CAM Group, Inc. and Subsidiaries
|
Unaudited Consolidated Balance Sheets
|
As of March 31, 2013 and December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2013
|
|
December 31, 2012
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalent
|
|
$
|
839,569
|
|
|
$
|
1,248,673
|
|
Cash and cash equivalent - restricted
|
|
|
300,000
|
|
|
|
300,000
|
|
Advance to suppliers
|
|
|
2,815,788
|
|
|
|
2,803,593
|
|
Advance to suppliers - related party
|
|
|
2,007,916
|
|
|
|
—
|
|
Prepayment and deposits
|
|
|
—
|
|
|
|
1,095
|
|
Other receivable
|
|
|
3,218
|
|
|
|
4,012
|
|
Total Current Assets
|
|
|
5,966,491
|
|
|
|
4,357,373
|
|
|
|
|
|
|
|
|
|
|
Plant and Equipment, Net
|
|
|
148,794
|
|
|
|
156,926
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
6,115,285
|
|
|
$
|
4,514,299
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payables and accrued expenses
|
|
$
|
59,130
|
|
|
$
|
42,521
|
|
Due to shareholders
|
|
|
868,784
|
|
|
|
709,497
|
|
Due to related parties
|
|
|
27,732
|
|
|
|
57,696
|
|
Other payables
|
|
|
6,445
|
|
|
|
—
|
|
Income Tax Payable
|
|
|
974,606
|
|
|
|
708,453
|
|
Total Liabilities
|
|
|
1,936,697
|
|
|
|
1,518,167
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $.001 par value, 10,000,000 shares authorized, 1,000,000 shares issued and outstanding as of March 31, 2013 and December 31, 2012, respectively
|
|
|
1,000
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
Common stock, $.001 par value, 90,000,000 shares authorized, 25,075,000 shares issued and outstanding as of March 31, 2013 and December 31, 2012, respectively
|
|
|
25,075
|
|
|
|
25,075
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
3,169,690
|
|
|
|
3,169,690
|
|
Subscription receivable
|
|
|
(2,662,680
|
)
|
|
|
(2,662,680
|
)
|
Accumulated other comprehensive income
|
|
|
36,114
|
|
|
|
28,753
|
|
Retained earnings (deficits)
|
|
|
3,560,321
|
|
|
|
2,385,376
|
|
Total equity
|
|
|
4,129,520
|
|
|
|
2,947,214
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interest
|
|
|
49,068
|
|
|
|
48,918
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Equity
|
|
$
|
6,115,285
|
|
|
$
|
4,514,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial
statements
|
CAM Group, Inc. and Subsidiaries
|
Unaudited Consolidated Statements of Cash Flows
|
For The Three Months Ended March 31, 2013 and 2012
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
March 31, 2013
|
|
March 31, 2012
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
Net income (loss)
|
|
$
|
1,174,945
|
|
|
$
|
(74,482
|
)
|
Adjustments to reconcile net income to net cash
|
|
|
|
|
|
|
|
|
provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
8,522
|
|
|
|
60
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Advance to suppliers
|
|
|
(2,010,421
|
)
|
|
|
—
|
|
Other receivable and prepayment
|
|
|
1,900
|
|
|
|
—
|
|
Accounts payable and accrued expenses
|
|
|
22,985
|
|
|
|
|
|
Other payables
|
|
|
—
|
|
|
|
2,679
|
|
Taxes Payable
|
|
|
264,011
|
|
|
|
—
|
|
Net cash used in operating activities
|
|
|
(538,058
|
)
|
|
|
(71,743
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
—
|
|
|
|
(2,269
|
)
|
Prepayments and deposits on capital expenditures
|
|
|
—
|
|
|
|
(30,544
|
)
|
Net cash used in investing activities
|
|
|
—
|
|
|
|
(32,813
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from shareholder loan payable
|
|
|
127,201
|
|
|
|
93,527
|
|
Proceeds from related party loan payable
|
|
|
—
|
|
|
|
12,179
|
|
Net cash provided by financing activities
|
|
|
127,201
|
|
|
|
105,706
|
|
|
|
|
|
|
|
|
|
|
Effect of changes in exchange rate
|
|
|
1,753
|
|
|
|
(167
|
)
|
|
|
|
|
|
|
|
|
|
Net increase/(decrease) in cash and cash equivalents
|
|
|
(409,104
|
)
|
|
|
983
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the beginning of the year
|
|
|
1,248,673
|
|
|
|
4,141
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of the year
|
|
$
|
839,569
|
|
|
$
|
5,124
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
—
|
|
|
$
|
—
|
|
Cash paid for income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements
|
CAM Group, Inc. and Subsidiaries
|
Unaudited Consolidated Statements of Operations and Consolidated Comprehensive Income
|
For The Three Months Ended March 31, 2013 and 2012
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
March 31, 2013
|
|
March 31, 2012
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
|
Revenue - related party
|
|
$
|
1,680,318
|
|
|
$
|
—
|
|
Cost of revenue
|
|
|
29,347
|
|
|
|
—
|
|
Gross profit
|
|
|
1,650,971
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Selling, General & administrative expenses
|
|
|
171,651
|
|
|
|
68,914
|
|
Advertising expenses
|
|
|
—
|
|
|
|
5,503
|
|
Total operating expenses
|
|
|
171,651
|
|
|
|
74,417
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
1,479,320
|
|
|
|
(74,417
|
)
|
|
|
|
|
|
|
|
|
|
Other income (expenses)
|
|
|
|
|
|
|
|
|
Interest expenses
|
|
|
(18
|
)
|
|
|
(65
|
)
|
Loss from currency exchange
|
|
|
(40,346
|
)
|
|
|
—
|
|
Total other income (expenses)
|
|
|
(40,364
|
)
|
|
|
(65
|
)
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
|
1,438,956
|
|
|
|
(74,482
|
)
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
(264,011
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
1,174,945
|
|
|
|
(74,482
|
)
|
Less: Net income attributable to noncontrolling interests
|
|
|
(0
|
)
|
|
|
(7,229
|
)
|
Net income attributable to CAM Group common shareholders
|
|
|
1,174,945
|
|
|
|
(67,253
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.05
|
|
|
$
|
—
|
|
Diluted
|
|
$
|
0.01
|
|
|
|
**
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares
|
|
|
|
|
|
|
|
|
Basic
|
|
|
25,075,000
|
|
|
|
22,500,000
|
|
Diluted
|
|
|
125,075,000
|
|
|
|
122,500,000
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,174,945
|
|
|
$
|
(74,482
|
)
|
Foreign currency translation adjustment
|
|
|
7,511
|
|
|
|
(2,317
|
)
|
Comprehensive income:
|
|
|
1,182,456
|
|
|
|
(76,799
|
)
|
Comprehensive income attributable to noncontrolling interests
|
|
|
(150
|
)
|
|
|
(8,156
|
)
|
Comprehensive income attributable to CAM Group
|
|
$
|
1,182,306
|
|
|
$
|
(68,643
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
** less than $.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements
|
CAM GROUP, INC. AND ITS SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
FOR
THE three months ended march 31, 2013 and 2012
(Expressed in USD)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed
consolidated financial statements have been prepared in accordance with both generally accepted accounting principles for interim
financial information, and the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting principles for complete financial statements. The accompanying
unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) that are,
in the opinion of management, considered necessary for a fair presentation of the results for the interim periods presented. Interim
results are not necessarily indicative of results for a full year.
The unaudited condensed consolidated
financial statements and related disclosures have been prepared with the presumption that users of the interim financial information
have read or have access to the Company’s annual audited consolidated financial statements for the preceding fiscal year.
Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the Annual Report on
Form 10-K for the year ended December 31, 2012.
2. ORGANIZATION AND BUSINESS BACKGROUND
CAM Group Inc. (the “Company”
or “CAMG”)
was originally incorporated as Savannah River Technologies, Inc. under the laws
of the State of South Carolina on March 2, 1995. On July 20, 2007, the Company formed a corporation pursuant to the laws of the
State of Nevada having a par value of $0.001 for both the preferred and common stock. On August 11, 2007, the stockholders of the
Company approved a change of corporate domicile which resulted in the dissolution of the South Carolina Corporation and the Company
became domiciled in the State of Nevada. On
September 13, 2012, the Company changed its name to CAM Group Inc. to more accurately
reflect its business after a stock exchange transaction with CAM Group set forth below.
On April 17, 2012, CAMG completed a
stock exchange transaction with China Agriculture Media Group Co., Ltd (“CAM Group”). CAM Group is organized and exists
under the laws of Hong Kong Special Administrative Region of the People’s Republic of China (the “PRC”), which
was incorporated on March 30, 2011. CAM Group is an investment holding company, whose only asset is 100% equity interest in China
Agriculture Media (Hong Kong) Group Co. Ltd. (“CAM HK”). CAM HK is an investment holding company organized and exists
under the laws of Hong Kong Special Administrative Region of PRC, with its only asset being a 98% equity interest in China Agriculture
Media (Hebei) Co. Ltd. (the “CAM Hebei”). CAM Hebei was established in the Hebei Province, PRC on November 28, 2011
as a Chinese domestic enterprise.
The stock exchange transaction involved
two simultaneous transactions:
CAMG
issued
to CAM Group Shareholders an amount equal to 22,500,000
new investment
shares of Common Stock
of
CAMG
and 1,000,000 shares of
CAMG
super-voting Preferred
Stock in exchange for one hundred percent (100%) of the issued and outstanding share capital of CAM Group from CAM Group Shareholders.
CAMG issued 1,607,853 shares of Common
Stock to CAMG prior management and an advisor for services previously rendered. Simultaneously, Angela Ross, the former Chief Executive
Officer of CAMG, returned 2,500,000 shares of Common stock to the CAMG treasury for immediate cancelation.
Upon completion of the exchange, CAM
Group and its subsidiaries became subsidiaries of CAMG and the former owners of CAM Group then owned
a
‘controlling interest’ in
CAMG
representing 98% of the voting shares of
CAMG
and 90% of the issued and outstanding shares of Common Stock
.
The stock exchange transaction has been
accounted for as a reverse acquisition and recapitalization of CAMG whereby CAM Group is deemed to be the accounting acquirer (legal
acquiree) and CAMG to be the accounting acquiree (legal acquirer). The accompanying consolidated financial statements
are in substance those of CAM Group and its subsidiaries, with the assets and liabilities, and revenues and expenses, of CAMG being
included effective from the date of stock exchange transaction. Accordingly, the financial position, results of operations,
and cash flows of the accounting acquirer for all periods presented as if the recapitalization had occurred at the beginning of
the earliest period presented and the operations of the accounting acquiree from the date of stock exchange transaction.
CAMG, CAM Group, CAM HK and CAM Hebei
are hereafter collectively referred to as the “Company”.
3. RECENTLY ISSUED ACCOUNTING
STANDARDS
The Company has reviewed all recently
issued, but not yet effective, accounting pronouncements up to ASU 2013-07, and does not believe the future adoption of any such
pronouncements may be expected to cause a material impact on its consolidated financial condition or the consolidated results of
its operations.
4. CASH AND CASH EQUIVALENTS
As of March 31, 2013, the cash balance
was $839,569, of which $614,496 was held in major financial institutions located in Hong Kong, and $222,126 was held in major financial
institutions located in the PRC and $2,947 cash in PRC
These bank balances are not insured.
The remittance of these funds out of China is subject to exchange control restrictions imposed by the Chinese government. Management
believes that the major financial institutions in the PRC and Hong Kong have acceptable credit ratings.
5. CASH AND CASH EQUIVALENTS -
RESTRICTED
As of March 31, 2013, the Company had
a restricted cash balance of $300,000 held in an escrow account in connection with the sales of common stock during the third quarter
of 2012, which was released to the Company during the second quarter of 2013 upon meeting the terms of the escrow agreement.
6. ADVANCE TO SUPPLIERS
As of March 31, 2013, the Company had
an advance to suppliers in the amount of $4,823,704, representing the deposits made to suppliers pursuant to fertilizer contracts
in order to secure lower price of fertilizer, of which approximately $2,000,000 was to Hebei Agricultural Means of Production Co.
Ltd. (“Hebei AMP”), a related party of the Company, see Note 8(a).
7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are comprised of the following
amounts at the respective dates:
|
|
As of
|
|
|
March 31,
2013
|
|
December 31, 2012
|
Cost:
|
|
|
|
|
Computer equipment and software
|
|
$
|
5,348
|
|
|
$
|
5,334
|
|
Advertising equipment
|
|
|
161,733
|
|
|
|
161,321
|
|
Total
|
|
|
167,081
|
|
|
|
166,655
|
|
Accumulated depreciation
|
|
|
(18,287
|
)
|
|
|
(9,729
|
)
|
Net
|
|
$
|
148,794
|
|
|
$
|
156,926
|
|
|
|
|
|
|
|
|
|
|
During the three months ended March 31,
2013 and , the Company had depreciation expenses of $8,522 and $60 included in cost of revenues.
8. RELATED PARTY BALANCES AND
TRANSACTIONS WITH MAJOR SHAREHOLDERS
Due to related parties as of March 31,
2013 and December 31, 2012 consisted of following:
|
|
As of
|
|
|
March 31,
2013
|
|
December 31, 2012
|
|
|
|
|
|
|
|
|
|
Hebei AMP
(a)
|
|
$
|
27,732
|
|
|
$
|
57,696
|
|
PMI
(b)
|
|
|
751,337
|
|
|
|
592,350
|
|
President of the Company
(c)
|
|
|
117,447
|
|
|
|
117,147
|
|
Total
|
|
$
|
896,516
|
|
|
$
|
767,193
|
|
(a)
|
Hebei Agricultural Means of Production Co. Ltd.
|
Hebei Agricultural Means of Production
Co. Ltd. (“Hebei AMP”) indirectly owns 2% capital interest of CAM Hebei, through its wholly-owned subsidiary, Shijiazhuang
Qijin Cultural Presentation Inc. Hebei AMP has common management of the Company as follows:
Mr. Chen Lijun, Chairman of the Company
is the Chairman and President of Hebei AMP;
Mr. Peng Guo Jiang, General Manager,
Director of the Company is the Vice President of Hebei AMP.
Mr. Peng Guo Jiang holds approximate
36% of CAMG common stock and 38% of CAM preferred stocks as a trustee holding the shares for Hebei AMP.
As of March 31, 2013 and December 31,
2012, the balance due to Hebei AMP was $27,732 and $57,696, respectively.
Advertising Revenues –
Related Party
After completing the installation
of the LCD displays in 2012, the Company has entered an advertising services contract with Hebei AMP, pursuant to which Hebei AMP
agrees to purchase a total of 15,768,000 seconds per year for LCD advertising time at a rate of no less than RMB2.54 (USD0.40),
starting from June 2012. During the three months ended March 31, 2013, the Company generated all its advertising revenues from
Hebei AMP in amount of $1,680,318.
Fertilizer Agreements - Related
Party
Starting on October 30, 2012 the
Company, through its subsidiary CAM Hebei entered into a series of oral and written agreements (collectively the “Agreements”)
with Hebei AMP for the purchase and sale of fertilizer in Hebei Province China.
Pursuant to the terms of the Agreements
entered into during the first quarter of 2013, fertilizer products (total of 3,900 tons) shall be sold by Hebei AMP to CAM Hebei
for a purchase price of approximately $2,000,000. Hebei AMP will deliver the fertilizer to CAM Hebei as needed.
The
Company serves primarily as a trading agent for Hebei AMP during the transactions. No fertilizer was delivered during the first
quarter of 2013.
(b)
|
Precursor Management
Inc.
(“PMI”)
|
On March 30, 2011, the Company entered
into an agreement with Precursor Management Inc. (“PMI”) which is controlled by the Company’s President and is
also a shareholder of the Company. Since March 2011, PMI has assisted the Company with listing on the over the counter stock market
and SEC compliance work, and paid for the Company’s expenses related to daily operations. During the three months ended March
31, 2013, the expenses paid by PMI were approximately $127,000, which was recorded as due to shareholder in the balance sheet as
of March 31, 2013.
In addition, the Company had outstanding
balances of $117,447 due to the Company’s President as of March 31, 2013. The funds borrowed from the Company’s President
were to fund the Company’s operations. The balance due to shareholder was not evidenced by a promissory note, but rather
is an oral agreement between the shareholder and the Company and due on demand.
9. STOCK BASED COMPENSATION
On
January
16, 2013, the Board of Directors
approved the issuance of 220,000 shares at its fair value for professional and accounting
services related to the preparation and filing of the Company’s quarterly and annual reports, EDGAR services, and the preparation
of corporate tax returns. The value of the shares was determined using the value of the services to be rendered since the Company
currently has a limited trading market. The shares have not been issued as of the date of the report. Accordingly, the Company
accrued the expenses pro rata within the relative service period.
10. INCOME TAXES
The Company uses the asset and liability
method, where deferred tax assets and liabilities are determined based on the expected future tax consequences of temporary differences
between the carrying amounts of assets and liabilities for financial and income tax reporting purposes. There are no material timing
differences and therefore no deferred tax asset or liability at March 31, 2013.
As of March 31, 2013, the U.S. operation
had net operating losses of $287,059 available for federal tax purposes, which are available to offset future taxable income. The
net operating loss carry forwards begin to expire in 2032. The Company has provided for a full valuation allowance for
any future tax benefits from the net operating loss carryforwards as the management believes it is more likely than not that these
assets will not be realized in the future.
The effective income tax expenses for
the three months ended March 31, 2013 are as follows:
|
|
For the three months ended
March 31, 2013
|
|
|
|
Current taxes
|
|
$
|
264,011
|
|
Deferred taxes
|
|
|
0
|
|
|
|
$
|
264,011
|
|
11. CONCENTRATION AND RISK
For the three months ended March 31, 2013,
100% of the Company’s assets were located in the PRC and 100% of the Company’s revenues were derived from Hebei AMP,
a related party through common management (see Note 8(a)) located in the PRC.
12. COMMITMENT AND CONTINGENCIES
The Company leases its office space
under a 2-year non-cancelable operating lease agreement which expires on June 30, 2014. The monthly lease payment is
approximately $800.
Accordingly,
the
future lease payments required as of December 31 are as follows:
Year ended December 31
|
Lease payment
|
2013
|
$ 9,677
|
2014
|
$ 4,838
|
Total
|
$ 14,515
|
For the three months ended March
31, 2013 and 2012, rental expense was approximately $2,400 and $0, respectively, since the lease agreement commenced in June of
2013.
13. SUBSEQUENT EVENTS
On
April
15, 2003, the Board of Directors
approved an amendment to its Warrant Agreements, dated June 28, 2012, pursuant to which
the proceeds from the Warrant Offering at the price of $1.20 per warrant will be refunded in the event that the warrants are not
exercised on or before June 28, 2013.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
Special Note Regarding Forward-Looking
Statements
This periodic report contains certain
forward-looking statements with respect to the Plan of Operations provided below, including information regarding the Company’s
financial condition, results of operations, business strategies, operating efficiencies or synergies, competitive positions, growth
opportunities, and the plans and objectives of management. The statements made herein that are not historical facts are hereby
identified as "forward-looking statements."
Critical Accounting Policies and
Estimates
The preparation
of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions that affect the amounts reported in the unaudited Financial Statements
and accompanying notes. Management bases its estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances. Actual results could differ from these estimates under different
assumptions or conditions. The Company believes there have been no significant changes during the three months
ended March 31, 2013, to the items disclosed as significant accounting policies in management's Notes to the Financial Statements
in the Company's
annual report on Form 10-K for the year ended December 31, 2012
.
Corporate History
As used herein the terms "We",
the "Company", "CAMG", the "Registrant," or the "Issuer" refers to CAM Group, Inc., formerly
known as “RT Technologies, Inc.”, its subsidiaries and predecessors, unless indicated otherwise. The Company
was
originally incorporated as Savannah River Technologies, Inc. under the laws of the State of South Carolina on March 2, 1995. On
July 20, 2007, the Company formed a corporation pursuant to the laws of the State of Nevada having a par value of $0.001 for both
the preferred and common stock. On August 11, 2007, the stockholders of the Company approved a change of corporate domicile which
resulted in the dissolution of the South Carolina Corporation and the Company became domiciled in the State of Nevada. On
September
13, 2012, the Company changed its name to CAM Group Inc. (“CAMG”) to more accurately reflect its business after a stock
exchange transaction set forth below.
On April 17, 2012, CAMG completed a
stock exchange transaction with China Agriculture Media Group Co., Ltd (“CAM Group”). CAM Group is organized and exists
under the laws of Hong Kong Special Administrative Region of the People’s Republic of China (the “PRC”), which
was incorporated on March 30, 2011. CAM Group is an investment holding company, whose only asset is 100% equity interest in China
Agriculture Media (Hong Kong) Group Co. Ltd. (“CAM HK”). CAM HK is an investment holding company organized and exists
under the laws of Hong Kong Special Administrative Region of PRC, with its only asset being a 98% equity interest in China Agriculture
Media (Hebei) Co. Ltd. ( “CAM Hebei”). CAM Hebei was established in the Hebei Province, PRC on November 28, 2011 as
a Chinese domestic enterprise.
Immediately upon the Closing date, CAMG
issued to the CAM Group shareholders 22,500,000 new investment shares of CAMG Common Stock and 1,000,000 shares of CAMG super-voting
Preferred Stock to the CAMG Shareholders in exchange for all of their shares of registered capital of CAM Group. Upon completion
of the exchange, CAM Group and its subsidiaries became subsidiaries of CAMG and the former owners of CAM Group then owned
a
‘controlling interest’ in
CAMG
representing 98% of the voting shares of
CAMG
and 90% of the issued and outstanding shares of Common Stock
. Our corporate structure after closing
is set forth as follows:
CAM Group, Inc. (f/k/a RT Technologies, Inc.)
|
China Agriculture Media Group Co., Ltd.
|
China Agriculture Media (Hong Kong) Group Co., Ltd.
|
China Agriculture Media (Hebei) Co., Ltd.
|
CAMG, CAM HK and CAM Hebei are
hereafter collectively referred to as the “Company”.
Overview
:
Since the reverse merger was consummated,
we have continued operations of CAM Hebei, a company which is principally engaged in developing the Chinese rural consumer market.
We plan to build up our core business into four areas within two years: advertising, wholesale and retail sales, store rental and
value-added services.
CAMG will acquire full management and
operational rights to a comprehensive retail network composed of up to 16,000 retail stores located in Hebei province that are
currently owned and operating under the state-owned system of China Supply and Marketing Cooperative Association (“China
Co-Op”) and China National Agricultural Means of Production Group Corporation (“National AMP”) and have been
in operation for 60 years (the “Network”). CAMG does not have ownership of stores within the Network, which draws a
large percentage of the region’s farming population who take advantage of government subsidized agricultural products only
sold within the Network stores. Although farmers are free to visit stores outside the Network, the restrictions on the sale of
fertilizer products and subsidized pricing of the Network significantly reduce competition. As a result, our Network has a “captive”
audience consisting of farmers who would otherwise be priced out of purchasing fertilizer at other locations because these government
subsidies are only available within the Network.
In the first stage of 24-months, CAMG will
complete the development of integrating, managing and operating approximately 16,000 retail locations in Hebei province, which
are currently owned and operating within the National AMP and China Co-Op’s retail system. The Network covers a rural population
of over 40 million people or approximately 55% of Hebei’s 70 million residents and is managed by National AMP and China Co-Op’s
Hebei province subsidiaries (respectively Hebei Agricultural Means of Production Co. Ltd. (“Hebei AMP”) and Hebei Supply
and Marketing Cooperative Association (“China Co-Op Hebei”)). Hebei AMP is a major related party of the Company by
common shareholders and directors. Hebei AMP is our related party and major shareholder through a trustee holding. Our estimated
cost would require about $10 million USD which we intend to raise in the US capital markets through road shows or investor presentation
meetings. In October 2012 we hosted two seminars at San Francisco and New York City respectively to let attendees meet with our
management team and know about our marketing and growth strategies. For the fund raising, we intend to hold road shows in different
U.S. cities and reach various institutional investors to present our business development plan in year 2013. To assist us in the
financing we have engaged Axiom Capital Management, Inc. as our advisor.
CAMG plans to lease the retail store
space from the Network and then sub-lease them to chain store companies, product distributors and/or manufacturers for store
rental income. The stores have been remodeled as convenience stores selling both agricultural and non-agricultural products
such as fertilizer, homecare, personal care and healthcare products by self-generated income since July 2012 and are expected
to complete by the end of 2013.
Advertising tools such as LCD displays, posters,
and outdoor billboards will be available for potential clients who are intended to develop Chinese rural market, to advertise their
products. These tools will also assist clients to build their corporate images, and assist government departments in providing
general public service announcements to local residents.
Clients can either directly manage their stores
or pay for CAMG’s value-added management services. CAMG plans to roll-out its services first in Hebei province, and then
implement the same business model in different provinces throughout China.
By utilizing existing resources, such as the
facilities, network and experience of our strategic partners, Hebei AMP and China Co-Op Hebei, CAMG can promptly establish its
access to the rural retail market. We will act as the exclusive sales and advertising agent for up to 16,000 retail outlets located
in Hebei province and strive to assist our clients to promote suitable products attractive to the rural consumer. In addition,
we have a commitment letter from one of our shareholders, Precursor Management, Inc., (“PMI”) to provide necessary
unconditional financial support through March 2013 if we cannot generate enough cash to support our operations. This commitment
letter was not renewed and we do not expect PMI to assist us in the financing. To the date of this filing, we have generated sufficient
cash income to support our operations.
Results of Operations
Revenues – Related Party
We had revenue of
$1,680,318 for the three months ended March 31, 2013, all of which from the sales of
air time for the clients’ advertisement
through the LCD display network.
W
e currently gained all our advertising revenues from Hebei
AMP; our related party and major shareholder through a trustee holding; pursuant to the Agreement, dated June 1, 2012. We charged
Hebei AMP $.42 per second for the air time they used for their advertisement.
CAMG installed the first batch of 300 LCD display
in the Network during 2012 and will continue to roll-out more installation in 2013 and 2014.
CAMG plans to charge at least RMB 2.54 ($0.40)
per second for a 30-second video broadcasting 60 times per day within the Network when the number of LCD display is less than 3,000.
The price per second will be increased when the number of LCD display exceeds 3,000 to reflect the increasing influence from the
Network. The LCD displays will operate up to 12 hours a day in some locations and allow a maximum capacity of 15.8 million seconds
per year available for sale.
CAMG is also planning to execute agreements
for the development of outdoor billboards and expects to operate approximately 20 locations by the end of 2013. In addition, clients
can place posters in the Network of stores in Hebei Province.
In addition, pursuant to the terms of the Agreements
entered into during the first quarter of 2013, fertilizer products (total of 3,900 tons) shall be sold by Hebei AMP to CAM Hebei
for a purchase price of approximately $2,000,000. Hebei AMP will deliver the fertilizer to CAM Hebei as needed.
We
serve primarily as a trading agent for Hebei AMP during the transactions. No fertilizer was delivered during the first quarter
of 2013.
We had no revenue activities until June of
2012.
Cost of Revenues
Cost of revenues
recorded at $29,347 for the three months ended March 31, 2013.
Cost of revenues consists primarily of the cost related to
LCD display, direct labor, depreciation and overhead, which are directly attributable to revenue generation and the provision of
services. The depreciation expenses in connection with equipment for advertising and broadcasting were included in cost of revenues,
which were $8,522
for the three months ended March 31, 2013
.
We had no revenue activities until June of
2012.
Operating Expenses
We had operating expenses of $171,651
and $74,417 for the three months ended march 31, 2013 and 2012, respectively. The expenses were mainly composed of the expense
of recruitment, marketing, advertising, and travelling expenses. The increase by $97,234 was due primarily to the increase in expenses
as a public company in US.
Net Income
We had net income of $1,174,945
for
the three months ended March 31, 2013
, compared to net loss of $74,482
for the same period ended
March 31, 2012
. The net income during the first quarter of 2013 was due to sufficient gross profit to cover our operating
expenses. The net loss during the first quarter of 2012 was primarily attributable to expenses incurred for daily operations since
no revenues gained during the period.
There can be no assurance that we will achieve
or maintain profitability, or that any revenue growth will take place in the future.
Liquidity and Capital Resources
Cash flows used in operating activities
were $538,058 and $71,743 for the three months ended March 31, 2013 and 2012, respectively. Negative cash flows from operations
in the first quarter of 2013 were due primarily to the advance to a related party in amount of $2,010,421 pursuant to fertilizer
contracts, partially offset by the net income of $1,174,945 and increase in taxes payable by $264,011. Negative cash flow
from operations during the first quarter of 2012 was due primarily to the net loss in the period.
We had no cash flow from investing activities
during the three months ended March 31, 2013. Comparatively, cash flows used in investing activities were $32,813 during the three
months ended March 31, 2012 due primarily to purchase of LCD display for advertising business.
Cash flows provided by financing activities
were $127,201 and $105,706 during the three months ended March 31, 2013 and 2012, respectively. Positive cash flows from financing
activities in the first quarter of 2013 were due primarily to proceeds of $127,201 from the shareholder loan, which bears zero
interest and due on demand. Comparatively, positive cash flows from financing activities in the first quarter of 2012 was due primarily
to proceeds of $12,179 from related parties loan, and $93,527 from the shareholder loan, both of which bears zero interest and
due on demand.
During the third quarter of 2012, the
Company issued 2,218,900 one-year warrants at a price of $1.20 per warrant to 166 accredited investors for total proceeds of $2,662,680,
of which $2,455,200 was collected through an thirty party escrow account. The Company is not the beneficiary of the escrow account.
Since the Company has not received the warrants proceeds, the Company recorded subscription receivable in amount of $2,662,680
to the accompanying consolidated balance sheets. On
April 15, 2003, the Board of Directors
approved
an amendment to its Warrant Agreements, dated June 28, 2012, pursuant to which the proceeds from the Warrant Offering at the price
of $1.20 per warrant will be refunded in the event that the warrants are not exercised on or before June 28, 2013.
Capital Expenditures
We project that we will need additional
capital to fund operations over the next 12 months. Our estimated cost would require about $10 million to meet our expansion objectives.
We intend to raise the fund in the US capital markets through road shows or investor presentation meetings. In October 2012 we
hosted two seminars at San Francisco and New York City respectively to let attendees meet with our management team and know about
our marketing and growth strategies. For the fund raising, we intend to hold road shows in different U.S. cities and reach various
institutional investors to present our business development plan in year 2013. To assist us in the financing we have engaged Axiom
Capital Management, Inc. as our advisor.
Overall, we have funded our cash needs
from inception through March 31, 2013 with a series of debt and equity transactions, primarily with related parties. If we are
unable to receive additional cash from our related parties, we may need to rely on financing from outside sources through debt
or equity transactions. Our related parties are under no legal obligation to provide us with capital infusions. Failure to obtain
such financing could have a material adverse effect on our operations and financial condition.
We had cash of $
839,569
on hand as of March 31, 2013. Currently, we have enough cash to fund our operations for the next 6 months. This is based on our
working capital surplus and self-generated income. Our current level of operations would require capital of approximately $1,000,000
per year starting in 2013. Modifications to our business plans may require additional capital for us to operate. For example,
if we are unable to raise additional capital in the future we may need to curtail our number of stores in the Network or limit
our marketing efforts to the most profitable geographical areas. This may result in lower revenues and market share for us. In
addition, there can be no assurance that additional capital will be available to us when needed or available on terms favorable
to us.
On a long-term basis, liquidity is dependent
on continuation and expansion of operations, receipt of revenues, and additional infusions of capital and debt financing. Our current
capital and revenues are insufficient to fund such expansion. If we choose to launch such an expansion campaign, we will require
substantially more capital. However, there can be no assurance that we will be able to obtain additional equity or debt financing
in the future, if at all. If we are unable to raise additional capital, our growth potential will be adversely affected and we
will have to significantly modify our plans. For example, if we are unable to raise sufficient capital to develop our business
plan, we may need to:
·
|
Curtail number of stores in the Network
|
·
|
Limit our future marketing efforts to areas that we believe would be the most profitable.
|
Demand for the products and services
will be dependent on, among other things, market acceptance of our services, advertising market in Hebei Province, PRC, and general
economic conditions, which are cyclical in nature. Inasmuch as a major portion of our activities is the receipt of revenues from
the sales of our products, our business operations may be adversely affected by our competitors and prolonged recession periods.
Our success will be dependent upon implementing
our plan of operations and the risks associated with our business plans. We provide air time for the clients’ advertisement
through our own media network. We plan to strengthen our position in these markets. We also plan to expand our operations through
aggressively marketing our concept.
Off-balance sheet arrangements
The Company does not have any off-balance
sheet arrangements and it is not anticipated that the Company will enter into any off-balance sheet arrangements.