|
CHINA MEDIA INC.
|
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
(Unaudited)
|
|
|
|
|
|
FOR THE SIX
MONTHS ENDED DECEMBER 31,
|
|
|
|
|
|
2019
|
|
2018
|
|
CASH FLOWS
OPERATING ACTIVITIES
|
|
|
|
|
|
Net loss
|
$
(133,961)
|
|
$
(861,997)
|
|
|
Adjustments to
reconcile net loss to net cash used in
|
|
|
|
|
operating
activities:
|
|
|
|
|
|
|
Imputed
interest
|
15,474
|
|
13,484
|
|
|
Impairment loss on film costs
|
-
|
|
729,001
|
|
|
Operating lease
right-of-use asset – related party
|
8,102
|
|
-
|
|
|
Changes in
operating assets and liabilities:
|
|
|
|
|
|
|
|
Accrued
liabilities and other payable
|
19,565
|
|
38,400
|
|
|
|
|
Operating lease
liability – related party
|
1,431
|
|
-
|
|
Net cash used in
operating activities
|
(89,389)
|
|
(81,112)
|
|
|
|
|
|
|
|
|
|
CASH FLOW
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
Proceeds from
related party
|
88,816
|
|
77,758
|
|
Net cash provided
by financing activities
|
88,816
|
|
77,758
|
|
|
|
|
|
|
|
|
|
Effect of exchange
rate changes on cash and cash equivalents
|
(43)
|
|
(260)
|
|
NET CHANGE IN CASH
AND CASH EQUIVALENTS
|
(616)
|
|
(3,614)
|
|
CASH AND CASH
EQUIVALENTS AT BEGINNING OF THE PERIOD
|
2,603
|
|
7,179
|
|
CASH AND CASH
EQUIVALENTS AT END OF THE PERIOD
|
$
1,987
|
|
$
3,565
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
INFORMATION:
|
|
|
|
|
|
Interest paid
|
$
-
|
|
$
-
|
|
|
Income taxes
paid
|
$
-
|
|
$
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these unaudited
consolidated financial statements.
|
7
CHINA MEDIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
December 31, 2019
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, 2019. 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, 2019 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
On
July 1, 2019, the Company adopted Accounting Standards Update (ASU)
2016-02, Leases (as amended by ASU 2018-01, 2018-10, 2018-11,
2018-20, and 2019-01, collectively ASC Topic 842), using the
modified retrospective method. The Company elected the transition
method which allows entities to initially apply the requirements by
recognizing a cumulative-effect adjustment to the opening balance
of retained earnings in the period of adoption. As a result of
electing this transition method, previously reported financial
information has not been restated to reflect the application of the
new standard to the comparative periods presented. The Company
elected the package of practical expedients permitted under the
transition guidance within ASC 842, which among other things,
allows the Company to carry forward certain historical conclusions
reached under ASC Topic 840 regarding lease
8
identification, classification, and
the accounting treatment of initial direct costs. The Company
elected not to record assets and liabilities on its consolidated
balance sheet for new or existing lease arrangements with terms of
12 months or less. The Company recognizes lease expenses for such
lease on a straight-line basis over the lease term.
The primary impact of applying ASC Topic 842 is the initial
recognition of $92,000 of lease liability and $62,000 of
right-of-use asset on the Company’s consolidated balance sheet as
of July 1, 2019, for lease classified as operating leases under ASC
Topic 840, as well as enhanced disclosure of the Company’s leasing
arrangement. There is no cumulative effect to retained earnings or
other components of equity recognized as of July 1, 2019 and the
adoption of this standard did not impact the consolidated statement
of operations and comprehensive loss or consolidated statement of
cash flows of the Company. The Company does not have finance lease
arrangements as of December31, 2019. See Note 4 for further
discussion.
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 December 31, 2019. The Company also
generated negative operating cash flows and incurred net loss for
the six months ended December 31, 2019.
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
December 31, 2019 and June 30, 2019, the Company owed Dean Li
$797,147 and $717,974, respectively. The loans borrowed from Mr.
Dean Li are unsecured, 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
3.39%-4.15% with reference to one-year loan.
The Company has a five-year lease agreement with Shaanxi Gede
Trading Co., Ltd. (“Gede”) to lease its main office for a monthly
rent of RMB11,167 (approximately $1,637) with a term of five years
and expiration date on December 31, 2022. Gede’s Legal
Representative and Chief Executive Officer is a major shareholder
of the Company. As of December 31, 2019, the Company had a
right-of-use asset of $53,404 and lease liability of $91,875related
to this lease. The Company also owed Gede rent payable of $43,352
for another lease that ended December 31, 2017. As of June 30,
2019, total rent payable owed to Gede was $73,270. See Note 4 for
more details.
On
December 11, 2018, the Company provided a guarantee for Shaanxi
Hengtai Mingji Trading Co., Ltd.’s (“Hengtai”) two-year loan
borrowed from Chang’An Bank in the amount of RMB 210,532,513
(approximately $30,616,700 when borrowed). The loan was pledged by
Hengtai’s receivable from Shaanxi Senzhiyuan Industrial Co., Ltd.
(“Senzhiyuan”), a related party of the Company. See Note 5 for more
details.
9
NOTE 4. Operating Lease
On January 1, 2018, the Company entered into a
lease agreement with Shaanxi Gede Trading Co., Ltd. (“Gede”), a
related party, to lease its main office for a monthly rent of
RMB11,167 (approximately $1,637) with a term of five years.
Balance sheet information related to the operating lease is as
follows:
For the six months ended December 31, 2019, the
Company had operating lease cost of $9,533 and the reduction in
operating lease right-of-use asset – related party was $8,102.
No cash was paid for amount included in the measurement of
operating lease liability – related party during the six
months ended December 31, 2019.
The
weighted-average remaining lease term and the weighted-average
discount rate of our lease are as follows:
|
|
|
|
|
|
December 31,
2019
|
|
Weighted-average
remaining lease term
|
|
|
|
|
3.00
years
|
|
|
|
|
|
|
|
|
Weighted-average
discount rate
|
|
|
|
|
4.85%
|
The
following table summarizes the maturity of our operating lease
liability – related party as of December 31, 2019:
|
For The Years
Ended June 30,
|
|
|
|
|
|
|
|
2020
(remaining)
|
|
|
|
|
|
$
|
48,089
|
|
|
2021
|
|
|
|
|
|
|
19,235
|
|
|
2022
|
|
|
|
|
|
|
19,235
|
|
|
2023 and
thereafter
|
|
|
|
|
|
|
9,618
|
|
|
Total lease
payment
|
|
|
|
|
|
|
96,177
|
|
|
Less
imputed interest
|
|
|
|
|
|
|
(4,302)
|
|
|
Total lease
liability – related party
|
|
|
|
|
|
$
|
91,875
|
|
NOTE 5.
Commitments and
Contingencies
On
December 11, 2018, the Company entered into a guarantee agreement
to provide guarantee for Shaanxi Hengtai Mingji Trading Co., Ltd.’s
(“Hengtai”) two-year loan borrowed from Chang’An Bank in the amount
of RMB 210,532,513 (approximately $30,616,700). The guarantee
period is two years starting from the date the payment is due. The
loan is pledged by Hengtai’s receivable from Shaanxi Senzhiyuan
Industrial Co., Ltd. (“Senzhiyuan”) in the amount of RMB
226,000,000 and 50 million equity interest in Hengtai’s two
shareholders. The controlling shareholder of Senzhiyuan is also a
principal shareholder of the Company.
The information of lease commitment is provided in Note 4.
10
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, 2019 and
2018:
|
|
|
|
|
|
|
|
|
For Six Months Ended
December 31,
|
|
|
2019
|
|
2018
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
Selling, general
and administrative expense
|
$
|
118,441
|
|
$
|
119,464
|
|
Impairment
loss
|
|
-
|
|
|
729,001
|
|
Total operating
expenses
|
|
118,441
|
|
|
848,465
|
|
|
|
|
|
|
|
|
Other expense:
|
|
|
|
|
|
|
Interest expense
|
|
15,520
|
|
|
13,532
|
|
Total
other expense
|
|
15,520
|
|
|
13,532
|
|
|
|
|
|
|
|
|
Net loss before
income taxes
|
|
(133,961)
|
|
|
(861,997)
|
|
Income taxes
|
|
-
|
|
|
-
|
|
Net loss
|
$
|
(133,961)
|
|
$
|
(861,997)
|
Revenue and Cost
We
had no sales and cost for the six months ended December 31, 2019
and 2018.
Operating expenses
During the six months ended December 31, 2019, our
total operating expenses were $118,441, a decrease of $730,024 or
86% as compared to $848,465 for the six months ended December 31,
2018. The decrease was primarily due to decrease in impairment loss
on film costs.
Net loss
For the six months ended December
31, 2019, we incurred a net loss of $133,961, as compared to a net
loss of $861,997 for the six months ended December 31, 2018, a
decrease of $728,036 or 84%. This decrease was primarily due to the
decrease in operating expenses.
11
Comparison of the three months ended December 31, 2019 and
2018:
|
|
|
|
|
|
|
|
|
For Three Months Ended
December 31,
|
|
|
2019
|
|
2018
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
Selling, general
and administrative expense
|
$
|
60,758
|
|
$
|
60,256
|
|
Impairment
loss
|
|
-
|
|
|
729,001
|
|
Total operating
expenses
|
|
60,758
|
|
|
789,257
|
|
|
|
|
|
|
|
|
Other expense:
|
|
|
|
|
|
|
Interest expense
|
|
8,672
|
|
|
6,684
|
|
Total
other expense
|
|
8,672
|
|
|
6,684
|
|
|
|
|
|
|
|
|
Net loss before
income taxes
|
|
(69,430)
|
|
|
(795,941)
|
|
Income taxes
|
|
-
|
|
|
-
|
|
Net loss
|
$
|
(69,430)
|
|
$
|
(795,941)
|
Revenue and Cost
We
had no sales and cost for the three months ended December 31, 2019
and 2018.
Operating expenses
During the three months ended December 31, 2019,
our total operating expenses were $60,758, a decrease of $728,499
or 92% as compared to $789,257 for the three months ended December
31, 2018. The decrease was primarily due to decrease in impairment
loss on film costs.
Net loss
For the three months ended December 31, 2019, we
incurred a net loss of $69,430, as compared to a net loss of
$795,941 for the three months ended December 31, 2018, a decrease
of $726,511 or 91%. 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended
|
|
|
|
|
December 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
Net cash used in
operating activities
|
|
$
|
(89,389)
|
|
|
$
|
(81,112)
|
|
|
Net cash provided
by financing activities
|
|
|
88,816
|
|
|
|
77,758
|
|
|
Effect of exchange
rate changes on cash and cash equivalents
|
|
|
(43)
|
|
|
|
(260)
|
|
|
NET CHANGE IN CASH
AND CASH EQUIVALENTS
|
|
|
(616)
|
|
|
|
(3,614)
|
|
|
CASH AND CASH
EQUIVALENTS AT BEGINNING OF PERIOD
|
|
|
2,603
|
|
|
|
7,179
|
|
|
CASH AND CASH
EQUIVALENTS AT END OF PERIOD
|
|
$
|
1,987
|
|
|
$
|
3,565
|
|
As of December 31,2019, we had cash of $1,987 in
our bank accounts and a working capital deficit of $1,202,197.
12
For the six months ended December 31, 2019, we used
net cash of $89,389 in operating activities, compared to net cash
used of $81,112 in operating activities during the same period of
2018. The increase of $8,277 for net cash used in operating
activities was mainly due to the decrease in the change in accrued
liabilities and other payablein this period.
During the six months ended December 31, 2019, we
received net cash of $88,816 from financing activities, compared to
net cash received of $77,758 in financing activities during the
same period in fiscal year 2018. The increase of $11,058 in net
cash provided by financing activities was due to the increase in
loan from a related party.
Our cash level decreased by $616 during the six
months ended December 31, 2019, compared to a decrease of $3,614 in
the same period of 2018. 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
2019 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, 2019.
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.
Item 3. Quantitative and
Qualitative Disclosures About Market Risk
Not
applicable.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
13
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 December 31, 2019. 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.
PART II - OTHER INFORMATION
Item 1. Legal
Proceedings
We
are not aware of any legal proceedings to which we are a party or
of which our property is the subject. None of our directors,
officers, affiliates, any owner of record or beneficially of more
than 5% of our voting securities, or any associate of any such
director, officer, affiliate or security holder are (i) a party
adverse to us in any legal proceedings, or (ii) have a material
interest adverse to us in any legal proceedings. We are not aware
of any other legal proceedings that have been threatened against
us.
Item 2. Unregistered Sales of
Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior
Securities
None.
Item 4. Submission of Matters to a Vote of Security
Holders
None.
Item 5. Other
Information
None.
Item 6. Exhibits
|
ExhibitNumber
|
Exhibit Description
|
|
31.1
|
Certification of
Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of
the Securities Exchange Act
of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
|
|
|
|
31.2
|
Certification of
Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of
the Securities Exchange Act
of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
|
|
|
14
|
32.1
|
Certification of
Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted
pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
|
|
|
|
32.2
|
Certification of
Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
|
|
|
|
SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrant
has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
|
|
China Media
Inc.
|
|
|
(Registrant)
|
|
|
|
|
|
/s/ Dean Li
|
|
Date: February 14,
2020
|
Dean Li
|
|
|
President, Chief
Executive Officer
|
|
|
(Principal
Executive Officer)
|
|
|
|
15
