GME INNOTAINMENT, INC. - Quarter Report: 2015 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.20549

Form 10-Q

[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2015

[  ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 000-54446

GME INNOTAINMENT, INC.

(Exact Name of Registrant as Specified in Its Charter)

(852) 3543-1208

(Registrant’s telephone number, including area code)

Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes TNo £

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data 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). YesTNo £

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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Ruble 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  £ No T 

The number of shares of Common Stock, $0.01 par value, outstanding on November 13, 2015 was 28,433,094.

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GME INNOTAINMENT, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

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PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

GME INNOTAINMENT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

See accompanying notes to condensed consolidated financial statements.

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GME INNOTAINMENT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (UNAUDITED)

See accompanying notes to condensed consolidated financial statements.

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GME INNOTAINMENT, INC.AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

See accompanying notes to condensed consolidated financial statements.

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GME INNOTAINMENT, INC AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

September 30, 2015

NOTE 1 – ORGANIZATION AND PRINCIPAL ACTIVITIES

GME Innotainment, Inc. (“GMEV” or the “Company”) was incorporated in Florida on July 8, 1983 and adopted the current name on July 8, 2015. At the balance sheet date, the Company owns twenty one (21) subsidiaries.

The Company incorporated a wholly owned subsidiary named Super China Global Limited (“SCGL”) in British Virgin Islands (BVI) on January 28, 2011 to hold fellow subsidiaries.

GME Holdings Limited (“GMEH”) was incorporated in Hong Kong on February 18, 2011 to operate an artist management and event management businesses in Hong Kong. The Company holds 56% equity interest of GMEH through SCGL and GME China Entertainment Limited.

GMEC Ventures Limited (“GMET”) was incorporated in Hong Kong on June 1, 2011 to hold future investment. The Company holds 100% equity interest of GMET through SCGL.

3A Pictures Limited (“3A”) was incorporated in Hong Kong on December 30, 2013 under the name of Number 5 Asia Management Limited to hold future investment. It adopted the current name on May 30, 2014. The Company holds 100% equity interest of 3A through SCGL.

GME Distribution Workshop Limited (“GMED”) was incorporated in Hong Kong on January 24, 2014 to manage the movie-related businesses. The Company holds 100% equity interest of GMED through SCGL.

Celestial Talent International Limited (“Celestial”) was incorporated in BVI on August 20, 2014 to hold the fellow subsidiaries incorporated after October 2014. The Company holds 100% equity interest of Celestial through SCGL.

GME London Limited (“GME London”) was incorporated in England and Wales on December 18, 2014 to operate the businesses of concert management in the United Kingdom and Asia Pacific region. The Company owns 51% equity interest of GME London through a BVI company named as Platinum China Enterprises Limited.

GME Casting Studio Limited (“GME Casting”) was incorporated in Hong Kong on 31 October, 2014 to operate the movie casting and talent management in Hong Kong and China excluding Beijing, Shanghai and Hangzhou. MY GME Sdn. Bhd. (“MY GME”) was incorporated in Malaysia on December 5, 2014 to operate the businesses of movie casting, model management, model scouting and event management in Malaysia, Singapore and Thailand. The Company owns 51% equity interest of both of GME Casting and MY GME through a BVI company named as Access Max International Limited.

iScout Models Limited (“iScout”) was incorporated in Hong Kong on November 20, 2014 to hold future investment of a wholly owned foreign enterprise (WOFE) subsidiary in Shanghai (temporarily named as Shanghai Junyue Limited, which is planned to be formed in the second half of 2015) to operate the artist’s social media management and modelling businesses in China. The Company owns 51% equity interest of iScout through Celestial.

GMECM Limited (“GMECM”) was incorporated on December 31, 2014 in Hong Kong to hold future investments of a WOFE subsidiary in China (temporarily named as Xingyao Limited, which is planned to be formed in the second half of 2015) to operate the movie and television program casting businesses in China. The Company owns 51% equity interest of GMECM through Celestial.

GME Paragon Limited (“GME Paragon”) was incorporated in Hong Kong on February 9, 2015 to operate the artist management in China. The Company owns 51% equity interest of GME Paragon through Celestial.

Infinite Concept International Coporation (“ICI”) was incorporated in BVI on July 21, 2015 to hold fellow subsidiaries. The Company holds 100% equity interest of ICI through SCGL.

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Red GME Digital Entertainment Limited (“Red GME”) was incorporated in Hong Kong on September 11, 2015 to operate digital entertainment business. The Company owns 60% equity interest of Red GME through ICI.

On May 6, 2015, the Company and its wholly owned subsidiary GMEH executed a share exchange agreement with GME China Entertainment Limited (“GME China”, formerly known as Direct Success Group Limited), an investment holding BVI company owning 100% of Markwin Investment Limited (“Markwin”). Pursuant to the terms of the share exchange agreement, the Company acquired 20% equity interest of GME China and control of Markwin in exchange for GME China acquiring 55% equity interest of GMEH from the Company. After the transaction, the Company retains 56% equity interest and control of GMEH.

NOTE 2 – PRINCIPLES OF CONSOLIDATION

The unaudited interim financial statements of the Company and the Company’s subsidiaries (see Note 1) for the nine months ended September 30, 2015 and 2014 have been prepared pursuant to the rules & regulations of the SEC. Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the following disclosures are adequate to make the information presented not misleading. All significant intercompany balances and transactions have been eliminated. The functional currency for the majority of the Company’s operations is the Hong Kong Dollar (HKD) for nine months ended September 30, 2015 and 2014, while the reporting currency is the US Dollar.

In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation of the Company’s financial position as of September 30, 2015, the results of its operations and cash flows for the nine months ended for September 30, 2015 and 2014.

The results of operations for the nine months ended September 30, 2015 are not necessarily indicative of the results for a full year period.

The accompanying unaudited consolidated financial statements and the following notes should be read in conjunction with the audited consolidated financial statements and the notes thereto in the Company’s Form 10-K for the year ended December 31, 2014.

NOTE3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a)

Economic and political risk

The Company’s operations are mainly 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 maintain principal bank accounts in Hong Kong.

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(c)

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 periods ended September 30, 2015 and 2014, respectively.

(d)

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 other receivables, accounts payable, accrued expenses and other payables, receipt in advance, taxes payable and amount due to a related party.

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 balance sheet 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. The value of the convertible option at carrying amount of $32,000 and $35,332 as at September 30, 2015 and December 31, 2015 were measured based on fair value of shares required to be issued to settle the liability according to the terms of the note.

(e)

Long-Lived Assets

Property and equipment is stated at cost.  Depreciation is computed by the straight-line method over estimated useful lives (2-7 years).  Intellectual property assets are stated at their fair value acquisition cost. Amortization of intellectual property assets is calculated by the straight line method over their estimated useful lives. Historical costs are reviewed and evaluated for their net realizable value of the assets.  The carrying amount of all long-lived assets is evaluated periodically to determine if adjustment to the depreciation and amortization period or the unamortized balance is warranted. Based upon its most recent analysis, the Company believes that no impairment of property and equipment existed at September 30, 2015.

Long-lived assets such as property, equipment and identifiable intangibles are reviewed for impairment whenever facts and circumstances indicate that the carrying value may not be recoverable.  When required impairment losses on assets to be held and used are recognized based on the fair value of the asset.  The fair value is determined based on estimates of future cash flows, market value of similar assets, if available, or independent appraisals, if required.  If the carrying amount of the long-lived asset is not recoverable from its undiscounted cash flows, an impairment loss is recognized for the difference between the carrying amount and fair value of the asset.  When fair values are not available, the Company estimates fair value using the expected future cash flows discounted at a rate commensurate with the risk associated with the recovery of the assets.  We did not recognize any impairment losses for any periods presented.

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(f)

Prepaid expenses

Any expenses paid prior to the related services rendered will be recorded as prepaid expenses. Such prepaid expenses will be reconciled and determinable in earlier of 60 days after the services rendered or 2 years after the initial payment date.

(g)

Unearned revenue

Any revenue received prior to the service rendered will recorded as unearn revenue. Such advance will be reconciled and determinable in earlier of date of service rendered or collectability of related revenue is reasonably assured.

(h)

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 are illustrated as follows:

(i)	Revenue from provision of artist management, event management, and promotion for its clients is recognized when services are rendered. Revenues and expenses of major concerts are recorded when all receipts and expenses are reconciled and determinable which may be up to 60 days after the event.
ii)	Revenue from artist-related merchandising is recognized when receipt is confirmed by clients according to the relating predetermined agreements.
(iii)	Revenue from intellectual property rights on CD, DVD and video products is recognized upon delivery of products to customers.

(i)

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 September 30, 2015 and 2014, there are a total of 4,015,136 and 469,856 shares of common stock included in the calculation of diluted weighted average number of shares outstanding respectively.

(j)

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 reporting period. Actual results may differ from those estimates.

(k)

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.

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(l)

Foreign currency translation

The accompanying consolidated financial statements are presented in United States Dollars (US$). The functional currency of the Company is Hong Kong Dollar (HKD). Capital accounts of the consolidated financial statements are translated into United States dollars from HKD 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 period.  The translation rates are as follows:

		September 30, 2015		December 31, 2014	September 30, 2014
Period end HKD : US$ exchange rate		0.1290		0.1290	0.1282
Average for the period HKD : US$ exchange rate		0.1290		0.1290	0.1282

(m)

Recent accounting pronouncements

The Financial Accounting Standards Board and other entities issued new or modifications to, or interpretations of, existing accounting guidance upon September 30, 2015. Management has carefully considered the new pronouncements that altered generally accepted accounting principles and does not believe that any other new or modified principles will have a material impact on the Company’s reported financial position or operations in the near term.

The Company reviews new accounting standards as issued. No new standards had any material effect on these financial statements. The accounting pronouncements issued subsequent to the date of these financial statements that were considered significant by management were evaluated for the potential effect on these consolidated financial statements. Management does not believe any of the subsequent pronouncements will have a material effect on these consolidated financial statements as presented and does not anticipate the need for any future restatement of these consolidated financial statements because of the retro-active application of any accounting pronouncements issued subsequent to September 30, 2015 through the date these financial statements were issued.

NOTE 4 – ACCOUNTS RECEIVABLE

Accounts receivable consist of amounts due from customers for the provision of services or sale of merchandise. An allowance for doubtful accounts is considered to be established for any amounts that may not be recoverable, which is based on an analysis of the Company’s customer credit worthiness, and current economic trends. Based on management’s review of accounts receivable, allowances for doubtful accounts were established as deemed necessary. Receivables are determined to be past due, based on payment terms of original invoices. The Company does not typically charge interest on past due receivables. An allowance of $0 was established for September 30, 2015 and December 31, 2014 respectively

NOTE 5 – DEPOSITS, PREPAID EXPENSES AND OTHER RECEIVABLES

As of September 30, 2015, the Company’s deposits, prepaid expenses and other receivables are summarized as follows:

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NOTE 6 – PROPERTY, PLANT AND EQUIPMENT

As of September 30, 2015, the Company’s property, plant and equipment are summarized as follows:

Depreciation expense attributable to the property, plant and equipment for the nine months ended September 30, 2015 and 2014 were $17,851 and $0 respectively.

NOTE 7 – ACCRUED EXPENSES AND OTHER PAYABLES

As of September 30, 2015, the Company’s accrued expenses and other payables are summarized as follows:

NOTE 8 – 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 $0 was repaid by the Company. As of September 30, 2015, Note 1 did not qualify to be converted under those conditions and is therefore not dilutive.

On April 22, 2013, the Company issued another 12% convertible note in the amount of $50,000 (“Note 6”) to Holder 3. Note 6 mature on January 22, 2014 and was fully received on June 14, 2013. The outstanding principal balance plus any accrued interest under Note 6 is convertible into common stock of the Company after 180 days from the date of issued with a 40% discount over the convertible price upon the option of Holder 3. The conversion price is determined by the average prices of the 5 days prior to the Conversion Date. As of September 30, 2015, fair value adjustment on option amounted to $3,332 and unamortized debt discount amount to $0. Debt discount is being amortized using effective interest method over the life of Note 6. For the nine months ended September 30, 2015, the amortization of debt discount of $0 was charged to Statement of Operations. Accrued interest expense of Note 6 for the nine months ended September 30, 2015 was $0. As of September 30, 2015, Note 6 qualified to be converted 2,453,694 shares of common stock under the conditions of Note 6 and is therefore dilutive.

Total interest expenses in connection with all Convertible Notes for the nine months ended September 30, 2015 and 2014 amounted to $0 and $0 respectively.

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The convertible notes as of the year-end dates are summarized as follows:

NOTE 9 –BUSINESS ACQUISITIONS

On May 6, 2015, we acquired control of Markwin Investment Limited (“Markwin”) by a share exchange agreement in which we have given up equity interest of 44% of our subsidiary GMEH. On the day of acquisition, the carrying amount of GMEH shares exchanged was approximately negative $165,919. Markwin’s financial results are included in our Consolidated Financial Statements beginning on the acquisition date.

Markwin’s assets acquired, liabilities assumed and residual goodwill at their respective acquisition dates are summarized as follows.

			May 6, 2015
Property, plant & equipment			130,223
Other assets, including cash and equivalents			3,889,830
Asset acquired			4,020,053
Less:
Accounts payable, accruals and other liabilities			5,052,820
Liabilities assumed			5,052,820
Outside Interest			826,214
Net liabilities assumed			$ 206,553

The following table sets forth certain unaudited pro forma consolidated earnings data for 2015 and 2014, as if the acquisitions discussed previously were consummated on the same terms at the beginning of the year preceding their respective acquisition dates.

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NOTE 10 – COMMON STOCK AND WEIGHTED AVERAGE NUMBER OF SHARES FOR EARNINGS PER SHARE CALCULATION

On March 23, 2015, the Company issued to a consultant 1,000,000 shares of common stock in exchange for professional services rendered in 2014. Based on the share price of $0.02 per share on the grant date, the fair value of these issued shares was $20,000.

On March 25, 2015, the Company issued to another consultant 1,000,000 shares of common stock in exchange for professional services rendered in 2014. Based on the share price of $0.02 per share on the grant date, the fair value of these issued shares was $20,000.

The calculation of common stock as at September 30, 2015 and weighted average number of shares for the nine months ended September 30, 2015 is illustrated as follows:

NOTE 11 – CONTINGENCIES AND COMMITMENTS

As of September 30, 2015, the expected annual lease payments under the Company continuing operating leases are as follows:

NOTE 12 – NON-CONTROLLING INTEREST

Related parties hold 40% of one of the operating subsidiaries, 49% of four of the operating subsidiaries and 80% of one of the operating subsidiary. The income associated with the non-controlling interest has been segregated as required.

NOTE 13 – RELATED PARTY TRANSACTIONS

At September 30, 2015 the Company owed a related party $179,306. This loan is short-term in nature, payable on demand and do not carry an interest rate.

The Company owed another related party $5,367,921. This amount is short-term in nature and is payable on demand and carry a floating interest rate. For the nine month ended 30 September 2015, the average interest rate was 2.25%.

NOTE 14 – DISGORGEMENT FUNDS RECEIVED

On September 2, 2015, we received $200,000 from a stockholder in settlement of a claim under Section 16(b) of the United States Securities Exchange Act of 1934. We recognized the amount when realized in other, net on our Consolidated Statements of Operations.

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NOTE 15 – GOING CONCERN

As of September 30, 2015 the Company has accumulated deficits of $10,063,448, a negative working capital of $1,333,378.

As of September 30, 2015 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.

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ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Note regarding forward – looking statements

This quarterly 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-K, 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 GME Innotainment, 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.

We recognize revenue in accordance with Staff Accounting Bulletin ("SAB") No. 104. All of the following criteria must exist in order for us to recognize revenue:

1. Persuasive evidence of an arrangement exists;

2. Delivery has occurred;

3. The seller's price to the buyer is fixed or determinable; and

4. Collectability is reasonably assured.

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Revenue recognition policies for each of the major products and services are illustrated as follows:

(i)	Revenue from provision of artist management, event management, and promotion for its clients is recognized when services are rendered. Revenues and expenses of major concerts are recorded when all receipts and expenses are reconciled and determinable which may be up to 60 days after the event.
(ii)	Revenue from artist-related merchandising is recognized when receipt is confirmed by clients according to the relating predetermined agreements.
(iii)	Revenue from intellectual property rights on CD, DVD and video products is recognized upon delivery of products to customers.

Based on these factors, the Company believes that it can apply the provisions of SAB 104 with minimal subjectivity.

Recent Accounting Pronouncements

The Company does not expect that the adoption of any recent accounting pronouncements will have any material impact on its financial statements.

Results of Operations – Three Months Ended September 30, 2015 as Compared to Three Months Ended September 30, 2014.

The following table summarizes the results of our operations during the three-month period ended September 30, 2015 and 2014, and provides information regarding the dollar and percentage increase / (decrease) from the three-month period ended September 30, 2014 to the three-month period ended September 30, 2015.

Revenues

Revenues increased by $1,377,008 to $1,948,278 for the three months ended September 30, 2015 as compared to $571,270 for the same period in 2014, representing a 241% increase. The increase in revenue was mainly due to the acquisition of Markwin Investment Limited and its portfolio of Artiste talent.

Cost of sales

Cost of sales increased by $1,150,403 to $1,551,391 for the three months ended September 30, 2015 as compared to $400,988 for the same period in 2014, representing a 287% increase. The increase were mainly due to the increase of artiste fee by $1,022,504, agency fee by $10,027 and other direct cost by 117,872.

Gross margin

Gross margin increased by $226,605 to $396,887 for the three months ended September 30 of 2015 as compared to $170,282 for the same period in 2014, representing a 133% increase. The increase was mainly due to the expansion of the group by acquisition of Markwin Investment Limited’s portfolio.

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Sales & marketing expenses

Sales & marketing expenses increased by $77,424 to $88,172 for the three months ended September 30 of 2015 as compared to $10,748 for 2014, representing a 720% increase. The increase was mainly due to the increase of job-related travelling by $11,110 and other sales & marketing expenses by $66,324.

General and administrative

The following table summarizes general and administrative expenses during the three-month period ended September 30, 2015 and 2014, and provides information regarding the dollar and percentage increase / (decrease) from the three-month period ended September 30, 2014 to the three-month period ended September 30, 2015.

Payroll cost increased by $290,863 to $400,227 for the three months ended September 30, 2015 as compared to $109,364 for the same period in 2014, representing a 266% decrease. The increase was mainly due to the expansion of the group from acquisition and new ventures.

Rental expenses increased by $958 to $28,656 for the three months ended September 30, 2015 as compared to $27,698 for the same period in 2014, representing a 3% increase. The increase was mainly due to the renewal of rental agreement in Hong Kong office at a higher rental rate as well as new offices from expansion.

Legal and professional fee increased by $50,723 to $82,007 for the three months ended September 30, 2015 as compared to $31,284 for the same period in 2014, representing a 162% increase. The increase was mainly due to the additional professional and legal support required for the company’s expansion.

Miscellaneous expenses increased by $25,650 to $39,853 for the three months ended September 30, 2015 as compared to $14,203 for the same period in 2014, representing a 181% increase. The increase was mainly due to increase of printing and stationery by $5,029, water and electricity expenses by $4,626 and depreciation expense by $11,705 and other expenses by $14,290, offset by savings from amortization of $10,000.

Other income (expense)

Other income (expense) increased by $216,060 to $233,121 for the three months ended September 30, 2015 as compared to $17,061 for the same period in 2014. This is mainly due to a disgorgement of profits of $200,000 from a stockholder to us in settlement of a claim under Section 16(b) of the Exchange Act during the current quarter.

Net income/( loss) from operations

Net loss from operations increased by $2,953 to a net loss of $8,906 for the three months ended September 30, 2015 as compared to net loss of $5,954 for the same period in 2014.

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Results of Operations – Nine Months Ended September 30, 2015 as Compared to Nine Months Ended September 30, 2014.

The following table summarizes the results of our operations during the nine-month period ended September 30, 2015 and 2014, and provides information regarding the dollar and percentage increase / (decrease) from the nine-month period ended September 30, 2014 to the nine-month period ended September 30, 2015.

Revenues

Revenues increased by $4,802,693 to $6,193,593 for the nine months ended September 30, 2015 as compared to $1,390,900 for the same period in 2014, representing a 345% increase. The increase in revenue was mainly due to the acquisition of Markwin Investment Limited and its portfolio of Artiste talent.

Cost of sales

Cost of sales increased by $4,082,001 to $4,981,126 for the nine months ended September 30, 2015 as compared to $899,125 for the same period in 2014, representing a 454% increase. The increase were mainly due to the increase of artiste fee by $2,927,270 and other direct cost by $1,154,731.

Gross margin

Gross margin increased by $720,692 to $1,212,467 for the nine months ended September 30 of 2015 as compared to $491,775 for the same period in 2014, representing a 147% increase. The increase was mainly due to the expansion of the group by acquisition of Markwin Investment Limited’s portfolio.

Sales & marketing expenses

Sales & marketing expenses increased by $133,626 to $166,625 for the nine months ended September 30 of 2015 as compared to $32,999 for 2014, representing a 405% increase. The increase was mainly due to the increase of job-related travelling by $34,700 and other sales & marketing expenses by $98,926.

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General and administrative

The following table summarizes general and administrative expenses during the nine-month period ended September 30, 2015 and 2014, and provides information regarding the dollar and percentage increase/ (decrease) from the nine-month period ended September 30, 2014 to the nine-month period ended September 30, 2015.

Payroll cost increased by $459,685 to $843,623 for the nine months ended September 30, 2015 as compared to $383,938 for the same period in 2014, representing an 120% decrease. The increase was mainly due to the expansion of the group from acquisition and new ventures.

Rental expenses increased by $25,280 to $104,709 for the nine months ended September 30, 2015 as compared to $79,429 for the same period in 2014, representing a 32% increase. The increase was mainly due to the renewal of rental agreement in Hong Kong office at a higher rental rate as well as new offices from expansion of business.

Legal and professional fee increased by $69,749 to $122,338 for the nine months ended September 30, 2015 as compared to $52,589 for the same period in 2014, representing a 133% increase. The increase was mainly due to the additional professional and legal support required for the company’s expansion.

Miscellaneous expenses increased by $21,902 to $71,834 for the nine months ended September 30, 2015 as compared to $49,932 for the same period in 2014, representing a 44% increase. The increase was mainly due to savings from amortization of $30,000, offset by increase in depreciation expense of $17,851, Repair and maintenance expenses by $7,813 and other expenses by $26,238.

Other income (expense)

Other income (expense) increased by $223,896 to $240,686 for the nine months ended September 30, 2015 as compared to $16,790 for the same period in 2014. This is mainly due to a disgorgement of profits of $200,000 from a stockholder to us in settlement of a claim under Section 16(b) of the Exchange Act during the current quarter.

Net income/( loss) from operations

Net income from operations increased by $234,346 to a net income of $144,024 for the nine months ended September 30, 2015 as compared to a net loss of $90,332 for the same period in 2014.

Liquidity and Capital Resources

Cash

Our cash balance as of September 30, 2015 was $1,265,717, representing an increase of $608,602

 as compared to $657,115 as of December 31, 2014. The change of $608,602 was mainly due to 1.) The $764,312 from acquisition of a subsidiary, 2.) the net cash used in other operating activities by $753,385 and 3.) advance from third parties of $602,814 in the nine months ended September 30, 2015.

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Cash flow

Operating Activities

Net cash used in operating activities for the nine months ended September 30, 2015 amounted to $753,385 compared to net cash outflow of $337,718 in the same period of 2014. The increase of $415,667 was mainly due to  further decrease of $708,527 in accrued expenses and other payables.

Investing Activities

Net cash provided by investing activities for the nine months ended September 30, 2015 amounted to $759.312

 compared to $0 for the same period of 2014. The change was primarily due to acquired cash from a subsidiary.

Financing Activities

Net cash provided by financing activities for the nine months ended September 30, 2015 amounted to $602,814

 compared to net cash provided by financing activities of $129,883 in the same period of 2014. The change of $472,931 was primarily due to advance from a third party for $602,814.

Working capital

As of September 30, 2015 the Company has accumulated deficits of $10,063,448, a negative working capital of $1,333,378.

As of September 30, 2015 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.

Off-Balance Sheet Arrangements

We do not have any off balance sheet arrangements.

Inflation

Inflation does not have a material impact on our business and we do not expect inflation to have an impact on our business in the near future.

Currency Exchange Fluctuations

All of the Company’s revenues and a majority of its expenses in the nine months ended September 30, 2015 were denominated in HKD and were converted into US dollars at the exchange rate of 7.75 to 1. There can be no assurance that HKD-to-U.S. dollar exchange rates will remain stable. A devaluation of HKD relative to the U.S. dollar would adversely affect our business, consolidated financial condition and results of operations. We do not engage in currency hedging.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

This item is not applicable as we are currently considered a smaller reporting company.

ITEM 4T. CONTROLS AND PROCEDURES

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 and Principal Accounting Officer, performed an evaluation of the effectiveness of our disclosure controls and procedures as of September 30, 2015. 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 and Principal Accounting Officer, concluded that our disclosure controls and procedures were not effective as of September 30, 2015.

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 principal executive officer and principal financial 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 as required under Section 404 of the Sarbanes-Oxley Act of 2002, we identified the following material weakness in our internal control over financial reporting as of September 30, 2015:

 

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 September 30, 2015.

 

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.

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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

Our Chief Executive Officer and Principal Accounting Officer have indicated that there were significant changes in our internal controls or other factors that could significantly affect such controls subsequent to the date of their evaluation, and there were such control actions with regard to significant deficiencies and material weaknesses. We have performed, 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.

PART II--OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are not presently a party to any material litigation, nor to the knowledge of management is any litigation threatened against us, which may materially affect us.

ITEM 1A. RISK FACTORS

No material change since the filing of the 10-K on April 10, 2015.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

Issuer Purchases of Equity Securities

None.

ITEM 3.DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. [REMOVED AND RESERVED].

ITEM 5.OTHER INFORMATION

None.

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ITEM 6.EXHIBITS

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

GREAT CHINA MANIA HOLDINGS, INC.

(Registrant)

By:

 /S/ Kwong Kwan Yin Roy

Kwong Kwan Yin Roy

Chief Executive Officer and Director

 

Date: November 23, 2015

By:

/S/ Kwong Kwan Yin Roy

Kwong Kwan Yin Roy

Chief Financial Officer

Date: November 23, 2015

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