ITEM 8. FINANCIAL STATEMENTS
The accompanying notes are an integral part of these consolidated financial statement
1. 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. (“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, liabilities, 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 are included 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 are included from the date of stock exchange transaction.
CAMG, CAM Group, CAM HK and CAM Hebei
are hereafter collectively referred to as the “Company”.
2. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
These accompanying consolidated financial
statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“US
GAAP”).
The accompanying consolidated financial
statements include the accounts of the Company and its wholly-owned subsidiaries CAM Group, CAM HK and CAM Hebei All inter-company
balances and transactions have been eliminated in consolidation
Use of Estimates
The preparation of financial statements
in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and revenue and expenses in the financial statements and accompanying notes. Actual results could differ from such
estimates.
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.
Accounts Receivable
Accounts 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. As of December 31, 2013, the Company had
balance in accounts receivable of $1,675,831.
Fixed Assets
Fixed assets are stated at cost less
accumulated depreciation and accumulated impairment losses, if any. Depreciation is calculated on the straight-line basis over
the following expected useful lives from the date on which they become fully operational and after taking into account their estimated
residual values:
|
Depreciable life
|
|
Residual value
|
Machinery and Equipment
|
5 years
|
|
|
0
|
%
|
Furniture and fixture
|
7 years
|
|
|
0
|
%
|
Computer and software
|
3 years
|
|
|
0
|
%
|
Expenditures for maintenance and repairs
are expensed as incurred.
Revenue Recognition
In accordance with ASC 605-10-S99-1 for revenue
recognition, the Company recognizes revenue when persuasive evidence of an arrangement exists, transfer of title has occurred or
services have been rendered, the selling price is fixed or determinable and collectability is reasonably assured. Currently, our
revenues are all generated from a related party.
(a) Advertising revenues
The Company set up its own media network by
installing LCD displays in retail stores managed by a related party and provides air time for the clients’ advertisement
through the network. Revenue is recognized when the air time is used by the clients.
After completing the installation
of the LCD displays in 2012, the Company has entered an advertising services contract with this related party, pursuant to which
the related party 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 (USD0.41), starting from June 2012. During the year of 2013, the Company generated all its advertising revenues from the
related party in amount of $6,641,060.
(b) Services revenues
Service revenue is primarily derived
from acting as an agent in fertilizer trading. The Company serves primarily as a trading agent for this related party during the
transactions. These services are generally billed on a time-cost plus basis. Revenue is recognized when services are rendered,
products have been delivered, payments have been received, and risk of ownership has been transferred and accepted by the customers.
Cost of Revenues
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 equipments for advertising and broadcasting are included
in cost of revenues.
Advertising costs are expensed as incurred.
The Company had $69,236 and $107,516 advertising costs for the years ended December 31, 2013 and 2012, respectively.
Shipping and Handling Costs
All shipping and handling costs are
included in cost of sales. The Company had no freight out expense during the period presented.
Income Taxes
Income taxes are determined in accordance
with Accounting Standards Codification Topic 740, “
Income Taxes
” (“ASC 740”). Under this method,
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. Deferred tax assets and liabilities
are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. Any 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.
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. Income tax periods
2011, 2012 and 2013 are open for tax examination by taxing authority.
The Company conducts major businesses
in the PRC and Hong Kong and is subject to tax liabilities in these two jurisdictions. As a result of its business activities,
the Company files tax returns that are subject to examination by the foreign tax authorities. As of December 31, 2013, the Company
had no outstanding tax due with its tax authority in the PRC, and provisions for profit taxes due with its tax authority in Hong
Kong were accrued.
Comprehensive Income (Loss)
FASB ASC 220,
“Reporting 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 the year from non-owner sources. Accumulated other comprehensive
income, as presented in the accompanying consolidated balance sheets 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.
Non-Controlling Interests
Non-Controlling interest represents
the 2% equity interest of CAM Hebei held by Hebei Agricultural Means of Production Co. Ltd (“Hebei AMP”), through its
wholly-owned subsidiary, as of December 31, 2013.
The Parties shall share the profits,
losses and risks of the Company in proportion to and, in the event of losses, to the extent of their respective contributions and
contractual commitments to the registered capital of the Company.
The rights of Non-Controlling Interest
Shareholder: (a) Intellectual property contributed by non-controlling interest shareholder, if any, remains the sole and exclusive
property of non-controlling interest shareholder; (b) The Board of Directors shall be composed of five Directors, of whom two shall
be appointed by non-controlling interest shareholder.
Foreign Currency Translation
Transactions denominated in currencies
other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of
the transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into
the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are
recorded in the statement of comprehensive income.
The reporting currency of the Company
is the United States Dollars ("US$"). The Company's subsidiaries in the PRC maintain its books and records in its local
currency, Renminbi Yuan ("RMB"), which is functional currency as being the primary currency of the economic environment
in which the entity operates.
In general, for consolidation purposes,
assets and liabilities of its subsidiaries whose functional currency is not US$ are translated into US$, in accordance with ASC
Topic 830-30, “
Translation of Financial Statement
”, using the exchange rate on the balance sheet date. Revenues
and expenses are translated at average rates prevailing during the period. The gains and losses resulting from translation of financial
statements of foreign subsidiaries are recorded as a separate component of accumulated other comprehensive income.
Translation of amounts from RMB into
US$1 has been made at the following exchange rates for the respective periods:
|
2013
|
|
2012
|
|
Balance sheet items, except for the registered and paid-up capital as of December 31, 2013 and 2012
|
USD 1:RMB 6.1104
|
|
USD 1:RMB 6.2313
|
|
Amounts included in the statement
of operations, statement of changes in stockholders’ equity and statement of cash flows for the years ended December 31,
2013 and 2012
|
USD 1:RMB 6.1905
|
|
USD 1:RMB 6.3105
|
|
Basic and Diluted Earnings per Share
The Company calculates earnings per
share in accordance with FASB ASC 260 “
Earnings per Share
”. Basic earnings per share are calculated
by dividing the Company’s net income or loss applicable to common shareholders by the weighted average number of common shares
during the period. If applicable, diluted earnings per share are computed by dividing the net income for the period by the weighted
average number of common and common equivalent shares outstanding, using the treasury stock method for warrants and options and
the if-converted method for convertible instruments when the conversion is not dependent on a substantive non-market based contingency
during the period. Accordingly, this presentation has been adopted for the periods presented.
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. A material related party transaction has been
identified in Note 6 in the financial statements.
Subsequent Events
The Company evaluated for subsequent events
through the issuance date of the Company’s financial statements.
Recently Issued Accounting Standards
The Company has reviewed all recently
issued, but not yet effective, accounting pronouncements up to ASU 2014-05, 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.
3. CASH AND CASH EQUIVALENTS
As of December 31, 2013, the cash balance
was $5,600,286, of which $5,264,569 was held in major financial institutions located in Hong Kong, and $325,829 was held in major
financial institutions located in the PRC and $9,888 as petty cash.
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.
4. ADVANCED TO
suppliers
As of December 31, 2013 and 2012, the
Company had advanced to suppliers in the amount of $3,225,615 and $2,803,593, respectively, representing the deposits made to suppliers
pursuant to fertilizer contracts in order to secure lower price of fertilizer. The amount and percentage of each major supplier
are set forth below.
Suppliers
|
|
|
Advanced to Suppliers
|
|
|
|
|
Supplier A
|
|
|
$
|
1,497,447
|
|
|
|
46.4
|
%
|
Supplier B
|
|
|
|
1,728,168
|
|
|
|
53.6
|
%
|
|
Total
|
|
$
|
3,225,615
|
|
|
|
100.0
|
%
|
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are comprised of the following
amounts at the respective dates:
|
|
As of
|
|
|
December 31, 2013
|
|
December 31, 2012
|
Cost:
|
|
|
|
|
Computer equipment and software
|
|
$
|
13,083
|
|
|
$
|
5,334
|
|
Advertising equipment
|
|
|
167,429
|
|
|
|
161,321
|
|
Construction in progress
|
|
|
544
|
|
|
|
-
|
|
Total
|
|
|
181,056
|
|
|
|
166,655
|
|
Accumulated depreciation
|
|
|
(45,334
|
)
|
|
|
(9,729
|
)
|
Net
|
|
$
|
135,722
|
|
|
$
|
156,926
|
|
|
|
|
|
|
|
|
|
|
During the years ended December 31, 2013
and 2012, the Company had depreciation expenses of $34,953 and $9,607, respectively, included in cost of revenues.
6. RELATED PARTY BALANCES AND
TRANSACTIONS WITH MAJOR SHAREHOLDERS
Due to related parties as of December
31, 2013 and 2012 consisted of following:
|
|
As of
|
|
|
December 31, 2013
|
|
December 31, 2012
|
|
|
|
|
|
|
|
|
|
Hebei AMP
(a)
|
|
$
|
58,838
|
|
|
$
|
57,696
|
|
|
|
|
|
|
|
|
|
|
PMI
(b)
|
|
|
579,253
|
|
|
|
592,350
|
|
Shareholder
(c)
|
|
|
119,465
|
|
|
|
117,147
|
|
Total
|
|
$
|
757,556
|
|
|
$
|
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
during the period from April 17, 2012 through December 11, 2013, is the Chairman and President of Hebei AMP;
Mr. Peng Guo Jiang, General Manager,
Director of the Company during the period from April 17, 2012 through December 11, 2013, is the Vice President of Hebei AMP.
Mr. Peng Guo Jiang holds approximate
36% of CAMG common stock and 38% of CAM preferred stock as a trustee holding the shares for Hebei AMP.
As of December 31, 2013 and 2012, the
balance due to Hebei AMP was $58,838 and $57,696, respectively.
(b)
|
Precursor Management Inc.
|
On March 30, 2011, the Company entered
into an agreement with Precursor Management Inc. (“PMI”) which is controlled by the Company’s former 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. The agreement expired in
March 2013. The Company repaid the loans payable to PMI in amount of $24,495 in 2013. As of December 31, 2013, the outstanding
balance due to PMI was $579,253.
In addition, the Company had outstanding
balances of $119,465 due to the Company’s former President as of December 31, 2013. The funds borrowed from the Company’s
former 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. On July 29, 2013, the President
resigned as President, director and Secretary of the Company due to his personal reason, without any specific disagreement with
the Company on any matter.
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
agreed to purchase a total of 15,768,000 seconds per year for LCD advertising time at a rate of no less than RMB2.54 (USD0.41),
starting from June 2012.
The contract was renewed on May 30, 2013 for seven months from June
1, 2013 to December 31, 2013
. During the years ended December 31, 2013 and 2012, the Company generated all its advertising
revenues from Hebei AMP in amount of $6,641,060 and $3,963,860, respectively.
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 which, fertilizer products 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 and therefore recognizes
revenue for these transactions on a net rather than a gross basis. During the years ended December 31, 2013 and 2012, the Company
generated revenues of $19,060 and $14,896, respectively, from trading agent business.
7. STOCK BASED COMPENSATION
On May 20, 2013,
the Company issued 220,000 shares of its common stock, which were approved by the Board of Directors on January 16, 2013, at its
fair value for one-year 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 in amount of $50,000
was determined using the value of the services to be rendered since the Company currently has a limited trading market. The services
agreement was consummated during the year of 2013. Accordingly, the stock based compensation of $50,000 was included in the consolidated
statements of operations for the year ended December 31, 2013.
8. 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 December 31, 2013.
As of December 31, 2013, the U.S. operation
had net operating losses of $298,672 available for federal tax purposes, which are available to offset future taxable income. The
net operating loss carry forwards begin to expire in 2033. 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 years ended December 31, 2013 and 2012 are as follows:
|
For the year ended
December 31, 2013
|
|
For the year ended
December 31, 2012
|
|
|
|
|
|
Current taxes
|
$
|
919,502
|
|
$
|
699,563
|
|
Deferred taxes
|
|
0
|
|
|
0
|
|
|
$
|
919,502
|
|
$
|
699,563
|
|
9. EARNINGS PER SHARE
Basic net income per share is computed
using the weighted average number of the common shares outstanding during the periods. Diluted net income per share
is computed using the weighted average number of all dilutive common stock equivalents during the periods. As of December 31, 2013,
the Company had 1,000,000 shares of convertible preferred stock outstanding whose effect was dilutive and included in diluted net
income per share during the periods.
The following table sets forth the computation
of basic and dilutive net income per share for the years ended December 31, 2013 and 2012, respectively:
|
|
For the years ended
|
|
|
12/31/2013
|
|
12/31/2012
|
|
Net Income
|
|
|
$
|
4,976,390
|
|
|
$
|
2,485,738
|
|
|
Net Income per Share
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
0.20
|
|
|
|
0.10
|
|
|
Diluted
|
|
|
|
0.04
|
|
|
|
0.02
|
|
|
Weighted Average Number of Shares Outstanding
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
25,210,616
|
|
|
|
24,304,726
|
|
|
Diluted
|
|
|
|
125,210,616
|
|
|
|
124,304,726
|
|
10.
Warrants
The following tables summarize all warrant
outstanding as of December 31, 2013, and the related changes during this period.
|
|
Number of Warrants
|
|
Weighted
Average Exercise Price
|
Stock Warrants
|
|
|
|
|
Balance at January 1, 2013
|
|
|
2,218,900
|
|
|
$
|
2.80
|
|
Granted
|
|
|
0
|
|
|
|
0
|
|
Exercised
|
|
|
0
|
|
|
|
0
|
|
Expired
|
|
|
(2,218,900
|
)
|
|
$
|
2.80
|
|
Balance at December 31, 2013
|
|
|
0
|
|
|
|
0
|
|
Warrants Exercisable at December 31, 2013
|
|
|
0
|
|
|
$
|
0
|
|
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 a thirty party escrow account. The Company is not the beneficiary of the escrow account.
Since the Company has not received the warrant proceeds, the Company recorded a subscription receivable in amount of $2,662,680
to the accompanying consolidated balance sheets. On April 15, 2013, 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. There were no warrants exercised on or
before the expiration. The proceeds of $2,455,200 were refunded to the investors by the escrow agent during the third quarter of
2013.
11. CONCENTRATION AND RISK
For the years ended December 31, 2013
and 2012, 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 6(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
|
|
2014
|
|
$
|
4,800
|
|
|
Total
|
|
$
|
4,800
|
|
For the years ended December
31, 2013 and 2012, rental expense was approximately $9,600 and $4,800, respectively.
13. SEGMENTS
The Company determined that it
did not operate in any material, separately reportable operating segments as of December 31, 2013.
14. SUBSEQUENT EVENTS
In accordance with ASC Topic 855-10,
the Company has analyzed its operations subsequent to December 31, 2013 to the date these financial statements were issued, and
has determined that it does not have any material subsequent events to disclose in these financial statements.