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CHINA MEDIA GROUP CORP - 10-K - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

July 16, 2014

The following discussion of our financial condition and our subsidiaries and our results of operations should be read together with the consolidated financial statements and related notes that are included later in this Annual Report on Form 10- K. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under Risk Factors or in other parts of this Annual Report on Form 10-K.

Year ended December 31, 2013 compared with year ended December 31, 2012

Results of Operations REVENUES



For the year ended December 31, 2013, the Group has realized revenue of $145,495 and a cost of revenue of $95,462, achieving a gross profit of $50,033 from its continuing operations and there was no revenue, costs of sales and gross profit in 2012 from the continuing operations. For the year ended December 31, 2013, the Group has realized revenue of $135,220 and a cost of revenue of $90,925 achieving a gross profit of $44,295 from its business operations held for sale (Note 6). For the year ended December 31, 2012, Group has realized revenue of $2,449,489 and a cost of revenue of $1,557,672 achieving a gross profit of $891,815 from its business operations held for sale (Note 6).

OPERATING EXPENSES



For the year ended December 31, 2013, from our continuing operations, our gross profit was $50,033 and our total operating expenses were $99,635, all of which were selling, general and administrative expenses. In addition, we have a write back of option liability of $236,504. We also had $163,101 in interest expenses and loss from our operations held for sales of $139,257 so that the net loss to our shareholders for the year ended December 31, 2013 was $115,456. This was in comparison to the year ended December 31, 2012 where we had no gross profit and we had general expenses of $55,319, interest expense of $48 and a loss of $7,135,114 from our operations held for sale, resulting in a loss of $7,190,481 to our shareholders.

For the year ended December 31, 2013, from our operation held for sale, our gross profit was $44,295 and our total operating expenses were $179,280, all of which were general and administrative expenses. We also had $5,073 in interest expenses, loss on foreign exchange of $371, and bank charges $1,770 and other income of $2,942 so that the net loss from our operations held for sale for the year ended December 31, 2013 was $139,257 (Note 6). This is in comparison to the year ended December 31, 2012 from operations held for sale, where our gross profit was $891,815 and our total operating expenses were $7,957,266, all of which were selling, general and administrative expenses. In addition we had impairment of goodwill of $6,323,061. We also had $147,274 in interest expenses and gain on foreign exchange of $16,317 and other income of $61,030 and $264 in interest income, so that the net loss from our operations held for sale for the year ended December 31, 2012 was $7,135,114 (Note 6).

Liquidity and Capital Resources

As at December 31, 2013, the Company had cash and cash equivalents totaling $2,581, other current assets of $14,068 consisting of trade receivables and prepayments, and assets of operations held for sale of $1,457,228. The total assets of the Company were $1,474,162 as of December 31, 2013. We also had current liabilities of $2,801,164 which were represented by $243 in trade payables, $924,000 in other payables and accruals, and $1,876,921 in operations held for sale as of December 31, 2013. We also had $2,000,000 in long-term shareholders loan as of December 31, 2013, making our total liabilities $4,801,164.

At present the Company does not have sufficient cash resources to provide for all general corporate operations in the foreseeable future. The Company will be required to raise additional capital in order to continue and expand its operations in fiscal 2013.

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Liquidity and Capital Resources

Net cash used in operating activities was $30,602 during the year ended December 31, 2013 as compared to net cash used in operating activities of $64,922 in the prior year. The Company intends to monitor the monthly cash outlays in the coming months and conserve cash until additional financing can be received through other funding. The net loss for the year was $115,456 compared to net loss of $7,190,445 in the prior year.

There were no net cash provided by investing activities and financing activities in 2013. In 2012, the net cash provided by investing activities and financing activities was $1,181 and nil respectively.

At present the Company does not have sufficient cash resources, receivables and cash flow to provide for all general corporate operations in the foreseeable future. In 2013, the Group's light appliances business faced many competitive and financial pressure that this business faced financial difficulty which lead to the decline of the business. In January 2014, this business was disposed in order to rationalize the operating costs and reduce our liabilities. On January 31, 2014, the Company closed the transaction to acquire 63.2% of Clixster Mobile Sdn. Bhd. by the issuance of 10,193,609,664 Common Stock representing approximately 90% of the enlarged issued share capital of the Company. Clixster Mobile is a MVNO company engages in the provisioning of cellular and mobile broadband services in Malaysia. The MVNO business will change the direction of the Company from a trading in consumer electronics and light appliances to a service company providing cellular and mobile data services. This MVNO business requires injection of cashflow which the Group requires cashflow of funds to expand and develop its business. The Company will be required to raise further funds to meet its other liabilities and operation requirements to continue to operation in 2014 by i) selling its Common Stock ii) raise from the capital markets, iii) sell additional assets.

Going Concern



The Company's financial statements are presented on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.

As of December 31, 2013, the Company has an accumulated deficits totaling $6,110,891 and its current liabilities exceed its current assets by $1,327,002. The Company has also experienced a significant loss from operations in 2012 as a result of the write down of the goodwill. For the year ended December 31, 2013, the Company incurred net losses of $115,456 (2012:$7,190,445).

The Company's ability to continue as a going concern is contingent upon its ability to secure additional financing and attain profitable operations. In addition, the Company's ability to continue as a going concern must be considered in light of the problems, expenses and complications frequently encountered in developing markets and the competitive environment in which the Company operates.

The Company is pursuing financing for its operations and seeking additional investments. In addition, the Company is seeking to expand its revenue base in its consulting business and in developing and integrating its newly acquired MVNO business in Malaysia. Failure to secure such financing, to raise additional equity capital and to expand its revenue base may result in the Company depleting its available funds and not being able pay its obligations.

The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.

Off-Balance Sheet Arrangements

There are no 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 are material to investors.

Capital Expenditure Commitments

We had no material capital expenditures for the year ended December 31, 2013. However we expect to invest, subject to availability of funding, approximately $1,500,000 in capital expenditure over the next 12 month for the MVNO business.

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Critical Accounting Policies



We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States, and make estimates and assumptions that affect our reported amounts of assets, liabilities, revenue and expenses, and the related disclosures of contingent liabilities. We base our estimates on historical experience and other assumptions that we believe are reasonable in the circumstances. Actual results may differ from these estimates.

The following critical accounting policies affect our more significant estimates and assumptions used in preparing our consolidated financial statements.

Revenue Recognition



In general, the Company records revenue when persuasive evidence of an arrangement exists, services have been rendered or product delivery has occurred; the sales price to the customer is fixed or determinable and collect ability is reasonably assured.

Stock-Based Compensation



The Company accounts for equity instruments issued to employees for services based on the fair value of the equity instruments issued and accounts for equity instruments issued to other than employees based on the fair value of the consideration received or the fair value of the equity instruments, whichever is more reliably measurable.

The Company accounts for stock based compensation in accordance with ASC 718 "Compensation - Stock Compensation" which, prescribes accounting and reporting standards for all stock-based payments award to employees, including employee stock options, restricted stock, employee stock purchase plans and stock appreciation rights, may be classified as either equity or liabilities. The Company should determine if a present obligation to settle the share-based payment transaction in cash or other assets exists. A present obligation to settle in cash or other assets exists if: (a) the option to settle by issuing equity instruments lacks commercial substance or (b) the present obligation is implied because of an entity's past practices or stated policies. If a present obligation exists, the transaction should be recognized as a liability; otherwise, the transaction should be recognized as equity.

The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of ASC 505-50 "Equity -Based Payments to Non-Employees". 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.

Recently Issued Accounting Pronouncements

Recently issued accounting pronouncements and their effect on us are discussed in the notes to the consolidated financial statements in our December 31, 2013 audited financial statements.


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Source: Edgar Glimpses


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