Middle Kingdom Paradiso Corp.
TSX VENTURE : MKC.P

August 05, 2008 14:42 ET

Middle Kingdom Paradiso Corp. Announces Proposed Qualifying Transaction With Mega View Management Services Inc.

TORONTO, ONTARIO--(Marketwire - Aug. 5, 2008) -

NOT FOR DISSEMINATION IN THE UNITED STATES OF AMERICA

Middle Kingdom Paradiso Corp. ("Middle Kingdom")(TSX VENTURE:MKC.P), a capital pool company, has entered into an agreement as at July 22, 2008 to complete a non-arm's length qualifying transaction (the "Proposed Transaction") with the shareholders of Mega View Management Services Inc. ("Mega View"), in accordance with the policies of the TSX Venture Exchange ("TSXV"). Under the Proposed Transaction, Middle Kingdom will acquire, by way of a share exchange agreement, all of the issued and outstanding shares and the existing debt of Mega View by issuing nine Middle Kingdom shares for each outstanding Mega View share. In aggregate, the shareholders and debtholders of Mega View will receive 154,800,000 Middle Kingdom shares. Pursuant to Policy 2.4 of the TSXV, the purpose of this press release is to provide additional information regarding the Proposed Transaction.

The Proposed Transaction is conditional upon, among other things, the completion of a concurrent financing (the "Financing"). Canaccord Capital Corporation ("Canaccord") will lead a syndicate of agents in connection with the Financing, the particulars of which will be disclosed in a subsequent press release once they are settled. Both the share exchange agreement and the agency agreement will be made available in due course on SEDAR at www.sedar.com.

About Middle Kingdom

Middle Kingdom is a corporation existing under the laws of the province of Ontario and is a reporting issuer in the province of British Columbia. Middle Kingdom currently has 17,200,001 common shares outstanding. In addition, options to purchase 1,720,000 Middle Kingdom shares at a price of $0.10 per share have been granted to Middle Kingdom directors and officers, and Canaccord, as agent of Middle Kingdom's initial public offering, has been granted an agent's option to purchase 300,000 Middle Kingdom shares at an exercise price of $0.10 per share. Trading of Middle Kingdom shares was halted on July 22, 2008 pending completion of certain due diligence investigations by the TSXV. There can be no assurance that trading will resume before the TSXV has reviewed the Proposed Transaction and reinstatement to trading provides no assurance with respect to the merits of the Proposed Transaction or the likelihood of Middle Kingdom completing the Proposed Transaction.

Further information concerning Middle Kingdom can be found in the (final) prospectus of Middle Kingdom dated March 19, 2008 available on SEDAR at www.sedar.com.

About Mega View

Mega View is a corporation existing under the laws of the British Virgin Islands. Mega View currently has 67,500 common shares outstanding.

The shareholders of Mega View are Art Mega View Investment Limited, a Hong Kong company formed to hold an interest in Mega View and to raise the seed capital for Mega View's business, and six investors from Hong Kong, Taiwan and the United States. The names and jurisdictions of residence or incorporation of each shareholder are as follows:



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Name Jurisdiction of Residence/Incorporation
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Art Mega View Investment Limited,
in trust for its shareholders Hong Kong
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Ting Hiu Shun Hong Kong
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Lau Kwan Ping Hong Kong
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Long Lin United States
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Hsu Ping Tuan Taiwan
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Ng, See Yuen Hong Kong
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Future Harvest Enterprises Limited British Virgin Islands (in trust for
its sole beneficiary in Hong Kong)
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Mega View's business objective is to become China's leading provider of affordable high quality cinema entertainment to the growing Tier 2 and Tier 3 cities' domestic middle class market, which Mega View believes is currently underserved by China's existing cinema entertainment offering.

Mega View plans to provide a first class cinema experience in the PRC, with the latest offering of Hollywood and Hong Kong films. The visual and audio experience consists of a high definition display of 1,080 pixels on minimum six-meter screens, coupled with Dolby Digital 5.1 Surround Sound, all in a 100 square meter intimate surrounding. A standard Mega View theatre is designed to comfortably seat 80 to 100 viewers and to minimize cost per theatre without compromising on the cinema experience. The average admission price to a Mega View cinema is approximately RMB10, which is significantly cheaper than the RMB50 to RMB120 charged by other privately-owned cinemas or the RMB20 charged by state-owned cinemas in the PRC.

Mega View will offer such cinema services through its wholly-owned subsidiary in the People's Republic of China ("PRC"), Mega View Investment Services (Shanghai) Co. Ltd. and through contractual arrangements with other PRC companies. Using its proprietary digitization technology, movies acquired by Mega View are converted from the traditional celluloid format into digital format, encrypted, distributed by satellite transmission, decoded upon receipt by its proprietary movie player and exhibited at its designated cinemas.

Through its contractual relationships, Mega View has one of only six government-issued preliminary approvals to establish a national digital cinema operation in the PRC, and to Mega View's knowledge, it is the only digital cinema operator using satellite transmission to distribute its films. Mega View's proprietary digitization technology and unique distribution method via satellite enable it to operate at lower costs than the traditional operation model of distributing and exhibiting celluloid films. The satellite transmission of digitized and encrypted content also eliminates or reduces concerns regarding the distribution of celluloid film rolls and related risks of damage, loss and piracy, as well as enables Mega View to exhibit the same films simultaneously at multiple locations across its digital cinema network.

Mega View operates under two cinema platforms, commercial and institutional cinemas, and one advertising platform. The commercial cinema platform consists of direct-owned and joint venture cinemas operating under Mega View's digital cinema network. The institutional cinema platform involves installing Mega View's audio/visual equipment at institutional clients' premises, following which the clients are provided access to Mega View's digital content broadcasting services for a fee. Mega View has completed a trial period of its commercial cinema operations in 2007, with positive results with respect to its technology, distribution capability and commercial viability. Mega View has entered the growth phase of its business plan and has developed three direct-owned commercial cinemas to date in the province of Guangdong, PRC. As its digital cinema network grows, Mega View hopes to attract advertisers who wish to reach audiences through its cinema network.

For the period ended March 31, 2008, the unaudited interim financial statements indicate that Mega View had operating expenses of $211,060 and current assets of $226,868, including cash and cash equivalents of $207,672. Mega View's net loss for the period ended March 31, 2008 was $272,173 (or $5.44 per Mega View share).

The PRC Cinema Market

The PRC's cinema market generated approximately US$337 million in box office revenue in 2006 and is expected to exceed US$720 million by 2010 and increase approximately six fold to US$2 billion by 2015. Despite the fact that China is now the third largest film producer in the world behind the United States and India, the Chinese film exhibition market is underdeveloped. According to the China Film Group Film Licensing and Merchandising Corporation, the PRC has approximately 3,000 cinema screens, with less than one-tenth the number of screens as the United States for a population four times as large. On a per capita basis, the PRC has two screens per million compared to 20 per million in Korea, 40 per million in India and 125 per million in the United States.

Most cinemas currently operating in the PRC are privately-owned or state-owned. Privately-owned cinemas are usually found only in Tier 1 cities (cities with a population greater than 10 million). These facilities are large in capacity (250 - 1,200 seating) and offer a luxurious cinema going experience. They are typically modern facilities like the Cineplex Odeon cinemas found across the United States and Canada. Almost every element of the North American cinema experience is the same - even the price of admission, which ranges from RMB50 to RMB120. With China's average monthly income at RMB1,181 in 2006, a cinema ticket is prohibitively expensive. China's upper middle class consumer remains a small and geographically concentrated fraction of the population. As a result, private cinema operators in China have so far focused predominantly on Tier 1 cities.

The cinemas outside of Tier 1 cities are, by vast majority, state-owned and state-operated. The majority of these cinemas are owned by the Ministry of Culture, were built in the 1950s and were designed as both entertainment venues and staging grounds for government social functions. As such, these theatres are massive in size, having between 500 - 1,500 seats. Being government-owned, these cinemas do not operate like profit-driven businesses. State-owned theatres in China, on average, suffer from poor infrastructure: the seats are typically hard wooden chairs, the video and audio technologies are out-dated, and with years of poor maintenance or lack thereof, these cinemas offer a poor movie going experience. In addition, state-owned cinemas outside of Tier 1 cities usually do not have access to new movies such as Hollywood and Hong Kong films. With poor funding and poor operating results, these cinemas simply cannot afford to purchase the exhibition rights to most foreign films. On the infrequent occasion that a state-owned cinema does purchase the rights to a Hollywood new release, the film has to be passed down a long line of Tier 1 and Tier 2 cities (cities with a population between 1.5 million and 10 million) for showing. A Tier 3 city (cities with a population between 500 thousand and 1.5 million) cinema often never receives the film as the film is pulled off the shelf by the time it is scheduled to be shown at the Tier 3 city cinema.

About the Proposed Transaction

The Proposed Transaction will proceed by way of a share exchange. Pursuant to the terms and subject to the conditions of the share exchange agreement, Middle Kingdom will acquire all of the Mega View shares from the shareholders of Mega View and $1,218,951 of debt of Mega View from two of its directors. In exchange, shareholders of Mega View and the two directors will receive, in the aggregate, 154,800,000 common shares of Middle Kingdom.

Concurrent with the share exchange, Mega View will issue new shares to investors through the Financing, the net proceeds of which will be used for the development of the digital cinema business, including the proposed addition of approximately 92 commercial cinemas and 90 institutional cinemas by the end of 2009.

Following the Proposed Transaction, it is expected that former shareholders of Mega View will hold 90% of the outstanding common shares of Middle Kingdom before taking into account shares to be issued on the Financing.

Upon completion of the Proposed Transaction, Middle Kingdom will be renamed "Mega View Digital Entertainment Corp." ("Mega View Digital") and its common shares (and any outstanding options) will be consolidated on a three-for-one basis. Mega View Digital will carry on the business of Mega View with a management team of: Allan Lam, President, Chief Executive Officer and director, Felix Tung, Chief Financial Officer, John Ng, Chief Operating Officer and Wang Xin Jian, Chief Technology Officer. Tom Enright, Charles Kwan, Raymond Lo, Anthony Ng and Luc Perron will also become directors of Mega View Digital (subject to shareholders' approval at the proposed Middle Kingdom annual and special meeting of shareholders).

The completion of the Proposed Transaction is subject to approval by disinterested shareholders of Middle Kingdom, TSXV approval and all other necessary regulatory approvals. It is also subject to additional conditions precedent, satisfactory completion of due diligence reviews by the parties, approvals of the board of directors of Middle Kingdom and Mega View and certain other conditions customary for transactions of this nature. The completion of the Proposed Transaction is also subject to the successful completion of the concurrent Financing to raise additional working capital for Mega View Digital following the completion of the Proposed Transaction, the particulars of which will be disclosed in a subsequent press release once they are settled.

Upon completion of the Proposed Transaction, it is expected that Mega View Digital will be a Tier 1 Issuer.

Trading in Middle Kingdom shares has been halted pending the completion of certain due diligence investigations by the TSXV. Middle Kingdom has made a request to the TSXV that trading resume as soon as possible; however, there can be no assurance that trading in Middle Kingdom shares will resume prior to the completion of the Proposed Transaction.

Non-Arm's Length Qualifying Transaction

The Proposed Transaction is a non-arm's length transaction requiring disinterested shareholder approval because certain shareholders of Middle Kingdom are also beneficial shareholders of Mega View through their shareholdings in Art Mega View Investment Limited.

Ermo Ou may be considered to be a promoter of Middle Kingdom in that he took initiative in founding and organizing Middle Kingdom. Mr. Ou holds 8,600,001 common shares and 820,000 stock options of Middle Kingdom and will hold 3,783,727 common shares of Mega View Digital upon completion of the Proposed Transaction.

Anthony Ng may also be considered a promoter of Middle Kingdom. Mr. Ng holds 400,000 common shares and 700,000 stock options and will hold 133,333 common shares of Mega View Digital upon completion of the Proposed Transaction.

Sponsorship of Proposed Transaction

Sponsorship of a qualifying transaction of a capital pool company is required by the TSXV unless exempt in accordance with TSXV policies. If required by the TSXV, Canaccord has agreed, subject to completion of satisfactory due diligence review, to sponsor Middle Kingdom's application to the TSXV for approval of the Proposed Transaction.

Details of Vendors Under the Proposed Transaction

The vendors under the Proposed Transaction are Art Mega View Investment Limited and six investors from Hong Kong, Taiwan and the United States.

Management and Board of Directors of Middle Kingdom

Upon completion of the Proposed Transaction, it is anticipated that the board of directors and management of Middle Kingdom will include the persons identified below. Additional proposed directors and officers of Middle Kingdom may be identified at a later date.

Allan Lam, President and Chief Executive Officer and Director

Mr. Lam has been the Chief Executive Officer of Mega View since 2007 and is also the founder, Executive Vice-President and Class III Director of Middle Kingdom Alliance Corp., a US listed public company (MKGD) and a director of Zeuspac Capital, a Hong Kong company providing financial advisory and restructuring services to Chinese companies. Since 2004, Mr. Lam has been a non-executive director, audit committee member and advisor to Teem Foundation Group Ltd., a Hong Kong publicly listed company.

Felix Tung, Chief Financial Officer

Mr. Tung was previously the Chief Financial Officer of Cathay Forest Products Corp., a forestry products company listed on the TSXV. Mr. Tung completed studies in accounting and finance at the University of Toronto and holds a Business Administration diploma from Seneca College of Applied Arts & Technology. Mr. Tung holds a Certified Management Accountant designation from the Society of Management Accountants of Canada, a Chartered Management Accountant designation from the Chartered Institute of Management Accountants of UK, a Certified Public Accountant designation from the HK Institute of Certified Public Accountants, an Incorporated Financial Accountant designation of the Institute of Financial Accountants of UK and is a Registered Financial Planner of the Hong Kong Institute of Registered Financial Planners.

John Ng, Chief Operating Officer

Mr. Ng is the Chief Operating Officer of Hogan Communication Ltd. and Hogan Information Systems, two leading data centre operators, where he is responsible for the construction and operations of the data centres. From 2004 to 2007, John Ng was the Vice President of Operations of Cathay Forest Products Corp., a forestry products company listed on the TSXV (CFZ). Mr. Ng holds an Executive Master of Business Administration degree from the Shanghai Jiao Tong University.

Wang Xin Jian, Chief Technology Officer

Mr. Wang was instrumental in the development of the Mega View's proprietary movie player. Mr. Wang was previously the Chairman of Shanghai Broadband Digital Technology Co. Ltd., prior to which he had his own business specializing in telecommunications networks and developed the first provincial CATV trunk line network, Zhoushan Island microwave transmission network, Nanning City GSM microwave transmission network and the Hebei Province fibre-optic transmission network amongst other engineering achievements in digital technology and telecommunications.

Tom Enright, Director

Mr. Enright has been the President and Chief Executive Officer of CNW Group Ltd. (formerly Canada Newswire Ltd.) since 1996. Mr. Enright's board experience include serving as Advisory Board Member to the Canadian Journalism Foundation, Honorary Chair of the University of Toronto at Scarborough 2003 Mentorship Program and Founding Member of e-Content Institute. Mr. Enright holds a Bachelor of Science (Honours) in Mathematics from the University of Toronto.

Charles Kwan, Director

Mr. Kwan has been the Deputy General Manager of Sino United Publishing (Holdings) Ltd. since 2007, prior to which he was the Retail Director & Assistant General Manager of the Commercial Press (HK) Ltd. Both companies are large publishing and book retailing companies in Hong Kong. Mr. Kwan has over 30 years' experience in publishing. Mr. Kwan holds a Bachelor of Social Science degree and a Master of Philosophy degree from the Chinese University of Hong Kong. He has also completed courses in the Master of Business Administration program at the Chinese University of Hong Kong and San Francisco State University.

Raymond Lo, Director

Mr. Lo is a Managing Partner of AsiaVest Partners Limited and the head of its corporate finance advisory division. Mr. Lo is an experienced investment manager and corporate finance professional registered as an investment advisor with the Hong Kong Securities and Futures Commission. Mr. Lo holds a Bachelor of Business Administration from the University of Wisconsin, is a fellow of the Institute of Chartered Accountants of England and Wales and a member of the Institute of Chartered Accountants of Ontario. Mr. Lo's reporting issuer experience include acting as Director and Chairman of the board of Luk Fook Holdings (International) Limited, Executive Director and Chairman of the board of Golife Holdings Limited, Director and Chairman of the Audit Committee of Shanghai Zendai Property Holdings Limited and Director and Vice Chairman of Asian Capital Resources Holdings Limited, each of which is listed on the Hong Kong Stock Exchange.

Anthony Ng, Director

Mr. Ng has been Chief Executive Officer and Director of Cathay Forest Products Corp. (CFZ) since 2004. Mr. Ng was Chief Executive Officer of Zeuspac Capital (a Hong Kong based company) from 1992 until 2004. Mr. Ng's reporting issuer experience include acting as a Director of COL China Online International Inc. and of Middle Kingdom Alliance Corp., each of which is listed on the NASDAQ Bulletin Board.

Completion of the transaction is subject to a number of conditions including, but not limited to, TSXV acceptance and, if applicable pursuant to TSXV requirements, majority of the minority shareholder approval. Where applicable, the transaction cannot close until the required shareholder approval is obtained. There can be no assurance the transaction will be completed as proposed or at all.

Investors are cautioned that, except as disclosed in the management information circular or filing statement to be prepared in connection with the transaction, any information released or received with respect to the transaction may not be accurate or complete and should not be relied upon. Trading in the securities of a capital pool company should be considered highly speculative.

The TSXV has in no way passed upon the merits of the proposed transaction and has neither approved nor disapproved the contents of this press release.

Canaccord, subject to completion of satisfactory due diligence, has agreed to act as sponsor in connection with the transaction. An agreement to sponsor should not be construed as any assurance with respect to the merits of the transaction or the likelihood of completion.

This press release contains forward-looking statements regarding future growth, results of operations, performance, business prospects and opportunities involving Middle Kingdom, Mega View and, on a pro forma basis, Mega View Digital. Words such as "expects", "anticipates", "intends", "plans", "believes", "estimates', or similar expressions, are forward-looking statements within the meaning of securities laws. Forward-looking statements include, without limitation, the information concerning possible or assumed future results of operations of Middle Kingdom. These statements are not historical facts but instead represent only the Middle Kingdom expectations, estimates and projections regarding future events assuming completion of the Proposed Transaction. These statements are not guarantees of future performance and involve assumptions and risks and uncertainties that are difficult to predict. Therefore, actual results may differ materially from what is expressed, implied or forecasted in such forward-looking statements. In addition to the factors Middle Kingdom currently believes to be material such as, but not limited to, its ability to complete a qualifying transaction, and assuming the completion of the Proposed Transaction, its reliance on joint venture and contractual partners, its ability to operate on a profitable basis, changes in currency exchange rates and interest rates, evaluation of its provision for income and related taxes and the PRC economic, political and social conditions and government policy, other factors, such as general, economic and business conditions and opportunities available to or pursued by Middle Kingdom after completion of the Proposed Transaction, not currently viewed as material could cause actual results to differ materially from those described in the forward-looking statements. Although Middle Kingdom has attempted to identify important risks and factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors and risks that cause actions, events or results not to be anticipated, estimated or intended. Accordingly, shareholders should not place any undue reliance on forward-looking statements as such information may not be appropriate for other purposes. Middle Kingdom does not undertake any obligation to update or release any revisions to these forward-looking statements to reflect events or circumstances after the date of this press release except as required by applicable law.

The TSXV does not accept responsibility for the adequacy or accuracy of this release.

Contact Information

  • Middle Kingdom Paradiso Corp.
    Ermo Ou
    Chief Financial Officer
    (905) 889-7008
    or
    Mega View Management Services Inc.
    Allan Lam
    President and Chief Executive Officer
    (+11) 8621-6447-9985