Item 1. Financial Statements
The unaudited interim consolidated financial statements of China Media Inc. (the “Company”, “China Media”, “we”, “our”, “us”) follow. All currency references in this report are to U.S. dollars unless otherwise noted.
CHINA MEDIA INC.
SEPTEMBER 30, 2018
(UNAUDITED
)
Financial Statement Index
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Consolidated Balance Sheets as of September 30, 2018 (Unaudited) and June 30, 2018
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Consolidated Statements of Operations and Comprehensive Loss for the three months ended September 30, 2018 and 2017 (Unaudited)
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Consolidated Statements of Cash Flows for the three months ended September 30, 2018 and 2017 (Unaudited)
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Notes to the Consolidated Financial Statements (Unaudited)
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CHINA MEDIA INC.
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CONSOLIDATED BALANCE SHEETS
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SEPTEMBER 30, 2018
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JUNE 30,
2018
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Assets
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(Unaudited)
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Current assets
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Cash and cash equivalents
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$ 1,796
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$ 7,179
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Prepaid and other receivable, net of allowance of $118,129 and $122,544 at September 30, 2018 and June 30, 2018, respectively
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3,779
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3,920
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Total current assets
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5,575
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11,099
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Fixed assets, net
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14,733
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15,285
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Film costs
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728,173
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755,395
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Total assets
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$ 748,481
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$ 781,779
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Liabilities and Stockholders' Deficit
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Current liabilities
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Accounts payable
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$ 14,372
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$ 9,145
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Accrued liabilities and other payable
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322,477
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312,851
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Due to related party
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603,419
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597,726
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Total current liabilities
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940,268
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919,722
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Total liabilities
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940,268
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919,722
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Stockholders' deficit
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Common stock, $0.00001 par value, 180,000,000 shares authorized; 39,750,000 shares issued and outstanding at September 30, 2018 and June 30, 2018
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398
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398
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Additional paid-in capital
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11,305,101
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11,298,300
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Accumulated other comprehensive income
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625,104
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619,693
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Accumulated deficit
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(12,122,390)
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(12,056,334)
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Total stockholders' deficit
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(191,787)
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(137,943)
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Total liabilities and stockholders' deficit
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$ 748,481
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$ 781,779
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
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CHINA MEDIA INC.
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CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
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(Unaudited)
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FOR THE THREE MONTHS ENDED SEPTEMBER 30,
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2018
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2017
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Selling, general and administrative
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$ 59,208
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$ 58,739
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Depreciation and amortization expense
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-
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385
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Total operating expenses
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59,208
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59,124
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Other expense
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Interest expense
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(6,848)
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(5,127)
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Net loss before income taxes
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(66,056)
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(64,251)
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Income taxes
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-
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-
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Net loss
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$ (66,056)
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$ (64,251)
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Comprehensive loss
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Net loss
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(66,056)
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(64,251)
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Foreign currency translation adjustment
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5,411
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14,953
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Comprehensive loss
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$ (60,645)
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$ (49,298)
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Net loss per common share, basic and diluted
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$ (0.00)
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$ (0.00)
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Weighted average number of common shares outstanding- basic and diluted
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39,750,000
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39,750,000
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
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CHINA MEDIA INC.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
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(Unaudited)
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FOR THE THREE MONTHS ENDED SEPTEMBER 30,
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2018
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2017
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CASH FLOWS OPERATING ACTIVITIES
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Net loss
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$ (66,056)
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$ (64,251)
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Adjustments to reconcile net loss to net cash used in
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operating activities:
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Imputed interest
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6,801
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5,078
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Depreciation expense
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-
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385
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Changes in operating assets and liabilities:
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Accounts payable
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5,500
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-
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Accrued liabilities and other payable
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21,095
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12,545
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Net cash used in operating activities
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(32,660)
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(46,243)
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CASH FLOW FINANCING ACTIVITIES
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Proceeds from related party
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27,487
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41,224
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Net cash provided by financing activities
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27,487
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41,224
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Effect of exchange rate changes on cash and cash equivalents
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(210)
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232
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NET CHANGE IN CASH AND CASH EQUIVALENTS
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(5,383)
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(4,787)
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CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD
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7,179
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13,199
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CASH AND CASH EQUIVALENTS AT END OF THE PERIOD
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$ 1,796
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$ 8,412
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SUPPLEMENTAL INFORMATION:
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Interest paid
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$ -
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$ -
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Income taxes paid
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$ -
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$ -
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
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5
CHINA MEDIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2018
NOTE 1.
Description of Business
China Media Inc. (“we”, “our”, the “Company”, “China Media”), formerly Protecwerx Inc., was incorporated in the State of Nevada on October 16, 2007.
The Company does not conduct any substantive operations of its own; rather, it conducts its primary business operations through Vallant Pictures Entertainment Co., Ltd. (“Vallant”), its wholly owned subsidiary incorporated under the laws of the British Virgin Islands, which in turn, conducts its business through Xi’an TV Media Co. Ltd. (“Xi’An TV”). Effective control over Xi’An TV was transferred to the Company through the series of contractual arrangements without transferring legal ownership in Xi’An TV. As a result of these contractual arrangements, the Company maintained the ability to approve decisions made by Xi’An TV and was entitled to substantially all of the economic benefits of Xi’An TV.
Xi’An TV was incorporated in Xi’An, Shaan’xi Province, People’s Republic of China (“PRC”) and is in the business of investing, producing and developing film and television programming for the Chinese market.
NOTE 2. Summary of Significant Accounting Policies
Basis of Presentation and Consolidation
The accompanying unaudited interim consolidated financial statements of China Media Inc. have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) and the rules of the Securities and Exchange Commission, and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s annual financial statements for the year ended June 30, 2018. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the consolidated financial statements which would substantially duplicate the disclosure contained in the audited financial statements for the year ended June 30, 2018 have been omitted.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes, including estimates of ultimate revenues and ultimate costs of film and television products, the amount of receivables that ultimately will be collected, the potential outcome of future tax consequences of events that have been recognized in the Company’s financial statements and loss contingencies. Actual results could differ from those estimates. To the extent that there are material differences between these estimates and actual results, the Company’s financial condition or results of operations will be affected. Estimates are made based on past experience and other assumptions that management believes are reasonable under the circumstances, and management evaluates these estimates on an ongoing basis.
Recent Accounting Pronouncements
In March 2018, the FASB issued ASU 2018-05 — Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118 (“ASU 2018-05”), which amends the FASB Accounting Standards Codification and XBRL Taxonomy based on the Tax Cuts and Jobs Act (the “Act”) that was signed into law on December 22, 2017 and Staff Accounting Bulletin No. 118 (“SAB 118”) that was released by the Securities and Exchange Commission. The Act changes numerous provisions that impact U.S. corporate tax rates, business-related exclusions, and deductions and credits and may additionally have international tax consequences for many companies that operate internationally. The amendments are effective upon addition to the FASB Accounting Standards Codification. The Company does not expect the adoption of this guidance will have a material impact on the consolidated financial statements.
6
Going Concern
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal course of business. The Company has suffered recurring losses from operations and has a working capital deficit as of September 30, 2018. The Company also generated negative operating cash flows and incurred net loss for the three months ended September 30, 2018.
These matters, among others, raise substantial doubt about our ability to continue as a going concern. While the Company's cash position may not be significant enough to support the Company's daily operations, management intends to raise additional funds by way of cooperation with other film and television producers, obtaining loans from shareholders and borrowing from Dean Li, the President and Chief Executive Officer of the Company, to fund operations. The consolidated financial statements do not include any adjustments that may result should the Company be unable to continue as a going concern.
NOTE 3. Related Party Transactions
From time to time, the Company borrowed loans from Dean, Li, the President and Chief Executive Officer of the Company. As of September 30, 2018 and June 30, 2018, the Company owed Dean Li $603,419 and $597,726, respectively. The loans borrowed from Mr. Dean Li are non-secured, free of interest with no specified maturity date. The imputed interests are assessed as an expense to the business operation and an addition to the paid-in-capital and calculated based on annual interest rate in the range of 4.43%-5.34% with reference to one-year loan.
In July 2015, the Company entered into an agreement to invest RMB 5 million (approximately $752,627 at the time of investment) in a film that is produced by Beijing Huaxia Star Media Co., Ltd. and the payment was made in August 2015. As of September 30, 2018, the film was still in preparation stage. Dean Li, the President and Chief Executive Officer of the Company, holds 13% equity interest in Beijing Huaxia Star Media Co., Ltd.
NOTE 4. Subsequent Event
On October 31, 2018 and November 1, 2018, the Company borrowed a loan of RMB 205,886 (approximately $29,541) and RMB 16,500 (approximately $2,376) from Dean Li, the President and Chief Executive Officer of the Company. The loans borrowed from Mr. Dean Li are non-secured, free of interest with no specified maturity date. The annual interest rate in the range of 4.43%-5.34% with reference to one-year loan.
7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward Looking Statements
This quarterly report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology including "could", "may", "should", "expect", "plan", "anticipate", "believe", "estimate", "predict", "potential" and the negative of these terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially.
While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested in this report.
Results of Operations
Comparison of the three months ended September 30, 2018 and 2017:
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For Three Months Ended
September 30,
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2018
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2017
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Operating expenses
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Selling, general and administrative
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$
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59,208
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$
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58,739
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Depreciation and amortization expenses
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-
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385
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Total operating expenses
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59,208
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59,124
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Other expenses:
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Interest expense
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(6,848)
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(5,127)
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Total other expenses
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(6,848)
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(5,127)
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Net loss before income taxes
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(66,056)
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(64,251)
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Income taxes
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-
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-
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Net loss
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$
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(66,056)
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$
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(64,251)
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Revenue and Cost
We had no sales and cost for the three months ended September 30, 2018 and 2017.
Operating expenses
During the three months ended September 30, 2018, our total operating expenses were $59,208, a slight increase of $84 as compared to $59,124 for the three months ended September 30, 2017. The operating expenses are relatively stable.
Net loss
For the three months ended September 30, 2018, we incurred a net loss of $66,056, as compared to a net loss of $64,251 for the three months ended September 30, 2017, a slight increase of $1,805. This increase was primarily due to the increase in interest expense.
8
Liquidity and Capital Resources
The following table sets forth a summary of our cash flows for the periods indicated:
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For the Three Months Ended
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September 30,
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2018
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2017
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Net cash used in operating activities
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$
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(32,660)
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$
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(46,243)
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Net cash provided by financing activities
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27,487
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41,224
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Effect of exchange rate changes on cash and cash equivalents
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(210)
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232
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NET CHANGE IN CASH AND CASH EQUIVALENTS
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(5,383)
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(4,787)
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CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
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7,179
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13,199
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CASH AND CASH EQUIVALENTS AT END OF PERIOD
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$
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1,796
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$
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8,412
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As of September 30, 2018, we had cash of $1,796 in our bank accounts and a working capital deficit of $934,693.
During the three months ended September 30, 2018, we used net cash of $32,660 in operating activities, compared to net cash used of 46,243 in operating activities during the same period of 2017. The decrease of $13,583 for net cash used in operating activities was mainly due to increase in the changes in accounts payable, accrued liabilities and other payable.
During the three months ended September 30, 2018, we received net cash of $27,487 from financing activities, compared to net cash received of $41,224 in financing activities during the same period of 2017. The decrease in net cash provided by financing activities was mainly due to the decrease in loan from related party.
Our cash level decreased by $5,383 during the three months ended September 30, 2018, compared to a decrease of $4,787 in the same period of 2017. The changes in cash were a result of the factors described above.
We anticipate that we will meet our ongoing cash requirements through equity or debt financing. We plan to cooperate with various individuals and institutions to acquire the financing required to produce and distribute our products and anticipate this will continue until we accrue sufficient capital reserves to finance all of our productions independently.
We intend to meet our cash requirements for the next 12 months through a combination of debt financing and equity financing and partnerships with finance groups on television and movie projects.
Critical Accounting Policies and Estimates
Please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 201810-K for disclosures regarding our critical accounting policies and estimates. The interim financial statements follow the same accounting policies and methods of computations as those for the year ended June 30, 2018.
Off-Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.
Inflation
The amounts presented in the financial statements do not provide for the effect of inflation on our operations or financial position. The net operating losses shown would be greater than reported if the effects of inflation were reflected either by charging operations with amounts that represent replacement costs or by using other inflation adjustments.
Audit Committee
9
The functions of the audit committee are currently carried out by our Board of Directors, who has determined that we do not have an audit committee financial expert on our Board of Directors to carry out the duties of the audit committee. The Board of Directors has determined that the cost of hiring a financial expert to act as a director and to be a member of the audit committee or otherwise perform audit committee functions outweighs the benefits of having a financial expert on the audit committee.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934 (the "Exchange Act"), that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2018. Based on the evaluation of these disclosure controls and procedures, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective.
Changes in Internal Control
Except as discussed above, there were no significant changes in our internal control over financial reporting (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act) that occurred during the quarterly period that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.