In the opinion of management, the accompanying consolidated unaudited financial statements included in this Form 10-QSB reflect all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the results of operations for the periods presented. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year.
The consolidated unaudited financial statements include the accounts of ASTV and its subsidiaries (the “Company”). All inter-company balances and transactions between ASTV and its subsidiaries have been eliminated in consolidation.
The financial statements for periods prior to September 30, 2004 have been reclassified to conform to the headings and classifications used in the September 30, 2004 financial statements.
The accompanying notes are an integral part of this unaudited condensed consolidated financial statement.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The Company completed acquisitions in July 2004. Please see acquisition note.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization –
Asia Premium Television Group, Inc. (“Parent”) was organized under the laws of the State of Nevada on September 21, 1989. Parent went through various name changes prior to September 2002 when the name was changed to Asia Premium Television Group, Inc. Asia Premium Television Group, Inc. was originally formed to purchase, merge with or acquire any business or assets which management believes has potential for being profitable.
Parent entered into a stock for stock acquisition with Beijing Asia Hongzhi Advertising (BAHA) during March 2003, which was finalized in July 2004, in a transaction that has been accounted for as a recapitalization of BAHA in a manner similar to a reverse purchase.
Parent entered into a stock for stock acquisition with American Overseas Investment Company (“AOI”) during June 2001 in a transaction that has been accounted for as a recapitalization of AOI in a manner similar to a reverse purchase.
Subsidiaries -
American Overseas Investment Company (“AOI”) was formed in Macau SAR, China on May 23, 2001.
Asia Premium Television Group, Inc. (“APTV-BVI”) was formed on December 28, 2002, as a British Virgin Island Company.
Beijing Asia Hongzhi Advertising (“BAHA”), formerly known as Shandong Hongzhi Advertising, was formed in Shandong, China in February 1994. It moved to Beijing and changed to its current name in July 2003.
Beijing Hongzhi Century Advertising (“BHCA”), formerly known as Beijing Yongfu Century Consultancy was formed in Beijing, China in January 2003, changed its name to its current name in March 2003.
Shandong Hongzhi Communications and Career Advertising (“SHCCA”) was formed in Shandong, China in April 2003.
Tibet Asia Culture Media Co., Ltd (“TACM”) was formed in Tibet, China in April 2004.
On September 13, 2003, the Company’s board of directors authorized management to dispose of AOI and APTV-BVI at its earliest convenience.
Consolidation
– The financial statements include the accounts of Parent, BAHA, BHCA, SHCCA, TACM, AOI and APTV-BVI (“the Company”). All inter-company balances and transactions between Parent and subsidiaries have been eliminated in consolidation.
Reclassification -
The financial statements for periods prior to September 30, 2004 have been reclassified to conform to the headings and classifications used in the September 30, 2004 financial statements.
ASIA PREMIUM TELEVISION GROUP, INC AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [
Continued
]
Condensed Financial Statements -
The accompanying financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows at September 30, 2004 and 2003 and for the periods then ended have been made.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s March 31, 2004 audited financial statements. The results of operations for the periods ended September 30, 2004 and 2003 are not necessarily indicative of the operating results for the full year.
Minority Ownership –
Chinese law requires Chinese residents to own various percentages of companies organized in China. The Company is reflecting these companies as wholly owned subsidiaries due to agreements with the individuals to acquire all rights of stock ownership they have in the subsidiaries, with the exception of actual stock ownership.
Change In Control –
In March 2003, the Company issued a total of 750,000,000 shares of common stock in anticipation of the acquisitions of subsidiaries. The Company’s officers and directors have resigned with new officers and directors being appointed by the recipients of the 750,000,000 shares of common stock.
In September 2002, the Company issued a total of 750,000,000 shares of common stock in anticipation of the acquisition of subsidiaries. After these issuances, the prior shareholders held approximately 1.4% of the issued and outstanding shares of the Company. A change in control occurred as a result of these issuances.
Accounting Estimates
- The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that effect the reported amounts of assets and liabilities, the disclosures 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 estimated by management.
Cash and Cash Equivalents
– For purposes of the statement of cash flows, the Company considers all highly liquid debt investments purchased with a maturity of three months or less to be cash equivalents.
Property and Equipment
– Property and equipment is stated at cost. Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized, upon being placed in service. Expenditures for maintenance and repairs are charged to expense as incurred. Depreciation of equipment is computed for financial statement purposes on a straight-line basis over the estimated useful lives of the assets, which range between two and five years [
See Note 4
].
Income Taxes
– The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 109, “Accounting for Income Taxes.” This statement requires an asset and liability approach for accounting for income taxes [
See Note 7
].
ASIA PREMIUM TELEVISION GROUP, INC AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [
Continued
]
Earnings (Loss) Per Share
– The Company accounts for earnings per share in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 128, “Earnings Per Share”, which requires the Company to present basic earnings (loss) per share and dilutive earnings (loss) per share when the effect is dilutive [
See Note 11
].
Foreign Currency Translation Policy –
The translations of the functional currency financial statements of subsidiaries into United States reporting currency dollars are performed for assets and liabilities denominated in foreign currencies into U.S. dollars using the closing exchange rates in effect at the balance sheet dates. The gains or losses resulting from translation are included in stockholders' equity separately as cumulative transaction adjustments when material.
Transaction gains and losses are included in the determination of net loss for the period. For revenues and expenses, the average exchange rate during the six months period was used to translate China Renminbi into U.S. dollars. For the periods presented in these financial statements, there was no material change in the exchange rate from period to period.
BAHA, BHCA, SHCCA, and TACM’s functional currency is the China Renminbi (“RMB”). AOI’s functional currency is the Macau SAR Pataca (“MOP”). APTV-BVI’s functional currency is the Hong Kong SAR Dollar (“HKD”).
Stock Based Compensation
– The Company accounts for its stock based compensation in accordance with Statement of Financial Accounting Standard (“SFAS”) No. 123, "Accounting for Stock-Based Compensation". This statement establishes an accounting method based on the fair value of equity instruments awarded to employees as compensation. However, companies are permitted to continue applying previous accounting standards in the determination of net income with disclosure in the notes to the financial statements of the differences between previous accounting measurements and those formulated by the new accounting standard. The Company has adopted the disclosure only provisions of SFAS No. 123, accordingly, the Company has elected to determine net income using previous accounting standards. Stock issued to non-employees is valued based on the fair value of the services received or the fair value of the stock given up.
Recently Enacted Accounting Standards -
Statement of Financial Accounting Standards (“SFAS”) No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities”, and SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”, were recently issued. SFAS No. 149 and 150 have no current applicability to the Company or their effect on the financial statements would not have been significant.
Revenue Policy -
The Company earns its revenue from providing advertising, production, consulting, and agent services. The revenue is recognized when the service is provided and the relevant risk and reward upon the service has been transferred.
ASIA PREMIUM TELEVISION GROUP, INC AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – ACCOUNTS RECEIVABLE
Accounts receivable are carried at the expected realizable value. Accounts receivable consisted of the following:
September 30,
2004
____________
Accounts receivable - trade
$ 4,901,838
Accounts receivable – related party
352,397
Allowance for doubtful accounts
(477,546)
____________
Accounts receivable, net
$ 4,776,689
____________
Bad debt expense (recovery) for the six months ended September 30, 2004 and 2003 was $(224,205) and $(1,236,574), respectively.
NOTE 3 – PREPAID EXPENSES
At September 30, 2004, the Company had prepaid expenses of $3,608,345. The Company enters into agreements with vendors to provide advertising services. Usually the agreements cover a period of time, and the vendors require the Company to pay in advance. The prepaid expenses are transferred to cost of sales after the service is provided by the vendors.
Prepaid expenses are carried at the expected realizable value. Prepaid expenses consisted of the following:
September 30,
2004
____________
Prepaid expenses
$ 3,991,984
Prepaid allowance
(383,639)
____________
Prepaid expenses, net
$ 3,608,345
____________
Prepaid allowance expense (recovery) for the six months ended September 30, 2004 and 2003 was $(513,767) and $(696,533), respectively.
NOTE 4 – PROPERTY AND EQUIPMENT
The following is a summary of property and equipment, at cost, less accumulated depreciation:
September 30,
2004
____________
Computer equipment
$ 60,134
Vehicles
403,845
Furniture
544
Less accumulated depreciation
(47,601)
____________
$ 416,922
____________
Depreciation expense for the six months ended September 30, 2004 and 2003 was $27,042 and $11,555, respectively.
ASIA PREMIUM TELEVISION GROUP, INC AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 – NOTES PAYABLES
Convertible Notes Payable -
The Company issued a convertible note payable on September 26, 2001 in the amount of $3,000,000 to acquire a film rights license from Sun Television Cybernetworks Holding Ltd. (“Sun”). In December 2001, the Company renegotiated the terms of the agreement to convert the note payable into 261,838 shares of common stock at an agreed upon price of $11.466 per share. The note payable does not provide for interest nor does it provide for any repayment terms other than by conversion into common stock. The convertible note payable also contains a contingency to issue additional common shares if the market value stock price is below $11.466 per share when the converted shares are subsequently sold. At September 30, 2004, the approximate number of shares for which the note could have been converted, amounted to 150,000,000 shares of common stock.
The Company issued a convertible note payable on October 12, 2001 in the amount of $1,000,000 to acquire non-exclusive access rights for three years to use the production facilities and production equipment of Sun and access to use Sun employees to operate and assist, until such time as the sum of $1,000,000 of relevant charge-out rates has been reached. Sun is also granting airtime on the Sun TV Channel for three years from the commencement of broadcasting (but not commencing later than November 30, 2001). In December 2001, the Company renegotiated the terms of the agreement to convert the note payable into 87,217 shares of common stock at an agreed upon price of $11.466 per share. The note payable does not provide for interest nor does it provide for any repayment terms other than by conversion into common stock. The convertible note payable also contains a contingency to issue additional common shares if the market value stock price is below $11.466 per share when the converted shares are subsequently sold. At September 30, 2004, the approximate number of shares for which the note could have been converted, amounted to 50,000,000 shares of common stock.
Notes Payable -
The Company entered into agreements with Shandong Laiyang Tongda Sinopec Sales Center (“SLTS”) to borrow $181,269 from SLTS to use as working capital on March 25, 2004. The borrowing period is from March 25, 2004 to March 25, 2005 and the borrowing interest is at 20% per annum.
NOTE 6 - CAPITAL STOCK
Common Stock –
The Company has authorized 1,750,000,000 shares of common stock, $.001 par value. On September 19, 2002, the Company increased its authorized shares from 25,000,000 to 850,000,000. In February 2003, the Company’s Board of Director’s approved an increase in the Company’s authorized shares to 1,350,000,000. In March 2003, the Company’s Board of Director’s approved an increase in authorized shares of common stock to 1,750,000,000 shares, which has subsequently been filed with the State of Nevada. At September 30, 2004, the Company had 1,621,561,678 shares issued and outstanding.
Common Stock Issuances –
In July 2004 the Company completed acquisitions which were recorded in a manner similar to a reverse acquisition. Please see acquisitions note.
ASIA PREMIUM TELEVISION GROUP, INC AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - CAPITAL STOCK [
Continued
]
Warrants/Options –
The Company has no warrants/options issued and outstanding as of September 30, 2004 and 2003.
2001 Stock Plan –
As part of the acquisition completed in July 2004, the Company adopted a Stock Plan (“Plan”). Under the terms and conditions of the Plan, the board is empowered to grant stock options to employees, consultants, officers, and Board of Directors of the Company. Additionally, the Board will determine at the time of granting the vesting provisions and whether the options will qualify as Incentive Stock Options under Section 422 of the Internal Revenue Code (Section 422 provides certain tax advantages to the employee recipients). The Plan was approved by the shareholders of the Company on September 15, 2001. The total number of shares of common stock available under the Plan may not exceed 2,000,000. At September 30, 2004 and 2003, no options were granted under the Plan.
Anti-Dilution Clause -
A shareholder received an anti-dilution clause for a period of one year. For any issuances of common stock by the Company, the shareholder was to receive a seven percent (7%) issuance of common stock for a period of one year. The Company has made issuances of 30,107,525, 26,344,086, and 204,706 shares of common stock as part of the anti-dilution agreement.
ASIA PREMIUM TELEVISION GROUP, INC AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 109, “Accounting for Income Taxes” which requires the liability approach for the effect of income taxes.
The Company has available at September 30, 2004 and March 31, 2004, unused operating loss carryforwards which may be applied against future taxable income and which expire in various years through 2024 and foreign net operating loss carryforwards of approximately $1,040,000 and $1,890,000, respectively. However, if certain substantial changes in the Company’s ownership should occur, there could be an annual limitation on the amount of net operating loss carryforward which can be utilized. The amount of and ultimate realization of the benefits from the operating loss carryforwards for income tax purposes is dependent, in part, upon the tax laws in effect, the future earnings of the Company and other future events, the effects of which cannot be determined. Because of the uncertainty surrounding the realization of the loss carryforwards the Company has established a valuation allowance equal to the tax effect of the loss carryforwards at September 30, 2004 and March 31, 2004 and, therefore, no deferred tax asset has been recognized for the loss carryforwards.
The Chinese tax law stipulates the corporate income tax is levied at 33%; and smaller businesses can enjoy more favorable rates. . Newly established independently running advertising companies are exempt from two years of corporate income tax starting from the date of inception.
NOTE 8 – COMMITMENTS AND CONTINGENCIES
Operational agreements -
During the six month ended September 30, 2004 and 2003, the Company entered into various consulting arrangements primarily related to marketing communication and brand promotion services to customers from industries such as real estate, banking, and cosmetics.
Operating Leases -
The Company has entered into two building leases for its offices. The leases on the facilities expires on Aug. 31, 2005. Lease expense for the six months ended September 30, 2004 and 2003 amounted to $20,137 and $24,302, respectively. The following is a schedule of minimum annual rental payments for the next five years.
Minimum Annual
September 30,
Rental Payments
____________
______________
2004
$ 93,899
2005
-
2006
-
2007
-
2008
-
______________
$ 93,899
______________
Net Income Guarantee –
Upon purchase of the acquired companies three shareholders guaranteed a net profit of USD $1.5 million for the two years following acquisition by the Company. In the event that the Company does not achieve the guaranteed profit the shareholders have agreed to make up the difference.
ASIA PREMIUM TELEVISION GROUP, INC AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - RELATED PARTY TRANSACTIONS
Management Compensation –
For the six months ended September 30, 2004, the Company expensed $58,006 for services as management compensation.
Accrued Expenses -
At September 30, 2004, unpaid payroll due to a current officer and shareholder/former officer/director, is $83,120 which is reflected as accrued expenses on the face of the balance sheet.
Accounts Payable -
The Company has received advances from related party periodically and at September 2004 owed related party a total of $258,619.
NOTE 10 – ACQUISITIONS
During March 2003 the Company entered into a Letter Agreement with Asia East Investments to vary the terms of the October 2002 acquisition agreement. Asia East had not yet provided the majority of the assets promised and it was now agreed to waive the assets required under paragraph (2) of the previous agreement in consideration of Asia East procuring the acquisition of Shandong Hongzhi Advertising Ltd. and Lee & Bros International Advertising. The Company approved the issuance of 50,000,000 shares of common stock to Jiang Qiang for the purchase of 100% of Lee & Bros International Advertising Ltd.. and also approved the issuance of 350,000,000 to Jiang Qiang to acquire Shandong Hongzhi Advertising Co. The Company further agreed to issue 30,107,525 shares to Hong Kong Pride Investment Ltd. related to an anti-dilution clause to a shareholder/former officer/director.
During April 2003, the Company agreed to issue 350,000,000 shares of common stock for the outstanding share capital of Beijing Yongfu Century Advertising Consultancy Company Limited.
In July 2004, the Company received assets associated with the Shandong Hongzhi Advertising Co. and Beijing Yongfu Century Advertising Consultancy Company Limited acquisitions. The Company entered into negotiations and refused the assets of Lee & Bros International Advertising Ltd..
ASIA PREMIUM TELEVISION GROUP, INC AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 – EARNINGS (LOSS) PER SHARE
The following data show the amounts used in computing income (loss) per share and the effect on income and the weighted average number of shares of dilutive potential common stock for the three and six months ended September 30, 2004 and 2003:
For the Three Months
For the Six Months
Ended September 30,
Ended September 30,
___________________________
___________________________
2004
2003
2004
2003
____________
____________
____________
____________
Income available to
common shareholders
(Numerator)
$ 522,698
$ 335,415
$ 845,893
$ 2,075,889
____________
____________
____________
____________
Weighted average number of
common shares outstanding
used in earnings per
share during the period
(Denominator)
1,621,561,678
750,000,000
1,621,561,678
750,000,000
____________
____________
____________
____________
Weighted average number of
common shares outstanding
used in diluted earnings per
share during the period
(Denominator)
1,721,561,678
N/A
1,821,561,678
N/A
____________
____________
____________
____________
At September 30, 2004, the Company has two convertible notes payable totaling $4,000,000 which may be convertible into approximately 200,000,000 shares of common stock, respectively which were not used in the computation of earnings per share as the effect is anti-dilutive.
NOTE 12 – CONCENTRATIONS
Sales -
During the six months ended September 30, 2004, the Company had one significant advertising customer which accounted for 61% of sales.
The Company’s other advertising customers accounted for 39% of advertising revenues during this period. A number of the existing customers have the potential to become large customers for the Company. Such change, if it occurs, takes time, and there might be some gap before the next large client generates such high revenues.
The Company has revenues from two other segments of business, which are consulting services and advertisement production during this period. The Company believes such services help to develop customers for the long term.
For the six months ended September 30, 2003, the Company had one significant customer which accounted for 60% of sales.
The Company’s other advertising customers accounted for 40% of advertising revenues during this period.
ASIA PREMIUM TELEVISION GROUP, INC AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 – CONCENTRATIONS [
Continued
]
Cost of Sales –
The cost of sales during the six months ended September 30, 2004 was $36,901,014. Cost associated with China Central TV Station (CCTV) accounted for 33% of the sales cost.
The cost of sales during the six months ended September 30, 2003 was $25,513,718. Cost associated with CCTV accounted for 15%.
Accounts Receivable –
At September 30, 2004, the Company had one customer which accounted for 71% of the Company’s accounts receivable balances.
NOTE 13 – SEGMENT REPORTING
The Company's segments are based on operating geographic regions. Management considers the geographical segments of the Company to be the only reportable operating segments. These operating segments are evaluated regularly by management in determining the allocation of resources and in assessing the performance of the Company. Management evaluates performance based on sales revenue and the amount of operating income or loss.
Segment profit or loss is based on profit or loss from operations. Interest income and expense as well as income taxes, are not included in the Company's determination of segment profit or loss in assessing the performance of a segment.
Financial information summarized by geographic segment for the six months ended September 30, 2004 is listed below:
Income (loss)
before income
Long-lived
Total
Revenues
taxes
assets, net
assets
____________
____________
____________
____________
United States
$ -
$ -
$ -
$ -
China
40,582,606
1,854,581
416,922
10,394,105
____________
____________
____________
____________
Reportable
segments total
$ 40,582,606
$ 1,854,581
$ 416,922
$ 10,394,105
____________
____________
____________
____________
Financial information summarized by geographic segment for the three months ended September 30, 2004 is listed below:
Income (loss)
before income
Long-lived
Total
Revenues
taxes
assets, net
assets
____________
____________
____________
____________
United States
$ -
$ -
$ -
$ -
China
9,477,935
670,211
416,922
10,394,105
____________
____________
____________
____________
Reportable
segments total
$ 9,477,935
$ 670,211
$ 416,922
$ 10,394,105
____________
____________
____________
____________
ASIA PREMIUM TELEVISION GROUP, INC AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 – SEGMENT REPORTING [
Continued
]
Financial information summarized by geographic segment for the six months ended September 30, 2003 is listed below:
Income (loss)
before income
Long-lived
Total
Revenues
taxes
assets, net
assets
____________
____________
____________
____________
United States
$ -
$ -
$ -
$ -
China
23,946,735
2,102,406
152,820
2,570,225
____________
____________
____________
____________
Reportable
segments total
$ 23,946,735
$ 2,102,406
$ 152,820
$ 2,570,225
____________
____________
____________
____________
Financial information summarized by geographic segment for the three months ended September 30, 2003 is listed below:
Income (loss)
before income
Long-lived
Total
Revenues
taxes
assets, net
assets
____________
____________
____________
____________
United States
$ -
$ -
$ -
$ -
China
19,325,150
336,492
152,820
2,570,225
____________
____________
____________
____________
Reportable
segments total
$ 19,325,150
$ 336,492
$ 152,820
$ 2,570,225
____________
____________
____________
____________
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