Analyst: Victor Sula, Ph.D.

Initial Report September rd, 2008

WDGC daily

9/19/2008 1.2 1.1 1.0 0.9 0.8 0.7

MediaG3, Inc. One Almaden Boulevard, Suite 310, San Jose, CA 95113 Phone: 408.557.2800 Fax: 408.557.8800 Web site: www.mediag3.com E-mail: info@mediag3.com MARKET DATA

0.6 0.5 volume BigCharts.com

40 30 20 10 0

Jul

Aug

Sep

Company Introduction
MDGC OTC PK $0.71 $2.30 Speculative Buy 19.94 Million $14.15 Million 1,917

Symbol Exchanges Current Price Price Target Rating Outstanding Shares Market Cap. Average 3-m Volume

Source: Yahoo Finance, Analyst Estimates

MediaG3 Inc. (MDGC) is a data networking solutions company developing leading-edge patented technology for the deployment of broadband wireless communication,, as well as online applications, and mobile rich media for delivery to fixed and mobile wireless customers. The Companys mg3 wireless business provides bi-directional, broadband wireless Internet, data and voice services to customers at speeds of up to 100 Mbps downstream and 80Mbps upstream. Mg3 mobile applications, offered for wireless devices, range from intricate networking applications to complex mobileuser interfaces and are built and tested to function seamlessly with PDAs, cell phones, smart phones and Blackberries. The Company is also building an mg3 Web 2.0 network in China, consisting of branded community platforms that facilitate sharing of information, social networking and commerce. The Company plans to initially deploy its broadband wireless network in underserved regions of China, Asia and Northwest Africa. MDGC recently signed an agreement with Chinas Academy of Broadcasting Science (ABS), a division of the State Administration for Radio Film and Television (SARFT), and has been given network certifications for a pilot project involving the implementation of mg3 wireless broadband Internet and television coverage in rural areas of China, serving some 900 million residents. In addition, MDGC was awarded a $600,000 grant from the U.S. Trade and Development Agency to support its broadband wireless pilot project in China. MediaG3s China pilot project is the first step towards implementation of mg3 wireless broadband applications to serve over 900 million people in the interior and rural regions of China. The Company estimates that MediaG3s systems and equipment valued at approximately $225,000 will be required to service every

Thousands

Analyst: Victor Sula, Ph.D. Initial Report September rd, 2008

10,000 subscribers. In an initial commercialization phase focusing on 5% of the rural population or around 45 million 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 provider based in the Philippines, to support a planned cellular network deployment in Equatorial Guinea and in other parts of Southeast Asia.

Investment Highlights
Market opportunity
MDGCs broadband wireless technology will be deployed in underserved areas of China and other developing countries. Substantial growth in Chinas telecom and digital video broadcast markets, paired with the mandate by Chinas central government to bring 21st century technology to the rural population, creates a large, growing market for MDGCs technology services. With some 600 million users, China is already the worlds largest cell phone market. Though the market is estimated to be growing 11% annually, a better wireless broadband solution is needed in rural areas because of the vast distances and difficult terrain which limit the use of fixed lines[1]. China is also a potent breeding ground for 3G multimedia-capable handheld devices and services. The Company has already earned strong support from the Chinese government, as well as from equipment providers, handset manufacturers 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 can effectively cover vast areas lacking a fixed or wireless infrastructure. Unlike competitor systems, Mg3 wireless operates on high radio frequencies, resulting in clearer sound, and broadcasts point-to-multipoint, thus requiring fewer installations to support the system. It provides 90-degree coverage per sector at speeds of up to 100MB downstream. Mg3 mobile optimizes delivery and viewing of content sent to subscriber cell phones, smart phones, PDAs and other mobile devices. Mg3 Web 2.0 consists of a network of branded community platforms in China for information exchange, social networking, commerce and targeted marketing. Proprietary technology strengthens the offering MDGC holds seven patents (five U.S., one Chinese and one European), which protect its Local Multipoint Distribution System (LMDS) multichannel radio frequency transmission technology. After more than two years of field testing, the Mg3 wireless technology has earned certification from the Chinese government. It is also the LMDS
1. http://wirelessfederation.com/news/600-million-mobile-users-in-china/

MediaG3, Inc. (OTCBB: MDGC)

Analyst: Victor Sula, Ph.D. Initial Report September rd, 2008

system chosen by the Philippines government and broadband wireless integrators. In addition, the China Academy of Broadcast Sciences has selected MDGC technology as the best wireless broadband solution. Approximately $50 million was spent over a nine-year period to develop this technology. Technology advantages expected to drive rapid adoption MDGCs technology offers a low-cost advantage for customer premises equipment (CPE). It also supports greater bandwidth (100Mbps downstream and 80Mbps up stream) for high-speed Internet to fixed sites and wireless services; uses high frequencies which are clearer and better-quality; and provides solid backhaul for WI MAX and other mobile 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 equipment is point-to-point, thus requiring more installations, and their networks are low bandwidth (5 megabytes), and 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 offers products that complement their existing technologies. These industry giants typically focus on either the equipment end or the customer end of broadband wireless service. MDGC is positioned in the middle, providing services that cover the 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 State Administration of Radio Film and Television (SARFT) for wireless broadband deployments in rural China. The Company has received network certifications for a pilot project to provide mg3 wireless broadband Internet and television coverage to rural areas of China. In addition, MDGC has partnerships to provide wireless broadband services 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 broadband wireless pilot project in China which will support Internet and digital TV services in rural areas. The pilot project will assess MDGCs fixed wireless equipment and technology as a viable solution for Chinas Direct to Home Rural Coverage plan. The USTDA grant will be used to support engineering, planning and implementation of the pilot project.

MediaG3, Inc. (OTCBB: MDGC)

Analyst: Victor Sula, Ph.D. Initial Report September rd, 2008

Obtaining approval of the grant from USTDA and support from Chinas SARFT is a vigorous process that involved a thorough vetting of the Company and its technology. Both USTDA and Chinas SARFT have completed independent due diligence of the Company to validate Mg3 wireless technology and ensure that MediaG3s technology and applications are consistent with Chinas overall development plan. The process also entailed verifying the potential benefits, 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 services provider based in the Philippines. MDGC has been selected as the preferred supplier of fixed wireless equipment and software services for a planned cellular network deployment in Equatorial Guinea. Its wireless equipment will provide a last mile wireless access link that will enable cellular networks to deliver mobile telephone services in coastal Africa. This contract also allowed the Company to negotiate for additional agreements in Africa and Southeast 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 exceeding $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 effectively serve vast areas of the world where end-to-end fiber or cable is not feasible. MDGCs system can be customized to operate on a specific radio frequency between 24 GHz and 43 GHz, and broadcasts point-to-multipoint with 90-degree coverage per sector at up to 100MB downstream and 80MB upstream speeds. MDGCs digital communication solutions (mg3 mobile and mg3 Web 2.0) enable delivery and viewing of media-rich messages via online or wireless devices. Typical content including video clips of news, sports highlights, movie trailers, music sound tracks and TV show promotions, can be delivered to subscriber PDAs, cell phones, smart phones or other mobile devices. The Companys proprietary technologies are protected by five U.S. patents, one European patent, one Chinese patent, and three critical network certifications for operating in China. MDGCs fixed broadband wireless equipment and technology have been approved by Chinas State Radio Regulatory Commission, which certifies radio frequencies for wireless transmissions; the approval is required for wireless equipment and system providers wishing to do business in China. The Company has completed a two-year system trial in China and has been certified by Chinas Academy of Broadband Science (ABS), a division of the central governments State Administration of Radio, Film and Television, to deploy broadband wireless services in China. The ABS partnership is part of Chinas Rural Coverage project, which aims to provide two-way, high-speed Internet and television coverage to rural areas of China, where some 900 million citizens reside. MDGC was awarded a $600,000 grant by the U.S. Trade and Development Agency to support its broadband wireless pilot project in China.
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Analyst: Victor Sula, Ph.D. Initial Report September rd, 2008

MDGC is targeting rural China and other developing countries for initial deployment of its technology because these areas typically lack broadband access due to a shortage of telecommunications infrastructure over the last mile between the cable or fiber optic backbone of the network operator and the customer. Oriental Media The Companys Oriental Media subsidiary is developing market opportunities for mg3 digital interactive communication products and services such as digital rich-media e-mail marketing services, Web site design and development, electronic magazines and database management. Oriental Media has registered a brand called China Green Pages and is developing branded Web 2.0 social networking sites. The Company has established relationships with advertisers such as Shanghai Media Group Broadband, China Super Soccer Association, Pan Asia Architectural Hardware Association, New Era International Exhibition Company, China Trust International Travel Agency, CJD Furniture Mart, Shanghai Higher Education Investment Corporation, and Chen Xin Forum. Little Sheep Another business, Little Sheep, is building an online community and educational platform with entertainment content for Chinas children. A short movie will be sent to registered children and help spread the Little Sheep brand. Online brand awareness will be leveraged through the Companys network of franchised and directly-owned stores, which market childrens clothing and related items. At year-end 2007, Little Sheep had 106 stores, of which 13 were company-owned and 93 were franchised.

MediaG3, Inc. (OTCBB: MDGC)

Analyst: Victor Sula, Ph.D. Initial Report September rd, 2008

Business Strategy
The Company plans to establish a leadership position in Chinas broadband wireless communication market and build a presence in other underserved regions of the world where broadband access isnt currently available. MDGC plans to accomplish this goal by: -Executing the China rural coverage pilot project, which will showcase the reliability and efficiency of mg3 technology; - 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 contract; and - Providing a consistently high rate of return for stakeholders. In addition to developing and marketing product applications for online and wireless marketing communications, the Company plans to acquire businesses in both the United States and China that offer complementary technologies and strategic value. MDGC is currently involved in discussions with potential acquisition candidates in the mobile and broadband wireless sectors.

MediaG3, Inc. (OTCBB: MDGC)

Analyst: Victor Sula, Ph.D. Initial Report September rd, 2008

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 offers broadband fixed wireless products, commonly referred to as 802.16 systems; Local Multipoint Distribution Systems (LMDS) between 24 GHz and 43.5 GHz; and broadcasting point-to-multipoint. LMDS is a wireless, bi-directional broadband technology designed to allow network operators and communication service providers to cost-effectively deliver a wide range of data-rich services to homes and businesses. LMDS uses a 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 transmission into service areas where it is prohibitively expensive to lay fiber or build cell towers. This system supports increased bandwidth (100Mbps downstream and 80Mbps upstream) for high-speed Internet to fixed sites and wireless locations. The mg3 wireless system consists of the following components 1. 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 Units (NIU). 3. Network Management System provides the ability to remotely monitor and configure system elements.

Mg3 wireless system

WAN Base Station
- Each sector covers 90 degrees - Two sectors serviced by one AIU. - Two AIUs service one 4 sector 360-degree base station.

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

Network Interfase is OC-3/STM1

Wireless Local LAN

RFU #2

Internet

AIU

RFU #1

ATU

NIU

Local LAN

ATM OC-3

Wireless Local LAN

PSTN

Router or ATM Switch

10/100 Base T

Local LAN

ATU

NIU

Internet
Network Management System
Source: SEC filings.

Causeway2 LMDS Network

MediaG3, Inc. (OTCBB: MDGC)

Analyst: Victor Sula, Ph.D. Initial Report September rd, 2008

Mg3 mobile
Mg3 mobile is a content application that optimizes the delivery and management of complex personalized richmedia (voice, sound, dynamic graphics and streaming video) to mg3 mobile subscriber wireless devices. Through a proprietary subscriber database, as well as compression and streaming technologies, content delivery is optimized to yield a high quality viewing experience. Content managed using mg3 mobile is fully viewable on both fixed and wireless platforms including laptops, cell phones, smart phones, PDAs and other devices. By maintaining crucial gateway server and client (player) systems, mg3 mobile solutions transfer rich data into a format understood by each protocol for rapid, seamless transmission. Delivered content typically includes video news clips, sports highlights, movie trailers, television shows and multimedia e-mail.

Mg3 Web 2.0

Mg3 Web 2.0 is a network of branded community platforms for information exchange, social networking, commerce and targeted marketing in China. This network facilitates effective online digital marketing via eMagazines and permission-based media campaigns. MDCG branded its community platforms under the China Green PagesTM label and launched them in December 2007. To the Chinese, green represents prosperity, health, safety, the promise of the future, renewal, environmental conscience, and other positive aspects of humanity. A typical example of how China Green PagesTM works involves restaurant customers recommending and sharing dining experiences. Restaurants can attract customers by advertising their businesses and cuisine specialties on this forum and establishing real-time communications with potential diners. Related services such as gourmet food stores, beverage companies, flower shops, bakeries and transportation businesses can also advertise their products and services in the dining forum. China Green PagesTM generates revenues from advertising on its forums.

Industry Outlook
MDGC plans to deploy its broadband wireless technology in China and other developing countries. Substantial growth in Chinas telecom and digital video broadcast markets and the mandate by Chinas central government to bring 21st century technology and services to the rural population create a large market opportunity for MDGCs technology and services. Internet usage Growth in the number of Internet users is also expanding the customer base for IP-based services. The number of Internet users worldwide already exceeded 1 billion. As of June 30, 2008, there were 1.46 billion Internet users worldwide, according to Internet World Stats.

MediaG3, Inc. (OTCBB: MDGC)

Analyst: Victor Sula, Ph.D. Initial Report September rd, 2008

Internet Usage
Population, Mn ( 2008 Est. )
Europe North America China Worlds total 800.4 337.2 1,330.1 6,676.1

% Pop. of World
11.9 % 5.0 % 19.9% 100.0 %

Internet Users, Latest Data, Mn

384.6 248.2 253.0 1,463.6

Penetration (% Population)
48.1 % 73.6 % 19.0% 21.9 %

% Usage of World
26.3 % 17.0 % 17.3% 100.0 %

User Growth ( 2000-2008 )

266.0 % 129.6 % 1,024.4% 305.5

Source: www.internetworldstats.com/stats.htm

here are an estimated 253 million Internet users in China, up 56% since 2007. The number of Internet users in China expanded by 91 million last year, surpassing the United States, which has 248 million users. In the first six months of 2008, Internet penetration rates in China increased to 19.1%[2]. This rate is slightly below the worldwide average rate of 21.1%.

Internet users in China, millions

300 250 200 150 100 50 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 23 34 59 69 94 137 103 162

253

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

Chinas Internet users are relatively young, male, urban, and are disproportionately comprised of students. Just over 70% of the user population is under age 30, and almost 60% are men[3]. The number of rural Internet users is estimated at around 53 million. Penetration rates in urban areas at about 20% far exceed rural penetration rates of only about 3%. One of the issues China must address to improve rural Internet penetration rates is low ownership of computers. At year-end 2006, penetration rates were 2.7 computers for every 100 households in rural areas, which is far behind urban penetration rates of 47.2 computers per 100 households. Almost two-thirds of the 1.33 billion Chinese citizens who are not online cite lack of computer skills and lack of Internet access as the main reasons why. Only 8% of rural Chinese say they have no need to go online[4].

2. www.cnnic.net.cn/download/2008/CNNIC22threport-en.pdf 3. www. internetworldstats.com/asia/cn.htm 4. http://arstechnica.com/news.ars/post/20070715-china-set-to-overtake-the-us-in-number-of-internet-users.html

MediaG3, Inc. (OTCBB: MDGC)

Analyst: Victor Sula, Ph.D. Initial Report September rd, 2008

Total revenues for Chinas Internet companies soared to 40.5 billion RMB ($5.9 billion) in 2007, up 48.6% from the previous year, according to research firm Analysys International. Internet revenues are projected to grow 30% annually 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 broadband connections is expanding rapidly as users demand higher speeds for peer-to-peer (P2P) files sharing systems, music 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 number of broadband subscribers in the OECD, which counts 30 countries, has increased 24% to 221 million[6]. This means that 18.8 inhabitants in every 100 now have a broadband subscription. The strongest per capita subscriber growth rates were in Ireland, Germany, Sweden, Australia, Norway, Denmark and Luxembourg. Each of these countries added more than five subscribers per 100 inhabitants. Asias share of the global broadband subscriber base stood at 37% at year-end-2007, with 128 million broadband subscribers. DSL is the dominant fixed broadband technology and represents about 66% of the market[7]. Broadband Internet connections have already reached 92% of the cities in China, which has about 122 million broadband users. The price of a broadband connection is well within the reach of mainland Chinas middle class. According to the latest statistics from the Ministry of Information and Industry, the number of wireless subscribers in China rose to 443 million in September, 2006, an increase of almost 50 million in the first nine months of that year, or 5.5 million new users per month[8]. Wireless and mobile phone Internet access have developed rapidly: already 73.05 million citizens, or 28.9% of Chinas Internet users, are also mobile phone users[9]. Internet companies anticipate another growth spurt as Chinese mobile phone carriers prepare to roll out third-generation (3G) technology that can support Web-surfing and other services. No rollout date has been announced yet, but with more than 600 million mobile 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 Ministry of Information and Industry, China recorded 53.5 million new cell phone users in the first six months of 2008. The number of mobile phone users increased to 601 million at the end of June, up by 8.6 million from the end of May. Chinas 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.html 6. http://cordis.europa.eu/search/index.cfm?fuseaction=news.simpledocument&N_RCN=28639 7. www.budde.com.au/buddereports/4566/Regional_-_Broadband_Market_-_Asia_Pacific_-_2008.aspx?r=51 8. www.internetworldstats.com/asia/cn.htm 9. http://en.wikipedia.org/wiki/Internet_in_the_Peoples_Republic_of_China

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Analyst: Victor Sula, Ph.D. Initial Report September rd, 2008

Chinese mobile subscribers, millions

700 600 500 400 300 200 100 0 2003 2004 2005 2006 2007 Jun-2008 270 335 393 460 540 600

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

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

Forecast of Chinas 3G subscribers, millions

300 250 200 150 100 50 0 8.6 24.3 65.4 114.1 174.7 243.6

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

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

MediaG3, Inc. (OTCBB: MDGC)

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Analyst: Victor Sula, Ph.D. Initial Report September rd, 2008

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 314 million children who are less than 14 years old, including 100 million in cities and towns and 200 million in rural areas. Chinas children are continuously bombarded with media messages from billboards, posters, home television, TV in taxis, cinemas, magazines, food packaging, lunch boxes, clothing, text messages, Web sites, store shelves, radios and other 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 temporary residents 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 total spending on children of 1.5 billion RMB, or approximately $190 million in Shanghai alone. Nationally, expenditure for children is estimated to exceed 18.75 billion RMB ($2.5 billion) and is increasing 26.5% annually in cities and 8% annually in rural areas[10].

Outlook and Valuation

Outlook The Company plans to offer wireless broadband solutions through major wireless service providers in China. MDGCs initial focus is underserved rural areas where some 900 million Chinese reside. MDGC expects to offer wireless service subscriptions for a monthly fee ranging from $3.95 to $6.95. The cost of wireless bandwidth will be a small percentage of the subscription fees, usually less than 10%. Mg3 mobileTM services will be offered through partnerships with content providers such as TV networks, movie studios, music label companies and sports clubs. Pricing will be based on the size and length of content, the number of subscribers to whom the content is sent and the number of video clips streamed. MDGC also plans to establish partnership with wireless service providers through which their customers will be able to receive video and other media-rich content on their wireless devices for a monthly fee. The mg3 mobile sales strategy also focuses on partnerships with hand-held wireless device manufactures which will designate certain models as preferred mobile phones. When customers sign up for mg3 services, they will be able to purchase one of the preferred mobile phones at a discounted price. While initial deployments will focus on Asia and Africa, over the longer-term, the Company plans to rollout its services in areas of North America and Europe lacking an existing telecomm infrastructure. MDGC anticipates generating 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 market penetration.
10. the Companys SEC filings

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Analyst: Victor Sula, Ph.D. Initial Report September rd, 2008

Revenue forecast, $
2006 Actual
Sales Cost of Goods Sold Gross Profit Operating Expenses Net Income (loss) 298,995 -267,982 31,013 -894,797 -863,784

2007 Unaudited
628,749 -282,004 346,745 -1,947,070 -1,600,325

2008 Estimated
2,729,588 -805,840 1,923,748 -2,719,584 -795,836
Source: Analyst estimates

2009 Estimated
11,119,130 -4,428,000 6,691,130 -4,757,376 1,933,754

2010 Estimated
17,051,429 -7,011,000 10,040,429 -6,923,664 3,116,765

2011 Estimated
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 consumers and businesses in China. These companies trade at relatively high 10 to 40 times forward Price/Earnings multiples and 1 to 6 times forward Price/Sales multiples.

Comparative analysis
Company Name 23-Sep-08
Kongzhong Corp. Sina Corp. Netease.com Inc. Sohu.com Inc. China Unicom Ltd. China Mobile Ltd. Peers Median

Ticker Symbol
KONG SINA NTES SOHU CHU CHL

Price per Share, $

3.97 36.23 23.5 62.2 14.73 51.28

Mrkt. Cap. $ Mn
141 2,020 2,850 2,390 20,100 190,900

2008
99.25 22.36 14.78 17.13 17.75 12.12 17.44

P/E

2009
39.70 17.50 13.20 13.88 15.03 10.22 14.46

2008
1.52 5.56 6.64 5.72 1.34 3.15 4.36

P/S

2009
1.34 4.50 5.96 4.60 1.20 2.60 3.55

Source: Reuters

We think MDGC warrants a valuation at the high end of the peer group range because of the advantages of its proprietary technology, its relationships with Chinas regulatory agencies and its $10 million contract with a Philippine 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 million market capitalization target for MDGC. We assume 20% dilution resulting from equity sales to finance MDGCs growth. Our share price target is $2.30. Innovative technology, a proven management team, strong partnerships and increasing revenue visibility are all factors contributing to our Speculative Buy rating and $2.30 price target for MDGC. However, we strongly advise investors to consider the risk factors discussed in the next section as the Company must overcome many hurdles to commercially deploy its technology and services on a large scale.

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Analyst: Victor Sula, Ph.D. Initial Report September rd, 2008

Risks
Development-stage business has minimal revenues and financial resources To date, MDGCs operating activities have been limited to research and development, and initial deployment of its technology in rural areas of China for demonstration and testing purposes. The Company has minimal revenues, negative cash flow and an accumulated deficit. A limited operating history makes forecasting future revenues difficult. Cant predict market acceptance of technology The Companys revenue model is new and evolving, and there is no certainty that it will be successful. MDGCs ability to generate revenue will depend on its success in providing effective online and wireless rich-media services to customers. Its technology is being prepared for large-scale deployment, but there is no assurance that this technology it will be widely embraced. Lack of cash for implementing the business plan The Companys management team has indicated that significant additional external funding will be needed to support MDGCs technology rollout, as well and corresponding marketing effort. The Company estimates it will need at least $3 million for the above-mentioned activities. If MDGC fails to raise the needed capital, the implementation of the business plan could be delayed, affecting our valuation case. Intense competition The online rich-media industry is intensely competitive. Most of MDGC competitors are small players offering template-based e-mail tools. Competitors include JangoMail, VerticalResponse, ResultsMail and DynamicsDirect. However, the industrys strong growth may attract large telecom players with greater financial and marketing resources. Increased competition could adversely affect MDGCs ability to attract funding or achieve its revenue and profitability goals. However, MDGCs rich-media delivery business has significant advantages over competitors in that it is able to bundle its rich-media delivery service with its broadband wireless deployment and content platform to provide a more complete product and services package and capture recurring revenue streams.

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Analyst: Victor Sula, Ph.D. Initial Report June 23rd, 2008

Management Team
William Yuan
Mr. Yuan has more than 20 years experience in software applications, high tech information and marketing, including 15 years as CEO for both public and start-up companies. Mr. Yuan has served as the CEO of MediaG3 Inc. since March 2001. From 1999 to 2001, he served as chairman, president and CEO of inChorus, a publicly held company. His expertise was instrumental in transforming inChorus from a developer of consumer software into a leading rich-media e-mail marketing service provider. Mr. Yuan orchestrated the merger of inChorus with publicly-traded ClickAction Inc. in 2001. Prior to inChorus, he served as COO for NetUSA, a public company operating in the e-commerce market. Between 1990 and 1997, Mr. Yuan founded two software companies operating in the communication and security markets; these were acquired in 1994 and 1997, respectively. Mr. Yuans expertise was also essential 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 highest honors from National University in San Jose, California.

Chairman and CEO

Dean Peterson

Ph.D., Chief Technology Officer

Dr. Peterson has more than 30 years experience in design, development and manufacture of microwave and millimeter-wave systems for both commercial and military applications. He was a leading technologist at Wytec, Micro Device Technologies and Steinbrecher Corporation. Dr. Peterson developed the first space-qualified, solid-state power amplifiers operating at 38 GHz. He also developed high power, solidstate ground-based transmitters for the U.S. Armys MILSTAR communications program at 44 GHz, and compact radar operating at 94 GHz. Over the past 35 years, Dr. Peterson has held various senior technical positions. He was president and co-founder of Ohana Wireless Inc., a development-stage company specializing in LMDS technology and equipment. He served as president of Wytec Inc.s Radio Design Division, managing the design and development of low-cost, point-to-multipoint radio equipment in the LMDS bands from 25 GHz to 43 GHz. Dr. Peterson also served as vice president and chief scientific officer for Steinbrecher Corp. with engineering responsibility for the development of two key wireless products. Dr. Peterson received a Ph.D. in electrical engineering from Massachusetts Institute of Technology. He holds several technology patents and has published 10 research papers in the IEEE Journal.

Joseph Anzalone

Sr. VP of Operations

Mr. Anzalone is a finance and technology executive with more than 20 years experience advising, financing and operating early-stage technology companies. In 2003, Mr. Anzalone co-founded and served as CEO of Ohana Wireless Inc., a development-stage company specializing in fixed wireless technology and equipment. During his tenure as CEO, Mr. Anzalone developed key relationships with channel partners in China and the Philippines, successfully guiding the company through network approvals in China for Ohana Wireless fixed wireless equipment. Ohana Wireless parent company, ADML Holdings, Ltd., was acquired by MediaG3 in February 2007. For 15 years prior to Ohana Wireless, Mr. Anzalone served in various management positions at Silicon Valley Bank, overseeing the award of more than $1 billion in structured financing solutions to early and later stage technology companies. Mr. Anzalone held positions as commercial finance division manager and national sales manager. He is presently the managing partner of Allegiant Ventures LLC, a technology venture fund in Silicon Valley. Mr. Anzalone also serves as an advisor to the board of directors of T1 Go Inc., a software services company providing online curriculum-approved educational games to Chinas school-age children. Mr. Anzalone holds a Bachelor of Science from Santa Clara University in California.

MediaG3, Inc. (OTCBB: MDGC)

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Analyst: Victor Sula, Ph.D. Initial Report September rd, 2008

Steve Keating

Director and Audit Committee Chair

Mr. Keating has more than 30 years of experience as a financial expert and CFO of public companies, including Tegler McHenry and Euro American.

Robert McNamara
Ph.D., Director and Technology Advisor

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

Cathryn Gawne, J.D.

Director and Legal Counsel

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

MediaG3, Inc. (OTCBB: MDGC)

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