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EX-31.2 - EXHIBIT 31.2 SECTION 302 CERTIFICATION - IN Media Corpf10q093013_ex31z2.htm
EX-32.2 - EXHIBIT 32.2 SECTION 906 CERTIFICATION - IN Media Corpf10q093013_ex32z2.htm
EX-31.1 - EXHIBIT 31.1 SECTION 302 CERTIFICATION - IN Media Corpf10q093013_ex31z1.htm


UNITED STATES

SECURITIES EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-Q



  X . QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.


For the quarterly period for September 30, 2013


      . TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.


For the transition period from _______________ to _______________



Commission File Number 000-54359



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

(Address of Principal Executive Offices)



Phone: (408) 786-5489

(Issuer’s telephone number)



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 (§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

      . (Do not check if a smaller reporting company)

Smaller reporting company

  X .


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 November 5, 2013, the registrant had 59,506,868 shares of common stock, $0.001 par value, issued and outstanding.


Transitional Small Business Disclosure Format  Yes      . No  X .






IN MEDIA CORPORATION

INDEX TO FORM 10-Q FILING

FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012




 

 

 

Page

 

 

PART I - FINANCIAL INFORMATION

3

 

 

 

 

Item 1.

Interim Condensed Financial Statements (unaudited)

4

 

 

 

 

 

 

Interim Balance Sheets

6

 

 

Interim Statements of Operations

7

 

 

Interim Changes in Financial Positions

8

 

 

Notes to the Interim Financial Statements

9

 

 

 

Item 2.

Management Discussion & Analysis of Financial Condition and Results of Operations

15

Item 3

Quantitative and Qualitative Disclosures About Market Risk

22

Item 4.

Controls and Procedures

22

 

 

 

 

PART II - OTHER INFORMATION

23

 

 

 

 

Item 1.

Legal Proceedings

23

Item 1A

Risk Factors

23

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

30

Item 3.

Defaults Upon Senior Securities

30

Item 4.

Mine Safety Disclosures

30

Item 5

Other information

30

Item 6.

Exhibits

30

 

 

 

 

CERTIFICATIONS

 

 

 

 

Exhibit 31 –

Management certification

 

 

 

 

 

Exhibit 32 –

Sarbanes-Oxley Act

 




2





PART 1


FINANCIAL INFORMATION


Item 1.

Financial Statements


The accompanying reviewed interim condensed 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, 2012.  In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature.  Operating results for the three months and nine months ended September 30, 2013 are not necessarily indicative of the results that can be expected for the year ending December 31, 2013.




3






IN MEDIA CORPORATION





TABLE OF CONTENTS  

PAGE #

 

 

Review Report

5

 

 

Financial Statements

 

 

 

Balance Sheet

6

 

 

Statement of Operations

7

 

 

Statement of Cash Flows

8

 

 

Notes to Financial Statements

9




4





GEORGE STEWART, CPA

316 17TH AVENUE SOUTH

SEATTLE, WASHINGTON 98144

(206) 328-8554  FAX (206) 328-0383


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors and

Stockholders of IN Media Corporation



I have reviewed the condensed balance sheets of IN Media Corporation (A Development Stage Company) as of September 30, 2013, and the related condensed statements of operations for the three and nine months ended September 30, 2013 and 2012 and for the period from October 27, 2008 (inception) to September 30, 2013, and condensed statements of cash flows for the nine months ended September 30, 2013 and 2012 and for the period from October 27, 2008 (inception) to September 30, 2013.  These financial statements are the responsibility of the company’s management.  


I conducted my review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters.  It is substantially less in scope than an audit conducted in accordance with standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole.  Accordingly, I do not express such an opinion.


Based on my review, I am not aware of any material modifications that should be made to the accompanying interim financial statements for them to be in conformity with generally accepted accounting principles in the United States of America.


I have previously audited, in accordance with auditing standards of the Public Company Accounting Oversight Board (United States), the balance sheet of IN Media Corporation (A Development Stage Company) as of December 31, 2012, and the related statements of operations, retained earnings and cash flows for the year then ended (not presented herein); and in my report dated March 13, 2013, I expressed a going concern opinion on those financial statements.  In my opinion, the information set forth in the accompanying condensed balance sheet as of December 31, 2012, is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived.





Seattle, Washington

November 4, 2013





5






In Media Corporation

(A Development Stage Company)

Balance Sheets

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2013

 

December 31, 2012

 

 

(Unaudited)

 

(Audited)

ASSETS

 

 

 

 

 

 

 

 

 

Current Assets

 

 

 

 

Cash

$

7,057

$

950

 

 

 

 

 

 

 

7,057

 

950

 

 

 

 

 

Movie distribution systems

 

40,000

 

40,000

 

 

 

 

 

Total Assets

$

47,057

$

40,950

 

 

 

 

 

LIABILITIES & STOCKHOLDERS' DEFICIT

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

   Accounts  payable

$

671,101

$

535,204

   Accrued interest

 

15,418

 

466

   Advances and deposits received from customers

 

-

 

47,650

   Derivative liability on convertible notes

 

74,182

 

23,980

  Convertible note, principal amount

 

199,173

 

50,000

      less discount

 

(93,275)

 

(26,280)

      Notes payable, net

 

105,898

 

23,720

 

 

 

 

 

Total Current  Liabilities

 

866,599

 

631,020

 

 

 

 

 

Long term liabilities

 

 

 

 

   Long term accounts payable to related party

 

368,501

 

151,751

 

 

 

 

 

Stockholders' Equity

 

 

 

 

Common stock - 75,000,000 shares authorized at $0.001 par value;

59,506,868 and 57,713,837  shares issued and outstanding

at September 30, 2013, and December 31, 2012, respectively

 

 

 

 

 

 

 

 

 

59,507

 

57,714

Additional paid-in capital

 

2,484,740

 

2,355,170

Deficit accumulated during the development stage

 

(3,732,290)

 

(3,154,705)

 

 

 

 

 

Total Stockholders' Equity

 

(1,188,043)

 

(741,821)

 

 

 

 

 

TOTAL LIABILITIES AND  STOCKHOLDERS' DEFICIT

$

47,057

$

40,950

 

 

 

 

 

 

 

 

 

 

The accompanying footnotes are an integral part of these financial statements.




6






In Media Corporation

(A Development Stage Company)

Condensed Statements of Operations

Unaudited

 

 

 

 

 

 

 

 

 

 

Inception

 

 

 

 

 

 

 

 

 

 

October

 

 

Three

months ended

 

Three

months ended

 

Nine

months ended

 

Nine

months ended

 

27, 2008

Through

 

 

September 30,

2013

 

September 30,

2012

 

September 30,

2013

 

September 30,

2012

 

September

30, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EXPENSES

 

 

 

 

 

 

 

 

 

 

General & administrative

$

175,298

$

109,729

$

518,639

$

236,448

$

2,820,083

Development expenses

 

-

 

-

 

-

 

-

 

642,250

Interest and debt interest expense

 

53,535

 

 

 

105,889

 

11,487

 

316,900

Revaluation of derivative liability

 

(37,197)

 

-

 

(46,943)

 

-

 

(46,943)

 

 

 

 

 

 

 

 

 

 

 

NET LOSS

$

191,636

$

109,729

$

577,585

$

247,935

$

3,732,290

 

 

 

 

 

 

 

 

 

 

 

Basic  (loss) per share *

$

 (0.00)

$

 (0.00)

$

 (0.00)

$

 (0.00)

 

 

Weighted average number of basic

   common shares outstanding

 

 

 

 

 

 

 

 

 

 

 

58,981,868

 

57,633,837

 

57,918,463

 

55,887,466

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

* The fully-diluted loss per share is not presented since the result would be anti-dilutive.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying footnotes notes are an integral part of these financial statements.




7






In Media Corporation

(A Development Stage Company)

Statements of Cash Flows

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Inception

 

 

 

 

 

 

 

 

October 27,

 

 

 

 

Nine

months ended

 

Nine

months ended

 

2008

Through

 

 

 

 

September 30,

2013

 

September 30,

2012

 

September 30,

2013

 

 

 

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

 

 

 

 

 

 

 

 

CASH FLOW FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

 Net loss

$

 (577,585)

$

 (247,935)

$

 (3,732,290)

 

Adjustments to reconcile net income to net cash used

      in operating activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock issued for services in lieu of cash

 

-

 

-

 

591,999

 

 

Stock issued in settlement of debts

 

-

 

-

 

1,025,000

 

 

Stock issued upon conversion of notes

 

-

 

-

 

5,305

 

 

Stock issued as settlement of interest

 

1,500

 

-

 

-

 

 

Non cash stock compensation expense

 

-

 

35,046

 

80,944

 

 

Discount on convertible notes, net of amortization

 

(55,834)

 

(60,835)

 

65,386

 

 

Derivative liability on convertible notes, net

 

50,202

 

72,322

 

200,983

 

 

Accrual of note interest

 

14,952

 

-

 

15,473

 

 

 

 

 

 

 

 

 

 

Increase in operating liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

88,247

 

129,218

 

671,101

 

 

 

 

 

 

 

 

 

 

Total cash provided by operating activities

$

 (478,518)

$

 (72,184)

$

 (1,076,099)

 

 

 

 

 

 

 

 

 

CASH FLOW FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock

 

-

 

-

 

290,000

 

 

Net proceeds from sale of convertible notes

 

267,875

 

-

 

424,655

 

 

Advances from related party, net of repayments

 

216,750

 

73,660

 

368,501

 

 

 

 

 

 

 

 

 

 

Total cash provided by  financing activities

$

484,625

$

73,660

$

1,083,156

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net increase in cash

 

6,107

 

1,476

 

7,057

 

 

 

 

 

 

 

 

 

Cash at beginning of period

 

950

 

52

 

-

 

 

 

 

 

 

 

 

 

Cash at end of period

$

7,057

$

1,528

$

7,057

 

 

 

 

 

 

 

 

 

Supplemental Cash Flow Information:

 

 

 

 

 

 

   Interest Paid

 

-

 

-

 

-

   Taxes Paid

$

-

$

800

$

3,200

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying footnotes are an integral part of these financial statements.




8






IN MEDIA CORPORATION

NOTES TO FINANCIAL STATEMENTS FOR THE THREE MONTHS AND NINE MONTHS

ENDED SEPTEMBER 30, 2013 AND 2012

(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”), the Company  executed an agreement between IN Media Corporation ("IN Media") and Tres Estrellas whereby IN Media shareholders acquired 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. 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. The Company's fiscal year end is December 31.


2.

GOING CONCERN AND LIQUIDITY CONSIDERATIONS


The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal course of business. As at September 30, 2013, the Company had accumulated a loss from operations of $3.7 million and has earned no revenues since inception, and liabilities exceed assets by approximately $1,188,000. 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, 2013.


The Company has described their ongoing business plan as follows: We have focused our efforts on developing business opportunities in China and India and although we have received several verbal or written expressions of interest in purchasing our products we have not actually fulfilled any orders or shipped any of our products as of September 30, 2013. Our ability to fulfil sales orders is strongly linked to our lack of financial resources and inability to secure credit terms from our sub-contract manufacturers and component suppliers, and despite our best efforts to raise working capital through debt and equity transactions,  extended supplier credit, and customer advances, we have not yet managed to solve these problems, and initial orders have subsequently lapsed. We are continuing to explore credit arrangements with our sub-contract manufacturer to finance production inventory and hope, although we cannot guarantee, to move beyond our development stage into an operational stage by 2014. 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 interests, to make on-account payments to vendors, and to service our current debt obligations.


These factors, among others, raise substantial doubt about the Company's ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.


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.




9






C) CASH AND CASH EQUIVALENTS


Cash and cash equivalents include cash in banks, money market funds, and certificates of term deposits with maturities of less than three months from inception, which are readily convertible to known amounts of cash and which, in the opinion of management, are subject to an insignificant risk of loss in value.


D) FAIR VALUE OF FINANCIAL INSTRUMENTS AND DERIVATIVE FINANCIAL INSTRUMENTS


The Company's financial instruments as defined by FASB ASC 825-10-50 include cash, trade accounts receivable, and accounts payable and accrued expenses. All instruments are accounted for on a historical cost basis, which, due to the short maturity of these financial instruments, approximates fair value at September 30, 2013. FASB ASC 820 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. ASC 820 establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows:


Level 1.

Observable inputs such as quoted prices in active markets;

Level 2.

Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

Level 3.

Unobservable inputs in which there is little or no market data, which requires the reporting entity to develop its own assumptions.


The Company does not have any assets or liabilities measured at fair value on a recurring basis at September 30, 2013 and December 31, 2012.


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 (Loss) 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. Since the Company has reported a loss in all periods, the Company has not reported diluted loss per share since the result would be anti-dilutive.


G) STOCK-BASED COMPENSATION


ASC 718 "Compensation - Stock Compensation" codified SFAS No. 123 and 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, and 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.



10






H) DERIVATIVE INSTRUMENTS


The Company recognizes the underlying value of embedded derivatives in accordance with ASC 815-15-25-1. The value of the option for note-holders to convert their notes into shares of common stock is calculated and credited as a derivative liability for the duration of the notes, while an offsetting amount is classified as a discount to the principal value of the notes. The amount added to the discount reserve and derivative liability was $123,142 and $0 during the nine months ended September 30, 2013 and 2012, and $32,474 and $0 during the three months ended September 30, 2013 and 2012, respectively. The value of the debt discount is amortized as interest expense on a straight line basis over the life of the notes. During the nine months and three months ended September 30, 2013 the Company amortized $74,251 and $32,505, and during the nine months and three months ended September 30, 2012 the Company amortized $0 and $0, respectively, as debt discount expense.


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 products and 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 or delivery 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 Company is sought.  


On June 17, 2010 the Company filed a Form S-8 registration statement with the SEC reserving 2,500,000 common shares for issuance under the Company’s 2010 Stock Option Plan. During the period from registration to December 31, 2012, the Company issued 897,000 shares to consultants as payment for services provided, and 1,600,000 options to employees. On November 21, 2012, the Company filed a second Form S-8 registration statement registering an additional 2,500,000 common shares for issuance under the Company’s 2010 Amended and Restated Stock Option Plan, and at September 30, 2013 has 2,083,000 registered shares available for future issuance


B) SHARE ISSUANCES


Since inception (October 27, 2008) to September 30, 2013, 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 of 1933.


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 effective 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 of 1933.



11






iv) In addition, the Company has issued a total of 14,506,868 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, (c) creditors for settlement of outstanding debt, (d) a noteholder for conversion of certain notes payable and (e) accrued note interest as set out in the following table:


 

 

Nine months

Year ended

Period

 

 

ended

ended

from

SUMMARY ISSUANCE OF COMMON STOCK

 

September 30,

December 31,

Inception

  # Shares

 

2013

2012

Total

Payment of consultants

 

 

80,000

897,000

Purchase of assets

 

 

 

250,000

Conversion of notes

 

1,774,044

1,961,944

5,285,509

Settlement of debt

 

 

3,500,000

8,000,000

Payment of note interest

 

18,987

 

74,358

Total

 

1,793,031

5,541,944

14,506,868


The issuance of such shares of our common stock was effected in reliance on the exemptions for sales of securities not involving a public offering, as set forth in Rule 506 promulgated under the Securities Act of 1933, as amended (the “Securities Act”) and in Section 4(2) of the Securities Act, based on the following: (a) the debt-holder confirmed to us that they were “accredited investors,” as defined in Rule 501 of Regulation D promulgated under the Securities Act and had such background, education and experience in financial and business matters as to be able to evaluate the merits and risks of an investment in the securities; (b) there was no public offering or general solicitation with respect to the conversion of the debt and issuance of the shares; (c) the debt-holder acknowledged that the shares being issued were “restricted securities” for purposes of the Securities Act, and agreed to transfer such securities only in a transaction registered under the Securities Act or exempt from registration under the Securities Act; and could only be transferred if subsequently registered under the Securities Act or transferred in a transaction exempt from registration under the Securities Act.


5.

 NOTES PAYABLE


The Company has issued nine Convertible Notes (“Notes”), carrying interest rates of between 8% and 10% per annum, from three note-holders for terms ranging from 9 months to 12 months as set forth in the following table.  


Face  value of Notes

 

 

Date

#

Advances

Interest and OID

Repayments

Conversions

Balance

27-Nov-12

1

$                50,000

$                11,160

$                -

$            (54,550)

$        6,610

10-Jan-13

2

25,000

5,580

-

(20,625)

9,955

10-Jan-13

3

35,000

2,500

-

(37,500)

-

27-Feb-13

4

25,000

5,580

-

(17,188)

13,393

24-Apr-13

5

25,000

6,405

-

 

31,405

22-May-13

6

35,000

2,500

-

 

37,500

27-Jun-13

7

25,000

6,405

-

 

31,405

31-Jul-13

8

35,000

2,500

-

 

37,500

21-Aug-13

9

25,000

6,405

-

 

31,405

 

 

 

 

 

 

 

30-Sep-13

 

$              280,000

$                49,035

$                -

$          (129,863)

$    199,173




12






The Notes are convertible into shares of Common Stock based on discounts of between 37.5% to 50% on the lowest closing stock prices in the month prior to the conversion. The Company recognized the underlying value of embedded derivatives in accordance with ASC 815-15-25-1. The value of the option for noteholders to convert their notes into shares of common stock is calculated and credited as a derivative liability for the duration of the notes, while an offsetting amount is classified as a discount to the principal value of the notes. The amount added to the discount reserve and derivative liability was $123,142 and $0 during the nine months ended September 30, 2013 and 2012, and $32,474 and $0 during the three months ended September 30, 2013 and 2012, respectively. The value of the debt discount is amortized as interest expense on a straight line basis over the life of the notes. During the nine months and three months ended September 30, 2013, the Company amortized $74,251 and $32,505, and during the nine months and three months ended September 30, 2012 the Company amortized $0 and $0, respectively, as debt discount expense. On a quarterly basis, the Company values the derivative liability to determine that the carrying value is in line with market value and, adjustments are made to the value of derivative liability as required. At September 30, 2013, the Company reviewed the derivative liability value based on current prices of common stock and booked a write-down of $37,196 in the carrying value.


6.

INCOME TAXES


The Company has incurred operating losses of $3,732,290 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:


 

 

September 30, 2013

Future income tax assets:

 

 

Net operating loss from October 27, 2008

   (inception) to September 30, 2013)

$

3,732,290

Statutory tax rate (combined federal and state)

 

40.5%

Non-capital tax loss

 

1,513,306

Valuation allowance

 

(1,513,306)

 

$

-


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


One of our shareholders, directors and officers, Mr Karnick, who, together with his wife, owns approximately 16 million shares of restricted common stock, also owns a 100% interest in Numerity Corporation from whom we have licensed our engineering technology, IP and set top box (“STB”) designs, and to whom we are committed to pay royalties of $50 per STB after the first 100,000 units have been shipped, and $20 per STB after 200,000 units have been shipped. No royalty payments have been made through September 30, 2013 since no STBs have been shipped as at that date. In addition, the Company committed to pay $415,000 per annum to Numerity Corporation in respect of a maintenance agreement on the licensed software, but has not made any such payments to Numerity as of September 30, 2013. On July 1, 2010, the Company and Numerity agreed to amend that licensing agreement to provide a deferral of maintenance dues, and an extension of credit until the after the first commercial shipment. The amendment was authorized for the Company by Mr Danny Mabey, a member of the Board of Directors with no interest in Numerity.




13






One of our shareholders, directors and officers, Mr Karnick, who, together with his wife, owns approximately 16 million shares of restricted common stock, also owns a 100% interest in Numerity Corporation, a provider of contract executive, administration and business development services (the “Service Agreement”) to the Company. Initially, the Service Agreement provided for management service fees of $40,000 per month, but subsequently, as of January 1, 2011 the Company and Numerity agreed to discontinue management 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. Effective September 1, 2012, in an effort to promote new business development efforts, the Company agreed to further amend the Service Agreement such that they again pay $40,000 per calendar month in service fees to Numerity. The amendments were authorized by Mr. Danny Mabey, a member of the Board of Directors with no interest in Numerity.  


As a result of these transactions, and the occasional need for Numerity to advance loans to the Company with which to meet its bills, the Company typically has a balance payable which is reported as a long term account payable to a related party. Through September 30, 2013, Numerity has assigned $1,375,000 of this related party debt to third parties who subsequently accepted the issuance of fully paid restricted shares of common stock, in settlement, leaving a balance due to Numerity at September 30, 2013 of $368,501. In order to regularize a de facto extended credit arrangement between IN Media and Numerity Corporation, the Company  obtained a formal agreement from Numerity Corporation, effective as of December 31, 2010, agreeing to interest-free, revolving credit terms of one year and one day on all amounts due to Numerity. This extended credit can be terminated at any time subject to either party giving notice to the other, and subject to repayment of the balance being made one year and one day after receipt of notice.


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 the Company has  appointed to represent the Company  in developing its business in China. The Agreement with this distributor provides that the Company 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 the Company’s content library.  There have been no such sales or margins to date.


One of our shareholders, directors and officers, Mr Karnick, who, together with his wife, owns approximately 16 million shares of restricted common stock, also owns a 100% interest in Numerity Corporation which owns the library of film content which the Company  intends to include as part of our product offerings. Numerity has agreed to make the library available to us at no charge.




14





Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.


CAUTIONARY STATEMENTS


Included in this Report are "forward-looking" statements, within the meaning of the Private Securities Litigation Reform Act of 1995 ("PSLRA") as well as historical information. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that the expectations reflected in these forward-looking statements will prove to be correct. Our actual results could differ materially from those anticipated in forward-looking statements as a result of certain factors, including matters described in the section titled "Risk Factors." Forward-looking statements include those that use forward-looking terminology, such as the words "anticipate," "believe," "estimate," "expect," "intend," "may," "project," "plan," "will," "shall," "should," and similar expressions, including when used in the negative. Although we believe that the expectations reflected in these forward-looking statements are reasonable and achievable, these statements involve risks and uncertainties and we cannot assure you that actual results will be consistent with these forward-looking statements. We claim the protection afforded by the safe harbor for forward-looking statements provided by the PSLRA.  

 

Such risks include, among others, the following: our ability to continue financing our operations either through debt or equity offerings, international, national and local general economic and market conditions: our ability to sustain, manage or forecast our growth; material costs and availability; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; and other factors referenced in this filing.

 

Consequently, all of the forward-looking statements made in this Form 10-Q are qualified by these cautionary statements and there can be no assurance that the actual results anticipated by management will be realized or, even if substantially realized, that they will have the expected consequences to or effects on our business operations. We undertake no obligation to update or revise these forward-looking statements, whether to reflect events or circumstances after the date initially filed or published, to reflect the occurrence of unanticipated events or except as required by the federal securities laws. 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, 2012.


In this Quarterly Report on Form 10-Q, “Company,” “our company,” “us,” and “our” refer to In Media Corporation, unless the context requires otherwise.


Background


IN Media Corporation 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 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. 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. The Company's 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 markets.  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 providers such as cable or satellite channels, governmental organizations, content owners such as publishers, movie and video game owners, and other premium content providers, or distributors and re-sellers who support such channels to either complete their proprietary offerings or provide an all-in-one solution.




15






Trends and market opportunities


·

In recent years the opportunity for IPTV has been fuelled by various factors including, but not limited to improvements in broadband technology and infrastructure, and consequent reduced cost

·

Growth of mass market adoption of broadband access including mobile applications

·

Consumer expectations and pressure for video on demand rather than general broadcast distribution which has become increasingly expensive and generally poor quality content

·

Fragmentation and specialization of content ownership encouraging content owners to make their content available by subscription, advertising sponsorship, or as a message delivery medium


These trends have taken place in the North American market, but even more so in developing countries around the world.   We have focussed our efforts on developing business opportunities in Asia and the developing world including China, India, Hong Kong, Taiwan, Malaysia, and the Phillipines. Through the third quarter, 2013, Numerity, through Nitin Karnik, conducted a six week tour covering prime markets in the Asia region, building relationships with prospective distribution channels, demonstrating our products and evaluating the current state of demand for our products. The Company is hopeful this will lead to some trial orders. During the course of these events we identified an opportunity to provide our tablet STB product as a relativly low-cost digital textbook in developing markets where traditional schools and textbook  curricula have not been widely established. We are currently investigating ways to make the product more childproof and develop this opportunity in a way that may attract government support and help to ease the funding problem.


Products


We offer our customers fully integrated plug-and-play solutions comprising hardware devices, operating software, and access to a library of video content. We are currently offering a choice of three hardware devices:


IPTV Set Top Box(IPSTB): The IPSTB enables a user  to access video content such as movies, videos, games, and educational 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 internet content like YouTube, Yahoo, Google or premium distribution sites like NetFlix, which stream video over the internet. 


Tablet PC : Our new InMedia 7 inch tablet is an interactive pocket library that opens the door of opportunity making it easy for students to enter into a creative learning, knowledge based environment. Designed to peak curiosity, and build confidence the InMedia tablets offer an impressive value proposition. Our 7 inch unit is a 8 oz, 5 point touch-screen tablet with dual core, HD, 1GB RAM and has up to 32GB storage capacity. It has a six hour continuous run time, and both front and rear cameras. It plays all major video, audio, galleries and E-book formats. It supports standard browsers and email capabilities.  Additionally, it is a phone with built-in 3G, dual sim cards and Bluetooth.


InMedia’s 10 inch tablet comes in at just over a pound. In addition to all the features of the 7 inch tablet it includes quad-Core capabilities, Android 4.2 and triband WCDMA 3G.


Premium Video content: We currently have the rights to make available our library of over 4,000 entertainment titles from Hollywood to “Bollywood” (the informal term popularly used for the Mumbai-based Hindi-language film industry in India) movies.  This library can be made available and accessed by users through their IPTV platform by direct subscription, or indirectly via third party channels.




16






Development Stage Operations


To date, we have built our business by focusing on outsourcing to an experienced and well established third party provider to reduce the risk of product development problems and delays, market and employee acquisition, and up-front cash flow. This provider has been responsible for designing our products and operating software, QA testing, customer demonstration and evaluation support, as well as market analysis, channel development and sales 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 at a significantly lower cost than if we had carried out these activities in-house. This provider, Numerity Corporation, is owned and controlled by Mr. Karnick, one of our shareholders, directors and officers, and provides contract executive, administration and business development services (the “Service Agreement”) to us. Initially, the Service Agreement provided for management service fees of $40,000 per month, but subsequently, on as of January 1, 2011 our company and Numerity agreed to discontinue contract service charges, and instead have Numerity bill us for the actual cost of any goods or services provided wholly, exclusively and necessarily for our benefit. Effective September 1, 2012, in an effort to promote new business development efforts, we agreed to further amend the Service Agreement such that we again pay $40,000 per calendar month in service fees to Numerity. The amendments were approved by the Board of Directors, including Mr. Danny Mabey, a member of the Board of Directors with no interest in Numerity.  


Additionally, in November 2008, we licensed our engineering technology, IP, and set top box designs (the “Licensing and Maintenance Agreement”) from Numerity and committed to pay maintenance and royalties of $415,000 per annum. On July 1, 2010, we agreed to amend that licensing agreement to provide a deferral of any further maintenance dues, and an extension of credit until three months after first commercial shipment. The amendment to the Licensing and Maintenance Agreement was additionally approved by the Board of Directors, including Mr. Danny Mabey, a member of the Board of Directors with no interest in Numerity.  


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.  There have been no such sales or margins to date. At the same time, we have been working with other distribution channels in China and other international markets to demonstrate and prove our products and our integrated platform which includes hardware, software, and content.  


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 purchase order interests and make on-account payments to vendors, while continuing to service our current debt obligations and cover our overhead expenses. 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.


Through the third quarter, 2013, Numerity, through Nitin Karnik, conducted a six week tour covering prime markets in India, China, Indonesia and Malaysia, building relationships with prospective distribution channels, and evaluating the current state of demand for our products. We recognize that in spite of our best efforts, we have not been successful in generating sales revenue to date, and as a result of feedback gained on the recent trip, and from trade channels we have concluded: (i) the market is maturing in terms of availability, awareness and commoditization of price, and (ii) IPTV is deployed primarily for entertainment purposes in which the same content is generally available from the same sources around the world; thereby leaving little room for product differentiation, other than price and brand name. As a result of our recent business activities we are carrying out a management review to see if we can reposition some of our existing products into the education market in developing countries of the world where our low-cost, hand-held devices could become the electronic textbook of the future, eliminating heavy and expensive textbooks, and providing children with a flexible and programmable learning aid.




17






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, companies 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 understand and operate in the Asian 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 Asia is fully competitive with solutions from our competitors, specifically since we have both tangible (movie content) and intangible assets (investment in product designs) in which to continue to develop our business plan. We also have an active team of consultants engaged directly (or indirectly through Numerity) in ensuring our products are updated, maintained, and positioned to meet current demands, and we continue to seek out and develop new channels that are informed and motivated to sell our products.  


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 $3,732,290 in expenses since inception through September 30, 2013.  Although we have received interest in our hardware products from time to time, 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 potential orders. We will not be able to fulfill 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 procure up to $500,000 in financing to secure the first delivery on any orders that we may book. 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, and an established international distribution channel for our products.  


Operations for the three months ended September 30, 2013


We incurred $175,298 and $109,729  in general administrative expenses for the three months ended September 30, 2013 and 2012, respectively.  These costs consisted of general and administration, business development expenses, and professional fees associated with our financial reports and SEC filings.  The increase reflects additional management service charges billed by Numerity Corporation in the three months ended September, 2013.


We did not incur any development expenses in the three months ended September 30, 2013 or 2012, since our products are now developed and we are directing our limited cash resources to business development and reporting compliance.  We entered into a Licensing and Maintenance Agreement with Numerity Corporation in which we committed to pay $415,000 per year in maintenance fees, and intended to amortize the cost over a twelve month period. At various times, as expectations of first commercial shipments were delayed, the maintenance period was extended and terms amended. The amended License and Maintenance Agreement now provides that maintenance charges will be waived until three months after first commercial shipment of licensed IPTV product.


Interest and debt discount expense amounted to $53,535 and $0 for the three months ended September 30, 2013 and 2012, respectively. The increase reflects the significantly higher level of convertible debt outstanding and higher average interest rates on the mix of notes during the quarter ended September 30, 2013.


Our management reviews its derivate liability quarterly in relation to market value and credited $37,197 and $0 as revaluation expenses to non-operating expense in the three months ended September 30, 2013 and 2012, respectively.




18






Operations for the nine months ended September 30, 2013


We incurred $577,585and $247,935  in general administrative expenses for the nine months ended September 30, 2013 and 2012, respectively.  These costs consisted of general and administration, business development expenses, and professional fees associated with our financial reports and SEC filings.  The increase reflects $360,000 of service charges billed by Numerity Corporation in the nine months ended September 30, 2013 compared to $40,000 in the nine months ended September 30, 2012.


We did not incur any development expenses in the nine months ended September 30, 2013 or 2012, since our products are now developed and we are directing our limited cash resources to business development and reporting compliance.  


Interest and debt discount expense amounted to $105,889 and $11,487 for the nine months ended September 30, 2013 and 2012, respectively. The increase reflects the increase in convertible debt outstanding during the nine months ended September 30, 2013.


Our management reviews its derivate liability quarterly in relation to market value and credited $46,943 and $0 as revaluation expenses to non-operating expense in the nine months ended September 30, 2013 and 2012, respectively.


The following table provides selected financial data about our company as at June 30, 2013.  


Balance Sheet Data:

 

 

 

 

 

Cash

$

7,057

Total assets

$

47,057

Total liabilities

$

1,235,500

Shareholders' equity (deficit)

$

(1,188,043)


Liquidity and Capital Resources


Our cash balance at September 30, 2013 was $7,057. During the nine months ended September 30, 2013, our cash balance increased by $6,107. We raised $267,875 from the sale of convertible notes during the nine months ended September 30, 2013 and consumed $577,585 as a result of our operating losses in the period, offset by an increase in credit extended by related parties.


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 our company, obtained extended credit from related parties in connection with services provided, and raised funding from the issuance of convertible notes, aggregating $424,000 as of September 30, 2013, there is no assurance that we can secure additional funding to cover our expenses or working capital requirements in the future.


We are currently seeking other available sources of funding to provide secured, back-to-back financing of 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.




19






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, we 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 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 non-financial 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 became 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.



20






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 became effective for us beginning July 1, 2010. 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 became 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 was applied on a retrospective basis. The adoption of this standard did not have a significant impact on the Company’s consolidated financial statements.


In June 2011, the FASB issued a new accounting standard requiring most entities to present items of net income and other comprehensive income either in one continuous statement — referred to as the statement of comprehensive income — or in two separate, but consecutive, statements of net income and comprehensive income. The update does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The new standard included a requirement to present reclassification adjustments out of accumulated other comprehensive income by component on the face of the financial statements. In December 2011, the reclassification requirement within the new standard was deferred until further guidance is issued on this topic. The new standard was effective for fiscal years, and interim periods within those years, beginning after December 15, 2011.


In September 2011, the FASB issued an updated accounting standard to allow entities the option to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under the updated standard an entity would not be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The updated standard is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011.


The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.


WHERE YOU CAN FIND MORE INFORMATION


You are advised to read this Form 10-Q in conjunction with other reports and documents that we file from time to time with the SEC. In particular, please read our Quarterly Reports on Form 10-Q, Annual Report on Form 10-K, as amended, 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.




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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


(a) Evaluation of Disclosure Controls and Procedures


Under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, the Company has evaluated the effectiveness of its disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act). Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that these disclosure controls and procedures are effective as of the end of the period covered by this quarterly report.


(b) Changes in Internal Control Over Financial Reporting


There was no change in the Company’s internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act, during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.




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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, 2012, including but not limited, to the following:


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 subsequently generated no revenues or earnings from operations.  We have no significant assets or financial resources. We will sustain operating expenses without corresponding revenues, at least until we begin selling our product.  This will result in us incurring a net operating loss which will increase continuously until we can generate sufficient revenue.  There is no assurance that we can generate or sustain profitable operations.


THE REPORT OF OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM CONTAINS EXPLANATORY LANGUAGE THAT SUBSTANTIAL DOUBT EXISTS ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN


The independent auditor’s report on our financial statements contains explanatory language that substantial doubt exists about our ability to continue as a going concern, specifically in Note 2 to the financial statements.  The report states that as of September 30, 2013, we had accumulated a loss from operations of $3.7 million and have earned no revenues since inception, and our liabilities exceed our assets by approximately over $1,200,000. 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, 2013. 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 ACCEPTED 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 trying to secure key customers in Asia. We have generated no revenue since inception due to the fact that we have not yet made any commercial shipments of our products. The success of our operations will be dependent upon acceptance of our product and numerous other factors beyond our control, including, but not limited to development of our sales channels, competitive features and pricing compared to our competitors in a dynamic and evolving market, the impact of economic and political instability on consumer spending habits,  consumer awareness of IP TV and interest in available libraries of content, and our ability to finance and manage production and distribution of inventories for resale. Additionally, even if we succeed in winning orders for our products, we may not be able to finance the building of the inventory necessary to fulfill such orders on acceptable terms, or on any terms at all.


OUR COMPANY’S BUSINESS IS IMPACTED BY ANY INSTABILITY AND FLUCTUATIONS IN GLOBAL FINANCIAL SYSTEMS.


The recent credit crisis and related instability in the global financial system, although somewhat abated, has had, and may continue to have, an impact on our prospective business and our prospective financial condition. We may face significant challenges if conditions in the financial markets do not continue to improve. Our ability to access the capital markets may be severely restricted at a time when we wish or need to access such markets, which could have a materially adverse impact on our flexibility to react to changing economic and business conditions or carry on our operations.



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REPORTING REQUIREMENTS MAY UTILIZE A SUBSTANTIAL PORTION OF OUR CASH AND REDUCE THE PERIOD OF TIME WE CAN SURVIVE ON OUR AVAILABLE CASH RESERVES PRIOR TO GENERATING REVENUE.


We will incur ongoing costs and expenses for SEC reporting and compliance. To be eligible for quotation on the OTCBB, issuers must remain current in their filings with the SEC.  Market Makers are not permitted to begin quotation of a security whose issuer does not meet this filing requirement.  Securities already quoted on the OTCBB that become delinquent in their required filings will be removed following a 30 day grace period if they do not make their required filing during that time. In order for us to remain in compliance we will require future revenues to cover the cost of these filings, which could comprise a substantial portion of our available cash resources.


THE REGULATION OF PENNY STOCKS BY SEC AND FINRA (FINANCIAL INDUSTRY REGULATORY AUTHORITY, INC.) 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.


FINRA SALES PRACTICE REQUIREMENTS MAY LIMIT A SHAREHOLDER’S ABILITY TO BUY AND SELL OUR COMMON SHARES.


In addition to the “penny stock” rules described above, FINRA has adopted rules that require that, in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers.  FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common shares, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.




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RULE 144 SALES IN THE FUTURE MAY HAVE A DEPRESSIVE EFFECT ON THE COMPANY'S STOCK PRICE AS AN INCREASE IN SUPPLY OF SHARES FOR SALE, WITH NO CORRESPONDING INCREASE IN DEMAND WILL CAUSE PRICES TO FALL.


All of the outstanding shares of common stock held by the present officers, directors, and affiliate stockholders are "restricted securities" within the meaning of Rule 144 under the Securities Act of 1933, as amended.  As restricted shares, these shares may be resold only  pursuant to an effective  registration statement or under the requirements of Rule 144 or other  applicable exemptions from  registration  under  the  Act  and  as  required  under  applicable  state securities laws.  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, payment of debt or acquisitions.


THERE 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, 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 is time consuming, difficult and costly for us to develop and maintain the internal controls, processes and reporting procedures required by the Sarbanes-Oxley Act, and as our business develops, we may need to hire additional financial reporting, internal auditing and other finance staff in order to remain compliant. The cost of compliance will adversely affect our financial results, while, if we are unable to comply, 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.



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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, upon receiving sufficient financing or generating sufficient revenues, we will employ qualified personnel and adopt and implement policies and procedures to address any such material weaknesses. 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, board members 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




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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, ON WHOM WE RELY FOR THE MANAGEMENT OF OUR BUSINESS AND IT MAY BE DIFFICULT, OR TIME CONSUMING TO FIND A SUITABLE REPLACEMENT 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. The loss of Mr. Karnik’s services for any reason may have a material adverse effect on our business and prospects. We cannot assure you that his services will continue to be available to us, or that we will be able to find a suitable replacement for him. 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.


Due to lack of cash resources we have not been able to pay any of our directors or executives for the services they have provided to date, and should one or more of our these executives be 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 we fail to raise additional funding or generate cash flow from operations.   Such failure could materially and adversely affect our future growth and financial condition.




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WE HAVE ISSUED, AND MAY ISSUE ADDITIONAL 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.


From time to time, the Company has issued convertible notes which can be converted at the noteholder’s option into shares of common stock of the Company. We have at times experienced considerable volatility in our share price and if the share price falls in advance of a note conversion date, investors could suffer significant dilution when the notes are converted into shares of common stock.  

 

WE ARE RESPONSIBLE FOR THE INDEMNIFICATION OF OUR OFFICERS AND DIRECTORS AND IN THE EVENT OF CLAIMS NOT COVERED BY OUR DIRECTORS AND OFFICERS INSURANCE, WE MAY HAVE TO SPEND OUR LIMITED RESOURCES ON LEGAL FEES DIVERTING CASH FROM FUNDING BUSINESS OPERATING EXPENSES AND WORKING CAPITAL.


Our Bylaws provide for the indemnification of our directors, officers, employees, and agents, under certain circumstances, against costs and expenses incurred by them in any litigation to which they become a party arising from their association with or activities on our behalf. Consequently, we may be required to expend substantial funds to satisfy these indemnity obligations.


THE COMPANY IS PLANNING ON DOING A SIGNIFICANT PORTION OF ITS BUSINESS IN THE PEOPLE'S REPUBLIC OF CHINA ("PRC"). GIVEN A HISTORY OF POLITICAL AND ECONOMIC INSTABILITY, IT IS POSSIBLE THAT MEASURES BEYOND OUR CONTROL COULD AFFECT OUR OWNERSHIP OF ASSETS, ABILITY TO DO BUSINESS, ACQUIRE NECESSARY LICENSES AND PERMITS, COMPLY WITH IMPORT LEGISLATION AND DUTIES, REMIT PROFITS, OR IN OTHER WAYS ADVERSELY AFFECT OUR PROFFITABILITY, OR ABILITY TO CONTINUE TO DO BUSINESS IN THIS MARKET.


The PRC is passing from a planned economy to a market economy. The Chinese government has confirmed that economic development will follow a model of market economy under socialism.  While the PRC government has pursued economic reforms since its adoption of the  open-door  policy in 1978, a large portion of the PRC economy is still operating under five-year plans and annual state plans adopted by the government that set down national  economic development goals. Through these plans and other economic measures, such as control on foreign exchange, taxation and restrictions on foreign participation in the domestic market of various industries, the PRC government exerts considerable direct and indirect influence on the economy.  This refining and re-adjustment process may not necessarily have a positive effect on our operations or future business development.  Our operating results may be adversely affected by changes in the PRC's economic and social conditions as well as by changes in the policies of the PRC government, which we may not be able to foresee, such as changes in laws and regulations (or the official interpretation thereof), measures which may be introduced to control inflation, changes in the rate or method of taxation, and imposition of additional restrictions on currency conversion.


THE RECENT NATURE AND UNCERTAIN APPLICATION OF MANY PRC LAWS APPLICABLE TO US CREATE AN UNCERTAIN AND POTENTIALLY ADVERSE ENVIRONMENT FOR BUSINESS OPERATIONS AND THEY COULD HAVE A NEGATIVE EFFECT ON OUR ABILITY TO SELL OUR PRODUCTS PROFITABLY IN THE PRC MARKET.


The PRC legal system is a civil law system.  Unlike the common law system, such as the legal system used in the United States, the civil law system is based on written statutes in which decided legal cases have little value as precedents. In 1979, the PRC began to promulgate a comprehensive  system of laws and has since  introduced  many laws and  regulations  to provide  general  guidance  on economic and business  practices in the PRC and to regulate foreign  investment. Progress has been made in the promulgation of laws and regulations dealing with economic matters such as corporate organization and governance, foreign investment, commerce, taxation and trade. The promulgation of new laws, changes of existing laws and the abrogation of local regulations by national laws could have a negative impact on our business and business prospects.  In addition, as these laws, regulations and legal requirements are relatively recent, their interpretation and enforcement involve significant uncertainty.


IF RELATIONS BETWEEN THE UNITED STATES AND CHINA WORSEN, INVESTORS MAY ANTICIPATE FUTURE ECONOMIC TRADE RESTRICTIONS OR OTHER DIFFICULTIES AND DECIDE TO SELL OR AVOID BUYING SHARES OF COMPANIES OPERATING IN PRC. THIS WOULD LIKELY 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.



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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.


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.


THE MARKET PRICE OF OUR COMMON STOCK MAY LIMIT ITS ELIGIBILITY FOR CLEARING HOUSE DEPOSIT.


We are advised that if the market price for shares of our common stock is less than $0.10 per share, Depository Trust Company and other securities clearing firms may decline to accept our shares for deposit and refuse to clear trades, in our securities.  This would materially and adversely affect the marketability and liquidity of our shares and, accordingly may materially and adversely affect the value of an investment in our common stock.


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.




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Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.


The Company issued 0 and 3,500,000 fully-paid shares of common stock during the nine months ended September 30, 2013 and 2012, respectively, for the settlement of outstanding liabilities.


Item 3.  Defaults Upon Senior Securities.


There were no defaults upon senior securities during the period ended September 30, 2013.


Item 4.  Mine Safety Disclosures


Not applicable.


Item 5.  Other Information.


There is no information with respect to which information is not otherwise called for by this form.


Item 6.  Exhibits.


Exhibit Number


Amended and Restated Articles of Incorporation

3.1**

Amended and Restated Bylaws

3.2**

 

 

Numerity licensing and maintenance agreement

10.1**

Numerity licensing and maintenance agreement 1st amendment

10.2**

Numerity service agreement

10.3**

Numerity service agreement 1st amendment

10.4**

Numerity service agreement 2nd amendment

10.5**

IN TV independent sales representation agreement

10.6**

Numerity license to use office agreement

10.7**

Numerity revolving credit agreement

10.8**

Numerity video library license agreement

10.9**

Numerity service agreement 3nd amendment

10.10

 

 

Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.1

Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.1

Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2

 

 

Letter Agreement between Numerity Corporation and IN Media Corporation confirming rights for IN Media to use Numerity’s video library without charge

99.1*

Letter Agreement between Numerity Corporation and IN Media Corporation confirming Numerity’s commitment, without charge, to extend credit for a period of one year and one day, subject to notice

99.2*



* Incorporated by reference to Form 10-Q for June 30, 2011

**Incorporated by reference to Form 10K/A for December 31, 2010




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SIGNATURES


Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.



IN Media Corporation (Registrant)



/s/ Nitin Karnik

Date: November 7, 2013

Nitin Karnik

President, Chief Executive Officer and Director



/s/ Simon Westbrook

Date: November 7, 2013

Simon Westbrook

Chief Financial Officer & Principal Accounting Officer




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