Item 1. Business
This annual report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors”, that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
Our financial statements are stated in United States Dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles.
In this annual report, unless otherwise specified, all dollar amounts are expressed in United States Dollars and all references to “common shares” refer to the common shares in our capital stock.
As used in this annual report, the terms “we”, “us”, “our company”, mean China Media Inc., a Nevada corporation and our subsidiaries, unless otherwise indicated.
Organization
On November 30, 2009, we closed a share exchange agreement (the “Share Exchange Agreement”) with Vallant Pictures Entertainment Co., Ltd., a company incorporated under the laws of the British Virgin Islands (“Vallant”) and Bin Li, our Director and the former sole shareholder of Vallant. According to the terms of the Share Exchange Agreement, we agreed to acquire the sole issued and outstanding common share of Vallant from Bin Li in exchange for 7,000 shares of our common stock. As a result of the Share Exchange Agreement, Vallant became our wholly owned subsidiary. Vallant has entered into a series of contractual obligations with Xi'An TV Media Co., Ltd., a company incorporated under the laws of the People's Republic of China (“Xi'An TV”) that is engaged in the business of producing and developing television programming for the Chinese market, as well as the holders of 62.61% of the voting shares of Xi'An TV (the “Xi'An TV Shareholders”). Under the laws of China, the contractual arrangements constitute valid and binding obligations of the parties of such agreements. Each of the contractual arrangements and the rights and obligations of the parties thereto are enforceable and valid in accordance with the laws of China. Other than pursuant to the contractual arrangements between Vallant and Xi’An TV described below, Xi’An TV cannot transfer 100% (62.61% until September 17, 2010) of the funds generated from their operations.
On June 20, 2007, Vallant entered into the following contractual arrangements with Xi’An TV and the Xi’An TV Shareholders:
Business Operations Agreement. Pursuant to this agreement between the Xi’An TV Shareholders, Xi’An TV and Vallant, the Xi’An TV Shareholders must designate the candidates recommended by Vallant as their representatives on the Board of Directors of Xi’An TV, and Vallant acquired the right to appoint the senior executives of Xi’An TV. In addition, Vallant must guarantee Xi’An TV’s performance under any agreements or arrangements relating to Xi’An TV’s business arrangements with any third party, and upon request from Xi’An TV, Vallant must provide loans to support the operational capital requirements of Xi’An TV and loan guarantees if third party loans are necessary. In return, Xi’An TV must pledge its accounts receivable and all of its assets to Vallant. This agreement is effective for an indefinite term and may be terminated by Vallant with 30 days notice.
Business Services Agreement. Pursuant to this agreement among Vallant and Xi’An TV, Vallant acquired the exclusive rights to provide Xi’An TV with all services required by Xi’An TV in the regular course of business, including services pertaining to administration, human resources, production, screenplay drafting and marketing. As part of this agreement, Vallant must also undertake to:
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develop business opportunities on behalf of Xi’An TV;
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provide relevant market information research;
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receive payments from customers on behalf of Xi’An TV;
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administer staff training and human resources for Xi’An TV; and
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provide daily accounting and financial services.
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In exchange, Xi’An TV must provide Vallant with 62.61% (now 100%) of its income. This agreement is effective for an indefinite term and may be terminated by Vallant at any time with no notice.
Option Agreement. Pursuant to this agreement between the Xi’An TV Shareholders, Xi’An TV and Vallant, the Xi’An TV Shareholders irrevocably granted Vallant or its designees the exclusive option to purchase, to the extent permitted under the laws of China, all or part of their equity interest in Xi’An TV for the cost of their initial contributions to the registered capital of Xi-An TV or the minimum amount of consideration permitted by applicable Chinese law. The proceeds of the exercise of the option will be applied to repay loans extended by the Xi’An TV Shareholders to Xi’An TV, unless otherwise agreed. Vallant or its designees have sole discretion to decide when to exercise the option, whether in part or in full. This agreement is effective for an indefinite term and may be terminated by Vallant at any time with no notice.
Equity Pledge Agreement. Pursuant to this agreement between Xi'An TV, the Xi’An TV Shareholders and Vallant, the Xi’An TV Shareholders pledged all of their equity interests in Xi’An TV to Vallant to guarantee Xi’An TV’s performance of its obligations under the business operations agreement described above. If Xi’An TV or the Xi’An TV Shareholders breach their respective contractual obligations, Vallant, as the pledgee, will be entitled to certain rights, including the right to sell the pledged equity interests. The Xi’An TV Shareholders also agreed that upon the occurrence of any event of default, Vallant will acquire an exclusive, irrevocable power of attorney to take the place and stead of the Xi’An TV Shareholders to carry out the security provisions of this agreement and take any action and execute any instrument that Vallant may deem necessary or advisable to accomplish the purposes of this agreement. The Xi’An TV Shareholders must not dispose of their pledged equity interests or take any actions that would prejudice Vallant’s interests. This agreement is effective for an indefinite term and may be terminated by Vallant at any time with no notice.
On September 17, 2010, the shares of Xi’An TV changed ownership and we entered into a new set of agreements with the new holders of 100% of Xi’An TV’s shares.
Since the Xi’An TV Shareholders do not have the characteristics of a controlling financial interest and do not have sufficient equity at risk for Xi’An TV to finance its activities without additional subordinated financial support from other parties, Xi’An TV’s financial statements become consolidated as our own. As such, and due to the interest we hold in Xi’An TV through Vallant, the following business description describes the business and operations of Xi’An TV as our own.
Business Overview:
For the year ended June 30, 2020, our business and operation remained virtually the same as the year ended June 30, 2019.
Products and Services
Since our incorporation we have produced one feature-length film, eleven television series and one documentary. Television series in China are similar to those in the North American market, but they do not operate on the basis of seasons. Each series has a definite lifetime of anywhere from 10 to 50 episodes, at which point the series ends and a new one is developed. The new series may be based on previous ones, but the development of a new series does not follow the same type of recurring seasonal structure as in North America.
In 2007, our television series Special Mission received a viewership rating of 4% of the entire Chinese market when it was broadcast on China Central Television (“CCTV”), Channel 8. In the same year Invisible Wings received the Outstanding Children’s Film and Outstanding Young Actress awards during the 12th Film Ornamental Column Awards, the Golden Elephant Award during the Indian
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International Film Festival, the Golden Angel Award during the Hollywood China-USA Film Festival, and was featured as the opening film of Beijing International Sport Film Week.
Below is a summary of some of our more successful programming that we have already released:
Invisible Wings – A 90 minute feature film, this motivational drama describes the story of a 15-year old Chinese girl who lost her arms in an accident, and whose mother was diagnosed with schizophrenia and anxiety. The young girl’s love for her mother motivates her to apply herself diligently to her studies and athletics. She also takes care of her mother while battling her disabilities. The girl overcomes all odds and wins a medal in the Chinese national games for the disabled and represents her country at the Paralympics.
In 2007, Invisible Wings received the Outstanding Children’s Film and Outstanding Young Actress awards during the 12th Film Ornamental Column Awards, the Golden Elephant Award during the Indian International Film Festival, the Golden Angel Award during the Hollywood China-USA Film Festival, and was featured as the opening film of Beijing International Sport Film Week.
Special Mission – A 40-episode television series with each episode lasting 40 minutes, Special Mission is a war drama that focuses on the actions of members of the Chinese military intelligence community as they fight against the Japanese army which invaded China. The series describes various characters who sacrificed their lives in order to protect their country and uncover the plans of the Japanese forces.
Lotus Lantern Prequel – A 46 episode television series with each episode lasting 52 minutes, Lotus Lantern Prequel is a drama based on traditional Chinese mythology that describes the story of God Erlang, a popular mythological figure, who battles through adversity and many enemies to reunite with his mother and younger sister.
After being broadcast on CCTV-8 in April 2009, Lotus Lantern Prequel achieved a first-run audience rating of 3.9% during prime time and was syndicated on many Chinese regional television stations.
We plan to invest approximately $7,990,000 in producing and distributing six new television series over the next two years. We anticipate raising sufficient capital for these expenditures through debt or equity financing as well as engaging in joint venture productions with other established production companies.
We plan to undertake the development and production of our programming through a series of different stages from development to post-production. The process can be summarized as follows:
Development Stage
This is the initial stage during which we develop and research a concept. We undertake market research and hold focus groups to establish whether demand exists for a particular type of programming. Once we receive positive feedback on a concept we instruct our writers to produce a plot of the program based on suggestions from the focus groups and the results of our market research. Alternatively, we can acquire original works or rights to adapt classic works, both from China and abroad, that we believe will be marketable to the Chinese market. If we complete any such acquisition, we generally produce a plot based on the work which may be further revised as we continue developing the project. The plot provides a basic outline of the program and provides a foundation upon which our writers can produce a screenplay or script.
Our plot is then reviewed by our development committee. This committee is made up of recognized television and film professionals in China as well as members of our local Shaan’Xi Province Administration of Radio, Film and Television (“ARFT”) agency, who are responsible for approving the programming for distribution to television stations. By having a development committee in place, we hope to avoid producing works that will either not be granted government approval for distribution, will be too difficult to produce or will not be attractive to television stations and viewers.
Once we have decided upon the basic plot for a project, we determine its production schedule, a rough budget and terms of financing. We may provide the financing directly or through a joint venture with one or more third parties interested in participating in the project. Potential investors include advertisers and distributors, home video publishers and private investors. Currently, we partner primarily with such investors to provide the financing required to develop our television programming, but we also plan on raising capital through the sale of our debt or equity securities.
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The development stage usually takes six months to several years, subject to our market research, co-production negotiations and script judgment from focus groups and the development committee.
Pre-Production Stage
The next stage involves developing a detailed script or screenplay based on the basic plot outline produced in the first stage of the process. The script generally incorporates all of the themes and major characteristics of the outline while taking into account production scenarios. Our scripts and screenplays are based on our own original work as well as adaptations of books, musical works, folklore and classic Chinese or international stories.
We hire part-time writers who work out of our offices to create the screenplays and scripts for our television series and films. Occasionally, we also purchase completed screenplays and scripts from suppliers such as professional writers, other film producers or the general public.
After the screenplay or script is finalized, our financial department plans the investment budget and our film and television series production center prepares a detailed production plan and searches for a suitable director, production manager and executive producer, as well as actors and crew. The production manager is responsible for executing all facets of production, the executive producer supervises the production process and the director is responsible for the actors, crew and cinematography.
This part of the process generally takes one to two months depending on the complexity of the script and the production.
Production Stage
This stage deals with the actual filming of the television series or film. The director, actors and crew gather at a studio at our offices, at a sound stage we rent out or that is provided by one of the production partners, or at another location to film a particular scene or scenes. Our involvement in this stage is minimal unless modifications to the script or screenplay must be made. Currently, we outsource the principal photography and filming of the various scenes to the Xi’An Television Production Center. We do not directly employ any directors, actors or crew.
Depending on the complexity of the project, the production stage can last up to six months for a television series and up to three months for a film.
Post-Production Stage
Once production has wrapped up, we are responsible for coordinating all of the tasks required to produce a finished product for television or the cinema. We assign an editor to assemble the various pieces of film and determine scene transitions, and we add musical elements, subtitles, visual and/or digital effects to the television series or film. Once the editing process is complete, which takes up to three months, the director provides input on any changes and a final version of the program or film is produced.
Markets
According to an article titled “China Film Industry Development Status” on www.chinafilm.com, the Chinese film industry generated revenues of approximately $1.2 billion from film sales during 2008. This represents an increase of 25% over sales numbers in 2007 and includes 7.15 million film screenings to an audience of 1.6 billion people. Sixty percent of the films were produced domestically in China.
During early 2009, the television series department of the State Administration of Radio, Film and Television (“SARFT”) agency completed a review of the television series industry in China. They found that Chinese television stations invested approximately $800 million into the production and purchase of television series in 2008. This represents an increase of 38% compared to the amounts spent in 2007.
Additionally, according to www.people.com.cn, Chinese film and television series producers generated revenue of approximately $440 million by exporting their productions outside of China.
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The major purchasers of television series are regional and national television stations. The demand for such programming from other media providers, such as internet television stations who distribute programs through an internet connection or directly onto a client’s mobile phone, is limited, and as such we have not considered producing programs intended for these types of media.
Since the major regional and national television networks are subject to heavy government influence, we develop our television series and films with this consideration in mind. Generally, we plan to focus on topics that the government supports, such as revolutionary history or modern Chinese culture, which will make our programming more attractive for networks such as CCTV to broadcast and release through their stations.
Distribution Methods
After we complete the production and editing of a film or television series, we must file an application for approval to broadcast the program with the SARFT agency. Once we are granted approval and provided with a broadcasting permit for the film or series, we are free to distribute the program, which, in the case of a television series, we normally begin following the completion of one or two episodes.
Our main customers include the following networks:
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CCTV;
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Hunan Satellite Television;
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Jiangsu Satellite Television;
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Zhejiang Satellite Television;
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Jiangxi Satellite Television;
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Anhui Satellite Television; and
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all other provincial broadcast television networks in China.
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CCTV is the major state television broadcaster in mainland China. It has a network of 19 channels that broadcast different programs and is accessible to more than one billion viewers. The programming on Channels 1 and 8 of the CCTV network is most closely aligned with the characteristics of our films and television series. Once our programming is televised on CCTV, regional television networks regularly purchase the same programming to use for their television stations.
We distribute our films and television series primarily through our direct sales channel. Occasionally, we may also use the services of an outside distributor to facilitate sales to a wider range of customers. However, even though we devote a significant amount of our resources to ensuring that the programming we produce appeals to our customers and have had success distributing it in the past, there can be no assurance that any film or television series we produce will be purchased by any distributors or television networks.
Competition
We face competition from various television and film production companies ranging from small, private businesses to large, state-sponsored enterprises. Some of our major competitors include China Film Group, Huayi Brothers Media Group and PolyBona Film Distribution Co.
Many of our competitors have longer operating histories, better brand recognition and greater financial resources than we do. In order for us to successfully compete in our industry we will need to:
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develop highly marketable programming;
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continue developing our relationships with major television networks; and
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increase our financial resources.
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However, there can be no assurance that even if we do these things we will be able to compete effectively with the other companies in our industry.
As of June 2010, there were approximately 3000 film and television producers registered in China. Among these, approximately one-third had not produced any films or television series between 2006 and 2008, and the majority of the others only produced an average of two to three films or series per year. The film and television industry in China is highly de-centralized and there are no truly dominant producers with whom we must compete.
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We believe that we will be able to compete effectively in our industry because of a successful product development strategy that we have already used to produce profitable programming. Our past productions have been successful due to the detailed production process and strategy described above as well as the strong relationships we have forged with television networks.
We also attempt to increase the probability that our programming will be profitable and will be purchased by television networks by having all of our concepts vetted by our programming committee. This committee is comprised of established professionals in the Chinese film and television industry as well as members of the examination team of the Shaan’Xi Province ARFT agency, which provides approval for programming to be distributed to television networks. We believe that having our programming vetted by this committee increases our competitiveness in the industry and the chance that any television series or film we produce will be approved by the government and subsequently purchased by one or more television networks.
Additionally, we have established relationships with actors, directors and production agencies through previous collaborations, and have created cooperative relationships with the major television station in the city of Xi’An and the Xi’An Television Production Center that have provided us with access to partners of theirs as well as major television networks throughout the country. This resulted in our television series, Special Mission, being distributed to over 90% of the television stations throughout China.
Intellectual Property
We have not filed for any protection of our name or trademark. Since we produce film and television scripts and screenplays, we develop and sell intellectual property regarding these productions. Our intellectual property rights are protected to the fullest extent permitted by Chinese law. The following is a list of films and television series in which we hold, or used to hold, intellectual property rights:
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Name
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Programming Type
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Current Intellectual Property Income Rights
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Special Mission
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TV Series
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Yes
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Invisible Wings
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Film
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No (Sold)
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Doctor County Mayor
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TV Series
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Yes
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Lotus Lantern Prequel
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TV Series
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Yes
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Fox-Hunting
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TV Series
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No (Sold)
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Lucky Chicken
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TV Series
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Yes
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Hard Corps
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TV Series
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Yes
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Tianshan Urgency Action
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TV Series
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Yes
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Drive Dragon Gate
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TV Series
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Yes
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Lover’s Grief
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TV Series
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Yes
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Desert Love Story
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TV Series
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No (Sold)
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Gongtan Ancient Town of China
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Documentary
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Yes
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Six Men’s Disasters in Tang Dynasty
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TV Series Script
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Yes
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Lady Shexiang
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TV Series
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Yes
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Xia Hai
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TV Series
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Yes
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Huang TuNvNv
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TV Series
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Yes
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Xiao Lao Xiang Jin Cheng
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TV Series
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Yes
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Guo Men Ying Xiong
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TV Series
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Yes
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The love of the Hawthron Tree
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TV Series
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Yes
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Zhu De
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TV Series
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Yes
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Qiang Xia
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TV Series
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Yes
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We also own the copyright of our logo and all of the contents of our website, www.xatvm.com.
Research and Development
We did not incur any research and development expenses during the years ended June 30, 2020 and 2019.
Reports to Security Holders
The public may read and copy any materials that we file with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that site is www.sec.gov.
Government Regulations
Regulation on Screenplay (Outline) Keeping On Record and Film Management enacted by the SARFT on April 3, 2006
This regulation affects the following two procedures we undertake:
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before producing a film, the producer of the film is required to submit the screenplay to the local Provincial AFRT for backup and record keeping, and if the film deals with subjects or themes of historical or revolutionary importance, the screenplay must be supervised and approved by the SARFT; and
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each film produced in China must be submitted to the examination committee of SARFT, which examines the film’s content and decides whether the film should be allowed to be broadcast in China. Films that receive approval receive a Film Public Show Permit and Film Examination Written Decision designation, and without this designation, a film cannot be aired on television in China and will therefore not be distributed.
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Effect on our operations. We need to submit any films we produce to the SARFT for approval prior to their distribution and broadcasting. It generally takes approximately two or three months to complete the examination, and it may take longer if we receive comments that we must revise the film in some way. Since we work with a number of individuals who form part of the SARFT examination group, we limit the risk of not receiving broadcast approval or being required to revise our scripts and screenplays. However, if revisions are required or a screenplay is rejected, this could increase our costs of production and impact our profitability.
Regulations on Radio and Television Program Production and Operation Management enacted by the SARFT on June 15, 2004
This regulation states that all Chinese enterprises operating in the business of radio and television program production must acquire a Permit Certificate of Radio and Television Program Production and Operation. The regular term of this license is two years and it may be renewed every two years. Additionally, the regulation specifies that television series may only be produced by companies or entities that have received a Permit Certificate distributed by the SARFT.
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Effect on our operations. We currently hold the appropriate Permit Certificate, and as such we are qualified to operate a film and television program production business in China. Renewing the Permit Certificate is a very straightforward process and we do not anticipate that it will cost us much or have a significant effect on our operations.
Regulation on Radio Television Management enacted by the State Council on August 1, 1997
This regulation was enacted to provide guidance on establishing Chinese radio and television stations as well as planning and constructing radio and television networks under the supervision of the SARFT. The regulation also states that radio and television programs may not be produced by companies or entities that do not hold the relevant Permit Certificate, that radio and television programs may not be broadcasted without the approval of the SARFT and that any companies or entities that act in violation of these regulations will face regulatory action.
Effect on our operations. This is a general administrative regulation relating to all radio and television programming companies. We currently comply with all of the requirements of the regulation and if at any time we do not possess any specific permits that may be required, we plan to locate cooperative companies that do and partner with them to produce of our films and television series.
Environmental Regulations
We are not aware of any material violations of environmental permits, licenses or approvals that have been issued with respect to our operations. We expect to comply with all applicable laws, rules and regulations relating to our business, and at this time, we do not anticipate incurring any material capital expenditures to comply with any environmental regulations or other requirements.
While our intended projects and business activities do not currently violate any laws, any regulatory changes that impose additional restrictions or requirements on us or on our potential customers could adversely affect us by increasing our operating costs or decreasing demand for our products or services, which could have a material adverse effect on our results of operations.
Employees
We currently have six employees, four full-time and two part-time, including our Chief Financial Officer and Chief Executive Officer.