NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
December 31, 2017
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, 2017. 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 disclosures contained in the audited financial statements for the year ended June 30, 2017 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 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.
Going Concern
The accompanying unaudited 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 a working capital deficit as of December 31, 2017. The Company also generated negative operating cash flows and incurred net loss for the six months ended December 31, 2017.
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
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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 December 31, 2017 and June 30, 2017, the Company owed Dean Li $526,670 and $407,208, respectively. The loans borrowed from 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 4.67-5.03% with reference to one-year loans.
In July 2015, the Company entered into an agreement to invest RMB 5 million (approximately $752,627 at the time of investment) in a film that is produced by Beijing Huaxia Star Media Co., Ltd. and the payment was made in August 2015. As of December 31, 2017, the film was still in preparation stage. Dean Li, the President and Chief Executive Officer of the Company, holds 13% equity interest in Beijing Huaxia Star Media Co., Ltd.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward Looking Statements
This quarterly report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology including "could", "may", "should", "expect", "plan", "anticipate", "believe", "estimate", "predict", "potential" and the negative of these terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially.
While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested in this report.
Results of Operations
Comparison of the six months ended December 31, 2017 and 2016:
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For Six Months Ended
December 31,
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2017
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2016
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Operating expenses
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Selling, general and administrative
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$
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132,484
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$
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140,349
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Depreciation expenses
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756
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802
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Total operating expenses
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133,240
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141,151
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Other income (expense):
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Interest expense
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(11,114)
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(8,174)
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Other income
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-
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4,313
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Total other expense
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(11,114)
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(3,861)
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Net loss before income taxes
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(144,354)
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(145,012)
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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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(144,354)
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$
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(145,012)
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Revenue and Cost
We had no sales and cost for the six months ended December 31, 2017 and 2016.
Operating expenses
During the six months ended December 31, 2017, our total operating expenses were $133,240, a decrease of $7,911or 6% as compared to $141,151 for the six months ended December 31, 2016.The main decrease was due to decrease in office expenses.
Net loss
For the six months ended December 31, 2017 we incurred a net loss of $144,354, as compared to a net loss of $145,012 for the six months ended December 31, 2016, a decrease of $658 or 0.5%. This decrease was primarily due to the decrease in operating expenses.
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Comparison of the three months ended December 31, 2017 and 2016:
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For Three Months Ended
December 31,
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2017
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2016
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Operating expenses
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Selling, general and administrative
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$
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73,745
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$
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102,516
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Depreciation expenses
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371
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396
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Total operating expenses
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74,116
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102,912
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Other income (expense):
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Interest expense
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(5,987)
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(4,038)
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Other income
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-
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4,313
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Total other income (expense)
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(5,987)
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275
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Net loss before income taxes
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(80,103)
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(102,637)
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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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(80,103)
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$
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(102,637)
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Revenue and Cost
We had no sales and cost for the three months ended December 31, 2017 and 2016.
Operating expenses
During the three months ended December 31, 2017, our total operating expenses were $74,116, adecrease of $28,796 or 28%as compared to $102,912 for the three months ended December 31, 2016. The main decrease was due to decrease in office expenses.
Net loss
For the three months ended December 31, 2017 we incurred a net loss of $80,103, as compared to a net loss of $102,637 for the three months ended December 31, 2016, adecrease of $22,534 or 22%. This decrease was primarily due to the decrease in operating expenses.
Liquidity and Capital Resources
The following table sets forth a summary of our cash flows for the periods indicated:
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For the Six Months Ended
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December 31,
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2017
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2016
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Net cash used in operating activities
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$
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(107,470)
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$
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(125,766)
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Net cash provided by investing activities
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-
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30,004
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Net cash provided by financing activities
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100,446
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66,785
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Effect of exchange rate changes on cash and cash equivalents
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403
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(1,161)
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NET CHANGE IN CASH AND CASH EQUIVALENTS
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(6,621)
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(30,138)
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CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
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13,199
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37,190
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CASH AND CASH EQUIVALENTS AT END OF PERIOD
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$
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6,578
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$
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7,052
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As of December 31, 2017 we had cash of $6,578 in our bank accounts and a working capital deficit of $837,272.
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For the six months ended December 31, 2017, we used net cash of $107,470 in operating activities, compared to net cash used of $125,766 in operating activities during the same period of 2016. The decrease of $18,296 for net cash used in operating activities was mainly due to increase in accrued liabilities and other payable.
During the six months ended December 31, 2016, we received net cash of $30,004 from investing activities, which was from collection of notes receivable.
During the six months ended December 31, 2017, we received net cash of $100,446 from financing activities, compared to net cash received of $66,785 in financing activities during the same period in fiscal year 2016. The increase of $33,661 in net cash provided by financing activities was mainly due to increase in advances received from a related party.
Our cash level decreased by $6,621 during the six months ended December 31, 2017, compared to a decrease of $30,138 in the same period of 2016. The changes in cash were a result of the factors described above.
We anticipate that we will meet our ongoing cash requirements by obtaining income as well as 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 obtaining income generated from daily operations 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 2017 10-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, 2017.
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
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.