mdgc analyst report

8/4/2019 Mdgc Analyst Report

1/16

Analyst: Victor Sula, Ph

Initial Rep

September rd, 20

Company Introduction

MediaG3, Inc.One Almaden Boulevard, Suite 310,San Jose, CA 95113

Phone: 408.557.2800

Fax: 408.557.8800Web site: www.mediag3.comE-mail: [email protected]

MARKET DATA

Symbol

Exchanges

Current Price

Price Target

Rating

Outstanding Shares

Market Cap.

Average 3-m Volume

Source: Yahoo Finance, Analyst Estimates

MDGCOTC PK

$0.71$2.30

Speculative Buy19.94 Million

$14.15 Million1,917

MediaG3 Inc. (MDGC) is a data networking solutions company dveloping leading-edge patented technology for the deployment

broadband wireless communication,, as well as online applicatioand mobile rich media for delivery to xed and mobile wirelecustomers. The Companys mg3 wireless business provides bi-rectional, broadband wireless Internet, data and voice servicescustomers at speeds of up to 100 Mbps downstream and 80Mbupstream. Mg3 mobile applications, oered for wireless devicrange from intricate networking applications to complex mobiuser interfaces and are built and tested to function seamlessly wPDAs, cell phones, smart phones and Blackberries. The Compais also building an mg3 Web 2.0 network in China, consisting

branded community platforms that facilitate sharing of informtion, social networking and commerce.

The Company plans to initially deploy its broadband wireless nwork in underserved regions of China, Asia and Northwest AfriMDGC recently signed an agreement with Chinas Academy

Broadcasting Science (ABS), a division of the State Administratfor Radio Film and Television (SARFT), and has been given nwork certications for a pilot project involving the implementatiof mg3 wireless broadband Internet and television coverage in ral areas of China, serving some 900 million residents. In additiMDGC was awarded a $600,000 grant from the U.S. Trade and Dvelopment Agency to support its broadband wireless pilot projin China. MediaG3s China pilot project is the rst step towarimplementation of mg3 wireless broadband applications to serover 900 million people in the interior and rural regions of ChinThe Company estimates that MediaG3s systems and equipmevalued at approximately $225,000 will be required to service eve

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BigCharts.com


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Initial Rep

September rd, 20

Market opportunity

MDGCs broadband wireless technology will be deployed in underserved areas of China and other developcountries. Substantial growth in Chinas telecom and digital video broadcast markets, paired with the mandateChinas central government to bring 21st century technology to the rural population, creates a large, growing mket for MDGCs technology services.

With some 600 million users, China is already the worlds largest cell phone market. Though the market is estimato be growing 11% annually, a beer wireless broadband solution is needed in rural areas because of the vast

tances and dicult terrain which limit the use of xed lines[1].

China is also a potent breeding ground for 3G multimedia-capable handheld devices and services. The Compahas already earned strong support from the Chinese government, as well as from equipment providers, handmanufacturers and content providers.

Three products that provide wireless broadband access, content and applications

The Company provides three complementary services. Mg3 wireless is a bi-directional broadband system that eectively cover vast areas lacking a xed or wireless infrastructure. Unlike competitor systems, Mg3 wireless opates on high radio frequencies, resulting in clearer sound, and broadcasts point-to-multipoint, thus requiring feinstallations to support the system. It provides 90-degree coverage per sector at speeds of up to 100MB downstreMg3 mobile optimizes delivery and viewing of content sent to subscriber cell phones, smart phones, PDAs aother mobile devices. Mg3 Web 2.0 consists of a network of branded community platforms in China for informatexchange, social networking, commerce and targeted marketing.

Proprietary technology strengthens the oering

MDGC holds seven patents (ve U.S., one Chinese and one European), which protect its Local Multipoint Disbution System (LMDS) multichannel radio frequency transmission technology. After more than two years of testing, the Mg3 wireless technology has earned certication from the Chinese government. It is also the LM

Investment Highlights

10,000 subscribers. In an initial commercialization phase focusing on 5% of the rural population or around 45 m

lion subscribers, systems and equipment valued at over $1 billion will be deployed over time.

MDGC also recently won a $10 million contract from BusinessCorp Services Inc., a large network services provibased in the Philippines, to support a planned cellular network deployment in Equatorial Guinea and in other pof Southeast Asia.

MediaG3, Inc. (OTCBB: MDGC)

1. hp://wirelessfederation.com/news/600-million-mobile-users-in-china/


3/16


Initial Rep

September rd, 20

system chosen by the Philippines government and broadband wireless integrators. In addition, the China Academ

of Broadcast Sciences has selected MDGC technology as the best wireless broadband solution. Approximately $million was spent over a nine-year period to develop this technology.

Technology advantages expected to drive rapid adoption

MDGCs technology oers a low-cost advantage for customer premises equipment (CPE). It also supports greabandwidth (100Mbps downstream and 80Mbps up stream) for high-speed Internet to xed sites and wireless svices; uses high frequencies which are clearer and beer-quality; and provides solid backhaul for WI MAX and othmobile data systems. Extensive testing has proven the reliability of the technology.

In contrast, competitors technologies utilize low frequencies, which are dirty or noisy. Also, competitors equment is point-to-point, thus requiring more installations, and their networks are low bandwidth (5 megabytes), a

thus not suitable for the full range of rich media content.

Rather than competing with Siemens, Cisco, Nortel and other major network system providers, MDGC oers proucts that complement their existing technologies. These industry giants typically focus on either the equipment eor the customer end of broadband wireless service. MDGC is positioned in the middle, providing services that cothe last one to three miles before terminating in the customers local network.

Strong partnerships facilitate technology deployment

MDGC is partnering with Chinas Academy of Broadcasting Science (ABS), a state policymaker under Chinas StAdministration of Radio Film and Television (SARFT) for wireless broadband deployments in rural China. T

Company has received network certications for a pilot project to provide mg3 wireless broadband Internet atelevision coverage to rural areas of China. In addition, MDGC has partnerships to provide wireless broadbaservices with Beijing Digital Media Corp. and Way2Pay Financial Services Inc.

$600,000 grant for broadband wireless pilot project in China

MDGC was awarded a $600,000 grant from the United States Trade & Development Agency to launch its broadbawireless pilot project in China which will support Internet and digital TV services in rural areas. The pilot projwill assess MDGCs xed wireless equipment and technology as a viable solution for Chinas Direct to Home RuCoverage plan. The USTDA grant will be used to support engineering, planning and implementation of the piproject.



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Initial Rep

September rd, 20


Obtaining approval of the grant from USTDA and support from Chinas SARFT is a vigorous process that involv

a thorough veing of the Company and its technology. Both USTDA and Chinas SARFT have completed indepedent due diligence of the Company to validate Mg3 wireless technology and ensure that MediaG3s technology anapplications are consistent with Chinas overall development plan. The process also entailed verifying the potent

benets, suitability and viability of mg3 wireless for the China market.

Strong revenue visibility from new contracts

In March 2008, the Company was awarded a $10 million supply contract by BusinessCorp Services, a network sevices provider based in the Philippines. MDGC has been selected as the preferred supplier of xed wireless equiment and software services for a planned cellular network deployment in Equatorial Guinea. Its wireless equipmewill provide a last mile wireless access link that will enable cellular networks to deliver mobile telephone servicin coastal Africa. This contract also allowed the Company to negotiate for additional agreements in Africa anSoutheast Asia. Management estimates the total revenue potential at approximately $100 million.

As a result of this and other contracts, MDGC anticipates 2008 revenues in a $2.7 million range and revenues exceeing $25.5 million by year-end 2011.

Business Model

MDGC provides mg3 wireless access, mg3 mobile applications and mg3 Web 2.0 content.

The Companys mg3 wireless service is a bi-directional broadband wireless system designed to eectively serve vaareas of the world where end-to-end ber or cable is not feasible. MDGCs system can be customized to operate a specic radio frequency between 24 GHz and 43 GHz, and broadcasts point-to-multipoint with 90-degree coveage per sector at up to 100MB downstream and 80MB upstream speeds. MDGCs digital communication solutio(mg3 mobile and mg3 Web 2.0) enable delivery and viewing of media-rich messages via online or wireless devicTypical content including video clips of news, sports highlights, movie trailers, music sound tracks and TV shopromotions, can be delivered to subscriber PDAs, cell phones, smart phones or other mobile devices.

The Companys proprietary technologies are protected by ve U.S. patents, one European patent, one Chinese pa

ent, and three critical network certications for operating in China.

MDGCs xed broadband wireless equipment and technology have been approved by Chinas State Radio Regultory Commission, which certies radio frequencies for wireless transmissions; the approval is required for wireleequipment and system providers wishing to do business in China. The Company has completed a two-year systetrial in China and has been certied by Chinas Academy of Broadband Science (ABS), a division of the centrgovernments State Administration of Radio, Film and Television, to deploy broadband wireless services in ChinThe ABS partnership is part of Chinas Rural Coverage project, which aims to provide two-way, high-speed Iternet and television coverage to rural areas of China, where some 900 million citizens reside. MDGC was awardea $600,000 grant by the U.S. Trade and Development Agency to support its broadband wireless pilot project China.


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Initial Rep

September rd, 20


MDGC is targeting rural China and other developing countries for initial deployment of its technology becau

these areas typically lack broadband access due to a shortage of telecommunications infrastructure over the lamile between the cable or ber optic backbone of the network operator and the customer.

Oriental Media

The Companys Oriental Media subsidiary is developing market opportunities for mg3 digital interactive commnication products and services such as digital rich-media e-mail marketing services, Web site design and develoment, electronic magazines and database management. Oriental Media has registered a brand called China GrePages and is developing branded Web 2.0 social networking sites. The Company has established relationshwith advertisers such as Shanghai Media Group Broadband, China Super Soccer Association, Pan Asia ArchitectuHardware Association, New Era International Exhibition Company, China Trust International Travel Agency, CFurniture Mart, Shanghai Higher Education Investment Corporation, and Chen Xin Forum.

Lile Sheep

Another business, Lile Sheep, is building an online community and educational platform with entertainment cotent for Chinas children. A short movie will be sent to registered children and help spread the Lile Sheep branOnline brand awareness will be leveraged through the Companys network of franchised and directly-owned storwhich market childrens clothing and related items. At year-end 2007, Lile Sheep had 106 stores, of which 13 wecompany-owned and 93 were franchised.


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Initial Rep

September rd, 20


Business Strategy

The Company plans to establish a leadership position in Chinas broadband wireless communication market anbuild a presence in other underserved regions of the world where broadband access isnt currently available. MDGplans to accomplish this goal by:

-Executing the China rural coverage pilot project, which will showcase the reliability and eciency of mg3 technoogy;- Implementing a commercial roll-out through China telecomm and cable operators;- Participating in the commercialization of digital information delivery initiatives in China;- Launching its mg3 Web 2.0 social network;- Establishing partnerships with content and wireless service providers;

- Solidifying partnerships with hand-held wireless device manufactures;- Building a top tier regional, national and multinational client list;- Delivering quality content and improving subscribers experience;- Building the market presence needed to support sales goals;- Licensing and leasing equipment to small- to mid-size telecomm companies;- Delivering LMDS broadband wireless systems to BusinessCorp Services, as part of its $10 million supply contraand- Providing a consistently high rate of return for stakeholders.

In addition to developing and marketing product applications for online and wireless marketing communictions, the Company plans to acquire businesses in both the United States and China that oer complementatechnologies and strategic value. MDGC is currently involved in discussions with potential acquisition canddates in the mobile and broadband wireless sectors.


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Initial Rep

September rd, 20


Products and Services

The Company has three integrated business divisions: mg3 wireless, mg3 Web 2.0 and mg3 mobile..

Mg3 wireless

The Mg3 wireless business oers broadband xed wireless products, commonly referred to as 802.16 systems; Lcal Multipoint Distribution Systems (LMDS) between 24 GHz and 43.5 GHz; and broadcasting point-to-multipoiLMDS is a wireless, bi-directional broadband technology designed to allow network operators and communicatservice providers to cost-eectively deliver a wide range of data-rich services to homes and businesses. LMDS ua cellular architecture to send very high frequency signals over short line-of-sight distances.

Mg3 wireless is a point-to-multipoint communications system that provides two-way wideband signal transmsion into service areas where it is prohibitively expensive to lay ber or build cell towers. This system suppoincreased bandwidth (100Mbps downstream and 80Mbps upstream) for high-speed Internet to xed sites and wiless locations.

The mg3 wireless system consists of the following components1. Base Station includes a Radio Frequency Unit (RFU) and an Air Interface Unit (AIU).2. Customer Premise Equipment (CPE) consists of Antenna Transceiver Units (ATU) and Network Interface Un(NIU).3. Network Management System provides the ability to remotely monitor and congure system elements.

Mg3 wireless system

Source: SEC flings.

WAN Base Station CPE

Network Interfase is OC-3/STM1

Internet

PSTN

Router orATM Switch

ATM OC-3

- Each sector covers 90degrees- Two sectors serviced byone AIU.- Two AIUs service one 4sector 360-degree basestation.

RFU #2

RFU #1AIU

10/100 Base T

- Each NIU provides 2Ethernet ports.- Downstream bandwidthper NIU limited to 25-Mbps.- Upstream bandwidth perNIU limited to 5-Mbps.

ATU NIU

ATU NIU

NetworkManagement

System

Internet

Wireless

Local LAN

Wireless

Local LAN

Local LAN

Local LAN

Causeway2LMDS Network


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Initial Rep

September rd, 20


Mg3 mobile

Mg3 mobile is a content application that optimizes the delivery and management of complex personalized ricmedia (voice, sound, dynamic graphics and streaming video) to mg3 mobile subscriber wireless devices. Througproprietary subscriber database, as well as compression and streaming technologies, content delivery is optimizto yield a high quality viewing experience.

Content managed using mg3 mobile is fully viewable on both xed and wireless platforms including laptops, cphones, smart phones, PDAs and other devices. By maintaining crucial gateway server and client (player) systemmg3 mobile solutions transfer rich data into a format understood by each protocol for rapid, seamless transmissiDelivered content typically includes video news clips, sports highlights, movie trailers, television shows and mtimedia e-mail.

Mg3 Web 2.0

Mg3 Web 2.0 is a network of branded community platforms for information exchange, social networking, commeand targeted marketing in China. This network facilitates eective online digital marketing via eMagazines apermission-based media campaigns.

MDCG branded its community platforms under the China Green PagesTM label and launched them in Decemb2007. To the Chinese, green represents prosperity, health, safety, the promise of the future, renewal, environmenconscience, and other positive aspects of humanity. A typical example of how China Green PagesTM works volves restaurant customers recommending and sharing dining experiences. Restaurants can aract customersadvertising their businesses and cuisine specialties on this forum and establishing real-time communications w

potential diners. Related services such as gourmet food stores, beverage companies, ower shops, bakeries atransportation businesses can also advertise their products and services in the dining forum. China Green PagesTgenerates revenues from advertising on its forums.

Industry Outlook

MDGC plans to deploy its broadband wireless technology in China and other developing countries. Substantgrowth in Chinas telecom and digital video broadcast markets and the mandate by Chinas central government

bring 21st century technology and services to the rural population create a large market opportunity for MDGCtechnology and services.

Internet usage

Growth in the number of Internet users is also expanding the customer base for IP-based services. The numbof Internet users worldwide already exceeded 1 billion. As of June 30, 2008, there were 1.46 billion Internet useworldwide, according to Internet World Stats.


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Initial Rep

September rd, 20


Internet Usage

Source: www.internetworldstats.com/stats.htm

Europe

North America

ChinaWorlds total

Population, Mn( 2008 Est. )

800.4

337.2

1,330.16,676.1

% Pop.of World

11.9 %

5.0 %

19.9%100.0 %

Internet Users,Latest Data, Mn

384.6

248.2

253.01,463.6

Penetration(% Population)

48.1 %

73.6 %

19.0%21.9 %

% Usageof World

26.3 %

17.0 %

17.3%100.0 %

User Growth( 2000-2008 )

266.0 %

129.6 %

1,024.4%305.5

here are an estimated 253 million Internet users in China, up 56% since 2007. The number of Internet users China expanded by 91 million last year, surpassing the United States, which has 248 million users. In the frst s

months of 2008, Internet penetration rates in China increased to 19.1%[2]. This rate is slightly below the worlwide average rate of 21.1%.

Internet users in China, millions

Source: www.internetworldstats.com/asia/cn.htm

300

250

200

150

100

50

0

2000 2001 2002 2003 2004 2005 2006 2007 2008

23 3459 69

94 103

137162

253

Chinas Internet users are relatively young, male, urban, and are disproportionately comprised of students. Juover 70% of the user population is under age 30, and almost 60% are men[3]. The number of rural Internet us

is estimated at around 53 million. Penetration rates in urban areas at about 20% far exceed rural penetration raof only about 3%. One of the issues China must address to improve rural Internet penetration rates is low ownship of computers. At year-end 2006, penetration rates were 2.7 computers for every 100 households in rural arewhich is far behind urban penetration rates of 47.2 computers per 100 households. Almost two-thirds of the 1billion Chinese citizens who are not online cite lack of computer skills and lack of Internet access as the mareasons why. Only 8% of rural Chinese say they have no need to go online[4].

2. www.cnnic.net.cn/download/2008/CNNIC22threport-en.pdf3. www. internetworldstats.com/asia/cn.htm4. hp://arstechnica.com/news.ars/post/20070715-china-set-to-overtake-the-us-in-number-of-internet-users.html


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Initial Rep

September rd, 20


Total revenues for Chinas Internet companies soared to 40.5 billion RMB ($5.9 billion) in 2007, up 48.6% from thprevious year, according to research rm Analysys International. Internet revenues are projected to grow 30% anually and reach 137.5 billion RMB by 2010[5].

Broadband usage

Broadband is often called high-speed Internet because of its high rate of data transmission. The number of broaband connections is expanding rapidly as users demand higher speeds for peer-to-peer (P2P) les sharing systemmusic and game downloads, video on demand and voice-over-Internet telephony.

In 2007, the number of broadband subscribers worldwide was close to 300 million. Over the past year, the numbof broadband subscribers in the OECD, which counts 30 countries, has increased 24% to 221 million[6]. This meathat 18.8 inhabitants in every 100 now have a broadband subscription. The strongest per capita subscriber grow

rates were in Ireland, Germany, Sweden, Australia, Norway, Denmark and Luxembourg. Each of these countriadded more than ve subscribers per 100 inhabitants. Asias share of the global broadband subscriber base stooat 37% at year-end-2007, with 128 million broadband subscribers. DSL is the dominant xed broadband technoloand represents about 66% of the market[7].

Broadband Internet connections have already reached 92% of the cities in China, which has about 122 million broaband users. The price of a broadband connection is well within the reach of mainland Chinas middle class. Accoring to the latest statistics from the Ministry of Information and Industry, the number of wireless subscribers in Chinrose to 443 million in September, 2006, an increase of almost 50 million in the rst nine months of that year, or 5million new users per month[8]. Wireless and mobile phone Internet access have developed rapidly: already 73.million citizens, or 28.9% of Chinas Internet users, are also mobile phone users[9]. Internet companies anticipaanother growth spurt as Chinese mobile phone carriers prepare to roll out third-generation (3G) technology that casupport Web-surng and other services. No rollout date has been announced yet, but with more than 600 milliomobile accounts, China has a vast pool of potential wireless Internet users.

China mobile communications

With some 600 million mobile users, China has become the worlds largest cell phone market. According to the Miistry of Information and Industry, China recorded 53.5 million new cell phone users in the rst six months of 200The number of mobile phone users increased to 601 million at the end of June, up by 8.6 million from the end of MaChinas mobile phone subscriber base is forecast to grow 11% annually through 2010.

5. www.nydailynews.com/news/us_world/2008/07/25/2008-07-25_china_online_country_says_it_has_most_in.html6. hp://cordis.europa.eu/search/index.cfm?fuseaction=news.simpledocument&N_RCN=286397. www.budde.com.au/buddereports/4566/Regional_-_Broadband_Market_-_Asia_Pacic_-_2008.aspx?r=518. www.internetworldstats.com/asia/cn.htm9. hp://en.wikipedia.org/wiki/Internet_in_the_Peoples_Republic_of_China


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Initial Rep

September rd, 20


Chinese mobile subscribers, millions

Source: www.ptc08.org/ptc08/participants/speakers/papers/LiangFinalSlides.pd

700

600

500

400

300

200

100

0

2003 2004 2005 2006 2007 Jun-2008

270335

393460

540

600

Forecast of Chinas 3G subscribers, millions

Source: www.ptc08.org/ptc08/participants/speakers/papers/LiangFinalSlides.pd

300

250

200

150

100

50

0

1st year 2nd year 3rd year 4th year 5th year 6th year

8.624.3

65.4

114.1

174.7

243.6

Worldwide commercial deployments of 3G technology began in 2005, and are expected to grow to 118.13 millisubscribers by 2008, according to USA Today. However, China has yet to issue any 3G licenses. Two leading Chnese mobile operators are working hard to expedite the development of 2G and 2.5G mobile value-added servicand build a market for 3G services. As 3G is deployed in China, demand for network bandwidth to support mobgames and music downloads will likely accelerate. The bar chart below forecasts growth rates for Chinas 3G suscribers. By year ve or six, the percentage of 3G subscribers is projected to exceed 40% of all subscribers.


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Initial Rep

September rd, 20


Childrens development market

A new baby is born in China every 1.8 seconds, equivalent to 20 million new babies every year. China has about 31million children who are less than 14 years old, including 100 million in cities and towns and 200 million in rurareas.

Chinas children are continuously bombarded with media messages from billboards, posters, home television, TVtaxis, cinemas, magazines, food packaging, lunch boxes, clothing, text messages, Web sites, store shelves, radios another sources. Spending on advertising targeting Chinas children exceeds billions of RMB each year.

In Shanghai, Chinas largest commercial city, there are 13.5 million residents plus 5 million visitors or temporaresidents at any given time. Shanghai has about 5 million households. According to a 2006 census report, each family in China spends on average 300 RMB ($35) per month on children, not including education. This equates to tot

spending on children of 1.5 billion RMB, or approximately $190 million in Shanghai alone. Nationally, expenditufor children is estimated to exceed 18.75 billion RMB ($2.5 billion) and is increasing 26.5% annually in cities and 8annually in rural areas[10].

Outlook and Valuation

Outlook

The Company plans to oer wireless broadband solutions through major wireless service providers in ChinMDGCs initial focus is underserved rural areas where some 900 million Chinese reside.

MDGC expects to oer wireless service subscriptions for a monthly fee ranging from $3.95 to $6.95. The cost of wiless bandwidth will be a small percentage of the subscription fees, usually less than 10%.

Mg3 mobileTM services will be oered through partnerships with content providers such as TV networks, movstudios, music label companies and sports clubs. Pricing will be based on the size and length of content, the numbof subscribers to whom the content is sent and the number of video clips streamed. MDGC also plans to establipartnership with wireless service providers through which their customers will be able to receive video and othmedia-rich content on their wireless devices for a monthly fee. The mg3 mobile sales strategy also focuses on panerships with hand-held wireless device manufactures which will designate certain models as preferred mob

phones. When customers sign up for mg3 services, they will be able to purchase one of the preferred mobile phonat a discounted price.

While initial deployments will focus on Asia and Africa, over the longer-term, the Company plans to rollout its svices in areas of North America and Europe lacking an existing telecomm infrastructure. MDGC anticipates genering 2008 revenues in a $2.7 million range and revenues rising to exceed $25.5 million by year-end 2011.

In addition to organic growth, MDGC is also exploring strategic acquisitions to accelerate its growth and markpenetration.

10. the Companys SEC lings


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Initial Rep

September rd, 20


Revenue forecast, $

Source: Analyst estimates

Sales

Cost of Goods Sold

Gross Proft

Operating Expenses

Net Income (loss)

2006Actual

298,995

-267,982

31,013

-894,797

-863,784

2007Unaudited

628,749

-282,004

346,745

-1,947,070

-1,600,325

2008Estimated

2,729,588

-805,840

1,923,748

-2,719,584

-795,836

2009Estimated

11,119,130

-4,428,000

6,691,130

-4,757,376

1,933,754

2010Estimated

17,051,429

-7,011,000

10,040,429

-6,923,664

3,116,765

2011Estimated

25,460,857

-10,516,500

14,944,357

-10,130,616

4,813,741

Peer comparisons

For peer comparisons, we looked at other companies providing online and wireless products and services to cosumers and businesses in China. These companies trade at relatively high 10 to 40 times forward Price/Earninmultiples and 1 to 6 times forward Price/Sales multiples.

Comparative analysis

Source: Reute rs

Kongzhong Corp.

Sina Corp.Netease.com Inc.

Sohu.com Inc.

China Unicom Ltd.

China Mobile Ltd.

Peers Median

TickerSymbol

KONG

SINANTES

SOHU

CHU

CHL

Price perShare, $

3.97

36.2323.5

62.2

14.73

51.28

Mrkt. Cap.$ Mn

141

2,0202,850

2,390

20,100

190,900

2008

99.25

22.3614.78

17.13

17.75

12.12

17.44

39.70

17.5013.20

13.88

15.03

10.22

14.46

1.52

5.566.64

5.72

1.34

3.15

4.36

Company Name23-Sep-08

1.34

4.505.96

4.60

1.20

2.60

3.55

2009

P/E2008 2009

P/S

We think MDGC warrants a valuation at the high end of the peer group range because of the advantages of its pprietary technology, its relationships with Chinas regulatory agencies and its $10 million contract with a Philippi

company to provide services in Equatorial Guinea.

Applying a 5 times forward Price/Sales multiple to our $11 million 2009 revenue estimate, we derive a $55 millimarket capitalization target for MDGC. We assume 20% dilution resulting from equity sales to nance MDGCgrowth. Our share price target is $2.30.

Innovative technology, a proven management team, strong partnerships and increasing revenue visibility are factors contributing to our Speculative Buy rating and $2.30 price target for MDGC. However, we strongly advinvestors to consider the risk factors discussed in the next section as the Company must overcome many hurdlescommercially deploy its technology and services on a large scale.


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Initial Rep

September rd, 20


Risks

Development-stage business has minimal revenues and nancial resources

To date, MDGCs operating activities have been limited to research and development, and initial deployment of itechnology in rural areas of China for demonstration and testing purposes. The Company has minimal revenuenegative cash ow and an accumulated decit. A limited operating history makes forecasting future revenues dcult.

Cant predict market acceptance of technology

The Companys revenue model is new and evolving, and there is no certainty that it will be successful. MDGC

ability to generate revenue will depend on its success in providing eective online and wireless rich-media servicto customers. Its technology is being prepared for large-scale deployment, but there is no assurance that this tecnology it will be widely embraced.

Lack of cash for implementing the business plan

The Companys management team has indicated that signicant additional external funding will be needed to suport MDGCs technology rollout, as well and corresponding marketing eort. The Company estimates it will neeat least $3 million for the above-mentioned activities. If MDGC fails to raise the needed capital, the implementatioof the business plan could be delayed, aecting our valuation case.

Intense competition

The online rich-media industry is intensely competitive. Most of MDGC competitors are small players oerintemplate-based e-mail tools. Competitors include JangoMail, VerticalResponse, ResultsMail and DynamicsDireHowever, the industrys strong growth may aract large telecom players with greater nancial and marketing rsources. Increased competition could adversely aect MDGCs ability to aract funding or achieve its revenue anprotability goals. However, MDGCs rich-media delivery business has signicant advantages over competitors that it is able to bundle its rich-media delivery service with its broadband wireless deployment and content platforto provide a more complete product and services package and capture recurring revenue streams.


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Initial Rep

June 23rd, 20

Dr. Peterson has more than 30 years experience in design, development and manufacture of microwaand millimeter-wave systems for both commercial and military applications. He was a leading technogist at Wytec, Micro Device Technologies and Steinbrecher Corporation. Dr. Peterson developed the space-qualied, solid-state power ampliers operating at 38 GHz. He also developed high power, solstate ground-based transmiers for the U.S. Armys MILSTAR communications program at 44 GHz, acompact radar operating at 94 GHz.

Over the past 35 years, Dr. Peterson has held various senior technical positions. He was president aco-founder of Ohana Wireless Inc., a development-stage company specializing in LMDS technology aequipment. He served as president of Wytec Inc.s Radio Design Division, managing the design and devopment of low-cost, point-to-multipoint radio equipment in the LMDS bands from 25 GHz to 43 GHz. Peterson also served as vice president and chief scientic ocer for Steinbrecher Corp. with engineeriresponsibility for the development of two key wireless products.

Dr. Peterson received a Ph.D. in electrical engineering from Massachuses Institute of Technology. holds several technology patents and has published 10 research papers in the IEEE Journal.

Dean PetersonPh.D., Chief TechnologyOcer

Mr. Anzalone is a nance and technology executive with more than 20 years experience advising, naing and operating early-stage technology companies. In 2003, Mr. Anzalone co-founded and servedCEO of Ohana Wireless Inc., a development-stage company specializing in xed wireless technology aequipment. During his tenure as CEO, Mr. Anzalone developed key relationships with channel partnein China and the Philippines, successfully guiding the company through network approvals in China

Ohana Wireless xed wireless equipment. Ohana Wireless parent company, ADML Holdings, Ltd., wacquired by MediaG3 in February 2007.

For 15 years prior to Ohana Wireless, Mr. Anzalone served in various management positions at SilicValley Bank, overseeing the award of more than $1 billion in structured nancing solutions to early alater stage technology companies. Mr. Anzalone held positions as commercial nance division manaand national sales manager. He is presently the managing partner of Allegiant Ventures LLC, a technoloventure fund in Silicon Valley. Mr. Anzalone also serves as an advisor to the board of directors of T1 Inc., a software services company providing online curriculum-approved educational games to Chinschool-age children.

Mr. Anzalone holds a Bachelor of Science from Santa Clara University in California.

Joseph AnzaloneSr. VP of Operations


Management Team

Mr. Yuan has more than 20 years experience in software applications, high tech information and marking, including 15 years as CEO for both public and start-up companies. Mr. Yuan has served as the CEOMediaG3 Inc. since March 2001. From 1999 to 2001, he served as chairman, president and CEO of inChora publicly held company. His expertise was instrumental in transforming inChorus from a developeconsumer software into a leading rich-media e-mail marketing service provider. Mr. Yuan orchestratedmerger of inChorus with publicly-traded ClickAction Inc. in 2001. Prior to inChorus, he served as COONetUSA, a public company operating in the e-commerce market.

Between 1990 and 1997, Mr. Yuan founded two software companies operating in the communication asecurity markets; these were acquired in 1994 and 1997, respectively. Mr. Yuans expertise was also esstial in establishing a joint venture software development company in China.

Mr. Yuan has a degree in computer science from the University of California and an MBA with highhonors from National University in San Jose, California.

William YuanChairman and CEO


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Initial Rep

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Mr. Keating has more than 30 years of experience as a nancial expert and CFO of public companiescluding Tegler McHenry and Euro American.

Steve Keating

Director and AuditCommiee Chair

Dr. McNamara has more than 25 years of technology and executive management, including positionCEO and CTO in public and private companies. Dr. McNamara has been involved in a wide varietscientic and engineering programs. He is the founder and CEO of C8 MediSensors Inc.

Robert McNamaraPh.D., Director andTechnology Advisor

Ms. Gawne has more than 25 years of practice in security corporate law. She was a partner at Silicon VLaw Group and is now a partner at Hopkins & Carley. Ms. Gawne received a Bachelor of Art from StanUniversity and her Juris Doctor from the UCLA School of Law.

Cathryn Gawne, J.D.Director and Legal Counsel

mdgc analyst report

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