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| KVME.OB > SEC Filings for KVME.OB > Form 10-Q on 16-Dec-2008 | All Recent SEC Filings |
16-Dec-2008
Quarterly Report
ALL FORWARD-LOOKING STATEMENTS CONTAINED HEREIN ARE DEEMED BY THE COMPANY TO BE COVERED BY AND TO QUALIFY FOR THE SAFE HARBOR PROTECTION PROVIDED BY THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. PROSPECTIVE SHAREHOLDERS SHOULD UNDERSTAND THAT SEVERAL FACTORS GOVERN WHETHER ANY FORWARD - LOOKING STATEMENT CONTAINED HEREIN WILL BE OR CAN BE ACHIEVED. ANY ONE OF THOSE FACTORS COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED HEREIN. THESE FORWARD - LOOKING STATEMENTS INCLUDE PLANS AND OBJECTIVES OF MANAGEMENT FOR FUTURE OPERATIONS, INCLUDING PLANS AND OBJECTIVES RELATING TO THE PRODUCTS AND THE FUTURE ECONOMIC PERFORMANCE OF THE COMPANY. ASSUMPTIONS RELATING TO THE FOREGOING INVOLVE JUDGMENTS WITH RESPECT TO, AMONG OTHER THINGS, FUTURE ECONOMIC, COMPETITIVE AND MARKET CONDITIONS, FUTURE BUSINESS DECISIONS, AND THE TIME AND MONEY REQUIRED TO SUCCESSFULLY COMPLETE DEVELOPMENT PROJECTS, ALL OF WHICH ARE DIFFICULT OR IMPOSSIBLE TO PREDICT ACCURATELY AND MANY OF WHICH ARE BEYOND THE CONTROL OF THE COMPANY. ALTHOUGH THE COMPANY BELIEVES THAT THE ASSUMPTIONS UNDERLYING THE FORWARD - LOOKING STATEMENTS CONTAINED HEREIN ARE REASONABLE, ANY OF THOSE ASSUMPTIONS COULD PROVE INACCURATE AND, THEREFORE, THERE CAN BE NO ASSURANCE THAT THE RESULTS CONTEMPLATED IN ANY OF THE FORWARD - LOOKING STATEMENTS CONTAINED HEREIN WILL BE REALIZED. BASED ON ACTUAL EXPERIENCE AND BUSINESS DEVELOPMENT, THE COMPANY MAY ALTER ITS MARKETING, CAPITAL EXPENDITURE PLANS OR OTHER BUDGETS, WHICH MAY IN TURN AFFECT THE COMPANY'S RESULTS OF OPERATIONS. IN LIGHT OF THE SIGNIFICANT UNCERTAINTIES INHERENT IN THE FORWARD - LOOKING STATEMENTS INCLUDED THEREIN, THE INCLUSION OF ANY SUCH STATEMENT SHOULD NOT BE REGARDED AS A REPRESENTATION BY THE COMPANY OR ANY OTHER PERSON THAT THE OBJECTIVES OR PLANS OF THE COMPANY WILL BE ACHIEVED.
Overview of the Company's Business
On January 18, 2008 (the "Closing Date"), Kinglake Resources, Inc., ( later changed name to K's Media, here after refers to as the "Registrant" or the "Company") completed a Share Exchange Agreement (the "Share Exchange Agreement") dated December 23, 2007, with Orient Come Holdings Limited, a company organized under the laws of British Virgin Island ("Orient Come") and Beijing K's Media Advertising Ltd. Co., a limited liability company organized under the laws of the People's Republic Of China ("Chinese Advertising Company" or "K's Media"). Pursuant to the terms of the Share Exchange Agreement, the shareholders of Orient Come (the "Orient Come Shareholders") transferred to us all of the Orient Come shares in exchange for the issuance of 13,000,000 shares of our common stock (the "Acquisition"). As a result of the Acquisition, Orient Come became our wholly-owned subsidiary.
In connection with the Share Exchange Agreement we issued 2,000,000 shares of our common stock to Sino Return Holdings Limited, a non-affiliate party as finder's fee.
On February 22, 2008 Orient Come assigned its rights and obligations under the Business Cooperation Agreement to K's Media Broadcasting Cultural Co. Ltd. ("K's Media Broadcasting") pursuant to an Assignment Agreement dated February 22, 2008 (the "Assignment Agreement"). Under the Assignment Agreement Orient Come assigned all of its right, title and interest in and to the Business Cooperation Agreement and K's Media Broadcasting agreed to assume all of Orient Come's obligations under the Business Cooperation Agreement. K's Media Broadcasting, a company organized under the laws of the People's Republic of China, is a wholly owned subsidiary of the Company.
Our current corporate structure is set forth below:
[[Image Removed: Corporate Structure]]
Prior to the Acquisition, we were a public "shell" company with nominal assets. We were incorporated in the State of Nevada in April 14, 2006 and engaged in the business of conducting research in the form of exploration of our mining interest. In September 2007, a review of the aeromagnetic of our property shows no apparent anomalies and the geologist recommend no further work on this property. Our management then began to pursue an acquisition strategy, whereby we sought to acquire businesses that provide room for growth.
As a result of the acquisition, we engaged in media and advertising throughout China. The Chinese Advertising Company is an emerging media company that targets high end consumers in China by placing premium brand advertising in entertainment clubs on behalf of top-tier consumer products clients. entertainment clubs are popular entertainment establishments in Asia that rent private rooms containing karaoke singing equipment, typically to groups of friends and business colleagues.
Concurrent with the Share Exchange Agreement, Orient Come, our wholly-owned subsidiary has signed a Business Cooperation Agreement with the Chinese Advertisement Company. We do not have an equity interest with the Chinese Advertisement Company. In order to meet ownership requirements under Chinese law, which restricts foreign companies with less than three years of operation history in advertising industry from operating in the advertising industry in China, we and Orient Come executed a series of exclusive contractual agreements. These contractual agreements allow us to, among other things, to secure significant rights to influence the Chinese Advertisement Company's business operations, policies and management, approve all matters requiring shareholder approval, and the right to receive 80% income earned by the Chinese Advertisement Company. In addition, to ensure that the Chinese Advertisement Company and its shareholders perform their obligations under these contractual arrangements, the shareholders have pledged to Orient Come all of their equity interests in the Chinese Advertisement Company. At such time that current restrictions under People's Republic Of China (PRC) law on foreign ownership of Chinese companies engaging in the advertising industry in China are lifted, or we have acquired a non-Chinese advertisement company that has over three years operation in advertising industry ("Qualified Advertising Subsidiary"), Orient Come may exercise its option to purchase the equity interests in the Chinese Advertisement Company and transfer the ownership to the Qualified Advertising Subsidiary. Orient Come later assigned its rights and obligations under the Business Cooperation Agreement to K's Media Broadcasting Cultural Co. Ltd., another wholly owned subsidiary of the Company incorporated in People's Republic of China.
The Chinese Advertising Company signs advertising agreements with companies in the cosmetics, beverage, automobile and other consumer goods sectors. K's Media also signs advertisement placement agreements with top entertainment clubs chains in Beijing, Shanghai, Guangzhou, Shenzhen, Hangzhou and other major Chinese cities. K's Media then promotes its clients brands at the entertainment clubs via advertising and promotional events. K's Media has signed agreements with more than three hundred top-ranked entertainment clubs in Beijing, Shanghai, Guangzhou, Shenzhen and other large cities, representing thousands of screens. Advertisements will be placed on screens in each room of each club signed by K's Media. A critical component of K's Media's marketing and distribution to entertainment clubs is its partnership with Shine MultiMedia Co., Ltd. ("Shine"), one of the China's largest VOD (video on demand) system distributors with deals in over 3,000 entertainment clubs and more than 100,000 entertainment rooms in China. Shine and other VOD system distributors that signed up with K's Media has bundled K's Media's proprietary CRM software with its VOD system and also pursue advertising agreements with the entertainment clubs on behalf of K's Media. The parties have entered into the Service Agreement whereby VOD system distributors arrange exclusive agency contracts between K's Media and entertainment clubs. VOD system distributors also installed and maintained advertisement equipment at the entertainment clubs during the terms of the contracts. K's Media supplements these VOD system distributors' marketing efforts with its own team of club agents that is responsible for signing up entertainment clubs, renewing contracts, and providing other follow-up services such as media channel maintenance and ad placements. VOD system distributors will receive a fee from K's Media for each contract executed and monthly maintenance fee for services provided by them over the term of each contract.
Our ability to generate revenues from advertising sales largely depends upon our ability to provide a large network of screens that show our programs in entertainment clubs, which requires us to obtain Ad Licensing rights contracts to operate in entertainment clubs.
The Registrant changed its name to K's Media on March 11, 2008, which will be more consistent with its business activities in the media and advertising in China.
Need for Additional Capital
There is no historical financial information about us upon which to base an evaluation of our performance. We are a development stage corporation and have generated insufficient revenues from activities. We cannot guarantee we will be successful in our business activities. Our business is subject to risks inherent in the establishment of a new business enterprise, including limited capital resources, and possible cost overruns due to price and cost increases in services.
The capital raised from the issuance of our common stock will enable the Company to sustain for a year so that it won't need to raise cash in the next 12 month. We have no assurance that future financing will be available to us on acceptable terms. If financing is not available on satisfactory terms, we may be unable to continue, develop or expand our activities. Equity financing could result in additional dilution to existing shareholders.
Significant Developments
Application for NASDAQ Capital Market
The Company announced in December 2008 that it has submitted an application to list its common shares on the NASDAQ Capital Market.
In connection with the application, the Company has appointed five members to its Board of Directors. All members meet the independent and corporate governance requirements of NASDAQ. Their term commences on November 24, 2008 and expires at the Company's next Annual Meeting of Stockholders. The Company has also established an Audit Committee, a Compensation Committee, as well as a Nominating and Corporate Governance Committee.
Addition of Valuable Shareholder
Jason NanChun Jiang, founder and Chairman of Focus Media has become K's Media's shareholder through purchase of 600,000 common shares. Jason NanChun Jiang is founder and chairman of Focus Media, China's largest Digital Media Group. Focus Media provides a broad portfolio of out- of-home media advertising platforms in China. In December 2003, Mr. Jiang was selected by China News Publishers Media magazine as one of the "Media People of the Year". In September 2003, Mr. Jiang was selected by the Television and Newspaper Committees of the China Advertising Commission as one of its "contemporary outstanding advertising media personalities.
Number of Signed VOD suppliers
As of the date of this report, 17 VOD (Video on Demand) system distributors have entered into contracts with the Company which brings to a total number of over 13,000 screens approximately. VOD providers are critical components for the Company's success. They bundle the Company's proprietary CRM software with its VOD system and also pursue advertising agreements with the entertainment clubs on behalf of the Company.
Number of Signed entertainment clubs
As of the date of this report, K's Media has signed over 300 entertainment clubs, representing over 13,000 screens in Beijing, Shanghai, Guangzhou, Shenzhen and other major cities cross China.
Result of Operations
Three Months ended October 31, 2008 Compared to Three Months ended October 31, 2007
Operating Revenues. Operating revenues for the three months ended October 31 of 2008 and 2007 were $49,479 and $nil respectively.
Operating Expenses. The Company's operating expenses totaled $1,196,703 for the quarter ended October 31, 2008, compared to $1 for the same quarter of 2007. The change was contributed to the transformation from mineral exploration to media activities.
Loss from Operations. The Company has recorded a loss of $1,723,065 for the quarter ended October 31, 2008, compared to a loss of $1 for 2007. The difference was caused by a substantial change in the Company's structure and the principal activities from mineral exploration to media. Majority of the cost includes general overhead and signed up fee paid to entertainment clubs.
Interest income. Interest income was $7,339 for the quarter ended October 31, 2008 compared to $2,867 for the same period of 2007. The increase resulted primarily from higher interest rates and higher investment balances.
Net Loss. The Company had a net loss of $1,715,726 for the quarter ended October 31, 2008, compared to a net profit of $2,866 for 2007 following a substantial change in the Company's structure and the principal activities from mineral exploration to media.
Liquidity and Capital Resources
The Company has financed its operations by issuance of its common stocks and raised another $5 million in July 2008 through a private placement.
Cash as of October 31, 2008 and April 30, 2008 were $3,152,069 and $1,152,852.
Net cash provided by financing activities were $4,593,836 and $1,287,250 for the six months ended October 31, 2008 and from inception (June 18, 2007) to October 31, 2007, respectively. The Company's operating activities are primarily financed by issuance of stocks.
Net cash used in operating activities was $2,582,732 for the six months ended October 31, 2008 as a result of expenditures for general administration fee, entertainment clubs' license fee, sales signed up commission and other professional fee. The net cash provided by operating activities from inception (June 18, 2007) to October 31, 2007 was $2,866 due to net income.
Net cash used in investing activities, which mainly included purchase of fixed assets were $38,141 for the six months ended October 31, 2008 and nil for the periods ended October 31, 2007 since inception (June 18, 2007).
Off Balance Sheet Arrangements
We do not have any obligations that meet the definition of an off-balance-sheet arrangement that have or are reasonably likely to have a material effect on our financial statements, which has not been consolidated.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the U.S., or GAAP, requires the Company 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 reporting period. Actual results could differ from those estimates. In recording transactions and balances resulting from business operations, the Company uses estimates based on the best information available for such items as depreciable lives. The Company revises the recorded estimates when better information is available, facts change or actual amounts can be determined. These revisions can affect operating results.
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