ 47,500 $47,500
25-Jan-11 $ 42,500 $42,500
-------- --------- ------ -------
$243,000 $(153,000) $ -- $90,000
======== ========= ====== =======
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 March 31, 2011, $153,000 of the
Notes, and $6,120 of related interest thereon, had been converted into 1,341,957
shares of common stock, and the Company has reserved 2,679,448 shares of common
stock to cover the conversion of the outstanding Notes and accrued interest as
required under the terms of the Note purchase agreements. There are no warrants
attached to the Notes.
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6. INCOME TAXES
The Company has incurred operating losses of $1,880,783, 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:
March 31, 2011
--------------
Future income tax assets:
Net operating loss from October 27, 2008
(inception) to March 31, 2011) $ 1,880,783
Statutory tax rate (combined federal and state) 39.0%
Non-capital tax loss 733,505
Valuation allowance (733,505)
-----------
$ --
===========
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
In the fourth quarter of 2010, Mr. Karnick paid off supplier balances of $2,100
on behalf of the Company and the balance outstanding at December 31, 2010 was
reported as an unsecured and interest-free loan from a director. The loan was
paid off in March 3011.
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 contracted the
provision of executive, administration and business development services and to
whom we paid contract service fees of $40,000 per month. On July 1, 2010, the
Company and Numerity 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 for contract service fees due to Numerity on a
rolling quarterly basis, subject to mutual agreement. Subsequently, as of
January 1, 2011, the Company and Numerity agreed to discontinue contract service
charges, and instead have Numerity bill the Company for the actual cost of any
goods or services provided wholly, exclusively and necessarily for the benefit
of the Company. The amendments were both authorized by Mr. Danny Mabey, an
independent board director. The balance due to Numerity at March 31, 2011 is
$471,000.
11
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.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION
Management's Discussion and Analysis contains various "forward looking
statements" within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended, regarding future events or the future financial performance of
the Company that involve risks and uncertainties. Certain statements included in
this Form 10-Q, including, without limitation, statements related to anticipated
cash flow sources and uses, and words including but not limited to
"anticipates", "believes", "plans", "expects", "future" and similar statements
or expressions, identify forward looking statements. Any forward-looking
statements herein are subject to certain risks and uncertainties in the
Company's business and any changes in current accounting rules, all of which may
be beyond the control of the Company. The Company adopted at management's
discretion, the most conservative recognition of revenue based on the most
stringent guidelines of the SEC. Management will elect additional changes to
revenue recognition to comply with the most conservative SEC recognition on a
forward going accrual basis as the model is replicated with other similar
markets (i.e. SBDC). The Company's actual results could differ materially from
those anticipated in these forward-looking statements. In addition, the
foregoing factors may affect generally our business, results of operations and
financial position. Forward-looking statements speak only as of the date the
statement was made. We do not undertake and specifically decline any obligation
to update any forward-looking statements. All material risks are described in
the risk section of this Form 10-Q and in the Company's Annual Report on Form
10-K for the year ended December 31, 2010.
BACKGROUND
IN Media Corporation (the "Company") is a Nevada corporation incorporated on
March 5, 2007 as Tres Estrellas Enterprises, Inc. ("Tres Estrellas"). Effective
February 3, 2010, we changed our name to IN Media Corporation. We are a
development stage company. On October 30, 2009 (the "Acquisition Date"), we
executed an agreement between IN Media Corporation ("IN Media") and Tres
Estrellas whereby IN Media shareholders acquired thirty-three million, five
hundred thousand (33,500,000) shares of the Company's common stock, we received
all the issued and outstanding stock of In Media, and IN Media was merged into
Tres Estrellas. We reported this event on Form 8-K, filed with the Securities
and Exchange Agreement on November 2, 2009. For financial accounting purposes,
the acquisition was a reverse merger of our company by IN Media, under the
purchase method of accounting, and was treated as a recapitalization with IN
Media as the acquirer. Upon consummation of the merger, we adopted the business
plan of IN Media. Accordingly, the consolidated statements of operations include
the results of operations of IN Media from its inception on October 27, 2008 and
the results of operations of Tres Estrellas from the Acquisition Date through
March 31, 2011. Our fiscal year end is December 31.
BUSINESS
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,
satellite, internet, telephony and mobile services. IPTV delivers video content
from public domain and premium content sources over the internet to consumer
display devices ranging from large screen TVs in the home, to mobile display
devices such as the I-Phone or I-Pad. Our goal is to become a global leader of
IPTV implementation systems through the design and delivery of a combination of
hardware, software, manufacturing and content services at competitive prices.
Our systems may be offered to communications channel providers such as Comcast,
AT&T, DirecTV, and governmental organizations, content owners such as
publishers, movie and video game owners, and other premium content databases
providers, or distributors and re-sellers who support such channels to either
complete their proprietary offerings or provide an all-in-one solution.
TRENDS AND MARKET OPPORTUNITIES
* In recent years the opportunity for IP TV has been fuelled by various
factors including, but not limited to improvements in broadband
technology and infrastructure and consequent reduced cost
* Growth of mass market adoption of broadband access including mobile
applications
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* Consumer expectations and pressure for video on demand rather than
general broadcast distribution which has become increasingly expensive
and generally poor quality content
* Fragmentation and specialization of content ownership encouraging
content owners to make their content available by subscription,
advertising sponsorship, or as a message delivery medium
These trends have taken place in the North American market, but even more so in
developing countries around the world. According to eMarketer, the total
worldwide broadband subscriber base is expected grow to over 500,000,000
subscribers by 2011, and each broadband subscriber isa potential IP TV viewer.
Although we have focussed our efforts on developing business opportunities in
China, the demand is universal, and we have recently received our first purchase
orders for approximately $5 million of our hardware products from India and Sri
Lankar and provided we can solve the problems of financing production of the
inventory we need to fulfill these orders, and commence commercial shipment, we
expect to move beyond our development stage into a full operational stage within
the next two quarters.
PRODUCTS
We offer our customers fully integrated plug-and-play solutions comprising
hardware devices, operating software, and access to a library of video content.
As of March 31, 2011, we are currently offering a choice of three hardware
devices:
IPTV SET TOP BOX(IPSTB): The IPSTB enables a user to access video contant such
as movies, videos, games, and eductational or other promotional content simply
connecting the IPSTB to ethernet cable from a home Internet source such as a
Modem on one side to a Hi Definition TV set, or other convenient display on the
other. Once connected, the user gains access to the internet content like
YouTube, Yahoo, Google or premium distribution sites like NetFlix which stream
video over the internet.
TABLET PC : Our Tablet PC, offered in both 7 inch or 10 inch screen models works
in exactly the same way as our IPSTB enabling the user to access video over the
internet, however, because the display and the STB functionality are both
integrated into the device, the Tablet PC can also be used as a regular browser
for web surfing and other internet enabled functions like web surfing, checking
emails, or making phone calls, in the same way as a consumer might use an Apple
iPad.
PREMIUM VIDEO CONTENT: We currently have the rights to make available our
library of over 4,000 entertainment titles from Hollywood to "Bollywood" (the
informal term popularly used for the Mumbai-based Hindi-language film industry
in India) movies. This library can be made available and accessed by users
through their IPTV platform by direct subscription, or indirectly vis third
party channels.
DEVELOPMENT STAGE OPERATIONS
To date, we have built our business by focusing on outsourcing to experienced
and well established third party providers to reduce the risk of development
problems and delays, market and employee acquisition, and up-front cash flow. We
plan to sub contract our production and logistics to third parties in China so
that we can leverage their facilities and equipment, production, purchasing and
logistics management, and inventory and working capital resources. These third
party contractors have been responsible for designing our products and operating
software, QA testing, customer demonstration and evaluation support, as well as
market analysis, channel development and sale promotion. They also provide
general and operational support, such that we have no full time employees, or
full time employee equivalents on our own books. By adopting this approach, we
have managed to develop, test, and bring to market three distinct product
offerings in the highly competitive global market for IP TV for a cumulative
cost of less than $1.9 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. To date we have not invested in any fixed assets, design,
test, or production equipment, and have no capital commitments to do so!
14
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 only
limited 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. In March 2011, we
received an advance payment of $47,650 from a customer in India, for the
purchase of an initial order of hardware and software, and this advance will
enable us to have products manufactured and shipped from our sub-contract
manufacturer in fulfillment of this order during the second quarter of 2011.
THE COMPETITION AND COMPETITIVE ADVANTAGE
The competitive landscape for IPTV services is very crowded as the market
potential is very large. The key players will be the platform providers who
control access to telephony, television, internet and content for consumers.
However, new players like Microsoft, Apple, Amazon, and the major Hollywood
studios are moving forward on their own solutions to monetize content and
services over the internet. Key hardware vendors like Motorola, Cisco, Intel,
etc. are also potential competitors for set-top box solutions as they have
previously established relationships with the platform providers.
Although our competitors have strong brands and significant engineering and
marketing budgets we believe that we will have an opportunity to compete because
we have outsourced our manufacturing and distribution function in China to local
partners who know and operate in the Chinese market where our cost is low and
the power of established US brands may not be so powerful. Since we already have
a fully functional product offering and have established local distribution we
believe our market offering in China is fully competitive with solutions from
our competitors.
RESULTS OF OPERATIONS
We are a development stage company and have been focused to date on developing
and refining our product hardware and operating platform to reflect market
feedback, and build our distribution channels and relationships, however we have
not yet generated any revenues while we have incurred $1,880,783 in expenses
since inception through March 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 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 only limited 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,
15
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. In March 2011, we received an advance payment of
$47,650 from a customer in India, for the purchase of an initial order of
hardware and software, and this advance will enable us to have products
manufactured and shipped from our sub-contract manufacturer in fulfillment of
this order during the second quarter of 2011.
We incurred $20,038 and $66,420 in general administrative expenses for the three
months ended March 31, 2011 and 2010, respectively. These costs consisted of
general and administration, business development expenses, and professional fees
associated with our financial reports and SEC filings. The decrease of 27.7%
over the same period in 2010 was principally due to changes in the Company's
service agreement with Numerity which commenced effective as of March 1, 2010
with $40,000 being charged to the Company in that quarter. As a result of
changes agreed effective January 1, 2011, Numerity discontinued billing the
$40,000 per month service charge and agreed to bill only for actual cost of
goods and services provided, which amounted to $0 in the three months ended
March 31, 2011.
Additionally, we incurred $167,750 and $0 of development expenses in the three
months ended March 31, 2011 and 2010, respectively. Of this amount, $103,750
related to a software license and maintenance agreement, which was prepaid to
Numerity Corporation in the second half of 2009, and which started amortizing in
the third quarter of 2010. The residual $64,000 was the expense of engineering
design consulting fees paid in the three months ended March 2011 through the
issuance of 400,000 shares of common stock.
Interest expense amounted to $2,715 and $0 for the three months ended March 31,
2011 and 2010, respectively. The interest was accrued on convertible notes
issued starting in June 2010. There were no notes outstanding in the quarter
ended March 31, 2010, therefore there was no interest in that quarter.
The following table provides selected financial data about our company as at
March 31, 2011.
Balance Sheet Data:
Cash $ 53,759
Total assets $ 197,509
Total liabilities $ 1,127,399
Shareholders' equity (deficit) $ (929,890)
LIQUIDITY AND CAPITAL RESOURCES
Our cash balance at March 31, 2011 was $53,759. During the three months ended
March 31, 2011, the Company generated $53,697 in cash, of which $11,197 arose
from operating activities and $42,500 from the sale of convertible notes. Since
September 2010 we have received two orders amounting to $5 million for our
products, but due to lack of cash or credit capacity, we have been unable to
secure production of the products necessary to fulfill these orders. Of these
orders, $4 million was withdrawn, and the remaining $1 million is still
outstanding, but the customer has modified the order to require additional
features. On March 31, 2011, we received a prepaid deposit from a customer for
$47,650 which we intend to leverage to secure production of the inventory
required to meet this order.
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 $243,000 as of March
31, 2011, 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
16
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.
RECENT ACCOUNTING PRONOUNCEMENTS
Recent accounting pronouncements that the Company has adopted or that will be
required to adopt in the future are summarized below.
On September 30, 2009, the Company adopted updates issued by the Financial
Accounting Standards Board (FASB) to the authoritative hierarchy of GAAP. These
changes establish the FASB Accounting Standards CodificationTM (ASC) as the
source of authoritative accounting principles recognized by the FASB to be
applied by nongovernmental entities in the preparation of financial statements
in conformity with GAAP. Rules and interpretive releases of the Securities and
Exchange Commission ("SEC") under authority of federal securities laws are also
sources of authoritative GAAP for SEC registrants. The FASB will no longer issue
new standards in the form of Statements, FASB Staff Positions, or Emerging
Issues Task Force Abstracts; instead the FASB will issue Accounting Standards
Updates. Accounting Standards Updates will not be authoritative in their own
right as they will only serve to update the Codification. These changes and the
Codification itself do not change GAAP. Other than the manner in which new
accounting guidance is referenced, the adoption of these changes had no impact
on the Condensed Consolidated Financial Statements.
In June 2009, the FASB issued guidance now codified as ASC Topic 105, "GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES" ("ASC 105"), which establishes the FASB
Accounting Standards Codification as the source of GAAP to be applied to
nongovernmental agencies. ASC 105 explicitly recognizes rules and interpretive
releases of the SEC under authority of federal securities laws as authoritative
GAAP for SEC registrants. ASC 105 became effective for interim or annual periods
ending after September 15, 2009. ASC 105 does not have a material impact on the
Company's consolidated financial statements presented hereby.
In May 2009, the FASB issued guidance now codified as ASC Topic 855, "SUBSEQUENT
EVENTS" ("ASC 855"). The pronouncement modifies the definition of what qualifies
as a subsequent event--those events or transactions that occur following the
balance sheet date, but before the financial statements are issued, or are
available to be issued--and requires companies to disclose the date through
which it has evaluated subsequent events and the basis for determining that
date. The Company adopted the provisions of ASC 855 in the second quarter of
2009, in accordance with the effective date.
On July 1, 2009, we adopted guidance issued by the FASB on business
combinations. The guidance retains the fundamental requirements that the
acquisition method of accounting (previously referred to as the purchase method
of accounting) be used for all business combinations, but requires a number of
changes, including changes in the way assets and liabilities are recognized and
measured as a result of business combinations. It also requires the
capitalization of in-process research and development at fair value and requires
the expensing of acquisition-related costs as incurred. We have applied this
guidance to business combinations completed since July 1, 2009.
On July 1, 2009, we adopted guidance issued by the FASB that changes the
accounting and reporting for non-controlling interests. Non-controlling
interests are to be reported as a component of equity separate from the parent's
equity, and purchases or sales of equity interests that do not result in a
17
change in control are to be accounted for as equity transactions. In addition,
net income attributable to a non-controlling interest is to be included in net
income and, upon a loss of control, the interest sold, as well as any interest
retained, is to be recorded at fair value with any gain or loss recognized in
net income. Adoption of the new guidance did not have a material impact on our
financial statements.
On July 1, 2009, we adopted guidance on fair value measurement for nonfinancial
assets and liabilities, except for items that are recognized or disclosed at
fair value in the financial statements on a recurring basis (at least annually).
Adoption of the new guidance did not have a material impact on our financial
statements.
In January 2010, the Financial Accounting Standards Board ("FASB") issued
guidance to amend the disclosure requirements related to recurring and
nonrecurring fair value measurements. The guidance requires new disclosures on
the transfers of assets and liabilities between Level 1 (quoted prices in active
market for identical assets or liabilities) and Level 2 (significant other
observable inputs) of the fair value measurement hierarchy, including the
reasons and the timing of the transfers. Additionally, the guidance requires a
roll forward of activities on purchases, sales, issuance, and settlements of the
assets and liabilities measured using significant unobservable inputs (Level 3
fair value measurements). The guidance became effective for us with the
reporting period beginning January 1, 2010, except for the disclosure on the
roll forward activities for Level 3 fair value measurements, which will become
effective for us with the reporting period beginning July 1, 2011. Other than
requiring additional disclosures, adoption of this new guidance did not have a
material impact on our financial statements.
On February 24, 2010, the FASB issued guidance in the "Subsequent Events" topic
of the FASC to provide updates including: (1) requiring the company to evaluate
subsequent events through the date in which the financial statements are issued;
(2) amending the glossary of the "Subsequent Events" topic to include the
definition of "SEC filer" and exclude the definition of "Public entity"; and (3)
eliminating the requirement to disclose the date through which subsequent events
have been evaluated. This guidance was prospectively effective upon issuance.
The adoption of this guidance did not impact the Company's results of operations
of financial condition.
In October 2009, the FASB issued guidance on revenue recognition that will
become effective for us beginning July 1, 2010, with earlier adoption permitted.
Under the new guidance on arrangements that include software elements, tangible
products that have software components that are essential to the functionality
of the tangible product will no longer be within the scope of the software
revenue recognition guidance, and software-enabled products will now be subject
to other relevant revenue recognition guidance. Additionally, the FASB issued
guidance on revenue arrangements with multiple deliverables that are outside the
scope of the software revenue recognition guidance. Under the new guidance, when
vendor specific objective evidence or third party evidence for deliverables in
an arrangement cannot be determined, a best estimate of the selling price is
required to separate deliverables and allocate arrangement consideration using
the relative selling price method. The new guidance includes new disclosure
requirements on how the application of the relative selling price method affects
the timing and amount of revenue recognition. We believe adoption of this new
guidance will not have a material impact on our financial statements. In June
2009, the FASB issued guidance on the consolidation of variable interest
entities, which is effective for us beginning July 1, 2010. The new guidance
requires revised evaluations of whether entities represent variable interest
entities, ongoing assessments of control over such entities, and additional
disclosures for variable interest entities.
In January 2010, the FASB issued an amendment to ASC 505, Equity, where entities
that declare dividends to shareholders that may be paid in cash or shares at the
election of the shareholders are considered to be a share issuance that is
reflected prospectively in EPS, and is not accounted for as a stock dividend.
This standard is effective for interim and annual periods ending on or after
December 15, 2009 and is to be applied on a retrospective basis. The adoption of
this standard is not expected to have a significant impact on the Company's
consolidated financial statements.
The Company has implemented all new accounting pronouncements that are in effect
and that may impact its financial statements and does not believe that there are
any other new accounting pronouncements that have been issued that might have a
material impact on its financial position or results of operations.
18
WHERE YOU CAN FIND MORE INFORMATION
You are advised to read this Form 10-Q in conjunction with other reports and
documents that we file from time to time with the SEC. In particular, please
read our Quarterly Reports on Form 10-Q, Annual Report on Form 10-K, and Current
Reports on Form 8-K that we file from time to time. You may obtain copies of
these reports directly from us or from the SEC at the SEC's Public Reference
Room at 100 F. Street, N.E. Washington, D.C. 20549, and you may obtain
information about obtaining access to the Reference Room by calling the SEC at
1-800-SEC-0330. In addition, the SEC maintains information for electronic filers
at its website http://www.sec.gov.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not hold any derivative instruments and do not engage in any hedging
activities.
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our Exchange Act reports is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms and that such information
is accumulated and communicated to our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow for timely decisions regarding
required disclosure. In designing and evaluating the disclosure controls and
procedures, management recognizes that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, and management is required to apply
its judgment in evaluating the cost-benefit relationship of possible controls
and procedures. Our disclosure controls and procedures were designed to provide
reasonable assurance that the controls and procedures would meet their
objectives. As required by SEC Rule 13a-15(b), our Chief Executive Officer and
Chief Financial Officer carried out an evaluation of the effectiveness of the
design and operation of our disclosure controls and procedures as of the end of
the period covered by this report. Based on the foregoing, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and
procedures were effective at the reasonable assurance level.
Our Chief Executive Officer and Chief Financial Officer are responsible for
establishing and maintaining adequate internal control over our financial
reporting. In order to evaluate the effectiveness of internal control over
financial reporting, as required by Section 404 of the Sarbanes-Oxley Act,
management has conducted an assessment, including testing, using the criteria in
Internal Control -- Integrated Framework, issued by the Committee of Sponsoring
Organizations of the Treadway Commission ("COSO"). Our system of internal
control over financial reporting is designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles. Because of its inherent limitations, internal control
over financial reporting may not prevent or detect misstatements. Management has
used the framework set forth in the report entitled Internal Control-Integrated
Framework published by the Committee of Sponsoring Organizations of the Treadway
Commission, known as COSO, to evaluate the effectiveness of our internal control
over financial reporting. Based on this assessment, our Chief Executive Officer
and Chief Financial Officer have concluded that our internal control over
financial reporting was effective as of September 30, 2010. There has been no
change in our internal controls over financial reporting during our most recent
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, our internal controls over financial reporting.
CHANGES IN INTERNAL CONTROLS
There have been no changes in our internal controls over financial reporting or
in other factors that could materially affect, or are reasonably likely to
affect, our internal controls over financial reporting during the quarter ended
March 31, 2011. There have not been any significant changes in the Company's
critical accounting policies identified since the Company filed its Form 10-K as
of December 31, 2010.
19
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 1A. RISK FACTORS
You should carefully consider the following risk factors together with the other
information contained in this Interim Report on Form 10-Q, and in prior reports
pursuant to the Securities Exchange Act of 1934, as amended and the Securities
Act of 1933, as amended. If any of the risks factors actually occur, our
business, financial condition or results of operations could be materially
adversely affected. There have been no material changes to the risk factors
previously discussed in Item 1A of the Company's Form 10-K for the year ended
December 31, 2010, including but not limited, to the following:
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
for the year ended December 31, 2010 and the footnotes to that report, contained
explanatory language that substantial doubt exists about our ability to continue
as a going concern, specifically in Note 2 to these financial statements. The
report states that we had accumulated a loss from operations of $1.9 million and
have earned no revenues since inception, and our liabilities exceed our assets
by over $930,000. 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
20
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.
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
21
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 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.
22
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
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.
23
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 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
24
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. The Company has
issued convertible notes ("Notes") in the aggregate principal amount of $243,000
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. As of March 31, 2011, the Company has converted $153,000
of the Notes into 1,286, 586 shares of common stock and would require an
additional 895,149 shares to convert the remaining $90,000 of the Notes as of
March 31, 2011.
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
25
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
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.
26
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. 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.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The Company has issued 1,846,339 and 562,618 of fully-paid shares of common
stock during the three months ended March 31, 2011 and year ended December 31,
2010, as set out in the following table.
SUMMARY ISSUANCE OF COMMON STOCK
Three months Year ended
ended ended
March 31, December 31,
2011 2010 Total
---------- ---------- ----------
# Shares
Payment of consultants 400,000 417,000 817,000
Purchase of assets 250,000 -- 250,000
Conversion of notes 1,140,968 145,618 1,286,586
Payment of note interest 55,371 -- 55,371
---------- ---------- ----------
Total 1,846,339 562,618 2,408,957
========== ========== ==========
2011 2010 Total
---------- ---------- ----------
Value of Shares
Payment of consultants $ 64,000 $ 503,999 $ 567,999
Purchase of assets 40,000 -- 40,000
Conversion of notes 30,000 123,000 153,000
Payment of note interest 6,120 -- 6,120
---------- ---------- ----------
Total $ 140,120 $ 626,999 $ 767,119
========== ========== ==========
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. REMOVED AND RESERVED
ITEM 5. OTHER INFORMATION
There is no information with respect to which information is not otherwise
called for by this form.
27
ITEM 6. EXHIBITS
Exhibit Number
--------------
Certification of Chief Executive Officer pursuant to 31.1
18 U.S.C. 1350, as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer pursuant to 31.2
18 U.S.C. 1350, as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
Certification of Chief Executive Officer pursuant to 32.1
18 U.S.C. 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer pursuant to 32.2
18 U.S.C. 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
28
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
IN Media Corporation (Registrant)
/s/ Nitin Karnik Date: May 9, 2011
-----------------------------------------------
Nitin Karnik
President, Chief Executive Officer and Director
/s/ Simon Westbrook Date: May 9, 2011
-----------------------------------------------
Simon Westbrook
Chief Financial Officer
2