Attached files
| file | filename |
|---|---|
| EXCEL - IDEA: XBRL DOCUMENT - GME INNOTAINMENT, INC. | Financial_Report.xls |
| EX-31.2 - EXHIBIT 31.2 - GME INNOTAINMENT, INC. | ex312.htm |
| EX-32.1 - EXHIBIT 32.1 - GME INNOTAINMENT, INC. | ex321.htm |
| EX-31.1 - EXHIBIT 31.1 - GME INNOTAINMENT, INC. | ex311.htm |
| EX-32.2 - EXHIBIT 32.2 - GME INNOTAINMENT, INC. | ex322.htm |
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, 2012
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 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,
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321 Java Road, Hong Kong
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n/a
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(Address of principal executive offices)
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(Zip Code)
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(852) 2882-9810
(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 xNo £
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). Yes£No T
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.
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Large accelerated filer £
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Accelerated filer£
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Non-accelerated filer £ (Do not check if a smaller reporting company)
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Smaller reporting company T
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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, $0.01 par value, outstanding on 26 October, 2012 was 74,081,000.
1
GREAT CHINA MANIA HOLDINGS, INC. (FORMERLY KNOWN AS GREAT EAST BOTTLES & DRINKS (CHINA) HOLDINGS, INC.) AND SUBSIDIARIES
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GREAT CHINA MANIA HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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September 30,
2012
(Unaudited)
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December 31,
2011
(Audited)
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|||||||
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ASSETS
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CURRENT ASSETS
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Cash and cash equivalents
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$ | 231,902 | $ | 305,212 | ||||
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Accounts receivable
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424,775 | 396,295 | ||||||
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Inventories
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23,172 | 52,570 | ||||||
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Short term loan receivable
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110,912 | - | ||||||
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Prepaid expenses and other receivables
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165,944 | 175,123 | ||||||
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Total current assets
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956,705 | 929,200 | ||||||
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TOTAL ASSETS
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$ | 956,705 | $ | 929,200 | ||||
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LIABILITIES AND EQUITY
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||||||||
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LIABILITIES
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CURRENT LIABILITIES
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Accounts payable
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1,100,342 | 792,482 | ||||||
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Accrued expenses and other payables
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51,579 | 145,151 | ||||||
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Unearned revenue
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50,389 | 20,588 | ||||||
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Amount due to a director
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- | 2,051 | ||||||
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Short-term borrowings
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98,079 | 275,775 | ||||||
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Convertible note payable, net of discount of $12,118
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39,193 | - | ||||||
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Amount due to related parties
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9,757 | 160,897 | ||||||
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Total current liabilities
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1,349,339 | 1,396,944 | ||||||
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LONG-TERM LIABILITIES
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Long-term Convertible note
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31,303 | 128,200 | ||||||
| 31,303 | 128,200 | |||||||
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TOTAL LIABILITIES
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$ | 1,380,642 | $ | 1,525,144 | ||||
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SHAREHOLDERS’ EQUITY
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Common stock, par value $0.01; 375,000,000 shares authorized; 74,081,000 and 28,366,000 shares issued and outstanding as of September 30, 2012 and December 31, 2011, respectively
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740,810 | 283,660 | ||||||
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Additional paid in capital
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7,622,885 | 7,042,086 | ||||||
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Accumulated deficits
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(8,292,330 | ) | (7,923,182 | ) | ||||
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Accumulated other comprehensive income
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1,492 | 1,492 | ||||||
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Less: Subscription receivable
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(496,794 | ) | - | |||||
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TOTALSHAREHOLDERS’ EQUITY
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(423,937 | ) | (595,944 | ) | ||||
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TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
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$ | 956,705 | $ | 929,200 | ||||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (UNAUDITED)
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Three months ended September 30,
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Nine months ended September 30,
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|||||||||||||||
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2012
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2011
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2012
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2011
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CONTINUING OPERATIONS
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REVENUES
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$ | 1,087,547 | $ | 1,352,378 | $ | 3,734,145 | $ | 3,513,127 | ||||||||
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COST OF SALES
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734,889 | 976,552 | 2,561,005 | 2,608,347 | ||||||||||||
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GROSS PROFIT
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352,658 | 375,826 | 1,173,140 | 904,780 | ||||||||||||
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EXPENSES
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General and administrative
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391,109 | 501,523 | 1,268,118 | 1,257,482 | ||||||||||||
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Share based payment
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233,000 | - | 233,000 | - | ||||||||||||
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Amortization of discount of convertible note
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19,221 | - | 25,489 | - | ||||||||||||
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TOTAL OPERATING EXPENSES
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643,330 | 501,523 | 1,526,607 | 1,257,482 | ||||||||||||
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LOSS FROM CONTINUING OPERATIONS BEFORE PROVISION FOR INCOME TAXES
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(290,672 | ) | (125,697 | ) | (353,467 | ) | (352,702 | ) | ||||||||
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OTHER INCOME/(EXPENSE)
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Other income
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- | 4,241 | 10,005 | 6,842 | ||||||||||||
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Interest income
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74 | - | 4,843 | - | ||||||||||||
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Interest expense
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(6,238 | ) | - | (6,565 | ) | - | ||||||||||
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Other expenses
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(8,735 | ) | - | (23,964 | ) | (24,727 | ) | |||||||||
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TOTAL OTHER EXPENSE
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(14,899 | ) | 4,241 | (15,681 | ) | (17,885 | ) | |||||||||
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NET LOSS BEFORE PROVISION FOR INCOME TAXES
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(305,571 | ) | (121,456 | ) | (369,148 | ) | (370,587 | ) | ||||||||
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PROVISION FOR INCOME TAXES
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- | - | - | - | ||||||||||||
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NET LOSS FROM CONTINUING OPERATIONS
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$ | (305,571 | ) | $ | $(121,456 | ) | $ | $(369,148 | ) | $ | (370,587 | ) | ||||
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DISCONTINUED OPERATIONS
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Net loss
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- | - | - | (80,233 | ) | |||||||||||
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Gain on disposal of discontinued operations
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- | - | - | 958,855 | ||||||||||||
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NET INCOME FROM DISCONTINUED OPERATIONS
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$ | - | $ | - | $ | - | $ | 878,622 | ||||||||
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NET(LOSS) / INCOME FOR THE PERIOD
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$ | (305,571 | ) | $ | $(121,456 | ) | $ | $(369,148 | ) | $ | 508,035 | |||||
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OTHER COMPREHENSIVE INCOME
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- | 1,497 | - | 1,497 | ||||||||||||
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TOTAL COMPREHENSIVE(LOSS) / INCOME FOR THE PERIOD
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Arising from continuing operations
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(305,571 | ) | (119,959 | ) | $ | (369,148 | ) | (369,090 | ) | |||||||
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Arising from discontinued operations
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- | - | - | 878,622 | ||||||||||||
| $ | (305,571 | ) | $ | $(119,959 | ) | $ | $(369,148 | ) | $ | 509,532 | ||||||
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LOSS PER SHARE, BASIC AND DILUTED – CONTINUING OPERATIONS
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$ | (0.00 | ) | (0.00 | ) | $ | (0.01 | ) | (0.02 | ) | ||||||
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WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING, BASIC AND DILUTED
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71,702,209 | 24,676,000 | 66,653,883 | 20,878,352 | ||||||||||||
See accompanying notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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For the nine months ended September 30,
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2012
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2011
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Cash flows from operating activities
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Net loss from continuing operations
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$ | (369,148 | ) | $ | (370,587 | ) | ||
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Amortization of discount on Convertible Note
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25,489 | - | ||||||
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Accrued interest expense
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1,311 | - | ||||||
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Share based payments
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233,000 | - | ||||||
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Changes in operating assets and liabilities:
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Increase in accounts receivable
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(28,480 | ) | (363,064 | ) | ||||
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Decrease /(Increase) in inventories
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29,398 | (97,535 | ) | |||||
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Decrease /(Increase) in prepaid expenses and other receivables
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9,179 | (129,107 | ) | |||||
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Increase in accounts payable
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307,860 | 550,731 | ||||||
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Increase in unearned revenue
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29,801 | 119,058 | ||||||
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(Decrease) /Increase in accrued expenses and other payables
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(93,572 | ) | 64,825 | |||||
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Decrease in amount due to a director
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(2,051 | ) | - | |||||
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Net cash provided by/(used in) continuing operating activities
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142,787 | (225,679 | ) | |||||
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Net cash used in discontinued operating activities
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- | (144,522 | ) | |||||
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Net cash provided by/(used in) operating activities
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142,787 | (370,201 | ) | |||||
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Cash flows from investing activities
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Net cash used in continuing investing activities
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- | - | ||||||
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Net cash used in discontinued investing activities
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- | - | ||||||
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Net cash used in investing activities
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- | - | ||||||
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Cash flows from financing activities
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Decrease in subscription receivable
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22,406 | - | ||||||
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Advance from short-term borrowings
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70,446 | 127,222 | ||||||
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(Decrease) /Increase in amount due to a related company
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(262,052 | ) | 128,200 | |||||
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Issuance of convertible note
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50,000 | 213,034 | ||||||
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Repayment of convertible note
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(96,897 | ) | - | |||||
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Net cash (used in) / provided by continuing financing activities
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(216,097 | ) | 468,456 | |||||
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Net cash provided by discontinued financing activities
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- | 116,483 | ||||||
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Net cash (used in) /provided by financing activities
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(216,097 | ) | 584,939 | |||||
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Net (decrease) /increase in cash and cash equivalents
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Continuing operations
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(73,310 | ) | 242,777 | |||||
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Discontinued operations
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- | (28,039 | ) | |||||
| (73,310 | ) | 214,738 | ||||||
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Effect of foreign exchange rate changes
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Continuing operations
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- | 1,497 | ||||||
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Discontinued operations
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- | 2,769 | ||||||
| - | 4,266 | |||||||
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Cash and cash equivalents at beginning of period
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||||||||
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Continuing operations
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305,212 | - | ||||||
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Discontinued operations
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- | 56,735 | ||||||
| 305,212 | 56,735 | |||||||
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Cash and cash equivalents at end of period
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Continuing operations
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231,902 | 244,274 | ||||||
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Discontinued operations
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- | 31,465 | ||||||
| $ | 231,902 | $ | 275,739 | |||||
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Supplemental disclosure of cash flows information:
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Non cash financing activities:
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Conversion of debt to shares
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$ | 248,142 | $ | 1,382,170 | ||||
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Issuance of shares unpaid
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496,794 | - | ||||||
| $ | 744,936 | $ | 1,382,170 | |||||
See accompanying notes to condensed consolidated financial statements.
GREAT CHINA MANIA HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2012
Great China Mania Holdings, Inc. (“GMEC” or the “Company”) was incorporated in Nevada on July 8, 1983. On October 26, 2010, the Company entered into an Acquisition Agreement with Mr. Wong Heong Kin to acquire 100% of Water Scientific Holdings Limited (“Water Scientific”) in exchange for 500,000 shares of common stock of the Company.
On December 30, 2010, the Company entered into an Asset Purchase and Sale Agreement with Mr. Chung A. Tsan Guy, to dispose Great East Bottles & Drinks (BVI) Inc.
In order to diversify the Company’s operations, several new subsidiaries have been formed and are now operating within the Company. From October 26, 2010 to March 31, 2011, Water Scientific was a subsidiary of the Company. In February 2011, three new subsidiaries of the Company were formed and have since maintained operations. These subsidiaries are Great China Media Limited (“GCM”), GME Holdings Limited (“GMEH”) and Great China Games Limited (“GCG”). As of the date of this filing, our corporate structure is as follows:
Through 100% ownership of Sharp Achieve Holdings Limited (BVI) and Super China Global Limited (BVI), GMEC operates three 100% owned subsidiaries: 1) GCM, which specializes in publication of electronic contents and magazines; 2) GMEH, which specializes in artist management services; and 3) GCG, which specializes in the retail sales of video games and accessories.
On March 31, 2011, the Company disposed of Water Scientific.
NOTE 2 – PRINCIPLES OF CONSOLIDATION
The unaudited interim financial statements of the Company and the Company’s subsidiaries (see Note 1) for the three and nine months ended September 30, 2012 and 2011 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 three and nine months ended September 30, 2012 and 2011, 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, 2012, the results of its operations and cash flows for the three and nine months ended for September 30, 2012 and 2011.
The results of operations for the three and nine months ended September 30, 2012 are not necessarily indicative of the results for a full year period.
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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(a)
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Economic and political risk
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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 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.
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(b)
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Cash and cash equivalents
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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.
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(c)
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Inventory
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Inventories consisting of raw materials and finished goods are stated at the lower of cost or net realizable value. Finished goods are comprised of direct materials held for resale. Inventory costs are calculated using first in first out (FIFO) method of accounting.
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(d)
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Property, plant and equipment
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Property, plant and equipment are carried at cost less accumulated depreciation. The cost of maintenance and repairs is charged to operations as incurred, whereas significant renewals and improvements are capitalized. The cost and the related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the statement of income.
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(e)
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Accounting for the impairment of long-lived assetsProperty, plant and equipment
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The long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. It is possible that these assets could become impaired as a result of technology or other industry changes. Determination of recoverability of assets to be held and used is by comparing the carrying amount of an asset to future net undiscounted cash flows to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
Impairment analyses are based on the current plans, intended holding periods and available market information at the time the analyses are prepared. If the estimates of the projected future cash flows, anticipated holding periods, or market conditions change, the evaluation of impairment losses may be different and such differences could be material to the consolidated financial statements. The evaluation of anticipated cash flows is subjective and is based, in part, on assumptions regarding future events that could differ materially from actual results. There were no impairments of long-lived assets for the nine months ended September 30, 2012 and 2011.
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(f)
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Income tax
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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, 2012 and 2011, respectively.
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(g)
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Fair value of financial instruments
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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.
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(h)
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Revenue recognition
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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:
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-
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Persuasive evidence of an arrangement exists,
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-
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Delivery has occurred or services have been rendered,
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-
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The seller’s price to the buyer is fixed or determinable, and
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-
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Collectability is reasonably assured
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Revenue recognition policies for each of the major products and services of continuing operations are illustrated as follows:
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(i)
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Revenue from electronic content sales like iPhone and Android applications is recognized when receipt is confirmed by service providers.
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(ii)
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Revenue from traditional paper magazines sales is recognized when magazines are sold to customers, net of sales returns.
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(iii)
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Revenue from advertising services is recognized when services are rendered.
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(iv)
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Revenue from artist management, event management, and promotion of clients is recognized when services are rendered.
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(v)
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Revenue from artist-related merchandising is recognized when receipt is confirmed by clients according to the agreements.
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(vi)
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Revenue from intellectual property rights on CD, DVD and video products is recognized upon delivery of products to customers.
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(vii)
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Revenue from retail sales of video games and accessories is recognized upon delivery of goods to customers.
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(i)
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Earnings per share
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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. As of September 30, 2012 and 2011, there were no dilutive securities outstanding.
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(j)
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Use of estimates
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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.
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(k)
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Comprehensive income
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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)
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Foreign currency translation
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The accompanying consolidated financial statements are presented in United States Dollars (US$). The functional currency of the Company is Hong Kong Dollar (HKD). Capital accounts of the consolidated financial statements are translated into United States dollars from HKD at their historical exchange rates when the capital transactions occurred. Assets and liabilities are translated at the exchange rates as of balance sheet date. Income and expenditures are translated at the average exchange rate of the period. The translation rates are as follows:
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September 30, 2012
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December 31, 2011
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September 30, 2011
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||||||||||
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Period end HKD : US$ exchange rate
|
0.1282 | 0.1282 | 0.1282 | |||||||||
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Average for the period HKD : US$ exchange rate
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0.1282 | 0.1282 | 0.1282 | |||||||||
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(m)
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Share-based payments
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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.
Share-based payments (stock issued for services) charged to operations for the nine months ended September 31, 2012 and 2011 were $233,000 and nil, respectively.
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(n)
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Recent accounting pronouncements
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The Company has adopted all recently issued accounting pronouncements. The adoption of the accounting pronouncements, including those not yet effective, is not anticipated to have a material effect on the financial position or results of operations of the Company.
NOTE 4 – INVENTORIES
Inventories as of the balance sheet dates are summarized as follows:
|
September 30, 2012
|
December 31, 2011
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|||||||
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Raw materials
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$ | 5,527 | $ | 7,109 | ||||
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Trading inventories
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17,645 | 45,461 | ||||||
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Total
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$ | 23,172 | $ | 52,570 | ||||
The raw materials represent the paper used by GCM and the trading inventories represent the video games and accessories held by GCG.
NOTE 5 –PREPAID EXPENSES AND OTHER RECEIVABLES
As of the balance sheet dates, the Company’s prepaid expenses and other receivables are summarized as follows:
|
September 30, 2012
|
December 31, 2011
|
|||||||
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Prepaid expenses
|
$ | 117,548 | $ | 157,827 | ||||
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Deposits
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11,890 | 7,095 | ||||||
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Other receivables
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36,506 | 10,201 | ||||||
| $ | 165,944 | $ | 175,123 | |||||
Prepaid expenses consist of advance payments made third parties in the normal course of business operations with no interest and no fixed repayment terms. The Company evaluates the prepaid expenses on a periodic basis and charges the prepaid amounts to the current operations when the related expense has been incurred.
NOTE 6 – ACCRUED EXPENSES AND OTHER PAYABLES
As of the balance sheet dates, the Company’s accrued expenses and other payables are summarized as follows:
|
September 30, 2012
|
December 31, 2011
|
|||||||
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Accrued expenses
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$ | 5,030 | $ | 144,813 | ||||
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Deposits received
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46,549 | - | ||||||
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Other payables
|
- | 338 | ||||||
| $ | 51,579 | $ | 145,151 | |||||
NOTE 7 – AMOUNT DUE TO A DIRECTOR
As of the balance sheet dates, the Company’s current accounts with the directors are summarized as follows:
|
September 30, 2012
|
December 31, 2011
|
|||||||
|
Mr. Yau Wai Hung
|
$ | - | $ | 2,051 | ||||
The amount due to Mr. Yau Wai Hung is an unsecured and interest free temporary advance with no fixed repayment terms. Mr. Yau was the Chief Executive Officer and director of the Company.
NOTE 8 – SHORT-TERM BORROWINGS
The short-term borrowings are unsecured, interest free advances from three non affiliate individuals with no fixed repayment term. During the reporting period, those individuals converted a portion of the short term borrowings of $248,142 into 14,915,000 shares of Company’s common stock.
NOTE 9 – SHORT TERM LOAN RECEIVABLE
During the reporting period, the Company granted a short term loan amount of $110,912 to a third party company at 6% interest per annum with no fixed payment terms. The Company has recognized $4,729 as interest income during the nine months ended September 30, 2012 in conjunction with this short term loan.
NOTE 10 – AMOUNT DUE TO RELATED PARTIES
As of the balance sheet dates, the Company’s current accounts with the related companies are as follows:
|
September 30,2012
|
December 31, 2011
|
|||||||
|
China Culture Limited (“CCL”)
|
$ | 9,757 | $ | 109,583 | ||||
|
Global Mania Empire Management Limited (“GME”)
|
- | 51,314 | ||||||
|
Total amount due to related parties
|
$ | 9,757 | $ | 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 term.
NOTE 11 – COMMON STOCK ANDWEIGHTED 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 reporting period, the major shareholder paid $22,406 and the remaining balance of $496,794 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 $56,592.
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 17 August 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 $0.16 per share on the grant date, the fair value of these issued shares is $8,000. This non-cash compensation is recorded as a component of the Company’s share based payment expense for the nine months ended September 30, 2012.
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. This non-cash compensation is recorded as a component of the Company’s share based payment expense for the nine months ended September 30, 2012.
The calculation of common stock as at September 30, 2012 and weighted average number of shares for the nine months ended September 30, 2012 is illustrated as follows:
|
Number
of shares
|
Weighted average number of shares
|
|||||||
|
Issued and outstanding as of January 1, 2012
|
28,366,000 | 28,366,000 | ||||||
|
Stock Subscription receivable
|
28,500,000 | 26,627,737 | ||||||
|
Issuance of shares on January 26, 2012 for debt conversion
|
9,410,000 | 8,551,423 | ||||||
|
Issuance of shares on March 20, 2012 for debt conversion
|
3,400,000 | 2,419,708 | ||||||
|
Issuance of shares on August 14, 2012 for debt conversion
|
2,105,000 | 368,759 | ||||||
|
Share based payment made on August 17, 2012
|
50,000 | 8,212 | ||||||
|
Share based payment made on August 24, 2012
|
2,250,000 | 312,044 | ||||||
|
Issued and outstanding as of September 30, 2012
|
74,081,000 | 66,653,883 | ||||||
At September 30, 2012 and 2011, there were no dilutive securities outstanding.
NOTE 12 – CONVERTIBLE NOTE
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. As of September 30, 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 $37,607 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 $26,800 which consists of interest expenses of $1,311 and amortization of the debt discount of $25,489 for the nine months ended September 30, 2012. The gross outstanding balance Note 2 at September 30, 2012 was $ 51,311 less the unamortized discount of $12,118 totaling $39,193. As of September 30, 2012, Note 2 did not qualify to be converted under the conditions of Note 2 and is therefore not dilutive.
The convertible note as at the balance sheet dates are summarized as follows
|
September 30,2012
|
December 31, 2011
|
|||||||
|
Non-interest bearing convertible note –Non - current liabilities
|
$ | 31,303 | $ | 128,200 | ||||
|
8% convertible note , net (including accrued interest expense of $1,311 less unamortized discount of $12,118) Current liabilities
|
39,193 | - | ||||||
| $ | 70,496 | $ | 128,200 | |||||
NOTE 13 – 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 related parties for the nine months ended September 30, 2012 and 2011:
|
2012
|
2011
|
|||||||
|
Lease payment to CCL
|
$ | 73,074 | $ | 182,360 | ||||
NOTE 14 – CONTINGENCIES AND COMMITMENTS
At September 30, 2012, the expected annual lease payments under the Company and its subsidiaries’ operating leases are as follows:
|
September 30, 2012
|
||||
|
For the year ending December 31,
|
||||
|
2012
|
46,230 | |||
|
2013
|
114,410 | |||
|
2014
|
63,000 | |||
|
Total
|
223,640 | |||
NOTE 15 – SEGMENT REPORTING
The Company’s reportable segments of businesses include publications of electronic contents and magazine operated by GCM, artist management services operated by GMEH and the retail operation of video games and accessories operated by GCG. 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:
|
For the nine months ended September 30,
|
||||||||
|
2012
|
2011
|
|||||||
|
Revenues from:
|
||||||||
|
Continuing operations
|
||||||||
|
GCM
|
$ | 1,723,087 | $ | 1,911,881 | ||||
|
GMEH
|
1,426,135 | 650,986 | ||||||
|
GCG
|
584,923 | 950,260 | ||||||
|
Corporate
|
- | - | ||||||
| $ | 3,734,145 | $ | 3,513,127 | |||||
|
Discontinued operations
|
- | - | ||||||
| $ | 3,734,145 | $ | 3,513,127 | |||||
|
Segment net profit/(loss) from:
|
||||||||
|
GCM
|
$ | (30,141 | ) | $ | (154,218 | ) | ||
|
GMEH
|
102,018 | (61,860 | ) | |||||
|
GCG
|
(32,722 | ) | (34,847 | ) | ||||
|
Corporate
|
(408,303 | ) | (119,662 | ) | ||||
| $ | (369,148 | ) | $ | (370,587 | ) | |||
|
Discontinued operations
|
- | 878,622 | ||||||
| $ | (369,148 | ) | $ | 508,035 | ||||
Net profit from discontinued operations of Water Scientific in 2011 consisted of $80,233 net loss from operations through March 31, 2011 offset by the $958,855 gain on disposal of discontinued operations.
|
Segment assets:
|
September 30,2012
|
December
31, 2011
|
||||||
|
GCM
|
$ | 226,387 | $ | 291,861 | ||||
|
GMEH
|
549,517 | 482,882 | ||||||
|
GCG
|
44,245 | 121,772 | ||||||
|
Corporate
|
136,556 | 32,685 | ||||||
| $ | 956,705 | $ | 929,200 | |||||
|
Discontinued operations
|
- | - | ||||||
| $ | 956,705 | $ | 929,200 | |||||
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 Great China Mania 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.
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.
Revenue recognition policies for each of the major products and services of continuing operations are illustrated as follows:
|
(i)
|
Revenue from electronic content sales like iPhone and Android applications is recognized when receipt is confirmed by service providers.
|
|
(ii)
|
Revenue from traditional paper magazines sales is recognized when magazines are sold to customers, net of sales returns.
|
|
(iii)
|
Revenue from advertising services is recognized when services are rendered.
|
|
(iv)
|
Revenue from artist management, event management, and promotion of clients is recognized when services are rendered.
|
|
(v)
|
Revenue from artist-related merchandising is recognized when receipt is confirmed by clients according to the agreements.
|
|
(vi)
|
Revenue from intellectual property rights on CD, DVD and video products is recognized upon delivery of products to customers.
|
|
(vii)
|
Revenue from retail sales of video games and accessories is recognized upon delivery of goods 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, 2012 as Compared to Three Months Ended September 30, 2011.
The following table summarizes the results of our operations during the three-month period ended September 30, 2012 and 2011:
|
Three months ended September 30,
|
||||||||||||||||
|
2012
|
2011
|
Increase (decrease) |
% Change
|
|||||||||||||
|
Revenue
|
||||||||||||||||
|
GCM
|
$ | 488,421 | $ | 719,624 | $ | (231,203 | ) | (32.13 | %) | |||||||
|
GMEH
|
545,252 | 318,063 | 227,189 | 71.43 | % | |||||||||||
|
GCG
|
53,874 | 314,691 | (260,817 | ) | (82.88 | %) | ||||||||||
| 1,087,547 | 1,352,378 | (264,831 | ) | (19.58 | %) | |||||||||||
|
Cost of sales
|
||||||||||||||||
|
GCM
|
348,242 | 484,464 | (136,222 | ) | (28.12 | %) | ||||||||||
|
GMEH
|
340,403 | 197,743 | 142,660 | 72.14 | % | |||||||||||
|
GCG
|
46,244 | 294,345 | (248,101 | ) | (84.29 | %) | ||||||||||
| 734,889 | 976,552 | (241,663 | ) | (24.75 | %) | |||||||||||
|
Gross profit
|
||||||||||||||||
|
GCM
|
140,179 | 235,160 | (94,981 | ) | (40.39 | %) | ||||||||||
|
GMEH
|
204,849 | 120,320 | 84,529 | 70.25 | % | |||||||||||
|
GCG
|
7,630 | 20,346 | (12,716 | ) | (62.50 | %) | ||||||||||
| 352,658 | 375,826 | (23,168 | ) | (6.16 | %) | |||||||||||
|
General & administrative
|
391,109 | 501,523 | (110,414 | ) | (22.02 | %) | ||||||||||
|
Share based payment
|
233,000 | - | 233,000 | N/A | ||||||||||||
|
Amortization of discount of convertible note
|
19,221 | - | 19,221 | N/A | ||||||||||||
|
Loss from operations
|
(290,672 | ) | (125,697 | ) | (164,975 | ) | (131.25 | %) | ||||||||
|
Other income (expense)
|
(14,899 | ) | 4,241 | (19,140 | ) | (451.31 | %) | |||||||||
|
Provision for taxation
|
- | - | - | N/A | ||||||||||||
|
Net (loss) / income from continuing operations
|
||||||||||||||||
|
GCM
|
$ | (61,171 | ) | $ | (55,149 | ) | $ | (6,022 | ) | (10.92 | %) | |||||
|
GMEH
|
75,885 | (6,813 | ) | 82,698 | N/A | |||||||||||
|
GCG
|
(9,186 | ) | (11,818 | ) | 2,632 | 22.27 | % | |||||||||
|
Corporate
|
(311,099 | ) | (47,676 | ) | (263,423 | ) | (552.53 | %) | ||||||||
| $ | (305,571 | ) | $ | (121,456 | ) | $ | (184,115 | ) | (151.59 | %) | ||||||
Revenues
Revenues decreased by $264,831 to $1,087,547 for the three months ended September 30, 2012 as compared to $1,352,378 for the same period in 2011. The decreases were mainly due to increases in revenue from GMEH operation offset by the decrease in revenue from GCM and GCG operations.
Sales revenue of GCM decreased by $231,203 to $488,421 for the three months ended September 30, 2012as compared to $719,624 for the same period in 2011, representing a 32.13% decrease. The decrease in revenue was mainly due to the decrease of traditional paper magazines sales by $238,111 offset by the increase in electronic content sales by $6,908.
Sales revenue of GMEH increased by $227,189 to $545,252 for the three months ended September 30, 2012 as compared to $318,063 for the same period in 2011, representing a 71.43% increase. The increase in revenue was mainly due to the increase of income generated from artists’ performances during the reporting period.
Sales revenue of GCG decreased by $260,817 to $53,874 for the three months ended September 30, 2012 as compared to $314,691 for the same period in 2011, representing a 82.88% 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 $241,663 to $734,889 for the three months ended September 30, 2012 as compared to $976,552 for the same period in 2011. The decreases were mainly due to decreases in cost of sales from GCM, and GCG operations offset by the increases in cost of sales from GMEH.
Cost of sales of GCM decreased by $136,222 to $348,242 for the three months ended September 30, 2012 as compared to $484,464 for the same period in 2011, representing a 28.12% decrease. The decrease was mainly due to the decrease of paper cost by $41,935, printer cost by $40,627, distribution fee by $39,222 and other production costs by $14,438.
Cost of sales of GMEH increased by $142,660 to $340,403 for the three months ended September 30, 2012 as compared to $197,743 for the same period in 2011, representing a 72.14% increase. The increase was mainly due to the increase of revenue during the reporting period.
Cost of sales of GCG decreased by $248,101 to $46,244 for the three months ended September 30 of 2012 as compared to $294,345 in the same period in 2011, representing a 84.29% decrease. The decrease was mainly due to the decrease of revenue during the reporting period.
Gross margin
Gross margin decreased by $23,168 to $352,658 for the three months ended September 30, 2012 as compared to $375,826 for the same period in 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 GCM decreased by $ 94,981 to $140,179 for the three months ended September 30, 2012 as compared to $235,160 for the same period in 2011, representing a 40.39% decrease. The decrease was mainly due to the increase in sales from electronic content by $6,908 offset by the decrease in gross margin of traditional magazines by $101,889.
Gross margin of GMEH increased by $84,529 to $204,849 for the three months ended September 30, 2012 as compared to $120,320 for the same period in 2011, representing a 70.25% increase. The increase was mainly due to the increase of revenue during the reporting period.
Gross margin of GCG decreased by $12,716 to $7,630 for the three months ended September 30, 2012 as compared to $20,346 for the same period in 2011, representing a 62.50% decrease. The decrease was mainly due to the decrease of revenue during the reporting period.
General and administrative
The following table summarizes general and administrative expenses during the three-month period ended September 30, 2012 and 2011:
|
Three months ended September 30,
|
||||||||||||||||
|
2012
|
2011
|
Increase (decrease)
|
% Change
|
|||||||||||||
|
Payroll cost
|
275,425 | 338,963 | (63,538 | ) | (18.74 | %) | ||||||||||
|
Rental expenses
|
62,484 | 104,931 | (42,447 | ) | (40.45 | %) | ||||||||||
|
Legal and professional fee
|
19,280 | 15,649 | 3,631 | 23.20 | % | |||||||||||
|
Entertainment
|
3,539 | 5,810 | (2,271 | ) | (39.09 | %) | ||||||||||
|
Miscellaneous
|
30,381 | 36,170 | 13,432 | 37.14 | % | |||||||||||
| 391,109 | 501,523 | (110,414 | ) | (22.02 | %) | |||||||||||
Payroll cost decreased by $63,538 to $275,425 for the three months ended September 30, 2012 as compared to $338,963 for the same period in 2011, representing a 18,74% decrease. The decrease was mainly due to decrease of payroll cost of $32,235 in GCM, $15,993 GMEH $14,020 in GCG, and $1,290 in corporate sector.
Rental expenses decreased by $42,447 to $62,484 for the three months ended September 30, 2012 as compared to $104,931 for the same period in 2011, representing a 40.45% decrease. The decrease was mainly due to GCM renewed its office lease at a lower rate.
Legal and professional fee increased by $3,631 to $19,280 for the three months ended September 30, 2012 as compared to $15,649 for the same period in 2011, representing a 23.20% increase. The increase was mainly due to the increase of legal related disbursement $3,631.
Share based payment
Share based payment represents the sum of $233,000 legal and professional services rendered by two independent consultants settled by totaling of 2,300,000 shares of our common stock in August 2012.
Net loss from continuing operations
Net loss from continuing operations decreased by $181,115 to a net loss of $305,571 for the three months ended September 30, 2012 as compared to $121,456 for the same period in 2011.
Results of Operations – Nine months ended September 30, 2012 as Compared to Nine months ended September 30, 2011.
The following table summarizes the results of our operations during the nine month period ended September 30, 2012 and 2011:
|
Nine months ended September 30,
|
||||||||||||||||
|
2012
|
2011
|
Increase (decrease) |
% Change
|
|||||||||||||
|
Revenue
|
||||||||||||||||
|
GCM
|
$ | 1,723,087 | $ | 1,911,881 | $ | (188,794 | ) | (9.87 | %) | |||||||
|
GMEH
|
1,426,135 | 650,986 | 775,149 | 119.07 | % | |||||||||||
|
GCG
|
584,923 | 950,260 | (365,337 | ) | (38.45 | %) | ||||||||||
| 3,734,145 | 3,513,127 | 221,018 | 6.29 | % | ||||||||||||
|
Cost of sales
|
||||||||||||||||
|
GCM
|
1,120,748 | 1,311,923 | (191,175 | ) | (14.57 | %) | ||||||||||
|
GMEH
|
898,742 | 404,548 | 494,194 | 122.16 | % | |||||||||||
|
GCG
|
541,515 | 891,876 | (350,361 | ) | (39.28 | %) | ||||||||||
| 2,561,005 | 2,608,347 | (47,342 | ) | (1.82 | %) | |||||||||||
|
Gross profit
|
||||||||||||||||
|
GCM
|
602,339 | 599,958 | 2,381 | 0.40 | % | |||||||||||
|
GMEH
|
527,393 | 246,438 | 280,955 | 114.01 | % | |||||||||||
|
GCG
|
43,408 | 58,384 | (14,976 | ) | (25.65 | %) | ||||||||||
| 1,173,140 | 904,780 | 268,360 | 29.66 | % | ||||||||||||
|
General & administrative
|
1,268,118 | 1,257,482 | 10,636 | 0.85 | % | |||||||||||
|
Share based payment
|
233,000 | - | 233,000 | N/A | ||||||||||||
|
Amortization of discount of convertible note
|
25,489 | - | 25,489 | N/A | ||||||||||||
|
Loss from operations
|
(353,467 | ) | (352,702 | ) | (765 | ) | (0.22 | %) | ||||||||
|
Other income (expense)
|
(15,681 | ) | (17,885 | ) | 2,204 | 12.32 | % | |||||||||
|
Provision for taxation
|
- | - | - | N/A | ||||||||||||
|
Net (loss)/income from continuing operations
|
||||||||||||||||
|
GCM
|
$ | (30,141 | ) | $ | (154,218 | ) | $ | 124,077 | 80.46 | % | ||||||
|
GMEH
|
102,018 | (61,860 | ) | 163,878 | N/A | |||||||||||
|
GCG
|
(32,722 | ) | (34,847 | ) | 2,125 | 6.10 | % | |||||||||
|
Corporate
|
(408,303 | ) | (119,662 | ) | (288,641 | ) | (241.21 | %) | ||||||||
| $ | (369,148 | ) | $ | (370,587 | ) | $ | 1,439 | 0.39 | % | |||||||
Revenues
Revenues increased by $221,018 to $3,734,145 for the nine months ended September 30, 2012 as compared to $3,513,127 for the same period in 2011. The increases were mainly due to increases in revenue from GMEH operations offset by the decrease in revenue from GCM and GCG operations.
Sales revenue of GCM decreased by $188,794 to $1,723,087 for the nine months ended September 30, 2012 as compared to $1,911,881 for the same period in 2011, representing a 9.87% decrease. The decrease in revenue was mainly due to the increase in electronic content sales by $127,248 offset by the decrease of traditional paper magazines sales by $316,042.
Sales revenue of GMEH increased by $775,149 to $1,426,135 for the nine months ended September 30, 2012 as compared to $650,986 for the same period in 2011, representing a 119.07% increase. The increase in revenue was mainly due to the increase in revenue between April 2012 and September 2012 of $445,599 and increase in sales of $329,550 because GMEH commenced its operation only since March 2011 and therefore there was only 1 month revenue in first quarter ended March 31, 2011 as compared to 3 months revenues in the same quarter in 2012.
Sales revenue of GCG decreased by $365,337 to $584,923 for the nine months ended September 30, 2012 as compared to $950,260 for the same period in 2011, representing a 38.45% decrease. The decrease in revenue was mainly due to the decrease in revenue between April 2012 and September 2012 of $464,995 offset by the increase of revenue of $99,658 because GCG commenced its operation only since February 2011 and therefore there was only 2 month revenue in first quarter ended March 31, 2011 as compared to 3 months revenues in the same quarter in 2012.
Cost of sales
Cost of sales increased by $47,342 to $2,561,005 for the nine months ended September 30, 2012 as compared to $2,608,347 for the same period in 2011. The increases were mainly due to the increases in cost of sales from GMEH offset by decreases in cost of sales from GCM and GCG operations.
Cost of sales of GCM decreased by $191,175 to $1,120,748 for the nine months ended September 30, 2012 as compared to $1,311,923 for the same period in 2011, representing a 14.57% decrease. The increase was mainly due to the decrease of paper cost by $53,474, printer cost by $74,799 and distribution fee by $57,275 offset by the increase of other production costs by $5,627.
Cost of sales of GMEH increased by $494,194 to $898,742 for the nine months ended September 30, 2012 as compared to $404,548 for the same period in 2011, representing a 122.16% increase. The increase was mainly due to the increase in cost of sale between April 2012 and September 2012 of $284,364 and increase in cost of sales of $209,830 because GMEH commenced its operation only since March 2011 and therefore there was only 1 month revenue in first quarter ended March 31, 2011 as compared to 3 months revenues in the same quarter in 2012.
Cost of sales of GCG decreased by $350,361 to $541,515 for the nine months ended September 30 of 2012 as compared to $891,876 in the same period in 2011, representing a 39.28% decrease. The decrease was mainly due to the decrease in cost of sales between April 2012 and September 2012 of $442,134 offset by the increase of cost of sales of $91,773 because GCG commenced its operation only since February 2011 and therefore there was only 2 month revenue in first quarter ended March 31, 2011 as compared to 3 months revenues in the same quarter in 2012.
Gross margin
Gross margin increased by $268,360 to $1,173,140 for the Nine months ended September 30, 2012 as compared to $904,780 for the same period in 2011. The increases were mainly due to increases of gross margin from GCM and GMEH operations offset by a decrease of gross margin from GCG operation.
Gross margin of GCM increased by $2,381 to $602,339 for the nine months ended September 30, 2012 as compared to $599,958 for the same period in 2011, representing a 0.40% increase. The increase was mainly due to the increase in sales from electronic content by $127,248 offset by decrease in gross margin of traditional magazines by $124,867.
Gross margin of GMEH increased by $280,955 to $527,393 for the nine months ended September 30 of 2012 as compared to $246,438 for the same period in 2011, representing a 114.01% increase. The increase was mainly due to the increase in gross margin between April 2012 and September 2012 of $161,235 and the increase in gross margin of $119,720 because GMEH commenced its operation only since March 2011 and therefore there was only 1 month revenue in first quarter ended March 31, 2011 as compared to 3 months revenues in the same quarter in 2012.
Gross margin of GCG decreased by $14,976 to $43,408 for the nine months ended September 30, 2012 as compared to $58,384 for the same period in 2011, representing a 25.65% decrease. The decrease was mainly due to the decrease in gross margin between April 2012 and September 2012 of $22,859 offset by the increase of gross margin of $7,883 because GCG commenced its operation only since February 2011 and therefore there was only 2 month revenue in first quarter ended March 31, 2011 as compared to 3 months revenues in the same quarter in 2012.
General and administrative
The following table summarizes general and administrative expenses during the nine month period ended September 30, 2012 and 2011:
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Nine months ended
September 30,
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||||||||||||||||
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2012
|
2011
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Increase (decrease)
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% Change
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|||||||||||||
|
Payroll cost
|
919,496 | 860,564 | 58,932 | 6.85 | % | |||||||||||
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Rental expenses
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211,519 | 276,818 | (65,299 | ) | (23.59 | %) | ||||||||||
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Legal and professional fee
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37,495 | 31,615 | 5,880 | 18.60 | % | |||||||||||
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Entertainment
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11,150 | 10,444 | 706 | 6.76 | % | |||||||||||
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Miscellaneous
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88,458 | 78,041 | 10,417 | 13.35 | % | |||||||||||
| 1,268,118 | 1,257,482 | 10,636 | 0.85 | % | ||||||||||||
Payroll cost increased by $58,932 to $919,496 for the nine months ended September 30, 2012 as compared to $860,564 for the same period in 2011, representing a 6.85% increase. The increase was mainly due to the decrease in payroll cost between April 2012 and September 2012 of $ 99,737 offset by increase of $158,669 because the Company commenced its operation in February of 2011 and there was only 2 months of payroll costs in first quarter ended March 31, 2011 as compared to 3 months of payroll costs in the same quarter in 2012.
Rental expenses decreased by $65,299 to $211,519 for the nine months ended September 30, 2012 as compared to $276,818 for the same period in 2011, representing a 23.59% decrease. The decrease was mainly due to GCM renewed its office lease at a lower rate.
Legal and professional fee increased by $5,880 to $37,495 for the nine months ended September 30, 2012 as compared to $31,615 for the same period in 2011, representing a 18.60% increase. The increase was mainly due to the increase of legal and professional fee $3,631 between July 2012 and September 2012 and $2,249 between January 2012 and June 2012.
Miscellaneous expenses increased by $10,417 to $88,458 for the nine months ended September 30, 2012 as compared to $78,041 for the same period in 2011, representing a 13.35% increase. The increase was mainly due to the fact that the increase of $13,469 because the Company commenced its operation in February 2011 and there were only 2 months of miscellaneous expenses in the first quarter ended March 31, 2011 as compared to 3 months miscellaneous expenses in the same quarter in 2012 offset by the decrease in miscellaneous expenses between April 2012 and September 2012 of $3,052.
Share based payment
Share based payment represents the sum of $233,000 legal and professional services rendered by two independent consultants settled by totaling of 2,300,000 shares of our common stock in August 2012.
Net loss from continuing operations
Net loss from continuing operations decreased by $1,439 to a net loss of $369,148 for the nine months ended September 30, 2012 as compared to $370,587 for the same period in 2011.
Liquidity and Capital Resources
Cash
Our cash balance as of September 30, 2012 was $231,902, representing a decrease of $12,372 as compared to $244,274 as of September 30, 2011.
Cash flow
Operating Activities
Net cash provided by operating activities for the nine months ended September 30, 2012 amounted to $142,787 compared to net cash used in operating activities of $225,679 in the same period of 2011.
Financing Activities
Net cash used in financing activities for the nine months ended September 30, 2012 amounted to $216,097 compared to net cash provided by financing activities of $468,456 in the same period of 2011.
Working capital
Our net current liabilities increased by $150,250 to $392,634 as of September 30, 2012 from net current liabilities of $242,384 as of September 30, 2011.
We currently generate our cash flow from our operations. We believe that our cash flow generated from operations will be sufficient to sustain our operations for at least the next 12 months. There is no identifiable expansion plan as of September 30, 2012, but from time to time, we may identify new expansion opportunities for which there will be a need for use of cash.
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, 2012 were denominated in HKD and were converted into US dollars at the exchange rate of 7.8 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.
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 March 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 and Principal Accounting Officer, concluded that our disclosure controls and procedures were not effective as of March 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 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, 2012:
|
1.
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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.
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As a result, we have concluded that our internal controls over financial reporting are not effective as of September 30, 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:
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|
·
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additional training of our accounting personnel by our independent accountants of the proper format and compilation of data for US GAAP financial statements; and
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|
|
·
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additional coordination with our local accountants and auditors to strengthen our controls in an attempt to supplement the additional training of our employees
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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:
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|
·
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additional training of our accounting personnel by our independent accountants of the proper format and compilation of data for US GAAP financial statements; and
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|
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·
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additional coordination with our local accountants and auditors to strengthen our controls in an attempt to supplement the additional training of our employees.
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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 14, 2012.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
On January 19, 2012 the Company entered into a subscription agreement to issue 28,500,000 shares of common stock (the “Shares”) to Chan Ka Wai, an affiliate and major shareholder of the Company, for a consideration of $ 519,200. The Shares were acquired for long-term investment and the transferability is restricted.
On January 26, 2012 the Company converted $149,450 short term borrowings into 9,410,000 shares of common stock of the Company.
On March 20, 2012 the Company converted $56,592 short term borrowings into 3,400,000 shares of common stock of the Company.
On August 14, 2012 the Company converted $42,100 short term borrowings into 2,105,000 shares of common stock of the Company.
In August 2012, we issued to two consultants in exchange for services rendered and services to be rendered 2,300,000 shares of our common stock. We issued these shares in transactions relying on the registration exemption provided by Section 4(2) of the Securities Act of 1933.
Issuer Purchases of Equity Securities
We did not repurchase any of our securities during the quarter ended September 30, 2012.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. [REMOVED AND RESERVED].
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS.
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Exhibit Number
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Description
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31.1
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Certification of Chief Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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31.2
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Certification of Chief Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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32.1
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Certification of Chief Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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|
32.2
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Certification of Chief Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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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/ Yau Wai Hung
Yau Wai Hung
Chief Executive Officer and Director
Date: October 26, 2012
By: /S/ Yau Wai Hung
Yau Wai Hung
Chief Executive Officer and Director
(Acting Principal Accounting Officer)
Date: October 26, 2012