GME INNOTAINMENT, INC. - Annual Report: 2012 (Form 10-K)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.20549
FORM 10-K
o ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2012
Or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File No.: 333-139008
GREAT CHINA MANIA HOLDINGS, INC.
(Exact Name of Registrant as Specified in Its Charter)
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Florida
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59-2318378
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(State or Other Jurisdiction of Incorporation or Organization)
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(I.R.S. Employer Identification No.)
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Room 1902, 19/F., Kodak House II, 321 Java Road, Hong Kong
(Address of Principal Executive Offices) (Zip Code)
Registrant’s telephone number, including area code: 852-2882-9810
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.01 per share
Indicate by check mark if registrant is a well-known seasoned issuer, as defined under Rule 405 of the Securities Act. Yes ¨ No x
Indicate by check mark if registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,”“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer o
(Do not check if a smaller reporting company)
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Smaller reporting company x
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Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes ¨ No x
The aggregate market value of the registrant's voting stock held by non-affiliates (43,757,401 shares) of the registrant based upon the per share closing price of $0.08 on December 31, 2012 was approximately $3,500,592.
As of March 28, 2013, there were 80,498,453 shares of the issuer’s common stock outstanding.
Documents incorporated by reference: None
TABLE OF CONTENTS
In this report, unless the context indicates otherwise, the terms “Company,” “we,” “us,” and “our” refer to Great China Mania Holdings, Inc., a Florida corporation, and its wholly-owned subsidiaries for the period ending December 31, 2012.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, or the “Securities Act,” and Section 21E of the Securities Exchange Act of 1934 or the “Exchange Act.” These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or anticipated results.
In some cases, you can identify forward looking statements by terms such as “may,” “intend,” “might,” “will,” “should,” “could,” “would,” “expect,” “believe,” “anticipate,” “estimate,” “predict,” “potential,” or the negative of these terms. These terms and similar expressions are intended to identify forward-looking statements. The forward-looking statements in this report are based upon management's current expectations and belief, which management believes are reasonable. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor or combination of factors, or factors we are aware of, may cause actual results to differ materially from those contained in any forward looking statements. You are cautioned not to place undue reliance on any forward-looking statements. These statements represent our estimates and assumptions only as of the date of this report. Except to the extent required by federal securities laws, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
You should be aware that our actual results could differ materially from those contained in the forward-looking statements due to a number of factors, including:
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new competitors are likely to emerge and new technologies may further increase competition;
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our operating costs may increase beyond our current expectations and we may be unable to fully implement our current business plan;
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our ability to obtain future financing or funds when needed;
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our ability to successfully obtain and maintain our diverse customer base;
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our ability to protect our intellectual property through patents, trademarks, copyrights and confidentiality agreements;
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our ability to attract and retain a qualified employee base;
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our ability to respond to new developments in technology and new applications of existing technology before our competitors;
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acquisitions, business combinations, strategic partnerships, divestures, and other significant transactions may involve additional uncertainties; and
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our ability to maintain and execute a successful business strategy.
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Other risks and uncertainties include such factors, among others, as market acceptance and market demand for our products and services, pricing, the changing regulatory environment, the effect of our accounting policies, potential seasonality, industry trends, adequacy of our financial resources to execute our business plan, our ability to attract, retain and motivate key technical, marketing and management personnel, and other risks described from time to time in periodic and current reports we file with the United States Securities and Exchange Commission, or the “SEC.” You should consider carefully the statements under “Item 1A. Risk Factors” and other sections of this report, which address additional factors that could cause our actual results to differ from those set forth in the forward-looking statements and could materially and adversely affect our business, operating results and financial condition. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the applicable cautionary statements.
Introduction
In February, 2011, three new subsidiaries of the Company were formed and have since maintained operations. These subsidiaries are “Great China Media limited” (which operates a publisher business), “Great China Game Limited” (which operates a game retail business), and “GME Holding Limited” (which operates an artist and artist management business). In June 2011, another new subsidiary GMEC Ventures Limited, a Hong Kong company, was formed and maintained for holding future investment if any.
Current Corporate Structure
As of the date of this filing, the corporate structure is as follows:
GMEC owns two wholly-owned subsidiaries named as Sharp Achieve Holdings Limited (BVI).and Super China Global Limited (BVI). Super China Global Limited (BVI) has two subsidiaries: 1) GME Holdings Limited which was incorporated February 18, 2011 and 2) GMEC Ventures Limited which was incorporated June 1, 2011. Sharp Achieve Holdings Limited (BVI) has two subsidiaries: 1) Great China Games Limited which was incorporated February 1, 2011 and 2) Great China Media Limited which was incorporated February 1, 2011.
General Description of Current Business
GMEC consists of 3 main business segments: Great China Media limited, an electronic content provider (“GCM”), GME Holding Limited, an artist and celebrity management company (“GMEH”) and Great China Game Limited, a video game retailer (“GCG”). In 2011, GCM was the main business segment of GMEC. During the mid of 2012, in order to capture the growing opportunities of artists management businesses in the region, the Company has reformed the businesses to position GMEH as the main business segment of GMEC.
GMEC is an artist management and entertainment company in located in Hong Kong and with talents all over Asia. Its major businesses include talent management, event management, music publishing, movie and TV series productions, multimedia and merchandise licensing in Hong Kong, China and across Asia. To leverage on the popularity and publicity of GMEC’s artists and celebrities in creating stories and events, GMEC also provides leisure and lifestyle-related electronic content to Hong Kong, Macau and China subscribers through cell phone networks and Internet.
GME Holdings Limited (“GMEH”)
GMEH currently manages 24 female artists and 5 male artists in Hong Kong, China, Malaysia and Australia.
Products and services
The profiles of the artists GMEH currently manages:
Female:
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1.
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Chrissie Chau
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http://www.gmegroup.com.hk/index.php/talents/artist/chrissie
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2.
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Jeana Ho
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http://www.gmegroup.com.hk/index.php/talents/artist/jeana
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3.
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Mia Chan
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http://www.gmegroup.com.hk/index.php/talents/artist/mia
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4.
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Alin Chu
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http://www.gmegroup.com.hk/index.php/talents/artist/a-lin
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5.
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Dada Lo
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http://www.gmegroup.com.hk/index.php/talents/artist/dada
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6.
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Hidy Yu
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http://www.gmegroup.com.hk/index.php/talents/artist/hidy
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7.
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Coco Yuen
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http://www.gmegroup.com.hk/index.php/talents/artist/coco
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8.
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Waye
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http://www.gmegroup.com.hk/index.php/talents/artist/waye
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9.
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Kabby Hiu
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http://www.gmegroup.com.hk/index.php/talents/artist/kabby
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10.
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Suki Wong
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http://www.gmegroup.com.hk/index.php/talents/artist/suki
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11.
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Annie G
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http://www.gmegroup.com.hk/index.php/talents/artist/annie-g
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12.
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Haily C
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http://www.gmegroup.com.hk/index.php/talents/artist/hailey
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13.
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Rika V
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http://mm.taobao.com/gmerika?spm=0.0.0.0.tlqI6x
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14.
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Emily Lam
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http://www.gmegroup.com.hk/index.php/talents/artist/emily
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15.
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Bao
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http://www.gmegroup.com.hk/index.php/talents/artist/bao
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16.
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Chris Tong
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http://www.gmegroup.com.hk/
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17.
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Amy Wong
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http://gmeaustralia.com.au/artiste-8/
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18.
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Asiara Liu
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http://gmeaustralia.com.au/artiste-8/
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19.
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Camilla
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http://gmeaustralia.com.au/artiste-8/
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20.
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Fiona
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http://gmeaustralia.com.au/artiste-8/
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21.
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Jennifer
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http://gmeaustralia.com.au/artiste-8/
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22.
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Mia Lee
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http://gmeaustralia.com.au/artiste-8/
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23.
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Toshika
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http://gmeaustralia.com.au/artiste-8/
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24.
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Wendy Kong
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http://gmeaustralia.com.au/artiste-8/
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Male:
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1.
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Dominic Ho
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http://www.gmegroup.com.hk/index.php/talents/artist/dominic
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La Ying
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http://www.gmegroup.com.hk/index.php/talents/artist/la-ying
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3.
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KitJ
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http://www.gmegroup.com.hk/index.php/talents/artist/kit-j
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4.
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Ben Yeung
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http://www.gmegroup.com.hk/index.php/talents/artist/ben
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5.
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King Chiu
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http://www.gmegroup.com.hk/index.php/talents/artist/king
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During 2012, we have arranged our artists to participate in the following activities for revenue generations:
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Movie participations
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'Journey to The West ' by Chrissie Chau http://goo.gl/BQ5qm
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‘Ye Dian Gui Tan’ By Chrissie Chau http://goo.gl/s9VPl
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‘Paper Moon’ by Chrissie Chau http://goo.gl/F0XVw
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‘Lives in Flames’ by Jeana Ho http://goo.gl/M7cqS
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‘Lan Kwai Fong 2’ By Mia Chan and Dominic Ho http://goo.gl/WGDu1
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‘Young and Dangerous: Reloaded’ By Dominic Ho http://goo.gl/C45Pn
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TV series participations
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Now TV 102 Channel Fiji Tour by Rika V, Hidy Yu and Dominc Ho http://goo.gl/txsrp
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'Tang Dynasty Romantic Hero' By Chrissie Chau http://goo.gl/Ezcuw
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Chrissie Chau on TV Series "IPMAN" http://goo.gl/Ncqp1
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‘Memories’ by Chrissie Chau, Coco Yuen and Waye http://goo.gl/EEfD8
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Music and record productions
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Coco Yuen and Waye perform their first plug song “Lemon Space-Time” http://goo.gl/CgSWE
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Bro5 , OctoBeez ,LemonBeez perform in CoverStar competition http://goo.gl/XbbZn
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Bro5 ‘Crazy” MV http://goo.gl/tqO52
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Promotional events for brands and institutional customers
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Sydney Australia Tao Girls Recruitment promotion http://goo.gl/zVaqW
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Alivenotdead x SONY XBA head phone promotion by Jeana Ho http://goo.gl/cseoP
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Victoria Secret Macau grand opening DJ by Jeana Ho http://goo.gl/exGqX
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Broadway Electronic Store TVC by Dominic Ho, Hailey C http://goo.gl/14ErS
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MonsterBeez (Haily C and Annie G) DJing in Fanta Sai Yu party http://goo.gl/z2r6F
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McDonald McCafe TVC by Dominic Ho http://goo.gl/dk1Nd
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Gaga Club Jeana DJ show http://goo.gl/sgckS
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Skin Peptoxyl promotion by Rika V http://goo.gl/Wft8Z
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Mia Chan DJing in Open Gala Party of Shenzhen China ‘Face Club’ http://goo.gl/evw8m
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Spokesperson marketing
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Chrissie Chau is chosen as the spokesman of Hong Kong's largest electronics retailers 'Citylink' http://goo.gl/oNYnL
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Chrissie Chau becomes the spokesman of giant underwear and consumer goods brand ‘LA MIU’ in China http://goo.gl/78fmC
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Chrissie Chau is chosen as the sole spokesman of Kentucky Fried Chicken ("KFC") and its signatory "Zinger Tower Burger" in Hong Kong http://goo.gl/hjuNh
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6.
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Artist – related merchandising
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Chrissie Chau crossover famous Chinese fashion brand for revenue generating activities http://www.lamiu.com/article_847.html
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GMEH also receives shared revenue from
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Intellectual property rights on CD, DVD and video products
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Musical product licenses
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MP3 downloads
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Target customers
Since the majority of its artists appeal to adolescents and young generation, GMEH’s target customers are:
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Adolescents and young adults
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Brand owners and institutional customers who target adolescents and young adults as their end customers
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The selected list of institutional clients of GMEH in 2012 includes:
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KFC
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http://www.kfchk.com
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Bossini
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http://www.bossini.com
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LA MIU
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http://www.lamiu.com
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Giordano
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http://www.giordano.com.hk
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McDonalds
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http://www.mcdonalds.com.hk
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Taobao
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http://mm.taobao.com
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Citilink
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http://www.citylink.com.hk
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Funamedia
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http://www.funamedia.com/
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9.
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Mega-Vision Pictures Limited
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http://www.thefilmcatalogue.com/catalog/CompanyDetail.php?id=3041
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MTel Limited
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http://www.mtelnet.com/
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Currently GMEH’s artists are from Hong Kong, Malaysia, Australia and China.
Great China Media Limited (“GCM”)
GCM is an electronic content provider arm within GMEC. It is located and operated in Hong Kong. Through GCM, GMEC targets at Hong Kong’s electronic content market through provision of content in the form of electronic magazines and auxiliary products. GCM can leverage on the involvements of GMEH’s artists in various activities to create and produce more electronic contents that are appealing to and welcomed by adolescents and young adults.GCM owns the intellectual property rights of all the electronic content developed, which consists of a huge catalog of content and distribution rights.
Products
GCM provides mainly three products:
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Electronic content in the form of electronic magazines
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Currently GCM publishes 7 electronic weekly / bi – weekly magazines:
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Names of magazines
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Themes and contents
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GameWave
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Reviews, previews and news about video games
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AniWave
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Reviews and previews about animated films
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SoccerWave
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News about world soccer
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Hotmachine
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News and information about sports cars and automobiles
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AppsWave/AppsBible
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Reviews and news about Apple App Store and Android Market products
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C.P.U
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Updates about computer hardware and software
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PCGameWave
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Reviews, previews and news about PC online games
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Through the provision of these electronic magazines, revenues are generated from 2 sources:
Direct subscription from customers: Customers can subscribe to electronic magazines through traditional computers, iphones, iPads, Android handsets and tablets using:
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24 reader ( link here )
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Revenue sharing with cell phone operators: GCM has distribution agreements with various major operators in Hong Kong and China:
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3HK ( link here )
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Smartone and China Mobile ( link here )
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3 Macau ( link here )
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China Viva ( link here )
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Traditional magazines
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In order to fully utilize the electronic contents that GCM has produced, GCM has also made available the content in traditional paper magazines through over 2,000 points of sale throughout Hong Kong as follows:
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Names of magazines
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Available in
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GameWave
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7-Eleven, VanGo, Circle K, Book store
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AniWave
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7-Eleven, VanGo, Circle K, Book store
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SoccerWave
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7-Eleven, VanGo, Circle K, Book store
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Hotmachine
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7-Eleven, VanGo, Circle K, Book store
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AppsBible
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3Shop
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Advertisement
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GCM generates advertisement revenue through the electronic media and traditional paper magazines.
Target customers
The core of GCM’s electronic contents relate to the leisure and lifestyle of adolescents and young adults. Each of these magazines is targeted to different groups of customers with different ages and preferences with the aim of covering all aspects of their leisure activities and hobbies:
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Name of magazine
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Target customers
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Age group
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Preferences in hobbies and activities
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GameWave
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8 – 35
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Video console game player
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AniWave
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12 – 28
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Young animation fans in HK
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SoccerWave
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12 – 40
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Soccer fans in HK market
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Hotmachine
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12 – 35
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Sports cars and automobile lovers
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AppsWave/Appsbible
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20 – 35
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Smart phone user in HK
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C.P.U
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14 – 45
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PC user in Hong Kong.
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PCgamewave
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8 – 30
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Active online PC game player in Hong Kong
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Great China Games Limited (GCG)
GCG targets at Hong Kong’s online and offline video games market. GCG is the official reseller of Microsoft Xbox360 and Monster Cable in Hong Kong.
The major brands of products that GCG has carried are as follows:
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Product
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Brands
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Sony
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PS3/PSP/PS VITA and accessories
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Microsoft
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Xbox360 and accessories
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Other
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Wii, and other brands
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Industry and Market Environment
GMEH
China has one of the fastest growing entertainment industries in the world. The global entertainment industry is expected to show an annual growth of 10% in the next four years and that growth will be driven by China – movies, theme parks, media, etc. This growth in entertainment gives rise to many issues, including distribution, licensing, intellectual property, contract and investment.
Movies are very popular in China and there are approximately 15 movie studios in China, among the most famous are Shanghai studio, Beijing studio and Changchun studio. But the movies that are most popular are not produced by these studios, but come from foreign sources including the U.S. despite a variety of administrative measures by the Chinese central government, imported films represent a major share of the Chinese market. It is estimated that revenue from ten imported films was responsible for 70% of the market with the remaining 30% for 100 or more domestic films.
GCM
Hong Kong is a major center for Chinese-language publications. Some local Chinese newspapers and magazines are also distributed in Taiwan, the Chinese mainland and overseas communities where there are significant Chinese population.
Mainland market opening measures after the WTO accession are restricted to the formation of Sino-foreign joint-ventures in the publishing business and distribution of publications.
Hong Kong’s publishing industry is adapting to the digitalization trend, while the electronic book frenzy is sweeping the globe. In the past year, over 1,000 local e-books were published in Hong Kong. 24Reader, a local e-book integrator, has seen a steady growth of 10–20 percent in its mobile e-book apps business since last year. Responding to the growing popularity of electronic reading, the Hong Kong Book Fair 2011 featured two theme zones on e-publishing with 32 exhibitors, a 60 percent increase from last year. The Future Book Store, making its debut at the 2011 fair, attracted 10,000 visitors, and the e-book Reading Platform launched by 3 Hong Kong and HKTDC recorded more than 18,000 downloads since the end of June.
Underpinning Hong Kong’s publishing businesses is a highly developed printing industry. Meanwhile, many Hong Kong printing companies have relocated their factories to the PRC. According to the Hong Kong Printers Association, more than 70 percent of Hong Kong printing factories have moved to the PRC area.
Major Competitors
We have two major prevailing competitors in Hong Kong, specifically: China 3D Digital Entertainment Limited (“China 3D”) and Pegasus Entertainment Holdings Limited (“Pegasus”).
China 3D (Website: http://www.china3d8078.com) is a publicly trading company listed on the Growth Enterprise Market of The Hong Kong Stock Exchange (“GEM”) stock code: 8078 . During 2011, China 3D reported a total revenue of approximately $6.9 million and a net loss of $1.1 million.
The expertise of China 3D is production of movies, acquisition of movie right and movie distribution. During 2012, they have produced and distributed several successful movies with record breaking box offices revenues. Looking forward in 2013, they will enter into the 3D movie market in Hong Kong and China as well. They are in direct competition with GMEC’s movie business as GMEC plans to enter into the movie production and distribution rights business in 2013.
Pegasus (http://www.pegasusmovie.com) is also a publicly trading company listed GEM stock code: 8039. Pegasus has an established brand name in the China movie market especially in comedy genre. They have successfully acquired the theatrical distribution right and arranged the showing in Hong Kong and Macau for "Lost in Thailand", a wonderful comedy, who has grossed box office receipts over $200 million in China, setting the highest record of China box office receipts by a Chinese language movie. They are also in direct competition with GMEC on the movie production and movie distribution right business in China market.
Competitive Advantages
GMEH
The management has identified several competitive factors in the industry:
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Management experience
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Business relationship in the industry
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Client relationship
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Relationship with theater networks within the region
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Experience in multimedia artist exposure
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GMEC believes its management team has competitive advantages over these competitive factors:
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GMEC’s CEO and his management team has over 12 years experiences in this industry including over 10 years working experience in the largest entertainment company in Hong Kong.
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GMEC’s management team has an excellent relationship with TV channels, printed media, electronic media operators and theater network operators.
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CEO and his team have over 10 years’ experiences in establishing client relationship to organize and handle promotional events.
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GMEC management team has over 10 years’ working relationship with 2 major theater chains operators in Hong Kong to distribute movies in Hong Kong
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Through GCM operations, GMEC management team has the ability to utilize multimedia networks to create extensive public awareness and exposures over its artists and promotional events.
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GCM
GCM utilizes crossover platforms, including traditional print media, online media, mobile media and outdoor media platform to create e – contents that enable GMEC to create extensive public exposure over its artists and events. On the other hand, GMEH artists and events have supported GCM to ensure there are sufficient contents to be provided. The synergies of combining GCM and GMEH operations cannot be easily imitated by GCM’s competitors.
The Company also has an in-house technology team that develops interactive applications, such as smart phone games that relate to magazine content or to adhere to a client’s brand promotion strategy.
Business development
GMEH
Looking forward in 2013, GMEC will develop its businesses organically through expanding the current businesses and penetrating into new businesses.
Current businesses expanding
GMEC will increase its extent of movie participations in Hong Kong and China by aggressively placing its artists in new movies to be produced in Hong Kong and China in 2013. The main objective is to increase its revenue base and improves its artists’ exposure.
GMEC plans to penetrate into movie production business on top of movie participation by investing into new movies going to be produced in Hong Kong and China in 2013. GMEC will also participate into overseas movie distribution businesses in 2013.
Penetrating into new businesses
GMEC plans develop the following new businesses in 2013:
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Cooperate with international celebrities / sport stars / artists to crossover merchandizes and products to be marketed in Hong Kong and China. GMEC plans to leverage on the popularities of international celebrities and stars to: (1) assist GMEC’s artists to penetrate into international markets; (2) diversify revenue sources and increase sales through merchandizes and products.
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Cooperate with world class movie producers and experts to improve the quality of the movies produced by GMEC. Through cooperation with world class movie experts, GMEC can improve the quality of its movies so produced to enhance movie revenues.
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3.
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Cooperate with famous and popular apparel brands and electronic products that are appealed to teenagers (e.g., headsets producers) as spokesman in order to better penetrate into teenagers’ market.
|
GCM
In 2013, GCM plans to create an online game point platform – ’GameWave Point’ with Ba-Bi (link here). It is estimated that the platform will commence into operations through Hong Kong’s convenience stores network in April 2013.
Employees
The following table summarizes the employees of GMEC and their operations of GCM, GMEH, GCG:
|
GMEC
|
GCM
|
GMEH
|
GCG
|
Total
|
|
|
CEO
|
1
|
--
|
--
|
--
|
1
|
|
General & Administration
|
2
|
4
|
3
|
1
|
10
|
|
Operation
|
--
|
33
|
3
|
--
|
36
|
|
Sales and broker
|
--
|
3
|
5
|
2
|
10
|
|
Total
|
3
|
40
|
11
|
3
|
57
|
Sales and Marketing
GMEH
We have 5 senior brokers in a public relations agency and production house to arrange and book model jobs for clients. Our General Manager and assistant manager will response negotiate television and film production units for artists’ jobs.
GCM
We have 3 sales representatives to directly approach clients and sell our printed and online banner space.
Our traditional magazines are distributed through distributors to over 2,000 point of sale in Hong Kong.
Our electronic magazine sell through various major operators in Hong Kong: 3HK link here, Smartone and China Mobile link here , Macau (3 Macau ( link here ) ) and China (Viva ( link here ) ) to obtain revenue.
Before you invest in our common stock, you should be aware that there are risks, as described below. You should carefully consider these risk factors together with all of the other information included in this prospectus before you decide to purchase shares of our common stock. Any of the following risks could adversely affect our business, financial condition and results of operations. We have incurred substantial losses from inception while realizing limited revenues and we may never generate substantial revenues or be profitable in the future.
Competition in this industry could result in us losing market share and charging lower prices for services, which could reduce our revenue.
We predominately compete in the fashion model management industry with numerous competitors, from large multi-national companies to local and boutique agencies. We also compete in the general talent
management industry. “Talent” means any model, entertainer, artist, athlete or other talent or celebrity. We endeavor to secure product endorsement contracts from branded consumer products companies for talent represented by us.
In many of our markets, our competitors may possess greater resources, greater name recognition, greater geographic reach and longer operating histories than us, which may give competitors an advantage in obtaining future clients and attracting qualified models and other talent in their markets. Increased competition may lead to, among other things, loss of business and market share and pricing pressures that could negatively impact our business.
In addition, because one of our principal assets is people, and freedom of entry into the model management business is almost unlimited, a small agency may, on occasion, be able to develop business with our clients, particularly if the small agency is successful in recruiting other successful talent.
Our prospects and financial results may be adversely affected if we fail to identify, sign and retain quality talent.
We are dependent on identifying, signing and retaining models and other talent who are well received by clients and are likely to generate repeat business. Our competitive position is dependent on our continuing ability to attract and develop talent whose work can achieve a high degree of client acceptance. Our financial results may be adversely affected if we are unable to identify, sign and/or retain such talent under terms that are economically attractive to us. Our business would be adversely affected by any of the following:
|
|
·
|
inability to recruit new models;
|
|
|
·
|
the loss of popularity of models among clients;
|
|
|
·
|
increased competition to maintain existing relationships with models;
|
|
|
·
|
non-renewals of current agreements with models; and
|
|
|
·
|
poor performance or negative publicity of models.
|
In addition, the fashion model industry is a youthful business, and models’ careers are inherently limited in length. The loss or maturing of talent, particularly key talent responsible for significant gross billings, negatively impacts us. If we are unable to replace lost talent, including by successfully recruiting or developing new talent, our business will suffer. New talent is also important for us to continually show talent alternatives to clients, who regularly seek new “looks”.
We have relied upon our ability to enforce contracts entered into by models and other talent we represent. If we are unable to protect and enforce our contractual rights, we may suffer a loss of revenue.
Our success depends, to a large degree, on our current talent under management and, in the future, scouting new talent and entering into new contracts. To protect our contractual rights, we have traditionally vigorously defended our contractual rights vis-à-vis models and other talent, as well as other agencies and companies, for both financial reasons and to encourage ongoing strict adherence to contracts by all models and other talent. Such strict enforcement through litigation and other legal means could result in substantial costs and diversion of resources and the potential loss of contractual rights, which could impair our results of operations and financial condition.
If we are unable to retain key management personnel or hire additional skilled personnel, we may not be able to successfully manage our business in the future.
Our key management personnel and their skills and relationships with clients are among our most important assets. An important aspect of our competitiveness is our ability to attract and retain key management personnel, and our future success depends upon the continued service or involvement of key management personnel. If we lose the services of one or more of our key management personnel, or if one or more of them decides to join a competitor or otherwise compete directly or indirectly with us, we may not be able to successfully manage our business or achieve our business objectives. The loss of the services of any of our key management personnel or other key employees could have a material adverse effect on our business, prospects, financial condition and results of operations.
In addition to retaining key existing management personnel, our future success may also depend on our ability to identify, attract, hire, train, and motivate other highly skilled management, agents and
administrative personnel. Competition for such personnel is intense, and there can be no assurance that we will be able to successfully attract, assimilate or motivate sufficiently qualified personnel. The failure to attract and retain the necessary personnel could have a material adverse effect on our business.
If we are unable to maintain our professional reputation and brand name, our business will be harmed.
We strongly depend on our overall reputation and brand name recognition, which we believe is strong in the industry, to secure new engagements and to sign qualified talent. Our success also depends on the individual reputations of the talent that we represent. In addition, any adverse effect on our reputation might negatively impact our businesses, which is driven largely by the value of the Company’s brand. If any client is dissatisfied with our services, this may adversely affect our ability to secure new engagements.
If any factor, including poor performance, hurts our reputation, we may experience difficulties in competing successfully for both new client engagements and qualified talent. Failing to maintain our professional reputation and the goodwill associated with our brand name could seriously harm our business.
Our revenue and net income may be affected by adverse economic conditions.
Recessions may impact gross billings for modeling services. An important segment of the modeling industry is advertising, with advertising assignments typically generating amongst the highest daily fees in the business. Because advertising expenditures are viewed by companies as discretionary and are curtailed during economic downturns, agency gross billings may also decline over recessionary periods. There can be no assurance that current economic conditions will improve or even remain stable. Our business, financial condition and results of operations could suffer if economic conditions weaken.
If some of our clients experience financial distress, their weakened financial position could negatively affect our financial position and results.
We have a diverse client base, and at any given time, one or more of our clients may experience financial distress, file for bankruptcy protection or go out of business. If any client with whom we have a substantial amount of business experiences financial difficulty, it could delay or jeopardize the collection of accounts receivable, may result in significant reductions in services provided by us and may have a material adverse effect on our financial position, results of operations and liquidity.
We may undertake acquisitions to expand our business, which may dilute the ownership of existing stockholders.
As we pursue our business plan, we may pursue acquisitions of businesses, both domestic and international. International acquisitions in particular would permit us to expand our global footprint. To finance any acquisitions however, it may be necessary for us to raise additional funds through public or private financings. Additional funds may not be available on favorable terms or at all, and, in the case of equity financings, would result in additional dilution to existing stockholders. If we acquire any business and are unable to integrate the newly acquired entities effectively, our business and results of operations may suffer. The time and expense associated with finding suitable and compatible businesses or services could also disrupt our ongoing business and divert management’s attention. Future acquisitions by us could result in large and immediate write-offs or assumptions of debt and contingent liabilities, any of which could substantially harm our business and results of operations.
Any acquisitions that we attempt or complete could prove difficult to integrate or require a substantial commitment of management time and other resources.
Any strategy of acquiring other businesses involves a number of unique risks including: (i) completing due diligence successfully, (ii) exposure to unforeseen liabilities of acquired companies and (iii) increased risk of costly and time-consuming litigation, including stockholder lawsuits. If we pursue acquisitions, we may be unable to address these problems successfully. Moreover, our future operating results will depend to a significant degree on our ability to integrate acquisitions (if any) successfully and manage operations while also controlling our expenses. Integrating newly acquired businesses or services is likely to be expensive and time consuming. We may be unable to select, manage or absorb or integrate any future acquisitions successfully, particularly acquisitions of large companies. Any acquisition, even if effectively integrated, may not benefit our stockholders.
We may need additional debt or equity to sustain growth, but we do not have commitments for such funds.
We may need to finance future growth through a combination of borrowings, cash flow from operations, and equity financing. Our ability to continue growing at the pace we have recently grown could depend in part on our ability to obtain either additional debt or equity financing. The terms on which debt and equity financing is available to us varies from time to time and is influenced by our performance and by external factors, such as the economy generally and developments in the market, which are beyond our control. If we are unable to obtain additional debt or equity financing on acceptable terms, we may have to curtail our growth by delaying new initiatives. While we maintain a credit facility, our efforts to secure significant funds through debt financing have not been successful and, given the cautiousness of banks following the 2008 downturn, do not look likely in the foreseeable future.
Third parties may claim that we are infringing their intellectual property, and we could suffer significant litigation or licensing expenses or be prevented from selling products or services as a result.
We are not aware of any claims of infringement or challenges to our right to use any of our trademarks in the U.S. Nevertheless, we could be subject to claims that we are misappropriating or infringing intellectual property or other proprietary rights of others. Given that proprietary rights to photography, artwork and similar intellectual property rights are a fundamental part of marketing in the fashion and technology industry, we may be exposed at times to claims with respect to such rights. Such claims, even if not meritorious, can be expensive to defend and divert management’s attention from our operations. If we become liable to third parties for infringing these rights, we could be required to pay a substantial damage award and cease displaying, offering or selling works, products or services that use or contain the infringing intellectual property. We may be unable to develop non-infringing products or services or obtain a license on commercially reasonable terms. We may also be required to indemnify licensees and customers if they become subject to third-party claims relating to intellectual property that they license or otherwise provide to them, which could be costly.
We may not be able to adequately protect our media rights (including any intellectual property rights we have or may acquire).
Portions of our business rely on media and intellectual property. Protecting these rights is difficult. Piracy may adversely affect our revenue, particularly in countries where laws are less protective of such rights. Further, reductions in the legal protection for intellectual property rights could adversely affect revenue.
Our future results could be materially adversely affected if it is found to have infringed on intellectual property rights.
Technology companies, including many of our subsidiaries’ competitors, frequently enter into litigation based on allegations of patent infringement or other violations of intellectual property rights. In addition, patent holding companies seek to monetize patents they have purchased or otherwise obtained. Although we have not encountered any intellectual property rights claims against it, as the Company grows, the intellectual property rights claims against it may increase.
Regardless of the scope or validity of such claims by potential or actual litigants, we may have to engage in litigation. If we are found to infringe any patents, it may be required to pay substantial damages. If there is a temporary or permanent injunction prohibiting us from marketing or selling certain products or a successful claim of infringement against us requiring it to pay royalties to a third-party, its financial condition and operating results could be materially adversely affected, regardless of whether it can develop non-infringing technology. In certain cases, we may consider the desirability of entering into licensing agreements, although no assurance can be given that such licenses can be obtained on acceptable terms or that litigation will not occur. These licenses may also significantly increase our operating expenses.
We may experience outages, data loss, and disruptions with the technology related to our services.
Inefficiencies or operational failures, including temporary or permanent loss of customer data, could diminish the quality of our products, services, and user experience resulting in contractual liability, claims by customers and other third parties, damage to our reputation and loss of current and potential users, subscribers, and advertisers, each of which may harm our operating results and financial condition.
Investment in new business strategies and initiatives could disrupt our ongoing business and present risks not originally contemplated.
We have invested, and in the future may invest, in new business strategies or acquisitions. Such endeavors may involve significant risks and uncertainties, including distraction of management from current operations, insufficient revenue to offset liabilities assumed and expenses associated with the strategy, inadequate return of capital, and unidentified issues not discovered in the Company’s due diligence. These new ventures are inherently risky and may not be successful. They may materially adversely affect our financial condition and operating results.
Risks Relating to Business in Hong Kong
Substantially all of our assets are located in Hong Kong and substantially all of our revenues are derived from our operations in Hong Kong. Accordingly, our business, financial condition, results of operations and prospects are subject, to a significant extent, to economic, political and legal developments in Hong Kong.
The economic, political and social conditions, as well as governmental policies, could affect the financial markets in Hong Kong and our liquidity and access to capital and our ability to operate our business.
The Hong Kong economy differs from the economies of most countries in many respects, including the amount of government involvement, level of development, growth rate, control of foreign exchange, and allocation of resources. While the Hong Kong economy has experienced significant growth over the past, growth has been uneven, both geographically and among various sectors of the economy. The Hong Kong government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures benefit the overall Hong Kong economy, but may also have a negative effect on us. This may encourage foreign advertising companies with more experience, greater technological know-how and larger financial resources than we have to compete against us and limit the potential for our growth. Moreover, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations that are applicable to us.
The Hong Kong legal system embodies uncertainties which could limit the legal protections available to you and us.
The Hong Kong legal system is a civil law system based on written statutes. The overall effect of legislation over the past 26 years has significantly enhanced the protections afforded to various forms of foreign investment in Hong Kong. However, these laws, regulations and legal requirements change frequently, and their interpretation and enforcement involve uncertainties. For example, we may have to resort to administrative and court proceedings to enforce the legal protection that we enjoy either by law or contract. However, since Hong Kong administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy than in more developed legal systems. For example, these uncertainties may impede our ability to enforce the contracts we have entered into. In addition, such uncertainties, including the inability to enforce our contracts, could materially and adversely affect our business and operation. In addition, intellectual property rights and confidentiality protections in Hong Kong may not be as effective as in the United States or other countries. Accordingly, we cannot predict the effect of future developments in the Hong Kong legal system, particularly with regard to the advertising industry, including the promulgation of new laws, changes to existing laws or the interpretation or enforcement thereof, or the preemption of local regulations by national laws. These uncertainties could limit the legal protections available to us, including our ability to enforce our agreements with our suppliers.
If tax benefits currently available to us in Hong Kong were no longer available, our effective income tax rates for our Hong Kong operations could increase.
We generate a substantial portion or all our net income from our Hong Kong operations. Our net income could be adversely affected by any change in the current tax laws in Hong Kong.
The Hong Kong tax authorities may require us to pay additional taxes in connection with our acquisitions of offshore entities that conducted their Hong Kong operations through their affiliates in the United States.
Our operations and transactions are subject to review by the Hong Kong tax authorities pursuant to relevant Hong Kong laws and regulations. However, these laws, regulations and legal requirements change frequently, and their interpretation and enforcement involve uncertainties. For example, in the case of some of our future acquisitions of offshore entities that conduct their Hong Kong operations through their affiliates in the United States, we cannot assure you that the Hong Kong tax authorities will not require us to pay additional taxes in relation to such acquisitions, in particular where the Hong Kong tax authorities take the view that the previous taxable income of the Hong Kong affiliates of the acquired offshore entities needs to be adjusted and additional taxes be paid. In the event that the sellers failed to pay any taxes required under Hong Kong law in connection with these transactions, the Hong Kong tax authorities might require us to pay the tax, together with late-payment interest and penalties.
Hong Kong rules on mergers and acquisitions may subject us to sanctions, fines and other penalties and affect our future business growth through acquisition of complementary business.
We cannot assure you that the relevant Hong Kong government agency approval required for any issuance of our stock will be deemed legal. We may face sanctions by the Hong Kong regulatory agencies. In such event, this regulatory agency may impose fines and penalties on our operations in the Hong Kong, limit our operating privileges in the Hong Kong, delay or restrict the repatriation of the proceeds from any future sales of our stock into Hong Kong, or take other actions that could have a material adverse effect on our business, financial condition, results of operations, reputation and prospects.
Complying with the requirements of rules to complete such transactions could be time-consuming, and any required approval processes, including obtaining approval from the appropriate securities agency, may delay or inhibit the completion of such transactions, which could affect our ability to expand our business or maintain our market share.
Restrictions on currency exchange may limit our ability to utilize our revenues effectively.
Substantially all of our revenues and operating expenses are denominated in Hong Kong dollars. Since a significant amount of our future revenues will be denominated in Hong Kong dollars, any existing and future restrictions on currency exchange may limit our ability to utilize revenues generated in United States dollars (“USD”) to fund our business activities outside Hong Kong, if any, or expenditures denominated in foreign currencies. This could affect our ability to obtain foreign exchange through debt or equity financing, including by means of loans.
Fluctuations in exchange rates could result in foreign currency exchange losses.
Appreciation or depreciation in the value of the Hong Kong dollar relative to the U.S. dollar would affect our financial results reported in U.S. dollar terms without giving effect to any underlying change in our business or results of operations. The Hong Kong dollar may appreciate or depreciate significantly in value against the U.S. dollar in the long term, depending on the fluctuation of the basket of currencies against which it is currently valued or it may be permitted to enter into a full float, which may also result in a significant appreciation or depreciation of the Hong Kong dollar against the U.S. dollar. Fluctuations in the exchange rate will also affect the relative value of any dividend we issue in the future which will be exchanged into U.S. dollars and earnings from and the value of any U.S. dollar-denominated investments we make in the future.
Any future outbreak of severe acute respiratory syndrome or avian flu in Hong Kong, or similar adverse public health developments, may severely disrupt our business and operations.
From December 2002 to June 2003, Hong Kong and other countries experienced an outbreak of a new and highly contagious form of atypical pneumonia now known as severe acute respiratory syndrome, or SARS. On July 5, 2003, the World Health Organization declared that the SARS outbreak had been contained. Since September 2003, however, a number of isolated new cases of SARS have been reported, most recently in central Hong Kong in April 2004. During May and June of 2003, many businesses in Hong Kong were closed by the Hong Kong government to prevent transmission of SARS. In addition, many countries, including Hong Kong, have encountered incidents of the H5N1 strain of bird flu, or avian flu. This disease, which is spread through poultry populations, is capable in some circumstances of being transmitted to humans and is often fatal. A new outbreak of SARS or an outbreak of avian flu may result in health or other government authorities requiring the closure of our distributor’s offices or other businesses, including office buildings, retail stores and other commercial venues, which comprise the primary locations where we provide our digital out-of-home advertising services. Any recurrence of the SARS outbreak, an outbreak of avian flu or a development of a similar health hazard in Hong Kong, may deter people from congregating in public places, including a range of commercial locations such as office buildings and retail stores. Such occurrences would severely impact the value of our digital out-of-home advertising networks to advertisers, significantly reduce the advertising time purchased by advertisers and severely disrupt our business and operations.
Risks Associated with Our Stock
Our shares are listed for trading on the OTC Bulletin Board, and our shares will likely be classified as a “penny stock” as that term is generally defined in the Securities Exchange Act of 1934 to mean equity securities with a price less than $5.00. Our shares will be subject to rules that impose sales practice and disclosure requirements on broker-dealers who engage in certain transactions involving a penny stock.
We are subject to the penny stock rules adopted by the Securities and Exchange Commission that require brokers to provide extensive disclosure to its customers prior to executing trades in penny stocks. These disclosure requirements may cause a reduction in the trading activity of our common stock, which in all likelihood would make it difficult for our stockholders to sell their securities.
Under the penny stock regulations, a broker-dealer selling a penny stock to anyone other than an established customer or accredited investor must make a special suitability determination regarding the purchaser and must receive the purchaser’s written consent to the transaction prior to the sale, unless the broker-dealer is otherwise exempt. Generally, an individual with a net worth in excess of $1,000,000, or annual income exceeding $200,000 individually, or $300,000 together with his or her spouse, is considered an accredited investor. In addition, under the penny stock regulations the broker-dealer is required to:
|
·
|
Deliver, prior to any transaction involving a penny stock, a disclosure schedule prepared by the Securities and Exchange Commission relating to the penny stock market, unless the broker-dealer or the transaction is otherwise exempt;
|
|
·
|
Disclose commissions payable to the broker-dealer and our registered representatives and current bid and offer quotations for the securities;
|
|
·
|
Send monthly statements disclosing recent price information pertaining to the penny stock held in a customer’s account, the account’s value and information regarding the limited market in penny stocks;
|
|
·
|
Make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction, prior to conducting any penny stock transaction in the customer’s account.
|
Because of these regulations, broker-dealers may encounter difficulties in their attempt to sell shares of our common stock, which may affect the ability of selling stockholders or other holders to sell their shares in the secondary market and have the effect of reducing the level of trading activity in the secondary market. These additional sales practice and disclosure requirements could impede the sale of our securities. In addition, the liquidity for our securities may be decreased, with a corresponding decrease in the price of our securities. Our shares in all probability will be subject to such penny stock rules and our stockholders will, in all likelihood, find it difficult to sell their securities.
We do not anticipate paying dividends on our common stock in the foreseeable future, which may limit investor demand.
We do not anticipate paying any dividends on our common stock in the foreseeable future. Such lack of dividend prospects may have an adverse impact on the market demand for our common stock as certain institutional investors may invest only in dividend-paying equity securities or may operate under other restrictions that may prohibit or limit their ability to invest in our common stock.
Our common stock is subject to price volatility unrelated to our operations.
The market price of our common stock could fluctuate substantially due to a variety of factors, including market perception of our ability to achieve our planned growth, trading volume in our common stock, changes in general conditions in the economy and the financial markets or other developments affecting us or our competitors. In addition, the stock market is subject to extreme price and volume fluctuations. This volatility has had a significant effect on the market price of securities issued by many companies for reasons unrelated to their operating performance and could have the same effect on our common stock.
Sales of substantial amounts of our common stock in the public market could depress the market price of our common stock.
The sale of a substantial amount of common stock in the public market, or the perception that such sales may occur, could cause the market price of our common stock to decline.
The OTC Bulletin Board, or the OTCBB, is a quotation system, not an issuer listing service, market or exchange. Therefore, buying and selling stock on the OTCBB is not as efficient as buying and selling stock through an exchange. As a result, it may be difficult for you to sell your common stock or you may not be able to sell your common stock for an optimum trading price.
The OTCBB is a regulated quotation service that displays real-time quotes, last sale prices and volume limitations in over-the-counter securities. Our common stock is traded on the OTC QX Marketplace, or OTCQX, which is the trading tier on the OTCBB with the most demanding listing standards. Nevertheless, because trades and quotations on the OTCBB involve a manual process, the market information for such securities cannot be guaranteed. In addition, quote information, or even firm quotes, may not be available. The manual execution process may delay order processing and intervening price fluctuations may result in the failure of a limit order to execute or the execution of a market order at a significantly different price. Execution of trades, execution reporting and the delivery of legal trade confirmations may be delayed significantly. Consequently, one may not be able to sell shares of our common stock at the optimum trading prices.
When fewer shares of a security are being traded on the OTCBB, volatility of prices may increase and price movement may outpace the ability to deliver accurate quote information. Lower trading volumes in a security may result in a lower likelihood of an individual’s orders being executed, and current prices may differ significantly from the price one was quoted by the OTCBB at the time of the order entry. Orders for OTCBB securities may be canceled or edited like orders for other securities. All requests to change or cancel an order must be submitted to, received and processed by the OTCBB. Due to the manual order processing involved in handling OTCBB trades, order processing and reporting may be delayed, and an individual may not be able to cancel or edit his order. Consequently, one may not be able to sell shares of common stock at the optimum trading prices.
The dealer’s spread (the difference between the bid and ask prices) may be large and may result in substantial losses to the seller of securities on the OTCBB if the common stock or other security must be sold immediately. Further, purchasers of securities may incur an immediate “paper” loss due to the price spread. Moreover, dealers trading on the OTCBB may not have a bid price for securities bought and sold through the OTCBB. Due to the foregoing, demand for securities that are traded through the OTCBB may be decreased or eliminated.
Financial Industry Regulatory Authority, or FINRA, sales practice requirements may also limit a stockholder’s ability to buy and sell our common stock.
FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must, after conducting a thorough due diligence review of a customer’s financial condition, have reasonable grounds for believing that the investment is suitable for that customer. Special rules on recommending speculative low priced securities to non-institutional customers require broker-dealers to make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other relevant financial information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. These FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and may have an adverse effect on the market for our shares.
There has been no independent valuation of the stock, which means that the stock may be worth less than the purchase price.
This valuation of our stock is highly speculative and arbitrary. There is no relation to the market value, book value, or any other established criteria. We did not obtain an independent appraisal opinion on the valuation of the shares.
Investors may never receive cash distributions which could result in an investor receiving little or no return on his or her investment.
Distributions are payable at the sole discretion of our board of directors. We do not know the amount of cash that we will generate, if any, once we have more productive operations. Cash distributions are not assured, and we may never be in a position to make distributions.
Even if a market develops for our shares, our shares may be thinly traded with wide share price fluctuations, low share prices and minimal liquidity.
If a market for our shares develops, the share price may be volatile with wide fluctuations in response to several factors, including: potential investors’ anticipated feeling regarding our results of operations; ·increased competition; our ability or inability to generate future revenues; and market perception of the future of development of wood product manufacturing.
In addition, if our shares are quoted on the OTCBB, our share price may be affected by factors that are unrelated or disproportionate to our operating performance. Our share price might be affected by general economic, political, and market conditions, such as recessions, interest rates, or international currency fluctuations. In addition, even if our stock is approved for quotation by a market maker through the OTCBB, stocks traded over this quotation system are usually thinly traded, highly volatile and not followed by analysts. These factors, which are not under our control, may have a material effect on our share price.
We anticipate the need to sell additional authorized shares in the future. This will result in a dilution to our existing shareholders and a corresponding reduction in their percentage ownership in the Company.
We may seek additional funds through the sale of our common stock. This will result in a dilution effect to our shareholders whereby their percentage ownership interest in the Company is reduced. The magnitude of this dilution effect will be determined by the number of shares we will have to issue in the future to obtain the funds required. The sale of additional stock to new shareholders will reduce the ownership position of the current shareholders. The price of each share outstanding common share may decrease in the event we sell additional shares.
Since our securities are subject to penny stock rules, you may have difficulty reselling your shares.
Our shares are “penny stocks” and are covered by Section 15(d) of the Securities Exchange Act of 1934 which imposes additional sales practice requirements on broker/dealers who sell our securities including the delivery of a standardized disclosure document; disclosure and confirmation of quotation prices; disclosure of compensation the broker/dealer receives; and, furnishing monthly account statements. For sales of our securities, the broker/dealer must make a special suitability determination and receive from its customer a written agreement prior to making a sale. The imposition of the foregoing additional sales practices could adversely affect a shareholder's ability to dispose of his stock.
Not Applicable.
The following properties are leased by the Company and the Subsidiaries:
|
Entity
|
Locations and addresses
|
Areas
|
Rent
|
Leasing period until
|
Owner
|
|||||
|
GMEC Ventures Limited
|
Suite 1902, 19/F., Tower II, Kodak House, Quarry Bay, Hong Kong
|
2,853 square feet
|
$6,949 per month
|
July 27, 2014
|
Vision China Limited
|
|||||
|
Great China Media Limited
|
Room A, 18/F., Phase 1, Kingsford Industrial Building, 26-32 Kwai Hei Street, Kwai Chung, N.T., Hong Kong
|
4,100 square feet
|
$6,410 per month
|
January 31, 2014
|
China Culture Limited
|
To the knowledge of our management, there is no litigation currently pending or contemplated against us or any of our officers or directors in their capacity as such except the following:-
We are currently the defendant in a civil lawsuit that was brought by CMF Investments, Inc. in the state of New York. We intend to aggressively defend itself in this lawsuit. At issue in the lawsuit is the nonpayment by the plaintiffs for shares in the Company to a group of non affiliate shareholders and the attempts to collect the amount owed by the Plaintiff.
There were no matters submitted to a vote of the Securities Holders.
Our common stock has been traded on the Over the Counter Bulletin Board (OTCBB) under the symbol “GEBD,” since May 22, 2008.On March 16, 2011, the symbol had been changed to “GMEC” because of the change of the Company name. The following table sets forth the high and low bid information for our common stock from January 1, 2011 through March 28, 2013, as reported by OTCBB.
|
Period
|
Low ($)
|
High ($)
|
||||||
|
2013 First Quarter
|
$
|
0.02
|
$
|
0.11
|
||||
|
2012 Fourth Quarter
|
$
|
0.04
|
$
|
0.22
|
||||
|
2012 Third Quarter
|
$
|
0.10
|
$
|
0.40
|
||||
|
2012 Second Quarter
|
$
|
0.15
|
$
|
0.65
|
||||
|
2012 First Quarter
|
$
|
0.04
|
$
|
0.45
|
||||
|
2011 Fourth Quarter
|
$
|
0.06
|
$
|
0.06
|
||||
|
2011 Third Quarter
|
$
|
0.01
|
$
|
0.08
|
||||
|
2011 Second Quarter
|
$
|
0.01
|
$
|
0.12
|
||||
|
2011 First Quarter
|
$
|
0.09
|
$
|
0.12
|
||||
Number of Holders of Common Stock
The number of holders of record of our common stock on March 28, 2013 was 65.
Dividends
There were no cash dividends or other cash distributions made by us during the fiscal year ended December 31, 2011 or 2012. The payment of dividends in the future will be contingent upon our revenues and earnings, if any, capital requirements and general financial condition. The payment of any dividends is within the discretion of our board of directors. It is the present intention of our board of directors to retain all earnings, if any, for use in our business operations and, accordingly, our board does not anticipate declaring any dividends in the foreseeable future.
Recent Sales of Unregistered Securities and Use of Proceeds
We issued 1,622,432 shares of common stock to a convertible note holder for final settlement of a convertible note totaling $40,000 during the period from January 2, 2013 to January 18, 2013.
We are offering to sell up to 10,600,000 shares of common stock issuable to one non affiliate investor as disclosed on our Form S-1 filed with the Securities and Exchange Commission on March 13, 2013.
Repurchases of Equity Securities
None.
Equity Compensation Plan Information
None.
As a smaller reporting company, we are not required to include this information in our annual report on Form 10-K.
Note regarding forward – looking statements
This annual report contains forward-looking statements within the meaning of the federal securities laws. These include statements about our expectations, beliefs, intentions or strategies for the future, which we indicate by words or phrases such as “anticipate,” “expect,” “intend,” “plan,” “will,” “we believe,” “the Company believes,” “management believes” and similar language. The forward-looking statements are based on the current expectations of the Company and are subject to certain risks, uncertainties and assumptions, including those set forth in the discussion under “Management's Discussion and Analysis of Financial Condition and Results of Operations” in this report. The actual results may differ materially from results anticipated in these forward-looking statements. We base the forward-looking statements on information currently available to us, and we assume no obligation to update them.
Investors are also advised to refer to the information in our filings with the Securities and Exchange Commission, specifically Forms 10-Q and 8-K, in which we discuss in more detail various important factors that could cause actual results to differ from expected or historic results. It is not possible to foresee or identify all such factors. As such, investors should not consider any list of such factors to be an exhaustive statement of all risks and uncertainties or potentially inaccurate assumptions.
Except as otherwise indicated by the context, references in this Form 10-K to “we”, “us”, “our”, “the Registrant”, “our Company” or “the Company” are to Great China Mania Holdings, Inc. (formerly known as Great East Bottles & Drinks (China) Holdings, Inc.), a Florida corporation and its consolidated subsidiaries. Unless the context otherwise requires, all references to (i) “BVI” are to British Virgin Islands; (ii) “PRC” and “China” are to the People’s Republic of China; (iii) “U.S. dollar”, “$” and “US$” are to United States dollars; (iv) “HKD” are to the Hong Kong Dollar; (v) “Securities Act” are to the Securities Act of 1933, as amended; and (vi) “Exchange Act” are to the Securities Exchange Act of 1934, as amended.
Critical Accounting Policies and Estimates
Our financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States (“US GAAP”). US GAAP requires the use of estimates, assumptions, judgments, and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenues and expenses amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.
We believe the following is among the most critical accounting policies that impact our consolidated financial statements. We suggest that our significant accounting policies, as described in our consolidated financial statements in the Summary of Significant Accounting Policies, be read in conjunction with this Management's Discussion and Analysis of Financial Condition and Results of Operations.
Revenue represents the invoiced value of goods sold or services rendered during the year, net of sales discounts and returns. Generally revenue is recognized when all of the following criteria are met:
|
-
|
Persuasive evidence of an arrangement exists,
|
|
-
|
Delivery has occurred or services have been rendered,
|
|
-
|
The seller’s price to the buyer is fixed or determinable, and
|
|
-
|
Collectability is reasonably assured
|
Revenue recognition policies for each of the major products and services of continuing operations are illustrated as follows:
|
|
(i)
|
Revenue from provision of artist management, event management, and promotion for its clients are recognized when services are rendered.
|
|
|
(ii)
|
Revenue from traditional paper magazines sales is recognized when magazines are sold to customers, net of sales return.
|
|
|
(iii)
|
Revenue from the provision of advertising services is recognized when services are rendered.
|
|
|
(iv)
|
Revenue from electronic content sales like iPhone and Android applications is recognized when receipt is confirmed by service providers. In 2012, the revenue generated from digital content is not significant to the publication of magazines operation.
|
|
|
(v)
|
Revenue from retail operation of video games and accessories is recognized upon delivery of goods to customers.
|
Recent Accounting Pronouncements
In December 2011, the Financial Accounting Standards Board ("FASB") issued ASU 2011-11, Balance Sheet (Topic 210) Disclosures about Offsetting Assets and Liabilities. The amendments in this update will enhance disclosures required by U.S. GAAP by requiring improved information about financial instruments and derivative instruments that are either (1) offset in accordance with either ASC 210-20-45 or ASC 815-10-45 or (2) subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in accordance with either ASC 210-20-45 or ASC 815-10-45. This information will enable users of an entity's financial statements to evaluate the effect or potential effect of netting arrangements on an entity's financial position, including the effect or potential effect of rights of setoff associated with certain financial instruments and derivative instruments in the scope of this Update. The amendments in this Update are effective for annual periods for fiscal years beginning on or after January 1, 2013. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.
In December 2011, the FASB has issued Accounting Standards Update (ASU) No.2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. ASU No. 2011-11 is intended to supersede certain pending paragraphs in Accounting Standards Update No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income, to effectively defer only those changes in Update 2011-05 that relate to the presentation of reclassification adjustments out of accumulated other comprehensive income. The amendments will be temporary to allow the Board time to redeliberate the presentation requirements for reclassifications out of accumulated other comprehensive income for annual and interim financial statements for public, private, and non-profit entities. All other requirements in ASU No. 2011-05 are not affected by ASU No. 2011-12, including the requirement to report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements. Public entities should apply these requirements for fiscal years, and interim periods within those years, beginning after December 15, 2011. Nonpublic entities should begin applying these requirements for fiscal years ending after December 15, 2012, and interim and annual periods thereafter. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.
In August 2012, FASB has issued Accounting Standards Update (ASU) No. 2012-03, Technical Amendments and Corrections to SEC Sections. This ASU amends various SEC paragraphs pursuant to SAB 114, SEC Release No. 33-9250, and ASU 2010-22, which amend or rescind portions of certain SAB Topics. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.
In October 2012, FASB has issued Accounting Standards Update (ASU) No. 2012-04, Technical Corrections and Improvements. This ASU make technical corrections, clarifications, and limited-scope improvements to various Topics throughout the Codification. The amendments in this ASU that will not have transition guidance will be effective upon issuance for both public entities and nonpublic entities. For public entities, the amendments that are subject to the transition guidance will be effective for fiscal periods beginning after December 15, 2012. For nonpublic entities, the amendments that are subject to the transition guidance will be effective for fiscal periods beginning after December 15, 2013.The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.
Results of Continued Operations – Year Ended December 31, 2012, as Compared to Year Ended December 31, 2011.
The following table summarizes the results of our continued operations during the year ended December 31, 2012 and 2011, and provides information regarding the dollar and percentage increase or (decrease) from the year ended December 31, 2011 to the year ended December 31, 2012.
|
2012
|
2011
|
Increase (decrease)
|
% Change
|
|||||||||||||
|
Revenue
|
||||||||||||||||
|
GMEH
|
$ | 1,931,005 | $ | 1,106,507 | $ | 824,498 | 74.51 | % | ||||||||
|
GCM
|
2,238,117 | 2,641,324 | (403,207 | ) | (15.27 | %) | ||||||||||
|
GCG
|
643,473 | 1,623,956 | (980,483 | ) | (60.38 | %) | ||||||||||
| 4,812,595 | 5,371,787 | (559,192 | ) | (10.41 | %) | |||||||||||
|
Cost of sales
|
||||||||||||||||
|
GMEH
|
1,282,555 | 850,380 | 432,175 | 50.82 | % | |||||||||||
|
GCM
|
1,475,726 | 1,811,863 | (336,137 | ) | (18.55 | %) | ||||||||||
|
GCG
|
593,818 | 1,566,211 | (972,393 | ) | (62.09 | %) | ||||||||||
| 3,352,099 | 4,228,454 | (876,355 | ) | (20.73 | %) | |||||||||||
|
Gross profit
|
||||||||||||||||
|
GMEH
|
648,450 | 256,127 | 392,323 | 153.18 | % | |||||||||||
|
GCM
|
762,391 | 829,461 | (67,070 | ) | (8.09 | %) | ||||||||||
|
GCG
|
49,655 | 57,745 | (8,090 | ) | (14.01 | %) | ||||||||||
| 1,460,496 | 1,143,333 | 317,163 | 27.74 | % | ||||||||||||
|
General & administrative
|
1,950,772 | 2,163,892 | (213,120 | ) | (9.85 | %) | ||||||||||
|
Total operating expenses
|
1,950,772 | 2,163,892 | (213,120 | ) | (9.85 | %) | ||||||||||
|
Loss from operations
|
(490,276 | ) | (1,020,559 | ) | 530,283 | 51.96 | % | |||||||||
|
Other income (expense)
|
(44,211 | ) | (13,755 | ) | (30,456 | ) | (221.42 | %) | ||||||||
|
Provision for taxation
|
- | - | - | N/A | ||||||||||||
|
Net (loss)/income from continuing operations
|
||||||||||||||||
|
GMEH
|
$ | 114,358 | $ | (193,360 | ) | $ | 307,718 | 159.14 | % | |||||||
|
GCM
|
(51,730 | ) | (212,221 | ) | 160,491 | 75.62 | % | |||||||||
|
GCG
|
(51,860 | ) | (68,251 | ) | 16,391 | 24.02 | % | |||||||||
|
Corporate
|
(545,255 | ) | (560,482 | ) | 15,227 | 2.72 | % | |||||||||
| $ | (534,487 | ) | $ | (1,034,314 | ) | $ | 499,827 | 48.32 | % | |||||||
Revenues decreased by $559,192 to $4,812,595 for the year ended December 31, 2012 as compared to $5,371,787 for 2011. The decreases were mainly due to the decrease in revenue from GCM and GCG operations offset by the increases in revenue from GMEH operations.
Sales revenue of GMEH increased by $824,498 to $1,931,005for the year ended December 31, 2012 as compared to $1,106,507 for 2011, representing a 74.51% increase. The increase in revenue was mainly due to the increase of $638,839 by the artists’ performances in promotional events for brands and institutional customers, $164,480 by the artists’ performances in movies and TV shows and $21,179 by artist-related merchandising and shared profit of intellectual property rights.
Sales revenue of GCM decreased by $403,207 to $2,238,117 for the year ended December 31, 2012 as compared to$2,641,324 for 2011, representing a 15.27% decrease. The decrease in revenue was mainly due to the increase in electronic content sales by $107,213 offset by the decrease of traditional paper magazines sales by $510,420.
Sales revenue of GCG decreased by $980,483 to $643,473for the year ended December 31, 2012 as compared to$1,623,956 for 2011, representing a 60.38% decrease. The decrease in revenue was mainly due to the closure of a retail shop in May 2012.
Cost of sales
Cost of sales decreased by $876,355 to $3,352,099 for the year ended December 31, 2012 as compared to $4,228,454 for 2011. The increase was mainly due to the decreases in cost of sales from GCM and GCG operations offset by the increase in cost of sales from GMEH.
Cost of sales of GMEH increased by $432,175 to $1,282,555 for the year ended December 31, 2012as compared to $850,380 for 2011, representing a 50.82% increase. The increase was mainly due to the increase of artist fee by $388,143 and other direct cost by $86,160 offset by the decrease in the agency fee of $42,128.
Cost of sales of GCM decreased by $336,137 to $1,475,726 for the year ended December 31, 2012 as compared to$1,811,863 for 2011, representing an 18.55% decrease. The decrease was mainly due to the decrease of: 1.) paper cost by $91,861, 2.) printer cost by $79,425, 3.) distribution fee by $104,051 and 4.) other production costs by $60,800.
Cost of sales of GCG decreased by $972,393 to $593,818 for the year ended December 31, 2012 as compared to $1,566,211 for 2011, representing a 62.09% decrease. The decrease in cost of sales was mainly due to the closure of a retail shop in May 2012.
Gross margin
Gross margin increased by $317,163 to $1,460,496 for the year ended December 31, 2012 as compared to $1,143,333 for 2011. The increases were mainly due to increases of gross margin from GMEH operations offset by a decrease of gross margin from GCM and GCG operation.
Gross margin of GMEH increased by $392,323 to $648,450 for the year ended December 31, 2012 as compared to $256,127 for 2011, representing a 153.18% increase. The increase was mainly due to the decrease of the agency fee boost up the gross margin.
Gross margin of GCM decreased by $67,070 to $762,391 for the year ended December 31, 2012 as compared to $829,461 for 2011, representing a 8.09% decrease. The decrease was mainly due to the decrease in gross margin of traditional magazines by $174,283 offset by increase in margin from electronic content by $107,213.
Gross margin of GCG decreased by $8,090 to $49,655 for the year ended December 31, 2012 as compared to $57,745 for 2011, representing a 14.01% decrease. The decrease was mainly due to the closure of a retail shop in May 2012.
General and administrative
The following table summarizes general and administrative expenses during the year ended December 31, 2012 and 2011, and provides information regarding the dollar and percentage (increase) / decrease from the year ended December 31, 2011 to the year ended December 31, 2012.
|
2012
|
2011
|
(Increase) decrease
|
%Change
|
|||||||||||||
|
Payroll cost
|
1,191,846 | 1,306,870 | 115,024 | 8.80 | % | |||||||||||
|
Rental expenses
|
268,112 | 395,725 | 127,613 | 32.25 | % | |||||||||||
|
Legal and professional fee
|
330,998 | 321,742 | (9,256 | ) | (2.88 | %) | ||||||||||
|
Entertainment
|
17,801 | 17,227 | (574 | ) | (3.33 | %) | ||||||||||
|
Miscellaneous
|
142,015 | 122,328 | (19,687 | ) | (16.09 | %) | ||||||||||
| 1,950,772 | 2,163,892 | 213,120 | 9.85 | % | ||||||||||||
Payroll cost decreased by $115,024 to $1,191,846 for the year ended December 31, 2012 as compared to $1,306,870 for 2011, representing an 8.80% decrease. The decrease was mainly due to an increases of payroll cost $65,956 in GMEH operation offset by the total decrease of payroll cost $ 180,980 in all other segments.
Rental expenses decreased by $127,613 to $268,112 for the year ended December 31, 2012 as compared to $395,725 for 2011, representing a 32.25% decrease. The decrease was mainly due to $147,430 rent reduced by GCM, $8,118 rent saved by GCG due to closure of retail shop in May 2012 offset by $27,935 rent raised by corporate segment.
Legal and professional fee increased by $9,256 to $330,998 for the year ended December 31, 2012 as compared to $321,742 for 2011, representing a 2.88% increase. The increase was mainly due to the cost of preparing Form S-1 filed on March 13, 2013.
Miscellaneous expenses increased by $19,687 to $142,015 for the year ended December 31, 2012 as compared to$122,328 for 2011, representing a 16.09% decrease. The increase was mainly due to the increase of $5,436 by GCM, $137 by GMEH and $15,350 by corporate segment offset by the decrease of $1,236 by GCG. The increase of $15,350 by corporate segment consist a sum of $11,013 in other receivable written off and an increase of $4,337 in other general expenses.
Net loss from continuing operations
Net loss from continuing operations decreased by $499,827 to a net loss of $534,487 for the year ended December 31, 2012 as compared to $1,034,314 for 2011.
Liquidity and Capital Resources
Cash
Our cash balance as of December 31, 2012 was $218,773, representing a decrease of $86,439 as compared to $305,212 as of December 31, 2011.
Cash flow
Operating Activities
Net cash used in operating activities for the year ended December 31, 2012 amounted to $18,507 compared to net cash provided by operating activities of $262,434 in the same period of 2011. The change of $243,925 was mainly due to: 1.) a decrease of $208,372 in share based payments, 2.) an increase of $51,386 in amortization of discount on Convertible note, and 3.) an increase of $12,682 in interest income receivable.
Financing Activities
Net cash used in financing activities for the year ended December 31, 2012 amounted to $67,932 compared to net cash provided by financing activities of $566,154 for 2011. The change of $634,086 was mainly due to: 1.) an increase in short term loan receivable $127,813, 2.) a decrease in advance from related parties $284,948, 3.) a decrease in cash repayment of convertible note $96,899, 4.) a decrease in net proceeds from short-term borrowings $154,151, 5.) an increase in net proceeds from the convertible note $7,300 and 6.) an increase in settlement of subscription receivable $22,425.
Working capital
Our net current liabilities increased by $72,371 to $523,573 as of December 31, 2012 from net current liabilities of $595,944 as of December 31, 2011.
As of December 31, 2012 we may need additional cash resources to operate during the upcoming 12 months, and the continuation of the Company may dependent upon the continuing financial support of investors, directors and/or stockholders of the Company. We intends to attempt to acquire additional operating capital through private equity offerings to the public and existing investors to fund its business plan. However, there is no assurance that equity or debt offerings will be successful in raising sufficient funds to assure the eventual profitability of the Company. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence.
Off-Balance Sheet Arrangements
We do not have any off balance sheet arrangements
Inflation
Inflation has not had a material impact on our business and we do not expect inflation to have an impact on our business in the near future.
As a smaller reporting company, we are not required to include this information in our annual report on Form 10-K.
The response to this item is included in a separate section of this Annual Report. See “Index to Consolidated Financial Statements” on Page F-1.
On March 19, 2013, we dismissed Madsen & Associates CPA, Inc. as our independent registered public accounting firm, and appointed Albert Wong & Co, CPA, as disclosed on our Current Report on Form 8-K filed with the Securities and Exchange Commission on March 20, 2013. In connection with the change in accountants, there have been no disagreements as required by this item.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed by us in reports that we file under the Exchange Act is recorded, processed, summarized and reported as specified in the SEC’s rules and forms and that such information required to be disclosed by us in reports that we file under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and our Principal Accounting Officer, to allow timely decisions regarding required disclosure. Management, with the participation of our Chief Executive Officer, Chief Financial Officer, and Principal Accounting Officer, performed an evaluation of the effectiveness of our disclosure controls and procedures as of December 31, 2012. Based on that evaluation and as described below under “Management’s Report on Internal Control Over Financial Reporting”, we have identified a material weakness in our internal control over financial reporting. As a result of this material weakness and as a result of our failure to identify this material weakness in our internal control over financial reporting as a material weakness in our disclosure controls and procedures, our management, including our Chief Executive Officer, Chief Financial Officer, and Principal Accounting Officer, concluded that our disclosure controls and procedures were not effective as of December 31, 2012.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our chief executive officer, chief financial officer, and principal accounting officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. In connection with management's assessment of our internal control over financial reporting, we identified the following material weakness in our internal control over financial reporting as of December 31, 2012:
|
1.
|
Insufficient accounting personnel with the appropriate level of accounting knowledge, experience and training in the application of accounting principles generally accepted in the United States commensurate with financial statement reporting requirements.
|
As a result, we have concluded that our internal controls over financial reporting are not effective as of December 31, 2012.
Remediation of Material Weakness in Internal Control
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can only provide reasonable assurances with respect to financial statement preparation and presentation. In addition, any evaluation of effectiveness for future periods is subject to the risk that controls may become inadequate because of changes in conditions in the future.
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.
To remediate the material weakness surrounding this, we have performed and are continuing to perform, among others, the following actions:
|
•
|
additional training of our accounting personnel by our independent accountants of the proper format and compilation of data for US GAAP financial statements; and
|
|
•
|
additional coordination with our local accountants and auditors to strengthen our controls in an attempt to supplement the additional training of our employees.
|
Changes in Internal Control over Financial Reporting
There were no significant changes made in our internal controls over financial reporting during the year ended December 31, 2012 that have materially affected or are reasonably likely to materially affect these controls. Thus, no corrective actions with regard to significant deficiencies or material weaknesses were necessary.
None.
At December 31, 2012, our directors and executive officers are as follows:
|
Name
|
Age
|
Position
|
||
|
Yau Wai Hung
|
38
|
Chief Executive Officer (CEO) and Director
|
||
|
Kwong Kwan Yin Roy
|
37
|
Director
|
||
|
Chan Wing Hing
|
45
|
Director
|
||
|
Cheung Wai Kit*
|
38
|
Director
|
*Additional information about this individual can be found on the Company’s previous Form 10-K for the period ending December 31, 2011, which was filed with the SEC on April 16, 2012.
On January 14, 2013, Mr. Cheung Wai Kit resigned as a director of the Company and Ms. Yum Ka Yan was appointed as a director of the Company. On the same day, Mr. Yau Wai Hung resigned as the Company’s CEO and Mr. Kwong Kwan Yin Roy was appointed as CEO and Chief Financial Officer (CFO).
Our current directors and executive officers are as follows:
|
Name
|
Age
|
Position
|
||
|
Kwong Kwan Yin Roy
|
37
|
CEO, CFO and Director
|
||
|
Yau Wai Hung
|
38
|
Director
|
||
|
Chan Wing Hing
|
45
|
Director
|
||
|
Yum Ka Yan
|
34
|
Director
|
Mr. Kwong Kwan Yin Roy, age 37, received his education at Poly University Hong Kong. He joined Hong Kong Television Broadcasts Limited in 1997, where he was responsible for variety and music shows and became familiar with the operation of the electronic media. He joined Hong Kong Emperor Entertainment in 2000, where he was responsible for corporate promotion of music, film, and production. Mr. Kwong has experience in advertising, corporate matters and brand building. In 2004, he successfully formed an alliance between California Red Group (a karaoke operator) with NEWAY (a karaoke operator) and Emperor Group. During his experience at Emperor Group, Mr. Kwong organized a number of large-scale publicity projects including work for the top artist in Hong Kong and China. Mr. Kwong was appointed as CEO and CFO of the company since January 14, 2013.
Mr. Yau Wai Hung, age 38, received his education at St. Francis Xavier College in Hong Kong. Mr. Yau started working at Gaming Industrial in 1991 and later sold his retail company to a listed company in Hong Kong in 1997. Mr. Yau joined China Culture Limited in 2006 and successfully converted its magazine content into electronic form and into a major mobile and broadband operator in Hong Kong, Singapore, Taiwan and Macau. In 2010 Mr. Yau successfully coordinated with soccer stars Gary Neville and Van De Sar to provide exclusive World Cup expert analysis to the Hong Kong Jockey Club. Mr. Yau was appointed as CEO and director since January 28, 2011 and resigned as CEO on January 14, 2013.
Mr. Chan Wing Hing, age 45, finished his formal education in Hong Kong. Mr. Chan set up his first publishing company in 1997 and has established several magazines. In 2002, he consolidated all of his magazines into China Culture Limited. Mr. Chan has extensive experience in the areas of publishing and distribution.
Ms. Yum Ka Yan, age 34, received her education at University of Hong Kong. Ms. Yum joined Edko Films Limited in 2005, where she was responsible for marketing and promotion of movies and cinema opening; she joined Emperor Motion Pictures in 2007, where she was promoted to Assistant Marketing Manager, which she responsible for marketing and promotion planning of movie productions. Ms. Yum has experience in advertising, marketing and publicity planning. She participated in marketing and publicity campaigns in various blockbuster titles: Lust, Caution (2007), Spider Man 3 (2007), Curse of Golden Flower (2006) and Brokeback Mountain (2005) etc. She joined the company in 2011 and appointed as director on January 14, 2013.
Corporate Governance
Number and Term of Directors
We currently have four directors of the Company. All directors of our company hold office until the next annual meeting of our shareholders and until such director’s successor is elected and has been qualified, or until such director’s earlier death, resignation or removal. The above table sets forth the names, positions and ages of our executive officers and directors. Our board of directors elects officers and their terms of office are at the discretion of our board of directors.
Audit Committee
We do not currently have an Audit Committee but plans to form one as soon as practicable.
Other Committees
None.
Code of Ethics
We have adopted a Code of Business Conduct and Ethics (the “Code”) that applies to our directors and employees, including our principal executive officer, principal financial officer, principal accounting officer and controller, or persons performing similar functions in accordance with applicable federal securities laws. The Code was filed as Exhibit 14 to our Registration Statement on Form SB-2 (Registration No. 333-139008) on November 29, 2006. ).
Changes in Director Nomination Process for Stockholders
None.
Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act requires our directors, executive officer and persons who own more than 10% of our common stock to file reports of ownership and changes in ownership of our common stock with the Securities and Exchange Commission. Our directors, executive officer and persons who own more than 10% of our common stock are required by Securities and Exchange Commission regulations to furnish to us copies of all Section 16(a) forms they file. To our knowledge, based solely upon a review of the copies of such reports furnished to us, our directors, executive officer or persons who own more than 10% of our common stock were complied with the beneficial ownership reporting requirements of Section 16(a).
The following table sets forth all cash compensation paid or to be paid by us, as well as certain other compensation paid or accrued, during each of our last two fiscal years to each of the following named executive officers (the “Named Executive Officers”):
EXECUTIVE OFFICERS COMPENSATION
|
Name & Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive Plan Compensation
($)
|
Change in Pension value and Non-qualified
Compensation earning
($)
|
All other Compensation
($)
|
Total
($)
|
|
Yau Wai Hung,
|
2012
|
63,587
|
0
|
0
|
0
|
0
|
0
|
0
|
63,587
|
|
Former CEO
|
2011
|
60,641
|
0
|
118,800
|
0
|
0
|
0
|
0
|
179,441
|
|
Kwong Kwan Yin
|
2012
|
70,766
|
0
|
0
|
0
|
0
|
0
|
32,306
|
103,072
|
|
Roy, CEO
|
2011
|
64,872
|
0
|
0
|
0
|
0
|
0
|
0
|
64,872
|
Employment Agreements
None.
Equity Compensation Plans
We do not maintain any equity compensation plans and we have not granted any stock options or stock appreciation rights or any awards under long-term incentive plans.
Pension Benefits
We do not sponsor any qualified or non-qualified defined benefit plans.
Nonqualified Deferred Compensation
We do not maintain any non-qualified defined contribution or deferred compensation plans.
DIRECTOR COMPENSATION
The following table summarizes compensation that our director and former directors earned during 2012 for services as members of our Board.
|
Name
|
Fees Earned or Paid in Cash ($)
|
Options Awards ($)
|
All Other Compensation ($)
|
Total ($)
|
|
Yau Wai Hung
|
0
|
0
|
0
|
0
|
|
Kwong Kwan Yin Roy
|
0
|
0
|
0
|
0
|
|
Cheung Wai Kit
|
21,538
|
0
|
0
|
21,538
|
|
Chan Ka Wai
|
0
|
0
|
0
|
0
|
|
Chan Wing Hing
|
0
|
0
|
0
|
0
|
|
Yum Ka Yan
|
0
|
0
|
0
|
0
|
|
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|
The following table sets forth, as of March 15, 2013, certain information regarding beneficial ownership of our common stock by each person who is known by us to beneficially own more than 5% of our common stock. The table also identifies the stock ownership of each of our directors, our officer, and all directors and our officer as a group. Except as otherwise indicated, the stockholders listed in the table have sole voting and investment powers with respect to the shares indicated.
Shares of common stock which an individual or group has a right to acquire within 60 days pursuant to the exercise or conversion of options, warrants or other similar convertible or derivative securities are
deemed to be outstanding for the purpose of computing the percentage ownership of such individual or group, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person shown in the table.
|
Name and Address of Beneficial Owner
|
Amount and
Nature of Beneficial
Ownership(1)
|
Percentage of
Outstanding
Common Stock(1)
|
|
Cheung Wai Kit, Former Director
|
0
|
0%
|
|
Chan Ka Wai, Former Director
|
0
|
0%
|
|
Chan Wing Hing, Director
|
0
|
0%
|
|
Kwong Kwan Yin Roy, Director and CEO
|
25,320,950
|
31.15%
|
|
Yum Ka Yan, Director
|
0
|
0%
|
|
Yau Wai Hung, Director and Former CEO
|
9,797,670
|
12.17%
|
|
(1)
|
Based on 80,498,453outstanding shares of common stock on March 28, 2013.
|
|
(2)
|
The business address for each of our officers and directors is Room 1902, 19/F., Kodak House II, 321 Java Road, North Point, Hong Kong.
|
Item 13. Certain Relationships and Related Transactions, and Director Independence
There has not been since January 1, 2012, nor is there currently pending any transaction or series of similar transactions to which we were or are to be a party in which the amount involved exceeded $120,000 and in which any director, executive officer, holder of more than 5% of our Common Stock or any member of the immediate family of any of these persons had or will have a direct or indirect material interest other than the following:
On January 19, 2012, we entered into a subscription agreement with Chan Ka Wai (“Chan”), former director the Company purchased 28,500,000 shares of common stock from us (the “Shares”). The purchase price of the shares was $ 519,200. The Shares were acquired for long-term investment, and the transferability of the Shares is restricted.
On September 4, 2012, Chan entered into a Stock Purchase Agreement with two other directors of the Company, Kwong Kwan Yin Roy (“Kwong”) and Yau Wai Hung (“Yau”), pursuant to which Chan agreed to sell to Kwong, Yau and an non affiliate corporation a total of 18,555,400 restricted shares (the “Shares”) of the Company’s common stock at a total sum of $1,855,400 or $0.10 per share. Of the total number of the Shares sold, Kwong purchased 11,080,200 shares and Yau purchased 7,698,200 shares. On the same day, Kwong and Yau entered into a Stock Purchase Agreement with a group of individuals (“Shareholders”) pursuant to which Kwong and Yau agreed to purchase a total number of 24,137,890 restricted shares (“Shares”) from the shareholders at a total sum of $2,413,789 or $0.10 per share. Of the total number of Shares purchased, Kwong purchased 14,240,750 shares and Yau purchased 1,099,470 shares.
Director Independence
Our directors as of December 31, 2012, and currently, are not “independent directors” within the meaning of Rule 121(A) of the American Stock Exchange Company Guide and Rule 10A-3 promulgated under the Securities Act of 1934, as amended.
Item 14. Principal Accountant Fees and Services
On March 19, 2013, we dismissed Madsen & Associates CPA, Inc. (“Madsen”) as our independent registered public accounting firm, and appointed Albert Wong & Co, CPA (“Wong”), as disclosed on our Current Report on Form 8-K filed with the Securities and Exchange Commission on March 19, 2013. The above decision was approved by our Board of Directors. During our fiscal years ended December 31, 2011, 2012 and through March 28, 2013, we did not consult with both Wong and Madsen on (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that may be rendered on our financial statements, and they did not provide either a written report or oral advice to us that was an important factor considered by us in reaching a decision as to any accounting, auditing, or financial reporting issue; or (ii) the subject of any disagreement, as defined in Item 304 (a)(1)(iv) of Regulation S-K and the related instructions, or a reportable event within the meaning set forth in Item 304(a)(1)(v) of Regulation S-K.
We paid the following fees to its auditors during its fiscal years ended December 31, 2012 and 2011:
|
Fee Category
|
2012
|
2011
|
|||
|
Audit fees – Madsen
|
-
|
$13,500
|
|||
|
Audit fees –Wong
|
$13,000
|
-
|
Audit Fees
Audit fees consist of fees for professional services rendered for the audit of our financial statements and review of the final financial statements included in our annual reports on Form 10-K.
Audit Related Fees
We did not incur any audit-related fees with Madsen and Wong for the years ended December 31, 2012, and 2011.
Tax Fees
We did not incur any tax fees with Madsen and Wong for the years ended December 31, 2012 and 2011.
All Other Fees
We incurred $4,500 service fees each year from Madsen in 2012 and 2011 separately.
Pre-Approval of Services
The Board of Director’s policy is to pre-approve all audit and permissible non-audit services provided by the independent auditors. These services may include audit services, audit-related services, tax services and other services. The Board may also pre-approve particular services on a case-by-case basis.
Item 15. Exhibits, Financial Statement Schedules
(a)(1) Financial Statements
An index to Consolidated Financial Statements appears on page F-1.
(b) Exhibits
The following Exhibits are filed as part of this report:
|
Exhibit No.
|
Description
|
|
|
31.1
|
Certification of the Principal Executive Officer pursuant to Rule 13-14(a) of the Securities Exchange of 1934
|
|
|
31.2
|
Certification of the Acting Principal Accounting Officer and Principal Financial Officer pursuant to Rule 13-14(a) of the Securities Exchange of 1934
|
|
|
32.1
|
Certificate of the Principal Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
32.2
|
Certificate of the Acting Principal Accounting Officer and Principal Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
SIGNATURES
In accordance with the requirements of the Securities and Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
GREAT CHINA MANIA HOLDINGS, INC
|
||
|
March 28, 2013
|
By:
|
/s/ Kwong Kwan Yin Roy
|
|
Name:
|
Kwong Kwan Yin Roy
|
|
|
Title:
|
Chief Executive Officer and Director
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
|
March 28, 2013
|
By:
|
/s/ Kwong Kwan Yin Roy
|
|
|
Name:
|
Kwong Kwan Yin Roy
|
||
|
Title:
|
Chief Executive Officer and Director
|
||
|
March 28, 2013
|
By:
|
/s/ Kwong Kwan Yin Roy
|
|
|
Name:
|
Kwong Kwan Yin Roy
|
||
|
Title:
|
Chief Financial Officer and Director
|
||
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012
INDEX
|
Page
|
|
Hong Kong
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have audited the accompanying consolidated balance sheets of Great China Mania Holdings, Inc. and subsidiaries (the Company) as of December 31, 2012 and the consolidated statements of income, stockholders’ equity and comprehensive income and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
We were not engaged to examine management’s assertion about the effectiveness of the Company’s internal control over financial reporting as of December 31, 2012 included in the Company’s Item 9A “Controls and Procedures” in the Annual Report on Form 10-K and, accordingly, we do not express an opinion thereon.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2012 and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 17 to the consolidated financial statements, the Company has suffered recurring losses from operations and has a significant accumulated deficit. In addition, the Company continues to experience negative cash flows from operations. These factors raise substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
s/Albert Wong & Co. CPA
Albert Wong & Co. CPA
March 27, 2013
Hong Kong, China
To the Board of Directors and Shareholders of Great China Mania Holdings, Inc. and subsidiaries
Hong Kong
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have audited the accompanying consolidated balance sheets of Great China Mania Holdings, Inc. and subsidiaries (the Company) as of December 31, 2011 and the consolidated statements of income, stockholders’ equity and comprehensive income and cash flows for each of the years in the two year period ended December 31, 2011. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (“PCAOB”). Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used, significant estimates made by management and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, these consolidated financial statements referred to above present fairly, in all material aspects, the consolidated financial position of the Company as of December 31, 2011, and the consolidated results of its operations and cash flows for each of the years in the year period ended December 31, 2011 in conformity with accounting principles generally accepted in the United States of America.
The Company has restated its financial statements to correct an accounting error resulting from the sale of business assets. The effects of this restatement is discussed in note 16 to the financial statements.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company does not have the necessary working capital to service its debt and for its planned activity, which raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are described in the notes to the financial statements. These financial statements do not include any adjustments that might result from the outcome of this uncertainty.
s/Madsen& Associates CPA’s, Inc.
Madsen & Associates CPA’s, Inc.
April 16, 2012
Salt Lake City, Utah
CONSOLIDATED BALANCE SHEETS
December 31, 2012
|
2012
|
2011
|
|||||||
|
ASSETS
|
||||||||
|
CURRENT ASSETS
|
||||||||
|
Cash and cash equivalents
|
$ | 218,773 | 305,212 | |||||
|
Accounts receivable
|
353,122 | 396,295 | ||||||
|
Inventories
|
10,438 | 52,570 | ||||||
|
Short term loan receivable
|
140,495 | - | ||||||
|
Deposits, prepaid expenses and other receivables
|
165,932 | 175,123 | ||||||
|
Total current assets
|
888,760 | 929,200 | ||||||
|
TOTAL ASSETS
|
$ | 888,760 | $ | 929,200 | ||||
|
LIABILITIES AND EQUITY
|
||||||||
|
LIABILITIES
|
||||||||
|
CURRENT LIABILITIES
|
||||||||
|
Accounts payable
|
$ | 997,911 | $ | 792,482 | ||||
|
Accrued expenses and other payables
|
84,720 | 145,151 | ||||||
|
Unearned revenue
|
27,691 | 20,588 | ||||||
|
Amount due to a director
|
- | 2,051 | ||||||
|
Short-term borrowings
|
63,656 | 275,775 | ||||||
|
Amount due to related parties
|
38,128 | 160,897 | ||||||
|
Convertible notes
|
168,926 | - | ||||||
|
Total current liabilities
|
1,381,032 | 1,396,944 | ||||||
|
LONG-TERM LIABILITIES
|
||||||||
|
Convertible note
|
31,301 | 128,200 | ||||||
| 31,301 | 128,200 | |||||||
|
TOTAL LIABILITIES
|
$ | 1,412,333 | $ | 1,525,144 | ||||
|
SHAREHOLDERS’ EQUITY
|
||||||||
|
Common stock, Par value $0.01; 375,000,000 shares authorized; 78,876,021and 28,366,000 shares issued and outstanding as of December 31, 2012and 2011, respectively
|
$ | 788,761 | $ | 283,660 | ||||
|
Additional paid in capital
|
7,640,618 | 7,042,086 | ||||||
|
Accumulated deficits
|
(8,457,669 | ) | (7,923,182 | ) | ||||
|
Accumulated other comprehensive income
|
1,492 | 1,492 | ||||||
|
Less: Subscription receivable
|
(496,775 | ) | - | |||||
|
TOTALSHAREHOLDERS’ EQUITY
|
$ | (523,573 | ) | $ | (595,944 | ) | ||
|
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
|
$ | 888,760 | $ | 929,200 | ||||
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended December 31, 2012
|
2012
|
2011
|
|||||||
|
CONTINUING OPERATIONS
|
||||||||
|
REVENUES
|
$ | 4,812,595 | $ | 5,371,787 | ||||
|
COST OF SALES
|
3,352,099 | 4,228,454 | ||||||
|
GROSS PROFIT
|
1,460,496 | 1,143,333 | ||||||
|
EXPENSES
|
||||||||
|
General and administrative expenses
|
1,950,772 | 2,163,892 | ||||||
| 1,950,772 | 2,163,892 | |||||||
|
LOSS FROM CONTINUING OPERATIONS
|
(490,276 | ) | (1,020,559 | ) | ||||
|
OTHER INCOME/(EXPENSE)
|
||||||||
|
Interest income
|
12,682 | - | ||||||
|
Interest expenses
|
(54,116 | ) | - | |||||
|
Other income
|
22,350 | 13,342 | ||||||
|
Other expenses
|
(25,127 | ) | (27,097 | ) | ||||
| (44,211 | ) | (13,755 | ) | |||||
|
NET LOSS BEFORE PROVISION FOR INCOME TAXES
|
(534,487 | ) | (1,034,314 | ) | ||||
|
PROVISION FOR INCOME TAXES
|
- | - | ||||||
|
NET LOSS FROM CONTINUING OPERATIONS
|
$ | (534,487 | ) | $ | (1,034,314 | ) | ||
|
DISCONTINUED OPERATIONS
|
||||||||
|
Net loss from discontinued operations
|
- | (80,233 | ) | |||||
|
Gain on disposal of discontinued operations
|
- | 958,855 | ||||||
|
NET INCOME FROM DISCONTINUED OPERATIONS
|
- | 878,622 | ||||||
|
NETLOSS FOR THE YEAR
|
$ | (534,487 | ) | $ | (155,692 | ) | ||
|
OTHER COMPREHENSIVE INCOME
|
||||||||
|
Gain on foreign exchange translation
|
||||||||
|
- Arising from continuing operations
|
- | 1,492 | ||||||
|
- Arising from discontinued operations
|
- | 1,246 | ||||||
| - | 2,738 | |||||||
|
TOTAL COMPREHENSIVE INCOME/(LOSS) FOR THE YEAR
|
||||||||
|
- Arising from continuing operations
|
(534,487 | ) | (1,032,822 | ) | ||||
|
- Arising from discontinued operations
|
- | 879,868 | ||||||
| $ | (534,487 | ) | $ | (152,954 | ) | |||
|
BASIC (LOSS)/EARNINGS PER SHARE–
|
||||||||
|
- Arising from continuing operations
|
(0.01 | ) | (0.04 | ) | ||||
|
- Arising from discontinued operations
|
- | 0.03 | ||||||
| $ | (0.01 | ) | $ | (0.01 | ) | |||
|
DILUTED (LOSS)/EARNINGS PER SHARE
|
||||||||
|
- Arising from continuing operations
|
(0.01 | ) | (0.04 | ) | ||||
|
- Arising from discontinued operations
|
- | 0.03 | ||||||
| $ | (0.01 | ) | $ | (0.01 | ) | |||
|
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
|
||||||||
|
Basic
|
68,853,432 | 24,943,587 | ||||||
|
Diluted
|
68,853,432 | 24,943,587 | ||||||
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF STOCKHOLDER’S DEFICIT
Year ended December 31, 2012
|
Common Stock
|
Additional
paid in
capital
|
(Accumulated deficits)/ retained earnings
|
Accumulated other comprehensive income
|
Subscription receivable
|
Total
equity
|
|||||||||||||||||||||||
|
Number
of shares
|
Amount
|
|||||||||||||||||||||||||||
|
Balance at January 1, 2011
|
9,202,000 | 92,020 | 5,406,259 | (7,767,490 | ) | (1,246 | ) | - | (2,270,457 | ) | ||||||||||||||||||
|
Comprehensive loss from continuing operations
|
||||||||||||||||||||||||||||
|
- Net loss for the year
|
- | - | - | (1,034,314 | ) | - | - | (1,034,314 | ) | |||||||||||||||||||
|
- Foreign currency translation adjustments
|
- | - | - | - | 1,492 | - | 1,492 | |||||||||||||||||||||
| - | - | - | (1,034,314 | ) | 1,492 | - | (1,032,822 | ) | ||||||||||||||||||||
|
Comprehensive loss from discontinued operations
|
||||||||||||||||||||||||||||
|
- Net loss for the year
|
- | - | - | (80,233 | ) | - | - | (80,233 | ) | |||||||||||||||||||
|
- Foreign currency translation adjustments
|
- | - | - | - | 1,246 | - | 1,246 | |||||||||||||||||||||
|
- Gain on disposal
|
- | - | - | 958,855 | - | - | 958,855 | |||||||||||||||||||||
| - | - | - | 878,622 | 1,246 | - | 879,868 | ||||||||||||||||||||||
|
Share-based payment
|
3,690,000 | 36,900 | 401,472 | - | - | - | 438,372 | |||||||||||||||||||||
|
Conversion of debt to shares
|
15,474,000 | 154,740 | 1,234,355 | - | - | - | 1,389,095 | |||||||||||||||||||||
|
Balance at December 31, 2011 and January 1, 2012
|
28,366,000 | 283,660 | 7,042,086 | (7,923,182 | ) | 1,492 | - | (595,944 | ) | |||||||||||||||||||
|
Comprehensive loss from continuing operations
|
||||||||||||||||||||||||||||
|
Net loss for the year
|
- | - | - | (534,487 | ) | - | - | (534,487 | ) | |||||||||||||||||||
| - | - | - | (534,487 | ) | - | - | (534,487 | ) | ||||||||||||||||||||
|
Share-based payment
|
2,300,000 | 23,000 | 207,000 | - | - | - | 230,000 | |||||||||||||||||||||
|
Settlement of debt to shares
|
19,195,000 | 191,950 | 141,793 | - | - | - | 333,743 | |||||||||||||||||||||
|
Settlement of convertible note to shares
|
515,021 | 5,151 | 15,539 | - | - | - | 20,690 | |||||||||||||||||||||
|
Issue of shares
|
28,500,000 | 285,000 | 234,200 | - | - | (496,775 | ) | 22,425 | ||||||||||||||||||||
|
Balance at December 31, 2012
|
78,876,021 | 788,761 | 7,640,618 | (8,457,669 | ) | 1,492 | (496,775 | ) | (523,573 | ) | ||||||||||||||||||
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2012
|
2012
|
2011
|
|||||||
|
Cash flows from operating activities
|
||||||||
|
Net loss continuing operating activities
|
$ | (534,487 | ) | $ | (1,034,314 | ) | ||
|
Adjustments to reconcile net income to net cash flows used in operating activities for:
|
||||||||
|
Amortization of discount on Convertible Notes
|
51,386 | - | ||||||
|
Accrued interest expense on Convertible Notes
|
2,730 | - | ||||||
|
Interest income receivable
|
(12,682 | ) | - | |||||
|
Share-based payments
|
230,000 | 438,372 | ||||||
|
Changes in operating assets and liabilities:
|
||||||||
|
Decrease/(increase) in accounts receivable
|
43,173 | (396,295 | ) | |||||
|
Decrease/(increase) in inventories
|
42,132 | (52,570 | ) | |||||
|
Decrease/(increase) in prepaid expenses
|
9,191 | (175,123 | ) | |||||
|
(Decrease)/increase in amount due to a director
|
(2,051 | ) | 2,051 | |||||
|
Increase in receipt in advance
|
7,103 | 20,588 | ||||||
|
Increase in accounts payable
|
205,429 | 792,482 | ||||||
|
(Decrease)/increase in accrued expenses and other payables
|
(60,431 | ) | 142,375 | |||||
|
Net cash used in continuing operating activities
|
(18,507 | ) | (262,434 | ) | ||||
|
Net cash used in discontinued operating activities
|
- | (144,522 | ) | |||||
|
Net cash used in operating activities
|
(18,507 | ) | (406,956 | ) | ||||
|
Cash flows from investing activities
|
||||||||
|
Cash flows from continuing investing activities
|
- | - | ||||||
|
Net cash used in discontinued investing activities
|
- | (31,465 | ) | |||||
|
Net cash used in investing activities
|
- | (31,465 | ) | |||||
|
Cash flows from financing activities
|
||||||||
|
Cash flows from continuing financing activities
|
||||||||
|
Issue of convertible note
|
135,500 | 128,200 | ||||||
|
Repayment of convertible note
|
(96,899 | ) | - | |||||
|
Decrease in subscription receivable
|
22,425 | - | ||||||
|
Proceeds from short-term borrowings
|
121,624 | 275,775 | ||||||
|
Advance to short term loan receivable
|
(127,813 | ) | - | |||||
|
Decrease /(increase)in amount due to related parties
|
(122,769 | ) | 162,179 | |||||
|
Net cash (used in)/provided by continuing financing activities
|
(67,932 | ) | 566,154 | |||||
|
Net cash provided by discontinued financing activities
|
- | 116,483 | ||||||
|
Net cash (used in)/provided by financing activities
|
(67,932 | ) | 682,637 | |||||
|
Net (decrease)/increase in cash and cash equivalents
|
||||||||
|
- Continuing operations
|
(86,439 | ) | 303,720 | |||||
|
- Discontinued operations
|
- | (59,504 | ) | |||||
| (86,439 | ) | 244,216 | ||||||
|
Effect of foreign exchange rate changes on cash and cash equivalents
|
||||||||
|
- Continuing operations
|
- | 1,492 | ||||||
|
- Discontinued operations
|
- | 2,769 | ||||||
| - | 4,261 | |||||||
|
Cash and cash equivalents at beginning of year
|
||||||||
|
- Continuing operations
|
305,212 | - | ||||||
|
- Discontinued operations
|
- | 56,735 | ||||||
| 305,212 | 56,735 | |||||||
|
Cash and cash equivalents at end of year
|
||||||||
|
- Continuing operations
|
218,773 | 305,212 | ||||||
|
- Discontinued operations
|
- | - | ||||||
| $ | 218,773 | $ | 305,212 | |||||
|
Non-cash financing activities
|
||||||||
|
- Issue of shares unpaid
|
$ | 496,775 | $ | - | ||||
|
- Conversion of note to shares
|
20,690 | - | ||||||
|
- Conversion of debt to shares
|
333,743 | 1,389,095 | ||||||
See accompanying notes to consolidated financial statements
Notes to Consolidated Financial Statements
December 31, 2012
NOTE 1 – ORGANIZATION AND PRINCIPAL ACTIVITIES
Great China Mania Holdings, Inc. (“GMEC” or the “Company”) was incorporated in Florida on July 8, 1983. In February 2011, three new subsidiaries of the Company were formed and have since maintained operations. These subsidiaries are GME Holdings Limited, Great China Games Limited and Great China Media Limited. In June 2011, another new subsidiary GMEC Ventures Limited, a Hong Kong company, was formed and maintained for holding future investment if any. As of the date of this filing, our corporate structure is as follows:
GMEC owns two wholly-owned BVI subsidiary known as Sharp Achieve Holdings Limited (“Sharp Achieve”) and Super China Global Limited (SCGL). SCGL has two subsidiaries: 1) GME Holdings Limited (“GMEH”) which was incorporated February 18, 2011 and specialized in artiste and project management services; and 2) GMEC Ventures Limited (“GMEV”) was incorporated June 1, 2011and specialized in investment holding. Sharp Achieve has two subsidiaries: 1) Great China Media Limited (“GCM”) which was incorporated February 1, 2011 and specialized in publication of magazines; 2) Great China Games Limited (“GCG”) which was incorporated February 1, 2011and specialized in retail operation of video games and accessories
On March 16, 2011, the Company amended its Articles of Incorporation and changed the name of the Company from “Great East Bottles & Drinks (China) Holdings, Inc.” to “Great China Mania Holdings, Inc.”
On March 31, 2011, the Company disposed of Water Scientific.
In November, 2012, Sharp Achieve obtained the direct ownership of GCM and GCG by disposing the direct ownership of SCGL to GMEC. This restructuring transaction did not affect the company control of all fellow subsidiaries
NOTE 2 – PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the Company and the Company’s subsidiaries. The consolidated financial statements are prepared in accordance with generally accepted accounting principles used in the United States of America, and all significant intercompany balances and transactions have been eliminated.
The functional currency for the majority of the Company’s continuing and discontinued operations is the Hong Kong Dollar (“HKD”), while the reporting currency is the US Dollar.
NOTE 3– SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Economic and political risk
The Company’s continuing operations and discontinued operations are conducted in Hong Kong. Accordingly, the political, economic, and legal environments in the Hong Kong may influence the Company’s business, financial condition, and results of operations.
The Company’s major operations in the Hong Kong are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic, and legal environment. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, and rates and methods of taxation, among other things.
(b) Cash and cash equivalents
The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. The Company’s continued operations maintain bank accounts in Hong Kong. The Company’s discontinued operations maintain bank accounts in Hong Kong and China.
(c) Inventory
Inventories consisting of raw materials and finished goods are stated at the lower of cost or net realizable value. Inventory costs are calculated using a first in first out (FIFO) method of accounting.
(d) Income tax
Income taxes are based on pre-tax financial accounting income. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts. The Company periodically assesses the need to establish valuation allowances against its deferred tax assets to the extent the Company no longer believes it is more likely than not that the tax assets will be fully utilized.
The Company evaluates a tax position to determine whether it is more likely than not that the tax position will be sustained upon examination, based upon the technical merits of the position. A tax position that meets the more-likely-than-not recognition threshold is subject to a measurement assessment to determine the amount of benefit to recognize and the appropriate reserve to establish, if any. If a tax position does not meet the more-likely-than-not recognition threshold, no benefit is recognized
In accordance with the relevant tax laws and regulations of Hong Kong, the applicable corporation income tax rate was 16.5% on assessable profits, if any, for the years ended December 31, 2012 and 2011, respectively.
(e) Fair value of financial instruments
The Company’s financial instruments primarily consist of cash and cash equivalents, amount due from a related company, prepaid expenses and accounts receivables, other receivables, accounts payable, accrued expenses and other payables, unearned revenue, short term borrowings, convertible note and amount due to related parties.
The estimated fair value amounts have been determined by the Company, using available market information or other appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop estimates of fair value. Consequently, the estimates are not necessarily indicative of the amounts that could be realized or would be paid in a current market exchange.
As of the year-end dates, the estimated fair values of the financial instruments were not materially different from their carrying values as presented, due to the short maturities of these instruments and the fact that the interest rates on the borrowings approximate those that would have been available for loans of similar remaining maturity and risk profiles at respective year ends.
(f) Revenue recognition
Revenue represents the invoiced value of goods sold or services rendered during the year, net of sales discounts and returns. Generally revenue is recognized when all of the following criteria are met:
|
-
|
Persuasive evidence of an arrangement exists,
|
|
-
|
Delivery has occurred or services have been rendered,
|
|
-
|
The seller’s price to the buyer is fixed or determinable, and
|
|
-
|
Collectability is reasonably assured
|
Revenue recognition policies for each of the major products and services of continuing operations are illustrated as follows:
|
|
(i)
|
Revenue from provision of artist management, event management, and promotion for its clients is recognized when services are rendered.
|
|
|
(ii)
|
Revenue from traditional paper magazines sales is recognized when magazines are sold to customers, net of sales return.
|
|
|
(iii)
|
Revenue from the provision of advertising services is recognized when services are rendered.
|
|
|
(iv)
|
Revenue from electronic content sales like iPhone and Android applications is recognized when receipt is confirmed by service providers. In 2012, the revenue generated from digital content is not significant to the publication of magazines operation.
|
|
|
(v)
|
Revenue from retail of video games and accessories is recognized upon delivery of goods to customers.
|
For discontinued ecological products operations, bottles productions and OEM bottled water operations, revenue is recognized when delivery has occurred.
(g) Earnings per share
Basic earnings per share is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. For the years ended December 31, 2012, there are a total of 1,622,432 shares of common stock included in the calculation of diluted weighted average number of shares outstanding. They are not included in the calculation of diluted (loss) / earnings per share because they are considered anti dilutive when computing diluted (loss) / earnings per share.
(h) Use of estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year. Actual results may differ from those estimates.
(i) Comprehensive income
Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, all items that are required to be recognized under current accounting standards as components of comprehensive income are required to be reported in a financial statement that is presented with the same prominence as other financial statements. Comprehensive income includes net income and the foreign currency translation gain, net of tax.
(j) Foreign currency translation
The accompanying consolidated financial statements are presented in United States Dollars (US$). The functional currency of the Company is the Hong Kong Dollar (HK$). Capital accounts of the consolidated financial statements are translated into United States dollars from HK$ at their historical exchange rates when the capital transactions occurred. Assets and liabilities are translated at the exchange rates as of balance sheet date. Income and expenditures are translated at the average exchange rate of the year. The translation rates are as follows:
|
December 31, 2012
|
December 31, 2011
|
|||||||
|
Year end HK$ : US$ exchange rate
|
0.1282 | 0.1282 | ||||||
|
Average period/yearly HK$ : US$ exchange rate
|
0.1282 | 0.1282 | ||||||
(k) Stock-based compensation
The Company recognizes compensation expense for all stock-based payment awards made to employees, contractors and non-employee directors. Stock-based compensation expense is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service period, which is generally the vesting period.
During the year ended December 31, 2012, the Company issued 2,300,000 shares in aggregate for services rendered to the Company. The fair value of $230,000, which is determined with refer to closing stock price on the dates of issue, was charged to operation as general and administrative expenses for the year then ended.
During the year ended December 31, 2011, the Company issued 3,690,000 shares in aggregate for employee’s compensation and services rendered to the Company. The fair value of $438,372 is determined with refer to the closing stock price on the date of issue.
(l) Recent accounting pronouncements
In December 2011, the Financial Accounting Standards Board ("FASB") issued ASU 2011-11, Balance Sheet (Topic 210) Disclosures about Offsetting Assets and Liabilities. The amendments in this update will enhance disclosures required by U.S. GAAP by requiring improved information about financial instruments and derivative instruments that are either (1) offset in accordance with either ASC 210-20-45 or ASC 815-10-45 or (2) subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in accordance with either ASC 210-20-45 or ASC 815-10-45. This information will enable users of an entity's financial statements to evaluate the effect or potential effect of netting arrangements on an entity's financial position, including the effect or potential effect of rights of setoff associated with certain financial instruments and derivative instruments in the scope of this Update. The amendments in this Update are effective for annual periods for fiscal years beginning on or after January 1, 2013. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.
In December 2011, the FASB has issued Accounting Standards Update (ASU) No.2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. ASU No. 2011-11 is intended to supersede certain pending paragraphs in Accounting Standards Update No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income, to effectively defer only those changes in Update 2011-05 that relate to the presentation of reclassification adjustments out of accumulated other comprehensive income. The amendments will be temporary to allow the Board time to redeliberate the presentation requirements for reclassifications out of accumulated other comprehensive income for annual and interim financial statements for public, private, and non-profit entities. All other requirements in ASU No. 2011-05 are not affected by ASU No. 2011-12, including the requirement to report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements. Public entities should apply these requirements for fiscal years, and interim periods within those years, beginning after December 15, 2011. Nonpublic entities should begin applying these requirements for fiscal years ending after December 15, 2012, and interim and annual periods thereafter. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.
In August 2012, FASB has issued Accounting Standards Update (ASU) No. 2012-03, Technical Amendments and Corrections to SEC Sections. This ASU amends various SEC paragraphs pursuant to SAB 114, SEC Release No. 33-9250, and ASU 2010-22, which amend or rescind portions of certain SAB Topics. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.
In October 2012, FASB has issued Accounting Standards Update (ASU) No. 2012-04, Technical Corrections and Improvements. This ASU make technical corrections, clarifications, and limited-scope improvements to various Topics throughout the Codification. The amendments in this ASU that will not have transition guidance will be effective upon issuance for both public entities and nonpublic entities. For public entities, the amendments that are subject to the transition guidance will be effective for fiscal periods beginning after December 15, 2012. For nonpublic entities, the amendments that are subject to the
transition guidance will be effective for fiscal periods beginning after December 15, 2013.The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.
NOTE 4 – INVENTORIES
Inventories as of the year-end dates are summarized as follows:
|
2012
|
2011
|
|||||||
|
Raw materials
|
$ | 6,795 | $ | 7,109 | ||||
|
Trading inventories
|
3,643 | 45,461 | ||||||
|
Total
|
$ | 10,438 | $ | 52,570 | ||||
The raw materials represent the paper used in publication of magazines and the trading inventories represent video games and accessories used in retail operation.
NOTE 5 – SHORT TERM LOAN RECEIVABLE
During the year, the Company granted a short term loan amount of $140,495 to a third party company at 6% interest per annum with no fixed payment terms. Interest income in conjunction with this short term loan for the year ended December 31, 2012 and 2011 was $12,682 and $0, respectively.
NOTE 6 –DEPOSITS, PREPAID EXPENSES AND OTHER RECEIVABLES
Deposits, prepaid expenses and other receivables consist of payments and deposits made by the Company to third parties in the normal course of business operations with no interest and no fixed repayment terms. These payments are made for the purchase of services that are used by the Company for its current operations.
The Company evaluates the amounts recorded as prepaid expenses on a periodic basis and records a charge to the current operations of the Company when the related expense has been incurred.
NOTE 7 – ACCRUED EXPENSES AND OTHER PAYABLES
As of the year-end dates, the Company’s accrued expenses and other payables are summarized as follows:
|
2012
|
2011
|
|||||||
|
Accrued expenses
|
$ | 84,720 | $ | 144,813 | ||||
|
Other payables
|
- | 338 | ||||||
| $ | 84,720 | $ | 145,151 | |||||
NOTE 8 – AMOUNT DUE TO A DIRECTOR
As of the year-end dates, the Company’s current account due to the director is summarized as follows:
|
2012
|
2011
|
|||||||
|
Mr. Yau Wai Hung
|
$ | - | $ | 2,051 | ||||
The amount due to Mr. Yau Wai Hung represents temporary advances from the director for the Company’s working capital. The balance is unsecured, interest free, and has no fixed terms of repayment. During the year, Mr. Yau was the Chief Executive Officer and director of the Company.
NOTE 9 – SHORT-TERM BORROWINGS
The short-term borrowings are unsecured, interest free advances from three non affiliate individuals with no fixed repayment term. During the year, those individuals converted a portion of the short term borrowings of $333,743 into 19,195,000 shares of Company’s common stock.
NOTE 10 – AMOUNT DUE TO RELATED PARTIES
As of the year-end dates, the Company’s current accounts with related companies are summarized as follows:
|
2012
|
2011
|
|||||||
|
China Culture Limited (CCL)
|
$ | 38,128 | $ | 109,583 | ||||
|
Global Mania Empire Management Limited (GME)
|
- | 51,314 | ||||||
|
Total amount due to related parties
|
$ | 38,128 | $ | 160,897 | ||||
The amount due to CCL is a temporary advance to the Company for working capital purposes. The balance is unsecured, interest free and has no fixed repayment term. CCL is 100% owned by one of the Company’s directors.
The amount due to GME is a temporary advance to the Company for working capital purposes. The balance is unsecured, interest free and has no fixed repayment.
NOTE 11 –CONVERTIBLE NOTES
On June 1, 2011, the Company issued a non-interest bearing convertible note in the amount of $256,400 ( “Note 1”) to a third party note holder (“Holder 1”),which matures on May 31, 2016. On September 30, 2011, the first installment of $128,200 was received. Note 1 bears a call back option exercisable by Holder 1 on the unused portion of Note 1 after 12 months from the date of Note 1. Note 1 can be converted into common stock of the Company by Holder 1 under certain conditions. During the year, a total of $96,899 was repaid by the Company. As of December 31, 2012, Note 1 did not qualify to be converted under those conditions and is therefore not dilutive.
On May 31, 2012, the Company issued an 8% convertible note in the amount of $50,000 (“Note 2”) to another third party note holder (“Holder 2”), which matures on March 4, 2013 and had been fully received on June 20, 2012. The outstanding principal balance plus any accrued interest under Note 2 is convertible into common stock of the Company after 180 days from the date of issued with a 42% discount over the convertible price upon the option of Holder 2. The conversion price is determined by the average of the lowest 3 closing bid prices out of the 10 days prior to the Conversion Date. The Company has recorded a debt discount in the amount of $37,655 as the value of the beneficial conversion feature at the date the company entered into the note agreement. The discount is being amortized using the effective interest method over the life of Note 2. The total interest expense relative to Note 2 was $39,655 which consists of accrued interest expenses of $2,000 and amortization of the debt discount of $37,655 for the year ended December 31, 2012. On December 20, 2012, part of the note of $12,000 was converted into 515,021 shares of common stock by the holder. The gross outstanding balance Note 2 at December 31, 2012 was $ 68,965 after deducting the partial settlement of $20,690 by shares. As of December 31, 2012, Note 2 qualified to be converted 1,622,432 shares of common stock under the conditions of Note 2 and is therefore dilutive.
On October 22, 2012and December 12, 2012, the Company issued two 8% convertible note in the amount of $32,500 (“Note 3”) and $53,000 (“Note 4”) to Holder 2, respectively. Note 3 matures on July24, 2013 and was fully received on November 7, 2012. The Note 4 matures on September 14, 2013 and was fully received on December 27, 2012.The outstanding principal balance plus any accrued interest under both Note 3and Note 4 are convertible into common stock of the Company after 180 days from the date of issued with a 42% discount over the convertible price upon the option of Holder 2. The conversion price is determined by the average of the lowest 3 closing bid prices out of the 10 days prior to the Conversion Date. The Company has recorded debt discount in the amount of $ 24,476 and $39,914 for Note 3 and Note 4 respectively as the value of the beneficial conversion feature at the date the Company entered into the note agreement. The discount is being amortized using the effective interest method over the life of Note 3 and 4 separately. The total interest expense relative to Note 3 was $10,024 which consists of interest expenses of $506 and amortization of the debt discount of $9,518 for the year ended December 31, 2012. The total interest expense relative to Note 4 was $4,437 which consists of interest expenses of $224 and amortization of the debt discount of $4,213 for the year ended December 31, 2012.The gross outstanding balance Note 3 and 4 at December 31, 2012 was $42,524 and $57,437 separately. As of December 31, 2012, both Note 3and Note 4 did not qualify to be converted under the conditions of those notes and are therefore not dilutive.
The convertible notes as of the year-end dates are summarized as follows:
|
2012
|
2011
|
|||||||
|
Noncurrent liabilities:
|
||||||||
|
Non-interest bearing convertible note
|
$ | 31,301 | $ | 128,200 | ||||
|
Current liabilities:
|
||||||||
|
8% convertible note 2, net (including fair value adjustment on option $ 37,655, accrued interest expense $2,000,andsettlement by shares totaling of $20,690)
|
68,965 | - | ||||||
|
8% convertible note 3, net (including fair value adjustment on option $ 24,476, accrued interest expense $506, net of unamortized discount $14,958)
|
42,524 | - | ||||||
|
8% convertible note 4, net (including fair value adjustment on option $ 39,914, accrued interest expense $224, net of unamortized discount $35,701)
|
57,437 | - | ||||||
| 168,926 | - | |||||||
|
Total convertible note outstanding
|
$ | 200,227 | $ | 128,200 | ||||
NOTE 12–WEIGHTED AVERAGE NUMBER OF SHARES FOR EARNINGS PER SHARE CALCULATION
On January 19, 2012, the Company entered into a stock subscription agreement and issued 28,500,000 shares of common stock to a shareholder, who is an affiliate of the Company, for a consideration of $519,200. During the year, the major shareholder paid $22,425 and the remaining balance of $496,775 has been reported as a Subscription Receivable in the financial statements of the Company.
On January 26, 2012 the Company issued 9,410,000 shares of common stock to three non affiliate individuals for settlement of short term borrowings totaling $149,450.
On March 20, 2012 the Company issued 3,400,000 shares of common stock to one non affiliate individual for settlement of short term borrowings totaling $56,593.
On August 14, 2012 the Company issued 2,105,000 shares of common stock to one non affiliate individual for settlement of short term borrowings totaling $42,100.
On August 17 2012, we issued to a consultant 50,000 shares of our common stock in exchange for professional services rendered. Based on the share price of $0.10 per share on the grant date, the fair value of these issued shares is $5,000.
On August 24, 2012, we issued to two consultants 2,250,000 shares of our common stock in exchange for professional services rendered. Based on the share price of $0.10 per share on the grant date, the fair value of these issued shares is $225,000.
On December 5, 2012 the Company issued 4,280,000 shares of common stock to two non affiliate individuals for settlement of short term borrowings totaling $85,600.
On December 20, 2012 the Company issued 515,021 shares of common stock to a convertible note holder for partial settlement of a convertible note totaling $12,000.
The calculation of weighted average number of shares for the year ended December 31, 2012 is illustrated as follows:
|
2012
|
||||||||
|
Number
of shares
|
Weighted average
number of shares
|
|||||||
|
At January 1, 2012
|
28,366,000 | 28,366,000 | ||||||
|
Shares issued on January 19, 2012 for debt conversion
|
28,500,000 | 27,098,361 | ||||||
|
Shares issued on January 26, 2012 for debt conversion
|
9,410,000 | 8,767,240 | ||||||
|
Shares issued on March 20, 2012 for debt conversion
|
3,400,000 | 2,666,120 | ||||||
|
Shares issued on August 14, 2012 for debt conversion
|
2,105,000 | 805,191 | ||||||
|
Shares issued on August 17,2012 for share based payment
|
50,000 | 18,716 | ||||||
|
Shares issued on August 24 ,2012 for share based payment
|
2,250,000 | 799,180 | ||||||
|
Shares issued on December 5, 2012 for debt conversion
|
4,280,000 | 315,738 | ||||||
|
Shares issued on December 20, 2012 for debt conversion
|
515,021 | 16,886 | ||||||
|
At December 31, 2012
|
78,876,021 | 68,853,432 | ||||||
NOTE 13 – INTEREST EXPENSES
Interest expenses for the year ended December 31 2012 and 2011 are summarized as follows:
|
2012
|
2011
|
|||||||
|
Amortization on discount of convertible note
|
$ | 51,386 | $ | - | ||||
|
Accrued interest on convertible note
|
2,730 | - | ||||||
|
Total
|
$ | 54,116 | $ | - | ||||
NOTE 14– RELATED PARTY TRANSACTION
In addition to the transactions detailed elsewhere in these financial statements, the Company and its subsidiaries entered into the following material transactions with the related parties for the year ended December 31, 2012:
|
2012
|
2011
|
|||||||
|
From continuing operations
|
||||||||
|
China Culture Limited
|
||||||||
|
Rental charges paid by Company for offices premises
|
$ | 92,305 | $ | 247,745 | ||||
China Culture Limited is a related party as it is a company owned by Mr. Chan Wing Hing, a Company director appointed during the year.
In the opinion of directors, the above transaction was entered into by the company in the normal course of business.
NOTE 15– CONTINGENCIES AND COMMITMENTS
As of December 31, 2012, the expected annual lease payments under operating leases are as follows:
|
For the year ending December 31,
|
||||
|
2013
|
90,338 | |||
|
2014
|
46,088 | |||
|
Total
|
136,426 | |||
NOTE 16 – SEGMENT REPORTING
The Company’s reportable segments of business include artist and project management services, publication of magazines and retail of video games and accessories. Each of these segments is conducted in a separate corporation and each functions independently of the others. The Company has no sales between segments.
Financial information of the Company’s business segments is as follows:
|
2012
|
2011
|
|||||||
|
Revenues from:
|
||||||||
|
Continuing operations
|
||||||||
|
Artist and project management services
|
$ | 1,931,005 | $ | 1,106,507 | ||||
|
Publication of magazines
|
2,238,117 | 2,641,324 | ||||||
|
Retail of video games and accessories
|
643,473 | 1,623,956 | ||||||
|
Corporate
|
- | - | ||||||
| $ | 4,812,595 | $ | 5,371,787 | |||||
|
Discontinued operations
|
- | - | ||||||
| $ | 4,812,595 | $ | 5,371,787 | |||||
|
Segment profit/(loss) from:
|
||||||||
|
Artist and project management services
|
131,024 | (193,360 | ) | |||||
|
Publication of magazines
|
(51,730 | ) | (212,221 | ) | ||||
|
Retail of video games and accessories
|
$ | (51,860 | ) | $ | (68,251 | ) | ||
|
Corporate
|
(561,921 | ) | (560,482 | ) | ||||
| $ | (534,487 | ) | $ | (1,034,314 | ) | |||
|
Discontinued operations
|
- | 878,622 | ||||||
| $ | (534,487 | ) | $ | (155,692 | ) | |||
Segment result of discontinued operations in 2011 represents a gain of $958,855 on disposal of Water Scientific and net loss of $80,233 generated from Water Scientific up to March 31, 2011.
|
Segment assets:
|
2012
|
2011
|
||||||
|
Artist and project management services
|
$ | 582,568 | $ | 291,861 | ||||
|
Publication of magazines
|
184,859 | 482,882 | ||||||
|
Retail of video games and accessories
|
42,422 | 121,772 | ||||||
|
Corporate
|
78,911 | 32,685 | ||||||
| $ | 888,760 | $ | 929,200 | |||||
|
Discontinued operations
|
- | - | ||||||
| $ | 888,760 | $ | 929,200 | |||||
NOTE 17- GOING CONCERN
As of December 31, 2012, the Company has accumulated deficits of $8,457,669, a negative working capital of $492,272, and also recorded a net loss from the continuing operations of $534,487 for the year then ended.
As of December 31, 2012 the Company may need additional cash resources to operate during the upcoming 12 months, and the continuation of the Company may dependent upon the continuing financial support of investors, directors and/or stockholders of the Company. The Company intends to attempt to acquire additional operating capital through private equity offerings to the public and existing investors to fund its business plan. However, there is no assurance that equity or debt offerings will be successful in raising sufficient funds to assure the eventual profitability of the Company. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence.
NOTE 18– SUBSEQUENT EVENTS
On January 14, 2013 Mr. Cheung Wai Kit resigned as a director of the Company and Ms. Yum Ka Yan was appointed as a director of the Company. On that same day, Mr. Yau Wai Hung resigned as the Company’s Chief Executive Officer and Mr. Kwong Kwan Yin Roy was appointed as Chief Executive Officer and Chief Financial Officer.
During the period from January 2, 2013 to January 18, 2013, we issued a total of 1,622,432 shares common stock for final settlement of a convertible note totaling $40,000.
We are offering to sell up to 10,600,000 shares of common stock issuable to one non affiliate investor as disclosed on our Form S-1 filed with the Securities and Exchange Commission on March 13, 2013.
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