ITEM 1. BUSINESS.
DESCRIPTION OF BUSINESS
OUR BACKGROUND. The Company was incorporated in Texas on October 1, 2002 and in 2005 changed its business focus to advertising and media in the emerging China market. Under the then new management, the Company commenced to position the Company to capitalize on the growth of the Chinese advertising market where global companies are rushing into China to try to grab and hold the attention of its 1.3 billion citizens.
Our mission then was to become one of China's new age media companies through the use of new technologies and devices combined with traditional media of TV, Newspapers, Magazines, Billboards and Internet to reach today's mobile society. In order to facilitate this, the Company established 3 strategic business units being "Advertising", "Telecommunications and Mobile Computing", and "Products and Services". However due to limited financial resources we were not able to implement our business plans in the China media sector.
In June 2012, the Group acquired A-Team Resources Sdn. Bhd. a company that distributes light appliances products in South East Asia and Middle East to strengthen our Products and Services Business Unit. In January 2014 the Company disposed the loss making light appliances and advertising operation to streamline the operation and to focus on its new acquisition on telecom services business unit.
On January 31, 2014 the Company acquired 63.2% in Clixster Mobile Sdn Bhd ("CMSB"), a mobile virtual network operator ("MVNO") in order to expand our telecommunication business unit with a focus on provision of mobile telecom service through a MVNO platform initially in Malaysia and then to other regions.
The operation in CMSB incurred significant losses in 2014 and in 2015. The Group determined to re-focus the operation in the higher margin post-paid rather than pre-paid telecom services. As a result, on July 28, 2015, the Group disposed of its investment in CMSB to refocus its MVNO business from pre-paid to post-paid telecom services and a digital service provider.
In September, 2015, New China Electronics Limited, a company wholly owned by our director, Mr. Ching Chiat Kwong, acquired a total of 7,130,134,431 shares representing about 63.06% interests in the Company to become the controlling shareholder of the Company. On January 8, 2016, New China then transferred 350,000,000 shares each to Andrew Hwan Lee and Ahmad Shukri Bin Abdul Ghani, both directors of the Company. New China then held 6,430,134,431 shares representing 56.87% in the Company.
On September 27, 2015 the Board approved the change of company name from Clixster Mobile Group Inc. to Median Group Inc. and the name change was effected on October 7, 2015.
In December 2015, the Company acquired 51% interests in Naim Indah Mobile Communications Sdn Bhd ("NIMC"). NIMC is a newly established MVNO holding all the necessary licenses to operate as an MNVO. However on December 2, 2016 the Company disposed its equity interest in NIMC to focus on the development of its integrated Digital Services Platform rather than an MVNO platform.
In its new strategic plan, the Company's wholly owned subsidiary, Median Digital Sdn. Bhd. (formerly known as Grid Mobile Sdn. Bhd.) ("MDSB") shall combine the telecommunication services together with its other financial technology (fintech) services onto an integrated Digital Services Platform which is currently at early development stage.
In October 2016, the Company raised $1,320,000 by issuing 120,000,000 shares at $0.011 per share. The money raised was to be used for working capital.
On November 30, 2016, the Company's wholly owned subsidiary MDSB signed a Memorandum of Understanding ("MOU") with Mobisphere Sdn Bhd ("Mobisphere"). The Memorandum entails the collaboration of both parties to introduce and promote financial technology ("fintech") solutions vis-a-vis an integrated mobile payment ecosystem equipped with virtual account and digital wallet connected to membership, debit, prepaid and/or credit cards to Medium Digital members.
On December 2, 2016, the Company disposed its 51% interest in NIMC for a fair market value of RM1,000,001 or about US$224,574 to a company owned by directors of the Company, and realized a gain of $194,947. On or about the same date, our subsidiary company, Grid Mobile Sdn. Bhd. ("Grid Mobile") entered into a Master Distribution Agreement with NICM whereby NIMC would appoint Grid Mobile to be its preferred distributor of its mobile products and services in Malaysia for two years. Under this Master Distribution Agreement, Grid Mobile has paid a refundable deposits of RM3,000,000 or about $738,000 to NIMC and Grid Mobile would not procure, engage or appoint any other company that offers the same services as NIMC. To date the project has not started and it is expected that the deposits shall be returned later on during the year.
On June 15, 2017 the Company acquired 51% equity interest in GNS Technology (M) Sdn. Bhd. ("GNS Malaysia") by the issuance of 166,666,667 new shares in the Company. GNS is engaged in the provision of network design, construction and maintenance services for fibre optics backbone and Fiber-to-the-Home (FTTH") broadband services. Pursuant to the acquisition agreement, the Vendors are entitled to an additional consideration of US$1,500,000 provided that GNS Malaysia accumulated audited profits record at least US$3,000,000 for the 5 year period from December 31, 2017 to December 31, 2022. The additional consideration shall be paid by the issuance of new shares in the Company at a price equal to the higher of (i) US$0.006 per share and (ii) the 20 days average closing share price immediately prior to the parties agreeing on the accumulated audited profits stated above.
At the date of this report, the Group will mainly concentrate on its Telecommunications and Mobile Business Unit and the network design and construction business. The Group will terminate and streamline its advertising business unit and product services unit until a viable business opportunity is available. During year ended. The revenue generated from the telecom services and the newly acquired network design, construction and maintenance service for broadband services during the year ended December 31, 2017 was $6,120 and $381,517, respectively.
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Telecommunications Unit.
In 2006, the Company announced the establishment of the Telecommunications and Mobile Computing Division to focus on the new media advertising where we would take advantage of new convergent devices for telecommunications advertising. We have seen over the years the importance of advertising through social media using telecommunication services.
In December 2016, we signed a Master Distribution Agreement with our then 51% subsidiary, Naim Indah Mobile Communications Sdn. Bhd. ("NIMC") for us to sell telecom services on NIMC's MVNO telecom platform. As a result of the Master Distribution Agreement, we determined to concentrate on the provision of services rather than the running of the MVNO Platform ourselves, and in December 2016 we sold NIMC to a company owned by two of our directors. In the first 3 quarters of 2017, we derived $6,120 in telecom services and no revenue in the last quarter just then ended. Given the competitive telecom services market, we have scaled back our telecom services division until we can identify a niche market we can compete in. In the meantime, our newly acquired network design, construction and maintenance service recorded a revenue of $29,103 for this quarter ended December 31, 2017 and a total of $381,517 since the acquisition on June 15, 2017. We will continue to pursue the sale of telecom services and concentrate on postpaid customers, where the margins are higher, through our partner networks.
A more thorough discussion on becoming a digital service provider and infrastructure provider are discussed below.
Towards Becoming A Digital Service Provider
The decision to become a DSP rests solely on providing the needs of a new generation of consumers. There has been a great shift in consumers' behaviors. The way purchases are made, the types of media consumed, the way information are obtained and the way trust and relationships are built. These have created new rules of consumer engagement where mobile platform is highly utilized, allowing consumers to communicate, transact and gain almost instantaneous feedback and response. E-commerce now is evolving into M-Commerce (mobile-commerce) and into S-Commerce (social-commerce) allowing customers to instantly transact and share.
We must seize the opportunity to build our business model around this market segment through our offerings with three main differentiators:
(i) An advanced set of products and services that will disrupt the market landscape;
(ii) A customer engagement model that is currently not offered by others; and
(iii) A technology superiority and scalability that will support future growth.
The first challenge to become a digital service provider involves a change in the mindset and culture; we need to view ourselves not as a communication service provider but as a genuine digital competitor. We need to shift away from serving as a channel and toward creating a platform, and the way for us to capitalize on the opportunities in the digital services domain and its associated revenue is to build our business as a digital service provider. Our journey towards becoming a DSP has progressed well over the past 3 months where we are building a solid eco-system that will enable us to offer attractive and disruptive services to the market.
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Key Business Focus: Digital Service Provider
While MVNO remains as its business focus, the Company would now focus on developing its Next Generation Intelligent Network (NGIN) and Business Support System (BSS) as a platform to support White Label MVNO businesses. This platform is aimed to provide a leading-edge telecommunication services as part of our Digital Services eco-system alongside the financial technology ("fintech") solutions vis-a-vis an integrated mobile payment equipped with virtual account and digital wallet connected to membership, debit, prepaid and/or credit cards.
Our Mission Critical System
The NGIN and BSS systems are required to provide a real-time unified charging across all services and devices, and payment methods with differentiated service offerings with a quick time-to-market advantage to allow NIMC to quickly capitalize and execute on market opportunities. Our BSS platform combines payment methods, with ‘on demand' payments for some services and recurring subscription models for others.
* Online charging system (OCS) is the central system that governs all subscribers' charging and rating. It is a system that allows an operator to charge their customers, in real time, based on event or session service usage.
* Policy & Charging Rules Function (PCRF), a software component designated in real-time to determine policy rules that accesses subscriber databases and other specialized functions, such as a charging system PCRF supports the creation of rules and then automatically making policy decisions for each subscriber active on the network.	
* Business Support Systems (BSS) are the components that we use to run its business operations towards customers. Together with operations support systems (OSS), these are used to support various end-to-end telecommunication services. BSS and OSS have their own data and service responsibilities.
* Enterprise Resource Planning (ERP) is a system that handles all essential business functions such as accounting, HR, sales, marketing, service, warehousing, and more. The SAP B1 system provides a complete visibility and better control help us run our end-to-end business processes professionally.
We are now at the final stage of negotiating the purchase of these systems from the respective solution provider. We expect to complete the deployment of these systems by the end of Q2.
Infrastructure Provider
The principal activities of GNS are provision of network design, construction and maintenance services for fiber optics backbone and Fiber-to-the-Home (FTTH) broadband services.
The telecommunications industry comprised of many types of companies at different levels within the industry, all making products and/or providing a service to supply local and long distance telephone service, internet service, and new technologies (including VoIP, CATV, HDTV, and security) to the end users (residential, business, and institutional).
A large portion of the telecommunications industry is comprised of equipment manufacturers (switch, router, and network component companies) producing products that make and/or route connections from point-to-point via a central office location. Whether these products are used in networks supporting wired or wireless applications, the ultimate goal for equipment manufacturers is to produce an efficient, cost effective, and reliable product to support network service providers.
Solution providers is another level of the telecommunications industry which is large in size. In this segment, companies source, develop, and implement the network infrastructure that ‘service providers' will use to supply communication connections to the end users. As a segue between component manufacturers and service providers, solutions providers greatly influence network structures, protocols, and the successful implementation of emerging technologies.
The other large segment of the telecommunications industry is service providers. This market is focused on providing communications, in one form or other, to the end users. For most people, this segment is viewed as the face of the industry, delivering the final product/service that the equipment manufacturers and solutions providers support. The most common applications for this segment are premises networks, LAN (local area networks), WAN (wide area networks), and wireless networks.
GNS's offerings are that of connectivity at multiple levels of the telecommunications industry ranging from standard cable assemblies and loopbacks for the equipment manufacturing segment to optical drop cables to support service provider networks.
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Moving Forward
Moving forward, we will continue to strive in executing our roadmap for growth which encompasses five key areas namely, strengthening our talents and resources, expanding our product range, widening our geographical reach, improving customers' journey and experience and enhancing our internal process. The positive results from these areas would create a stable platform for the Group to spread its wings regionally and globally to unveil the vast potential of the digital services market segment. Talks and negotiations are ongoing with several mobile network enablers and operators in the South East Asian region. This would promulgate further the Group's vision and commitment in becoming a regional mobile service operator with an assortment of deliverables that would satisfy the ravishing appetite of the customers. Being in a competitive industry where customers' satisfaction is uncompromising, we are continuously ensuring that customers' experience would be the fundamental element in all facets of our operation.
Technology is the staple food of today's consumers, which is ever changing, we will be investing our resources into R&D, talent enhancement, product innovation, and technology adoption in our delivery processes. This will enable us to be more efficient in providing an unmatched customers' experience, which will translate into a faster and higher subscribers' acquisition. We will continue to jointly work closely with mobile enablers to penetrate new markets and opportunities this year and beyond.
Industry Overview and Competition
Telecommunication Market
Asia Pacific
Asia Pacific has been the biggest contributor to global subscriber growth in recent years and still has considerable room for growth over the rest of the decade. As of the end of 2016, there were 2.7 billion unique subscribers in Asia Pacific, accounting for two thirds of the region's population. More than half the world's mobile subscribers live in Asia Pacific - mostly in China and India.
Over the last few years there has been a dramatic shift towards higher speed mobile technology in Asia Pacific. In 2016, mobile broadband (3G and above) became the dominant technology, accounting for just over half of total connections across the region, up from 20% in 2012. 2016 was also the year 4G connections overtook 3G connections.
Other previously ‘laggard' 4G markets such as Malaysia, Indonesia, Myanmar, the Philippines and India are now beginning to see an accelerating migration to 4G, driven by ongoing network investment by mobile operators, increased competition, falling device prices and growing consumer appetite for higher speed mobile. Overall in the region, 4G will account for 48% of total connections by 2020.
As smartphone adoption continues to rise in the region (just over half of total connections were smartphones at the end of 2016) and as more users come online, an increasing range of mobile services are being consumed, including video, social media, e-commerce and financial services.¹
For the period ending January 2018 within the South East Asia nations, mobile connections as against the country's population was led by Indonesia with a penetration rate of 157% followed by Vietnam (153%), Singapore (150%), Thailand (135%) and Malaysia (133%). On the other hand, mobile broadband penetration was highest in Singapore (150%) and followed by Thailand (134%), Malaysia (107%) Indonesia (84%) and Philippines (65%) with the worldwide average at 63%.³
On mobile social media penetration, Singapore was ahead with 75% with Malaysia and Thailand closing in at 69%, 67% respectively. They were followed by Philippines (59%), Vietnam (52%) and Indonesia (45%) with the worldwide average at 39%.
Meanwhile, Thailand led the mobile banking penetration rate with 56% followed by Singapore and Malaysia (47% each), Vietnam (30%), Philippines (28%) and Indonesia (27%)
The active M-commerce countries were Thailand with a penetration rate of 52%, Malaysia (40%), Singapore (39%), Vietnam (33%) and Indonesia (31%).⁴
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Malaysia
Growth in the information and communication sub-sector was also higher, reflecting higher demand for data communication and computer services.
The information and communication subsector continued to record a strong growth of 8.4% in 2017 (2016: 8.1%²).
In the third quarter of 2017 (3Q2017), mobile-cellular penetration rate was at 131.8% (2Q2017: 133.7%) with 34.1 million (2Q2017: 33.4 million) mobile broadband subscriptions. There were 32.4 million (2Q2017: 33.0 million) prepaid subscriptions and 10.0 million (2Q2017: 9.8 million) postpaid subscriptions. ⁵
¹ The Mobile Economy Asia Pacific 2017 - GSMA
² Bank Negara Malaysia Annual Report 2017
³ Digital in 2018 : Global Overview - we are social & Hootsuite
⁴ Digital in 2018 : Southeast Asia- we are social & Hootsuite
⁵ Malaysian Communications and Multimedia Commission - Communications and Multimedia : Facts and Figures 3Q 2017
Fibre Internet in Malaysia
Fiber internet represents a faster broadband than practically any other type of broadband in Malaysia. "Faster" means that more data transfers per second than other types of broadband services. Essentially, fibre optic technology converts electrical signals that carry data into light, which are transferred via hair-thin glass cables. Fiber also supports simultaneous access to internet, voice and television connections.
Fibre-optics is a fairly recent development worldwide and particularly in Malaysia. It is available to limited areas because of the infrastructure required. In Malaysia, it is typically known as Fibre to the Home (FTTH), and it is replacing ADSL in urban centres, bringing with it a shift to 24-month package contracts typical of a UK or US internet provider.
Fiber internet services in Malaysia typically provide speeds ranging from 5 Mbps to 100 Mbps. Companies offering FTTH include Time dotCom, Telekom Malaysia's UniFi and Maxis among others. The fibre options are typically much faster than the ADSL and Wireless Broadband options. However, fibre broadband in Malaysia is still not as fast as some fibre broadband options in the United States, like Google Fibre, which offers up to 1 Gbps.
In the third quarter of 2017 (3Q2017), household broadband penetration rate is 84.5% (2Q2017:83.7%) with 2.5 million fixed broadband subscriptions. ¹
¹ Malaysian Communications and Multimedia Commission - Communications and Multimedia : Facts and Figures 3Q 2017
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Plan of operations
OUR PLAN OF OPERATION FOR THE NEXT TWELVE MONTHS.
We hope to generate additional revenues in the next twelve months by engaging business operations through internal growth and through strategic acquisitions.
We have cash and cash equivalents of $10,131as of December 31, 2017; a decrease of about 99% from the previous period end of December 31, 2016. In the opinion of management, the current funds will not satisfy our working capital requirements to operate at our current level of activity for the next twelve months. To effectuate our business plan, during the next twelve months, we must arrange for adequate funding to implement our plans of deploying our digital service provider and network service provider businesses.
Financing and funding
Management intends to continue to raise additional financing through debt and equity financing or other means and interests that it deems necessary, with a view to implementing our business plan and building a revenue base. We plan to use the proceeds of such financings to provide working capital to our operations and increase our capital expenditure for marketing and working with our co-operative partners. There can be no assurances that sufficient financing will be available on terms acceptable to us or at all. Our forecast for the period for which financial resources will be needed to support our operations involves risks and uncertainties and actual results could fail as a result of a number of factors.
Specifically, we hope to accomplish the steps as set out in this report to implement our business plan in respect of developing and integrating digital service provider and infrastructure provider. The success of our plans is subject to our ability to obtain adequate funding. Such additional capital may be raised through public or private equity financing, borrowings, or other sources, such as contributions from our officers and directors. If we are unable to obtain funds necessary to implement our business plan, we may revise or scale back our business plan.
We are not currently conducting any research and development activities, other than the continual development of our website. We do not anticipate conducting any other research and development activities in the near future. In the event that we expand our business scope, then we may need to hire additional employees or independent contractors as well as purchase or lease additional equipment and open new office locations.
Governmental Regulation
We are subject to federal, state and local laws and regulations applied to businesses in general. We believe that we comply with the requirements in Malaysia for any licenses or approvals to pursue our proposed business plan. In locations where we operate, the applicable laws and regulations are subject to amendment or interpretation by regulatory authorities. Generally, such authorities are vested with relatively broad discretion to grant, renew and revoke licensee and approvals, and to implement regulations. Licenses may be denied or revoked for various reasons, including the violation of such regulations, conviction of crimes and the like. Possible sanctions which may be imposed include the suspension of individual employees, limitations on engaging in a particular business for specific periods of time, revocation of licenses, censures, redress to customers and fines. We believe that we are in conformity with all applicable laws in all relevant jurisdictions. We may be prevented from operating if our activities are not in compliance and must take action to comply with the relevant laws and regulations.
We have posted our privacy policy and practices concerning the use and disclosure of any consumer information collected on our website, www.mediangroupinc.com. Any failure by us to comply with posted privacy policies, Federal Trade Commission requirements or other domestic or international privacy-related laws and regulations could result in proceedings by governmental or regulatory bodies that could potentially harm our business, results of operations and financial condition. In this regard, there are a large number of legislative proposals before the U.S. Congress and various state legislative bodies regarding privacy issues related to online commerce to which the Group may participate in the future. It is not possible to predict whether or when such legislation may be adopted, and certain proposals, if adopted, could harm our business by causing a decrease in the use of our applications and services by our small business customers and thereby a decrease in our revenues. Such decreases could be caused by, among other possible provisions, the required use of disclaimers or other requirements before consumers can utilize our Internet technology solutions.
Employees
As of the date of this report, we have 12 full time employees. From time to time, we utilize consultants or contractors for specific assignments. None of our employees are represented by a labor union and we have never experienced a work stoppage. We believe that our relationships with our employees are good.
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ITEM 1A.
ITEM 1A. RISK FACTORS
There are numerous and varied risks, known and unknown, that may prevent us from achieving our goals. If any of these risks actually occur, our business, financial condition or results of operation may be materially adversely affected. In such case, the trading price of our Common Stock could decline and investors could lose all or part of their investment.
Risks Related to Our Business
Our business is subject to various risks and uncertainties, including those set forth below. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties not presently known to us or that we currently deem to be immaterial may also materially and adversely affect our business operations. If any of the risks set out or referred to below actually occur, our business, financial condition or results of our operations could be materially adversely affected.
Our risks for the existing and future business disclosed in this section has included the setting up as a digital service provider and the network service provider including design, construction and maintenance services, for broadband service in Malaysia.
RISKS RELATED TO EXISTING AND PROPOSED OPERATIONS
If we are unable to obtain additional funds from other financings we may have to curtail the scope of our operations significantly and alter our business model
We must achieve profitability for our business model to succeed. Prior to accomplishing this goal, we may need to raise additional funds, from equity or debt sources. Our cash requirements are substantial and our current financial position is insufficient to meet our cash needs in the future. If additional financing is not available when required or is not available on acceptable terms, we may be unable to continue our operations at current or planned levels. In addition, any failure to raise additional funds in the future may result in our inability to successfully secure our business platform, take advantage of business opportunities or respond to competitive pressures, any of which circumstances could have a material adverse effect on our financial condition and results of operations.
We do not have substantial cash resources and if we cannot raise additional funds or generate more revenues, we will not be able to pay our vendors and will probably not be able to continue as a going concern
We will need to raise additional funds to pay outstanding debts, vendor invoices and execute our business plan. Our future cash flows depend on our ability to enter into, and be paid under, contracts with our distributors for the telecom services business. There can be no assurance that additional funds will be available when needed from any source or, if available, will be available on terms that are acceptable to us.
We may be required to pursue sources of additional capital through various means, including joint venture projects and debt or equity financings. Future financings through equity investments will be dilutive to existing stockholders. Also, the terms of securities we may issue in future capital transactions may be more favorable for our new investors. Newly issued securities may include preferences, superior voting rights, the issuance of warrants or other convertible securities, which will have additional dilutive effects. Further, we may incur substantial costs in pursuing future capital and/or financing, including investment banking fees, legal fees, accounting fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection with certain securities we may issue, such as convertible notes and warrants, which will adversely impact our financial condition and results of operations.
Our ability to obtain needed financing may be impaired by such factors as the weakness of capital markets and the fact that we have not been profitable, which could impact the availability or cost of future financings. If the amount of capital we are able to raise from financing activities, together with our revenues from operations, is not sufficient to satisfy our capital needs, even to the extent that we reduce our operations accordingly, we may be required to cease operations.
We have a limited operating history, and it may be difficult for potential investors to evaluate our business
Currently we are focusing our operation on being a digital service provider and the network service provider including design, construction and maintenance services, for broadband service in Malaysia. Our limited operating history makes it difficult for potential investors to evaluate our business or prospective operations. We are subject to all the risks inherent in the initial organization, financing, expenditures, complications and delays inherent in a relatively new business. Investors should evaluate an investment in us in light of the uncertainties encountered by such companies in a competitive environment. Our business is dependent upon the implementation of our business plan, as well as the ability of our cooperative distributor, Angkasa, to sell our telecom services to their membership. There can be no assurance that our efforts will be successful or that we will be able to attain profitability.
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Our limited operating history and rapidly evolving business makes it difficult for us to accurately forecast revenues and expenses
We have a limited operating history on which to base an evaluation of our business and prospects. Our operating results may fluctuate as a result of a number of factors, many of which are outside of our control. For these reasons, comparing our operating results on a period-to-period basis may not be meaningful, and you should not rely on our past results as an indication of our future performance. Our prospects must be considered in light of inherent risks, expenses, and difficulties encountered by companies in their early stages of development, particularly in new and evolving markets.
We have generated losses for the past years as our consumer electronics and advertising businesses has come under competitive price pressure which the management is rationalizing the operation in order to be competitive. Most recently in 2015, we determined to focus our telecom business from prepaid to postpaid business and a digital service provider. Accordingly, our future prospects are uncertain in light of the risks and uncertainties experienced by early stage companies in evolving industries, and in particular our future as a digital service provider and the network service provider including design, construction and maintenance services, for broadband service in Malaysia. Due to our limited history and limited resources, it is difficult for us to predict future revenues and operating expenses. If our digital service provider and network service provider businesses develop slower than we expect, our losses may be higher than anticipated, we may have to curtail parts of our business plan and the market price of our stock may decline.
Some of the other risks and uncertainties of our business relate to our ability to:
- offer new and innovative products and services to attract and retain a larger consumer base;
- attract customers;
- increase awareness of our brand and continue to develop consumer and customer loyalty;
- respond to competitive market conditions;
- respond to changes in our regulatory environment;
- manage risks associated with intellectual property rights;
- maintain effective control of our costs and expenses;
- raise sufficient capital to sustain and expand our business;
- attract, retain and motivate qualified personnel; and
- upgrade our technology to support increased traffic and expanded services.
If we are unsuccessful in addressing any of these risks and uncertainties, our business may be materially and adversely affected.
We face significant competition and may suffer from a loss of users and customers as a result
We expect to face significant competition in our digital service provider and the network service provider including design, construction and maintenance services, for broadband service businesses, particularly from other companies that seek to provide similar products and services. Many of these competitors have significantly greater financial resources and more personnel than we do. They may also have longer operating histories and more experience in attracting and retaining and managing customers. They may use their experience and resources to compete with us in a variety of ways, including by competing more for users, customers, distributors, media channels and by investing more heavily in research and development and making acquisitions. If we fail to compete effectively, our business, financial condition and results of operation will be adversely affected.
Our business depends on a strong brand, and if we are not able to maintain and enhance our brand, our business and operating results may be harmed
We believe that recognition of our brand will contribute significantly to the success of our business. We also believe that maintaining and enhancing our brand is critical to expanding our base of consumers and customers. As our market becomes increasingly competitive, maintaining and enhancing our brand will depend largely on our ability to fund the advertising and promotion campaigns, which may be increasingly difficult and expensive.
We may face intellectual property infringement claims and other related claims that could be time-consuming and costly to defend and may result in our inability to continue providing certain of our existing services
Technology and service companies are frequently involved in litigation based on allegations of infringement of intellectual property rights, unfair competition, and invasion of privacy, defamation and other violations of third-party rights. The validity, enforceability and scope of protection of intellectual property, particularly in Malaysia, are uncertain and still evolving. In addition, many parties are actively developing and seeking protection for electronics technologies, including seeking patent protection. There may be patents issued or pending that are held by others that cover significant aspects of our technologies, products, business methods or services. As we face increasing competition and as litigation becomes more common in Malaysia and elsewhere in Asia for resolving commercial disputes, we face a higher risk of being the subject of intellectual property infringement claims.
Intellectual property litigation is expensive and time consuming and could divert resources and management attention from the operations of our businesses. If there is a successful claim of infringement, we may be required to pay substantial fines and damages or enter into royalty or license agreements that may not be available on commercially acceptable terms, if at all. Our failure to obtain a license of the rights on a timely basis could harm our business. Any intellectual property litigation could have a material adverse effect on our business, financial condition or results of operations.
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If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud
We are subject to reporting obligations under the U.S. securities laws. The SEC, as required by Section 404 of the Sarbanes-Oxley Act of 2002, adopted rules requiring every public company to include in its annual report a management report on such company's internal controls over financial reporting which contains management's assessment of the effectiveness of the company's internal controls over financial reporting. In addition, if the Company qualifies under certain revenue or market capitalization test an independent registered public accounting firm must attest to and report on management's assessment of the effectiveness of the company's internal controls over financial reporting. Our management may conclude that our internal controls over financial reporting are not effective. Moreover, even if our management concludes that our internal controls over financial reporting are effective, our independent registered public accounting firm may still decline to attest to our management's assessment or may issue a report that is qualified if they are not satisfied with our controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us. Our reporting obligations as a public company will place a significant strain on our management, operational and financial resources and systems for the foreseeable future. We are a company with limited accounting personnel and other resources with which to address our internal financial controls and procedures. If we fail to timely achieve and maintain the adequacy of our internal financial controls, we may not be able to conclude that we have effective internal controls over financial reporting at a reasonable assurance level. Moreover, effective internal controls over financial reporting are necessary for us to produce reliable financial reports and are important to help prevent fraud. As a result, our failure to achieve and maintain effective internal controls over financial reporting could result in the loss of investor confidence in the reliability of our financial statements, which in turn could harm our business and negatively impact the market price of our Common Stock.
The recent global economic and financial market crisis has had and may continue to have a negative effect on our business and results of operations
Global economic conditions could have a negative effect on our business and results of operations like the global economic downturn in 2008 when economic activity in China, United States and throughout much of the world has undergone a sudden, sharp economic downturn following the housing downturn and subprime lending collapse in both the United States and Europe. Since then the global credit and liquidity have tightened in much of the world. Some of our customers in Malaysia may face business downturn and credit issues, and could experience cash flow problems and other financial hardships, which could affect timeliness of doing business with us.
Changes in governmental banking, monetary and fiscal policies to restore liquidity and increase credit availability may not be effective in alleviating the global economic declines. It is difficult to determine the breadth and duration of the economic and financial market problems and the many ways in which they may affect our customers and our business in general. Nonetheless, continuation or further worsening of these difficult financial and macroeconomic conditions could have a significant effect on our business and results of operations.
Capital markets are currently experiencing a period of dislocation and instability, which has had and could continue to have a negative impact on the availability and cost of capital
The general disruption in the U.S. capital markets has impacted the broader financial and credit markets and reduced the availability of debt and equity capital for the market as a whole. These conditions could persist for a prolonged period of time or worsen in the future. Our ability to access the capital markets may be restricted at a time when we would like, or need, to access such markets, which could have an impact on our flexibility to react to changing economic and business conditions. The resulting lack of available credit, lack of confidence in the financial sector, increased volatility in the financial markets and reduced business activity could materially and adversely affect our business, financial condition, results of operations and our ability to obtain and manage our liquidity. In addition, the cost of debt financing may be materially adversely impacted by these market conditions.
Our success depends on the continuing efforts of our senior management team and other key personnel and our business may be harmed if we lose their services
Our future success depends heavily upon the continuing services of the members of our senior management. If one or more of our senior executives or other key personnel are unable or unwilling to continue in their present positions, we may not be able to replace them easily or at all, and our business may be disrupted and our financial condition and results of operations may be materially and adversely affected. Competition for senior management and key 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 key personnel, or attract and retain high-quality senior executives or key personnel in the future.
In addition, if any member of our senior management team or any of our other key personnel joins a competitor or forms a competing company, we may lose customers, distributors, know-how and key professionals and staff members. Each of our executive officers and key employees has entered into an employment agreement with us which contains confidentiality and non-competition provisions. Legal proceedings to enforce such provisions would be costly in both money and management time and such provisions may not be enforced or enforceable.
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The success of our business depends on the continuing contributions of Andrew Hwan Lee and other key personnel who may terminate their employment with us at any time, and we will need to hire additional qualified personnel
We rely heavily on the services of Andrew Hwan Lee, our director and Chief Executive Officer, as well as several other management personnel. Loss of the services of any such individuals would adversely impact our operations. In addition, we believe our technical personnel represent a significant asset and provide us with a competitive advantage over many of our competitors and that our future success will depend upon our ability to retain these key employees and our ability to attract and retain other skilled financial, engineering, technical and managerial personnel. We do not currently maintain any "key man" life insurance with respect to any of such individuals.
We rely on highly skilled personnel and if we are unable to retain or motivate key personnel or hire qualified personnel, we may not be able to grow effectively
Our performance and future success depends on the talents and efforts of highly skilled individuals. We will need to continue to identify, hire, develop, motivate and retain highly skilled personnel for all areas of our organization. Competition in our industry for qualified employees is intense. Our continued ability to compete effectively depends on our ability to attract new employees and to retain and motivate our existing employees.
As competition in our industry intensifies, it may be more difficult for us to hire, motivate and retain highly skilled personnel. If we do not succeed in doing so, we may be unable to grow effectively.
We have no business insurance coverage
We do not have any business liability or disruption insurance coverage for our operations in Malaysia. Any business disruption, litigation or natural disaster may result in our incurring substantial costs and the diversion of our resources.
We are exposed to risks associated with the ongoing financial crisis and weakening global economy, which increase the uncertainty of consumers purchasing products and/or services
The recent severe tightening of the credit markets, turmoil in the financial markets, and weakening global economy are contributing to a decrease in spending by consumers. If these economic conditions are prolonged or deteriorate further, the market for our digital services will decrease accordingly.
Our Company may experience rapid growth in operations, which may place, and may continue to place, significant demands on its management, operational and financial infrastructure
If the Company does not effectively manage its growth, the quality of its products and services could suffer, which could negatively affect the Company's brand and operating results. To effectively manage this growth, the Company will need to continue to improve its operational, financial and management controls and its reporting systems and procedures. Failure to implement these improvements could hurt the Company's ability to manage its growth and financial position.
Our Company's business faces inherent risk in the mobile communication industry
Our Group's business is subject to certain risks inherent in the mobile communication industry. Our Group's revenue and operating results could be adversely affect by many factors which include, amongst others, changes in general economic, business and credit conditions, fluctuation in foreign exchange rates, changes in demand for and market acceptance of our products and services, our ability to introduce new products and services and enhancements in a timely manner, rapid technological changes, increase in operating expenses, lower profit margins due to pricing competition and delay in expansion plans.
Our Group seeks to limit these business risks through, inter-alia prudent management policies, keeping abreast with new developments and technologies in the relevant industries and maintaining good relationship with customers and suppliers. However there can be no assurance that any changes in these factors will not have any material adverse effect on our Group's business.
Our Company's business faces competition from local and foreign competitors
Our Group faces competition from both local and foreign competitors which offer similar products that of our Group offerings. Increased competition could result in competitive pricing resulting in lower profit margins. However, our Group believes that we have competitive edge over our competitors; including amongst others, quality services, captive customers through our distributors, access to R&D capabilities and technological expertise acquired over the years.
Our Group seeks to limit the competitive risks through, inter-alia constant review of our development and marketing strategies to adapt to changes in economic conditions and market demands as well as focusing on certain markets and industries. However, there can be no assurance that our Group will be able to compete effectively against our competitors and that competitive pressure will not materially and adversely affect our Group's business, operations and results and or financial condition.
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Risks Relating to Our Organization and Our Common Stock
Public company compliance may make it more difficult for us to attract and retain officers and directors
The Sarbanes-Oxley Act and new rules subsequently implemented by the SEC have required changes in corporate governance practices of public companies. As a public company, we expect these new rules and regulations to increase our compliance costs and to make certain activities more time consuming and costly. As a public company, we also expect that these new rules and regulations may make it more difficult and expensive for us to obtain director and officer liability insurance in the future and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our board of directors or as executive officers.
We may not be able to attract the attention of major brokerage firms
Securities analysts of major brokerage firms may not provide coverage of us since there is no incentive to brokerage firms to recommend the purchase of our Common Stock. No assurance can be given that brokerage firms will, in the future, want to conduct any secondary offerings on behalf of our Company.
Our stock price may be volatile
The market price of our Common Stock is likely to be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control, including the following:
* changes in our industry;
* competitive pricing pressures;
* our ability to obtain working capital financing;
* additions or departures of key personnel;
* limited "public float" in the hands of a small number of persons whose sales or lack of sales could result in positive or negative pricing pressure on the market price for our Common Stock;
* sales of our Common Stock;
* our ability to execute our business plan;
* operating results that fall below expectations;
* loss of any strategic relationship;
* regulatory developments;
* economic and other external factors; and
* period-to-period fluctuations in our financial results.
In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our Common Stock.
We may not pay dividends in the future. Any return on investment may be limited to the value of our Common Stock
We do not anticipate paying cash dividends in the foreseeable future. The payment of dividends on our Common Stock will depend on earnings, financial condition and other business and economic factors affecting us at such time as our board of directors may consider relevant. If we do not pay dividends, our Common Stock may be less valuable because a return on your investment will only occur if our stock price appreciates.
There is currently no liquid trading market for our Common Stock and we cannot ensure that one will ever develop or be sustained
To date there has not been an active trading market for our Common Stock. We cannot predict how liquid the market for our Common Stock might become. As soon as is practicable after becoming eligible, we anticipate applying for listing of our Common Stock on either the NYSE Amex Equities, The Nasdaq Capital Market or other national securities exchange, assuming that we can satisfy the initial listing standards for such exchange. We currently do not satisfy the initial listing standards for any of these exchanges, and cannot ensure that we will be able to satisfy such listing standards or that our Common Stock will be accepted for listing on any such exchange. Should we fail to satisfy the initial listing standards of such exchanges, or our Common Stock is otherwise rejected for listing and remains quoted on the OTC markets or is suspended from the OTC markets, the trading price of our Common Stock could suffer and the trading market for our Common Stock may be less liquid and our Common Stock price may be subject to increased volatility.
Furthermore, for companies whose securities are quoted on the OTC markets, it is more difficult (i) to obtain accurate quotations, (ii) to obtain coverage for significant news events because major wire services generally do not publish press releases about such companies and (iii) to obtain needed capital.
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Our Common Stock is currently a "penny stock," which may make it more difficult for our investors to sell their shares
Our Common Stock is currently and may continue in the future to be subject to the "penny stock" rules adopted under Section 15(g) of the Exchange Act. The penny stock rules generally apply to companies whose Common Stock is not listed on The NASDAQ Stock Market or other national securities exchange and trades at less than $4.00 per share, other than companies that have had average revenue of at least $6,000,000 for the last three years or that have tangible net worth of at least $5,000,000 ($2,000,000 if the company has been operating for three or more years). These rules require, among other things, that brokers who trade penny stock to persons other than "established customers" complete certain documentation, make suitability inquiries of investors and provide investors with certain information concerning trading in the security, including a risk disclosure document and quote information under certain circumstances. Many brokers have decided not to trade penny stocks because of the requirements of the penny stock rules and, as a result, the number of broker-dealers willing to act as market makers in such securities is limited. If we remain subject to the penny stock rules for any significant period, it could have an adverse effect on the market, if any, for our securities. Since our securities are subject to the penny stock rules, investors may find it more difficult to dispose of our securities.
Offers or availability for sale of a substantial number of shares of our Common Stock may cause the price of our Common Stock to decline
If our stockholders sell substantial amounts of our Common Stock in the public market, or upon the expiration of any statutory holding period under Rule 144, or issued upon the exercise of outstanding options or warrants, it could create a circumstance commonly referred to as an "overhang" and in anticipation of which the market price of our Common Stock could fall. The existence of an overhang, whether or not sales have occurred or are occurring, also could make more difficult our ability to raise additional financing through the sale of equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate.
Ching Chiat Kwong, our major shareholder beneficially owns or holds the proxies for a substantial portion of our outstanding Common Stock, which enables him to influence many significant corporate actions and in certain circumstances may prevent a change in control that would otherwise be beneficial to our stockholders
Ching Chiat Kwong currently beneficially owns and holds the proxies for approximately 77.14% of our outstanding Common Stock. As such, he has a substantial impact on matters requiring the vote of the stockholders, including the election of our directors and most of our corporate actions. This control could delay, defer, or prevent others from initiating a potential merger, takeover or other change in our control, even if these actions would benefit our stockholders and us. This control could adversely affect the voting and other rights of our other stockholders and could depress the market price of our Common Stock.
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RISKS RELATING TO THE BUSINESS
We have a limited operating track record
We have a limited operating and financial history in the network service provider, including design, construction and maintenance services, for broadband service in Malaysia ("Network Service"), upon which you may evaluate us. Our network services operation commenced operations in 2016. As a result, your evaluation of us and our prospects will be based on a limited operating and financial history. Therefore, it is difficult to accurately forecast our future revenue and budget our operating expenses.
There can be no assurance that our business model or any specific products or services will be profitable or competitive in the long term against larger, facilities-based Network Service provider.
We may experience significant fluctuations in our revenues and cash flows. We have experienced, and may continue to experience, operating losses. In the event that we do become profitable, we can provide no assurances that such profitability can or will be sustained in the future.
We may not be able to successfully extend and/or launch existing or new products and services into the market
There is a risk that we may not identify consumer trends correctly. Any new product or services we launch may not be provided on a cost-effective or price-competitive basis due to a misreading of consumer demand or trends. Such misjudgment may adversely affect the operational and financial results of us.
We depend significantly on our network of traditional dealers and distributors for sales or our products and services
Our digital services provider will be principally sold through our cooperative distributor and a network of traditional dealers and distributors. Any dispute with them may disrupt sales and have an adverse effect on our operational and financial results.
Dependence on directors and key personnel
The technology industry is growing and fast evolving, and the management and operation of the business requires the employment of highly skilled knowledge workers, whether in technology or non-technology related fields. We recognize and believe that our continuing success depends to a significant extent on the abilities and continuing efforts of its existing Managing and Executive Directors and key personnel, and the ability of our Company to attract new personnel and retain its existing skilled personnel. The labour market for skilled personnel in this field is highly competitive.
We seek to mitigate this risk by offering its employees competitive salary/remuneration, benefit packages and also to offer internships to undergraduates pursuing tertiary education in the telecommunications field for possible future employment with us.
If one or more of these personnel are unable or unwilling to continue in their present positions, or if they join a competitor or form a competing company, we may not be able to replace them easily. Our business may be significantly disrupted and its financial condition and results of operations may be materially and adversely affected.
We may be unable to adequately protect our intellectual property or may face intellectual property claims that may be costly to resolve or may limit our ability to use our intellectual property in the future.
The popularity of our products and services is dependent on the goodwill associated with our brand names and logos. In the case of trademarks and service marks applied and/or registered with the Intellectual Property Corporation of Malaysia, we have a perpetual, royalty-free licence to use such trademarks and service marks in Malaysia.
Our digital service provider operation relies on a combination of trademarks, service marks and domain name registrations, common law copyright protection and contractual restrictions to establish and protect their intellectual property. Any third party may challenge our intellectual property. We may incur substantial costs in defending any claims relating to its intellectual property rights.
Breach of customer data protection could materially affect our reputation and business and subject us to liability
If we are successful in our operations, we will develop a large database on our subscribers' information stored in various business systems and used in many business processes. We are required under our licenses to take all reasonable steps to ensure that parties who have access to our subscribers' information in the ordinary course of business do not disclose such information without the prior consent of the subscribers. Under the Malaysian Personal Data Protection Act 2010 ("PDPA") which regulates the processing of personal data in regards to commercial transaction and safeguard the interests of data subjects, the penalty for non-compliance will be between RM100,000 - RM500,000 (about US$23,365 - US$116,822 at an exchange rate of 4.28) and /or imprisonment between 1-3 years.
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ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
ITEM 2. PROPERTIES
PROPERTY HELD BY US. Neither the Company nor its subsidiaries own any properties or facilities.
On April 1, 2016 the Company signed a tenancy agreement for the corporate office at Level 17, Tower 2, Bank Rakyat Twin Towers, No. 33, Jalan Travers, 50470 Kuala Lumpur, Malaysia. Pursuant to the terms of the agreement, the Group lease the 7,537 sq. feet office for 3 years at a monthly rent of RM33,916.50 (approximately US$7,560) or annual rent of RM406,998 (approximately US$90,720).
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
There are no legal actions pending against us nor are any legal actions contemplated by us at this time.
ITEM 4.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM 5.
ITEM 5. MARKET PRICE FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES
MARKET INFORMATION
Our shares are quoted and traded from time to time on the OTC Markets under the symbol "CHMD". Although trading in our Common Stock has occurred on a relatively consistent basis, the volume of shares traded has been limited; the quotations are limited and sporadic at times.
The following table shows the reported quarterly high and low closing sales price for our shares within the last two fiscal years on the OTC Markets. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions. Investors should not rely on historical prices of our Common Stock as an indication of its future price performance. The closing price of our Common Stock on December 31, 2017 was $0.004 per share.
HOLDERS
The number of record holders of our common stock as of December 31, 2017, was [87] based on information received from our transfer agent. This amount excludes an indeterminate number of shareholders whose shares are held in "street" or "nominee" name.
DIVIDENDS
There have been no cash dividends declared on our Common Stock since inception. It is the present policy of the Company to retain earnings to finance the growth and development of the business and, therefore, the Company does not anticipate paying dividends on its common stock in the foreseeable future.
The holders of our Common Stock are entitled to one vote for each share of record on all matters to be voted on by shareholders. There is no cumulative voting with respect to the election of our directors or any other matter. Therefore, the holders of more than 50% of the shares voted for the election of those directors can elect all of the directors. The holders of our Common Stock are entitled to receive dividends when, as and if declared by our Board of Directors from funds legally available therefore. Cash dividends are at the sole discretion of our Board of Directors. In the event of our liquidation, dissolution or winding up, the holders of Common Stock are entitled to share ratably in all assets remaining available for distribution to them after payment of our liabilities and after provision has been made for each class of stock, if any, having any preference in relation to our Common Stock. Holders of shares of our Common Stock have no conversion, preemptive or other subscription rights, and there are no redemption provisions applicable to our Common Stock.
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STOCK OPTIONS
During the year, we had one effective equity compensation plan. The detail of the equity compensation plan is set out below.
Stock Incentive Plan
On February 19, 2007, our Board of Directors authorized and approved the adoption of the 2007 Stock Incentive Plan effective the same date (the "2007 Stock Incentive Plan").
The purpose of the 2007 Stock Incentive Plan is to enhance our long-term stockholder value by offering opportunities to our directors, officers, employees and eligible consultants to acquire and maintain stock ownership in order to give these persons the opportunity to participate in our growth and success, and to encourage them to remain in our service.
The 2007 Stock Incentive Plan is to be administered by our Board of Directors or a committee ("Plan Administrator") appointed by and consisting of two or more members of our Board of Directors, which shall determine (i) the persons to be granted stock options under the 2007 Stock Incentive Plan; (ii) the number of shares subject to each option, the exercise price of each stock option; and (iii) whether the stock option shall be exercisable at any time during the option period of ten years or whether the stock option shall be exercisable in installments or by vesting only. The 2007 Stock Incentive Plan provides authorization to the Board of Directors to grant stock options to purchase a total number of shares, not exceed 38,400,000 shares as at the date of adoption by the Board of Directors. At the time a stock option is granted under the 2007 Stock Incentive Plan, the Board of Directors shall fix and determine the exercise price at which shares of our Common Stock may be acquired.
In the event an optionee ceases to be employed by or to provide services to us for reasons other than cause, retirement, disability or death, any stock option that is vested and held by such optionee generally may be exercisable for such period of time thereafter as shall be determined by the Plan Administrator and set forth in the documents evidencing the option. The Plan Administrator shall have complete discretion either at the time an option is granted or at any time while the option remains outstanding, to i) extend the period of time which the option is to be exercisable following the optionees cessation of service, but not beyond the expiration of the option term and/or ii) permit the option to be exercised after the cessation of employment of both vested and unvested options at the time of cessation of employment.
No stock options granted under the 2007 Stock Incentive Plan will be transferable by the optionee other than by will or by the laws of descent and distribution following the optionee's death, and each stock option will be exercisable during the lifetime of the optionee subject to the option period of ten years or limitations described above. The options can be assigned in whole or in part during the Optionee's lifetime to one or more members of the optionee's immediate family, provided the assignment is connected to estate planning or pursuant to a domestic relations order.
The exercise price of a stock option granted pursuant to the 2007 Stock Incentive Plan shall be paid in full to us by delivery of consideration equal to the product of the number of shares multiplied by the exercise price. Any stock option settlement, including payment deferrals or payments deemed made by way of settlement of pre-existing indebtedness from the Company may be subject to such conditions, restrictions and contingencies as may be determined by the Plan Administrator.
The 2007 Stock Incentive Plan further provides that, subject to the provisions of the 2007 Stock Incentive Plan and prior Stockholder approval, the Board of Directors may grant to any key individuals who are our employees eligible to receive options, one or more incentive stock options to purchase the number of shares of Common Stock allotted by the Board of Directors (the "Incentive Stock Options"). The option price per share of Common Stock deliverable upon the exercise of an Incentive Stock Option shall be at least 100% of the fair market value of the Common Shares of the Company and in the case of an Incentive Stock Option granted to an optionee who owns more than 10% of the total combined voting power of all classes of our stock, shall not be less than 110% of the fair market value of our Common Stock. The option term of each Incentive Stock Option shall be determined by the Plan Administrator, which shall not commence sooner than from the date of grant and shall terminate no later than ten years from the date of grant of the Incentive Stock Option, except for optionee who owns more than 10% of the total combined voting power of all classes of our stock whom shall terminate no later than five year from the date of grant of the Incentive Stock Option.
On March 8, 2007, we registered 38,400,000 shares underlying stock options under the 2007 Stock Incentive Plan with the SEC pursuant to a registration statement on Form S-8.
From 2007 to 2013 the Company issued a total of 6,522,309 shares under the 2007 Stock Incentive Plan.
From 2014 to 2017, the Company did not issue any shares under the 2007 Stock Incentive Plan.
The 2007 Stock Incentive Plan expired in 2017 and as at December 31, 2017 the Company had no stock option plan.
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ISSUER PURCHASES OF EQUITY SECURITIES
No repurchases of our Common Stock were made during the fourth quarter and during our fiscal year ended December 31, 2017.
PENNY STOCK REGULATIONS
Shares of our Common Stock are subject to rules adopted by the Securities and Exchange Commission that regulate broker-dealer practices in connection with transactions in "penny stocks". Penny stocks are generally equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the Nasdaq system, provided that current price and volume information with respect to transactions in those securities is provided by the exchange or system).
The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, deliver a standardized risk disclosure document prepared by the Securities and Exchange Commission, which contains the following:
- a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading;
- a description of the broker's or dealer's duties to the customer and of the rights and remedies available to the customer with respect to violation to such duties or other requirements of securities' laws;
- a brief, clear, narrative description of a dealer market, including "bid" and "ask" prices for penny stocks and the significance of the spread between the "bid" and "ask" price;
- a toll-free telephone number for inquiries on disciplinary actions;
- definitions of significant terms in the disclosure document or in the conduct of trading in penny stocks; and;
- such other information and is in such form (including language, type, size and format), as the Securities and Exchange Commission shall require by rule or regulation
Prior to effecting any transaction in penny stock, the broker-dealer also must provide the customer the following:
- the bid and offer quotations for the penny stock;
- the compensation of the broker-dealer and its salesperson in the transaction;
- the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and
- monthly account statements showing the market value of each penny stock held in the customer's account.
In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written acknowledgment of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks, and a signed and dated copy of a written suitably statement. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for a stock that becomes subject to the penny stock rules. Holders of shares of our Common Stock may have difficulty selling those shares because our Common Stock will probably be subject to the penny stock rules.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
A registrant that qualifies as a smaller reporting company is not required to provide the information required by this item.
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ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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, 2017 compared with year ended December 31, 2016
Results of Operations
REVENUES
For the year ended December 31, 2017, the Group has realized revenue of $387,637 and cost of revenue of $243,612, achieving a gross profit of $144,025 from its operations. For the year ended December 31, 2016, the Group has realized revenue of $43,495 and cost of revenue of $33,310, achieving a gross profit of $10,185 from its operations. The increase of revenue is mainly due to the increase in network design services income.
OPERATING EXPENSES
For the year ended December 31, 2017, our gross profit was $144,025 and our total operating expenses were $272,635, all of which were selling, general and administrative expenses. We also had $87,219 in other income and $160,000 in interest expenses so that the net loss to our shareholders before non-controlled interests for the year ended December 31, 2017 was $201,391. For the year ended December 31, 2016, our gross profit was $10,185 and our total operating expenses were $913,782, all of which were selling, general and administrative expenses. The decrease of operating expenses is mainly due to the decrease in staff cost and professional expenses, and the exchange fluctuation. We also had $11,602 in other income, $194,947 in gain from disposal of a subsidiary, $160,000 in interest expenses so that the net loss to our shareholders before non-controlled interests for the year ended December 31, 2016 was $857,048.
Liquidity and Capital Resources
As at December 31, 2017, the Company had cash and cash equivalents totaling $10,131. Also as at December 31, 2017, the Company's total assets was $1,714,065 consisting of the cash amount above and of intangible assets of $541,307, fixed assets of $40,964, accounts receivables of $32,237, deposits and prepayments of $69,666, and amount due from a relate party of $1,019,760. We also had current liabilities of $1,799,993 which were represented by $9,400 in accounts payables, $776,370 in other payables and accruals, $1,014,223 in amounts due to related parties as of December 31, 2017. We also had $2,000,000 in long-term shareholders loan as of December 31, 2017, making our total liabilities $3,799,993. As of December 31, 2017, the Company's current liabilities exceed its current assets by $688,199.
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 2018.
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Liquidity and Capital Resources
The cash balance at December 31, 2017 was $10,131. There was no significant fund raising and investing activity in 2017. The Company intends to monitor the monthly cash outlays in the coming months to conserve cash until additional financing can be received through funding activities. We recorded a net loss of $201,391before non-controlling interests for the year.
At present the Company does not have sufficient cash resources and cash flow from operations to provide for the planned roll out of its operations. In 2016 the Company changed its focus away from setting up its own MVNO platform. Accordingly, it signed a Master Distribution Agreement so that we would solely focus on the marketing of telecom and payment services This new business focus requires injection of funds for marketing and distribution. The Company will be required to raise funds to meet its liabilities and operation requirements by i) selling its Common Stock ii) raise from the capital or debt markets, or iii) sell 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, 2017, the Company has an accumulated deficits totaling $6,742,570 and its current liabilities exceed its current assets by $688,199. The Company has also experienced an operating loss in 2017 of $201,391.
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 become a digital service provider and the network service provider including design, construction and maintenance services, for broadband service in Malaysia. Failure to secure such financing, to raise additional equity capital and to develop its operations 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, 2017. However we expect to invest, subject to availability of funding, approximately $2,500,000 in capital expenditure over the next 12 month for the digital service provider and network service provider businesses.
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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.
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, 2017 audited financial statements.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
A smaller reporting company is not required to provide the information required by this Item.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Financial Statements
Please see page through of this Form 10-K.
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ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
For the reports for the two most recent fiscal years, there were no disagreements with HKCMCPA Company Limited on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure as covered by Item 304 (a)(1)(iv) of Regulation S-K, which disagreements, if not resolved to the satisfaction of HKCMCPA Company Limited would have caused them to make reference thereto in their report on the financial statements for such years.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our current Chief Executive Officer, Andrew Hwan Lee, and our Chief Financial Officer, Mohd Suhaimi bin Rozali, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act as of a date (the "Evaluation Date") within ninety (90) days prior to the filing of our December 31, 2017 Form 10-K.
Based upon that evaluation, our Management has concluded that, as of December 31, 2017, our disclosure controls and procedures were not effective in timely alerting management to the material information relating to us (or our consolidated subsidiaries) required to be included in our periodic filings with the SEC.
Internal Control over Financial Reporting
(a) Management's Annual Report on Internal Control Over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the registrant's annual or interim financial statements will not be prevented or detected on a timely basis.
Our management, with the participation of its CEO and President, assessed the effectiveness of our internal control over financial reporting as of December 31, 2017. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of The Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on that assessment under such criteria, management concluded that our internal controls over financial reporting were not effective as of December 31, 2017 due to control deficiencies that constituted material weaknesses. A material weakness is a control deficiency, or combination of control deficiencies, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
In the course of making our assessment of the effectiveness of internal controls over financial reporting, we identified one material weakness in our internal control over financial reporting. This material weakness consisted of inadequate staffing within the accounting operations of our Company. The small number of employees who are responsible for accounting functions (more specifically, two in our subsidiary accounting department) prevents us from segregating duties within our internal control system. The inadequate segregation of duties is a weakness because it could lead to the untimely identification and resolution of accounting and disclosure matters or could lead to a failure to perform timely and effective reviews.
We are in the process of developing and implementing remediation plans to address our material weaknesses.
Management has identified specific remedial actions to address the material weaknesses described above:
*
Improve the effectiveness of the accounting group by continuing to augment our existing resources with additional consultants or employees to improve segregation procedures and to assist in the analysis and recording of complex accounting transactions and preparation of tax disclosures. We plan to mitigate the segregation of duties issues by hiring additional personnel in the accounting department once we have achieved positive cash flow from operations, and/or have raised significant additional working capital.
*
Improve segregation procedures by strengthening cross approval of various functions including cash disbursements and quarterly internal audit procedures where appropriate.
Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
- 21 -
Changes in Controls and Procedures
There were no significant changes made in our internal controls over financial reporting as of December 31, 2017 that have materially affected or are reasonably likely to materially affect these controls. Thus, no corrective actions with regard to significant deficiencies or material weaknesses were necessary.
Attestation Report of the Registered Public Accounting Firm
This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. We were not required to have, nor have we, engaged our independent registered public accounting firm to perform an audit of internal control over financial reporting pursuant to the rules of the Commission that permit us to provide only management's report in this annual report.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
None.
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PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERANCE.
Executive Officers and Directors. Our directors and principal executive officers during year 2017 and to the date of this report are as specified on the following table:
Our directors hold office until the earlier of their death, resignation or removal by stockholders or until their successors have been qualified. Our officers are elected annually by, and serve at the pleasure of, our board of directors.
Biographies
Directors and Officers
Andrew Hwan Lee. Andrew Lee, aged 55, was appointed to be the Non-Executive Director on January 31, 2014 and the President and Chief Executive Officer on October 21, 2015. He is a Korean American with an extensive international work experience. His first job stint started in 1987 at Trustbank Savings in Virginia, USA where he was the Assistant Manager of its Computer Department. Later in 1990, he joined International Computer Consulting (ICC) Corp., also in Virginia as the IS Manager before joining the Clinton-Gore Presidential Campaign team in Washington DC in October 1991 for 13 months as the System Manager, responsible for data communications and was tasked with designing the LAN and WAN infrastructure to support the presidential campaign and its subsequent testing and implementation.
He later joined Hughes Communication in December 1992, under the National Rural Telecommunication Cooperative as the Head of DBS Billing Applications where he was responsible for the selection, specification, development, implementation and operations of the billing system.
In early 1995, he was appointed as the Chief Information Officer of MEASAT Broadcast Network Systems in Malaysia ("MBNS"). Operating under the brand ASTRO, MBNS is an integrated electronic media enterprise offering a wide-range of multimedia broadcasting services and one of the largest broadcasting companies in Asia, offering 100 television and 8 radio channels in digital format. During his 5 years tenure, Andrew played a pivotal role to develop and maintain an efficient telecommunication infrastructure and to design and establish a scalable and robust networking infrastructure, which would transparently integrate various critical broadcasting-related sub-systems and administrative system using leading edge technology with a centralised data centre for the operations and management of these systems. His expertise and knowledge were not confined to the Company alone as he was also involved in the Group's activities as Chairman of the Group's IT Committee, Technical Advisor for the Binariang's (a sister company of MBNS) satellite systems and Advisor/Consultant/Project Manager for the Group's regional call centre in Philippines.
Subsequently in 2000, Mr. Lee was appointed as the Group CEO of DataOne Group Ltd, a wholly owned subsidiary of KEPPEL T&T, which is in the business of building and operating world class Internet Data Center in Singapore, Malaysia, Philippines and Thailand, managing an operating budget of over S$500 million.
In July 2007 till now, he is the Chief Strategy Officer of HUB Technologies Sdn Bhd, an aerosol fire suppression systems provider serving both the domestic and international scenes. Its product under the brand name of Aerohub is known as the only organic aerosol fire suppression solution in the world and recognized by the Government of Malaysia as a National Product. HUB Technologies was awarded a Central Contract from the Ministry of Finance of Malaysia worth RM2 billion.
Andrew Lee studied computer engineering at University of Missouri in 1985. He is not a director or officer of any other reporting company.
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Abdul Fattah Abdullah. Mr. Abdul Fattah Abdullah, aged 58, was appointed as non-executive director on October 21, 2015. He is currently the President of the National Cooperative Movement of Malaysia or Angkasa, which is the defacto body of the cooperatives' movement in Malaysia. Appointed since June 2013, he plays an important role in driving Angkasa in providing high quality products and services as well as protecting the interests and championing the rights of the cooperative movement through professional management.
He is also the President of ASEAN Cooperative Organisation (ACO) until his term expires in 2018. He also sits as Board member in Cooperative College of Malaysia and the Federal Land Consolidation and Rehabilitation Committee ("FELRA"), a Government-linked company involved in rehabilitation and consolidation of rural lands through re-planting and helping its community participate in national economy activities. In addition, he is chairman of 2 subsidiaries under FELCRA namely Felcraniaga Pte Ltd and Felcra Training and Consultancy Pte Ltd.
He graduated from Universiti Putra Malaysia with a Bachelor in Communication in 2004 and a Professional Diploma in Entrepreneurship and Business Management from Universiti Malaya in 2003. He is not a director or officer of any other reporting company.
Ahmad Shukri Abdul Ghani. Mr. Ahmad Shukri Abdul Ghani, aged 45, was appointed as non-executive director on October 21, 2015. He graduated with his law degree from University of Wales, Cardiff, Wales in 1996 and then in 1997, obtained his Barrister at Law from the Honourable Society of Gray's Inn. In 2011, he pursued and obtained his Certificate of Usuluddin from Universiti Malaya.
Mr. Ahmad Shukri currently is a partner of Messrs. Aziz Hon Annuar. For the past 10 years he has been with PGN Link Sdn Bhd. He worked in various industries including being the General Manager for EH Auto Link (Asia) Sdn Bhd, a company in the business of importing and producing automotive parts and Managing Director of PGN Link Sdn Bhd, which deals in the trading of used automotive parts. As a result of his many years in automotive sector, he was involved in the negotiation with the Malaysia Automotive Institute in drawing up the National Automotive Policy. He was also invited to the British Standard Office in London for a discussion in the formation of a new standard for used automotive parts.
Besides being a member of the Malaysian Bar Council, England and Wales Bar Council and The Honourable Society of Gray's Inn, Mr. Ahmad Shukri is the secretary of the Parent-Teachers Association of Hira' Educational Institution and the Seri Banang, Taman Seri Andalas Residents' Association and a working committee for End of Life of Vehicles at Standards and Industrial Research Institute of Malaysia ("SIRIM"). He is not a director or officer of any other reporting company.
Mohd Suhaimi Bin Rozali. Mohd Suhaimi, aged 56, was appointed as an officer of the Company on June 8, 2012 holding the position of Secretary, Treasurer and Chief Financial Officer of the Company.
Mohd Suhaimi graduated from Universiti Teknologi Mara and started his career with Bank Bumiputra Malaysia Berhad, serving at its branches and in the commercial banking division. He later joined the public listed company, Idris Hydraulic (Malaysia) Bhd ("IHMB") in November 2000 and was part of the white knight's team that undertook the comprehensive corporate debt restructuring exercise of IHMB. Upon the completion of the restructuring exercise of IHMB, the white knight company, Idaman Unggul Berhad ("IUB") assumed the listing status of IHMB and was listed on the Main Board of Bursa Malaysia on November 2003. Mohd Suhaimi left IUB to join Transmission Resources Sdn. Bhd. in November 2005, before leaving Transmission Resources Sdn. Bhd. to set up his own company in February 2007. In December 2009, he joined ECE Technologies. Mohd Suhaimi is not an officer or director of any other reporting company.
Ching Chiat Kwong. Ching, aged 52, was appointed as the Non-Executive Director of the Company on January 31, 2014 and resigned on February 5, 2015. Mr Ching rejoined the Board on October 21, 2015 and resigned on January 17, 2017. Mr. Ching is the Executive Chairman and CEO of Oxley Holdings Limited, a company listed on the Singapore Stock Exchange ("SGX"). He is responsible for the overall performance as well as for the formulation of corporate strategies, and the future direction of the Oxley Group. Ching also serves as a Non-Executive Director of Artivision Technologies Ltd, a SGX Catalist-listed company.
Ching possesses more than 15 years of experience in real estate development and telecommunications in Asia. Prior to establishing the Oxley Group, he invested in, developed and successfully launched 13 residential property projects in various parts of Singapore. His ability to identify market trends and business opportunities has enabled him to chart the course for the Oxley Group's expansion towards the development of industrial and commercial projects in addition to residential properties. Under Mr. Ching's leadership, the Oxley Group completed its initial public offering (IPO) on the SGX Catalist in October 2010. Oxley's IPO was then the largest offering ever made on SGX Catalist.
Apart from his commitments at Oxley, Ching is also an active supporter of programmes that benefit the elderly and socially disadvantaged. Ching graduated with a Bachelor of Arts degree and a Bachelor of Social Sciences (Hons) degree from the National University of Singapore in 1989 and 1990, respectively. He is not a director or officer of any other reporting company.
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There are no orders, judgments, or decrees of any governmental agency or administrator, or of any court of competent jurisdiction, revoking or suspending for cause any license, permit or other authority to engage in the securities business or in the sale of a particular security or temporarily or permanently restraining any of our officers or directors from engaging in or continuing any conduct, practice or employment in connection with the purchase or sale of securities, or convicting such person of any felony or misdemeanor involving a security, or any aspect of the securities business or of theft or of any felony. Nor are any of the officers or directors of any corporation or entity affiliated with us so enjoined.
There are no family relationships among any of our officers and directors.
AUDIT COMMITTEE AND FINANCIAL EXPERT. The Committee has adopted regulations relating to audit committee composition and functions, including disclosure requirements relating to the presence of an "audit committee financial expert" serving on its audit committee. In connection with these requirements, our Board of Directors examined the Committee's definition of "audit committee financial expert" and concluded that we do not currently have a person that qualifies as such an expert. Presently, there are only four directors serving on our Board of which two are in the audit committee, and we are not in a position at this time to attract, retain and compensate additional directors in order to acquire a director who qualifies as an "audit committee financial expert", but we intend to retain an additional director who will qualify as such an expert, as soon as reasonably practicable. While neither of our current audit committee members meet the qualification of an "audit committee financial expert", each of our audit committee members, by virtue of his past employment experience, has considerable knowledge of financial statements, finance, and accounting, and has significant employment experience involving financial oversight responsibilities. Accordingly, we believe that our current audit committee members capably fulfill the duties and responsibilities of an audit committee in the absence of such an expert.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE. Section 16(a) of the Securities Act of 1934 requires our directors, executive officers, and any persons who own more than 10% of a registered class of our equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission. SEC regulation requires executive officers, directors and greater than 10% stockholders to furnish us with copies of all Section 16(a) forms they file. Based solely on our review of the copies of such forms received by us, or written representations from certain reporting persons, we believe that during the fiscal year ended December 31, 2017 our executive officers, directors, and greater than 10% stockholders complied with all applicable filing requirements.
CODE OF ETHICS. We have adopted a corporate code of ethics that applies to the Company's principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions. The full text of our Code of Conduct is published on our website at www.mediangroupinc.com. The Company shall disclose any substantive amendments to the Code of Ethics or any waivers from a provision of the code on its website at www.mediangroupinc.com or in a report on Form 8-K.
-
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
Any compensation received by our officers, directors, and management personnel will be determined from time to time by our Board of Directors. Our officers, directors, and management personnel will be reimbursed for any out-of-pocket expenses incurred on our behalf.
COMPENSATION FOR DIRECTORS AND EXECUTIVES.
The following table sets forth the annual and long-term compensation for services in all capacities to the Company for its fiscal year ended December 31, 2017 paid to our directors and executive officers who earned more than $100,000 per year at the end of the last completed fiscal year. We refer to all of these officers collectively as our "named executive officers."
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The following table sets forth certain information concerning stock option awards granted to our executive officers and our directors. No options were issued and exercised by our executive officers or directors during the year ended December 31, 2017.
(1) Appointed as Directors on October 21, 2015.
(2) Andrew Hwan Lee was appointed as Non-Executive Director of the Company on January 31, 2014 and he became CEO in 2015.
(3) Ching Chiat Kwong was appointed as non-Executive Director of the Company on January 31, 2014 and he resigned on February 5, 2015. Mr. Ching was re-appointed on October 21, 2015 and resigned on January 17, 2017.
(4) Mohd Suhaimi has been the CFO, Treasurer and Secretary from June 8, 2012 to present.
Employment Agreements
In 2017, all the directors did not receive any salaries and did not have any employment contracts with the Group.
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ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT RELATED STOCKHOLDER MATTERS
The following table sets forth information regarding shares of our common stock beneficially owned as of December 31, 2017 by: (i) each of our officers and directors; (ii) all officers and directors as a group; and (iii) each person known by us to beneficially own five percent or more of the outstanding shares of our common stock.
Name/Address(1) Common
Stock
Common Stock
Options
Exercisable
Within
Days
Common Stock
Purchase
Warrants/
Convertible Note
Exercisable
Within 60 Days
Total Stock
and Stock
Based
Holdings (1)
%
Ownership (2)
--------------------------- ------------------------ ------------------ -------------------- ------------------ -----------------
Abdul Fattah Abdullah (1) (3)
- - - - -
Andrew Hwan, Lee(3) (5) - - - - -
Ahmad Shukri Abdul Ghani (3)(5)
300,000,000 - - 300,000,000 2.59%
Rozali, Mohd Suhaimi (4)
Lot 2158, Jalan Hassan, Kg Sungai Udang, 41250 Klang, Selangor, Malaysia
-
All officers and directors as a group
(4 persons)
300,000,000 - - 300,000,000 2.59%
New China Electronics Limited (1) (5) 6,430,134,431 - - 6,430,134,431 55.46%
Chiat Kwong Ching (3)(5)
103, Sophia Road, Suites@Sophia, Singapore
8,943,609,664 - - 8,943,609,664 77.14%
Changes in Control
We are unaware of any contract, or other arrangement or provisions, the operation of which may at a subsequent date result in a change of control of the Company.
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ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Other than disclosed below or under the caption entitled "Executive Compensation and Other Matters", since the beginning of the Company's last fiscal year, the Company was not a participant in any transaction in which a director, officer or stockholder of the Company, or any family member of any such person, had a direct or indirect material interest where the amount involved exceeded $120,000.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers and directors and persons who beneficially own more than 10% of our Common Stock to file with the SEC initial statements of beneficial ownership and reports of changes in beneficial ownership. Such persons are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file.
Based solely on our review of such statements and reports furnished to us and written representations from certain reporting persons, we believe that our executive officers, directors and greater-than-10% stockholders were complied with the beneficial ownership reporting requirements of Section 16(a).
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
AUDIT FEES. The aggregate fees billed in each of the fiscal years ended December 31, 2017 and 2016 for professional services rendered by the principal accountant for the audit of our annual financial statements and review of the financial statements included in our Form 10-K or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements as well as registration statement filings for those fiscal years were $[20,000] and $20,000 respectively.
AUDIT-RELATED FEES. There aggregate fees billed for services reasonably related to the performance of the audit or review of the financial statements outside of those fees disclosed above under "Audit Fees" for fiscal years 2017 and 2016 were $[6,000] and $6,000 respectively.
TAX FEES. For the fiscal years ended December 31, 2017 and December 31, 2016, our principal accountants did not render any services for tax compliance, tax advice, and tax planning work.
ALL OTHER FEES. None
PRE-APPROVAL POLICIES AND PROCEDURES. Prior to engaging its accountants to perform a particular service, our board of directors obtains an estimate for the service to be performed. All of the services described above were approved by the board of directors in accordance with its procedures.
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PART IV
ITEM 15.
ITEM 15. EXIBITS, FINANCIAL STATEMENT SCHEDULES
(a) Index to Financial Statements and Financial Statement Schedules
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statement of Comprehensive Income
Consolidated Statements of Stockholders' Deficits
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
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(c) Exhibits.
3.1 Articles of Incorporation (1)
3.1.1 Certificate of Amendment to Articles of Incorporation (2)
3.1.2 Certificate of Amendment to Articles of Incorporation, as amended.(3)
3.1.3 Certificate of Amendment to Articles of Incorporation, as amended.(5)
3.1.4 Certificate of Amendment to Articles of Incorporation, as amended.(6)
3.2 Bylaws (1)
10.1 Stock Incentive Plan (4)
21.1* List of Subsidiaries
31.1* Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2* Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1* Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2* Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
1. Incorporated by reference to our Registration Statement on Form SB-2 as filed with the SEC on April 15, 2003.
2. Incorporated by reference to our Current Report on Form 8-K as filed with the SEC on February 3, 2005.
3. Incorporated by reference to our Registration Statement on Form SB-2 as filed with the SEC on September 26, 2005.
4. Incorporated by reference to our Registration Statement on Form S8 as filed with the SEC on March 8, 2007.
5. Incorporated by reference to our Current Report on Form 8-K as filed with the SEC on April 7, 2014.
6. Incorporated by reference to our Current Report on Form 8-K as filed with the SEC on October 12, 2015.
* Filed herewith.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 34, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Median Group Inc.
a Texas corporation
/s/ Andrew Hwan Lee
---------------------------------------
Andrew Hwan Lee
Chief Executive Officer
/s/ Mohd Suhaimi bin Rozali
---------------------------------------
Mohd Suhaimi bin Rozali
Chief Financial Officer
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: /s/ Dato Haji Abdul Fattah Abdullah April 20, 2018
-----------------------------------------------------
Dato Haji Abdul Fattah Abdullah
Its: Director
By: /s/ Andrew Hwan Lee April 20, 2018
-----------------------------------------------------
Andrew Hwan Lee
Its: President, Chief Executive Officer, Director
By: /s/ Ahmad Shukri Abdul Ghani April 20, 2018
-----------------------------------------------------
Ahmad Shukri Abdul Ghani
Its: Director
By: /s/ Mohd. Suhaimi bin Rozali April 20, 2018
-----------------------------------------------------
Mohd Suhaimi bin Rozali
Its: Chief Financial Officer, Company Secretary, Treasurer
- 32 -
Exhibit 15(a)
Median Group Inc. and Subsidiary
Index to Consolidated Financial Statements
For the Years Ended December 31, 2017 and 2016
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
Median Group Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Median Group Inc. and its subsidiaries (the "Company") as of December 31, 2017 and 2016, the related consolidated statements of operations and comprehensive loss, changes in stockholders' deficits and cash flows for each of the two years in the period ended December 31, 2017, and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.
Emphasis of Matter
As discussed in Note 2 to the consolidated financial statements, during 2017, the Company experienced a net loss of $201,391 and negative operating cash flows of $1,020,057, at December 31, 2017, the Company had incurred cumulative net losses of $6,742,570 and working capital deficit of $668,199. Management's plans in regard to this matter are described in Note 2.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ HKCMCPA Company Limited
We have served as the Company's auditor since 2013.
Hong Kong, China
[date],
MEDIAN GROUP INC
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2017 AND DECEMBER 31, 2016
The accompanying notes are an integral part of these consolidated financial statements
MEDIAN GROUP INC
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2017 AND 2016
* Weighted average number of shares used to compute basic and diluted loss per share for the year ended December 31, 2017 and 2016 are the same since the effect of dilutive securities are anti-dilutive.
The accompanying notes are an integral part of these consolidated financial statements.
MEDIAN GROUP INC
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
FOR THE YEAR ENDED DECEMBER 31, 2017 AND 2016
The accompanying notes are an integral part of these consolidated financial statements.
MEDIAN GROUP INC
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
The accompanying notes are an integral part of these consolidated financial statements.
MEDIAN GROUP INC
CONSOLIDATED STATEMENTS OF CASHFLOWS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
The accompanying notes are an integral part of these consolidated financial statements.
MEDIAN GROUP INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
MEDIAN GROUP INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
NOTE UNCERTAINTY OF ABILITY TO CONTINUE AS A GOING CONCERN
The Company's consolidated financial statements are prepared using the generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. As of December 31, 2017, the Company has an accumulated deficits totaling $6,742,570 and its current liabilities exceed its current assets by $668,199. In view of the matters described above, recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheets is dependent upon continued operations of the Company, which in turn is dependent upon the Company's ability to raise additional capital, obtain financing and to succeed in its future operations. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Management has taken steps to revise its operating and financial requirements, which it believes are sufficient to provide the Company with the ability to continue as a going concern. The Company is actively pursuing additional funding and potential merger or acquisition candidates and strategic partners, which would enhance stockholders' investment. Management believes that the above actions will allow the Company to continue operations through the next fiscal year.
NOTE SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Median Group Inc. ("MGI" or the "Registrant"), a public traded and holding company was incorporated under the laws of the State of Texas in October 2002.
All references that refer to (the "Company" or "MGI" or "we" or "us" or "our") are to MGI, and its wholly or majority owned subsidiaries unless otherwise differentiated. The Company was engaged in the business of provision of telecom services and consultancy services.
These accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States ("US GAAP"), and are expressed in U.S. dollars. The Company's fiscal year end is December 31.
Principles of Consolidation
The consolidated financial statements for the year ended December 31, 2017 include the financial statements of the Company and its wholly owned subsidiary Alpha Sunray Sdn. Bhd. and and Median Digital Sdn.Bhd. (formerly Grid Mobile Sdn. Bhd.) and its newly acquired 51% interests subsidiary in GNS Technology (M) Sdn. Bhd. from the date of acquisition of June 15, 2017.
The results of subsidiaries acquired or sold during the year are consolidated from their effective dates of acquisition or through their effective dates of disposition, respectively.
All significant inter-company transactions and balances have been eliminated on consolidation.
Business Combination
The Company accounts for business combinations using the acquisition method when control is transferred to the Company. The consideration transferred by the Company to obtain control of a subsidiary is calculated as the sum of the acquisition-date fair values of assets transferred, liabilities incurred and the equity interests issued by the Company, which includes the fair value of any asset or liability arising from a contingent consideration arrangement. Acquisition costs are expensed as incurred, except if related to the issue of debt or equity securities.
The Company recognizes identifiable assets acquired and liabilities assumed in a business combination regardless of whether they have been previously recognized in the acquiree's financial statements prior to the acquisition. Assets acquired and liabilities assumed are generally measured at their acquisition-date fair values.
Goodwill is stated after separate recognition of identifiable intangible assets. It is calculated as the excess of the sum of: (a) fair value of consideration transferred, (b) the recognized amount of any non-controlling interest in the acquire, and (c) acquisition-date fair value of any existing equity interest in the acquiree, over the acquisition-date fair values of identifiable net assets.
MEDIAN GROUP INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
NOTE SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Use of Estimates
The preparation of consolidated financial statements in conformity with 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 amounts of revenues and expenses during the years presented. Actual results could differ from those estimates.
Net Loss per Share
Basic earnings per share were computed by dividing net loss or net profit by the weighted average number of shares of common stock outstanding during the year. Diluted loss and profit per common share for the years ended December 31, 2017 and 2016, respectively are not presented as it would be anti-dilutive.
Fair Value Measurements and Disclosures
ASC 820 "Fair Value Measurements and Disclosures" applies to all entities, transactions, and instruments that require or permit fair value measurements, with specific exceptions and qualifications. The Company is required to disclose estimated fair values of financial instruments. Unless otherwise indicated, the fair values of all reported assets and liabilities, which represent financial instruments, none of which are held for trading purposes, approximate are carrying values of such amounts.
Cash and Cash Equivalents
Cash and cash equivalents are carried at cost and represent cash on hand, demand deposits placed with banks or other financial institutions and all highly liquid investments with an original maturity of three months or less as of the purchase date of such investments.
Trade Receivables
Trade receivable are recorded at the invoiced amount and do not bear interest. The Company extends unsecured credit to its customers in the ordinary course of business but mitigates the associated risks by performing credit checks and actively pursuing past due accounts. An allowance for doubtful accounts is established and determined based on managements' assessment of known requirements, aging of receivables, payment history, the customer's current credit worthiness and the economic environment. The Company recorded no allowance for doubtful accounts for the years presented.
Property and Equipment
Property and equipment is stated at costs. Depreciation are computed using the straight-line method over the estimated economic useful lives as follows:
Office equipment and computers 5 years
Motor vehicle 5 years
Expenditure for maintenance and repairs is expensed as incurred. The gain or loss on the disposal of plant and equipment is the difference.
Intangible Assets
The Company evaluates intangible assets for impairment, at least on an annual basis and whenever events or changes in circumstances indicate that the carrying value may not be recoverable from its estimated future cash flows. Recoverability of intangible assets, other long-lived assets and, goodwill is measured by comparing their net book value to the related projected undiscounted cash flows from these assets, considering a number of factors including past operating results, budgets, economic projections, market trends and product development cycles. If the net book value of the asset exceeds the related undiscounted cash flows, the asset is considered impaired, and a second test is performed to measure the amount of impairment loss
Impairment of long-lived assets
In accordance with the provisions of ASC Topic 360, "Impairment or Disposal of Long-Lived Assets", all long-lived assets such as plant and equipment held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is evaluated by a comparison of the carrying amount of an asset to its estimated future undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amounts of the assets exceed the fair value of the assets. There has been no impairment charge for the year/period presented.
Income Taxes
The Company accounts for income taxes under ASC 740 "Income Taxes". 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.
ASC 740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts.
(a) Current Tax
Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the reporting date.
Current taxes are recognized in the statement of income except to the extent that the tax relates to items recognized outside the statement of income, either in other income or directly in equity.
(b) Deferred Tax
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carry-forwards. 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.
The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company records a valuation allowance for deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
MEDIAN GROUP INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
NOTE SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES & REALIZATION OF ASSETS (Continued)
Stock-Based Compensation
ASC 718 "Compensation - Stock Compensation" 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.
Employees' Pension Obligations
Contributions to retirement schemes (which are defined contribution plans) are charged to general and administrative expenses in the statements of operation and comprehensive income as and when the related employee service is provided.
The Company is required to make contribution under a defined contribution pension scheme for all of its eligible employees in Malaysia. The Company is required to contribute a specified percentage of the participants' relevant income based on their ages and wages level.
Revenue
The Company recognizes its revenue in accordance with the Securities and Exchange Commissions ("SEC") Staff Accounting Bulletin No. 104, "Revenue Recognition in Financial Statements" ("SAB 104"). Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable, and collectability is reasonably assured. The recognition of revenues involves certain management judgments. The amount and timing of our revenues could be materially different for any period if management made different judgments or utilized different estimates.
Revenue is measured at the fair value of the consideration received or receivable, net of discounts and taxes applicable to the revenue.
Prepaid telecom revenues are collected by its distributors and/or resellers through the sale of our branded prepaid or reload cards, which are sold in a form of SIM/reload cards to its final customers through its distributors and/or resellers. The sale of SIM, prepaid or reload cards is recognized as revenue when the products are delivered to its distributors and/or resellers, based upon their request. Prepaid cards will expire two years after the date of card production if they have never been activated. The proceeds from the expired cards are recognized as revenue upon expiration of cards.
Network design services income is recognized as revenue when the services has been substantially provided..
Cost of revenue
Cost of revenue consists primarily of cost of SIM and prepaid/reload cards, telecommunication services and traffic charges which are directly attributable to the delivery of telecom service upon the activation of prepaid and/or reload cards.
MEDIAN GROUP INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
NOTE SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES & REALIZATION OF ASSETS (Continued)
Foreign Currency Translation
The accounts of the Company's Malaysia subsidiaries are maintained, in the local currencies of their respective countries namely Malaysia Ringgit (MYR). Such financial statements are translated into U.S. Dollars (USD) in accordance with ASC 830 "Foreign Currency Translation" with the respective currency as the functional currency. According to the Statement, all assets and liabilities were translated at the exchange rate on the balance sheet date, stockholder's equity are translated at the historical rates and statement of operations items are translated at the weighted average exchange rate for the year. The resulting translation adjustments are reported under other comprehensive income in accordance with ASC 220 "Comprehensive Income". As of December 31, 2017 and 2016, the accumulated comprehensive loss was $189,230 and $120,817, respectively.
Translation of amounts from its reporting currencies into US$ has been made at the following exchange rates for the respective year:
Comprehensive Income
ASC Topic 220, "Comprehensive Income" establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income as defined includes all changes in equity during a period from non-owner sources. Accumulated comprehensive income, as presented in the accompanying statements of stockholders' equity consists of changes in unrealized gains and losses on foreign currency translation. This comprehensive income is not included in the computation of income tax expense or benefit.
Segment Reporting
ASC Topic 280, "Segment Reporting" establishes standards for reporting information about operating segments on a basis consistent with the Company's internal organization structure as well as information about geographical areas, business segments and major customers in financial statements. The Company operates in one reportable operating segment in Malaysia during the years ended December 31, 2017 and 2016.
Related Parties
Parties, which can be a corporation or individual, are considered to be related if the Company has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Companies are also considered to be related if they are subject to common control or common significant influence.
Recent Accounting Pronouncements
The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations.
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers . The standard provides companies with a single model for accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance, including industry-specific revenue guidance. The core principle of the model is to recognize revenue when control of the goods or services transfers to the customer, as opposed to recognizing revenue when the risks and rewards transfer to the customer under the existing revenue guidance. The guidance permits companies to either apply the requirements retrospectively to all prior periods presented, or apply the requirements in the year of adoption, through a cumulative adjustment. In August 2015, the FASB issued ASU 2015-14, Deferral of the Effective Date , which defers the required adoption date of ASU 2014-09 by one year. As a result of the deferred effective date, ASU 2014-09 will be effective for the Company in its first quarter of fiscal 2018. Early adoption is permitted but not before the original effective date of the new standard of the first quarter of fiscal 2017. The following ASUs were subsequently issued by the FASB to clarify the implementation guidance in some areas and add practical expedients: In March 2016, ASU 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations; in April 2016, ASU 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing; in May 2016, ASU 2016-12, Revenue from Contracts with Customers: Narrow Scope Improvements and Practical Expedients; and in December 2016, ASU 2016-20, Technical Corrections and Improvements to Revenue from Contracts with Customers. The Company's is currently finalizing its evaluation of standard product sales arrangements and has identified an adoption impact related to revenue from certain distributor agreements which was deferred until the period in which the distributor sells through the inventory to the end customer. In connection with the adoption of ASU 2014-09, the Company will change the recognition of sales to these distributors whereby revenue will be estimated and recognized in the period in which the Company transfers control of the product to the distributor; the adoption impact is not expected to be material. Other than this impact, the Company has not identified any expected impact on the timing and measurement of revenue for standard product sales arrangements from the adoption of the standard and the Company is currently formalizing its final conclusions. The Company is also formalizing its evaluation of the impact of adoption on non-product sales arrangements, which represent less than five percent of revenue.
MEDIAN GROUP INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
NOTE SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES & REALIZATION OF ASSETS (Continued)
Recent Pronouncements (Continued)
In February 2016, the FASB issued ASU No. 2016-02, Leases . The standard requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize in its balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The guidance in ASU 2016-02 is effective for annual and interim reporting periods beginning after December 15, 2018.
In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, which changes the accounting for employee share-based payments, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. Under the new guidance, excess tax benefits associated with share-based payment awards will be recognized in the income statement when the awards vest or settle, rather than in stockholders' equity. In addition, it will increase the number of shares an employer can withhold to cover income taxes on share-based payment awards and still qualify for the exemption to liability classification. The guidance was effective for the Company in the first quarter of 2017.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows - Restricted Cash , which requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. The guidance will be effective for the Company in its first quarter of fiscal 2018. Early adoption is permitted, including adoption in an interim period, but any adjustments must be reflected as of the beginning of the fiscal year that includes that interim period. The new standard must be adopted retrospectively.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other, which eliminates step two of the quantitative goodwill impairment test. Step two required determination of the implied fair value of a reporting unit, and then a comparison of this implied fair value with the carrying amount of goodwill for the reporting unit, in order to determine any goodwill impairment. Under the new guidance, an entity is only required to complete a one-step quantitative test, by comparing the fair value of a reporting unit with its carrying amount, and any goodwill impairment charge is determined by the amount by which the carrying amount exceeds the reporting unit's fair value. However, the loss should not exceed the total amount of goodwill allocated to the reporting unit. The standard is effective for the Company in the first quarter of 2020, with early adoption permitted as of January 1, 2017, and is to be applied on a prospective basis.
In March 2017, the FASB issued ASU No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost , which changes how employers that sponsor defined benefit pension or other postretirement benefit plans present the net periodic benefit cost in the statement of operations. The new guidance requires entities to report the service cost component in the same line item or items as other compensation costs. The other components of net benefit cost are required to be presented in the statement of operations separately from the service cost component and outside the subtotal of loss from operations. ASU 2017-07 also provides that only the service cost component is eligible for capitalization. The standard is effective for the Company in the first quarter of 2018, with adoption to be applied on a retrospective basis.
In May 2017, the FASB issued ASU No. 2017-09, Compensation-Stock Compensation: Scope of Modification Accounting , which provides clarification on when modification accounting should be used for changes to the terms or conditions of a share-based payment award. This ASU does not change the accounting for modifications but clarifies that modification accounting guidance should only be applied if there is a change to the value, vesting conditions or award classification and would not be required if the changes are considered non-substantive. The amendments of this ASU are effective for the Company in the first quarter of 2018, with early adoption permitted.
In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging - Targeted Improvements to Accounting for Hedging Activities , which modifies the presentation and disclosure of hedging results. Further, it provides partial relief on the timing of certain aspects of hedge documentation and eliminates the requirement to recognize hedge ineffectiveness separately in income. The amendments in this ASU are effective for the Company in the first quarter of 2019.
In November 2017, the FASB has issued ASU No. 2017-14, Income Statement-Reporting Comprehensive Income (Topic 220), Revenue Recognition (Topic 605), and Revenue from Contracts with Customers (Topic 606). ASU 2017-14 includes amendments to certain SEC paragraphs within the FASB Accounting Standards Codification (Codification). ASU 2017-14 amends the Codification to incorporate the following previously issued guidance from the SEC. ‘The amendments in ASU No. 2017-14 amends the Codification to incorporate SEC Staff Accounting Bulletin (SAB) No. 116 and SEC Interpretive Release on Vaccines for Federal Government Stockpiles (SEC Release No. 33-10403) that bring existing SEC staff guidance into conformity with the FASB's adoption of and amendments to ASC Topic 606, Revenue from Contracts with Customers.
In September 2017, the FASB has issued ASU No. 2017-13, Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments." The amendments in ASU No. 2017-13 amends the early adoption date option for certain companies related to the adoption of ASU No. 2014-09 and ASU No. 2016-02. Both of the below entities may still adopt using the public company adoption guidance in the related ASUs, as amended. The effective date is the same as the effective date and transition requirements for the amendments for ASU 2014-09 and ASU 2016-02.
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company's consolidated financial statements upon adoption.
MEDIAN GROUP INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
NOTE BUSINESS COMBINATION
On June 15, 2017, the Company issued 166,666,667 shares at the then market price of $0.0038 per share for a total share consideration of $633,333 to satisfy the consideration for acquiring 51% equity interest in GNS Technology (M) Sdn. Bhd.
NOTE PROPERTY AND EQUIPMENT, NET
Property and equipment is summarized as following:
NOTE STOCKHOLDERS' EQUITY
Common Stock
On October 17, 2016, the Company issued 120,000,000 shares of the Company to 3 independent parties at a price of $0.011 per share to raise a total cash proceed of approximately $1,320,000. The proceeds for this placement shall be used for working capital of the Company.
On June 15, 2017, the Company issued 166,666,667 shares at the then market price of $0.0038 per share for a total share consideration of $633,333 to satisfy the consideration for acquiring 51% equity interest in GNS Technology (M) Sdn. Bhd.
As at December 31, 2017 and 2016, the Company had a total of 11,593,899,627 shares and 11,427,232,960 shares of its common stock issued and outstanding, respectively.
NOTE STOCK OPTIONS
Stock Options
The Company adopts ASC 718 "Compensation - Stock Compensation" and requires companies to measure and recognize the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value.
Stock Incentive Plan
On February 19, 2007, the Company adopted the 2007 Stock Incentive Plan allowing for the awarding of options to acquire shares of common stock. This plan provides for the grant of incentive stock options to key employees, directors and consultants. Options issued under this plan will expire over a maximum term of ten years from the date of grant.
On March 8, 2007, the Company registered 38,400,000 shares underlying stock options under the 2007 Stock Incentive Plan with the SEC pursuant to a registration statement on Form S-8.
During the year 2007 to 2015, the Company had issued a total of 6,522,309 shares to its staff and consultants for their service provided.
For the years ended December 31, 2017 and 2016, the Company did not issue or grant any stock option under the 2007 Stock Incentive Plan.
In October 2017, the 2007 Stock Incentive Plan expired together with all the then shares available for issue. As of December 31, 2017 there was no share option plan in effect.
MEDIAN GROUP INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
NOTE OTHER PAYABLES AND ACCRUALS
Other payables and accruals consist of the following:
NOTE AMOUNTS DUE FROM/TO RELATED PARTIES
NOTE SHAREHOLDER LOAN
This long term shareholder loan is unsecured and repayable on November 25, 2019, and bears interest of 8% per annum. The accrued interest as at December 31, 2017 and 2016 were $160,000 and $160,000, respectively, and were reclassified as amounts due to related parties.
MEDIAN GROUP INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
NOTE RELATED COMPANY TRANSACTIONS
For the year ended December 31, 2017, the Company paid US$47,083 (2016: $22,077) to its directors and its officers remuneration for their services provided to the Company.
During the year a Group subsidiary provided consulting services amount to US$53,355 to a company owned and controlled by our directors.
In early December 2016, the Company entered into a Master Distribution Agreement with a company beneficially owned by two of our directors. Pursuant to the agreement, the Company would pay a refundable deposit of RM3 million or about US$677,000 to be the preferred distributor of telecom products and services (including access to the MVNO platform) in the territory of Malaysia for a period of two years. The Company may receive certain rebates if it achieves sales of over RM10 million (about US$2,257,000) for each anniversary year, and such rebates shall vary by products and services to be agreed by the parties.
During the year, on December 2, 2016, the Company sold all its interests representing 51% in Naim Indah Mobile Communications Sdn. Bhd. to a company controlled by our directors for a fair market value of RM1,000,001 or about $224,574 and realized a gain of $194,947. The transaction was made at arm's length.
NOTE PENSION COSTS
Contributions to retirement schemes (which are defined contribution plans) are charged to general and administrative expenses in the statements of operation and comprehensive income as and when the related employee service is provided.
The Company is required to make contribution under a defined contribution pension scheme for all of its eligible employees in Malaysia. The Company is required to contribute a specified percentage of the participants' relevant income based on their ages and wages level. The total contributions made were $2,119 and $0 for the years ended December 31, 2017 and 2016, respectively
NOTE INCOME TAXES
No provision was made for income tax for the year ended December 31, 2016, since the Company and its subsidiaries had significant net operating loss for taxation purposes.
For the years ended December 31, 2017 and 2016, the Company and its subsidiaries incurred net operating results for tax purposes of approximately loss of $206,000 and a loss of $402,041, respectively. Total net operating losses carry forward as at December 31, 2017 and 2016, (i) for Federal and State purpose were $12,320,959 and $12,114,959, respectively and (ii) for its entities outside of the United States had $72,649 and $51,035 respectively. The net operating loss carry-forwards may be used to reduce taxable income through the year 2037. The availability of the Company's net operating loss carry-forwards are subject to limitation if there is a 50% or more change in the ownership of the Company's stock.
On December 22, 2017, the United States enacted the Tax Cuts and Jobs Act (the "Act") resulting in significant modifications to existing law. The Company has completed the accounting for the effects of the Act during the quarter ended December 31, 2017. The Company's financial statements for the year ended December 31, 2017 reflect certain effects of the Act which includes a reduction in the corporate tax rate from 34% to 21% as well as other changes.
There was no significant difference between reportable income tax and statutory income tax. The gross deferred tax asset balance as at December 31, 2017 and 2016 was approximately $5,061,611 and $5,170,610, respectively. A full valuation allowance has been established against the deferred tax assets, as the utilization of the loss carry-forwards cannot reasonably be assured.
The Company is subject to U.S. federal income tax as well as income tax of multiple state and foreign jurisdictions. The Company has not concluded all U.S. federal income tax matters for the years through fiscal 2017, with remaining fiscal years subject to income tax examination by federal tax authorities.
The Company's policy is to recognize accrued interest and penalties related to unrecognized tax benefits in its income tax provision. The Company has not accrued or paid interest or penalties which were material to its results of operations for the years ended December 31, 2017 and 2016. The Company has adopted ASC 740-10 "Accounting for Income Taxes" and recorded a liability for an uncertain income tax position, tax penalties and any imputed interest thereon. The amount, recorded as an obligation, is $410,000 at December 31, 2017 (2016: $410,000).
A reconciliation between the income tax computed at the Malaysia statutory rate and the Company's provision for income tax is as follows:
As of December 31, 2017 and 2016, there were no material deferred tax assets or liabilities to be recognized.
MEDIAN GROUP INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
NOTE CONCENTRATIONS OF RISK
The Company is exposed to the following concentrations of risk:
(a) Major customers
For the years ended December 31, 2017 and 2016 the customer who accounted for 10% or more of the Company's revenues is presented as follows:
(b) Major vendors
During the year, the Company was a provider of consulting services. In the opinion of the Board, it is therefore of no value to disclose details of the Company's vendors.
(c) Credit risk
Financial instruments that are potentially subject to credit risk consist principally of trade receivables. The Company believes the concentration of credit risk in its trade receivables is substantially mitigated by its ongoing credit evaluation process and relatively short collection terms. The Company does not generally require collateral from customers. The Company evaluates the need for an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information.
(d) Exchange rate risk
The reporting currency of the Company is US$, to date the majority of the revenues and costs are denominated in MYR. As a result, the Company is exposed to foreign exchange risk as its revenues and results of operations may be affected by fluctuations in the exchange rate between US$ and MYR. If MYR depreciates against US$, the value of MYR revenues and assets as expressed in US$ financial statements will decline. The Company does not hold any derivative or other financial instruments that expose to substantial market risk.
(e) Economic and political risks
Substantially all of the Company's services are conducted in Malaysia. The Company's operations are subject to various political, economic, and other risks and uncertainties inherent in Malaysia. Among other risks, the Company's operations are subject to the risks of restrictions on transfer of funds; export duties, quotas, and embargoes; domestic and international customs and tariffs; changing taxation policies; foreign exchange restrictions; and political conditions and governmental regulations in Malaysia.
(f) Interest rate risks
As the Company has no significant interest-bearing assets, the Company's income and operating cash flows are substantially independent of changes in market interest rates.
The Company's interest-rate risk arises from shareholder loans. The Company manages interest rate risk by varying the issuance and maturity dates variable rate debt, limiting the amount of variable rate debt, and continually monitoring the effects of market changes in interest rates. As of December 31, 2017 and 2016, shareholder loan was at fixed interest rate.
MEDIAN GROUP INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
NOTE COMMITMENTS AND CONTINGENCIES
The Company's commitments and contingencies are set out below as follows:-
(a)The Company has operating lease of its corporate office in Malaysia for 3 years ending April 1, 2019. The annual lease is RM406,998 (approximately US$90,720).
As of December 31, 2017, the Company has the aggregate future minimum rental payments due under various non-cancelable operating leases in the next two years:
(b)As at December 31, 2017, the Company has paid RM3,000,000 (approximately US$668,702) refundable deposit under the Master Distribution Agreement.
NOTE SUBSEQUENT EVENTS
The Company has evaluated all subsequent events through the date these consolidated financial statements were issued, and determined that, other than as disclosed below, there were no subsequent events or transactions that require recognition or disclosures in the financial statements.